TIDMSTJ
RNS Number : 2498E
St. James's Place PLC
27 February 2020
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ST. JAMES ' S PLACE PLC
27 St. James ' s Place, London SW1A 1NR
Telephone 020 7493 8111
PRESS RELEASE
27 February 2020
ANNOUNCEMENT OF ANNUAL RESULTS
FOR THE YEARED 31 DECEMBER 2019
RECORD FUNDS UNDER MANAGEMENT AND CONFIDENCE IN OUR BUSINESS
UNDERPINS 5% INCREASE IN FINAL DIVID
St. James's Place plc ("SJP"), the wealth management group,
today issues its annual results for the year ended 31 December
2019:
Financial highlights
-- EEV new business contribution GBP793.0 million (2018: GBP852.7 million)
-- EEV operating profit GBP952.0 million (2018: GBP1,002.0 million)
-- IFRS profit before shareholder tax GBP187.1 million (2018: GBP211.9 million)
-- IFRS profit after tax GBP146.6 million (2018: GBP173.5 million)
-- Underlying cash result GBP273.1 million (2018: GBP309.0 million)
-- Underlying cash earnings per share of 51.4 pence (2018: 58.7 pence per share)
Dividend
-- Final dividend up 5% to 31.22 pence per share (2018: 29.73
pence per share); full year dividend of 49.71 pence per share
(2018: 48.22 pence per share), growth of 3%
Other highlights
-- Gross inflows of GBP15.1 billion (2018: GBP15.7 billion)
-- Net inflow of funds under management of GBP9.0 billion (2018: GBP10.3 billion)
-- Funds under management of GBP117.0 billion (2018: GBP95.6 billion)
-- We are now represented by 4,271 qualified advisers across the Partnership
-- UK business successfully migrated to modern technology platform
-- A+ rating in the latest United Nations Principles for
Responsible Investment annual assessment.
Andrew Croft, Chief Executive Officer, commented:
" Last year was challenging for the UK wealth management sector
with investor sentiment being impacted by uncertain macro-economic
indicators, the US/China trade dispute, and the domestic political
environment. Therefore, I am pleased to report a solid set of
results. Positive net flows, together with the impact of positive
investment returns, increased client funds under management to a
record GBP117.0 billion, once again demonstrating the resilience of
St. James's Place.
The fundamentals underlying the business remain strong and over
time, increasing funds under management will generate increased
returns. However, in the short term, our profit has been impacted
by the more modest gross flows relative to the planned investment
in the business for future growth.
Given the progression of funds under management and our
confidence for the future , the Board proposes to increase the
final dividend by 5% to 31.22 pence per share (2018: 29.73 pence
per share) making for a full year dividend of 49.71 pence per share
(2018: 48.22 pence per share), growth of 3%.
The Parliamentary majority following the December 2019 General
Election provides for longer-term political stability, which has
translated into improved investor sentiment. This has consequently
resulted in an increase in activity across the business with new
investments seeing a return to good growth in the early part of
2020. Uncertainties remain for the UK and there are market concerns
as a result of coronavirus, but we are encouraged by this start to
the year which, together with the strength and scale of our
business today, gives us confidence that we are well placed to
continue to grow ."
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The details of the announcement are attached.
Enquiries: Tel: 020 7514 1963
Tony Dunk, Investor Relations Director
Hugh Taylor, Investor Relations Director
Jamie Dunkley, External Communications Director
Brunswick Group: Tel: 020 7404 5959
-- Tom Burns - Email: tburns@brunswickgroup.com
-- Eilis Murphy - Email: emurphy@brunswickgroup.com
Analyst presentation at 10:15am for 10:30am at:
Bank of America Merrill Lynch Financial Centre,
2 King Edward Street,
London EC1A 1HQ
to be held in the King Edward Hall
Alternatively, if you are unable to attend but would like to
watch a livestream of the presentation on the day, please refer to
the link below or via our website:
(Live and On-demand):
https://www.investis-live.com/st-jamess-place/5e2ab28952202e0d0075b0dd/obad
[investis-live.com]
There will also be a Dial-in:
United Kingdom (Local) : 020 3936 2999
All other locations : +44 20 3936 2999
Participant Access Code : 374262 - this must be entered in order
for participants to gain access to the conference. Participants'
requested details will be taken before being placed into the
conference.
Replay information:
A recording will be available until Thursday 5th March 2020
UK: 020 3936 3001
USA: 1 845 709 8569
All other locations: +44 20 3936 3001
Access Code: 266324
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Chief Executive's report
Introduction
Last year was challenging for the UK wealth management sector
with investor sentiment being impacted by the uncertain
macro-economic indicators, the US/China trade dispute, and the
domestic political environment. Therefore, I am pleased to report a
solid set of results, once again demonstrating the resilience of
the St. James's Place business.
Gross new inflows for the period, at GBP15.1 billion, were some
4% lower than 2018, while strong retention of client funds
contributed to net inflows of GBP9.0 billion, equivalent to some 9%
of opening funds under management. These positive net flows,
together with the impact of positive investment markets, resulted
in closing funds under management of a record GBP117.0 billion, up
22% since the beginning of the year.
Business performance and dividend
Over time, increasing funds under management will generate
increased returns, but in the short term our profit has been
impacted by the more modest gross flows relative to the planned
higher cost of our investment in the business to underpin future
growth. The Underlying cash result for the year at GBP273.1 million
(2018: GBP309.0 million) was therefore lower than the same period
last year.
The fundamentals underlying the business remain strong, so the
Board remains confident in our prospects, supported by a growing
Cash result that will benefit from the contribution of client
investments attracted in previous years. Given the progression of
funds under management and our confidence for the future, the Board
proposes a final dividend of 31.22 pence per share (2018: 29.73
pence per share) making for a full year dividend of 49.71 pence per
share (2018: 48.22 pence per share) growth of 3% .This will provide
for a pay-out ratio of 97% against the Underlying cash result,
higher than our stated medium-term aim of an 80% pay-out ratio.
The final dividend, subject to approval of shareholders at our
AGM, will be paid on 22 May 2020 to shareholders on the register at
the close of business on 17 April 2020. A Dividend Reinvestment
Plan continues to be available for shareholders.
Clients
The continued success of St. James's Place is built on
establishing and maintaining long lasting, highly personal
relationships with our clients through the St. James's Place
Partnership. Our aim is to put positive client outcomes at the
heart of everything we do, with our advisers helping their clients
to fulfil their ambitions and aspirations through sound financial
planning advice, together with our distinctive investment
management approach, backed by a FTSE100 company.
From the 39,000 responses we received from last year's Wealth
Account Survey, 89% of those clients who responded tell us that
they were either satisfied or very satisfied with their overall
relationship with St. James's Place. Encouragingly, more than 93%
said they would recommend St. James's Place to others, with 54%
suggesting that they had already done so. Furthermore, when asked
to describe our proposition in terms of value for money, 96% of the
clients who responded, said "reasonable", "good" or "excellent".
These results underpin the strong retention of client investments
noted earlier.
We are naturally very pleased with these responses, but we are
not complacent and have already responded to the feedback with
further improvements to our service and proposition. In the past
year we have broadened access to the Flagstone cash management
service, which provides a simple and secure solution for clients
wishing to hold cash savings, and added new propositions related to
lifetime care plans to help clients ensure care fees can be met if
a need were to arise in the future.
We now have more than 733,000 clients, an increase of some
51,000 during the year, and I would like to take this opportunity
to thank all of these individuals for entrusting us with their
long-term investments and financial planning needs.
Awards
I am pleased to report that St. James's Place has once again
received numerous awards. Two highlights were being voted the
Wealth Management Company of the Year in the 2019 City of London
Awards and Best Wealth Manager in the 2019 Share Awards. Both
awards are voted by members of the public and I would like to thank
our clients who voted for us.
The St. James's Place Partnership
After another year of strong recruitment, the St. James's Place
Partnership now numbers 4,271 growth of 8%. We continue to attract
experienced high-quality advisers to the Partnership whilst at the
same time 172 individuals graduated from our Academy and Next
Generation Academy. We continue to invest in the Academies and
there are currently 458 people in the programme who are not
included in the Partnership numbers but who will graduate over the
coming years.
This sustained growth in the Partnership provides us with
confidence in our ability to both service existing clients well and
attract new clients to St. James's Place. However, the increasing
scale of the Partnership requires us to continue to invest in the
supporting infrastructure. Consequently, during the year we opened
a new office in Cardiff, and we consolidated the Academy, our
previous City office, and a number of corporate functions into a
new office in Lombard Street in the City. Both offices have very
good environmental credentials.
We also continue to invest in the professional development of
our advisers and take pride in the fact that last year one in four
of all new qualified Chartered Financial Planners were St. James's
Place advisers. We now have more than 900 advisers with Chartered
status across the Partnership.
The Partnership is a key differentiator for St. James's Place
and we will continue to ensure we provide support for our advisers
so that they can, in turn, provide an excellent service to
clients.
Investment markets
2019 saw a strong performance across major investment markets
with a reversal of the falls experienced in the final quarter of
2018; the FTSE 100 was up some 12%, the S&P 500 up 29% and the
MSCI World up 20% over the year as a whole. Against this backdrop
our clients have benefited from very good returns with all our
portfolios delivering strong growth.
In early June we took the decision to move the investment
management of our segregated mandate from Woodford Investment
Management (WIM) to a combination of RWC and Columbia Threadneedle.
This was possible as the core tenet of our investment proposition
is to appoint managers to specifically manage our own funds through
a sub-advisory mandate, rather than by investing into third-party
funds. Our segregated mandate with WIM limited the investments to
liquid stocks and did not allow investments in unquoted stocks, and
consequently our clients continued to have full access to their
investments.
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We also continue to make good progress on our Responsible
Investing approach and build on our integration of Environmental,
Social and Governance (ESG) factors into our fund managers'
investment decision making. It is therefore pleasing that we were
awarded an A+ rating in the latest United Nations Principles for
Responsible Investment annual assessment. Further, we continue to
influence positive change elsewhere with some 90% of our investment
managers now signatories to the United Nations Principals for
Responsible Investment (UNPRI), up from 70% this time last
year.
We recognise that climate change poses a risk to our business
and to client outcomes. Therefore, in 2019 we became a supporter of
the Taskforce for Climate-related Disclosures (TCFD) and have
committed to implementing the TCFD framework across our
business.
Investment for growth
We continue our investment in our business in Asia and Rowan
Dartington (RD) with good progress made during 2019.
Asia reported gross inflows for the year of GBP252 million, some
7% lower than the corresponding period in 2018 having been impacted
by investor concerns over heightened market volatility, the
US/China trade rhetoric and the demonstrations in Hong Kong.
However, boosted by the recovery in stock markets, St. James's
Place funds under management increased to GBP934 million, growth of
49% during the year. It has been a good year for growth in the SJP
Asia Partnership with a net increase of 34 Partners and advisers
taking the total to 167, a 26% increase since the start of the
year. In addition, there is a strong pipeline of individuals who
have applied to join our Asia business, boding well for future
recruitment.
RD reported gross inflows of GBP514 million for the year,
marginally lower than last year by 1%, whilst total funds under
management increased by 24% to GBP2.81 billion. After a period of
investment, the number of Investment Executives remained stable at
54 during the period and is expected to remain so in the short term
as we continue to focus on increasing the quantum of funds managed
by each executive.
Back-office infrastructure
2019 has been a significant period for our multi-year
back-office infrastructure project as we successfully completed the
smooth migration of all our core UK business to the new Bluedoor
platform. We also completed all the remaining internal system
changes required during the second half of the year and are now in
the process of decommissioning the legacy system.
All our core UK business is now processed on a modern IT
platform which provides us with the scalability to accommodate our
growing business needs and greater operational resilience, as well
as enabling us to offer an improved service to clients going
forwards.
This was a significant milestone for the business and the whole
project team, both internal and external, have done a terrific job
on what has been a complex multi-year project with little
disruption.
The St. James's Place Charitable Foundation and community
engagement
Embedded in our culture is a desire to achieve a positive social
impact with the Charitable Foundation being the beating heart. Our
whole community is committed to supporting the Charitable
Foundation from fund raising events with over 80% of Partners and
employees giving monthly to the Charitable Foundation from their
pay or earnings.
I am delighted to say that in 2019 we raised GBP12.1 million
which includes the Company matching every pound raised. Since 1992,
we have now raised GBP93.1 million, enabling the Charitable
Foundation to distribute this amount to a wide variety of
charitable causes. We are very proud that according to the
Association of Charitable Foundations the St. James's Place
Charitable Foundation is now the sixth largest Corporate Foundation
measured by giving.
Alongside the Charitable Foundation, we also continue to enhance
our corporate footprint in areas such as diversity, inclusion,
volunteering, responsible investing, sustainability and the
environment. An area of focus is on providing Financial Education
in schools and in 2019 we worked face-to-face with 9,600 young
people through over 300 volunteers giving around 1,800 hours. We
have also recently extended the programme to provide Workplace
Financial Education. F urther details on the Charitable Foundation
and our Community Engagement will be set out in our annual report
and accounts.
New Non-executive Directors
I am delighted to welcome Rosemary Hilary, Dame Helena
Morrissey, Emma Griffin and (from 1 June 2020) Lesley-Ann Nash to
the Board as new Non-executive Directors. All bring extensive
experience and a fresh insight, and I look forward to working with
them.
Our community
The continued growth and resilience of the business does not
occur by chance but rather the hard work and dedication of our
Partners, their staff, our management teams and all our employees
and administration support teams. In 2019 the Board has worked to
make explicit the culture and values that underpin our success:
details will be provided in our annual report and accounts. On
behalf of the Board and shareholders I would like to once again
thank the entire St. James's Place community for their continued
hard work, dedication and commitment to all aspects of our
business.
Outlook
Looking ahead, the fundamental financial planning requirements
of individuals remain considerable whilst, at the same time, the
availability of high-quality professional financial advice
continues to be limited. The strength, depth and quality of the
growing Partnership, together with the investments we are making in
the business and our distinctive investment proposition, affords us
real competitive advantage.
The Parliamentary majority following the December 2019 General
Election provides for greater political stability, which has
translated into improved investor sentiment. This has consequently
resulted in an increase in activity across the business with new
investments seeing a return to good growth in the early part of
2020. Uncertainties remain for the UK and there are market concerns
as a result of coronavirus, but we are encouraged by this start to
the year which, together with the strength and scale of our
business today, gives us confidence that we are well placed to
continue to grow.
Andrew Croft
Chief Executive
26 February 2020
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Chief Financial Officer's report
As already stated in the Chief Executive's Report, 2019 was a
challenging year but nevertheless one of resilient new business
performance as the Partnership attracted gross inflows of GBP15.1
billion (2018: GBP15.7 billion) and net inflows of GBP9.0 billion
(2018: GBP10.3 billion). The level of political uncertainty
throughout most of the year particularly impacted the pace of
discretionary investment flows as some clients took a more cautious
approach to investing new funds. Discretionary investment aside, we
saw continued net inflows throughout the year as clients sought to
consolidate investments through St. James's Place and utilise the
value of their tax allowances. As we have seen in similar periods
historically, client retention remained strong as our advisers
worked hard to provide reassurance and sound counsel in an
uncertain environment.
Coupled with the impact of positive investment market returns,
this new business performance resulted in funds under management
closing at a record GBP117.0 billion (31 December 2018: GBP95.6
billion), up some 22% over the year and boding well for the
development of our financial results in the years ahead.
Our financial business model remains straightforward. We attract
and then retain funds under management (FUM) on which we receive
advice and product charges. Ongoing product charges are the
principal source of income for the Group, out of which we meet the
overheads of the business and invest in growing the scale and
capability of the Partnership, our client propositions, and our
core Group infrastructure. Further information about our financial
business model can be found on page 10.
Our financial results are presented in more detail on pages 10
to 27 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
shareholders with an overview of capital, solvency and
liquidity.
Financial results
IFRS
IFRS profit after tax was GBP146.6 million in 2019 (2018:
GBP173.5 million), with the result lower year-on-year largely due
to the challenging external environment which resulted in lower
gross inflows of approximately 4% which in turn reduced income
arising from new business.
To address the challenge of policyholder tax being included in
the IFRS results we focus on IFRS profit before shareholder tax as
our pre-tax measure. On this basis the result was GBP187.1 million
in 2019 (2018: GBP211.9 million), reflecting the same underlying
business drivers.
The IFRS results also include the impact of non-cash accounting
adjustments such as equity-settled share-based payment expenses,
deferred income and deferred expenses, so 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, so 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 year, the net income from funds under management was
GBP424.9 million (2018: GBP388.1 million), representing a margin of
0.63% (2018: 0.65%) on average 'mature' FUM, in line with prior
guidance. It is only 'mature' FUM that contributes to this net
income figure and this 'mature' stock of FUM at any given time
substantially comprises all unit trust and ISA business, as well as
life and pensions business written more than six years ago. 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 on FUM.
Growth in 'gestation' FUM has been more rapid than growth in
'mature' FUM in recent years, mainly due to the strength of new
pensions business following pensions freedom. While this therefore
constrains growth in net income from funds under management today,
it bodes well for the future as 'gestation' FUM matures and begins
making a positive contribution. At 31 December 2019, the balance of
'gestation' FUM stood at GBP40.2 billion (31 December 2018: GBP33.5
billion). Once this current stock of gestation FUM has all matured,
it will (assuming no market movements or withdrawals) contribute in
excess of GBP350 million to net income from funds under management
and hence to the Underlying cash result.
St. James's Place also generates a margin arising from new
business where initial product charges exceed new business-related
expenses. The 9% reduction in margin arising from new business in
2019 largely reflects the 4% decline in gross flows over the
period, as well as the timing effect associated with an element of
new business costs being linked to prior year production levels.
This impact will unwind as new business volumes grow.
2019 was another year of considerable investment into the
business as we sought to lay the foundations for long-term growth
in the business. However, it was also a year where, given the
nature of the external environment around us, we took an even more
disciplined approach to expense management, deferring or delaying
expenditure where possible and where long-term growth would not be
compromised.
Establishment expenses in 2019 were GBP186.2 million (2018:
GBP170.6 million), up 9% over the year and some GBP4 million below
the guidance that we published last year. The 9% increase however
reflects growth in the Partnership and client base during the
year.
Our contribution to the FSCS levy also increased during the year
to GBP22.3 million, up from GBP12.8 million in 2018, reflecting
both an increased rate of levy and also a full 12 month charging
period compared to 9 months in 2018.
Reflecting its critical role in providing a source of future
organic growth in our adviser population, we made further
investment into building our Academy in order to accommodate
additional capacity with greater geographic reach. We have also
further invested in developing our presence in Asia, as well as in
discretionary fund management via Rowan Dartington both in the UK
and overseas.
The Underlying cash result , which is a key metric that provides
a good indicator of underlying performance and the impact of our
investment programmes, was GBP273.1 million (2018: GBP309.0
million), some 12% lower.
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Recognised below the Underlying cash result, our back-office
infrastructure activity has been a critical multi-year project. In
2019 we successfully completed the smooth migration of all our core
UK business to the new Bluedoor platform. Costs in 2019 were
GBP38.8 million post-tax (2018: GBP35.8 million) reflecting the
significant migration activity we undertook. We would anticipate up
to GBP10 million of decommissioning expense in 2020 but then, as we
have previously stated, this cost will cease.
The Cash result in 2019 was therefore GBP229.4 million (2018:
GBP268.7 million).
EEV
The EEV performance disclosure provides a useful measure of the
longer-term impact of results and developments during the year. It
ascribes a value on the long-term economic benefit of attracting
additional FUM, takes account of the ongoing costs of doing so,
reflects long term benefits and costs of improved or deteriorating
retention, and it takes account of current and projected market
conditions. Although the EEV statement includes no valuation for
the Group's ability to gather and maintain additional future FUM,
it does serve as an indication of the value of the business written
thus far.
The EEV operating profit is sensitive to new business written
within the year and the 4% reduction in gross flows year-on-year is
the main factor behind a reduced EEV operating profit of GBP952.0
million (2018: GBP1,002.0 million). Whilst new business levels were
slightly lower in 2019, our retention experience remained very
strong at 96%.
A significant positive in the 2019 EEV profit before tax is the
positive investment return variance of GBP768.6 million. This
positive return reflects improved market values across our funds
under management, and follows the GBP460.9 million charge disclosed
in last year's statement as markets weakened sharply in the final
quarter of 2018.
Key financial position developments
The shareholder, or Solvency II Net Assets Balance Sheet, is one
that is derived from the statutory IFRS statement of financial
position and a reconciliation between the two can be found on page
19 of the Financial Review. There are several areas that are worthy
of note.
Movements in business loans to Partners
Ensuring good client outcomes and experience is at the heart of
what we strive to do. Providing business loans to Partners
continues to play an important part in achieving this, with most
loans supporting Partner business succession planning and
execution. This principally involves providing capital support for
growing Partner businesses to take on those businesses of retiring
or contracting Partners.
Total business loans to Partners reported on the statement of
financial position has been somewhat distorted by the execution of
successful securitisation during the course of the past two years.
To facilitate the securitisation, some lending that was provided
directly to Partners from third-party lenders, and so was outside
of the Group statement of financial position, was bought onto it.
This inflated the size of the business loan to Partners
balance.
Following this a portfolio of business loans to Partners were
ring-fenced from the other assets of the Group and used as security
in the issue of non-recourse securitisation loan notes. Since
inception of the securitisation, additional lending to Partners has
also been funded in this way. The following table demonstrates the
split of business loans to Partners between those which are
directly funded by the Group, and those which have been securitised
and so are funded by the issue of securitisation loan notes.
31 December 31 December
2019 2018
-------------------------------------------------------- ----------- -----------
GBP'Million GBP'Million
-------------------------------------------------------- ----------- -----------
Total business loans to Partners 476.5 394.5
-------------------------------------------------------- ----------- -----------
Split by funding type:
Business loans to Partners directly funded by the Group 316.0 295.5
Securitised business loans to Partners 160.5 99.0
-------------------------------------------------------- ----------- -----------
The impairment experience on the overall portfolio of business
loans to Partners remains very low and this reflects the financial
strength of the borrowing businesses together with the Group's
approach to credit decisions and the structural strength of the
Group's security over the loans. Further information is set out in
Note 12 to the Financial Statements.
Movements in borrowings
St. James's Place 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 the
securitisation vehicle referred to above in the past two years. As
highlighted above, for accounting purposes we are obliged to
disclose on our statement of financial position the value of loan
notes relating to the securitisation, which has had the effect of
inflating the reported level of borrowings. 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.
31 December 31 December
2019 2018
--------------------------------------------------------- ----------- -----------
GBP'Million GBP'Million
--------------------------------------------------------- ----------- -----------
Total borrowings 403.7 348.6
--------------------------------------------------------- ----------- -----------
Split by borrowing type:
Senior unsecured corporate borrowings 287.1 278.6
Senior tranche of non-recourse securitisation loan notes 116.6 70.0
--------------------------------------------------------- ----------- -----------
After adjusting for this non-recourse debt, borrowings have
increased broadly in line with the scale of the business over time
and we remain comfortable not only with our level of borrowings,
but also the headroom we have within our range of facilities.
Movement in operational readiness prepayment asset
The investment into our back-office infrastructure project has
been 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 GBP299.2 million
at 31 December 2019 (31 December 2018: GBP236.4 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 31 December 2019 is nine
years at the earliest. The movement schedule below demonstrates how
the operational readiness prepayment has built up over the past two
years.
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31 December 31 December
2019 2018
----------------------------- ----------- -----------
GBP'Million GBP'Million
----------------------------- ----------- -----------
Cost
At 1 January 268.3 183.0
Additions during the year 91.8 85.3
----------------------------- ----------- -----------
At 31 December 360.1 268.3
----------------------------- ----------- -----------
Accumulated amortisation
At 1 January (31.9) (12.4)
Amortisation during the year (29.0) (19.5)
----------------------------- ----------- -----------
At 31 December (60.9) (31.9)
----------------------------- ----------- -----------
Net book value 299.2 236.4
----------------------------- ----------- -----------
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 offset by the lower tariff charges on
Bluedoor compared to the previous system. The amortisation charge
will remain constant year-on-year following the final operational
readiness spend planned for 2020, however the tariff saving
benefits will grow as the business grows, benefiting both the IFRS
and Cash results.
Solvency, capital and liquidity
We continue to manage the balance sheet prudently to ensure the
Group's solvency is safely maintained. This is important not only
for the safeguarding of our clients' assets, but also to ensure we
can maintain returns to shareholders.
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
31 December 2019 we held surplus assets over the MSB of GBP580.6
million (2018: GBP617.0 million). We also ensure that our approach
meets with 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 31 December 2018 the solvency ratio for our Life businesses
was 117%, which included the positive effect of the equity dampener
depressing the market risk capital component. Management chose not
to release this volatile additional amount of free assets, which
course of action has been justified through its unwind over the
year. At 31 December 2019 the equity dampener was (0.1)% (31
December 2018: (6.3)%), hence the solvency ratio for our Life
business was 112%. Taking into account entities in the rest of the
Group, the Group solvency ratio at 31 December 2019 was 132% (2018:
143%), with the 2018 Group result also reflecting the positive
equity dampener effect noted above. It is worth noting that
continuing growth of the UK life company within the Group will
gradually dilute the Group solvency ratio. However, because we
manage capital requirements of regulated entities on a solo basis,
there will be no change in the underlying solvency risk of the
Group.
Given the importance we place on investing to underpin the
future growth and sustainability of our business, it is necessary
that we manage and balance Group resources accordingly.
Historically these were boosted by the exceptional release of
excess solvency capital from our UK Life company as a result of the
adoption of Solvency II during 2016, which also provided an
opportunity to remove market risk in the business by better
matching assets and liabilities. More recently the development of
our corporate debt facilities, as well as the securitisation and
those facilities put in place to provide finance from third parties
direct to Partners, signal good progress in maintaining a
sustainable path for investment into the business whilst
facilitating future Partner lending activity in support of positive
client service and outcomes.
As noted above, there has been steady but modest growth in
lending to Partners in recent years, but by contrast considerable
cash resource has been deployed in our back-office infrastructure
project. This programme will shortly be coming to end, and whilst
the successful completion of the Bluedoor migration in no way marks
an end to our investment in technology given our ambition to
continually enhance the way in which we enhance our Partner and
client propositions, it does mark the end of a planned but
significant demand on cash resources that were held at the
outset.
The Group has GBP1,429.8 million of liquid assets (31 December
2018: GBP1,550.9 million) largely comprising investments in
AAA-rated money market funds and cash balances, as demonstrated in
the table below. This represents a considerable stock of liquidity
and excludes the additional headroom that we have in our borrowing
facilities.
31 December 31 December
2019 2018
------------------------------------------------------- ----------- -----------
GBP'Million GBP'Million
------------------------------------------------------- ----------- -----------
Fixed interest securities 5.2 5.4
Investment in Collective Investment Schemes (AAA-rated
money market funds) 1,131.8 1,297.0
Cash and cash equivalents 292.8 248.5
------------------------------------------------------- ----------- -----------
Total liquid assets 1,429.8 1,550.9
------------------------------------------------------- ----------- -----------
-8-
Dividend and concluding remarks
As noted above, 2019 was not an easy year, with domestic
political uncertainty compounded by global economic uncertainty. We
were not immune and our Cash Result for the year tells a story of
lower discretionary flows providing less funding for investment in
future growth. However, our business remains in great shape and,
post the UK election, 2020 is feeling different. Activity levels
are currently higher and we are seeing a pick-up in investor
confidence which is driving higher activity levels in our business.
This more positive outlook, coupled with the material flow of cash
to come from our stock of gestation FUM over the medium term, has
given the Board the confidence to recommend a 5% increase in the
final dividend to 31.22 pence per share (2018: 29.73 pence per
share), giving a full year dividend of 49.71 pence per share (2018:
48.22 pence per share), growth of 3%.This will provide for a
pay-out ratio of 97% against the Underlying cash result, which is
higher than our stated medium term aim of an 80% pay-out ratio.
Craig Gentle
Chief Financial Officer
26 February 2020
-9-
Summary financial information
Year ended Year ended
Page 31 December 31 December
reference 2019 2018
------------------------------------------------------- ---------- ------------ ------------
FUM-based metrics
Gross inflows (GBP'Billion) 11 15.1 15.7
Net inflows (GBP'Billion) 11 9.0 10.3
Total FUM (GBP'Billion) 11 117.0 95.6
Total FUM in gestation (GBP'Billion) 12 40.2 33.5
------------------------------------------------------- ---------- ------------ ------------
IFRS-based metrics
IFRS profit after tax (GBP'Million) 13 146.6 173.5
IFRS profit before shareholder tax (GBP'Million) 13 187.1 211.9
Underlying profit before shareholder tax (GBP'Million) 14 218.9 278.6
IFRS basic earnings per share (EPS) (Pence) 27.6 33.0
IFRS diluted EPS (Pence) 27.5 32.4
IFRS net asset value per share (Pence) 177.1 192.5
Dividend per share (Pence) 49.71 48.22
------------------------------------------------------- ---------- ------------ ------------
Cash result-based metrics
Operating cash result (GBP'Million) 16 310.7 342.8
Underlying cash result (GBP'Million) 16 273.1 309.0
Cash result (GBP'Million) 16 229.4 268.7
Underlying cash result basic EPS (Pence) 51.4 58.7
Underlying cash result diluted EPS (Pence) 51.1 57.8
------------------------------------------------------- ---------- ------------ ------------
EEV-based metrics
EEV operating profit before tax (GBP'Million) 22 952.0 1,002.0
EEV operating profit after tax basic EPS (Pence) 148.8 158.0
EEV operating profit after tax diluted EPS (Pence) 148.0 155.4
EEV net asset value per share (Pence) 1,320.1 1,109.0
------------------------------------------------------- ---------- ------------ ------------
Solvency-based metrics
Solvency II net assets (GBP'Million) 26 1,056.8 1,108.0
Management solvency buffer (GBP'Million) 26 476.2 491.0
Solvency II free assets (GBP'Million) 26 999.0 1,060.1
Solvency ratio (Percentage) 26 132% 143%
------------------------------------------------------- ---------- ------------ ------------
The Cash result should not be confused with the IFRS
consolidated statement of cash flows which is prepared in
accordance with IAS 7.
-10-
Financial Review
This Financial Review provides analysis of the Group's financial
position and performance.
The Review is split into the following sections:
Section 1: Funds under Management (FUM)
1.1 FUM analysis
1.2 Gestation
As set out in our financial business model below, FUM is a key
driver of ongoing profitability on all measures, and so information
on growth in FUM is provided in Section 1.
Find out more on pages 11 and 12.
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 13 to 25.
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 pages 26 and 27.
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
at www.sjp.co.uk/charges. A breakdown of our fee and commission
income, our primary source of revenue under International Financial
Reporting Standards (IFRS), is set out in Note 5 on page 44.
Most of the initial and ongoing 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. This means that advice
charges are not a major driver of the Group's profitability.
Neither are initial product charges, which are levied when a
client first invests into one of our products. Under IFRS initial
product charges are spread over the expected life of the investment
through deferred income (DIR - see page 14 for further detail), and
the contribution to the IFRS result from spreading these historic
charges can be seen in Note 5 as amortisation of DIR. Initial
product charges contribute immediately to our Cash result through
margin arising on new business.
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 fees on FUM can be found in Section 1 of
this Financial Review.
Our income is used to meet overheads, the ongoing product
expenses and to invest in the business. Overhead expenditure is
carefully managed with clear targets set for growth in the core
costs of running the Group's infrastructure, which are known as
'establishment expenses'. Other ongoing expenses, including
payments to Partners, increase with business levels and are aligned
with product charges. The Group is investing to support long-term
growth through St. James's Place Asia, Rowan Dartington, our
back-office infrastructure programme, and other strategic
initiatives.
-11-
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 2019 and
2018:
2019 2018
---------------------------------------------------- --------------------------------------------------- -----------
Investment Pension UT/ISA & DFM Total Total
----------- ----------- ------------ ----------- -----------
GBP'Billion GBP'Billion GBP'Billion GBP'Billion GBP'Billion
---------------------------------------------------- ----------- ----------- ------------ ----------- -----------
Opening FUM 27.62 40.72 27.21 95.55 90.75
Gross inflows 2.28 8.66 4.16 15.10 15.70
Net investment return 2.96 5.99 3.50 12.45 (5.48)
Regular income withdrawals and maturities (0.56) (1.31) (0.02) (1.89) (1.63)
Surrenders and part surrenders (1.08) (1.22) (1.92) (4.22) (3.79)
Closing FUM 31.22 52.84 32.93 116.99 95.55
---------------------------------------------------- ----------- ----------- ------------ ----------- -----------
Net inflows 0.64 6.13 2.22 8.99 10.28
Implied surrender rate as a percentage of average
FUM 3.7% 2.6% 6.5% 4.0% 4.1%
---------------------------------------------------- ----------- ----------- ------------ ----------- -----------
Rowan Dartington Group and SJP Asia FUM was GBP3.74 billion at 31 December 2019 (31 December
2018: GBP2.90 billion), gross inflows were GBP0.77 billion for the year (2018: GBP0.79 billion)
and outflows were GBP0.19 billion (2018: GBP0.12 billion).
The following table shows the significant in net inflows over
the past six years, which combined with strong retention has
resulted in consistent growth in FUM. FUM has more than doubled
over a five-year period:
FUM as FUM as
at Net Investment Other at
1 January inflows return movements(1) 31 December
----- ----------- ----------- ----------- ------------- ------------
Year GBP'Billion GBP'Billion GBP'Billion GBP'Billion GBP'Billion
----- ----------- ----------- ----------- ------------- ------------
2019 95.6 9.0 12.4 - 117.0
2018 90.7 10.3 (5.4) - 95.6
2017 75.3 9.5 6.2 (0.3) 90.7
2016 58.6 6.8 8.7 1.2 75.3
2015 52.0 5.8 0.8 - 58.6
2014 44.3 5.1 2.6 - 52.0
----- ----------- ----------- ----------- ------------- ------------
1 Other movements in 2017 related to the matching strategy
disinvestment, and in 2016 related to the acquisition of the Rowan
Dartington Group.
The table below provides a geographical and investment type
analysis of FUM at 31 December:
31 December 2019 31 December 2018(1)
-------------------------- ----------------------- -----------------------
GBP'Billion % of total GBP'Billion % of total
-------------------------- ----------- ---------- ----------- ----------
North American Equities 25.1 21% 19.9 21%
Fixed Income Securities 20.9 18% 16.9 18%
UK Equities 20.2 17% 17.6 18%
European Equities 13.8 12% 10.0 10%
Asia and Pacific Equities 13.6 12% 10.1 11%
Alternative Investments 9.5 8% 7.5 8%
Cash 7.5 6% 6.7 7%
Property 2.9 3% 3.0 3%
Other 3.5 3% 3. 9 4%
-------------------------- ----------- ---------- ----------- ----------
Total 117.0 100% 95.6 100%
-------------------------- ----------- ---------- ----------- ----------
1 The geographical and investment type analysis of FUM for 31
December 2018 has been restated to better reflect the nature of the
underlying investment holdings.
-12-
1.2 Gestation
As explained in our financial business model on page 10, 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 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.
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 the year-end for the past five years:
Gestation
Mature FUM that
FUM will contribute
contributing to the
to Cash result
the Cash in Total
result the future FUM
----------------- ------------- ---------------- -----------
Position as at: GBP'Billion GBP'Billion GBP'Billion
----------------- ------------- ---------------- -----------
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
31 December 2016 50.2 25.1 75.3
31 December 2015 39.4 19.2 58.6
----------------- ------------- ---------------- -----------
The proportion of new business that moves into gestation has
increased over the past five years as follows:
Proportion
of gross
inflows into
gestation
----- -------------
%
----- -------------
2019 60.1
2018 59.4
2017 56.5
2016 53.8
2015 53.5
----- -------------
The increasing proportion of gross inflows moving into gestation
FUM is attributable to the strength of pensions inflows in recent
years, in part reflecting the positive impact to our business from
pensions freedom. The long-term nature of this type of investment
results in a long post-gestation period of Cash result
emergence.
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 GBP40.2 billion at 31 December 2019
may start to contribute to the Cash result over the next six years
and beyond. For simplicity it assumes that FUM values remain
unchanged, that there are no surrenders, and that business is
written at the start of the year. Actual emergence in the Cash
result will reflect the varying business mix of the relevant cohort
and business experience:
Gestation FUM
future
contribution
to the Cash result
------------- -------------------
GBP'Million
------------- -------------------
2020 36.1
2021 81.3
2022 134.5
2023 202.1
2024 282.2
2025 onwards 356.3
------------- -------------------
-13-
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 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
GBP113.5 billion of policyholder assets and liabilities recognised
on our IFRS statement of financial position, which represented over
96% of our IFRS total assets and liabilities at 31 December
2019.
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 to 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 64
to 66, 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.
2.1 International Financial Reporting Standards (IFRS)
IFRS profit after tax was GBP146.6 million in 2019 (2018:
GBP173.5 million), with the result lower year-on-year principally
due to two factors: first, a more challenging new business
environment resulted in a lower margin arising from new business;
second, a planned increase in investment expense as we continued to
put in place the foundations to underpin future growth in the
business. Together, these resulted in a degree of operational
deleverage.
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, on pages 13 to 14.
Profit before shareholder tax
This is a profit measure based on IFRS which removes the impact
of policyholder tax. The policyholder tax expense or credit is
matched by an equivalent deduction or credit from the relevant
funds, which is recorded within fee and commission income in the
IFRS statement of comprehensive income. Policyholder tax does not
therefore impact the Group's overall profit after tax. As a result,
profit before shareholder tax, but after policyholder tax, is a
useful metric.
The following table demonstrates the way in which profit before
shareholder tax is presented in the IFRS consolidated statement of
comprehensive income on page 35:
Year ended Year ended
31 December 31 December
2019 2018
----------------------------------- ------------ ------------
GBP'Million GBP'Million
----------------------------------- ------------ ------------
IFRS profit/(loss) before tax 708.9 (84.6)
Policyholder tax (521.8) 296.5
----------------------------------- ------------ ------------
IFRS profit before shareholder tax 187.1 211.9
Shareholder tax (40.5) (38.4)
----------------------------------- ------------ ------------
IFRS profit after tax 146.6 173.5
----------------------------------- ------------ ------------
Profit before shareholder tax has decreased by 12% year-on-year.
As with the reduction in profit after tax, this reflects the more
challenging new business environment and an increase in
expenses.
Shareholder tax reflects the tax charge attributable to
shareholders and is closely related to the performance of the
business. However, it can vary year-on-year due to several factors:
further detail is set out in Note 7 Income and deferred taxes.
-14-
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 statement of financial position as a DAC asset
and DIR liability, which are subsequently amortised to the
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 is considered to be a helpful
metric. The following table demonstrates the way in which IFRS
profit reconciles to Underlying profit:
Year ended Year ended
31 December 31 December
2019 2018
----------------------------------------------- ------------ ------------
GBP'Million GBP'Million
----------------------------------------------- ------------ ------------
IFRS profit before shareholder tax 187.1 211.9
Remove the impact of movements in DAC/DIR/PVIF 31.8 66.7
----------------------------------------------- ------------ ------------
Underlying profit before shareholder tax 218.9 278.6
----------------------------------------------- ------------ ------------
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 during the year
and DIR on new business for the year set out below cannot be agreed
to the figures provided in Note 8, which is presented before both
policyholder and shareholder tax:
Year ended Year ended
31 December 31 December
2019 2018
--------------------------------- ------------ ------------
GBP'Million GBP'Million
--------------------------------- ------------ ------------
Amortisation of DAC (96.6) (98.2)
DAC on new business for the year 28.1 33.7
--------------------------------- ------------ ------------
Net impact of DAC (68.5) (64.5)
--------------------------------- ------------ ------------
Amortisation of DIR 179.6 149.9
DIR on new business for the year (139.7) (148.9)
--------------------------------- ------------ ------------
Net impact of DIR 39.9 1.0
--------------------------------- ------------ ------------
Amortisation of PVIF (3.2) (3.2)
--------------------------------- ------------ --------------
Movement in year (31.8) (66.7)
--------------------------------- ------------ --------------
Net impact of DAC
The scale of the GBP68.5 million negative overall impact of DAC
on the IFRS result (2018: negative GBP64.5 million) 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, over which
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 deferred during 2019 is 6% lower than income deferred
during 2018, driven by the reduction in new business year-on-year.
Conversely, income released from the deferred income liability has
increased, primarily as a result of the increase in new business in
prior year compared to 2017. Together, these effects mean that DIR
has had a positive GBP39.9 million impact on the IFRS result in
2019 (2018: positive GBP1.0 million).
-15-
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 policyholder
balances and certain non-cash items, such as DAC, DIR, deferred tax
and non-cash-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 64 to 66.
Although the Cash result should not be confused with the IAS 7
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:
Year ended Year ended
31 December 2019 31 December 2018
-------------------------------------- ----------------------------- -----------------------------
Before Before
shareholder tax After tax shareholder tax After tax
---------------- ----------- ---------------- -----------
GBP'Million GBP'Million GBP'Million GBP'Million
-------------------------------------- ---------------- ----------- ---------------- -----------
Underlying profit 218.9 172.8 278.6 227.9
Non-cash-settled share-based payments 28.7 28.7 33.4 33.4
Impact of deferred tax - 10.4 - 31.8
Other 22.8 17.5 (24.8) (24.4)
-------------------------------------- ---------------- ----------- ---------------- -----------
Cash result 270.4 229.4 287.2 268.7
-------------------------------------- ---------------- ----------- ---------------- -----------
The decrease in non-cash-settled share-based payments reflects
the reduction in expense for adviser share schemes.
The most significant impact of deferred tax in 2019 and 2018
relates to the utilisation of capital losses in the Cash result.
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 7 on pages 46 to 48.
Other represents both the change in tax charge discounting and
the difference between IFRS 16 lease expense and lease payments
made. The former represents a timing difference between the tax
liability due to HMRC and tax deductions charged to clients. The
size of the difference will increase as markets grow and decrease
as markets fall. This timing difference is adjusted out of the Cash
result, which therefore does not reflect the negative effect
arising in the IFRS result as a consequence of market increases
during the year (2018: positive effect as a consequence of market
falls).
The following table shows an analysis of the Cash result using
three different measures:
-- Operating cash result
This measure represents the regular emergence of cash from
day-to-day business operations.
-- Underlying cash result
This measure includes 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 the short-term costs associated with the
back-office infrastructure project together with other items of a
one-off nature.
-16-
Consolidated Cash result (presented post-tax)
Year ended Year ended
31 December 2019 31 December 2018
--------------------------------------------- ---- -------------------------------------- -----------------
In-force New business Total Total
----------- ------------ ----------- -----------------
Note GBP'Million GBP'Million GBP'Million GBP'Million
--------------------------------------------- ---- ----------- ------------ ----------- -----------------
Operational
Net annual management fee 1 718.0 63.2 781.2 694.6
Reduction in fees in gestation period 1 (356.3) - (356.3) (306.5)
--------------------------------------------- ---- ----------- ------------ ----------- -----------------
Net income from FUM 1 361.7 63.2 424.9 388.1
Margin arising from new business 2 - 127.5 127.5 140.8
Establishment expenses 3 (18.6) (167.6) (186.2) (170.6)
Operational development expenses 3 - (22.3) (22.3) (20.1)
Regulatory fees and FSCS levy 3 (3.1) (28.1) (31.2) (20.9)
Academy 3 - (10.9) (10.9) (8.4)
Shareholder interest(1) 5 12.9 - 12.9 7.4
Tax relief from capital losses 6 10.3 - 10.3 29.7
Miscellaneous(1) 7 (14.3) - (14.3) (3.2)
--------------------------------------------- ---- ----------- ------------ ----------- -----------------
Operating cash result 348.9 (38.2) 310.7 342.8
Asia 8 - (19.9) (19.9) (16.7)
DFM 8 - (9.8) (9.8) (10.1)
Strategic development costs 3 - (7.9) (7.9) (7.0)
Underlying cash result 348.9 (75.8) 273.1 309.0
Back-office infrastructure development costs 3 (38.8) (35.8)
Variance 9 (4.9) (4.5)
Cash result 229.4 268.7
--------------------------------------------- ---- ----------- ------------ ----------- -----------------
1 Funding-related expenses, including interest on borrowings and securitisation costs, of
GBP6.7 million in the year to 31 December 2018 have been reclassified from Miscellaneous to
Shareholder interest to better reflect the nature of the expense.
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 10 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. Further information is
provided on page 12.
Net income from FUM reflects Cash result income from FUM that
has reached maturity and, consistent with our 2019 half-year
reporting, 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 2019, our net income is
0.63% (post-tax) of FUM (2018: 0.65%). In 2020, we expect this
margin on FUM to remain in the range of 0.63% - 0.65%.
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 year, reflecting gross inflows and production related expenses.
The driver for this income line is gross inflows and the result is
expected to move broadly in line with the pattern of gross inflows
attracted, subject to the timing effect associated with an element
of new business costs being linked to prior year production
levels.
-17-
3. Overhead expenses and development expenses
Expenses are treated in two different ways in the Cash result
depending on their type:
i. Overhead expenses, such as establishment expenses, and
development expenses which relates to the Group's core business
such as back-office infrastructure costs, are presented in separate
lines on the face of the Cash result.
ii. 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.
The table below provides a breakdown of the Group's overhead and
development expenses as presented in separate lines in the Cash
result:
Year ended 31 December Year ended 31 December
2019 2018
------------------------------------ ---------------------------------- ----------------------------------
Before After Before After
tax Tax rate tax tax Tax rate tax
----------- -------- ----------- ----------- -------- -----------
GBP'Million % GBP'Million GBP'Million % GBP'Million
------------------------------------ ----------- -------- ----------- ----------- -------- -----------
Overhead expenses
Establishment expenses 229.9 19.0 186.2 210.6 19.0 170.6
Regulatory fees and FSCS levy 38.5 19.0 31.2 25.7 19.0 20.9
Academy 13.4 19.0 10.9 10.4 19.0 8.4
------------------------------------ ----------- -------- ----------- ----------- -------- -----------
Total overhead expenses 281.8 228.3 246.7 199.9
------------------------------------ ----------- -------- ----------- ----------- -------- -----------
Development expenses
Operational development costs 27.5 19.0 22.3 24.8 19.0 20.1
Strategic development costs 9.8 19.0 7.9 8.8 19.0 7.0
Back-office infrastructure
costs 47.9 19.0 38.8 44.1 19.0 35.8
------------------------------------ ----------- -------- ----------- ----------- -------- -----------
Total development expenses 85.2 69.0 77.7 62.9
------------------------------------ ----------- -------- ----------- ----------- -------- -----------
Total expenses presented separately
on the face of the Cash result 367.0 297.3 324.4 262.8
------------------------------------ ----------- -------- ----------- ----------- -------- -----------
Overhead expenses
Overhead expenses represent the cost of running the Group.
Establishment costs have increased by 9% year-on-year as
additional expenses are incurred to support the growth in the
Partnership.
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:
Year ended Year ended
31 December 31 December
2019 2018
------------------------------ ------------ ------------
GBP'Million GBP'Million
------------------------------ ------------ ------------
FSCS levy 22.3 12.8
Regulatory fees 8.9 8.1
------------------------------ ------------ ------------
FSCS levy and regulatory fees 31.2 20.9
------------------------------ ------------ ------------
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. Over the last few years the levy has been at an
elevated level, which was further exacerbated this year by the
supplementary levy announced in December 2019. Whilst we remain
hopeful that it will return to a more normalised level in future,
we are expecting an increase of at least 15% in 2020 based on the
indicative levy information announced for the 2020/21 funding
year.
For the 2019/20 funding year the FSCS levy covers a 12-month
period, compared to nine months for the 2018/19 funding year. As a
result, the post-tax levy expense of GBP22.3 million recognised in
the year to 31 December 2019 reflects the levy for a 12-month
period, whereas the GBP12.8 million post-tax levy expense
recognised in the year to 31 December 2018 was in respect of a
nine-month period.
Academy expenses represent the cost of running our Academy and
Next Generation Academy. They have increased in 2019 as a result of
expansion of the programme both geographically and in terms of the
number of individuals recruited into the programme.
Development expenses
Operational development costs have increased in 2019 due to
further investment, particularly in our investment management
approach, technology infrastructure and cyber security.
Strategic development costs continue to increase as result of
investment in the business, particularly from the creation of
regional hubs to better support our Partner practices and from our
acquisition projects.
Costs associated with our Bluedoor back-office infrastructure
programme have increased in 2019 due to increased levels of
activity leading up to the final successful migration of business,
and to complete internal system changes to facilitate the
decommissioning of the legacy system. We expect to spend up to
GBP10 million in 2020 completing the final decommissioning work,
after which point this cost will cease.
-18-
4. Reconciliation to IFRS expenses
In order to reconcile the overhead and development expenses
presented on separate lines in the Cash result to the total IFRS
expenses set out in the statement of comprehensive income on page
35, the expenses which vary with business volumes and those which
relate to investment in specific areas of the business, both of
which are included in the Cash result but are netted against the
relevant income lines and so cannot be seen explicitly, and certain
IFRS expenses which by definition are not included in the Cash
result need to be added in:
Year ended Year ended
31 December 31 December
2019 2018
------------------------------------------------------- ------------ ------------
GBP'Million GBP'Million
------------------------------------------------------- ------------ ------------
Total expenses presented separately on the face of the
Cash result before tax 367.0 324.4
Expenses which vary with business volumes
Other performance related costs 120.4 137.2
Payments to Partners 814.7 781.9
Investment expenses 89.8 106.1
Third-party administration 110.6 100.4
Other 48.2 44.6
Expenses relating to investment in specific areas of
the business
Asia expenses 23.4 21.3
DFM expenses 26.7 24.5
------------------------------------------------------- ------------ ------------
Total expenses included in the Cash result 1,600.8 1,540.4
------------------------------------------------------- ------------ ------------
Expenses which are not included in the Cash result
Amortisation of DAC and PVIF, net of additions 71.7 67.7
Non-cash-settled share-based payments expenses 28.7 33.4
Other 6.6 -
------------------------------------------------------- ------------ ------------
Total IFRS Group expenses before tax 1,707.8 1,641.5
------------------------------------------------------- ------------ ------------
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.
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 have both increased during the
year as investment is required to support their growth. Such
investment will continue going forwards.
Asia and DFM expenses are presented net of the income they
generate in the Asia and DFM lines of the Cash result.
Expenses which are not included in the Cash result
DAC amortisation, net of additions, PVIF amortisation and
non-cash-settled share-based payment expenses are the primary
expenses which are recognised under IFRS but are excluded from the
Cash result.
5. 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.
6. 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 year of
GBP10.3 million tax value (2018: GBP29.7 million) was in line with
previous guidance that gave the expected rate of utilisation as
c.GBP10 - GBP12 million per year. Going forwards we expect the rate
of utilisation to slow to c.GBP8 - GBP10 million per year due to
the extension of the existing loss restriction rules to cover
capital losses, which is expected to have effect from 1 April
2020.
7. Miscellaneous
This category represents the cash flow of the business not
covered in any of the other categories. It includes ongoing
administration expenses and associated policy charges, utilisation
of the deferred tax asset in respect of prior years' unrelieved
expenses (due to structural timing differences in the life company
tax computation) and movements in the fair value of renewal income
assets.
8. Asia and DFM
These lines represent the net income from Asia and DFM FUM,
including the Asia and DFM expenses set out in note 4 above. Both
of these business areas continue to grow: combined, Asia and DFM
FUM has increased 29% year-on-year, from GBP2.90 billion at 31
December 2018 to GBP3.74 billion at 31 December 2019. Significant
investment is required to support this growth hence their
contribution to the Cash result is currently a net expense.
However, as set out in our financial business model on page 10,
growth in FUM is a strong positive indicator of future profits.
9. Variance
This reflects a number of small non-recurring items incurred
during the year.
-19-
SOLVENCY II NET ASSETS BALANCE SHEET
The Cash result is derived from the IFRS consolidated statement
of financial position in a two-stage process:
Stage 1: Solvency II Net Assets Balance Sheet
Firstly, the IFRS 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 for
2019.
Solvency II
Solvency II Net Assets
IFRS Balance Net Assets Balance Sheet:
Sheet Adjustment 1 Adjustment 2 Balance Sheet 2018
------------------------------------- ------------ ------------ ------------ -------------- ---------------
31 December 2019 Note GBP'Million GBP'Million GBP'Million GBP'Million GBP'Million
------------------------------------- ---- ------------ ------------ ------------ -------------- ---------------
Assets
Goodwill 15.6 - (15.6) - -
Deferred acquisition costs 490.0 - (490.0) - -
Purchased value of in-force business 20.8 - (20.8) - -
Computer software 8.9 - (8.9) - -
Property and equipment 1 166.3 - - 166.3 28.5
Deferred tax assets 2 131.1 - (32.6) 98.5 111.6
Reinsurance assets 88.6 - (88.6) - -
Other receivables 3 2,127.1 (733.1) (2.1) 1,391.9 890.1
Income tax assets - - - - 9.7
Investment property 1,750.9 (1,750.9) - - -
Equities 72,694.2 (72,694.2) - - -
Fixed income securities 4 26,275.6 (26,270.4) - 5.2 5.4
Investment in Collective Investment
Schemes 4 5,166.4 (4,034.6) - 1,131.8 1,297.0
Derivative financial instruments 1,342.9 (1,342.9) - - -
Cash and cash equivalents 4 7,013.6 (6,720.8) - 292.8 248.5
------------------------------------- ---- ------------ ------------ ------------ -------------- ---------------
Total assets 117,292.0 (113,546.9) (658.6) 3,086.5 2,590.8
Liabilities
Borrowings 5 403.7 - - 403.7 348.6
Deferred tax liabilities 2 493.7 - (57.5) 436.2 154.5
Insurance contract liabilities 556.6 (464.2) (92.4) - -
Deferred income 614.7 - (614.7) - -
Other provisions 40.6 - - 40.6 22.7
Other payables 1, 3 1,782.7 (745.4) (3.6) 1,033.7 956.9
Investment contract benefits 83,558.5 (83,558.5) - - -
Derivative financial instruments 948.8 (948.8) - - -
Net asset value attributable to unit
holders 27,830.0 (27,830.0) - - -
Income tax liabilities 6 115.4 - - 115.4 -
Preference shares 0.1 - - 0.1 0.1
------------------------------------- ---- ------------ ------------ ------------ -------------- ---------------
Total liabilities 116,344.8 (113,546.9) (768.2) 2,029.7 1,482.8
Net assets 947.2 - 109.6 1,056.8 1,108.0
------------------------------------- ---- ------------ ------------ ------------ -------------- ---------------
Adjustment 1 strips out the policyholder interest in unit-linked
assets and liabilities, to present solely shareholder impacting
balances. For further information refer to Note 11 Investments,
investment property and cash and cash equivalents to the IFRS
financial statements.
Adjustment 2 removes items such as DAC, DIR, PVIF and their
associated deferred tax balances from the IFRS statement of
financial position to bring it in line with Solvency II recognition
requirements.
Notes to the Solvency II Net Assets Balance Sheet
1. Property and equipment, and other payables
On 1 January 2019, the Group adopted IFRS 16 Leases. This new
accounting standard fundamentally changes the accounting for
lessees, that is an entity which leases an asset from its owner, as
it requires the recognition of almost all leases on the statement
of financial position. The right to use the leased item is
recognised as an asset, and the obligation to pay lease rentals is
recognised as a liability.
As a result, the property and equipment line has increased
significantly year-on-year: At 31 December 2019 it includes
GBP126.6 million of leased assets (31 December 2018: Nil). Lease
liabilities of GBP118.6 million are recognised within the other
payables line (31 December 2018: Nil). The initial recognition of
lease liabilities is a driver behind the increase in other payables
on the Solvency II Net Assets Balance Sheet, which increased from
GBP956.9 million at 31 December 2018 to GBP1,033.7 million at 31
December 2019.
Further information on the adoption of IFRS 16 can be found in
Note 1 Accounting policies to the IFRS financial statements.
Additionally, Notes 9, 10 and 13 provide further detail on property
and equipment, leases and other payables respectively.
-20-
2. Deferred tax assets and liabilities
Analysis of deferred tax assets and liabilities, including how
they have moved year-on-year, is set out in Note 7 Income and
deferred taxes . The most significant movement in the year is the
increase in deferred tax liability associated with impact of stock
markets on investments and the resulting increase in policyholder
tax liability.
3. Other receivables and other payables
Detailed breakdowns of other receivables and other payables can
be found in Note 12 Other receivables and Note 13 Other payables of
the IFRS financial statements.
Other receivables on the Solvency II Net Assets Balance Sheet
have increased from GBP890.1 million at 31 December 2018 to
GBP1,391.9 million at 31 December 2019, principally reflecting
movement in fund tax deductions. This increase is associated with,
and largely offsets, the increase in Deferred Tax liability
above.
4. Liquidity
Cash generated by the business is held in highly rated
government securities, AAA-rated money market funds, and bank
accounts. Although these are all highly liquid, only the latter is
classified as cash and cash equivalents on the Solvency II Net
Assets Balance Sheet. The total liquid assets held are:
31 December 31 December
2019 2018
------------------------------------------------------- ----------- -----------
GBP'Million GBP'Million
------------------------------------------------------- ----------- -----------
Fixed interest securities 5.2 5.4
Investment in Collective Investment Schemes (AAA-rated
money market funds) 1,131.8 1,297.0
Cash and cash equivalents 292.8 248.5
------------------------------------------------------- ----------- -----------
Total liquid assets 1,429.8 1,550.9
------------------------------------------------------- ----------- -----------
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.
Our most significant investment in the business in recent years
has been the development of Bluedoor, which has had a substantial
impact on our liquid assets, and borrowings positions. Since the
inception of the project in 2014 we have capitalised GBP360.1
million of development spend on Bluedoor in our operational
readiness prepayment asset. This is in addition to GBP183.9 million
of internal project costs that we have expensed as incurred. The
total cash outflow on the project is GBP543.7 million.
5. Borrowings
The Group has two different types of borrowings: senior
unsecured corporate borrowings, which are used to manage working
capital and to fund investment in the business; and a senior
tranche of non-recourse securitisation loan notes, which is secured
on a legally segregated portfolio of the Group's business loans to
Partners. Holders of the senior tranche of non-recourse
securitisation loan notes have no recourse to the assets held by
any other entity within the Group:
31 December 31 December
2019 2018
--------------------------------------------------------- ----------- -----------
GBP'Million GBP'Million
--------------------------------------------------------- ----------- -----------
Corporate borrowings: bank loans 173.3 164.8
Corporate borrowings: loan notes 113.8 113.8
--------------------------------------------------------- ----------- -----------
Total senior unsecured corporate borrowings 287.1 278.6
Senior tranche of non-recourse securitisation loan notes 116.6 70.0
--------------------------------------------------------- ----------- -----------
Total borrowings 403.7 348.6
--------------------------------------------------------- ----------- -----------
After adjusting for this non-recourse debt, borrowings have
increased broadly in line with the scale of the business over time,
and we remain comfortable not only with our level of borrowings but
also the headroom we have within our range of facilities. Further
information is provided in Note 14 Borrowings and financial
commitments of the IFRS financial statements.
6. Income tax liabilities
The Group has an income tax liability of GBP115.4 million at 31
December 2019 compared to an income tax asset of GBP9.7 million at
31 December 2018. This is due to a current tax charge of GBP227.9
million and tax paid of GBP102.8 million during the year. Further
detail on the current tax charge and tax paid is provided in Note 7
Income and deferred taxes.
-21-
Stage 2: Movement in Solvency II Net Assets Balance Sheet
After the Solvency II Net Assets Balance Sheet has been
determined, the second stage in the derivation of the Cash result
identifies 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:
Year ended Year ended
31 December 31 December
2019 2018
------------------------------------------------------------- ------------ ------------
GBP'Million GBP'Million
------------------------------------------------------------- ------------ ------------
Opening Solvency II net assets 1,108.0 1,095.1
Dividend paid (256.0) (242.7)
Issue of share capital and exercise of options 8.7 2.8
Consideration paid for own shares (0.1) (6.0)
Proceeds from exercise of shares held in trust 0.2 -
Change in deferred tax (10.4) (31.8)
Change in tax discounting (10.0) 23.4
Change in goodwill, intangibles and other non-cash movements (13.0) (1.5)
Cash result 229.4 268.7
------------------------------------------------------------- ------------ ------------
Closing Solvency II net assets 1,056.8 1,108.0
------------------------------------------------------------- ------------ ------------
-22-
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 the 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. In the prior year, we had made
a number of small changes to our EEV methods and assumptions to
align them as closely as possible to Solvency II. These changes
were reflected in the Economic assumption changes line.
The table below and accompanying notes summarise the profit
before tax of the combined business:
Year ended Year ended
31 December 31 December
2019 2018
--------------------------------------- ---- ------------ ------------
Note GBP'Million GBP'Million
--------------------------------------- ---- ------------ ------------
Funds management business 1 1,121.2 1,151.6
Distribution business 2 (55.6) (38.9)
Back-office infrastructure development (47.9) (44.1)
Other (65.7) (66.6)
--------------------------------------- ---- ------------ ------------
EEV operating profit 952.0 1,002.0
Investment return variance 3 768.6 (460.9)
Economic assumption changes (27.0) (15.1)
--------------------------------------- ---- ------------ ------------
EEV profit before tax 1,693.6 526.0
Tax (286.8) (89.7)
--------------------------------------- ---- ------------ ------------
EEV profit after tax 1,406.8 436.3
--------------------------------------- ---- ------------ ------------
A reconciliation between EEV operating profit before tax and
IFRS profit before tax is provided in Note 4.
-23-
Notes to the EEV result
1. Funds management business EEV operating profit
The funds management business operating profit has decreased to
GBP1,121.2 million (2018: GBP1,151.6 million) and a full analysis
of the result is shown below:
Year ended Year ended
31 December 31 December
2019 2018
-------------------------------------- ------------ ------------
GBP'Million GBP'Million
-------------------------------------- ------------ ------------
New business contribution 793.0 852.7
Profit from existing business
- unwind of the discount rate 248.5 242.3
- experience variance 82.1 24.5
- operating assumption change (9.9) 25.9
Investment income 7.5 6.2
-------------------------------------- ------------ ------------
Funds management EEV operating profit 1,121.2 1,151.6
-------------------------------------- ------------ ------------
The new business contribution for the year at GBP793.0 million
(2018: GBP852.7 million) was 7% lower than the prior year,
reflecting both the decrease in new business volumes and
operational deleverage during the year as fixed expenses and
overheads have not reduced in line with volumes.
The unwind of the discount rate for the year increased to
GBP248.5 million (2018: GBP242.3 million), reflecting the higher
opening value of in-force business. The experience variance during
the year was GBP82.1 million (2018: GBP24.5 million), reflecting
positive retention experience. The impact of operating assumption
changes in the year was a negative GBP9.9 million, reflecting
revisions to the expense basis and the treatment of partial
withdrawals on offshore bond business. The significant benefit of
GBP25.9 million in 2018 reflected a reduction in the allowance for
dual running costs associated with the Bluedoor migrations
following improved understanding of the expected migration
dates.
2. Distribution business
The distribution loss includes the positive gross margin arising
from advice income less payments to advisers offset by the costs of
investment in growing the Partnership, building the distribution
capabilities in Asia and a charge of GBP18.9 million for the FSCS
levy (2018: GBP11.3 million).
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.
The typical investment return on our funds during the year was
positive 15% after charges, compared to the assumed investment
return of positive 2%. This resulted in a positive investment
return variance of GBP768.6 million (2018: negative GBP460.9
million).
4. Economic assumption changes
The negative variance of GBP27.0 million arising in the year
(2018: negative GBP15.1 million) reflects the negative effect from
a reduction in real yields over the year.
-24-
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:
Year ended Year ended
31 December 31 December
2019 2018
---------------------------------------- ------------ ------------
Investment
New business contribution (GBP'Million) 123.0 129.0
Gross inflows (GBP'Billion) 2.28 2.41
Margin (%) 5.4 5.4
---------------------------------------- ------------ ------------
Pension
New business contribution (GBP'Million) 434.0 454.2
Gross inflows (GBP'Billion) 8.66 8.76
Margin (%) 5.0 5.2
---------------------------------------- ------------ ------------
Unit Trust and DFM
New business contribution (GBP'Million) 236.0 269.5
Gross inflows (GBP'Billion) 4.16 4.53
Margin (%) 5.7 6.0
---------------------------------------- ------------ ------------
Total business
New business contribution (GBP'Million) 793.0 852.7
Gross inflows (GBP'Billion) 15.10 15.70
Margin (%) 5.3 5.4
Post-tax margin (%) 4.4 4.5
---------------------------------------- ------------ --------------
The overall margin for the year was lower at 5.3% (2018: 5.4%)
reflecting a decrease in new business volumes and an increase in
establishment expenses during the year.
Economic assumptions
The principal economic assumptions used within the cash flows at
31 December are set out below:
Year ended Year ended
31 December 31 December
2019 2018
-------------------------------- ------------ ------------
% %
-------------------------------- ------------ ------------
Risk-free rate 0.9 1.4
Inflation rate 3.3 3.4
Risk discount rate (net of tax) 4.0 4.5
Future investment returns:
- Gilts 0.9 1.4
- Equities 3.9 4.4
- Unit-linked funds 3.2 3.7
Expense inflation 3.7 3.8
-------------------------------- ------------ ------------
The risk-free rate is set by reference to the yield on ten-year
gilts. 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 higher increases in earnings-related expenses.
-25-
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.
Change in
European
Change in new Embedded
business contribution Value
---------------------------------------------- ---- ------------------------ -----------
Pre-tax Post-tax Post-tax
----------- ----------- -----------
Note GBP'Million GBP'Million GBP'Million
---------------------------------------------- ---- ----------- ----------- -----------
Value at 31 December 2019 793.0 658.8 7,059.8
100bp reduction in risk-free rates, with
corresponding change in fixed interest asset
values 1 (26.7) (22.3) (116.5)
10% increase in withdrawal rates 2 (55.0) (45.7) (371.8)
10% reduction in market value of equity
assets 3 - - (721.4)
10% increase in expenses 4 (22.0) (18.3) (86.1)
100bp increase in assumed inflation 5 (29.5) (24.6) (132.8)
---------------------------------------------- ---- ----------- ----------- -----------
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
European
Change in new Embedded
business contribution Value
-------------------------------------- ------------------------ -----------
Pre-tax Post-tax Post-tax
----------- ----------- -----------
GBP'Million GBP'Million GBP'Million
-------------------------------------- ----------- ----------- -----------
100bp reduction in risk discount rate 96.0 79.7 543.3
-------------------------------------- ----------- ----------- -----------
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:
31 December 31 December
2019 2018
--------------------------- ----------- -----------
GBP'Million GBP'Million
--------------------------- ----------- -----------
Value of in-force business 6,003.0 4,763.5
Solvency II net assets 1,056.8 1,108.0
--------------------------- ----------- -----------
Total embedded value 7,059.8 5,871.5
--------------------------- ----------- -----------
Pence Pence
-------------------------- ------- -------
Net asset value per share 1,320.1 1,109.0
-------------------------- ------- -------
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 was written in our separate Retirement Plan and
Drawdown Plan products, targeted at the each of the two phases
separately, and therefore has a slightly shorter term and lower new
business margin.
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 GBP385 million to our
embedded value (31 December 2018: approximately GBP350
million).
In November 2019, the UK Prime Minister pledged to postpone the
reduction in the corporation tax rate to 17%. This change has yet
to be substantively enacted and therefore is not reflected in the
total embedded value presented above. The impact, were the change
to be substantively enacted, would be a reduction our embedded
value of approximately GBP98 million.
-26-
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 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 2019 we reviewed the level of our
MSB and concluded that it was appropriate to decrease the MSB for
the Life businesses from GBP355 million to GBP320 million. The
decrease primarily reflects the reduction in risk in our UK Life
business as we come towards the end of the back-office
infrastructure programme. All of this business is administered on
Bluedoor following the final successful migrations during the
year.
The Group's overall Solvency II net assets position, MSB and
management solvency ratios are as follows:
Other 2018
Life(1) regulated Other(2) Total Total
-------------------------- ----------- ----------- ----------- ----------- -----------
31 December 2019 GBP'Million GBP'Million GBP'Million GBP'Million GBP'Million
-------------------------- ----------- ----------- ----------- ----------- -----------
Solvency II net assets 337.7 235.8 483.3 1,056.8 1,108.0
MSB 320.0 156.2 - 476.2 491.0
-------------------------- ----------- ----------- ----------- ----------- -----------
Management solvency ratio 106% 151% - - -
-------------------------- ----------- ----------- ----------- ----------- -----------
1 After payment of year-end intra-group dividend.
2 Before payment of the Group final dividend.
Solvency II net assets reflect the assets of the Group in excess
of those matching clients' unit linked liabilities. It includes a
GBP98.5 million (2018: GBP111.6 million) deferred tax asset which
is not immediately fungible, although we expect it will be utilised
over the next ten years. The actual rate of utilisation will depend
on business growth and external factors, particularly investment
market conditions.
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 are assessed
against our regulatory 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 year end is presented
in the table below:
Other 2018
Life(1) regulated Other(2) Total Total
--------------------------------- ----------- ----------- ----------- ----------- -----------
31 December 2019 GBP'Million GBP'Million GBP'Million GBP'Million GBP'Million
--------------------------------- ----------- ----------- ----------- ----------- -----------
Solvency II net assets 337.7 235.8 483.3 1,056.8 1,108.0
Value of in-force (VIF) 4,303.5 - - 4,303.5 3,388.8
Risk margin (1,213.3) - - (1,213.3) (989.4)
--------------------------------- ----------- ----------- ----------- ----------- -----------
Own funds (A) 3,427.9 235.8 483.3 4,147.0 3,507.4
Solvency capital requirement (B) (3,059.4) (88.6) - (3,148.0) (2,447.3)
--------------------------------- ----------- ----------- ----------- ----------- -----------
Solvency II free assets 368.5 147.2 483.3 999.0 1,060.1
--------------------------------- ----------- ----------- ----------- ----------- -----------
Solvency ratio (A/B) 112% 266% 132% 143%
--------------------------------- ----------- ----------- ----------- ----------- -----------
1 After payment of year-end intra-group dividend.
2 Before payment of the Group final dividend.
The solvency ratio after payment of the proposed Group final
dividend is 126% at the year end (2018: 137%).
In 2018 the solvency ratio reflected the positive effect of the
equity dampener depressing the market risk capital component.
Management chose not to release this volatile additional amount of
free assets, which course of action has been justified through its
unwind over the year. At 31 December 2019 the equity dampener is
(0.1)% (31 December 2018: (6.3)%). We continue to target a solvency
ratio of 110% for SJPUK, our largest insurance subsidiary, as
agreed with our regulator the PRA. As the business 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.
-27-
Solvency II sensitivities
The table below shows the estimated impact on the Solvency II
free assets, the SCR and the solvency ratio from changes in various
assumptions underlying the Solvency II calculations. In each case,
only the indicated item is varied relative to the restated
values.
The solvency ratio is not very sensitive to changes in
experience or assumptions, and, due to the approach to matching
unit-linked liabilities with appropriate assets, can move
counter-intuitively depending on circumstances, as demonstrated by
the sensitivity analysis presented below:
Solvency
Solvency II
II capital Solvency
free assets requirement ratio
------------------------------------------------------- ---- ------------ ------------ --------
Note GBP'Million GBP'Million %
------------------------------------------------------- ---- ------------ ------------ --------
Value at 31 December 2019 999.0 3,148.0 132%
100bp reduction in risk free rates, with corresponding
change in fixed interest asset values 1 897.6 3,148.3 129%
10% increase in withdrawal rates 2 1,039.3 2,961.4 135%
10% reduction in market value of equity assets 3 902.5 2,835.0 132%
10% increase in expenses 4 949.5 3,142.2 130%
100bp increase in assumed inflation 5 913.4 3,150.4 129%
------------------------------------------------------- ---- ------------ ------------ --------
Notes to the Solvency II 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 lapse rate. For instance,
if the lapse 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 all expenses are increased by
10%.
5. This reflects a 100bp increase in the assumed RPI underlying
the expense inflation calculation.
-28-
RISK AND RISK MANAGEMENT
OVERVIEW AND CULTURE
Effective risk management is critical to the success of the St.
James's Place Group. We are exposed to a wide variety of inherent
risks due to the business activities and the industry in which we
operate. We choose carefully the risks we accept and those to limit
or avoid through the design and operation of our client and Partner
proposition, including the way in which it is delivered and
administered.
In addition, the Group is also exposed to a number of current
and emerging external factors and trends (including political risks
such as Brexit, macro-economic factors, cyber crime and climate
change) some of which may impact on our short- and/or longer-term
profitability. Under the leadership, direction and oversight of our
Board, these risks are carefully understood and managed to achieve
our client and business objectives.
We do not, and cannot, seek to eliminate risk entirely, rather
we seek to understand our risks fully and manage them
appropriately. The emphasis is on applying effective risk
management strategies, so that all material risks are identified
and managed within the agreed risk appetite. Risk management is
embedded within our culture and is therefore a core aspect of
decision-making.
Risk management forms a key part of the business planning
process, including decisions on strategic developments to our
client and Partner propositions, investments and dividend
payments.
OUR RISK AND CONTROLS MANAGEMENT FRAMEWORK
The internal control environment is built upon a strong control
culture and organisational delegation of responsibility. The "first
line" business is responsible and accountable for risk management.
This is then combined with oversight from the "second line" risk,
controls and compliance functions and assurance from the "third
line" internal audit to form a 'three lines of defense' model.
The risk management and control framework is the combined
processes by which the Group identifies, assesses, measures,
manages and monitors the risks that may impact on the successful
delivery of its strategic objectives. Based upon our risk appetite,
the risks identified are either accepted or appropriate actions
taken to mitigate them.
The Board, through the Risk Committee, takes an active role in
overseeing the Risk Management Framework, for which it is
responsible. As part of this the Board robustly assesses its
principal and emerging risks, which are considered in regular
reporting and summarised annually in the Own Risk and Solvency
Assessment: further information on this is provided below.
On behalf of the Board, the Audit Committee takes responsibility
for assessing the effectiveness of the Group's risk management and
internal control systems, covering all material controls, including
financial, operational and compliance controls. It does this via an
annual review of risk and control self-assessments and a programme
of control effectiveness reviews, the results of which are reviewed
quarterly.
OUR RISK APPETITE
The Board carefully sets its appetite for taking risk against
strategic objectives. These choices are set out in detail in our
Risk Appetite Statement, which is reviewed at least annually by the
risk committees of the Board (the 'Risk Committee') and Executive
Board ('Group Risk Executive Committee') and ultimately approved by
the Board. The Risk Appetite Statement also provides clarity over
ownership, enabling us to identify the key individuals within the
Group who have responsibility for managing these risks.
The Risk Appetite Statement includes a risk appetite scale. This
scale has several risk acceptance levels, ranging from no appetite
for taking risks at all, through to acceptance of risk. The level
of risk we are willing to accommodate will vary dependant on
individual risk scenarios. The decisions the Board takes when
setting appetite will be based on understanding the likelihood and
impact of a risk materialising.
Risk appetite can and will change over time, sometimes rapidly
as economic and business environment conditions change, and
therefore the statement is an evolving document. A comprehensive
suite of Key Risk Indicators (KRIs) is reported regularly to enable
the Risk Committee, on behalf of the Board, to monitor that the
Group remains within its accepted appetite.
OWN RISK AND SOLVENCY ASSESSMENT (ORSA)
We are classified as an insurance group and are subject to
Solvency II insurance regulation. A key part of this regulation
requires a consistent approach to risk management across the Group,
supported by the production of an annual ORSA, which considers both
the individual insurance entities and the Group.
The ORSA process follows an annual cycle, which links the
business activity and strategic objectives with comprehensive risk
assessments that the business faces, and ensures the Group is
resilient to stresses in the short term and over a five-year
period.
The Solvency Capital Requirement for insurers allow for at least
a "1 in 200-year" risk event over a one-year time horizon. In
addition, a broad range of severe stresses and scenarios are used
to help provide insight into the ability to maintain the regulatory
capital in these conditions. Our results show that with appropriate
management action it would be possible to maintain regulatory
capital across the Group under all scenarios modelled for the
business planning horizon. The outcomes of these activities assist
us when considering the calculations and allocation of risk capital
to all major risks in the Group, and the adequacy of capital
positions. This process ensures our continued confidence that the
regulated entities remain strongly capitalised.
The ORSA uses a five-year projection period for the medium term.
Due to the gestation period across some of our pension and
investment product range, we do not earn annual management fees in
the first six years and so considering a five year period gives a
prudent view of the Group's viability as we consider revenues
generated on existing business only. The ORSA is particularly
useful in assessing viability as it has a similar purpose and
requires a comprehensive assessment of risk management and risk
capital requirements of the business. Consideration is given to
factors or events that impact on our funds under management,
investment growth, retention of clients and ability to attract new
clients, in addition to the effects of a market downturn.
Combinations of these factors are used to form scenarios which are
tested, providing for more extreme combinations of events.
Therefore, assumptions are robustly analysed to predict both the
immediate impact of an event along with the impact over the longer
term (in the wake of the event). In addition to these more extreme
'combination' scenarios, assessments are also completed based on
more current/topical or emerging risk exposures affecting the Group
or financial services more generally.
-29-
The ORSA aids decision making by bringing together the following
processes:
-- strategic planning;
-- risk appetite consideration;
-- risk identification and management; and
-- capital planning and management.
The ORSA continues to evolve and further strengthen risk
management processes throughout the Group.
PRINCIPAL RISKS AND UNCERTAINTIES
The types of principal risks and uncertainties have not changed
significantly over the past year. The strategic areas on which
these risks impact, and the high-level controls and processes
through which we aim to mitigate them, are set out in the tables on
the following pages. Reputational damage and impacts to
shareholders and other stakeholders are a likely consequence of any
of our principal risks materialising.
Over the past year, the continued uncertainties around Brexit
and international trade have impacted investor sentiment. Whilst
some of the UK political uncertainties have recently reduced,
global economic factors, such as the impact on trade of the
Coronavirus, continue to impact on markets and investor behaviour.
While we have very little direct exposure to market risk because of
our matching policy (where we hold assets which match our liability
to clients), we do have indirect exposure because of the impact
these uncertainties have on new business and funds under
management. Stress and scenario testing has been performed which
demonstrates that the businesses is resilient to extreme but
plausible scenarios. We continually monitor the changing
environment, to ensure our analysis and scenario testing remains
current. Although scenarios of political change (Brexit, general
elections and trade wars) can drive changes in risk, the potential
impacts on our business would manifest in ways with which we are
familiar, notably market risk, persistency risk, changes in new
business levels and operational risks. We cover these risks more
specifically in the table in the following pages.
Risk Description Key Risks Example Controls
------------------------------ -----------------------------
Administration Service We fail to deliver good -- Clients and the -- Management of
quality administration Partnership receive poor administrations centres to
services to clients and the policy administration ensure key service standards
Partnership. -- Failure of key are met
administration system change -- Continuous development of
projects technology
-- Administrative complexity -- Effective planning of
large-scale change projects
-- Ongoing activity to reduce
administrative complexity
----------------------- ------------------------------ ----------------------------- ------------------------------
Brand and Competition Challenge from competitors -- Increased competitive -- Clear demonstration of
and the impact of pressure from traditional value delivered to clients
reputational damage. and disruptive through advice, service and
(non-traditional) products
competitors -- Investment in improving
-- Cost and charges pressure positive brand recognition
-- Negative media coverage -- Ongoing development of
client and Partner
propositions
-- Pro-active engagement with
external agencies including
media, industry groups and
regulators
----------------------- ------------------------------ ----------------------------- ------------------------------
Client Proposition Our product proposition fails -- Issues with manufactured -- Regular monitoring of
to meet the needs, objectives products manufactured products'
and expectations of our -- Investments provide poor performance
clients. returns relative to their -- Monitoring of investment
This includes poor relative benchmarks and/or do not performance and selection of
investment performance and deliver expected the most appropriate funds
poor product design. client outcomes from a
-- Range of solutions does risk/net return perspective
not align with the product -- Continuous development of
and service requirements of the range of services offered
our current to clients
and potential future clients -- Engagement with investment
-- Failure to meet client managers around principles of
expectations of a responsible investment
sustainable business, not
least in respect of
responsible investing
----------------------- ------------------------------ ----------------------------- ------------------------------
Conduct We fail to provide quality, -- Partners deliver poor -- Licensing programme
suitable advice or service to quality or unsuitable advice ensuring appropriate standard
clients. -- Failure to evidence the of advice and service from
provision of quality service advisers
and advice -- 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
----------------------- ------------------------------ ----------------------------- ------------------------------
-30-
Risk Description Key Risks Example Controls
------------------------------ ------------------------------
Financial We fail to effectively manage -- Failure to meet client -- Policyholder liabilities
the business finances. liabilities are fully matched
-- Investment/market risk -- Excess assets generally
-- Credit risk invested in high-quality,
-- Liquidity risk high-liquidity cash and cash
-- Insurance risk equivalents
-- Expense risk -- Lending to the Partnership
is secured on their future
income streams
-- Reinsurance of insurance
risks
-- Ongoing monitoring of all
risk exposures and
experiences
-- Acceptance of market and
persistency risk impact on
profit
-- Monitoring and management
of individual entities'
solvency to minimise Group
interdependency
---------------------- ------------------------------ ------------------------------ ------------------------------
Outsourcing The third-party outsourcers' -- Operational failures by -- Oversight regime in place
activities impacts our material outsourcers to identify prudent steps to
performance and risk -- Failure of critical reduce risk of operational
management. service, significant areas failures
include: by material third-party
-- Investment providers
administration -- Ongoing monitoring
-- Investment management -- Due diligence of key
-- Custody suppliers
-- Policy administration
-- Cloud services
---------------------- ------------------------------ ------------------------------ ------------------------------
Partner Proposition Our proposition solution -- Failure to attract new -- Focus on providing a
fails to meet the needs, members of the Partnership market-leading adviser
objectives and expectations -- Failure to retain proposition
of our current advisers/Partners -- Adequately skilled and
and potential future -- Failure to increase resourced population of
Partners. adviser productivity supporting field managers
-- Available technology falls -- Reliable systems and
short of client and Partner administration support
expectations and fails to -- Expanding the Academy
support capacity and supporting
growth objectives recruits through the Academy
-- The Academy does not and beyond
adequately support adviser -- Market-leading support to
growth Partners businesses
---------------------- ------------------------------ ------------------------------ ------------------------------
People We are unable to attract, -- Loss of key personnel -- Measures to maintain a
retain and organise the right -- Poor employee morale stable population of
people to run the business. -- Lack of inclusion and employees, including
diversity in our business competitive total reward
-- Our culture of supporting packages
social value is eroded -- Monitoring of employee
engagement and satisfaction
-- Corporate incentives to
encourage social value
engagement, including
matching of employee
charitable giving to
Foundation
-- Whistle-blowing hotline
---------------------- ------------------------------ ------------------------------ ------------------------------
Regulatory We fail to meet current, -- Failure to comply with -- Compliance functions
changing or new regulatory changing regulation provide expert guidance and
and legislative expectations. -- Inadequate internal carry out extensive assurance
controls work
-- Failure to respond to -- Strict controls are
regulatory driven changes to maintained in highly
the industry in which we regulated areas
operate -- Maintenance of appropriate
-- Solvency risk solvency capital buffers, and
continuous monitoring of
solvency
experience
-- Fostering of positive
regulatory relationships
---------------------- ------------------------------ ------------------------------ ------------------------------
Security & Resilience We fail to adequately secure -- Internal or external fraud -- Business continuity
our physical assets, systems -- Core system failure planning for SJP and its key
and/or sensitive information, -- Corporate, Partnership, or suppliers
or third-party information -- Identification,
to deliver critical business security and cyber risks communication, and response
services to our clients. -- Disruption in key business planning for the event of
services to our clients cyber crime
-- Data leakage detection
technology and incident
reporting systems
-- Internal awareness
programmes
-- Identification and
assessment of critical
business services
---------------------- ------------------------------ ------------------------------ ------------------------------
-31-
EMERGING RISKS
Emerging risks are identified through conversations and
workshops with stakeholders throughout the business, attending
industry events, reviewing academic papers, watching emerging risk
webinars and other horizon scanning by Group Risk.
The purpose of monitoring and reporting emerging risks is to
give assurance that we are prioritising our response to emerging
risks appropriately in our strategy, which is the primary risk
management tool for longer-term strategic risks. Examples of
emerging risks which have been considered during the year
include:
-- risks that may result from changes in the political
environment that could impact our business, including changes in
regulation and legislation, and also investment market volatility
or disruption;
-- risks from digital disruption from competitors or shifts in
consumer trends away from face-to-face advice;
-- failing to capitalise on our significant investment in administration systems;
-- risks relating to an ageing population of our clients and
failure to appeal to future generations of clients; and
-- risks relating to climate change.
VIABILITY STATEMENT
HOW WE ASSESS OUR VIABILITY
The business considers five-year financial forecasts when
developing the strategy. These incorporate our budget for the next
financial year and four further years of forecasts based on
reasonable central assumptions around development of business
drivers.
At the core of assessing our viability we seek to understand how
different principal risks could materialise. We consider risks
which might present either in isolation or in combination and which
could result in acute shocks to the business or long-term
underperformance against forecasted business drivers. We consider
the five-year time horizon sufficiently long to assess potential
impacts and ensure that the business could remain viable whilst
enacting any management actions to restore the business'
prospects.
When considering how the principal risks previously described
might impact the business, we consider our ability to deal with
particular events and changes to the following key financial
drivers:
-- Reduction in client retention
-- Reduction in new business relative to forecasts
-- Market stresses
-- Increases in expenses
-- Direct losses through operational risk events
We carry out stress and scenario testing on these key financial
drivers, alongside operational risk assessments. To provide comfort
over viability over the next five years, the scenarios and
assessments look at events which would be extreme, whilst still
remaining plausible. This work demonstrates that, although there
would be impacts on profitability, the Group is resilient and could
continue to meet regulatory capital requirements over five years
should even the more extreme risks materialise.
As well as robust scenario testing the Directors have given
consideration to assessments of the current risk environment,
including how risks are managed through controls relative to the
risk appetite, and emerging risks.
EXAMPLE SCENARIO
A wide variety of stresses and scenarios are applied to test all
material drivers in a variety of ways to provide understanding of
any dynamic impacts. As an example of a type of scenario which is
considered, we assessed the direct financial implications of
dealing with a major cyber-attack. We also modelled the impact of a
large reduction in new business levels alongside a large mass
lapse. We looked at the immediate impacts and the impact over five
years, where we further assumed there was no subsequent growth in
new business levels and no market growth.
-32-
RESILIENCE OVER DIFFERENT TIME HORIZONS
The table below provides an indication of which risk are
relevant over different timeframes and why the Group is considered
to be resilient over these timeframes.
Over the next year Over the next five years Beyond 2024
Risks Risks Risks
The key risks to business Investor sentiment, market Most of the shorter-term
resilience in the short impacts and changes to risks will remain relevant,
term are likely to be regulation after the however, over the longer-term
operational in nature, Brexit related transition client expectations around
such as data loss or period continue to provide digital services are
system failure. The share uncertainty. likely to become more
price could reflect risks important. The impact
that crystallise over Aside from Brexit, risk of artificial intelligence
the year but have a delayed relating to changes to and machine learning
or gradual impact on advice regulation would in both the investment
business performance. likely impact the business management and advice
Liquidity risks would in the next five years, side will become more
also be relevant for or beyond. prevalent.
this time window. These The importance of technology
risks are also relevant in the client proposition Risks from climate change
for the longer time periods. is only likely to become are starting to have
more important and risks an impact on investor
Resilience may materialise from sentiment and drive political
The Group generates relatively non-traditional competitors change and this is only
steady cash profits on seeking to disrupt the likely to increase. Beyond
existing funds under UK financial advice market. 2024 climate change is
management and new business. likely to be a far more
This has allowed the Risks which have a more significant factor for
Group to grow dividends gradual effect, such all our clients.
and invest in growing as talent retention and
the business. This is acquisition, are also Resilience
expected to remain the relatively more important Whilst the importance
case over the next year over a longer time horizon. of technology in the
and the Group maintains advice space will grow,
access to the finance Resilience we believe that overall
necessary for its business Counteracting the medium-term our target market will
plan. If severe risks risks, there is more continue to value human
materialised over the time to respond and take interaction in discussing
year and resulted in actions to manage the sensitive financial matters.
significant costs, the Group's prospects. As We recognise however
Group would have options already referenced stress that the advice proposition
to deal with the financial and scenario testing will develop, and our
implications. Whilst takes place which provides advisers will need to
other options would be comfort over the Group's be technology enabled.
explored first, curtailing ability to weather storms With increased use of
investment or reducing over a 5-year time horizon integrated technology,
dividends would be obvious and adapt accordingly. we will be able to automate
ways to protect the financial The Group's strategy processes and allow our
strength of the business. is designed to navigate advisers to focus on
the threats and keep the high-value advice
Operational resilience our proposition current and service aspects.
is also important and for existing and potential
risks which might cause clients. As the largest We have been developing
severe business disruption wealth manager in the our responsible investing
are carefully managed. UK the Group is well proposition for some
The success of the back-office resourced to effectively years and welcome the
system migration is an respond to regulatory focus in this area as
example of this. change and deal with the right thing to do
increased regulatory and as an opportunity
There are not considered complexity. to maximise client benefit
to be any material uncertainties through our active investment
over the ability of the management approach.
Group to survive over
the 1-year time horizon.
------------------------------- -------------------------------
CONCLUSION
In accordance with UK Corporate Governance Code (Provision 31),
the Directors have assessed the Group's current financial position
and prospects over the next five-year period and have a reasonable
expectation that the Group will be able to continue in operation
and meet its liabilities as they fall due. The Directors believe
that the risk planning, management processes and culture, allow for
a robust and effective risk management environment.
In addition to the assessment of longer-term viability and
resilience set out above, the Board have assessed the Group's going
concern status. Further information will be provided in the
Directors' Report in our annual report and accounts.
-33-
Chair's REPORT
Introduction
Despite external challenges, St. James's Place continued to grow
in 2019. This is testament to the trust put in us by existing and
new clients, the professionalism of the Partnership and the
strength of the St. James's Place proposition, which, in turn,
underpins the enduring success and resilience of the business.
Our role is to plan, grow and protect the financial future of
clients, and we do so by developing long-term relationships,
working hand in hand with our clients, to advise them on their
long-term financial strategies. We are operating in an environment
where the value of trusted face-to-face advice has never been more
important.
The industry
The asset and fund management sector, including St. James's
Place, came under significant scrutiny last year, with the failure
of Woodford Investment Management (WIM). St. James's Place funds
managed by WIM were held as segregated mandates and our distinctive
Investment Management Approach (IMA) prevented WIM from investing
any St. James's Place client funds in unquoted stocks. We quickly
moved funds away from WIM and preserved full client access. Whilst
this was a tangible demonstration of the value of our IMA, the
Board has, nevertheless, fully considered the wider implications of
this episode and identified areas in which we could strengthen it
further.
The industry remains under scrutiny on the levels of fees,
charges and value delivered to clients. The St. James's Place
proposition is fundamentally different to that of an online funds
platform, and it is unfortunate that much of the public commentary
on fees and charges has been overly simplistic. Independent
third-party analysis demonstrates that, for our target market, St.
James's Place charges are competitive, and our wealth account
survey demonstrates that clients support this view. However, the
Board recognises the need to further improve the transparency and
client understanding of fees and to ensure that we continue to
deliver value for clients. This will remain a focus.
Clients
For many clients 2019 proved a very positive one in terms of
investment returns, buoyed by strong, but at times volatile,
investment performance across major investment markets globally. We
are naturally pleased that all of our investment portfolios
delivered strong growth, supporting positive client outcomes.
The Board continues to support the evolution of our proposition
so that we improve our ability to serve client needs. One example
of this in 2019 is the work we undertook to enhance our approach to
identifying, servicing and supporting vulnerable clients. Another
is the development of propositions around long-term care, again
signifying our desire to make sure we can support clients as their
needs change and develop.
Investment for the future
We continue to invest in the future growth of the business
including the St. James's Place Academy, through which we train new
advisers for the Partnership, as well as our Rowan Dartington and
Asian operations.
The pace of technological change in our industry is relentless,
and the Board believes it is important to continue to invest in
this area to meet client and adviser expectations and to improve
our operating excellence. In October we completed the successful
migration of all our core UK business to the new Bluedoor platform
which will provide a solid operating system for future growth.
Purpose and culture
The Board spent considerable time in 2019 reflecting on purpose,
culture and values. The founding principles of the business
recognised the importance of wider social purpose: "doing the right
thing" and "giving something back". Our desired culture is best
exemplified by the St. James's Place Charitable Foundation which is
a core part of our business model. More than eight out of ten of
our Partners and employees make regular donations to the Charitable
Foundation, and many actively participate in fund raising and other
charitable activities.
There are many other ways in which St. James's Place makes an
active contribution to society: we directly benefit the financial
well-being of 733,000 clients and their families; we help 4,271
advisers thrive in providing high-quality advice across 2,564
separate Partner businesses; we are stewards, on behalf of our
clients, of GBP117.0 billion of assets; we employ 2,634 people; we
are the largest provider of financial advice in the UK and seek to
be a good regulatory citizen; the Company and the Partnership are
an active part of many local communities; and, we are a significant
tax payer. During the last year, the Board took account of all of
these stakeholders in its decision making and will continue to do
so in future (the S.172(1) Statement in our annual report and
accounts will provide examples of this).
It was clearly disappointing when some aspects of our culture
were subject to criticism last year, particularly in relation to
way in which the Partnership is rewarded. Recognising achievement
and bringing advisers together to provide development and
networking opportunities remains an important part of how we
operate, and indeed it is an essential way of strengthening culture
in what is a geographically widely dispersed Partnership. Whilst we
do not believe that the criticism we received is reflective of our
community as a whole, we continue to review all aspects of
Partnership recognition and remuneration to ensure they remain
appropriate in today's world and we will continue to further
develop our approach in this area in 2020.
The Board will spend further time in 2020 considering the wider
societal purpose and the culture of the business and how best to
refine the way in which it assesses them.
Succession, diversity and workforce engagement
In my report last year I highlighted that one of the main
priorities for the Board was long-term succession planning for the
Non-executive and Executive Directors and I am pleased to report
that good progress has been made.
I am delighted to welcome Rosemary Hilary, Dame Helena
Morrissey, Emma Griffin and (from 1 June 2020) Lesley-Ann Nash to
the Group Board, and Dawn Hyams to the board of St. James's Place
Unit Trust Group Limited. All of them bring valuable skills and
experience to the business and add to the diversity of our
governance. Once the Board has managed through its current
transitional succession phase I would expect the number of
Non-executive Directors on the Board to return to a more normal
figure. Further information will be presented in the Report of the
Nomination Committee in our annual report and accounts.
The Board has also had a particular focus, in conjunction with
external specialist support, on further strengthening succession
planning and career development at senior levels amongst the
Executive, and as part of this the Board was delighted that
Elizabeth Kelly was appointed to the Executive Board.
The Board is committed to ensuring greater diversity, in all its
facets, throughout the St. James's Place community. Getting to
where we want to be will take time, but our significantly increased
focus on diversity over the last two years has begun to deliver
results. The Board has been active in overseeing plans and
monitoring performance in this area and will continue to be so.
-34-
St. James's Place is fundamentally a people business and
engagement with both employees and the Partnership has always been
an essential part of the way in which the business is run. In
addition to its normal course of engagement with the business, the
Board has formalised an employee engagement programme, led by
Baroness Wheatcroft, but with the participation of all of the
Directors. The programme has built on the pre-existing mechanisms
for colleague engagement and consists of focus groups, surveys and
Director lunches. Last year the programme covered topics including
reward and recognition, business strategy, diversity and inclusion,
Board and management interaction, and culture and ethics. The Board
received regular reports on the feedback received and the actions
taken as a result.
Responsible investing and climate change
The impact of climate change is clearly a significant concern
for society in general and consequently a growing focus from
clients, regulators and politicians. The Board recognises that
environmental, social and governance factors are vital components
of a sustainable investment strategy, and that as a major investor,
St. James's Place has a key responsibility in this area. It also
believes that the Company has an opportunity to take a leadership
position in responsible investing. Last year we achieved an A+
rating in the United Nations Principles for Responsible Investment
annual assessment and the Board agreed that the Company should
become a supporter of the Task Force on Climate Related Finance
Disclosure. The Board spent time last year considering the
multi-year plan for the continued evolution of the IMA, of which
responsible investment is a key pillar, and we will continue to
oversee progress against it.
Dividend and concluding remarks
St. James's Place delivered a solid performance in 2019 in an
environment characterised by uncertainty. While we acknowledge that
there are lessons to be learned from some of the events which took
place in 2019, the Board remains confident in the fundamental
strength of the business and in its ability to take advantage of
the long-term structural opportunities which exist in its market,
to the benefit of all of its stakeholders.
Reflecting our confidence in the business and its future
prospects, the Board is pleased to propose a final dividend of
31.22 pence per share, making a total of 49.71 pence per share for
the year. This is a 3% increase on 2018.
Finally, I would like to offer the sincere appreciation of the
Board to the entire SJP community for their efforts.
IAIN CORNISH
Chair
26 February 2020
-35-
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Year ended Year ended
31 December 31 December
2019 2018
------------------------------------------------- ---- ------------ ------------
Note GBP'Million GBP'Million
------------------------------------------------- ---- ------------ ------------
Insurance premium income 42.6 46.5
Less premiums ceded to reinsurers (26.8) (29.6)
------------------------------------------------- ---- ------------ ------------
Net insurance premium income 15.8 16.9
Fee and commission income 5 2,374.1 1,523.7
Investment return 6 14,173.6 (4,235.0)
------------------------------------------------- ---- ------------ ------------
Net income/(expense) 16,563.5 (2,694.4)
Policy claims and benefits
- Gross amount (56.0) (54.0)
- Reinsurers' share 22.4 19.6
------------------------------------------------- ---- ------------ ------------
Net policyholder claims and benefits incurred (33.6) (34.4)
Change in insurance contract liabilities
- Gross amount (48.5) 36.5
- Reinsurers' share 5.9 -
------------------------------------------------- ---- ------------ ------------
Net change in insurance contract liabilities (42.6) 36.5
Movement in investment contract benefits 6 (14,070.6) 4,249.2
Expenses (1,707.8) (1,641.5)
Profit/(loss) before tax 4 708.9 (84.6)
Tax attributable to policyholders' returns 7 (521.8) 296.5
------------------------------------------------- ---- ------------ ------------
Profit before tax attributable to shareholders'
returns 187.1 211.9
Total tax (expense)/credit 7 (562.3) 258.1
Less: tax attributable to policyholders' returns 7 521.8 (296.5)
------------------------------------------------- ---- ------------ ------------
Tax attributable to shareholders' returns 7 (40.5) (38.4)
------------------------------------------------- ---- ------------ ------------
Profit and total comprehensive income for the
year 146.6 173.5
------------------------------------------------- ---- ------------ ------------
Loss attributable to non-controlling interests - -
Profit attributable to equity shareholders 146.6 173.5
------------------------------------------------- ---- ------------ ------------
Profit and total comprehensive income for the
year 146.6 173.5
------------------------------------------------- ---- ------------ ------------
Pence Pence
------------------------------------------------- ---- ------------ ------------
Basic earnings per share 16 27.6 33.0
Diluted earnings per share 16 27.5 32.4
------------------------------------------------- ---- ------------ ------------
The results relate to continuing operations.
-36-
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Equity attributable owners of the
Parent
-------------- ---- ---------------------------------------------------------------------------- ----------- -----------
Shares
in Non-
Share Share trust Retained Misc controlling Total
capital premium reserve earnings reserves Total interests equity
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Note GBP'Million GBP'Million GBP'Million GBP'Million GBP'Million GBP'Million GBP'Million GBP'Million
-------------- ---- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
At 1 January
2018 79.4 171.7 (26.7) 832.1 2.5 1,059.0 (0.9) 1,058.1
Profit and
total
comprehensive
income
for the year - - - 173.5 - 173.5 - 173.5
Dividends 16 - - - (242.7) - (242.7) - (242.7)
Exercise of
options 16 - 2.8 - - - 2.8 - 2.8
Consideration
paid
for own
shares - - (6.0) - - (6.0) - (6.0)
Shares sold
during
the year - - 9.0 (9.0) - - - -
Retained
earnings
credit in
respect
of share
option
charges - - - 33.4 - 33.4 - 33.4
-------------- ---- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
At 31 December
2018 79.4 174.5 (23.7) 787.3 2.5 1,020.0 (0.9) 1,019.1
-------------- ---- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Profit and
total
comprehensive
income
for the year - - - 146.6 - 146.6 - 146.6
Dividends 16 - - - (256.0) - (256.0) - (256.0)
Issue of share
capital 16 0.1 3.9 - - - 4.0 - 4.0
Exercise of
options 16 0.7 4.0 - - - 4.7 - 4.7
Consideration
paid
for own
shares - - (0.1) - - (0.1) - (0.1)
Shares sold
during
the year - - 7.4 (7.4) - - - -
Proceeds from
exercise
of shares
held in
trust - - - 0.2 - 0.2 - 0.2
Retained
earnings
credit in
respect
of share
option
charges - - - 28.7 - 28.7 - 28.7
-------------- ---- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
At 31 December
2019 80.2 182.4 (16.4) 699.4 2.5 948.1 (0.9) 947.2
-------------- ---- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
-37-
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at As at
31 December 31 December
2019 2018
---------------------------------------------------- ---- ------------ ------------
Note GBP'Million GBP'Million
---------------------------------------------------- ---- ------------ ------------
Assets
Goodwill 8 15.6 15.6
Deferred acquisition costs 8 490.0 558.5
Intangible assets
- Purchased value of in-force business 8 20.8 24.0
- Computer software 8 8.9 1.4
Property and equipment 9 166.3 28.5
Deferred tax assets 7 131.1 147.1
Reinsurance assets 88.6 82.8
Other receivables 12 2,127.1 1,952.3
Income tax assets - 9.7
Investments
- Investment property 11 1,750.9 1,820.7
- Equities 11 72,694.2 56,077.9
- Fixed income securities 11 26,275.6 21,966.0
- Investment in Collective Investment Schemes 11 5,166.4 4,756.1
- Derivative financial instruments 11 1,342.9 508.8
Cash and cash equivalents 11 7,013.6 6,877.6
---------------------------------------------------- ---- ------------ ------------
Total assets 117,292.0 94,827.0
---------------------------------------------------- ---- ------------ ------------
Liabilities
Borrowings 14 403.7 348.6
Deferred tax liabilities 7 493.7 172.9
Insurance contract liabilities 556.6 508.1
Deferred income 8 614.7 648.3
Other provisions 40.6 22.7
Other payables 13 1,782.7 1,290.8
Investment contracts benefits 11 83,558.5 67,796.1
Derivative financial instruments 11 948.8 517.4
Net asset value attributable to unit holders 11 27,830.0 22,502.9
Income tax liabilities 115.4 -
Preference shares 0.1 0.1
---------------------------------------------------- ---- ------------ ------------
Total liabilities 116,344.8 93,807.9
---------------------------------------------------- ---- ------------ ------------
Net assets 947.2 1,019.1
---------------------------------------------------- ---- ------------ ------------
Shareholders' equity
Share capital 16 80.2 79.4
Share premium 182.4 174.5
Shares in trust reserve (16.4) (23.7)
Miscellaneous reserves 2.5 2.5
Retained earnings 699.4 787.3
---------------------------------------------------- ---- ------------ ------------
Equity attributable to owners of the Parent Company 948.1 1,020.0
Non-controlling interests (0.9) (0.9)
---------------------------------------------------- ---- ------------ ------------
Total equity 947.2 1,019.1
---------------------------------------------------- ---- ------------ ------------
Pence Pence
---------------------------------------------------- ---- ------------ ------------
Net assets per share 177.1 192.5
---------------------------------------------------- ---- ------------ ------------
-38-
CONSOLIDATED STATEMENT OF CASH FLOWS
Year ended Year ended
31 December 31 December
2019 2018
--------------------------------------------------------- ---- ------------ ------------
Note GBP'Million GBP'Million
--------------------------------------------------------- ---- ------------ ------------
Cash flows from operating activities
Profit/(loss) before tax for the year 708.9 (84.6)
Adjustments for:
Amortisation of purchased value of in-force business 8 3.2 3.2
Amortisation of computer software 8 1.4 1.1
Depreciation 9 20.7 6.5
Share-based payment charge 29.2 34.1
Interest income (45.4) (35.1)
Interest expense 12.6 6.1
Increase in provisions 6.7 2.7
Exchange rate losses/(gains) 0.4 (0.3)
Changes in operating assets and liabilities
Decrease in deferred acquisition costs 8 68.5 64.5
Decrease/(increase) in investment property 69.8 (189.8)
Increase in other investments (22,170.3) (4,794.4)
Increase in reinsurance assets (5.8) -
Increase in other receivables (169.3) (330.3)
Increase/(decrease) in insurance contract liabilities 48.5 (36.5)
Increase in financial liabilities (excluding borrowings) 16,193.8 4,108.9
(Decrease)/increase in deferred income 8 (33.6) 2.0
Increase in other payables 369.0 57.2
Increase in net assets attributable to unit holders 5,327.1 1,153.8
--------------------------------------------------------- ---- ------------ ------------
Cash generated from/(used in) operating activities 435.4 (30.9)
--------------------------------------------------------- ---- ------------ ------------
Interest received 45.4 35.1
Interest paid (12.6) (6.1)
Income taxes paid 7 (102.8) (213.2)
--------------------------------------------------------- ---- ------------ ------------
Net cash generated from operating activities 365.4 (215.1)
--------------------------------------------------------- ---- ------------ ------------
Cash flows from investing activities
Acquisition of property and equipment 9 (17.3) (8.6)
Acquisition of intangible assets 8 (8.9) (0.1)
Acquisition of subsidiaries and other business
combinations, net of cash acquired (3.0) (4.1)
--------------------------------------------------------- ---- ------------ ------------
Net cash used in investing activities (29.2) (12.8)
--------------------------------------------------------- ---- ------------ ------------
Cash flows from financing activities
Proceeds from the issue of share capital and exercise
of options 8.7 2.8
Consideration paid for own shares (0.1) (6.0)
Proceeds from exercise of shares held in trust 0.2 -
Additional borrowings 14 390.0 232.5
Repayment of borrowings 14 (334.8) (162.2)
Lease payments (8.1) -
Dividends paid 16 (256.0) (242.7)
--------------------------------------------------------- ---- ------------ ------------
Net cash used in financing activities (200.1) (175.6)
--------------------------------------------------------- ---- ------------ ------------
Net increase/(decrease) in cash and cash equivalents 136.1 (403.5)
Cash and cash equivalents at 1 January 11 6,877.6 7,280.6
Exchange (losses)/gains on cash and cash equivalents (0.1) 0.5
--------------------------------------------------------- ---- ------------ ------------
Cash and cash equivalents at 31 December 11 7,013.6 6,877.6
--------------------------------------------------------- ---- ------------ ------------
-39-
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS UNDER
INTERNATIONAL FINANCIAL REPORTING STANDARDS
1. Accounting policies
The Group financial statements consolidate those of the Company
and its subsidiaries (together referred to as the 'Group').
The Group financial statements have been prepared and approved
by the Directors in accordance with International Financial
Reporting Standards as adopted by the EU ('adopted IFRSs') and
interpretations issued by the IFRS Interpretations Committee ('IFRS
IC') and those parts of the Companies Act 2006 that are applicable
when reporting under IFRS.
Within the financial statements, a number of 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
(IFRSs) as adopted by the European Union. APMs are used to provide
greater insight into the performance of the Group and the way it is
managed by the Directors. Information on Alternative Performance
Measures is provided in the Financial Review and Glossary on pages
64 to 66, which defines each APM, explains why it is used and,
where applicable, how the measure can be reconciled to the IFRS
financial statements.
2. Other accounting policies
The other accounting policies used by the Group in preparing the
results are consistent with those applied in preparing the
statutory accounts for the year ended 31 December 2018 with the
exception of the adoption of IFRS 16 Leases, which impacted the
disclosure in this announcement.
IFRS 16 Leases was adopted as of 1 January 2019.
For lessees, IFRS 16 removes the distinction between operating
and finance leases and requires almost all leases to be recognised
on the statement of financial position. The right to use the leased
item is recognised as an asset, and the present value of future
lease payments is recognised as a financial liability (the 'lease
liability'). The only exceptions are for short-term or low-value
leases. The standard has changed the way that the Group accounts
for leases previously classified as operating leases.
On adoption of IFRS 16 the Group's lease portfolio transitioned
following the modified retrospective approach. As a result, prior
period comparatives have not been restated. The Group took
advantage of the exemptions offered by the standard for short-term
and low-value leases, and the practical expedients available on
transition to:
-- not reassess whether an existing contract is, or contains a lease;
-- account for leases with a remaining lease term of less than
12 months from 1 January 2019 as short-term leases;
-- exclude initial direct costs from the measurement of leased assets at transition;
-- use hindsight in determining the lease term where a contract
contains options to extend or terminate the lease; and
-- apply a single discount rate to a portfolio of leases where
they have reasonably similar characteristics.
Upon transition, the Group recognised a right-of-use asset of
GBP91.8 million and a lease liability of GBP83.2 million, along
with a lease provision recognised under IAS 37 Provisions,
Contingent Liabilities and Contingent Assets of GBP8.6 million. The
value of the right-of-use asset equaled the value of the lease
liability plus the lease provision, and so no adjustment was made
to opening reserves.
In the year to 31 December 2019, GBP21.7 million lease expense
on the transitioned portfolio was recognised under IFRS 16. The
lease expense comprises depreciation of the right-of-use asset,
which is recognised on a straight-line basis over the remaining
term of the lease, and interest expense on the lease liability,
which is recognised using the effective interest method. This means
that the interest expense reduces each year over the course of the
lease term. As the Group has a number of significant leases which
are in the early stages of their lease term, the lease expense
under IFRS 16 is higher than it would have been under IAS 17.
The disclosure of total operating lease commitments presented
under IAS 17 in the financial statements for the year ended 31
December 2018 reconciles to the opening lease liabilities
recognised on 1 January 2019 under IFRS 16 as follows:
GBP'Million
------------------------------------------------------------------------------------ -----------
IAS 17 total undiscounted operating lease commitments disclosed at 31 December 2018 141.3
Less discount using the Group's weighted average incremental borrowing rate of 2.4% (16.3)
Less lease commitments to which the short-term exemption has been applied (6.3)
Less lease commitments to which the low-value asset exemption has been applied (2.4)
Less service/non-lease components of lease contracts (15.1)
Less VAT (18.0)
IFRS 16 lease liability at 1 January 2019 83.2
------------------------------------------------------------------------------------ -----------
In addition to the leases which transitioned to IFRS 16 on 1
January 2019, the Group entered into a number of new leases in the
year to 31 December 2019. Detail of the right-of-use assets and
lease liabilities at 1 January and 31 December 2019 in Note 10.
The Group is lessor for a number of investment properties. The
accounting for these properties has not changed, but additional
disclosures have been presented in Note 11.
-40-
3. Critical accounting estimates and judgements in applying
accounting policies
Judgements
The primary areas in which the Group has applied judgement are
as follows:
Classification of contracts between insurance and investment
business
Contracts with a significant degree of insurance risk are
treated as insurance contracts. All other contracts are treated as
investment contracts. It is this classification that management
considers to be a critical judgement; however, due to the carrying
value of the insurance contract liabilities within the statement of
financial position, management does not consider insurance business
to be significant to the Group.
Consolidation
Entities are consolidated within the Group financial statements
if they are controlled by the Group. Control exists if the Group is
exposed to, or has rights to, variable returns from its involvement
with the entity and the Group has the ability to affect those
returns through its power over the entity. Significant judgement
can be involved in determining whether the Group controls an
entity, such as in the case of the structured entity set up for the
Group's securitisation transaction, SJP Partner Loans No.1 Limited,
and for the Group's unit trusts.
A structured entity is one that has been designed so that voting
or similar rights are not the dominant factor in deciding who
controls the entity. As a result, factors such as whether a Group
entity is able to direct the relevant activities of the entity and
the extent to which the Group is exposed to variability of returns
are considered. In the case of SJP Partner Loans No.1 Limited, it
was determined that the Group does control the entity and hence it
is consolidated. This is due to an entity in the Group holding the
junior tranche of loan notes, hence being subject to variability of
returns, and the same entity being able to direct the relevant
activities of the structured entity through its role of servicer to
the securitised portfolio.
Unit trusts are consolidated when the Group holds more than 30%
of the units in that unit trust. This is the threshold at which the
Group is considered to achieve control, having regard for factors
such as:
-- the scope of decision making authority held by St. James's
Place Unit Trust Group Limited, the unit trust manager;
-- rights held by external parties to remove the unit trust
manager; and
-- the Group's exposure to variable returns through its holdings
in the unit trusts and the unit trust manager's remuneration.
Determining non-performing business loans to Partners
Business loans to Partners are considered to be non-performing,
in the context of the definition prescribed within
IFRS 9, if they are in default. This is defined as a loan to
either:
-- a Partner who has left the St. James's Place Partnership;
or
-- a Partner who management considers to be at significant risk
of leaving the Partnership where an orderly settlement of debt is
considered to be in question.
The IFRS 9 presumption that default occurs when a loan is more
than 90 days past due has been rebutted. Because of the quality of
cash flows on which loans are secured together with the direct
control exercised over them from source, past evidence supports the
assertion that the vast majority of loans to Partners who remain in
the Partnership are repaid in full, irrespective of the number of
days past due the loan may be.
Estimates
Critical accounting estimates are those which give rise to a
significant risk of material adjustment to the balances recognised
in the financial statements within the next 12 months. The Group's
critical accounting estimates are:
-- determining the value of insurance contract liabilities;
-- determining the fair value of investment property; and
-- determining the fair value of Level 3 fixed income securities
and equities.
Estimates are also applied in other assets of the financial
statements, including determining the value of deferred tax assets,
investment contract benefits, the operational readiness prepayment
and other provisions.
Measurement of insurance contract liabilities
The assumptions used in the calculation of insurance contract
liabilities that have an effect on the statement of comprehensive
income of the Group are:
-- the lapse assumption, which is set prudently based on an
investigation of experience during the year;
-- the level of expenses, which is based on actual expenses in
2019 and expected rates in 2020 and the long term;
-- the mortality and morbidity rates, which are based on the
results of an investigation of experience during the year; and
-- the assumed rate of investment return, which is based on
current gilt yields.
Whilst the measurement of insurance contract liabilities is
considered to be a critical accounting estimate for the Group, the
vast majority of non-unit-linked insurance business written is
reinsured. As a result, the impact of a change in estimate in
determining the value of insurance contract liabilities would be
mitigated to a significant degree by the impact of the change in
estimate in determining the value of reinsurance assets.
Determining the fair value of investment property
In accordance with IAS 40, the Group initially recognises
investment properties at cost, and subsequently re-measures its
portfolio to fair value in the statement of financial position.
Fair value is determined monthly by professional external valuers.
It is 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 to be reached on the attractiveness of a
building, its location and the surrounding environment. As such,
investment properties are classified as Level 3 in the IFRS 13 fair
value hierarchy because they are valued using techniques which are
not based on observable inputs.
-41-
Determining the fair value of Level 3 fixed income securities
and equities
In accordance with IFRS 9, the Group elects to classify its
portfolio of policyholder fixed income securities at fair value
through profit and loss to match the accounting for policyholder
liabilities. Its portfolio of equities is required to be held at
fair value through profit and loss. As a result, all fixed income
securities and equities are initially held at cost and are
subsequently re-measured to fair value at the reporting date.
During 2019, a number of investments were made into private
credit and private equity assets, which are recognised within fixed
income securities and equities on the consolidated statement of
financial position respectively. The fair value of these assets is
determined following a monthly valuation process which uses two
different valuation models and includes verification by
professional external valuers. The models use suitable market
comparatives and an estimate of future cash flows expected to flow
from the issuing entity.
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. As the inputs to the
valuation models are unobservable, the investments in private
credit and private equity assets are classified as Level 3 in the
IFRS 13 fair value hierarchy.
-42-
4. 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 our Partner network, 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 5, which details the different types of revenue received from
our wealth management business.
Segment Profit
Two separate measures of profit are monitored on a monthly basis
by the Board. These are the post-tax Underlying cash result and
pre-tax European Embedded Value (EEV).
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 cashflows within the IFRS results,
but with no allowance for intangibles, principally DAC, DIR, PVIF,
goodwill and deferred tax, or short-term costs associated with the
back-office infrastructure project. As the cost associated with
non-cash-settled share options is reflected in changes in
shareholder equity, they are also not included in the Underlying
cash result.
More detail is provided on pages 16 to 18 of the Financial
Review.
The Cash result should not be confused with the IFRS
consolidated statement of cash flows which is prepared in
accordance with IAS 7.
Year ended Year ended
31 December 31 December
2019 2018
-------------------------------------------------------- ------------ ------------
GBP'Million GBP'Million
-------------------------------------------------------- ------------ ------------
Underlying cash result after tax 273.1 309.0
Non-cash-settled share-based payments (28.7) (33.4)
Impacts of deferred tax (10.4) (31.8)
Back-office infrastructure (38.8) (35.8)
Impact in the year of DAC/DIR/PVIF (26.2) (54.4)
Other (22.4) 19.9
-------------------------------------------------------- ------------ ------------
IFRS profit after tax 146.6 173.5
Shareholder tax 40.5 38.4
-------------------------------------------------------- ------------ ------------
Profit before tax attributable to shareholders' returns 187.1 211.9
Tax attributable to policyholder returns 521.8 (296.5)
-------------------------------------------------------- ------------ ------------
IFRS profit/(loss) before tax 708.9 (84.6)
-------------------------------------------------------- ------------ ------------
-43-
EEV operating profit
EEV operating profit is monitored on a monthly basis by the
Board. The components of the EEV operating profit are included in
more detail in the Financial Review section of the Annual Report
and Accounts.
Year ended Year ended
31 December 31 December
2019 2018
-------------------------------------------------------- ------------ ------------
GBP'Million GBP'Million
-------------------------------------------------------- ------------ ------------
EEV operating profit before tax 952.0 1,002.0
Investment return variance 768.6 (460.9)
Economic assumption changes (27.0) (15.1)
-------------------------------------------------------- ------------ ------------
EEV profit before tax 1,693.6 526.0
-------------------------------------------------------- ------------ ------------
Adjustments to IFRS basis
Deduct: amortisation of purchased value of in-force (3.2) (3.2)
Movement of balance sheet life value of in-force (net
of tax) (946.6) (243.7)
Movement of balance sheet unit trust and DFM value of
in-force (net of tax) (310.9) (16.5)
Tax of movement in value of in-force (245.8) (50.7)
-------------------------------------------------------- ------------ ------------
Profit before tax attributable to shareholders' returns 187.1 211.9
Tax attributable to policyholder returns 521.8 (296.5)
-------------------------------------------------------- ------------ ------------
IFRS profit/(loss) before tax 708.9 (84.6)
-------------------------------------------------------- ------------ ------------
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,
after 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 pages
11 and 12, is the measure of segment assets which is monitored on a
monthly basis by the Board.
31 December 31 December
2019 2018
------------------------------------------------------------ ----------- -----------
GBP'Million GBP'Million
------------------------------------------------------------ ----------- -----------
Investment 31,220.0 27,620.0
Pension 52,840.0 40,720.0
UT/ISA and DFM 32,930.0 27,210.0
------------------------------------------------------------ ----------- -----------
Total FUM 116,990.0 95,550.0
Exclude client and third-party holdings in non-consolidated
unit trusts and DFM (5,185.1) (4,701.6)
Other 1,742.0 666.9
------------------------------------------------------------ ----------- -----------
Gross assets held to cover unit liabilities 113,546.9 91,515.3
IFRS intangible assets (see page 19 adjustment 2) including
goodwill, DAC, PVIF, reinsurance and deferred tax 658.6 720.9
Shareholder gross assets (see page 19) 3,086.5 2,590.8
------------------------------------------------------------ ----------- -----------
Total assets 117,292.0 94,827.0
------------------------------------------------------------ ----------- -----------
-44-
5. Fee and commission income
Year ended Year ended
31 December 31 December
2019 2018
-------------------------------------------------- ------------ ------------
GBP'Million GBP'Million
-------------------------------------------------- ------------ ------------
Advice charges (post-RDR) 749.7 743.2
Third-party fee and commission income 120.8 113.0
Wealth management fees 724.8 721.9
Investment management fees 71.6 85.7
Fund tax deductions 521.8 (296.5)
Discretionary fund management fees 16.2 13.8
-------------------------------------------------- ------------ ------------
Fee and commission income before DIR amortisation 2,204.9 1,381.1
Amortisation of DIR 169.2 142.6
-------------------------------------------------- ------------ ------------
Total fee and commission income 2,374.1 1,523.7
-------------------------------------------------- ------------ ------------
For all post-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 or third-party
product.
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.
Where an investment has been made into a third-party product,
third-party fee and commission income is received from the product
provider.
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 deductions represent amounts deducted from, or credited
to, the underlying funds to match policyholder tax charges or
credit. This arises because the UK tax regime includes a
policyholder tax element within the Group's tax arrangements. The
amount of tax attributable to policyholders reflects investment
return in the underlying funds. During 2019, market gains led to a
significant policyholder tax charge, hence GBP521.8 million of
deductions were made from the funds. In contrast, during 2018,
market falls led to a significant policyholder tax credit, hence a
credit of GBP296.5 million to the funds.
Discretionary fund management fees are received from clients for
DFM services.
-45-
6. Investment return and movement in investment contract
benefits
The majority of the business written by the Group is unit-linked
investment business, and so investment contract benefits are
measured by reference to the underlying net asset value of the
Group's unitised investment funds. As a result, investment return
on the unitised investment funds and the movement in investment
contract benefits are linked.
Investment return
Year ended Year ended
31 December 31 December
2019 2018
---------------------------------------------------------------- ------------ ------------
GBP'Million GBP'Million
---------------------------------------------------------------- ------------ ------------
Investment return on net assets held to cover unit liabilities:
Rental income 94.1 90.9
Loss on revaluation of investment properties (74.2) (22.8)
Net investment return on financial instruments classified
as fair value through profit and loss 10,741.6 (3,046.0)
---------------------------------------------------------------- ------------ ------------
10,761.5 (2,977.9)
Attributable to unit-linked insurance contract liabilities 65.4 6.6
Attributable to unit-linked investment contract benefits 10,696.1 (2,984.5)
---------------------------------------------------------------- ------------ ------------
10,761.5 (2,977.9)
Income attributable to third-party holdings in unit trusts 3,374.5 (1,264.7)
---------------------------------------------------------------- ------------ ------------
14,136.0 (4,242.6)
---------------------------------------------------------------- ------------ ------------
Investment return on shareholder assets:
Net investment return on financial instruments classified
as fair value through profit and loss 18.7 (4.5)
Interest income on financial instruments held at amortised
cost 18.9 12.1
---------------------------------------------------------------- ------------ ------------
37.6 7.6
---------------------------------------------------------------- ------------ ------------
Total investment return 14,173.6 (4,235.0)
---------------------------------------------------------------- ------------ ------------
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 GBP1,285.6 million (2018: GBP987.7 million).
Movement in investment contract benefits
2019 2018
--------------------------------------------------------- ----------- -----------
GBP'Million GBP'Million
--------------------------------------------------------- ----------- -----------
Balance at 1 January 67,796.1 64,014.3
Deposits 10,852.9 11,307.4
Withdrawals (4,641.4) (4,168.5)
Movement in unit-linked investment contract benefits 10,696.1 (2,984.5)
Less: fees and other adjustments (1,145.2) (372.6)
--------------------------------------------------------- ----------- -----------
Balance at 31 December 83,558.5 67,796.1
--------------------------------------------------------- ----------- -----------
Current 5,316.4 4,188.2
Non-current 78,242.1 63,607.9
--------------------------------------------------------- ----------- -----------
83,558.5 67,796.1
--------------------------------------------------------- ----------- -----------
Movement in unit liabilities
Unit-linked investment contract benefits 10,696.1 (2,984.5)
Third-party unit trust holdings 3,374.5 (1,264.7)
--------------------------------------------------------- ----------- -----------
Movement in investment contract benefits in consolidated
statement of comprehensive income 14,070.6 (4,249.2)
--------------------------------------------------------- ----------- -----------
-46-
7. Income and deferred taxes
Tax for the year
Year ended Year ended
31 December 31 December
2019 2018
------------------------------------------------------- ------------ ------------
GBP'Million GBP'Million
------------------------------------------------------- ------------ ------------
Current tax
UK corporation tax
- Current year charge 215.7 79.1
- Adjustment in respect of prior year 1.0 (2.7)
Overseas taxes
- Current year charge 11.0 4.9
- Adjustment in respect of prior year 0.2 0.1
------------------------------------------------------- ------------ ------------
227.9 81.4
Deferred tax
Unrealised capital gains/(losses) in unit-linked funds 333.8 (359.2)
Unrelieved expenses
- Additional expenses recognised in the year (11.6) (11.1)
- Utilisation in the year 12.9 15.0
Capital losses
- Revaluation in the year 1.1 (1.8)
- Utilisation in the year 10.3 29.7
- Adjustment in respect of prior year (0.3) 2.4
DAC, DIR and PVIF (11.0) (11.5)
Other items 1.1 (3.4)
Overseas losses (0.7) (0.5)
Adjustments in respect of prior periods (1.2) 0.9
------------------------------------------------------- ------------ ------------
334.4 (339.5)
Total tax charge/(credit) for the year 562.3 (258.1)
------------------------------------------------------- ------------ ------------
Attributable to:
- policyholders 521.8 (296.5)
- shareholders 40.5 38.4
------------------------------------------------------- ------------ ------------
562.3 (258.1)
------------------------------------------------------- ------------ ------------
The prior year adjustment of GBP1.2 million in current tax above
represents a credit of GBP0.1 million in respect of policyholder
tax (2018: GBP0.9 million charge) and a charge of GBP1.3 million in
respect of shareholder tax (2018: GBP3.5 million credit). The total
prior year adjustments in deferred tax relate entirely to
shareholder tax.
Included within the deferred tax on 'other items' is a charge of
GBP1.5 million (2018: GBP0.8 million credit) relating to
share-based payments.
In arriving at the profit before tax attributable to
shareholders' return, it is necessary to estimate the analysis of
the total tax 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 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
Year ended Year ended
31 December 31 December
2019 2018
-------------------------------------------------------------------------- ------------ ------ ------------ ------
GBP'Million GBP'Million
-------------------------------------------------------------------------- ------------ ------ ------------ ------
Profit/(loss) before tax 708.9 (84.6)
Tax attributable to policyholders' returns (521.8) 296.5
-------------------------------------------------------------------------- ------------ ------ ------------ ------
Profit before tax attributable to shareholders' return 187.1 211.9
Shareholder tax charge at corporate tax rate of 19% (2018: 19%) 35.5 19% 40.3 19%
Adjustments:
Lower rates of corporation tax in overseas subsidiaries (0.5) (0.3%) (0.3) (0.1%)
-------------------------------------------------------------------------- ------------ ------ ------------ ------
Expected shareholder tax 35.0 18.7% 40.0 18.9%
-------------------------------------------------------------------------- ------------ ------ ------------ ------
Effects of:
Non-taxable income (1.3) (0.2)
Revaluation of historic capital losses in the Group 1.1 (1.8)
Adjustment in respect of prior year
- Current tax 1.3 (3.5)
- Deferred tax (1.5) 0.9
Differences in accounting and tax bases in relation to employee share
schemes 1.2 (1.1)
Disallowable expenses 2.3 2.0
Other (0.2) -
Tax losses not recognised 2.6 2.1
-------------------------------------------------------------------------- ------------ ------ ------------ ------
5.5 2.9% (1.6) (0.8%)
-------------------------------------------------------------------------- ------------ ------ ------------ ------
Shareholder tax charge 40.5 21.6% 38.4 18.1%
Policyholder tax charge/(credit) 521.8 (296.5)
-------------------------------------------------------------------------- ------------ ------ ------------ ------
Total tax charge/(credit) for the year 562.3 (258.1)
-------------------------------------------------------------------------- ------------ ------ ------------ ------
Tax calculated on profit/(loss) before tax at 19% (2018: 19%)
would amount to GBP134.7 million (2018: GBP(16.1) million). The
difference of GBP427.6 million (2018: GBP(242.0) million) between
this number and the total tax of GBP562.3 million (2018: GBP(258.1)
million) is made up of the reconciling items above which total
GBP5.0 million (2018: GBP(1.9) million) and the effect of the
apportionment methodology on tax applicable to policyholder returns
of GBP422.6 million (2018: GBP(240.1) million).
Tax paid in the year
Year ended Year ended
31 December 31 December
2019 2018
------------------------------------------------------------------------------------------ ------------ ------------
GBP'Million GBP'Million
------------------------------------------------------------------------------------------ ------------ ------------
Current tax charge for the year 227.9 81.4
(Payments to be made)/refunds due to be received in future years in respect of current
year (115.4) 9.7
(Refunds received)/payments made in current year in respect of prior years (7.9) 124.7
Other (1.8) 0.7
------------------------------------------------------------------------------------------ ------------ ------------
Tax paid 102.8 216.5
------------------------------------------------------------------------------------------ ------------ ------------
Tax paid can be analysed as:
- Taxes paid in UK 91.2 211.5
- Taxes paid in overseas jurisdictions 1.9 1.5
- Withholding taxes suffered on investment income received 9.7 3.5
------------------------------------------------------------------------------------------ ------------ ------------
Total 102.8 216.5
------------------------------------------------------------------------------------------ ------------ ------------
-48-
Deferred Tax balances
Deferred tax
assets
Capital losses Fixed asset Other
Unrelieved Deferred (available for Share-based temporary temporary
expenses income (DIR) future relief) payments differences differences Total
GBP'Million GBP'Million GBP'Million GBP'Million GBP'Million GBP'Million GBP'Million
---------------- ------------- ------------- -------------- ------------ ------------ ------------- -----------
At 1 January
2018 46.4 37.9 86.0 7.5 3.7 1.2 182.7
(Charge)/credit
to the
statement of
comprehensive
income (3.9) (2.3) (30.3) 0.5 0.3 0.1 (35.6)
---------------- ------------- ------------- -------------- ------------ ------------ ------------- -----------
At 31 December
2018 42.5 35.6 55.7 8.0 4.0 1.3 147.1
(Charge)/credit
to the
statement of
comprehensive
income (1.3) (3.0) (11.1) (1.5) 0.9 - (16.0)
At 31 December
2019 41.2 32.6 44.6 6.5 4.9 1.3 131.1
---------------- ------------- ------------- -------------- ------------ ------------ ------------- -----------
Expected
utilisation
period
---------------- ------------- ------------- -------------- ------------ ------------ ------------- -----------
As at 31 6 years 3 years 6 years
December 2018 6 years 14 years
---------------- ------------- ------------- -------------- ------------ ------------ ------------- -----------
As at 31 7 years 3 years 6 years
December 2019 6 years 14 years
---------------- ------------- ------------- -------------- ------------ ------------ ------------- -----------
Deferred tax
liabilities
Unrealised
capital gains
on life Deferred Purchased Other
insurance acquisition value of Renewal temporary
(BLAGAB) assets costs (DAC) in-force income assets differences Total
backing unit business (PVIF)
liabilities
GBP'Million GBP'Million GBP'Million GBP'Million GBP'Million GBP'Million
----------------- --------------- ---------------- ---------------- --------------- ---------------- -----------
At 1 January 2018 445.5 84.0 4.8 10.6 1.9 546.8
(Credit)/charge
to the statement
of comprehensive
income (359.2) (13.1) (0.7) (1.4) (0.7) (375.1)
Impact of
acquisitions - - - 1.2 - 1.2
----------------- --------------- ---------------- ---------------- --------------- ---------------- -----------
At 31 December
2018 86.3 70.9 4.1 10.4 1.2 172.9
----------------- --------------- ---------------- ---------------- --------------- ---------------- -----------
Charge/(credit)
to the statement
of comprehensive
income 333.8 (13.4) (0.6) (1.7) 0.3 318.4
Impact of
acquisition - - - 2.4 - 2.4
----------------- --------------- ---------------- ---------------- --------------- ---------------- -----------
At 31 December
2019 420.1 57.5 3.5 11.1 1.5 493.7
----------------- --------------- ---------------- ---------------- --------------- ---------------- -----------
Expected
utilisation
period
----------------- --------------- ---------------- ---------------- --------------- ---------------- -----------
As at 31 December 14 years 7 years 20 years
2018 6 years
----------------- --------------- ---------------- ---------------- --------------- ---------------- -----------
As at 31 December 14 years 6 years 20 years
2019 6 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.
The expected utilisation period for the deferred tax asset on
capital losses has been extended in the year. The increase reflects
the impact of the extension of the existing loss restriction rules
to also cover capital losses, which is expected to have effect from
1 April 2020.
At the reporting date there were unrecognised deferred tax
assets of GBP12.0 million (2018: GBP7.5 million) in respect of
GBP71.5 million (2018: GBP44.9 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.
Future Tax Changes
Future tax rate changes, including the reduction in the
corporation tax rate to 17% effective from 1 April 2020 which was
enacted in the Finance Act 2016, were incorporated into the
deferred tax balances in 2016.
In November 2019, the UK Prime Minister pledged to postpone this
reduction in the corporation tax rate to 17%. This change has yet
to be substantively enacted and therefore is not reflected in the
above numbers. The impact, were the change to be substantively
enacted, would be immaterial.
-49-
8. Goodwill, intangible assets, deferred acquisition costs and
deferred income
Computer
software
Purchased and
value other
of specific
in-force software
Goodwill business developments DAC DIR
-------------------------------- ----------- ----------- ------------- ----------- -----------
GBP'Million GBP'Million GBP'Million GBP'Million GBP'Million
-------------------------------- ----------- ----------- ------------- ----------- -----------
Cost
At 1 January 2018 15.6 73.4 16.0 1,686.7 (1,669.4)
Additions - - 0.1 33.7 (144.6)
-------------------------------- ----------- ----------- ------------- ----------- -----------
At 31 December 2018 15.6 73.4 16.1 1,720.4 (1,814.0)
Additions - - 8.9 28.1 (135.6)
-------------------------------- ----------- ----------- ------------- ----------- -----------
At 31 December 2019 15.6 73.4 25.0 1,748.5 (1,949.6)
-------------------------------- ----------- ----------- ------------- ----------- -----------
Accumulated amortisation
At 1 January 2018 - 46.2 13.6 1,063.7 (1,023.1)
Charge for the year - 3.2 1.1 98.2 (142.6)
-------------------------------- ----------- ----------- ------------- ----------- -----------
At 31 December 2018 - 49.4 14.7 1,161.9 (1,165.7)
Charge for the year - 3.2 1.4 96.6 (169.2)
-------------------------------- ----------- ----------- ------------- ----------- -----------
At 31 December 2019 - 52.6 16.1 1,258.5 (1,334.9)
-------------------------------- ----------- ----------- ------------- ----------- -----------
Carrying value
At 1 January 2018 15.6 27.2 2.4 623.0 (646.3)
-------------------------------- ----------- ----------- ------------- ----------- -----------
At 31 December 2018 15.6 24.0 1.4 558.5 (648.3)
-------------------------------- ----------- ----------- ------------- ----------- -----------
At 31 December 2019 15.6 20.8 8.9 490.0 (614.7)
-------------------------------- ----------- ----------- ------------- ----------- -----------
Current - 3.2 2.4 92.2 (156.0)
Non-current 15.6 17.6 6.5 397.8 (458.7)
-------------------------------- ----------- ----------- ------------- ----------- -----------
15.6 20.8 8.9 490.0 (614.7)
-------------------------------- ----------- ----------- ------------- ----------- -----------
Outstanding amortisation period
At 31 December 2018 n/a 7 years 3 years 14 years 6-14 years
-------------------------------- ----------- ----------- ------------- ----------- -----------
At 31 December 2019 n/a 6 years 2-5 years 14 years 6-14 years
-------------------------------- ----------- ----------- ------------- ----------- -----------
-50-
Goodwill
The carrying value of goodwill split by acquisition is as
follows:
31 December 31 December
2019 2018
----------------------------- ----------- -----------
GBP'Million GBP'Million
----------------------------- ----------- -----------
SJP Asia companies 10.1 10.1
Technical Connection Limited 3.7 3.7
Rowan Dartington companies 1.8 1.8
----------------------------- ----------- -----------
Balance at 31 December 15.6 15.6
----------------------------- ----------- -----------
Goodwill is reviewed at least annually for impairment, or when
circumstances or events indicate there may be uncertainty over this
value. The recoverable amount has been based on value-in-use
calculations using pre-tax cash flows. Details of the assumptions
made in these calculations are provided below:
Key assumptions based on experience: Value of new business
Projection period: Five years of detailed forecasts extrapolated
into perpetuity
using a long-term growth rate
Long-term growth rate based on economic forecasts: 1.3% (2018: 1.3%)
Pre-tax discount rate based on a risk-free rate plus a risk margin: 4.0% (2018: 4.5%)
It is considered that any reasonably possible levels of change
in the key assumptions would not result in impairment of the
goodwill.
Purchased value of in-force business/DAC/Computer software
Amortisation is charged to expenses in the statement of
comprehensive income. Amortisation profiles are reassessed
annually.
DIR
Amortisation is credited within fee and commission income in the
statement of comprehensive income. Amortisation profiles are
reassessed annually.
-51-
9. Property and equipment, including leased assets
Fixtures, fittings Leased
and office Computer assets:
equipment equipment properties Total
-------------------------------------------- ------------------ ----------- ----------- -----------
GBP'Million GBP'Million GBP'Million GBP'Million
-------------------------------------------- ------------------ ----------- ----------- -----------
Cost
At 1 January 2018 46.2 5.7 - 51.9
Additions 6.6 2.0 - 8.6
Disposals (0.1) - - (0.1)
-------------------------------------------- ------------------ ----------- ----------- -----------
At 31 December 2018 52.7 7.7 - 60.4
Recognised on adoption of IFRS 16 Leases - - 91.8 91.8
Additions 16.2 1.1 49.7 67.0
Disposals (0.8) (0.4) - (1.2)
-------------------------------------------- ------------------ ----------- ----------- -----------
At 31 December 2019 68.1 8.4 141.5 218.0
-------------------------------------------- ------------------ ----------- ----------- -----------
Accumulated depreciation
At 1 January 2018 22.7 2.8 - 25.5
Charge for the year 4.7 1.8 - 6.5
Eliminated on disposal (0.1) - - (0.1)
-------------------------------------------- ------------------ ----------- ----------- -----------
At 31 December 2018 27.3 4.6 - 31.9
Charge for the year 4.0 1.8 14.9 20.7
Eliminated on disposal (0.7) (0.2) - (0.9)
-------------------------------------------- ------------------ ----------- ----------- -----------
At 31 December 2019 30.6 6.2 14.9 51.7
-------------------------------------------- ------------------ ----------- ----------- -----------
Net book value
At 1 January 2018 23.5 2.9 - 26.4
-------------------------------------------- ------------------ ----------- ----------- -----------
At 31 December 2018 25.4 3.1 - 28.5
-------------------------------------------- ------------------ ----------- ----------- -----------
At 31 December 2019 37.5 2.2 126.6 166.3
-------------------------------------------- ------------------ ----------- ----------- -----------
Amortisation period (estimated useful life) 5-15 years 3 years 1-23 years
-------------------------------------------- ------------------ ----------- ----------- -----------
Leased assets - properties were recognised for the first time on
1 January 2019, upon adoption of IFRS 16 Leases. Further
information about the adoption of this new accounting standard can
be found in Note 2.
-52-
10. Leases
This note provides information on leases where the Group is a
lessee. For information on leases where the Group is a lessor,
refer to Note 11.
THE GROUP'S LEASING ACTIVITIES AND HOW THESE ARE ACCOUNTED
FOR
The Group leases a portfolio of office properties, equipment and
vehicles. The exemptions available under IFRS 16 for low-value or
short-term leases have been applied to all leased equipment and
vehicles, and so the leased assets and lease liabilities on the
consolidated statement of financial position, and the depreciation
charge for leased assets and interest expense on lease liabilities
in the consolidated statement of comprehensive income, relate to
the Group's portfolio of office properties only.
Leases are negotiated on an individual basis and hence contain a
variety of different terms and conditions. They contain covenants
and restrictions but generally these are standard and to be
expected in a modern, commercial lease created under open-market
terms. Typical covenants include paying the annual rent, insurance
premiums, service charge, rates and VAT and keeping the property in
good repair and condition throughout the lease. Typical
restrictions include permitting office use only and not
transferring or assigning the lease to a third party without the
lessor's consent. There are no residual value guarantees.
At 31 December 2019 the Group has committed to the lease of an
office property, which will commence on 1 January 2020 with a
15-year lease term and annual rent payments of GBP1.0 million
excluding VAT. On the commencement date of this lease, in
accordance with IFRS 16 the Group will recognise a right-of-use
asset of GBP11.7 million and a lease liability of GBP11.4
million.
The Group is exposed to variability in lease payments as a
number of leases include rent reviews during the lease term which
are linked to an index or market rates. In accordance with IFRS 16,
these variable lease payments are initially measured based on the
index or rate at the commencement date of the lease. Estimates of
future rent changes are not made; these changes are taken into
account in the lease liabilities and leased assets only when the
lease payments change and so the variability is resolved. There are
no variable lease payments which are not linked to an index or
market rates.
The Group has not entered into any sale and leaseback
transactions.
The disclosures required upon transition to IFRS 16 are set out
in Note 2.
AMOUNTS RECOGNISED IN THE CONSOLIDATED STATEMENT OF FINANCIAL
POSITION
The following amounts are recognised in the consolidated
statement of financial position:
31 December 1 January
2019 2019(1)
------------------------------------------------------------ ----------- -----------
GBP'Million GBP'Million
------------------------------------------------------------ ----------- -----------
Within the property and equipment balance - refer to Note 9
Leased assets - properties 126.6 91.8
------------------------------------------------------------ ----------- -----------
Within the other payables balance - refer to Note 13
Lease liabilities - properties 118.6 83.2
------------------------------------------------------------ ----------- -----------
(1) Comparatives are presented as at 1 January 2019, being the
date of transition to IFRS 16 and hence the date of initial
recognition for these balances.
A movement schedule for leased assets, setting out additions
during the year and depreciation charged, is presented in Note
9.
AMOUNTS RECOGNISED IN THE CONSOLIDATED STATEMENT OF
COMPREHENSIVE INCOME
The following amounts are recognised within expenses in the
consolidated statement of comprehensive income:
Year ended
31 December
2019
--------------------------------------------------- ------------
GBP'Million
--------------------------------------------------- ------------
Depreciation charge for leased assets - properties 14.9
Interest expense on lease liabilities - properties 2.9
Lease expense relating to short-term leases 2.6
Lease expense relating to low-value assets 1.3
--------------------------------------------------- ------------
Total lease expense for the year 21.7
--------------------------------------------------- ------------
Total cash outflow for leases during the year 11.1
--------------------------------------------------- ------------
-53-
11. Investments, investment property and cash and cash
equivalents
Net assets held to cover unit liabilities
Included within the statement of financial position are the
following assets and liabilities comprising the net assets held to
cover unit liabilities. The 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 19.
31 December 31 December
2019 2018
--------------------------------------------- ----------- -----------
GBP'Million GBP'Million
--------------------------------------------- ----------- -----------
Assets
Investment property 1,750.9 1,820.7
Equities 72,694.2 56,077.9
Fixed income securities 26,270.4 21,960.6
Investment in Collective Investment Schemes 4,034.6 3,459.1
Cash and cash equivalents 6,720.8 6,629.1
Other receivables 733.1 1,059.1
Derivative financial instruments
- Currency forwards 588.2 153.7
- Interest rate swaps 76.7 70.0
- Index options 23.3 45.6
- Contracts for differences 359.3 8.4
- Equity rate swaps 8.1 3.5
- Foreign currency options 7.0 21.4
- Total return swaps 129.0 139.0
- Fixed income options 41.4 55.9
- Credit default swaps 109.9 11.3
Total derivative financial assets 1,342.9 508.8
--------------------------------------------- ----------- -----------
Total assets 113,546.9 91,515.3
--------------------------------------------- ----------- -----------
Liabilities
Other payables 745.4 277.7
Derivative financial instruments
- Currency forwards 295.2 199.4
- Interest rate swaps 81.5 52.2
- Index options 49.1 26.5
- Contracts for differences 357.7 10.1
- Equity rate swaps 40.1 5.8
- Foreign currency options 6.1 0.7
- Total return swaps 88.3 194.5
- Credit default swaps 24.2 20.6
- Fixed income options 6.6 7.6
Total derivative financial liabilities 948.8 517.4
--------------------------------------------- ----------- -----------
Total liabilities 1,694.2 795.1
--------------------------------------------- ----------- -----------
Net assets held to cover linked liabilities 111,852.7 90,720.2
--------------------------------------------- ----------- -----------
Investment contract benefits 83,558.5 67,796.1
Net asset value attributable to unit holders 27,830.0 22,502.9
Unit-linked insurance contract liabilities 464.2 421.2
--------------------------------------------- ----------- -----------
Net unit-linked liabilities 111,852.7 90,720.2
--------------------------------------------- ----------- -----------
Net assets held to cover linked liabilities, and third-party
holdings in unit trusts, are considered to have a maturity of up to
one year since the corresponding unit liabilities are repayable and
transferable on demand.
-54-
Investment Property
31 December 31 December
2019 2018
----------------------------------------------- ----------- -----------
GBP'Million GBP'Million
----------------------------------------------- ----------- -----------
Balance at 1 January 1,820.7 1,630.9
Additions 42.5 274.0
Capitalised expenditure on existing properties 14.4 3.3
Disposals (52.5) (64.7)
Changes in fair value (74.2) (22.8)
----------------------------------------------- ----------- -----------
Balance at 31 December 1,750.9 1,820.7
----------------------------------------------- ----------- -----------
The Group is the lessor for a portfolio of properties which meet
the definition of investment property. The portfolio is held within
unit-linked funds, leased out under operating leases and is
considered current. However, since investment properties are not
traded in an organised public market they are relatively illiquid
compared with many other asset classes. There are no restrictions
on the realisability of the Group's individual properties, or on
the remittance of income or proceeds of disposal.
The Group follow various strategies to minimise the risks
associated with any rights the Group retains in the investment
properties. These strategies include:
-- actively reviewing and monitoring the condition of the
properties and maintaining appropriate repairs, capital works
projects and investments;
-- engaging professional legal advisors in drafting prudent
lease terms governing the use of the properties and engaging
specialist asset managers to oversee adherence to these terms on an
ongoing basis;
-- actively reviewing and monitoring lessee financial covenant positions;
-- maintaining appropriate and prudent insurance for the properties; and
-- senior management regularly reviewing the investment property
portfolio to oversee diversification and performance, and to
maximise value and occupancy rates.
Investment property is valued monthly by external chartered
surveyors in accordance with the guidance issued by The Royal
Institution of Chartered Surveyors. The investment property
valuation has been prepared using the 'market approach' valuation
technique: that is, using prices and other relevant information
generated by market transactions involving identical or comparable
(i.e. similar) assets.
The historical cost of investment properties held at 31 December
2019 is GBP1,726.7 million (2018: GBP1,706.6 million). This
represents the price paid for investment properties, prior to any
subsequent revaluation.
The rental income and direct operating expenses recognised in
the statement of comprehensive income in respect of investment
properties are set out below. All expenses relate to property
generating rental income.
Year ended Year ended
31 December 31 December
2019 2018
-------------------------- ------------ ------------
GBP'Million GBP'Million
-------------------------- ------------ ------------
Rental income 94.1 90.9
Direct operating expenses 8.1 7.6
-------------------------- ------------ ------------
At the year end contractual obligations to purchase, construct
or develop investment property amounted to GBP24.5 million (2018:
GBP23.0 million). The most significant contractual obligations at
31 December 2019 were:
-- GBP13.7 million for the funding of a pre-let hotel
development, which commenced in 2018 and is scheduled for
completion in 2020. The lease will complete upon delivery of the
finished building; and
-- GBP5.6 million for the redevelopment of a vacant 2.9 acre
estate to accommodate modern, high-quality industrial space, also
scheduled for completion in 2020.
Contractual obligations to dispose of investment property
amounted to nil (2018: GBPnil).
A maturity analysis of undiscounted contractual rental income to
be received on an annual basis for the next five years, and the
total to be received thereafter, is set out below.
31 December
2019
------------------------------------------------------------ -----------
GBP'Million
------------------------------------------------------------ -----------
Undiscounted contractual rental income to be received in:
2020 86.8
2021 83.4
2022 77.3
2023 71.7
2024 65.0
2025 onwards 339.1
------------------------------------------------------------ -----------
Total undiscounted contractual rental income to be received 723.3
------------------------------------------------------------ -----------
-55-
Cash and cash equivalents
31 December 31 December
2019 2018
------------------------------------------------------------- ----------- -----------
GBP'Million GBP'Million
------------------------------------------------------------- ----------- -----------
Cash and cash equivalents not held to cover unit liabilities 292.8 248.5
Balances held to cover unit liabilities 6,720.8 6,629.1
------------------------------------------------------------- ----------- -----------
Total cash and cash equivalents 7,013.6 6,877.6
------------------------------------------------------------- ----------- -----------
All cash and cash equivalents are considered current.
12. Other receivables
31 December 31 December
2019 2018
----------------------------------------------------------------------------- ----------- -----------
GBP'Million GBP'Million
----------------------------------------------------------------------------- ----------- -----------
Receivables in relation to unit liabilities excluding policyholder interests 313.6 1.0
Other receivables in relation to insurance and unit trust business 83.6 68.6
Operational readiness prepayment 299.2 236.4
Advanced payments to Partners 59.8 44.9
Other prepayments 67.6 70.1
Business loans to Partners 476.5 394.5
Renewal income assets 85.7 72.1
Miscellaneous 5.9 2.5
----------------------------------------------------------------------------- ----------- -----------
Total other receivables on the Solvency II Net Assets Balance Sheet(1) 1,391.9 890.1
----------------------------------------------------------------------------- ----------- -----------
Policyholder interests in other receivables (see Note 11) 733.1 1,059.1
Miscellaneous (see adjustment 2 on page 19) 2.1 3.1
----------------------------------------------------------------------------- ----------- -----------
Total other receivables 2,127.1 1,952.3
----------------------------------------------------------------------------- ----------- -----------
Current 1,310.9 1,297.7
Non-current 816.2 654.6
----------------------------------------------------------------------------- ----------- -----------
2,127.1 1,952.3
----------------------------------------------------------------------------- ----------- -----------
1 This note has been represented in 2019 to include a sub-total
for 'Total other receivables on the Solvency II Net Assets Balance
Sheet'.
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 those financial assets held
at amortised cost is not materially different from amortised
cost.
Receivables in relation to unit liabilities and policyholder
interests in other receivables 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, typically settled within three
days.
The operational readiness prepayment relates to the Bluedoor
administration platform which has been 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
new platform. It is believed that any reasonably possible change in
the assumptions applied within this assessment, such as 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 on the date of
acquisition.
Business loans to Partners
31 December 31 December
2019 2018
-------------------------------------------------------- ----------- -----------
GBP'Million GBP'Million
-------------------------------------------------------- ----------- -----------
Business loans to Partners directly funded by the Group 316.0 295.5
Securitised business loans to Partners 160.5 99.0
-------------------------------------------------------- ----------- -----------
Total business loans to Partners 476.5 394.5
-------------------------------------------------------- ----------- -----------
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 GBP160.5 million (31 December 2018:
GBP99.0 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 14 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.
The securitised business loans to Partners remain recognised on
the Group statement of financial position as the Group controls SJP
Partner Loans No.1 Limited: refer to the Consolidation judgement in
Note 3 for further information.
-56-
Reconciliation of the business loans to Partners opening and
closing gross loan balances
Stage 2 Stage 3
Stage 1 under- non-
performing performing performing Total
--------------------------------------------------- ----------- ----------- ----------- -----------
GBP'Million GBP'Million GBP'Million GBP'Million
--------------------------------------------------- ----------- ----------- ----------- -----------
Gross balance at 1 January 2019 383.0 7.6 7.0 397.6
Business loans to Partners classification changes:
- Transfer to underperforming (9.5) 9.5 - -
- Transfer to non-performing (3.4) (0.1) 3.5 -
- Transfer to performing 4.7 (3.8) (0.9) -
New lending activity during the year 230.9 - - 230.9
Interest charged during the year 18.2 0.4 0.3 18.9
Repayments activity during the year (164.1) (0.7) (2.4) (167.2)
Write-off for non-credit related reasons (0.1) - - (0.1)
--------------------------------------------------- ----------- ----------- ----------- -----------
Gross balance at 31 December 2019 459.7 12.9 7.5 480.1
--------------------------------------------------- ----------- ----------- ----------- -----------
Stage 2 Stage 3
Stage 1 under- non-
performing performing performing Total
--------------------------------------------------- ----------- ----------- ----------- -----------
GBP'Million GBP'Million GBP'Million GBP'Million
--------------------------------------------------- ----------- ----------- ----------- -----------
Gross balance at 1 January 2018 252.0 8.3 8.1 268.4
Business loans to Partners classification changes:
- Transfer to underperforming (5.0) 5.0 - -
- Transfer to non-performing (0.2) (0.1) 0.3 -
- Transfer to performing 5.0 (5.0) - -
New lending activity during the year 296.5 - - 296.5
Interest charged during the year(1) 11.3 0.5 0.3 12.1
Repayments activity during the year(1) (176.6) (1.1) (1.7) (179.4)
--------------------------------------------------- ----------- ----------- ----------- -----------
Gross balance at 31 December 2018 383.0 7.6 7.0 397.6
--------------------------------------------------- ----------- ----------- ----------- -----------
1 In 2018, interest charged was netted against repayments, hence
the total repayments for the year were given as GBP167.3 million.
For 2019, interest has been presented separately, and so the 2018
table has been represented accordingly.
Business loans to Partners: provision
The expected loss impairment model for business loans to
Partners is based on the levels of loss experienced in the
portfolio, with due consideration given to forward-looking
information.
The provision held against business loans to Partners is
immaterial: at 31 December 2019, the provision was GBP3.6 million
(31 December 2018: GBP3.1 million). During the year, GBP0.2 million
of the provision was released (2018: GBP0.6 million) whilst new
provisions and adjustments to existing provisions increased the
total by GBP0.7 million (2018: GBP1.4 million).
There is no provision held against any other receivables held at
amortised cost.
Business loans to Partners as recognised on the statement of
financial position
31 December 31 December
2019 2018
--------------------------------- ----------- -----------
GBP'Million GBP'Million
--------------------------------- ----------- -----------
Gross business loans to Partners 480.1 397.6
Provision (3.6) (3.1)
--------------------------------- ----------- -----------
Net business loans to Partners 476.5 394.5
--------------------------------- ----------- -----------
-57-
Movement in renewal income assets
2019 2018
-------------------------------------------
GBP'Million GBP'Million
------------------------------------------- ----------- -----------
At 1 January 72.1 71.6
Additions 17.1 9.7
Disposals - (0.2)
Revaluation (3.5) (9.0)
------------------------------------------- ----------- -----------
Total renewal income assets at 31 December 85.7 72.1
------------------------------------------- ----------- -----------
The key assumptions used for the assessment of the fair value of
the renewal income are as follows:
31 December 31 December
2019 2018
-------------------------------------------------------------- ---------------- ----------------
Lapse rate - SJP Partner renewal income(1) 5.0%-15.0% 5.0%-15.0%
Lapse rate - non-SJP renewal income(1) 15.0%-25.0% 15.0%-25.0%
Discount rate 5.8% -7.5% 5.0%-7.5%
-------------------------------------------------------------- ---------------- ----------------
1 Future income streams are projected making use of retention assumptions derived from the
Group's experience of the business or, where insufficient data exists, from external industry
experience. These assumptions are reviewed on an annual basis.
These assumptions have been used for the analysis of each
business combination classified within renewal income.
13. Other payables
31 December 31 December
2019 2018
----------------------------------------------------------------------------- ----------- -----------
GBP'Million GBP'Million
----------------------------------------------------------------------------- ----------- -----------
Payables in relation to unit liabilities excluding policyholder interests 106.8 282.6
Other payables in relation to insurance and unit trust business 411.0 336.9
Accrual for ongoing advice fees 118.1 107.3
Other accruals(1) 72.1 90.1
Contract payment(2) 77.9 85.3
Lease liabilities 118.6 -
Miscellaneous(1,2) 129.2 54.7
----------------------------------------------------------------------------- ----------- -----------
Total other payables on the Solvency II Net Assets Balance Sheet(2) 1,033.7 956.9
----------------------------------------------------------------------------- ----------- -----------
Policyholder interests in other payables (see Note 11) 745.4 277.7
Miscellaneous (see adjustment 2 on page 19) 3.6 56.2
----------------------------------------------------------------------------- ----------- -----------
Total other payables 1,782.7 1,290.8
----------------------------------------------------------------------------- ----------- -----------
Current 1,605.7 1,213.7
Non-current 177.0 77.1
----------------------------------------------------------------------------- ----------- -----------
1,782.7 1,290.8
----------------------------------------------------------------------------- ----------- -----------
1 Following a review of accruals during 2019, a balance of GBP61.1 million relating to payables
to Partners at 31 December 2018 has been reclassified from other accruals to miscellaneous.
2 This note has been represented in 2019 to include a sub-total for total other payables on
the Solvency II Net Assets Balance Sheet and to separate the contract payment from miscellaneous.
Payables in relation to unit liabilities and policyholder
interests in other payables 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, typically settled within three days.
The contract payment of GBP77.9 million (2018: GBP85.3 million)
is non-interest bearing and repayable on a straight-line basis over
the life of a 12-year service agreement. The repayment period
commenced on 1 January 2017.
Lease liabilities represent the present value of future cash
flows associated with the Group's portfolio of property leases.
They were initially recognised on 1 January 2019, upon adoption of
IFRS 16 Leases. Further information about the adoption of this new
accounting standard can be found on in Note 2.
The fair value of financial instruments held at amortised cost
within other payables is not materially different from amortised
cost.
-58-
14. 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 12
Other receivables.
Senior unsecured corporate borrowings
31 December 31 December
2019 2018
-------------------------------------- ----------- -----------
GBP'Million GBP'Million
-------------------------------------- ----------- -----------
Corporate borrowings: bank loans 173.3 164.8
Corporate borrowings: loan notes 113.8 113.8
-------------------------------------- ----------- -----------
Senior unsecured corporate borrowings 287.1 278.6
-------------------------------------- ----------- -----------
The primary senior unsecured corporate borrowings are:
-- a GBP340 million revolving credit facility which is repayable
at maturity in 2022 with a variable interest rate. At 31 December
2019 the undrawn credit available under this facility was GBP170
million (31 December 2018: GBP179 million); and
-- a US Dollar $160 million private shelf facility, under which
the Group has issued two tranches of loan notes: one for GBP50
million and another for GBP64 million. The note issues were
denominated in Sterling, eliminating any Group currency risk. The
notes are repayable over ten years, ending in 2025 and 2027
respectively, with variable interest rates.
Senior tranche of non-recourse securitisation loan notes
31 December 31 December
2019 2018
--------------------------------------------------------- ----------- -----------
GBP'Million GBP'Million
--------------------------------------------------------- ----------- -----------
Senior unsecured corporate borrowings 287.1 278.6
Senior tranche of non-recourse securitisation loan notes 116.6 70.0
--------------------------------------------------------- ----------- -----------
Total borrowings 403.7 348.6
--------------------------------------------------------- ----------- -----------
Current - 0.3
Non-current 403.7 348.3
--------------------------------------------------------- ----------- -----------
403.7 348.6
--------------------------------------------------------- ----------- -----------
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. GBP70.0
million of these loan notes were issued during 2018 with a further
GBP50.0 million issued during 2019: a movement schedule has been
set out below. They are held by third-party investors and are
secured on a legally segregated portfolio of GBP160.5 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 12 Other receivables. Holders
of the securitisation loan notes have no recourse to the assets
held by any other entity within the Group.
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.
31 December 31 December
2019 2018
--------------------------------------------------------- ----------- -----------
GBP'Million GBP'Million
--------------------------------------------------------- ----------- -----------
Junior tranche of non-recourse securitisation loan notes 49.9 32.8
Senior tranche of non-recourse securitisation loan notes 116.6 70.0
--------------------------------------------------------- ----------- -----------
Total non-recourse securitisation loan notes 166.5 102.8
--------------------------------------------------------- ----------- -----------
Backed by:
Securitised business loans to Partners (see Note 12) 160.5 99.0
Other net assets of SJP Partner Loans No.1 Limited 6.0 3.8
--------------------------------------------------------- ----------- -----------
Total net assets held by SJP Partner Loans No.1 Limited 166.5 102.8
--------------------------------------------------------- ----------- -----------
-59-
Movement in borrowings
Borrowings are liabilities arising from financing activities.
The cash and non-cash movement in borrowings over the year are set
out below, with the cash movements also set out in the consolidated
statement of cash flows on page 38.
Senior unsecured Senior tranche Total Senior unsecured Senior tranche Total
corporate of borrowings corporate of borrowings
borrowings securitisation borrowings securitisation
loan notes loan notes
-------------------- ---------------- ---------------- ----------- ---------------- ---------------- -----------
2019 2019 2019 2018 2018 2018
---------------- ---------------- ----------- ---------------- ---------------- -----------
GBP'Million GBP'Million GBP'Million GBP'Million GBP'Million GBP'Million
-------------------- ---------------- ---------------- ----------- ---------------- ---------------- -----------
Borrowings at 1
January 278.6 70.0 348.6 279.9 - 279.9
Additional borrowing
during the year 340.0 50.0 390.0 161.0 71.5 232.5
Repayment of
borrowings during
the year (332.0) (2.8) (334.8) (162.2) - (162.2)
Costs on additional
borrowings during
the year - (1.0) (1.0) (0.5) (1.5) (2.0)
Unwind of borrowing
costs (non-cash
movement) 0.5 0.4 0.9 0.4 - 0.4
-------------------- ---------------- ---------------- ----------- ---------------- ---------------- -----------
Borrowings at 31
December 287.1 116.6 403.7 278.6 70.0 348.6
-------------------- ---------------- ---------------- ----------- ---------------- ---------------- -----------
The fair value of the outstanding borrowings is not materially
different from amortised cost. Interest expense on borrowings is
recognised within expenses in the 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
----------------------- ------------------------ ------------------------
31 December 31 December 31 December 31 December
2019 2018 2019 2018
----------- ----------- ----------- -----------
GBP'Million GBP'Million GBP'Million GBP'Million
----------------------- ----------- ----------- ----------- -----------
Bank of Scotland 57.7 61.7 70.0 80.0
Investec 18.5 - 25.0 -
Metro Bank 45.7 52.5 61.0 61.0
Royal Bank of Scotland 15.1 - 25.0 -
Santander 44.5 49.5 50.0 50.0
----------------------- ----------- ----------- ----------- -----------
Total loans 181.5 163.7 231.0 191.0
----------------------- ----------- ----------- ----------- -----------
The fair value of these guarantees has been assessed as nil
(2018: GBPnil).
Operating lease commitments
The Group leases a portfolio of office properties, equipment and
vehicles with varying lease end dates ranging from 2020 to 2042 .
Prior to the adoption of IFRS 16 Leases on 1 January 2019, these
were classified as operating leases. The following table represents
the future minimum lease payments under non-cancellable operating
leases, including VAT, service charges and buildings insurance. No
disclosure is provided for 2019 as from 1 January 2019, the
distinction between finance and operating leases disappeared for
lessees and the Group recognised right-of-use assets for these
leases, except where they are short-term or low-value.
Further information on leases for which the Group is the lessee
is provided in Note 10 Leases.
31 December 31 December
2019 2018
-------------------------------------------------- ----------- -----------
GBP'Million GBP'Million
-------------------------------------------------- ----------- -----------
Not later than one year - 18.0
Later than one year and not later than five years - 53.7
Later than five years - 69.6
-------------------------------------------------- ----------- -----------
Total financial commitments - 141.3
-------------------------------------------------- ----------- -----------
-60-
15. Capital management and allocation
The Group's Capital Management policy, set by the Board, is to
maintain a strong capital base in order to:
-- protect clients' interests;
-- meet regulatory requirements;
-- protect creditors' interests; and
-- create shareholder value through support for business
development.
The policy requires that each subsidiary manages its own
capital, in particular to maintain regulatory solvency, in the
context of a Group capital plan. Any capital in excess of planned
requirements is returned to the Group's Parent Company, St. James's
Place plc, normally by way of dividends. The Group capital position
is monitored by the Audit Committee on behalf of the St. James's
Place plc Board.
Regulatory capital
The Group's capital management policy is, for each subsidiary,
to hold the higher of:
-- the capital required by any relevant supervisory body
uplifted by a specified margin to absorb changes; or
-- the capital required based on the Company's internal
assessment.
For our insurance companies, we hold capital based on our own
internal assessment, recognising the regulatory requirement. For
other regulated companies we generally hold capital based on the
regulatory requirement uplifted by a specified margin.
The following entities are subject to regulatory supervision and
have to maintain a minimum level of regulatory capital:
Entity Regulatory body and jurisdiction
--------------------------------------------------- -----------------------------------------------------------------
St. James's Place UK plc PRA and FCA: Long-term insurance business
St. James's Place International plc Central Bank of Ireland: Life insurance business
St. James's Place Unit Trust Group Limited FCA: UCITS Management Company
St. James's Place Investment Administration Limited FCA: Investment Firm
St. James's Place Wealth Management plc FCA: Personal Investment Firm
St. James's Place Partnership Services Limited FCA: Consumer Credit Firm
BFS Financial Services Limited FCA: Personal Investment Firm
Linden House Financial Services Limited FCA: Personal Investment Firm
St. James's Place (Hong Kong) Limited Securities and Futures Commission (Hong Kong): A Member of The
Hong Kong Confederation of
Insurance Brokers
St. James's Place International (Hong Kong) Limited Insurance Authority (Hong Kong)
St. James's Place (Singapore) Private Limited Monetary Authority Singapore: A Member of the Association of
Financial Advisers
Rowan Dartington & Co Limited FCA: Investment Firm
--------------------------------------------------- -----------------------------------------------------------------
In addition, the St. James's Place Group is regulated as an
insurance group under Solvency II, with the PRA as the lead
regulator.
As an insurance group, St. James's Place is subject to the
Solvency II regulations, which were implemented on 1 January 2016.
More information about capital position of the Group under Solvency
II regulations is set out in the separate Solvency and Financial
Condition Report document. The overall capital position for the
Group at 31 December 2019, assessed on the standard formula basis,
is presented in the following table:
31 December 31 December
2019 2018
------------------------------------------------------------------- ----------- -----------
GBP'Million GBP'Million
------------------------------------------------------------------- ----------- -----------
IFRS total assets 117,292.0 94,827.0
Less Solvency II valuation adjustments and unit-linked liabilities (116,235.2) (93,719.0)
------------------------------------------------------------------- ----------- -----------
Solvency II net assets 1,056.8 1,108.0
Solvency II VIF 4,303.5 3,388.8
Risk margin (1,213.3) (989.4)
------------------------------------------------------------------- ----------- -----------
Own funds (A) 4,147.0 3,507.4
------------------------------------------------------------------- ----------- -----------
Standard formula SCR (B) 3,148.0 2,447.3
------------------------------------------------------------------- ----------- -----------
Solvency II free assets (A-B) 999.0 1,060.1
------------------------------------------------------------------- ----------- -----------
Solvency II ratio (A/B) 132% 143%
------------------------------------------------------------------- ----------- -----------
31 December 31 December
2019 2018
--------------------------------------- ----------- -----------
GBP'Million GBP'Million
--------------------------------------- ----------- -----------
Solvency II net assets 1,056.8 1,108.0
Less: Management Solvency Buffer (MSB) (476.2) (491.0)
--------------------------------------- ----------- -----------
Excess of free assets over MSB 580.6 617.0
--------------------------------------- ----------- -----------
-61-
An overall internal capital assessment is required for insurance
groups. This is known as an ORSA (Own Risk and Solvency Assessment)
and is described in more detail in the ORSA section of the Risk and
Risk Management report; refer to pages 28 and 29.
The regulatory capital requirements of companies within the
Group, and the associated solvency of the Group, are assessed and
monitored by the Finance Executive Committee, a Committee of the
Executive Board, with oversight by the Audit Committee on behalf of
the Group Board. Ultimate responsibility for individual companies'
regulatory capital lies with the relevant subsidiary boards.
There has been no material change in the level of capital
requirements of individual companies during the year, nor in the
Group's management of capital. All regulated entities exceeded the
minimum solvency requirements at the reporting date and during the
year.
IFRS capital composition
The principal forms of capital are included in the following
balances on the consolidated statement of financial position:
31 December 31 December
2019 2018
-------------------------- ----------- -----------
GBP'Million GBP'Million
-------------------------- ----------- -----------
Share capital 80.2 79.4
Share premium 182.4 174.5
Shares in trust reserve (16.4) (23.7)
Miscellaneous reserves 2.5 2.5
Retained earnings 699.4 787.3
-------------------------- ----------- -----------
Shareholders' equity 948.1 1,020.0
Non-controlling interests (0.9) (0.9)
-------------------------- ----------- -----------
Total equity 947.2 1,019.1
-------------------------- ----------- -----------
The above assets do not all qualify as regulatory capital. The
required minimum regulatory capital and analysis of the assets that
qualify as regulatory capital are outlined in Section 3 of the
Financial Review on page 26, which demonstrates that the Group has
met its internal capital objectives. The Group and its individually
regulated operations have complied with all externally and
internally imposed capital requirements throughout the year.
16. Share capital, earnings per share and dividends
Share capital
Number of Called-up
ordinary shares share capital
---------------------- ---------------- --------------
GBP'Million
---------------------- ---------------- --------------
At 1 January 2018 529,077,896 79.4
- Exercise of options 375,501 -
---------------------- ---------------- --------------
At 31 December 2018 529,453,397 79.4
---------------------- ---------------- --------------
- Issue of shares 388,783 0.1
- Exercise of options 4,958,446 0.7
---------------------- ---------------- --------------
At 31 December 2019 534,800,626 80.2
---------------------- ---------------- --------------
Ordinary shares have a par value of 15 pence per share (2018: 15
pence per share) and are fully paid.
Included in the issued share capital are 2,894,530 (2018:
3,505,217) shares held in the shares in trust reserve with a
nominal value of GBP0.4 million (2018: GBP0.5 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 438,105 shares at 31 December
2019 and 845,897 shares at 31 December 2018. No dividends have been
waived on shares held in the St. James's Place 2010 SIP Trust in
2019 or 2018.
Share capital increases are included within the 'exercise of
options' row of the table above where they relate to the Group's
share-based payment schemes. Other share capital increases are
included within the 'issue of shares' row.
-62-
Earnings per share
Year ended Year ended
31 December 31 December
2019 2018
-------------------------------------------------------------------------------------- ------------ ------------
GBP'Million GBP'Million
-------------------------------------------------------------------------------------- ------------ ------------
Earnings
Profit after tax attributable to equity shareholders (for both basic and diluted EPS) 146.6 173.5
-------------------------------------------------------------------------------------- ------------ ------------
Million Million
-------------------------------------------------------------------------------------- ------------ ------------
Weighted average number of shares
Weighted average number of ordinary shares in issue (for basic EPS) 531.3 526.0
Adjustments for outstanding share options 2.7 8.7
-------------------------------------------------------------------------------------- ------------ ------------
Weighted average number of ordinary shares (for diluted EPS) 534.0 534.7
-------------------------------------------------------------------------------------- ------------ ------------
Pence Pence
-------------------------------------------------------------------------------------- ------------ ------------
Earnings per share (EPS)
Basic earnings per share 27.6 33.0
Diluted earnings per share 27.5 32.4
-------------------------------------------------------------------------------------- ------------ ------------
Dividends
The following dividends have been paid by the Group:
Year ended Year ended Year ended Year ended
31 December 31 December 31 December 31 December
2019 2018 2019 2018
------------------------------------------------------ --------------- --------------- ------------ ------------
Pence per share Pence per share GBP'Million GBP'Million
------------------------------------------------------ --------------- --------------- ------------ ------------
Final dividend in respect of previous financial year 29.73 27.45 157.5 145.0
Interim dividend in respect of current financial year 18.49 18.49 98.5 97.7
------------------------------------------------------ --------------- --------------- ------------ ------------
Total dividends 48.22 45.94 256.0 242.7
------------------------------------------------------ --------------- --------------- ------------ ------------
The Directors have recommended a final dividend of 31.22 pence
per share (2018: 29.73 pence). This amounts to GBP167.0 million
(2018: GBP157.4 million) and will, subject to shareholder approval
at the Annual General Meeting, be paid on 22 May 2020 to those
shareholders on the register as at 17 April 2020.
17. Related party transactions
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 gains recognised of GBP12.3
million (2018: losses of GBP36.2 million) and the total value of
transactions with those non-consolidated unit trusts was GBP28.0
million (2018: GBP26.1 million). Net management fees receivable
from these unit trusts amounted to GBP11.3 million (2018: GBP12.2
million). The value of the investment into the non-consolidated
unit trusts at 31 December 2019 was GBP139.9 million (2018:
GBP143.2 million).
Transactions with key management personnel
Key management personnel have been defined as the Board of
Directors and members of the Executive Board. The remuneration paid
to the Board of Directors of St. James's Place plc will be set out
in the Directors' Remuneration Report in our annual report and
accounts, in addition to the disclosure below.
The Remuneration Report also sets out transactions with the
Directors under the Group's share-based payment schemes, together
with details of the Directors' interests in the share capital of
the Company.
Compensation of key management personnel is as follows:
Year ended Year ended
31 December 31 December
2019 2018
----------------------------- ------------ ------------
GBP'Million GBP'Million
----------------------------- ------------ ------------
Short-term employee benefits 4.6 5.9
Post-employment benefits 0.4 0.5
Share-based payment 2.3 4.5
----------------------------- ------------ ------------
Total 7.3 10.9
----------------------------- ------------ ------------
The total value of Group FUM held by related parties of the
Group as at 31 December 2019 was GBP27.1 million (2018: GBP24.7
million). The total value of St. James's Place plc dividends paid
to related parties of the Group during the year was GBP0.9 million
(2018: GBP1.2 million).
Following his appointment to the Executive Board in May 2019,
Robert Gardner became a member of the Group's key management
personnel and hence a related party. As a result Redington Limited,
a company under his joint control which provides the Group with
investment consultancy services, also became a related party.
During 2019, GBP6.0 million was expensed for these services, of
which GBP0.5 million remains outstanding as a payable at 31
December 2019.
-63-
18. Non-statutory accounts
The financial information set out above does not constitute the
Company's statutory accounts for the years ended 31 December 2019
or 2018, but is derived from those accounts. Statutory accounts for
2018 have been delivered to the registrar of companies, and those
for 2019 will be delivered in due course. The auditors have
reported on those accounts; their report was (i) unqualified, (ii)
did not include a reference to any matters to which the auditors
drew attention by way of emphasis without qualifying their report
and (iii) did not contain a statement under section 498 of the
Companies Act 2006.
19. Annual Report
The Company's annual report and accounts for the year ended 31
December 2019 is expected to be posted to shareholders by 7 April
2020. Copies of both this announcement and the annual report and
accounts will be available to the public at the Company's
registered office at St. James's Place House, 1 Tetbury Road,
Cirencester GL7 1FP and through the Company's website at
www.sjp.co.uk.
-64-
GLOSSARY OF ALTERNATIVE PERFORMANCE MEASURES
Within the Annual 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 (IFRS) as adopted by the European Union. 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
Reconciliation
to the
financial
APM Definition Why is this measure used? statements
-------------- ------------------------------------ --------------------------------- ---------------
Solvency Based on IFRS Net Assets, Our ability to satisfy our Refer to
II net but with the following adjustments: liabilities to clients, page 19.
assets 1. Reflection of the recognition and consequently our solvency,
requirements of the Solvency is central to our business.
II regulations for assets By removing the liabilities
and liabilities. In particular which are fully matched
this removes deferred acquisition by assets, this presentation
costs (DAC), deferred income allows the reader to focus
(DIR), purchased value of on the business operation.
in-force (PVIF) and their It also provides a simpler
associated deferred tax comparison with other wealth
balances, other intangibles management companies.
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.
-------------- ------------------------------------ --------------------------------- ---------------
Total embedded A discounted cashflow valuation Life business and wealth Not applicable.
value methodology, assessing the management business differ
long-term economic value from most other businesses,
of the business. in that the expected shareholder
income from the sale of
Our embedded value is determined a product emerges over a
in line with the EEV principles, long period in the future.
originally set out by the We therefore supplement
Chief Financial Officers the IFRS and Cash results
(CFO) Forum in 2004, and by providing additional
amended for subsequent changes disclosure on an embedded
to the principles, including value basis, which brings
those published in April into account the net present
2016, following the implementation value of expected future
of Solvency II. cash flows, as we believe
that a measure of total
economic value of the Group
is useful to investors.
-------------- ------------------------------------ --------------------------------- ---------------
Net asset EEV net asset value per Total embedded value provides Not applicable.
value (NAV) share is calculated as the a measure of total economic
per share EEV net assets divided by value of the Group, and
(EEV) the year end number of ordinary assessing the NAV per share
shares. allows analysis of the overall
value of the Group by share.
-------------- ------------------------------------ --------------------------------- ---------------
NAV per IFRS net asset value per Total IFRS net assets provides Not applicable.
share (IFRS) share is calculated as the a measure of value of the
IFRS net assets divided Group, and assessing the
by the year-end number of NAV per share allows analysis
ordinary shares. of the overall value of
the Group by share.
-------------- ------------------------------------ --------------------------------- ---------------
-65-
Financial performance related APMs
Reconciliation
to the
financial
APM Definition Why is this measure used? statements
---------------- ------------------------------------ ----------------------------------- -----------------
Operating The Cash result is defined IFRS income statement methodology Refer to
cash result, as the movement between recognises non-cash items pages 15,
Underlying the opening and closing such as deferred tax and 16 and
cash result Solvency II net assets adjusted non-cash-settled share options. also see
and Cash for the following items: By contrast, dividends can Note 4
result only be paid to shareholders - Segment
1. The movement in deferred from appropriately fungible Profit
tax is removed to reflect assets. The Board therefore to the
just the cash realisation uses the Cash results to consolidated
from the deferred tax position; monitor the level of cash financial
generated by the business. statements.
2. The movements in goodwill
and other intangibles are While the Cash result gives
included; and an absolute measure of the
cash generated in the year,
3. Other changes in equity, the Underlying and Operating
such as dividends paid in cash results are particularly
the year and non-cash-settled useful for monitoring the
share option costs, are expected long-term rate
excluded. of cash emergence, which
supports dividends and sustainable
The Operating cash result dividend growth.
reflects the regular emergence
of cash from the business
operations.
The Underlying cash results
additionally reflects the
cash impact of the strategic
investments we are making.
Finally, the Cash result
reflects all other cash
items, including those whose
emergence is volatile, varying
over time and often influenced
by markets, together with
the short-term costs associated
with the back-office infrastructure
project.
Neither the Cash result
nor the underlying cash
result should be confused
with the IFRS consolidated
statement of cash flows
which is prepared in accordance
with IAS 7.
---------------- ------------------------------------ ----------------------------------- -----------------
Underlying These EPS measures are calculated As Underlying cash is the Not applicable.
cash basic as Underlying cash divided best reflection of the cash
and diluted by the number of shares generated by the business,
earnings used in the calculation Underlying cash EPS measures
per share of IFRS basic and diluted allow analysis of the shareholder
(EPS) EPS. cash generated by the business
by share.
---------------- ------------------------------------ ----------------------------------- -----------------
EEV profit Derived as the movement Both the IFRS and Cash results See Note
in the total EEV during reflect only the cashflows 4 - Segment
the year. in the year. However our Profit
business is long-term, and to the
activity in the year can consolidated
generate business with a financial
long-term value. We therefore statements.
believe it is helpful to
understand the full economic
impact of activity in the
year, which is the aim of
the EEV methodology.
---------------- ------------------------------------ ----------------------------------- -----------------
EEV operating A discounted cashflow valuation Both the IFRS and Cash results See Note
profit methodology, assessing the reflect only the cash flows 4 - Segment
long-term economic value in the year. However, our Profit
of the business. business is long-term, and to the
activity in the year can consolidated
Our embedded value is determined generate business with a financial
in line with the EEV principles, long-term value. We therefore statements.
originally set out by the believe it is helpful to
Chief Financial Officers understand the full economic
(CFO) Forum in 2004, and impact of activity in the
amended for subsequent changes year, which is the aim of
to the principles, including the EEV methodology.
those published in April
2016, following the implementation Within the EEV, many of
of Solvency II. the future cash flows derive
from fund charges, which
The EEV operating profit change with movements in
reflects the total EEV result stock markets. Since the
with an adjustment to strip impact of these changes
out the impact of stock is typically unrelated to
market and other economic the performance of the business,
effects during the year. we believe that the EEV
operating profit (reflecting
Within EEV operating profit the EEV profit, adjusted
is new business contribution, to reflect only the expected
which is the change in embedded investment performance and
value arising from writing no change in economic basis)
new business during the provides the most useful
year. measure of embedded value
performance in the year.
---------------- ------------------------------------ ----------------------------------- -----------------
EEV operating These EPS measures are calculated As EEV operating profit Not applicable.
profit as EEV operating profit is the best reflection of
basic and after tax divided by the the EEV generated by the
diluted number of shares used in business, EEV operating
earnings the calculation of IFRS profit EPS measures allow
per share basic and diluted EPS. analysis of the long-term
(EPS) value generated by the business
by share.
---------------- ------------------------------------ ----------------------------------- -----------------
Policyholder Shareholder tax is estimated The UK tax regime facilitates Disclosed
and Shareholder by making an assessment the collection of tax from as separate
tax of the effective rate of life insurance policyholders line items
tax that is applicable to by making an equivalent in the
the shareholders on the charge within the corporate statement
profits attributable to tax of the Company. The of comprehensive
the shareholders. This is total tax charge for the income
calculated by applying the insurance companies therefore on page
appropriate effective corporate comprises both this element 35.
tax rates to the shareholder and an element more closely
profits. related to normal corporation
tax.
The remainder of the tax
charge represents tax on Life insurance business
policyholders' investment impacted by this tax typically
returns. includes policy charges
This calculation method which align with the tax
is consistent with the legislation liability, to mitigate the
relating to the calculation impact on the corporate.
of the tax on shareholders' As a result, when policyholder
profits. 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.
---------------- ------------------------------------ ----------------------------------- -----------------
-66-
Reconciliation
to the
financial
APM Definition Why is this measure used? statements
------------ -------------------------------- ---------------------------------- -----------------
Profit A profit measure which reflects The IFRS methodology requires Disclosed
before the IFRS result adjusted that the tax recognised as a separate
shareholder for policyholder tax, but in the financial statements line item
tax before deduction of shareholder should include the tax incurred in the
tax. Within the consolidated on behalf of policyholders statement
statement of comprehensive in our UK life assurance of comprehensive
income the full title of company. Since the policyholder income
this measure is 'Profit tax charge is unrelated on page
before tax attributable to the performance of the 35.
to shareholders' returns'. 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.
------------ -------------------------------- ---------------------------------- -----------------
Underlying A profit measure which reflects The IFRS methodology promotes Refer to
profit the IFRS result adjusted recognition of profits in page 14.
to remove the DAC, DIR and line with the provision
PVIF adjustments. 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.
------------ -------------------------------- ---------------------------------- -----------------
RESPONSIBILITY STATEMENT OF THE DIRECTORS IN RESPECT OF THE
ANNUAL FINANCIAL REPORT
The Directors confirm to the best of their knowledge that:
-- The financial statements have been prepared in accordance
with International Reporting Financial Standards as adopted by the
EU and give a true and fair view of the assets, liabilities,
financial position and profit for the Company and the undertakings
included in the consolidation as a whole; and
-- Pursuant to Disclosure and Transparency Rules Chapter 4, the
Directors' report of the Company's annual report and accounts
includes a fair review of the development and performance of the
business and the position of the Company and the undertakings
included in the consolidation taken as a whole, together with a
description of the principal risks and uncertainties faced by the
business.
On behalf of the Board
Andrew Croft Craig Gentle
Chief Executive Chief Financial Officer
26 February 2020
Neither the contents of the Company's website nor the contents
of any website accessible from hyperlinks on this announcement (or
any other website) is incorporated into, or forms part of, this
announcement.
-67-
SUPPLEMENTARY INFORMATION: CONSOLIDATED FINANCIAL STATEMENTS ON
A CASH RESULT BASIS (UNAUDITED)
Consolidated statement of comprehensive income on a cash result
basis (unaudited)
Year ended Year ended
31 December 31 December
2019 2018
------------------------------------------- ---- ------------ ------------
Note GBP'Million GBP'Million
------------------------------------------- ---- ------------ ------------
Fee and commission income 2,355.4 1,523.6
Investment return 6 37.6 7.6
------------------------------------------- ---- ------------ ------------
Net income 2,393.0 1,531.2
Expenses (1,600.8) (1,540.5)
------------------------------------------- ---- ------------ ------------
Profit/(loss) before tax 792.2 (9.3)
Tax attributable to policyholders' returns 7 (521.8) 296.5
Tax attributable to shareholders' returns (41.0) (18.5)
------------------------------------------- ---- ------------ ------------
Total Cash result for the year 229.4 268.7
------------------------------------------- ---- ------------ ------------
Pence Pence
------------------------------------------- ---- ------------ ------------
Cash result basic earnings per share III 43.2 51.1
Cash result diluted earnings per share III 43.0 50.2
------------------------------------------- ---- ------------ ------------
The Note references above cross refer to the Notes to the
consolidated financial statements under IFRS on pages 39 to 63,
except where denoted in roman numerals.
-68-
Consolidated statement of changes in equity on a cash result
basis (unaudited)
Equity attributable owners of the
Parent Company
-------------- ---- ----------------------------------------------------------------------------
Shares
in Non-
Share Share trust Retained Misc controlling Total
capital premium reserve earnings reserves Total interests equity
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Note GBP'Million GBP'Million GBP'Million GBP'Million GBP'Million GBP'Million GBP'Million GBP'Million
-------------- ---- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
At 1 January
2018 79.4 171.7 (26.7) 869.1 2.5 1,096.0 (0.9) 1,095.1
Cash result
for the
year - - - 268.7 - 268.7 - 268.7
Dividends 16 - - - (242.7) - (242.7) - (242.7)
Exercise of
options 16 - 2.8 - - - 2.8 - 2.8
Consideration
paid
for own
shares - - (6.0) - - (6.0) - (6.0)
Shares sold
during
the year - - 9.0 (9.0) - - - -
Change in
deferred
tax - - - (31.8) - (31.8) - (31.8)
Change in tax
discounting - - - 23.4 - 23.4 - 23.4
Change in
goodwill
and
intangibles - - - (1.5) - (1.5) - (1.5)
-------------- ---- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
At 31 December
2018 79.4 174.5 (23.7) 876.2 2.5 1,108.9 (0.9) 1,108.0
-------------- ---- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Cash result
for the
year - - - 229.4 - 229.4 - 229.4
Dividends 16 - - - (256.0) - (256.0) - (256.0)
Issue of share
capital 16 0.1 3.9 - - - 4.0 - 4.0
Exercise of
options 16 0.7 4.0 - - - 4.7 - 4.7
Consideration
paid
for own
shares - - (0.1) - - (0.1) - (0.1)
Shares sold
during
the year - - 7.4 (7.4) - - - -
Proceeds from
exercise
of shares
held in
trust - - - 0.2 - 0.2 - 0.2
Change in
deferred
tax - - - (10.4) - (10.4) - (10.4)
Change in tax
discounting - - - (10.0) - (10.0) - (10.0)
Change in
goodwill
and
intangibles - - - (13.0) - (13.0) - (13.0)
-------------- ---- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
At 31 December
2019 80.2 182.4 (16.4) 809.0 2.5 1,057.7 (0.9) 1,056.8
-------------- ---- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
The Note references above cross refer to the Notes to the
consolidated financial statements under IFRS on pages 39 to 63,
except where denoted in roman numerals.
-69-
Consolidated statement of financial position on a cash result
basis (unaudited)
31 December 31 December
2019 2018
-------------------------------------------------- ---- ----------- -----------
Note GBP'Million GBP'Million
-------------------------------------------------- ---- ----------- -----------
Assets
Property and equipment 9 166.3 28.5
Fixed income securities 5.2 5.4
Investment in Collective Investment Schemes 1,131.8 1,297.0
Cash and cash equivalents 11 292.8 248.5
Other receivables 12 1,391.9 890.1
Income tax assets - 9.7
Deferred tax assets 98.5 111.6
-------------------------------------------------- ---- ----------- -----------
Total assets 3,086.5 2,590.8
-------------------------------------------------- ---- ----------- -----------
Liabilities
Borrowings 14 403.7 348.6
Other provisions 40.6 22.7
Other payables 13 1,033.7 956.9
Income tax liabilities 115.4 -
Deferred tax liabilities 436.2 154.5
Preference shares 0.1 0.1
-------------------------------------------------- ---- ----------- -----------
Total liabilities 2,029.7 1,482.8
-------------------------------------------------- ---- ----------- -----------
Net assets 1,056.8 1,108.0
-------------------------------------------------- ---- ----------- -----------
Shareholders' equity
Share capital 16 80.2 79.4
Share premium 182.4 174.5
Shares in trust reserve (16.4) (23.7)
Miscellaneous reserves 2.5 2.5
Retained earnings 809.0 876.2
-------------------------------------------------- ---- ----------- -----------
Shareholders' equity 1,057.7 1,108.9
Non-controlling interests (0.9) (0.9)
-------------------------------------------------- ---- ----------- -----------
Total shareholders' equity on a Cash result basis 1,056.8 1,108.0
-------------------------------------------------- ---- ----------- -----------
Pence Pence
-------------------------------------------------- ---- ----------- -----------
Net assets per share 197.6 209.3
-------------------------------------------------- ---- ----------- -----------
The Note references above cross refer to the Notes to the
consolidated financial statements under IFRS on pages 39 to 63,
except where denoted in roman numerals.
-70-
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 as
adopted by the EU ('adopted IFRSs') and interpretations issued by
the IFRS Interpretations Committee ('IFRS IC') 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 11 to the consolidated financial
statements, 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 8 to the
consolidated financial statements.
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.
-71-
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 consolidated statement of financial position (on page 37),
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 31 December 2019 is set out on page 19. The
reconciliation as at 31 December 2018 is set out below.
Solvency
II
IFRS Net Assets
Balance Adjustment Adjustment Balance
Sheet 1 2 Sheet
--------------------------------------------- ----------- ----------- ----------- -----------
31 December 2018 GBP'Million GBP'Million GBP'Million GBP'Million
--------------------------------------------- ----------- ----------- ----------- -----------
Assets
Goodwill 15.6 - (15.6) -
Deferred acquisition costs 558.5 - (558.5) -
Purchased value of in-force business 24.0 - (24.0) -
Computer software 1.4 - (1.4) -
Property and equipment 28.5 - - 28.5
Deferred tax assets 147.1 - (35.5) 111.6
Reinsurance assets 82.8 - (82.8) -
Other receivables 1,952.3 (1,059.1) (3.1) 890.1
Income tax assets 9.7 - - 9.7
Investment property 1,820.7 (1,820.7) - -
Equities 56,077.9 (56,077.9) - -
Fixed income securities 21,966.0 (21,960.6) - 5.4
Investment in Collective Investment Schemes 4,756.1 (3,459.1) - 1,297.0
Derivative financial instruments 508.8 (508.8) - -
Cash and cash equivalents 6,877.6 (6,629.1) - 248.5
Total assets 94,827.0 (91,515.3) (720.9) 2,590.8
--------------------------------------------- ----------- ----------- ----------- -----------
Liabilities
Borrowings 348.6 - - 348.6
Deferred tax liabilities 172.9 - (18.4) 154.5
Insurance contract liabilities 508.1 (421.2) (86.9) -
Deferred income 648.3 - (648.3) -
Other provisions 22.7 - - 22.7
Other payables 1,290.8 (277.7) (56.2) 956.9
Investment contract benefits 67,796.1 (67,796.1) - -
Derivative financial instruments 517.4 (517.4) - -
Net asset value attributable to unit holders 22,502.9 (22,502.9) - -
Income tax liabilities - - - -
Preference shares 0.1 - - 0.1
--------------------------------------------- ----------- ----------- ----------- -----------
Total liabilities 93,807.9 (91,515.3) (809.8) 1,482.8
--------------------------------------------- ----------- ----------- ----------- -----------
Net Assets 1,019.1 - 88.9 1,108.0
--------------------------------------------- ----------- ----------- ----------- -----------
Adjustment 1 nets out the policyholder interest in unit-linked
assets and liabilities.
Adjustment 2 comprises adjustment to the IFRS 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.
-72-
III. Earnings per share
Year ended Year ended
31 December 31 December
2019 2018
---------------------------------------------------------- ------------ ------------
GBP'Million GBP'Million
---------------------------------------------------------- ------------ ------------
Earnings
Cash result after tax attributable to equity shareholders
(for both basic and diluted EPS) 229.4 268.7
---------------------------------------------------------- ------------ ------------
Million Million
---------------------------------------------------------- ------------ ------------
Weighted average number of shares
Weighted average number of ordinary shares in issue (for
basic EPS) 531.3 526.0
Adjustments for outstanding share options 2.7 8.7
---------------------------------------------------------- ------------ ------------
Weighted average number of ordinary shares (for diluted
EPS) 534.0 534.7
---------------------------------------------------------- ------------ ------------
Pence Pence
---------------------------------------------------------- ------------ ------------
Earnings per share (EPS)
Basic earnings per share 43.2 51.1
Diluted earnings per share 43.0 50.2
---------------------------------------------------------- ------------ ------------
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR TFMFTMTBTBRM
(END) Dow Jones Newswires
February 27, 2020 02:00 ET (07:00 GMT)
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