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RNS
St. James's Place PLC  -  STJ   

Half-year Report

Released 07:00 27-Jul-2017

RNS Number : 2149M
St. James's Place PLC
27 July 2017
 

-1-

 

ST. JAMES'S PLACE PLC

27 St. James's Place, London SW1A 1NR

Telephone 020 7493 8111    Facsimile 020 7493 2382

 

27 July 2017

 

INTERIM STATEMENT

FOR THE SIX MONTHS TO 30 JUNE 2017

 

40% GROWTH IN NET INFLOWS,

FUNDS UNDER MANAGEMENT OF £83.0 BILLION

AND DIVIDEND UP 25%

 

 

 

New Investment and Funds under Management

 

     Gross inflow of funds under management of £6.9 billion (2016: £5.3 billion)

     Net inflow of funds under management of £4.3 billion (2016: £3.1 billion)

     Group funds under management of £83.0 billion (2016: £65.6 billion)

 

St. James's Place Partnership

 

     Total number of advisers at 3,540, up 3.7% since the start of the year

 

Profit

 

- EEV basis:

     New business profits of £343.0 million (2016: £228.9 million)

     Operating profit at £397.3 million (2016: £284.0 million)

 

- IFRS basis:

     Underlying profit before shareholder tax of £106.3 million (2016: £73.8 million)

     Profit before shareholder tax of £79.6 million (2016: £60.5 million)

 

- Post tax cash result:

     Operating cash result of £139.0 million (2016: £103.1 million)

     Underlying cash result of £123.1 million (2016: £94.4 million)

 

Interim Dividend

 

     Interim dividend 15.41 pence per share (2016: 12.33 pence per share)

 

-2-

 

David Bellamy, Chief Executive, commented:

 

"I am very pleased to report that the momentum we experienced in the first quarter has continued, with new and existing clients entrusting St. James's Place with some £6.9 billion of new investments in the first six months, some 30% higher than the same period last year. Importantly, through the excellent work of our Partners and their staff in building and maintaining close relationships with clients, we are also able to report strong retention levels, resulting in net inflows for the period of £4.3 billion, up 40%.  Group funds under management ended the half year at a new record high of £83.0 billion.   

 

As expected, we've also seen further growth in the total number of advisers working across the Partnership. As our client base grows, so too does the scale of our Partner businesses as they develop from largely single adviser practices, into small and medium size businesses, adding value to the clients they attract and serving them well. We see this as very positive development, which bodes well for the sustainability and succession of our Partner businesses, and continued growth.

 

Setting aside the political and macro-economic backdrop, the challenges and responsibilities that individuals face, when considering how to manage their wealth, remain. The implications of sustained low interest rates, longer life expectancy, enhanced pension freedoms and greater emphasis on individual financial responsibility, all highlight the continued need for and importance of sound, personal and trusted advice.

 

The continued momentum across all aspects of our business and growth in adviser numbers underpins why we remain confident in our ability to deliver sustained growth.

 

Given our strong business performance and our confidence in the future, the Board has declared a 25% increase in the interim dividend to 15.41 pence per share."

-3-

 

The details of the announcement are attached.

 

Enquiries:

 

David Bellamy, Chief Executive Officer

Tel: 020 7514 1963

Andrew Croft, Chief Financial Officer

Tel: 020 7514 1963

Tony Dunk, Investor Relations Director

Tel: 020 7514 1963



Bell Pottinger

Tel: 020 3772 2566

John Sunnucks


Ben Woodford

Email: Bwoodford@BellPottinger.com

 

 

 

Analyst presentation at 10:15am for 10:30am at:

 

Numis Securities, London Stock Exchange, 10 Paternoster Square, London, EC4M 7LT

(NB Please bring photo ID and allow extra time for security checks)

 

 

Alternatively, if you are unable to attend but would like to watch a livestream of the presentation on the day, please click on the link below or via our website

 

Live and On-demand:

 

http://www.investis-live.com/st-jamess-place/5964a459e8adb212000fb015/gadf

 

There will also be a Dial in:

 

Conference call dial in details:

United Kingdom (Local) 020 3059 8125

All other locations + 44 20 3059 8125

Participant Password:  St James Place

 

7-day Replay Dial in details

 

United Kingdom        0121 260 4861

All other locations + 44 121 260 4861

Passcode:  5151971 followed by #

 

 

Note: 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.

 

-4-

 

CONTENTS




PART ONE

GROSS INFLOW FIGURES

PART TWO

INTERIM MANAGEMENT STATEMENT

PART THREE

CONDENSED CONSOLIDATED HALF YEAR FINANCIAL STATEMENTS PREPARED UNDER INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS)

 

-5-

 

ST. JAMES'S PLACE WEALTH MANAGEMENT

GROSS INFLOWS

FOR THE SIX MONTHS TO 30 JUNE 2017

 

 

 


Unaudited

3 Months to

30 June



Unaudited

6 Months to

30 June



2017

2016



2017

2016



£'Billion

£'Billion



£'Billion

£'Billion


Gross inflows








Investment

0.66

0.58



1.24

1.04


Pension

1.75

1.22



3.22

2.40


Unit Trust, ISA & DFM

1.23

1.02



2.41

1.83



3.64

2.82

+29%


6.87

5.27

+30%









 

-6-

 

INTERIM MANAGEMENT STATEMENT

 

CHIEF EXECUTIVE'S REPORT

 

I am very pleased to report that the momentum we experienced in the first quarter has continued, with new and existing clients entrusting St. James's Place with £6.9 billion of new investments in the first six months, some 30% higher than the same period last year. Importantly, through the excellent work our Partners and their staff do in building and maintaining close relationships with clients, we are also able to report strong retention levels, resulting in net inflows for the period of £4.3 billion, up 40%, taking Group funds under management to a new record high of £83.0 billion. 

 

Setting aside the political and macro-economic backdrop, the challenges and responsibilities that individuals face, when considering how to manage their wealth, remain. The implications of sustained low interest rates, longer life expectancy, enhanced pension freedoms and greater emphasis on individual financial responsibility, highlight the continued need for and importance of sound, personal and trusted advice.

 

The scale and quality of the Company's relationship based approach to wealth management, twinned with our distinct investment management proposition, continues to be well positioned to serve this market.

 

Financial Performance & Dividend

 

As reported by our Chief Financial Officer, the strong business performance in the first half of the year is reflected in the financial performance for the period with strong growth in most of our financial KPIs.

 

Given this strong performance for the six months, the Board has declared a 25% increase in the interim dividend to 15.41 pence per share. We anticipate increasing the full year ordinary dividend by a similar amount and, going forward, we will continue to grow the dividend in line with the underlying performance of the business.

 

The interim dividend for 2017 will be paid on 29 September to shareholders on the register at the close of business on 1 September 2017. A Dividend Reinvestment Plan ("DRP") continues to be available for shareholders.

 

Clients

 

At the core of the way we manage our business is our focus on ensuring that we do everything we can to build and maintain long-term, trusted relationships with our Partners and clients. In doing so, we are better placed to provide the support that clients need and want as they navigate the myriad choices in how to manage their wealth over time. 

 

The advent of pensions freedoms in 2015 means that today, clients and potential clients have greater flexibility around how to manage their retirement income, but with that comes added responsibility and complexity.  As such, the appetite for trusted, face-to-face advice, has continued to grow. 

 

In 2017, we have seen further interest from clients exploring the opportunity to transfer out of defined benefit pension schemes, driven by high transfer values being offered to them as low gilt yields inflate scheme liabilities. This is a market that is growing rapidly but it is not without risk given the complicated nature of assessing the benefits or otherwise of such transfers. We will continue to approach this market with a degree of caution.

 

-7-

 

We are also increasing and enhancing our client proposition with the launch of a cash management portal, a probate service as part of our intergenerational initiative, a panel of banks to serve our higher net worth clients and a further range of savings accounts. Finally, we have launched a new Retirement Account, providing additional flexibility for clients as they move between accumulation and drawdown.  A timely development given the increasing desire by individuals to have greater flexibility in managing decision-making around retirement. 

 

Investment Management

 

The first half of 2017 has seen strong returns across most major equity and fixed income markets.

 

Against this backdrop our range of client portfolios have continued to perform strongly on an absolute, relative and risk-adjusted basis. Year to date all of the portfolios have outperformed their ARC peer groups and a similar picture emerges when measured over a five year period.

 

In the low-yield environment, clients are increasingly having to look for more diversified sources of income, and to ensure our clients continue to have an appropriate mix of investments at their disposal, we will be adding a new 'Strategic Growth Portfolio' later this year. At the same time, we will be launching a new Global Growth fund, which seeks to utilise the talent of four existing managers on our roster - Sands Capital, Edgepoint, Magellan and Select Equity Group. The fund will have a growth bias, exposure to cyclical sectors and be overweight in small and mid-cap holdings.

 

Changing demographics, pensions reform and the current market environment mean our clients are increasingly looking to us to provide them with solutions that meet their different investment objectives and evolving needs. As such, we are working hard to find ways to further broaden and deepen our proposition.  We are also continuing to seek new ways to allow technology to enhance and complement client interactions.

 

The St. James's Place Partnership

 

We have also seen good growth in the total number of advisers within the Partnership, with total adviser numbers increasing by 3.7% to 3,540 during the first six months.  Our Academy initiative continues to be a success with 40 individuals graduating as an adviser in the first six months of the year and we expect a similar number to graduate in the second half of the year. Alongside this, we continue to attract high calibre individuals who have chosen to build a new career with us. Already this year, 88 new students have joined the Academy compared to 75 in the first six months of 2016.

 

As our client base grows, so too does the scale of our Partner businesses as they develop from largely single adviser practices, into small and medium size businesses, adding value to the clients they attract and serving them well. We see this a very positive development, which bodes well for the sustainability and succession of our Partner businesses, and continued growth.

 

We are constantly enhancing the support and back up to help our Partners not only advise and service their clients but also to grow their businesses. This includes investing in their continuing professional development and expanding our technical and specialist teams throughout the country.

 

-8-

 

Other Initiatives

 

In addition to our 'business as usual' activities, in the last couple of years we have been investing in the business for the future.

 

In the first half of 2016, we acquired Rowan Dartington to provide us with a discretionary wealth management offering for our clients. Since the acquisition the business has been expanding from its West Country base, establishing their services in all the major cities in the UK. It is encouraging to report that the business continues to grow very much in line with the business plan, with the number of investment executives and funds under management up 21% and 35% respectively over the last twelve months.

 

We are also encouraged by our investment in Asia with considerable client engagement, increasing adviser numbers and lots of potential for the medium to long term. We've launched the required life company in Hong Kong and will be implementing new investment portfolios in the next few months as well as expanding our DFM offering into these markets. These enhancements will provide the platform to grasp the opportunities those markets present to us.

 

Finally, by far our biggest ever technology initiative is our investment in the Bluedoor platform alongside our chosen outsource provider IFDS. Almost two thirds of our new business is now processed on the new platform. Given the strong growth in new business that we are achieving, our focus for the moment is on ensuring we refine and better optimise the platform, before we commence the next migration phase and complete the new business build for bonds next year.

 

Our Community

 

I'd like to once again thank the entire St. James's Place community for these results. There is no doubt in my mind that the strength and continued growth of the business is due to their hard work, dedication and commitment to clients and each other.

 

Shareholders will know that The St. James's Place Foundation has always been an important part of the Group's culture and we aim to make a significant difference to the lives of those less fortunate than us. Earlier this year, to mark our anniversary year and in keeping with our strong desire to further support fund-raising efforts, we announced that the Board, on behalf of shareholders, had agreed to double the matching of funds raised, subject to an overall cap of £10 million. This initiative has caught the imagination of our community and so far this year we've raised over £3 million before matching, a record amount bringing the total raised for good causes to £60 million since we launched the Foundation in 1992. I would like to thank everyone, including our shareholders, for their continued support in helping to raise such impressive sums.

 

Succession

 

As shareholders will be aware I will be stepping down as Chief Executive at the end of the year and therefore this is my last formal 'CEO Statement.'

 

I have been fortunate to be part of an incredible journey over the last 26 years since the Group started trading in January 1992. I am very proud of what we have achieved together over this period and it's been a great privilege to have led St. James's Place through a period of great transformation and success over the last eleven years.

 

I would also like to take this opportunity, to thank the Board, the executive team, Partners, and everyone in our community for making these achievements possible. And finally, I would like to thank shareholders, both large and small, for their support over this period.

 

The Group is in excellent shape and better placed than it has ever been for the opportunities that lie ahead and I know under Andrew Croft's leadership, St. James's Place will continue to go from strength to strength.

 

-9-

 

Outlook

 

As we continue to grow our advisory presence, we look to build strong advocacy with and through our existing clients and advisers, in the strong belief that if we maintain our focus on doing this well, we will continue to attract advisers, acquire new clients and grow our client funds under management.

 

The continued momentum across all aspects of our business and growth in adviser numbers underpins why we remain confident in our ability to deliver sustained growth.

 

 

 

David Bellamy

Chief Executive

26 July 2017

 

-10-

 

INTERIM MANAGEMENT STATEMENT

 

CHIEF FINANCIAL OFFICER'S REPORT

 

As already covered in the Chief Executive's Report the strong business performance we have experienced in recent years has continued in the first half of the 2017. This continued strong growth in gross and net inflows, together with the investment return, has resulted in funds under management growing by some 26% over the twelve months to £83.0 billion.

 

We receive an annual management fee on funds under management and consequently as our funds under management have grown so too have the financial returns. This has enabled the Board to increase the interim dividend by 25%.

 

Financial results

 

As shareholders will be aware from previous periods, we report our results on both IFRS and EEV bases, as well as providing further detail on the cash emergence from the business. Detailed explanation and analysis of the results on these measures is provided in the Financial Review on pages 12 to 42.

 

In addition to the strong underlying business performance we continue to invest in the Academy, our new Asian and DFM operations as well as other strategic initiatives.  Frustratingly our required contribution to the Financial Services Compensation Scheme (FSCS) was again at an elevated level, negatively impacting the results by £19.8 million pre-tax (£16.0 million post-tax) compared with a pre-tax £17.0 million (£13.6 million post-tax) for the prior year. This charge is accounted for in full in the first half of the year.

 

IFRS Result

 

The IFRS Profit before shareholder tax of £79.6 million (2016: £60.5 million) was some 32% higher than the prior year period. This outcome included a negative impact from adjusting for intangible assets and liabilities (known as DAC/DIR/PVIF) of £26.7 million which, as expected, was higher than the prior year negative impact of £13.3 million.

 

Movement in these adjustments is basically unrelated to the underlying performance of the business, and we therefore present an Underlying profit as a useful alternative measure (based upon IFRS) for assessing operating performance. This Underlying profit before shareholder tax was £106.3 million (2016: £73.8 million) growth of 44%. The prior result included a one off negative of £8.2 million and adjusting for this the growth would be 29%, more or less in line with the underlying cash result as commented upon below.

 

Cash Result

 

The Operating cash result for the six months was £139.0 million (2016: £103.1 million) growth of 35% reflecting the higher funds under management and operating performance of the business.

 

The Underlying cash result for the period, which also takes into account those costs expensed in respect of the organic investment in the Academy, our Asian and DFM operations as well as other strategic investment costs, was £123.1 million (2016: £94.4 million), some 30% higher.

 

The Cash result was £111.3 million (2016: £82.5 million) reflecting the Underlying cash result adjusted for the cost of the back office infrastructure investment and a number of one-off miscellaneous items.

 

Note that the Cash and Underlying cash results should not be confused with the IFRS condensed consolidated statement of cash flows which is prepared in accordance with IAS 7 and disclosed on page 48.

 

-11-

 

EEV Result

 

The EEV new business contribution was up 50% during the period at £343.0 million (2016: £228.9 million) reflecting not only the growth in new business but also the expected long term economies of scale resulting from a new administration tariff.

 

The EEV operating profit for the period was £397.3 million (2016: £284.0 million) growth of some 40%.

 

The investment returns on our funds have considerably exceeded the assumed return resulting in a positive investment variance of £214.1 million (2016: positive variance of £168.8 million).

 

Total profit before tax for the period was therefore £622.9 million compared with £442.7 million for the prior period. The net asset value per share on an EEV basis at the end of the period was 976.7 pence growth of 8% since the start of the year and 23% over the twelve months.

 

Dividend

 

Given the strong performance of the business during the period and importantly the continued growth in both the Operating and the Underlying cash results, the Board has declared an interim dividend of 15.41p per share, an increase of 25%, which will absorb £81.2 million. We anticipate increasing the full year ordinary dividend by a similar amount.

 

This continues our policy of progressively growing the dividend with compound growth of 25% per annum over the last eleven years.

 

Going forward we intend to continue to grow the dividend in line with the underlying performance of the business, as previously stated.

 

Solvency

 

We continue to manage the balance sheet prudently to ensure the Group's solvency is maintained safely through the economic cycle. This is important not only for the safeguarding of our clients' assets, but also to ensure we can maintain returns to shareholders.

 

We assess our solvency against a Management Solvency Buffer (see page 35) and, with solvency free assets in excess of this buffer, our solvency position remains strong. Following a reassessment of our unit liability at the end of 2016, we will be undertaking a comprehensive review of our capital management policy in the second half of this year. This review will inform the Board on the appropriate level of the Management Solvency Buffer going forward, which we expect will be reduced from the current level.

 

Concluding remarks

 

The business, financials and lead indicators are in good shape. In particular, the cash emerging from the business continues to grow strongly, a trend that is expected to continue in future years, which has enabled the Board to increase the interim dividend by 25%.

 

As noted in the Chief Executive's Report, the continued momentum across all aspects of the business and growth in the adviser numbers underpins why we remain confident in our ability to deliver sustained growth.

 

 

 

Andrew Croft

Chief Financial Officer

26 July 2017

 

-12-

 

INTERIM MANAGEMENT STATEMENT

 

FINANCIAL REVIEW

 

The Financial Model

 

The Group's strategy is to attract and retain retail Funds under Management (FUM) on which we receive an annual management fee for as long as the clients remain invested. This is the principal source of income for the Group out of which we meet the overheads of the business, invest in growing the Partnership and invest in acquiring new FUM.

 

The level of income is dependent on the level of client funds and the level of asset values. In addition, since around half of our new business does not generate net income in the first six years, the level of income will increase as a result of new business from six years ago becoming cash generative. This deferral of cash generation means the business always has six years' worth of funds in the 'gestation' period. More information about our fees on Funds under Management can be found in Section 1 on page 16.

 

Group expenditure is carefully managed with clear targets set for growth in establishment expenses in the year. Many other expenses increase with business levels and are met from margins in the products. The Group also invests in ensuring the quality of our proposition for clients and Partners through investment in new client services and existing IT systems. Finally, we are also looking to the future, with investment in strategic initiatives, including the Academy, Asia, DFM and our Back-office infrastructure programme. More information about our expenses can be found in Section 2 on pages 18 to 20.

 

A small proportion of Group expenditure is required to support management of existing funds, but the majority of expenditure is investment in growing the Partnership and acquiring new funds. The resulting new business is expected to generate income for an average of 14 years, and is expected to provide a good return on the investment (see page 17).

 

Given the importance of FUM to profit generation by the business, we provide an analysis of the FUM and development in section 1. Section 2 covers expenses, which is the other significant driver of profits, with sections 3-5 reporting on the performance of the business on the IFRS, cash and EEV result bases, and providing commentary on solvency and liquidity.

 

Performance Measurement

 

In line with statutory reporting requirements we report profits assessed on an International Financial Reporting Standards (IFRS) basis. However, given the long-term nature of the business and the high level of investment in new business generation each year, we believe the IFRS result does not provide an easy guide to the cash likely to emerge in future years, nor does it reflect the total economic value of the business. Therefore, consistent with last year, we complement IFRS reporting with additional disclosure of various Alternative Performance Measures (APMs).

 

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 83 to 85, in which we define each APM and explain why it is used and, if applicable, how the measure can be reconciled to the IFRS condensed consolidated half year financial statements.

 

Related Party Transactions

 

The related party transactions during the first six month period of 2017 are set out in Note 15 to the condensed consolidated half year financial statements.

 

-13-

 

SECTION 1: FUNDS UNDER MANAGEMENT

 

This section starts with analysis of the movement in the funds under management of the Group. This is followed by information about the income the Group earns from managing these funds, together with the profile of these earnings, and finally a geographical and investment type analysis of the funds under management.

 

Movement in funds under management

 

During the first half of 2017 we have seen gross new funds of £6.87 billion (2016: £5.27 billion), growth of 30% and a net inflow of funds under management of £4.30 billion (2016: £3.07 billion), growth of 40%. The investment return contributed £3.70 billion (2016: £2.62 billion contribution) to funds under management during the period reflecting the higher stock markets. Given the strong net inflow, and the positive investment performance, funds under management increased to £83.04 billion (2016: £65.56 billion).

 

Analysis of the development of the funds under management is provided in the following tables:

 

Six Months Ended 30 June 2017


Investment


Pension


UT/ISA & DFM


Total


Note

£'Billion


£'Billion


£'Billion


£'Billion

Opening funds under management


25.88 


28.25 


21.18 


75.31 

Gross inflows


1.24 


3.22 


2.41 


6.87 

Net investment return


1.08 


1.50 


1.12 


3.70 

Regular income withdrawals and maturities

1

(0.29)


(0.46)



(0.75)

Surrenders and part surrenders

2

(0.61)


(0.45)


(0.76)


(1.82)

Matching strategy disinvestment


(0.13)


(0.14)


-


(0.27)

Closing funds under management


27.17 


31.92 


23.95 


83.04 

Net inflows


0.34 


2.31 


1.65 


4.30 

Implied surrender rate as a percentage of average funds under management


4.6%


3.0%


6.7%


4.6%

 

Included within "UT/ISA & DFM" are gross inflows of £0.23 billion and outflows from surrenders and part surrenders of £0.05 billion in relation to the Rowan Dartington Group funds under management.

 

In addition, there is a further £518 million of funds under management in third party funds within our Asia business.

 

-14-

 

Six Months Ended 30 June 2016


Investment


Pension


UT/ISA & DFM


Total


Note

£'Billion


£'Billion


£'Billion


£'Billion

Opening funds under management


22.52 


20.86 


15.23 


58.61 

Rowan Dartington acquisition




1.26 


1.26 

Gross inflows


1.04 


2.40 


1.83 


5.27 

Net investment return


0.70 


1.39 


0.53 


2.62 

Regular income withdrawals and maturities

1

(0.26)


(0.40)


(0.04)


(0.70)

Surrenders and part surrenders

2

(0.41)


(0.46)


(0.63)


(1.50)

Closing funds under management


23.59 


23.79 


18.18 


65.56 

Net inflows


0.37 


1.54 


1.16 


3.07 

Implied surrender rate as a percentage of average funds under management


3.6%


3.9%


7.4%


4.7%

 

Included within "UT/ISA & DFM" are gross inflows of £0.17 billion and outflows of £0.07 billion in relation to the Rowan Dartington Group funds under management, following the acquisition of the Rowan Dartington Group on 8 March 2016.

 

In addition, there is a further £434 million of funds under management in third party funds within our Asia business.

 

Twelve Months Ended 31 December 2016


Investment


Pension


UT/ISA & DFM


Total


Note

£'Billion


£'Billion


£'Billion


£'Billion

Opening funds under management


22.52 


20.86 


15.23 


58.61 

Rowan Dartington acquisition




1.26 


1.26 

Gross inflows


2.28 


5.12 


3.95 


11.35 

Net investment return


2.50 


4.02 


2.19 


8.71 

Regular income withdrawals and maturities

1

(0.52)


(0.84)


(0.11)


(1.47)

Surrenders and part surrenders

2

(0.90)


(0.91)


(1.29)


(3.10)

Rowan Dartington: Ardan International disposal




(0.05)


(0.05)

Closing funds under management


25.88 


28.25 


21.18 


75.31 

Net inflows


0.86 


3.37 


2.55 


6.78 

Implied surrender rate as a percentage of average funds under management


3.7%


3.7%


6.8%


4.6%

 

Included within "UT/ISA & DFM" are gross inflows of £0.42 billion and outflows of £0.16 billion relating to Rowan Dartington. Also included is the £0.05 billion reduction in funds under management relating to the disposal of Rowan Dartington's non-core international platform business, Ardan International, in December 2016.

 

-15-

 

Net investment return, and thus closing funds under management, for Investment and Pension business include equal and opposite adjustments of £0.38 billion related to a reclassification of investment returns arising in the fourth quarter of 2016. There is no impact on total closing funds under management arising from this reclassification.

 

A further £466 million of investments is managed in third party funds within our Asia business.

 

Notes

 

1.    Regular income withdrawals are those amounts, pre-selected by clients, which are paid out by way of periodic income. Maturities are those sums paid out where the plan has reached the intended, pre-selected, maturity event (e.g. retirement). 

 

2.    Surrenders and part surrenders are those amounts where clients have chosen to withdraw money from their plan which were not pre-selected regular income withdrawals or maturities. 

 

-16-

 

Fees on Funds Under Management

 

As noted at the start of this Financial Review, our financial model is to attract and retain retail funds under management (FUM) on which we receive an annual management fee.

 

The net annual management fee retained by the Group is c.0.77% post tax. However, due to our product structure, investment and pension business does not generate net cash in the first six years. Consequently, the level of income we are receiving today is not fully representative of the expected earnings from the funds we are managing, and these earnings will increase as a result of the new business from six years ago becoming cash generative. This deferral of cash generation means there is always six years' worth of business in the 'gestation' period.

 

The table below provides an estimated current value of the funds under management in the gestation period.

 



30 June 2017


30 June 2016


31 December 2016

Year


Total


Total


Total



£'Billion


£'Billion


£'Billion








2010


-


1.2


-

2011


1.1


2.4


2.4

2012


2.9


2.7


2.9

2013


4.0


3.8


4.0

2014


4.3


4.0


4.4

2015


5.2


4.8


5.3

2016


6.1


2.5


6.1

2017 Half year


3.2


-


-








Total


26.8


21.4


25.1

 

This £26.8 billion of funds under management in the gestation period represents approximately a third of the total funds under management which, if all the business reached the end of the gestation period, would contribute some £206 million to the annual post-tax cash result.

 

-17-

 

The Business Case for new Funds Under Management

 

The Group incurs costs associated with attracting new funds.  We believe it is useful to provide details of the economic return we expect will be generated from the new business; in other words, the business case for the investment in attracting new clients and funds under management.

 

As detailed later in this review on page 31, a net cost of £33.3 million (2016: £59.0 million) has been incurred to attract the £6.87 billion of gross new funds (2016: £5.27 billion).

 

We regard this as an investment in new business which we expect to generate income in the future significantly exceeding this cost and therefore provide positive returns for shareholders. The table below provides details of the new business added during the reporting periods and different measures of valuing the investment:

 


6 Months Ended

30 June 2017


6 Months Ended

30 June 2016


12 Months

Ended

31 December 2016







Gross inflows (£'billion)

6.87   


5.27   


11.35   







Post-tax investment in new business (£'million)






-       Operating cash result

(17.4)  


(50.3)  


(80.2)  

-       Investment costs

(15.9)  


(8.7)  


(26.5)  

-       Total investment in new business

(33.3)  


(59.0)  


(106.7)  







Post-tax present value of expected profit from investment (£'million)

282.3  


186.7   


427.8   







Cost of new business (% of gross inflows)*

0.5%


1.1%


1.0%







New business margin (% of new money invested)

5.0%


4.5%


4.6%







Cash payback period (years)

3


5   


5   

 

* The investment as a percentage of net inflow of funds under management was 0.8% compared with 1.9% for 30 June 2016. The full year cost is expected to be lower at 0.6% (2016: 1.5%), because the FSCS levy is fully expensed in the first half of the year.

 

Geographical and investment type analysis of funds under management

 


30 June 2017


30 June 2016


31 December 2016


£'Billion

%


£'Billion

%


£'Billion

%










UK Equities

18.6

22.4%


15.8

24.1%


17.3

23.0%

North American Equities

18.2

21.9%


14.0

21.3%


17.5

23.2%

Fixed Interest

14.5

17.5%


10.7

16.3%


12.8

17.0%

European Equities

9.7

11.7%


7.0

10.7%


8.2

10.9%

Asia & Pacific Equities

7.2

8.7%


5.5

8.4%


6.2

8.2%

Cash

6.5

7.8%


5.4

8.2%


6.0

8.0%

Property

2.7

3.3%


2.3

3.5%


2.4

3.2%

Alternative Investments

2.2

2.6%


1.5

2.3%


1.9

2.5%

Other

3.4

4.1%


3.4

5.2%


3.0

4.0%

Total

83.0

100%


65.6

100%


75.3

100%

 

-18-

 

SECTION 2: EXPENSES

 

Management Expenses

 

The table below provides a breakdown of the management expenditure (before tax):

 


 

 

Note


6 Months

Ended

30 June 2017


6 Months

Ended

30 June 2016


12 Months

Ended

31 December 2016




£'Million


£'Million


£'Million









Establishment costs

1


92.4


75.1 


160.7 

Other performance related costs

2


56.9


43.5 


104.0 

Operational development costs

3


7.7


7.0 


17.0 

Strategic development costs

4


2.9


1.9 


6.6 

Academy costs

5


4.1


3.5 


7.2 

Asia costs

6


7.6


3.6 


13.8 

DFM costs

7


8.6


3.7 


12.9 

Back-office infrastructure development

8


10.1


10.5 


20.9 

Regulatory fees

9


3.9


3.9 


8.3 

FSCS levy

9


19.8


17.0 


17.2 












214.0


169.7 


368.6 

 

Notes

 

1.    Establishment costs are the running costs of the Group's infrastructure, which are relatively fixed in nature. These costs will inevitably increase with inflation, but also as the infrastructure expands to manage higher numbers of clients, growing numbers of advisers and increasing business volumes. Some of these changes will inevitably be more significant step changes.

 

One such change during 2016 and 2017 has been our expansion into additional property in Canary Wharf, central London and Cirencester. Our occupation of these additional properties has been managed on a phased basis and resulted in incremental costs of £2.1 million in the six months ended 30 June 2016 and £3.1 million in the six months ended 31 December 2016. The six months ended 30 June 2017 reflect the full cost of occupying these properties for six months, being a charge of £5.8 million. We expect to see this level of cost going forwards as a result of this expansion.

 

2.    Other performance related costs, for both Partners and employees, vary with the level of new business and operating profit performance of the business. 

 

3.    Operational development costs represent business as usual expenditure to support the business, such as the on-going development of our investment proposition and our technology, including focus on cyber security. We expect costs in 2017 will be at a similar level to 2016.

 

4.    As a growth business we are constantly looking to new opportunities and expect to incur a small level of ongoing expense associated with pursuing other strategic developments.  We will continue to explore opportunities and undertake appropriate initiatives.

 

5.    The Academy is an important strategic investment for the future and we are continuing to grow our investment in this programme. Costs have increased in recent years as we have increased the number of students within the programme and launched more regional academies.

 

Our investment in the academy will continue with full year expected costs of some £8.4 million.

 

-19-

 

6.    Our expansion into Asia through operations in Singapore, Hong Kong and Shanghai is intended to provide diversification of our growth model through exporting our successful wealth management proposition to new markets, starting with the UK expat market. Costs reflect both the ongoing operational costs, but also the development costs associated with growing these businesses to achieve sustainable scale. We have also seen these costs increase compared to prior periods in part due to the depreciation of Sterling.

 

Our investment will continue in 2017 and we expect this investment cost in the second half of the year to be a similar level to the first six months.

 

7.    Completion of the purchase of Rowan Dartington in March 2016 facilitated a new DFM operation within the SJP proposition. We expect this business will grow quickly, requiring investment to support our ambition for the business. We expect this investment cost in the second half of the year to be a similar level to the first six months.

 

8.    Our back-office infrastructure programme is a multi-year initiative to upgrade our administration so it can support our future business goals. Having achieved the migration of our ISA and Unit Trust proposition to our new Bluedoor platform in 2015, the focus in 2016 and early 2017 was the launch of a new retirement account with the eventual aim being to migrate pension and drawdown business onto the new system. The costs in the second half of the year will be at a similar level to the first six months.

 

9.    The costs of operating in a regulated sector include fees charged by the regulators and our contribution to the Financial Services Compensation Scheme (FSCS). Our position as a market-leading provider of advice, means we make a very substantial contribution to supporting the industry compensation scheme, the FSCS, thereby providing protection for clients of other businesses in the sector that fail. In the last couple of years, the levy has been at an elevated level and we remain hopeful that it will return to a more normalised level in future, albeit we are now experiencing a third year of elevated contribution. The FSCS levy is met by our various regulated companies and is split £17.5 million (six months to 30 June 2016: £16.5 million, year to 31 December 2016: £16.5 million) via the Distribution business and £2.3 million (six months to 30 June 2016: £0.5 million, year to 31 December 2016: £0.7 million) via the Life and Unit Trust regulated business.

 

-20-

 

Group Expenses

 

The table below provides a reconciliation from the management expenses above to the total Group expenses included in the condensed consolidated statement of comprehensive income on page 45.

 


 

 

Note

6 Months

Ended

30 June 2017


6 Months

Ended

30 June 2016


12 Months

Ended

31 December 2016



£'Million


£'Million


£'Million








Expenses per table above


214.0


169.7 


368.6 








Partner remuneration

1

346.1


276.6 


599.7 

Investment expenses

1

36.9


30.2 


67.9 

Third party administration

1

50.3


34.8 


74.2 

Acquired IFA operating costs


1.7


1.5 


3.1 

Amortisation and revaluation of DAC and PVIF


33.5


35.5 


63.4 

Share option costs


14.0


7.5 


23.9 

Share option NI


1.9



1.9 

Interest expense and bank charges


2.5


3.9 


6.2 

Charitable donations


5.0


1.9 


3.4 

Other


8.6


6.7 


12.8 



500.5


398.6 


856.5 

Total expenses


714.5


568.3 


1,225.1 

 

Note

 

1.   These costs are met from corresponding margins and any variation in them from changes in the volumes of new business or the level of the stock markets does not directly impact the profitability of the Group. 

 

-21-

 

SECTION 3: INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS)

 

As noted at the start of this review, two key measures based on IFRS are Profit before shareholder tax, which removes the impact of policyholder tax, and Underlying profit, which removes the impact of changes in certain intangibles (DAC/DIR/PVIF). We believe Underlying profit provides a useful measure, based on IFRS, for assessing operating performance.

 

As noted in the Chief Financial Officer's report, the results reflect the underlying strong business performance, but also a number of other drivers most notably including the FSCS levy and the continued investment in our business (not least our back-office infrastructure, the Academy and recent acquisitions).

 

 

6 Months Ended

30 June 2017

 

6 Months Ended

30 June 2016

 

12 Months Ended

31 December 2016

 

Before

shareholder

tax

After tax

 

Before

shareholder

tax

After tax

 

Before

shareholder

tax

After tax

 

£'Million

£'Million

 

£'Million

£'Million

 

£'Million

£'Million

 

 

 

 

 

 

 

 

 

Operating cash

155.6 

139.0

 

115.5 

103.1

 

251.4

226.0

 

 

 

 

 

 

 

 

 

Investments

 

 

 

 

 

 

 

 

Academy

(4.1)

(3.3)

 

(3.5)

(2.8)

 

(7.3)

(5.8)

Asia

(7.5)

(7.5)

 

(3.2)

(3.2)

 

(12.2)

(12.2)

DFM

(3.5)

(2.8)

 

(1.5)

(1.2)

 

(4.0)

(3.2)

Strategic development costs

(2.9)

(2.3)

 

(1.9)

(1.5)

 

(6.6)

(5.3)

 

 

 

 

 

 

 

 

 

Underlying cash

137.6 

123.1

 

105.4 

94.4 

 

221.3 

199.5 

 

 

 

 

 

 

 

 

 

Share options

(13.0)

(13.0)

 

(7.5)

(7.5)

 

(23.9)

(23.9)

Deferred tax impacts

(14.6)

 

(12.4)

 

(21.1)

Insurance reserves

0.2 

0.2 

 

(1.3)

(1.0)

 

(1.6)

(1.6)

Back-office infrastructure

(10.1)

(8.2)

 

(10.5)

(8.4)

 

(20.9)

(16.7)

Variance

(8.4)

(4.1)

 

(12.3)

(6.0)

 

(11.4)

(7.7)

 

 

 

 

 

 

 

 

 

Underlying profit

106.3 

83.4 

 

73.8 

59.1 

 

163.5 

128.5 

 

 

 

 

 

 

 

 

 

DAC/DIR/PVIF

(26.7)

(21.5)

 

(13.3)

(10.7)

 

(22.9)

(16.8)

 

 

 

 

 

 

 

 

 

IFRS profit

79.6 

61.9 

 

60.5 

48.4 

 

140.6 

111.7 

 

 

 

 

 

6 Months

Ended

30 June 2017


6 Months

Ended

30 June 2016


12 Months

Ended

31 December 2016


Pence


Pence


Pence







IFRS basic earnings per share

11.8


9.3 


21.5







IFRS diluted earnings per share

11.6


9.2 


21.3







Underlying cash basic earnings per share

23.5


18.1 


 

38.2







Underlying cash diluted earnings per share

23.2


17.9 


 

37.9

 

-22-

 

Underlying Profit before Shareholder Tax

 

The result for the six months was £106.3 million (30 June 2016: £73.8 million). A breakdown by business type is provided in the following table:


6 Months

Ended

30 June 2017


6 Months

Ended

30 June 2016


12 Months

Ended

31 December 2016


£'Million


£'Million


£'Million







Life business

118.8 


72.9 


165.8 

Unit Trust and DFM business

57.1 


49.2 


92.3 

Funds Management business

175.9 


122.1 


258.1 







Distribution business

(27.1)


(19.2)


(25.9)

Back-office infrastructure development

(10.1)


(10.5)


 

(20.9)

Other

(32.4)


(18.6)


(47.8)







Underlying profit before shareholder tax

106.3


73.8 


 

163.5 

 

Funds Management

 

The profit for the period to 30 June 2017 was £175.9 million (2016: £122.1 million), which was 44% higher than the prior year. Increased income from higher funds under management was the principal contributor to the increased profit. The prior year's result also included a one-off cost of £8.2 million, associated with a review of charges on two small cohorts of legacy business.

 

Distribution Business

 

St. James's Place is a vertically integrated firm, allowing it to benefit from the synergies of combining funds management with distribution. Therefore, as well as the income generated on the funds under management, there is a further margin from distribution activity. The significant elements of this result are analysed in the following table:

 


6 Months

Ended

30 June 2017


6 Months

Ended

30 June 2016


12 Months

Ended

31 December 2016


£'Million


£'Million


£'Million







Trading (loss)/profit

(3.2)


(1.0)


3.8 

FSCS levy

(17.5)


(16.5)


(16.5)

Asia (distribution only)

(6.4)


(1.7)


(13.2)







Total

(27.1)


(19.2)


(25.9)

 

Back-Office Infrastructure Development

 

As noted on page 18, the investment during the period in the back-office development project (known as Bluedoor) was £10.1 million (2016: £10.5 million).

 

-23-

 

Other

 

Other significant items in the Underlying profit result are analysed in the following table:

 


6 Months

Ended

30 June 2017


6 Months

Ended

30 June 2016


12 Months

Ended

31 December 2016


£'Million


£'Million


£'Million







Academy

(4.1)


(3.5)


(7.2)

Other development expenditure

(4.5)


(5.2)


(8.5)

Charitable donations

(5.0)


(1.9)


(3.4)

Share options

(13.0)


(7.5)


(23.9)

Other share option costs including NI

(2.9)



(1.9)

Other

(2.9)


(0.5)


(2.9)







Total

(32.4)


(18.6)


(47.8)

 

-24-

 

DAC/DIR/PVIF

 

The net movement in the DAC, DIR and PVIF intangibles has a negative contribution to profit as summarised in the table below. A more detailed analysis is included in Note 8 on page 64.

 


6 Months Ended

30 June 2017


6 Months Ended

30 June 2016


12 Months Ended

31 December 2016


Before shareholder tax

After tax


Before shareholder tax

After tax


Before shareholder tax

After tax

 

£'Million

£'Million


£'Million

£'Million

 

£'Million

£'Million










Amortisation

21.5 

17.4 


(3.4)

(2.6)


(4.5)

(3.4)

Tax rate change



2.1 

Arising on new business

(48.2)

(38.9)


(9.9)

(8.1)


(18.4)

(15.5)










Movement in year

(26.7)

(21.5)


(13.3)

(10.7)


(22.9)

(16.8)

 

In February we advised that there would be changes in the level of these adjustments as a result of the reassessment of the investment contract liability at year end, both due to the one-off increase in the DIR balance at year end, but also the ongoing increase in deferral of initial charge from new business. These impacts are evident in the table above, with a significant increase in the amortisation adjustment from a negative impact of £3.4 million in 2016 to a positive impact of £21.5 million in the current period, offset by an increase in the adjustment for new business from a negative £9.9 million in 2016 to a much larger negative impact of £48.2 million in 2017.  The combined impact is an increased negative adjustment to the Underlying profit. However, it is worth noting that this negative effect offsets a positive effect of a similar size in the Underlying cash result.

 

Despite the change in amounts, the amortisation patterns remain consistent with past practice. The DAC balance amortises steadily over 14 years while a substantial proportion of the DIR balance will amortise over six years. When the DAC and DIR balances are of similar size (as they are now and as we expect them to continue to be) the faster recognition of deferred income results in a positive impact overall from amortisation, which is recognised consistently through the year and will grow with the business. The negative amortisation amount in recent years reflected the much lower level of DIR balance compared to DAC in those periods. The increased adjustment arising on new business will grow with new business. More information about these developing effects can also be seen in Note 8.

 

Tax rate changes impacted the post-tax movements in the latter half of 2016. There are no tax rate changes impacting 2017.  

 

Finally, it is important to note the intangible and deferred nature of these items, meaning that they do not reflect the operating performance of the business. This is why we believe the Underlying profit measure, which is adjusted from IFRS to remove these impacts, provides a useful measure of operating performance.

 

-25-

 

Shareholder Tax

 

The actual tax rate in each of the periods may be impacted by significant one-off items and events such as a change in corporation tax rate. The table below provides a high level analysis of shareholder tax, and a more detailed analysis is included in Note 6 to the condensed half year financial statements.

 


6 Months

Ended

30 June 2017


6 Months

Ended

30 June 2016


12 Months

Ended

31 December 2016


£'Million


£'Million


£'Million







Expected shareholder tax

(14.9)


(11.7)


(27.2)

Recognition of capital losses


1.5 


2.2 

Other tax adjustments

(2.8)


(1.9)


(2.6)

Corporation tax rate change



(1.3)







Actual shareholder tax

(17.7)


(12.1)


(28.9)







Expected shareholder tax rate

18.7%


19.3%


19.3% 







Actual shareholder tax rate

22.2%


20.0%


20.6% 

 

 

The expected shareholder tax principally reflects the current UK corporation tax and overseas rates applicable and will vary from year to year depending upon the emergence of profit between the different tax regimes which apply to the St. James's Place Group companies.

 

There has been no reassessment in the value of capital losses in the period (30 June 2016: £1.5 million) and the combined negative impact of a number of other small tax adjustments was £2.8 million (30 June 2016: £1.9 million).

 

The impact of the announced future corporation tax reduction effective from 1 April 2020 to 17% was fully reflected during 2016.

 

-26-

 

IFRS Profit

 

Analysis of the IFRS profit before tax, Profit before shareholder tax and IFRS profit after tax is presented in the table below, which also shows the impact of the tax incurred on behalf of policyholders:

 


6 Months

Ended

30 June 2017


6 Months

Ended

30 June 2016


12 Months

Ended

31 December 2016


£'Million


£'Million


£'Million







IFRS profit before tax

194.4 


97.0 


486.3 







Policyholder tax

(114.8)


(36.5)


(345.7)







Profit before shareholder tax

79.6 


60.5 


140.6 







Shareholder tax

(17.7)


(12.1)


(28.9)







IFRS profit after tax

61.9 


48.4 


111.7 

 

The Profit before shareholder tax for the six months was £79.6 million (30 June 2016: £60.5 million). The positive impact of strong underlying business growth was partially offset by the increased negative contribution from the net movement in DAC/DIR/PVIF intangibles.

 

Both the IFRS profit before tax and the IFRS profit after tax results were higher than the prior period, reflecting underlying business growth. The particularly strong growth in IFRS profit before tax also reflected the increase in fund tax deductions which is offset by an increased liability for Policyholder tax. The level of Policyholder tax and Fund tax deductions is unrelated to the performance of the business and more related to investment performance (see policyholder and shareholder tax in the Glossary of Alternative Performance Measures on pages 84 to 85 for further details), so the difference between the two periods reflects different investment conditions.

 

Analysis of IFRS Assets and Net Assets per Share

 

The table below provides a summarised breakdown of the IFRS position at the reporting dates:

 


6 Months

Ended

30 June 2017


6 Months

Ended

30 June 2016


12 Months

Ended

31 December 2016


£'Million


£'Million


£'Million







Purchased value of in-force*

23.7 


26.1 


25.0 

Deferred acquisition costs*

561.9 


603.3 


587.0 

Deferred income*

(602.6)


(353.0)


(607.9)

Other IFRS net assets

6.3 


11.8 


1.5 

Solvency II net assets

1,046.9 


772.3 


1,070.0 







Total IFRS net assets

1,036.2 


1,060.5 


1,075.6 







* net of deferred tax


6 Months

Ended

30 June 2017


6 Months

Ended

30 June 2016


12 Months

Ended

31 December 2016


Pence


Pence


Pence







IFRS net asset value per share

196.0


201.2 


203.9 

 

-27-

 

SECTION 4: CASH RESULT, SOLVENCY AND LIQUIDITY

 

This section brings together our reporting on the Solvency II net assets and liquidity, together with our reporting of the Cash results and solvency. 

 

Solvency II Net Assets

 

In addition to presenting an IFRS condensed consolidated statement of financial position (on page 47), we believe it is beneficial to provide a balance sheet reflecting our approach to managing solvency. Solvency II net assets are based on the IFRS condensed consolidated statement of financial position, but with adjustments made to accounting assets and liabilities to reflect the Solvency II regulations. In addition provision for insurance liabilities is set equal to the associated unit liabilities. The following table sets out the adjustments to move from IFRS to Solvency II net assets.

 







Solvency II Net Assets Balance Sheet

 

 

30 June 2017

IFRS

Balance Sheet

 

Adj 1

 

Adj 2

Solvency II Net Assets Balance Sheet


30 June

2016

31 December

2016


£'Million

£'Million

£'Million

£'Million


£'Million

£'Million

Assets








Goodwill

15.6

(15.6)

-


-

-

Deferred acquisition costs

652.9

(652.9)

-


-

-

Acquired value of in-force business

28.8

(28.8)

-


-

-

Computer software

2.6

(2.6)

-


-

-

Property and equipment

24.5

24.5


8.9

23.1

Investment property

1,522.3

(1,522.3)

-


-

-

Equities

50,717.4

(50,717.4)

-


-

-

Fixed income securities

14,178.7

(14,131.5)

47.2


56.9

47.7

Investment in Collective

5,358.6

(4,283.2)

1,075.4


523.3

867.4

Investment Schemes








Derivative financial

879.1

(879.1)

-


-

-

instruments








Reinsurance assets

80.7

(80.7)

-


-

-

Cash & cash equivalents

7,384.1

(6,911.4)

472.7


262.0

345.9

Other receivables

1,903.8

(913.1)

(63.5)

927.2


601.2

1,222.8

Deferred tax assets

187.0

(39.8)

147.2


168.3

157.7

Total assets

82,936.1

(79,358.0)

(883.9)

2,694.2


1,620.6

2,664.6









Liabilities








Insurance contract

538.4

(455.8)

(82.6)

-


-

-

liabilities








Borrowings

181.0

181.0


181.8

281.4

Investment contract

58,627.4

(58,627.4)

-


-

-

benefits








Derivative financial

179.0

(179.0)

-


-

-

instruments








NAV attributable to unit

19,367.5

(19,367.5)

-


-

-

holders








Other provisions

19.9

19.9


16.4

17.1

Other payables

1,621.0

(728.3)

(1.2)

891.5


386.9

789.0

Income tax liabilities

148.0

148.0


50.4

72.7

Deferred tax liabilities

576.2

(169.4)

406.8


212.7

434.3

Deferred income

641.4

(641.4)

-


-

-

Preference shares

0.1

0.1


0.1

0.1

Total liabilities

81,899.9

(79,358.0)

(894.6)

1,647.3


848.3

1,594.6









Net assets

1,036.2

10.7 

1,046.9


772.3

1,070.0

 

Adjustments:

 

1.         Nets out the policyholder interest in unit-linked assets and liabilities.

2.         Adjustments to the IFRS balance sheet in line with Solvency II requirements, including removal of DAC, DIR, PVIF and their associated deferred tax balances, goodwill and other intangibles.

 

-28-

 

Liquidity

 

As noted above, our investment policy is always to hold assets to match unit-linked liabilities, and to hold any excess in assets that are liquid and high credit quality. An analysis of the liquid asset holdings as at 30 June 2017 is provided below:

 


£'Million

£'Million




Fixed Interest Securities



1% UK Treasury 07/09/2017

42.4


1.375% Singapore Government Bonds 01/10/2017

4.8

47.2




Collective Investment Schemes (AAA rated money market funds)



Aberdeen

21.5


BlackRock

224.4


Goldman Sachs

204.8


HSBC

61.1


Insight

204.2


JP Morgan

163.1


Legal & General

196.3

1,075.4




Cash and cash equivalents (bank balances)



Bank of Scotland

30.2


Barclays

266.6


HSBC

71.1


Lloyds TSB

19.5


Metro

22.4


NatWest

13.3


Santander

32.3


Others

17.3

472.7




Total


1,595.3

 

In the normal course of business, the Company is expected to generate regular, positive cashflow from annual management income exceeding expenses. As noted previously, future growth in cashflow is driven by new business, but in the short term growth will reflect the transition as new business from six years ago becomes cash generative.

 

The key calls on liquidity are payments of Group dividends and investment to support the business. As noted previously, our policy is to increase the dividend in line with the underlying performance of the business. We believe this will also enable us to continue to invest in the business to support our growth aspirations.

 

-29-

 

Solvency II Net Assets

 

The table below details the movement in the Solvency II net assets over the year which after adjusting for changes in non-cash items such as deferred tax assets, goodwill and intangibles, as well as changes in equity such as dividends paid in the year (see also page 46 - condensed consolidated statement of changes in equity) provides the net cash result for the period.

 


6 Months

Ended

30 June 2017


6 Months

Ended

30 June 2016


12 Months

Ended

31 December 2016


£'Million


£'Million


£'Million







Opening Solvency II Net Assets

1,070.0 


801.1 


801.1 







Dividend paid in period

(108.8)


(90.4)


(155.2)

Issue of share capital and exercise of options

2.6 


5.4 


6.6 

Consideration paid for own shares

(8.1)


(5.5)


(5.5)

Movement in other reserves



0.2 

Change in deferred tax

(11.6)


(10.9)


(17.2)

Change in goodwill and intangibles

(1.4)


(9.9)


(2.4)

Investment contract liability reassessment



267.0 

Other non-cash movements

(7.1)



Cash result

111.3 


82.5 


175.4 







Closing Solvency II Net Assets

1,046.9 


772.3 


1,070.0 







 

-30-

 

Cash results

 

As noted above, the change in the Solvency II Net Assets, after adjusting for changes in non-cash items such as deferred tax assets, goodwill and intangibles, as well as changes in equity such as dividends paid in the year (see also page 46 - condensed consolidated statement of changes in equity) provides the Cash result for the period. The Cash result provides an alternative view of the cash generation of the Group during a reporting period and should not be confused with the IFRS condensed consolidated statement of cash flows which is prepared in accordance with IAS 7 and disclosed on page 48.

 

The following tables show: an Operating cash result, reflecting the regular emergence of cash from the business operations; and an Underlying cash result which additionally reflects the cash impact of our strategic investments. The reconciliation of the Operating cash result to the Underlying profit measure is presented on page 21.

 

There are also some cash items whose emergence is volatile, varying over time, and which are influenced by market movements. These impacts, together with the short term costs associated with the back office infrastructure project, are shown after the Underlying cash result.

 

The Cash results are presented after tax and can be analysed as a combination of the cash emerging from the business in force at the start of the year, less the investment made to acquire new business during the year. The following tables and commentary provide an indicative analysis of the Cash result into these two elements.

 

The Cash results are the principal measures the Board considers when determining the dividend payment to shareholders.

 

-31-

 

Six Months Ended 30 June 2017

 

Note


In-Force


New Business


Total




£'Million


£'Million


£'Million

Operational








Net annual management fee

1


284.8 


13.0 


297.8 

Reduction in fees in gestation period

1


(130.0)



(130.0)

Net income from funds under management

1


154.8 


13.0 


167.8 









Margin arising from new business

2



59.4 


59.4 

Establishment expenses

3


(7.3)


(66.3)


(73.6)

Operational development expenses

3



(6.2)


(6.2)

Regulatory fees

3


(0.3)


(2.9)


(3.2)

FSCS levy

3


(1.6)


(14.4)


(16.0)

Shareholder interest

4


5.7 



5.7 

Tax relief from capital losses

5


9.3 



9.3 

Miscellaneous

6


(4.2)



(4.2)

Operating cash result



156.4 


(17.4)


139.0 









Investment








Academy

7



(3.3)


(3.3)

Asia

7



(7.5)


(7.5)

DFM

7



(2.8)


(2.8)

Strategic development costs

7



(2.3)


(2.3)









Underlying cash result



156.4 


(33.3)


123.1 









Back-office infrastructure development

7






(8.2)

Variance

8






(3.6)









Cash result







111.3 









 

-32-

 

Six Months Ended 30 June 2016

 

Note


In-Force


New Business


Total




£'Million


£'Million


£'Million

Operational








Net annual management fee

1


226.1 


9.6 


235.7 

Reduction in fees in gestation period

1


(81.2)


(5.7)


(86.9)

Net income from funds under management

1


144.9 


3.9 


148.8 









Margin arising from new business

2



20.5 


20.5 

Establishment expenses

3


(6.0)


(54.1)


(60.1)

Operational development expenses

3



(5.6)


(5.6)

Regulatory fees

3


(0.3)


(2.7)


(3.0)

FSCS levy

3


(1.3)


(12.3)


(13.6)

Shareholder interest

4


4.7 



4.7 

Tax relief from capital losses

5


7.0 



7.0 

Miscellaneous

6


4.4 



4.4 

Operating cash result



153.4 


(50.3)


103.1 









Investment








Academy

7



(2.8)


(2.8)

Asia

7



(3.2)


(3.2)

DFM

7



(1.2)


(1.2)

Strategic development costs

7



(1.5)


(1.5)









Underlying cash result



153.4 


(59.0)


94.4









Back-office infrastructure development

7






(8.4)

Variance

8






(3.5)









Cash result







82.5 

 

-33-

 

Year Ended 31 December 2016

 

Note


In-Force


New Business


Total




£'Million


£'Million


£'Million

Operational








Net annual management fee

1


468.5 


40.4 


508.9 

Reduction in fees in gestation period

1


(165.6)


(24.3)


(189.9)

Net income from funds under management

1


302.9 


16.1 


319.0 









Margin arising from new business

2



49.0 


49.0 

Establishment expenses

3


(12.9)


(115.7)


(128.6)

Operational development expenses

3



(13.9)


(13.9)

Regulatory fees

3


(0.4)


(3.4)


(3.8)

FSCS levy

3


(1.4)


(12.3)


(13.7)

Shareholder interest

4


9.8 



9.8 

Tax relief from capital losses

5


12.6 



12.6 

Miscellaneous

6


(4.4)



(4.4)

Operating cash result



306.2 


(80.2)


226.0 









Investment








Academy

7



(5.8)


(5.8)

Asia

7



(12.2)


(12.2)

DFM

7



(3.2)


(3.2)

Strategic development costs

7



(5.3)


(5.3)









Underlying cash result



306.2 


(106.7)


199.5 









Back-office infrastructure development

7






(16.7)

Variance

8






(7.4)









Cash result







175.4 

 

-34-

 

Notes

 

All numbers are expressed after tax at the prevailing tax rate for each year.

 

1.    The Net annual management fee is the manufacturing margin the Group retains from the funds under management after payment of the associated costs (e.g. investment advisory fees and Partner remuneration).  Broadly speaking the Group receives an average net annual management fee rate of 0.77% (post tax) of funds under management (2016: 0.77% (post tax)).

 

However, as noted in Section 1 on page 16, due to our product structure, investment and pension business does not generate cash in the first six years (known as the 'gestation' period). This is reflected in an adjustment which is the reduction in fees in gestation period.

 

As a consequence of the reassessment of the investment contract liability at 31 December 2016, the Reduction in fees in gestation period has increased. Allowing for an appropriate adjustment for this effect, the net income from funds under management has increased in line with the higher average funds under management in the period, which was some 27% higher than the same period in 2016.

 

2.    Margin arising from new business:  This is the cash impact of new business in the year, reflecting growth in new business, production related expenses and mix of new business.

 

The reassessment of the investment contact liability at 31 December 2016 resulted in an increase in the level of initial margin. The size of this adjustment varies with business mix but the increase in contribution from Margin arising from new business between the periods reflects the increased margin, growth in new business and developments in the business mix.

 

3.    Expenses:  These reflect the expenses of running the Group and more detail is provided in the table on page 18.  In line with the rest of this table they are presented after allowance for tax.

 

4.    Shareholder interest: This is the assumed income accruing on the investments and cash held for regulatory purposes together with the interest received on the surplus capital held by the Group.

 

5.    Tax relief from capital losses: In recent years, a deferred tax asset has been established for historic capital losses which are now regarded as being capable of utilisation over the medium term.

 

       Utilisation in the period was ahead of our expected level of £4-5 million for a six month period, but is subject to market conditions and the out-performance from the period could reverse in the remainder of the year.

 

6.    Miscellaneous:  This represents the cash flow of the business not covered in any of the other categories, including ongoing administration expenses and the associated policy charges, together with utilisation of the deferred tax asset in respect of prior year's unrelieved expenses (due to structural timing differences in the life company tax computation).

 

7.    Strategic investments, including back office infrastructure: These reflect significant investments in developing our business for the future. Further analysis of the expenses associated with these initiatives is presented in Section 2 on page 18, but all are expected to result in either additional funds (Academy, Asia and DFM) or future expense savings (Back office infrastructure).  Advice margin generated in Asia and all fees generated by DFM are reflected in the relevant line.

 

8.    Variance:  This reflects variances in the settlement of tax related liabilities between the policyholders (unit-linked funds), the shareholder and HMRC and a number of other small positive and negative one-off items.

 

-35-

 

Solvency

 

St. James's Place is a simple wealth management group offering mainly investment products. Our strategy is to attract and administer retail funds under management, from which we receive an annual management fee; we are a fee-based business. Our clients can access their investments on demand but, because we match the encashment value on the unit-linked business, movements in equity markets, interest rates, mortality, morbidity, longevity and currency rates have little impact on our ability to meet liabilities (although they can impact emergence of profit). We also have a prudent capital management approach and invest surplus assets in cash, AAA rated money-market funds and UK government securities. The overall effect is assurance that we can meet liabilities, and a resilient solvency position that is dependable even through adverse market conditions.

 

We manage solvency of our business on the basis of holding assets in excess of the client unit-linked liabilities plus a Management Solvency Buffer (MSB). This ensures we are able not only to meet client liabilities at all times, but the prudence of the MSB acts as protection against other risks.

 

During the period the MSB for our Life businesses has been maintained at £437.0 million, having taking into account a wide range of factors and information, not least the results from stress and scenario testing carried out as part of our annual ORSA (Own Risk and Solvency Assessment). This includes £267.0 million in respect of the reassessment of the investment contract liability at 31 December 2016.  Further work to review this prudent assessment of the capital required will be completed by the end of the year.

 

We will also continue to hold capital within the Group in respect of the other regulated (but non-insurance) companies, based on holding excess capital significantly above the regulatory requirement.

 

30 June 2017

 

 

 

Life


 

 

Other

Regulated


 

 

 

Other


 

 

 

Total


 

30 June 2016

 Total


 

31 Dec 2016

 Total


£'Million


£'Million


£'Million


£'Million


£'Million


£'Million













Solvency II net assets*

622.6 


150.8


273.5


1,046.9


772.3   


1,070.0













Management Solvency Buffer (MSB)

437.0 


106.3




543.3 


214.6   


527.0

Management solvency ratio

142%


142%









 

*Before Group interim dividend

 

Solvency II net assets reflects the assets of the Group in excess of those assets matching the client's (unit‑linked) liabilities. It includes a £147.2 million (30 June 2016: £168.3 million, 31 December 2016: £157.7 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.

 

-36-

 

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 cashflows (VIF) and a Risk Margin (RM) reflecting the potential cost to secure the transfer of the business to a third party. The Solvency II net assets, VIF and RM comprise the 'Own Funds', which is assessed against a Solvency Capital Requirement (SCR), reflecting the capital required to protect against a range of "1 in 200" stresses. The SCR is calculated on the Standard Formula approach. No allowance has been made for transitional provisions in the calculation of technical provisions or SCR.

 

An analysis of the Solvency II position for our Group, split by regulated and non-regulated entities at the period end is presented in the table below:

 

30 June 2017

Life


Other

Regulated


Other


Total


30 June 2016 Total


31 December 2016

Total


£'Million


£'Million


£'Million


£'Million


£'Million


£'Million













Solvency II net assets*

622.6 


150.8


273.5


1,046.9


772.3 


1,070.0 













Value of in-force (VIF) (estimated)

2,996.6 






2,996.6 


2,499.3 


2,707.9 

Risk Margin (estimated)

(855.2)






(855.2)


(679.2)


(779.2)













Own Funds (A) (estimated)

2,764.0 


150.8 


273.5 


3,188.3 


2,592.4 


2,998.7 













Solvency capital requirement (B) (estimated)

(2,157.3)


(63.1)




(2,220.4)


(1,676.1)


(2,046.5)













Solvency II free assets (estimated)

606.7 


87.7 


273.5 


967.9


916.3 


952.2 













Solvency ratio (A/B) (estimated)







144%


155%


147%

 

*After payment of interim intragroup dividend but before Group interim dividend.

 

The solvency ratio is 144% at 30 June 2017 (30 June 2016: 155%, 31 December 2016: 147%).

 

The nature of our business is that much of the Own Funds value reflects future profits, but the SCR similarly reflects loss of future profits. As a result, the solvency ratio is not very sensitive to changes in experience or assumptions, and can move counter-intuitively depending on circumstances. This is illustrated by the change in the solvency ratio between the periods where the ratio at 30 June 2017 is lower than either the 30 June 2016 or 31 December 2016, despite the fact that the solvency free assets are higher.  

 

More generally, since our business profile has not changed significantly, the sensitivity analysis presented in the 2015 year end results remains relevant.

 

-37-

 

SECTION 5:  EUROPEAN EMBEDDED VALUE (EEV)

 

Wealth management differs from most other businesses, in that the expected shareholder income from the sale of a product emerges over a long period in the future.  We therefore complement the IFRS and cash results by providing additional disclosure on an EEV basis, which brings into account the net present value of the expected future cash flows. We believe that a measure of total economic value of the Group's operating performance is useful to investors.

 

As in previous reporting, our EEV continues to be calculated on a basis determined in accordance with the EEV principles originally issued in May 2004 by the Chief Financial Officers' Forum (CFO Forum) and supplemented in October 2005. Following the introduction of Solvency II, the CFO Forum published an amended set of principles in April 2016.

 

The table below and accompanying notes summarise the profit before tax of the combined business:

 


6 Months

Ended

30 June 2017


6 Months

Ended

30 June 2016


12 Months

Ended

31 December 2016


£'Million


£'Million


£'Million







Life business

298.6 


208.5 


501.4 

Unit Trust and DFM business

168.3 


123.8 


266.8 

Funds Management business

466.9 

   

332.3 


768.2 







Distribution business

(27.1)


(19.2)


(25.9)

Back office infrastructure development

(10.1)


(10.5)


(20.9)

Other

(32.4)


(18.6)


(47.8)







EEV operating profit

397.3 


284.0 


673.6 







Investment return variance

214.1 


168.8 


537.2 

Economic assumption changes

11.5 


(10.1)


(12.4)







EEV profit before tax

622.9 


442.7 


1,198.4 







Tax

(110.0)


(82.5)


(212.9)

Corporation tax rate change


28.8 


28.6 







EEV profit after tax

512.9 


389.0 


1,014.1 

 

 


6 Months

Ended

30 June 2017


6 Months

Ended

30 June 2016


12 Months

Ended

31 December 2016


Pence


Pence


Pence







EEV operating profit basic earnings per share

62.4


44.3 


105.9







EEV operating profit diluted earnings per share

61.5


43.9 


105.2

 

-38-

 

Funds Management business

The funds management business operating profit has increased to £466.9 million at 30 June 2017 (30 June 2016: £332.3 million) and a full analysis of the result is shown below:

 


6 Months

Ended

30 June 2017


6 Months

Ended

30 June 2016


12 Months

Ended

31 December 2016


£'Million


£'Million


£'Million







New business contribution

343.0 


228.9 


520.2 







Profit from existing business






- unwind of the discount rate

102.8 


98.8 


199.6 

- experience variance

17.8 


1.7 


1.4 

- operating assumption change



18.6 







Addition of Rowan Dartington



21.0 







Investment income

3.3 


2.9


7.4 







Fund management business

EEV operating profit

466.9 


332.3 


768.2

 

The new business contribution for the six months at £343.0 million (30 June 2016: £228.9 million) was some 50% higher than the prior year reflecting both the increase in new business and also positive operational gearing effects as fixed expenses are spread across more new business.

 

Further detail on the new business margin is provided on page 40.

 

The unwind of the discount rate for the six months was £102.8 million (30 June 2016: £98.8 million), reflecting the higher opening value of in-force business but a lower risk discount rate of 4.5% (2016: 5.2%).

 

The experience variance in the six month period was £17.8 million (30 June 2016: £1.7 million), reflecting positive retention experience and other net positive variances.

 

In line with our usual approach, no change was made to operating assumptions in the first half of the year (30 June 2016: £nil).

 

The investment income for the six months was marginally higher at £3.3 million reflecting higher cash balances (30 June 2016: £2.9 million).

 

Distribution Business, Back-office infrastructure development and Other

The results for Distribution, the Back-office infrastructure development and Other operations have already been commented on in the IFRS section.

 

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 funds under management, a small difference between the actual and assumed investment return can result in a large positive or negative variance.

 

 

The average investment return on our funds during the period was some 4% higher than the assumed investment return during the period, resulting in a positive investment return variance of £214.1 million (30 June 2016: £168.8 million).

 

-39-

 

Economic Assumption Changes

 

There was a small positive variance of £11.5 million arising from changes in the economic basis adopted at the period end reversing some of the small negative impacts arising in prior periods (30 June 2016: £10.1 million negative).

 

EEV Profit before Tax

 

The total profit before tax for the six months at £622.9 million was considerably higher than the 30 June 2016 figure of £442.7 million, principally due to growth in the business between the two periods arising from both strong gross inflows and positive investment performance over the last twelve months.

 

Tax

 

The increase in the tax charge to £110.0 million (30 June 2016: £82.5 million) reflected the higher profit before tax.

 

All future changes in corporation tax have been incorporated in the EEV calculation in previous reporting periods.

 

EEV Profit after Tax

 

The EEV profit after tax was £512.9 million (30 June 2016: £389.0 million) reflecting the movement in EEV profit before tax.

 

-40-

 

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 ('Margin'). This is calculated as the new business contribution divided by the gross inflow, and is expressed as a percentage.

 

The table below presents the margin from our manufactured business based on gross fund flows:

 


6 Months

Ended

30 June 2017


6 Months

Ended

30 June 2016


12 Months

Ended

31 December 2016

Life business






Investment






New business contribution (£'Million)

64.6 


49.3 


108.3

New money invested (£'Billion)

1.24 


1.04 


2.28

Margin (%)

5.2 


4.7 


4.8







Pension






New business contribution (£'Million)

138.8 


85.4 


207.9

New money invested (£'Billion)

3.22 


2.40 


5.12

Margin (%)

4.3 


3.5 


4.1







Unit Trust and DFM business






New business contribution (£'Million)

139.6 


94.2 


204.0

New money invested (£'Billion)

2.41 


1.83 


3.95

Margin (%)

5.8 


5.7 


5.2







Total business






New business contribution (£'Million)

343.0 


228.9 


520.2

New money invested (£'Billion)

6.87 


5.27 


11.35

Margin (%)

5.0 


4.5 


4.6

Post tax new business contribution (£'Million)

 

282.3 


 

186.7 


 

427.8

Post tax margin (%)

4.1 


3.7 


3.8

 

The overall margin for the period was higher at 5.0% (30 June 2016: 4.5%) reflecting increases in margin across all categories of business. These positive impacts arise from both the higher level of business together with the operational gearing impact arising from the new administration tariff. This new tariff better reflects the actual fixed and variable nature of the administration expenses than the previous tariff. Therefore as the fixed proportion of the expenses are spread over a higher volume of business the contribution to new business will be higher. 

 

-41-

 

EEV Sensitivities

 

The table below shows the estimated impact on the combined life and unit trust reported value of new business and EEV to changes in various EEV calculated assumptions.  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 new business contribution

Change in

European

Embedded Value


Note

Pre-tax


Post-tax


Post-tax



£'Million


£'Million


£'Million

Value at 30 June 2017


343.0

 

282.3

 

5,162.7








100bp reduction in risk free rates, with corresponding change in fixed interest asset values

1

(7.3)


(6.0)


(56.2)








10% reduction in withdrawal rates

2

29.6 


24.4 


303.9 








10% reduction in market value of equity assets

3



(502.9)








10% reduction in expenses


8.4 


7.0 


51.6 








100bp increase in assumed inflation


(8.2)


(6.8)


(70.7)

 

Note 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. 

Note 2:  The 10% reduction is applied to the lapse rate. For instance, if the lapse rate is 8% then a 10% sensitivity reduction would reflect a change to 7.2%.

Note 3:  For the purposes of this required 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%.

 


Change in new business

contribution


Change in European

Embedded Value


Pre-tax


Post-tax


Post-tax


£'Million


£'Million


£'Million







100bp reduction in risk discount rate

38.5


31.7


383.9

 

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. 

 

-42-

 

Analysis of the European Embedded Value and Net Assets per Share

 

The table below provides a summarised breakdown of the embedded value position at the reporting dates:

 

 


6 Months

Ended

30 June 2017


6 Months

Ended

30 June 2016


12 Months

Ended

31 December 2016


£'Million


£'Million


£'Million







Value of in-force






- Life

2,915.1


2,531.2


2,636.2

- Unit Trust and DFM

1,200.7


870.7


1,044.9

Solvency II net assets

1,046.9


772.3


1,070.0







Total embedded value

5,162.7


4,174.2


4,751.1

 

 


6 Months

Ended

30 June 2017


6 Months

Ended

30 June 2016


12 Months

Ended

31 December 2016


Pence


Pence


Pence







Net asset value per share

976.7


791.9


900.7

 

-43-

 

INTERIM MANAGEMENT REPORT

 

PRINCIPAL RISKS AND UNCERTAINTIES

 

A comprehensive review of the principal risks and uncertainties facing the business, and the Group's approach to managing these risks and uncertainties, including the high level controls and processes which we aim to mitigate them, are outlined on pages 51 to 53 of the 2016 Annual Report and Accounts under the Risk and Risk Management section. We are comfortable that there has been no change in the nature of the principal risks and uncertainties facing the Group since the 2016 Annual Report and Accounts, although the UK's general election result has increased political uncertainty in the short term. A summary of those principal key risks and uncertainties which could impact the Group for the remainder of the current financial year has been provided in the table below.

 

Non-financial risks

 

Risk/uncertainty

Description

Client proposition

Clients rely on members of the St. James's Place Partnership for the provision of initial and ongoing advice.  Failures in the quality of service provided, and in particular any advice failings, could lead to redress costs, reputational damage and regulatory intervention.

 

Operations and IT

The Group's business model involves the outsourcing of administration to third parties.  Poor service from, or failure of, one of these third parties, the failure of an IT system, or a significant cyber-attack or fraud, could lead to disruption of services to clients, reputational damage and profit impacts. In particular, a significant cyber attack could cause very substantial reputational damage.

 

Investment Management Approach

Our approach to investment management may fail to deliver expected returns to clients of the Group or the range of products and services offered may become inappropriate for client needs.

 

Partner proposition, recruitment and retention

Group products are distributed, and ongoing advice is provided, exclusively through the St. James's Place Partnership.  Inadequacies in the Partner proposition, range of products, technology or services offered to the Partnership may result in inefficiencies and frustration, with consequent loss of Partners and client impact, or inability to recruit sufficient, high quality new Partners or field management.

 

Regulatory, legislative and tax environment

The nature of the Group is such that it falls under the influence of regulators and legislators in multiple jurisdictions, a growing number given the Group's expansion into Asia. The results are two-fold:

 

·     Wholesale changes to regulations or to the political environment may result in implementation costs and disruption to business.

·     Failure to comply with applicable regulations could result in a fine or regulatory censure, with increased supervisory intrusion and disruption to business.

 

Competition and charge pressure

Competitor activity in the adviser-based wealth management market may result in a reduction in new business volumes, reduced retention of existing business, pressure on margins for both new and existing business and the potential loss of Partners and key employees. The low yield environment places additional pressure on client charges and advice fees.

 

 

-44-

 

Risk/uncertainty

Description

Availability of credit

Lack of availability of credit may limit the Group's ability to provide Partner loans and make strategic investments.

Investor relations

Failure to communicate effectively with new and existing shareholders may lead to falls in the share price and reputational damage.

Accumulation of reputational issues

The success of the Group is closely linked with the strength of the St. James's Place brand. An accumulation of reputational issues, for example, advice failures, fraud, service issues, low client investment returns, has the potential to damage the brand, leading to reduced retention and lower levels of new business.

 

People and culture

People and the distinctive culture of the Group play an important part in its success. Poorly managed expansion, succession, culture and resourcing may lead to loss of valued individuals, increased risk of errors, and failure to deliver on the business plan.

 

 

Financial risks

 

Financial risk

Description

Market Risk - Loss of Annual Management Charge (AMC) income

A reduction in funds owing to market shocks, poor market performance or currency and exchange rate movements would reduce future AMC income, and hence future profits.

 

Insurance risk

A reduction in funds under management owing to poor retention would reduce future AMC income. This may arise from factors such as changes in the economic climate, poor investment performance, competitor activity, or reputational damage to the Group.

 

Adverse mortality or disability experience, in particular higher death claims following an incident or widespread illness, or longer-term increases in mortality rates, would reduce future profits.

 

Expense risk

Increased expenses, in particular higher than expected administration costs, would reduce future profits.

 

Interest rate and credit risks

Changes in interest rates or the failure of a counterparty may reduce the value of fixed interest assets held to match future fixed liabilities and shareholder assets. Key counterparties include reassurers, banks, money market funds, issuers of fixed interest securities, Partners to whom loans have been granted, and other debtors.

 

Liquidity risk

Liquidity issues may arise from client requests to switch or withdraw money from unit-linked funds, and through events that may require immediate recourse to shareholder funds.

 

 

-45-

 

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

 

 

 

 

 

Note

6 Months

Ended

30 June

2017

 

6 Months

Ended

30 June

2016

 

12 Months

Ended

31 December

2016

 

 

£'Million

 

£'Million

 

£'Million

 

 

 

 

 

 

 

Insurance premium income

 

23.7 

 

24.7 

 

52.2 

Less premiums ceded to reinsurers

 

(14.2)

 

(15.3)

 

(31.5)

Net insurance premium income

 

9.5 

 

9.4 

 

20.7 

 

 

 

 

 

 

 

Fee and commission income

4

896.8 

 

693.8 

 

1,703.9 

 

 

 

 

 

 

 

Investment return

5

4,325.4 

 

2,599.5 

 

9,630.1 

 

 

 

 

 

 

 

Other operating income

 

 

0.7 

 

Net income

 

5,231.7 

 

3,303.4 

 

11,354.7 

 

 

 

 

 

 

 

Policy claims and benefits

 

 

 

 

 

 

- Gross amount

 

(29.9)

 

(23.4)

 

(62.7)

- Reinsurers' share

 

13.3 

 

11.9 

 

21.7 

Net policyholder claims and benefits incurred

 

(16.6)

 

(11.5)

 

(41.0)

 

 

 

 

 

 

 

Change in insurance contract liabilities

 

 

 

 

 

 

- Gross amount

 

(20.3)

 

(24.6)

 

(64.6)

- Reinsurers' share

 

0.2 

 

8.6 

 

4.1 

Net change in insurance contract liabilities

 

(20.1)

 

(16.0)

 

(60.5)

 

 

 

 

 

 

 

Investment contract benefits

 

(4,286.1)

 

(2,610.6)

 

(9,541.8)

 

 

 

 

 

 

 

Expenses

 

(714.5)

 

(568.3)

 

(1,225.1)

 

 

 

 

 

 

 

Profit before tax

3

194.4 

 

97.0 

 

486.3 

 

 

 

 

 

 

 

Tax attributable to policyholders' returns

6

(114.8)

 

(36.5)

 

(345.7)

 

 

 

 

 

 

 

Profit before tax attributable to shareholders' returns

 

79.6 

 

60.5 

 

140.6 

 

 

 

 

 

 

 

Total tax expense

 

(132.5)

 

(48.6)

 

(374.6)

Less: tax attributable to policyholders' returns

6

114.8 

 

36.5 

 

345.7 

Tax attributable to shareholders' returns

6

(17.7)

 

(12.1)

 

(28.9) 

Profit and total comprehensive income for the period

3

61.9 

 

48.4 

 

111.7 

               

 

 

 

 

 

 

Profit/(loss) attributable to non-controlling interests

 

 

0.2 

 

(0.5)

Profit attributable to equity shareholders

 

61.9 

 

48.2 

 

112.2 

Profit and total comprehensive income for the period

3

61.9 

 

48.4 

 

111.7 

 

 

 

 

 

 

 

 

 

Pence

 

Pence 

 

Pence 

Basic earnings per share

14

11.8

 

9.3 

 

21.5 

Diluted earnings per share

14

11.6

 

9.2 

 

21.3 

 

-46-

 

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

 



Attributable to equity shareholders






















 

 

 

 

 

Note

Share

Capital


Share

Premium


Shares in Trust

Reserve


Retained

Earnings


Misc. Reserves


Total


Non-

controlling

Interests


Total



£'Million


£'Million


£'Million


£'Million


£'Million


£'Million


£'Million


£'Million


















At 1 January 2016


78.7 


158.3 


(18.5)


874.6 


2.3 


1,095.4 


(0.3)


1,095.1 

Profit and total comprehensive income for the period








48.2 




48.2 


0.2 


48.4 

Dividends

14







(90.4)




(90.4)




(90.4)

Issue of share capital




0.9 








0.9 




0.9 

Exercise of options


0.4 


4.0 








4.4 




4.4 

Consideration paid for own shares






(5.5)






(5.5)




(5.5)

Shares sold during the period






3.0 


(3.0)







Miscellaneous reserves on acquisition










0.1 


0.1 




0.1 

Retained earnings credit in respect of share option charges








7.5 




7.5 




7.5 


















At 30 June 2016


79.1 


163.2 


(21.0)


836.9 


2.4 


1,060.6 


(0.1)


1,060.5 


















At 1 January 2017


79.1 


164.5 


(20.9)


851.2 


2.5 


1,076.4 


(0.8)


1,075.6 

Profit and total comprehensive income for the period








61.9 




61.9 




61.9 

Dividends

14







(108.8)




(108.8)




(108.8)

Exercise of options


0.2 


2.4 








2.6 




2.6 

Consideration paid for own shares






(8.1)






(8.1)




(8.1)

Shares sold during the period






4.3 


(4.3)







Retained earnings credit in respect of share option charges








13.0 




13.0 




13.0 


















At 30 June 2017


79.3 


166.9  



813.0 


2.5 


1,037.0 


(0.8)


1,036.2


















 

Miscellaneous reserves represent other non-distributable reserves.

 

-47-

 

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

 


 

Note

30 June

2017


30 June

2016


31 December

2016



£'Million


£'Million


£'Million

Assets







Goodwill

8

15.6 


21.2 


13.8 

Intangible assets

8






- Deferred acquisition costs


652.9 


713.2 


684.8 

- Acquired value of in-force business


28.8 


32.0 


30.4 

- Computer software


2.6 


3.1 


3.0 



699.9 


769.5 


732.0 

Property and equipment


24.5 


8.9 


23.1 

Deferred tax assets

6

187.0 


212.7 


199.9 

Reinsurance assets


80.7 


84.8 


80.5 

Other receivables

9

1,903.8 


1,537.1* 


1,473.0 

Investments

7






- Investment property


1,522.3 


1,345.9 


1,462.4 

- Equities


50,717.4 


40,747.1 


46,598.7 

- Fixed income securities


14,178.7 


10,558.1 


12,445.5 

- Investment in Collective Investment

  Schemes


5,358.6 


3,520.9 


3,864.8 

- Derivative financial instruments


879.1 


706.1 


729.1 

Cash and cash equivalents


7,384.1 


6,412.1 


7,413.1 

Total assets

3

82,936.1 


65,903.2 


75,022.1








Liabilities







Borrowings

12

181.0 


181.8 


281.4 

Deferred tax liabilities

6

576.2 


407.5 


614.8 

Insurance contract liabilities


538.4 


488.1 


518.2 

Deferred income

8

641.4 


396.1 


647.6 

Other provisions

11

19.9 


16.4 


17.1 

Other payables

10

1,621.0 


1,105.9* 


1,173.6 

Investment contract benefits


58,627.4 


46,605.2 


53,307.1 

Derivative financial instruments

7

179.0 


847.7 


281.9 

Net asset value attributable to unit holders

7

19,367.5 


14,743.5 


17,032.0 

Income tax liabilities


148.0 


50.4 


72.7 

Preference shares


0.1 


0.1 


0.1 

Total liabilities


81,899.9 


64,842.7 


73,946.5 








Net assets


1,036.2 


1,060.5 


1,075.6 








Equity







Share capital

14

79.3 


79.1 


79.1 

Share premium


166.9 


163.2 


164.5 

Shares in trust reserve


(24.7)


(21.0)


(20.9)

Miscellaneous reserves


2.5 


2.4 


2.5 

Retained earnings


813.0 


836.9 


851.2 

Equity attributable to owners of the parent


1,037.0 


1,060.6 


1,076.4 

Non-controlling interests


(0.8)


(0.1)


(0.8)

Total equity


1,036.2 


1,060.5 


1,075.6










Pence


Pence 


Pence 

Net assets per share


196.0


201.2 


203.9 

 

* Some lines have been aggregated in the comparative to simplify the presentation.

 

-48-

 

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

 


6 Months

Ended

30 June

2017


6 Months

Ended

30 June

2016


12 Months

Ended

31 December

2016


£'Million


£'Million


£'Million

Cash flows from operating activities






Profit before tax for the period

194.4 


97.0 


486.3 

Adjustments for:






Depreciation

2.6 


1.5 


4.4 

Amortisation of acquired value of in-force business

1.6 


1.6 


3.2 

Amortisation of computer software

0.5 


1.7 


3.4 

Share-based payment charge

14.0 


7.5 


23.9 

Interest income

(11.4)


(12.5)


(26.6)

Interest paid

2.2 


2.2 


4.9 

Increase in provisions

2.8 


1.0 


1.7 

Amortisation of bank charges


0.1 


 - 

Exchange rate losses/(gains)

2.3 


(1.5)


(3.3)







Changes in operating assets and liabilities






Decrease in deferred acquisition costs

31.9 


31.8 


60.2 

Increase in investment property

(59.9)


(1.0)


(117.5)

Increase in other investments

(7,495.7)


(5,003.7)


(13,109.6)

(Increase)/decrease in reinsurance assets

(0.2)


(8.5)


4.5 

Increase in other receivables

(420.0)


(548.0)*


(464.4)

Increase in insurance contract liabilities

20.2 


22.2 


54.6 

Increase in financial liabilities (excluding borrowings)

5,217.9 


4,061.3 


10,207.8 

(Decrease)/increase in deferred income

(6.2)


(17.4)


234.1 

Increase in other payables

428.5 


395.4*


407.8 

Increase in net assets attributable to unit holders

2,335.5 


2,187.1 


4,475.6 







Cash generated from operations

261.0 


1,217.8 


2,251.0 







Interest received

11.4 


12.5 


26.6 

Interest paid

(2.2)


(2.2)


(4.9)

Income taxes paid

(72.9)


(29.0)


(87.7)







Net cash generated from operating activities

197.3 


1,199.1 


2,185.0 







Cash flows from investing activities






Acquisition of property and equipment

(5.5)


(1.9)


(19.6)

Acquisition of intangible assets



(2.1)

Acquisition of subsidiaries and other business combinations, net of cash acquired

 

(4.9)


 

(20.4)


(23.1)







Net cash used in investing activities

(10.4)


(22.3)


(44.8)







Cash flows from financing activities






Proceeds from the issue of share capital

2.6 


4.3 


5.7 

Consideration paid for own shares

(8.1)


(5.5)


(5.5)

Acquisition of non-controlling interests


0.1 


Additional borrowings



100.0 

Repayment of borrowings

(100.4)


(0.4)


(0.9)

Dividends paid

(108.8)


(90.4)


(155.2)







Net cash used in financing activities

(214.7)


(91.9)


(55.9)







Net increase in cash and cash equivalents

(27.8)


1,084.9 


2,084.3 







Cash and cash equivalents at beginning of period

7,413.1 


5,325.1 


5,325.1 

Exchange gains on cash and cash equivalents

(1.2)


2.1 


3.7 







Cash and cash equivalents at end of period

7,384.1 


6,412.1 


7,413.1 

 

*  Some lines have been aggregated in the 30 June 2016 comparative to simplify the presentation. See Note 9 Other Receivables and Note 10 Other Payables for further information.

 

-49-

 

NOTES TO THE FINANCIAL STATEMENTS

 

1.  BASIS OF PREPARATION

 

This condensed set of consolidated half year financial statements for the six months ended 30 June 2017, which comprise the half year financial statements of St. James's Place plc (the "Company") and its subsidiaries (together referred to as the "Group"), has been prepared in accordance with the Disclosure Guidance and Transparency Rules sourcebook of the Financial Conduct Authority and with IAS 34 'Interim Financial Reporting', an International Financial Reporting Standard ("IFRS") as adopted by the European Union. The condensed consolidated half year financial statements should be read in conjunction with the annual financial statements for the year ended 31 December 2016, which have been prepared in accordance with IFRSs as adopted by the European Union.

 

Going Concern

 

The Company's business activities, together with the factors likely to affect its future development, performance and position are set out in the Interim Statement on pages 6 to 11.  The financial position of the Company, its cash flows, liquidity position and borrowing facilities are described in the Financial Review on pages 12 to 42.

 

As shown on page 35 of the Financial Review, the Group's capital position is strong and well in excess of regulatory requirements. The long-term nature of the business results in considerable positive cash flows, arising from existing business. As a consequence, the Directors believe that the Company is well placed to manage its business risks successfully.

 

Having assessed the principal risks, the Directors consider it appropriate to adopt the going concern basis of accounting in preparing the financial statements.

 

-50-

 

NOTES TO THE FINANCIAL STATEMENTS (continued)

 

2.  SIGNIFICANT ACCOUNTING POLICIES

 

As required by the Disclosure Guidance and Transparency Rules sourcebook of the Financial Conduct Authority, this condensed set of consolidated financial statements has been prepared applying the accounting policies and standards that were applied in the preparation of the Group's published consolidated financial statements for the year ended 31 December 2016.

 

These condensed consolidated half year financial statements were prepared and approved by the Directors in accordance with International Financial Reporting Standards as adopted by the EU and interpretations issued by the IFRS Interpretations Committee.

 

In preparing these condensed consolidated half year financial statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those applied to the consolidated financial statements for the year ended 31 December 2016.

 

The amendments to IFRS effective for periods beginning on 1 January 2017 are as follows:

 

Annual Improvements 2014 - 2016 Cycle: Amendments to IFRS 12

IAS 12 Amendment - Recognition of Deferred Tax Assets for Unrealised Losses

IAS 7 Amendment - Disclosure Initiative

 

The amendments have not been applied in these condensed consolidated financial statements as they had not been endorsed by the EU as at 30 June 2017. The amendments are not expected to have a significant impact on the financial statements.

 

As at 30 June 2017, the following new and amended standards, which are relevant to the Group but have not been applied in the financial statements, were in issue but not yet effective:

 

IAS 40 Amendment - Transfers of Investment Property

IFRS 2 Amendment - Classification and Measurement of Share-based Payment Transactions

IFRS 4 Amendment - Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts

IFRS 9 Financial Instruments (and associated amendments to various other standards)

IFRS 10 and IAS 28 Amendments - Sale or Contribution of Assets between an Investor and its Associate or Joint Venture

IFRS 15 Revenue from Contracts with Customers (including subsequent IFRS 15 clarification and associated amendments to various other standards)

IFRS 16 Leases

IFRS 17 Insurance Contracts

Interpretation 22 Foreign Currency Transactions and Advance Consideration

Annual Improvements 2014 -2016 Cycle

 

The Group is currently assessing the impact that the adoption of the above standards, amendments and clarifications will have on the Group's results reported within the financial statements. Further detail regarding the standards that are expected to have the most significant impact on the financial statements is given below:

 

IFRS 9 Financial Instruments

IFRS 9 incorporates new classification and measurements requirements for financial assets and liabilities, the introduction of an expected credit loss impairment model which will replace the incurred loss model of IAS 39, new hedge accounting requirements and enhanced disclosures in the financial statements. On adoption of this standard, which is mandatory for financial years commencing on or after 1 January 2018 following endorsement by the EU on 22 November 2016, certain financial assets will be reclassified but there will be no material impact on the statement of financial position or the statement of comprehensive income. The Group does not use hedge accounting and so this element of the new standard is not applicable.

 

-51-

 

NOTES TO THE FINANCIAL STATEMENTS (continued)

 

2.  SIGNIFICANT ACCOUNTING POLICIES

 

IFRS 15 Revenue from Contracts with Customers

The new standard establishes a principle based five-step model to be applied to all contracts with customers, except for insurance contracts, financial instruments and lease contracts. The Group is assessing the impact that IFRS 15 will have on the financial statements, which is likely to be limited. IFRS 15 is mandatory for financial years commencing on or after 1 January 2018, following endorsement by the EU on 22 September 2016.

 

IFRS 16 Leases

IFRS 16 was issued in January 2016. It will result in almost all leases being recognised on the statement of financial position, as the distinction between operating and finance leases is removed. Under the new standard, an asset (the right to use the leased item) and a financial liability to pay rentals are recognised. The only exceptions are for short-term or low-value leases. The accounting for lessors will not significantly change.

 

The standard will affect the accounting for the Group's operating leases. On adoption of the standard, the right-of-use asset and liability for future payments are expected to be material to the statement of financial position, and there is expected to be a negative impact on the statement of comprehensive income initially which will reverse over time. The negative impact arises as the lease liability is accounted for using the effective interest method, which means that the interest expense on the lease liability reduces year on year, whereas under the current lease accounting standard the operating lease rentals are constant throughout the lease term.

 

The Group is assessing the quantum of the adjustments that will be required upon transition to IFRS 16, which is mandatory for financial years commencing on or after 1 January 2019, subject to EU endorsement.

 

IFRS 17 Insurance Contracts

IFRS 17 incorporates revised principles for the recognition, measurement, presentation and disclosure of insurance contracts.

 

The Group closed to new insurance business in 2009 and it now has less than £0.1bn of gross insurance liabilities remaining (net of associated client unit holdings).  These liabilities are substantially reassured, and therefore the Group's net exposure on this business is not material.

 

Management are currently assessing the impacts of adopting the new standard, which is mandatory for financial years commencing on or after 1 January 2021.

 

-52-

 

NOTES TO THE FINANCIAL STATEMENTS (continued)

 

3.  SEGMENT REPORTING

 

IFRS 8 Operating Segments requires operating segments to be identified, on the basis of internal reports about components of the Group that are regularly reviewed by the Board, in order to allocate resources to each segment and assess its performance. 

 

The composition of the segments has changed and comparatives have been restated on the new basis. 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 4 which sets out 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").

 

-53-

 

NOTES TO THE FINANCIAL STATEMENTS (continued)

 

3.   SEGMENT REPORTING (continued)

 

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. As the cost associated with share options is reflected in changes in shareholder equity, they are also not included in the underlying cash result.

 

More detail is provided in the Financial Review section of this announcement.

 

The cash result should not be confused with the IFRS condensed consolidated statement of cash flows which is prepared in accordance with IAS 7.

 


6 Months

Ended

30 June

2017


6 Months

Ended

30 June

2016


12 Months

Ended

31 December

2016


£'Million


£'Million


£'Million







Underlying cash result after tax

123.1 


94.4 


199.5 







Share option expense

(13.0)


(7.5)


(23.9)

IFRS deferred tax adjustments

(14.6)


(12.4)


(21.1)

Insurance reserves

0.2 


(1.0)


(1.6)

Back office infrastructure

(8.2)


(8.4)


(16.7)

Variance

(4.1)


(6.0)


(7.7)

DAC/DIR/PVIF

(21.5)


(10.7)


(16.8)







IFRS profit after tax

61.9 


48.4 


111.7 

Shareholder tax

17.7 


12.1 


28.9 







Profit before tax attributable to

shareholders' returns

79.6 


60.5 


 

140.6 

Policyholder tax

114.8 


36.5 


345.7 







IFRS profit before tax

194.4 


97.0 


486.3 

 

-54-

 

NOTES TO THE FINANCIAL STATEMENTS (continued)

 

3.   SEGMENT REPORTING (continued)

 

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 Financial Review section of this announcement. 

 


6 Months

Ended

30 June

2017


6 Months

Ended

30 June

2016


12 Months

Ended

31 December

2016


£'Million


£'Million


£'Million







EEV operating profit before tax

397.3 


284.0 


673.6 







Investment return variance

214.1 


168.8 


537.2 

Economic assumption changes

11.5 


(10.1)


(12.4)







EEV profit before tax

622.9 


442.7 


1,198.4 







Adjustments to IFRS basis






Deduct: amortisation of acquired value of in-force

(1.6)


(1.6)


(3.2)

Movement in life value of in-force (net of tax)

(293.9)


(256.2)


(642.7)

Movement in unit trust value of in-force (net of tax)

(155.8)


(83.1)


(257.6)

Tax of movement in value of in-force

(92.0)


(41.3)


(154.3)

Profit before tax attributable to shareholders' returns

79.6 


60.5 


140.6 

Tax attributable to policyholder returns

114.8 


36.5 


345.7 







IFRS profit before tax

194.4 


97.0 


486.3 

 

-55

 

NOTES TO THE FINANCIAL STATEMENTS (continued)

 

3.   SEGMENT REPORTING (continued)

 

Segment Assets

 

Funds under Management ("FUM")

 

FUM, as reported in Section 1 of the Financial Review on page 13 is the measure of Segment Assets which is monitored on a monthly basis by the Board.

 


30 June

2017


30 June

2016


31 December

2016


£'Million


£'Million


£'Million







Investment

27,170.0 


23,590.0 


25,880.0 

Pension

31,920.0 


23,790.0 


28,250.0 

UT/ISA and DFM

23,950.0 


18,180.0 


21,180.0 

Total FUM

83,040.0 


65,560.0 


75,310.0 

Exclude client and third party external holdings in non-consolidated unit trusts and DFM

(4,591.3)


(2,497.1)


 

(4,153.9)

Other

909.3 


320.2 


283.7 







Gross assets held to cover unit liabilities

79,358.0 


63,383.1 


71,439.8 







IFRS intangible assets (see page 27 adjustment 2) including goodwill, DAC, PVIF, reinsurance and deferred tax

883.9 


899.5 


 

 

917.7 

Shareholder gross assets (see page 27)

2,694.2 


1,620.6 


2,664.6 







Total assets

82,936.1 


65,903.2 


75,022.1 







 

-56-

 

NOTES TO THE FINANCIAL STATEMENTS (continued)

 

4.  FEE AND COMMISSION INCOME

 


6 Months

Ended

30 June

2017


6 Months

Ended

30 June

2016


12 Months

Ended

31 December

2016

 


£'Million


£'Million


£'Million

 







 

Advice charges

315.8


236.2


510.7 

 

Third party fee and commission income

55.4


46.1


103.5 

 

Wealth management fees

306.4


298.8


590.7 

 

Investment management fees

27.2


23.5


52.6 

 

Fund tax deductions

116.5


43.4


352.2 

 

Discretionary fund management (DFM) fees

4.1


1.3


5.3 

 







 

Fee and commission income before DIR amortisation

 

825.4


 

649.3


 

1,615.0

 







 

Amortisation of DIR

71.4


44.5


88.9 

 







 

Total fee and commission income

896.8


693.8


1,703.9 

 







 

 

-57-

 

NOTES TO THE FINANCIAL STATEMENTS (continued)

 

5.  INVESTMENT RETURN


6 Months

Ended

30 June

2017


6 Months

Ended

30 June

2016


12 Months Ended

31 December

2016


£'Million


£'Million


£' Million







Investment return on net assets held to cover unit liabilities:






Rental income

40.2 


35.7 


72.4 

Gain/(loss) on revaluation of investment properties

30.7 


(1.3)


(23.4)

Net investment return on financial instruments classified as fair value through profit and loss

3,323.8 


1,953.8 


7,456.8 


3,394.7 


1,988.2 


7,505.8 

Net investment return attributable to third party holdings in unit trusts

919.7 


601.9 


2,094.5 


4,314.4 


2,590.1 


9,600.3 







Investment return on shareholder assets:






Net investment return on financial instruments classified as fair value through profit and loss






7.1 


6.1 


22.9 

Interest income on financial instruments held at amortised cost






3.9 


3.3 


6.9 







Total investment return

4,325.4 


2,599.5 


9,630.1 







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 inco