• Long-term savings new business sales up 7% to £19.7bn (2010: £18.5bn)
For more information please read Section 1.8 – Basis of preparation and the reconciliation of consolidated operating profit for the period in Section 2 of the Preliminary Results 2011 2 Standard Life
After allowing for the transfer of UK money market funds, following our decision to exit this sector, Group assets under administration increased from £192.9bn to £198.4bn. This increase was driven by strong, though lower, flows into our newer fee based propositions, which were offset by negative market movements in our fee business. Notably, Standard Life Investments had another strong year with third party net inflows of £4.3bn in what has been a difficult year for the investment management sector.
Our confidence in our ability to deliver sustainable growth is underpinned by the results we have delivered today. We also remain confident that the underlying demographic and regulatory trends in our key markets, and our customers' demand for our propositions, will drive our future growth.
Total SIPP customers increased to 134,200, an increase of 25% over the year. Our SIPP proposition continues to perform well as we maintain our impressive market share, helping to increase AUA by 10% to £16.4bn (2010: £14.9bn).
UK spread/risk business AUA increased to £14.4bn, reflecting falling yields on debt securities which were partly offset by overall net outflows driven by scheduled annuity payments. Gross inflows into annuities were 7% lower at £459m (2010: £491m) reflecting much higher annuity inflows in the first quarter of 2010 ahead of the increase in the minimum retirement age, and the continued impact of actions we have taken to increase sales in the second half of 2011.
Corporate pension gross inflows, excluding Trustee Investment Plan (TIP) business of Standard Life Investments, were up 30% to £3.9bn (2010: £3.0bn), while net inflows increased by 43% to £2.0bn (2010: £1.4bn).
Third party assets 1 Jan 2011 Gross inflows Redemptions Net inflows
to £14.3bn driven by net inflows which were partly offset by negative market movements. Strong sales and market share growth in our retail segregated funds were offset by an increase in mutual fund net outflows. Group savings fee business net inflows of £530m were 25%
The average revenue yield on fee business decreased slightly to 117bps (2010: 118bps).
Net flows in the India and China joint venture businesses increased to £275m (2010: £254m), a strong result given the regulatory changes introduced in India in the second half of 2010. HDFC Life performed strongly, increasing market share and securing second place in the private sector overall.
EEV notes 81 4 Supplementary information 113 4.1 Analysis of Group operating profit by segment 114 4.2 EEV and EEV operating profit 115 4.3 Reconciliation of operating profit to EEV capital and cash generation 116 4.4 Group assets under administration and net flows 117 4.5 Analysis of new business 123 4.6 Exposure to investment property and financial assets 128 4.7 Fair value hierarchy of financial instruments 131 4.8 Total expenses and operating cost base 132 4.9 Investment for transformation and growth 133
We made significant progress in building a strong platform for sustainable, profitable growth and are seeing the benefits of the investment we have made in our business. We have launched a number of innovative propositions to respond to the changing needs of our customers and their advisers. I’m very grateful to our employees for their hard work, against challenging conditions, to deliver in the past year.
Operating profit before tax is a key performance indicator for the Group and has increased in 2011 to £544m due to continued growth in fee revenue and improving cost efficiency.
Adapted from data from the Office for National Statistics licensed under the Open Government Licence v.1.0.
• Total Group AUA increased by 1% to £198.4bn driven by good, although lower, flows into our newer fee based products. This was partially offset by the external transfer of our UK money market funds of approximately £4bn.
Short-term fluctuations in investment return and economic assumption changes (139) 157
• Improved new business profitability was due to higher sales volumes in the UK and increased margins in our UK and Canada businesses
Group embedded value increased to £7,428m (2010: £7,321m) representing an EEV per share of 317p. EEV per share has increased by 8p before dividend distributions, including EEV operating profit from continuing operations after tax of £724m (31p per share). This resulted in a return on embedded value (RoEV) of 10.4%. EEV non-operating loss from continuing operations after tax was £355m (loss of 15p per share). The next page provides more detail on the EEV operating and non-operating results on a before tax basis. The 8p reduction in EEV per share from other and non-trading items is mainly due to negative foreign exchange movements of £69m and £61m of after tax actuarial losses on the Group’s pension schemes.
EEV operating profit from continuing operations increased by 26%: • Core profits increased by 16% to £731m due to the new business we sold, an improved expected return from our existing business and higher profits from global investment management. This also drove an increase in our core RoEV from 7.2% to 7.6%. New business contribution increased by 9% to £335m (2010: £308m). Expected return on our existing business increased by 4% to £440m (2010: £422m).
• Profit from efficiency gains primarily related to £40m in positive expense assumption changes in Canada and £50m from management actions to reduce current and future investment expenses in the UK. The positive expense assumptions reflect the reduction in the ongoing expenses of managing our covered business and the growth in business volumes.
All figures are net of tax. Net income directly recognised in the EEV statement of financial position, including exchange differences and distributions to and injections from shareholders, is not included as these are not trading related cash flows.
Non-covered business core capital and cash generation (5) - (5) (47) - (47)
In addition to the movement in capital and cash on an EEV basis, the following summary provides an analysis of holding company cash flows and capital in relation to the Group’s ultimate holding company, Standard Life plc, and its overseas holding company, Standard Life Oversea Holdings Limited. The capital position is based on these companies’ net assets, excluding investments in operating subsidiaries.
• AUA in the wholly owned businesses grew by £1.2bn driven by high net inflows despite weak markets
• Spread/risk margin reduced by £73m as a result of annuity reserve strengthening in 2011. 2010 benefited from investment strategy changes, partially offset by a mortality assumption change which together contributed £30m to the result. 2010 annuity volumes also benefited from a change in retirement age legislation.
• Capital management improved from a loss of £21m in 2010 to a profit of £10m due to the investment of shareholders’ funds in higher yielding assets and the improved funding position of our UK staff pension scheme
We will continue to develop our IT and change infrastructure through improving our enterprise architecture and re-engineering our IT change processes. We will also look for strategic sourcing agreements to lower cost, improve capability and provide increased flexibility in a rapidly changing environment.
Standard Life Investments continued to deliver robust long-term investment performance in 2011, despite volatile markets. Third party AUM increased to a year end record of £71.8bn (2010: £71.6bn). Third party net inflows of institutional and wholesale business were £4.3bn (2010: £6.2bn) in what have been very challenging market conditions. These underlying new business flows underpinned strong revenue growth of 16%, driving EBIT up 19% to £126m and delivering EBIT margin of 34%. We continue to focus on serving existing clients and winning new clients through strong investment performance, product innovation, global distribution and high levels of customer service.
Operating profit before tax increased by 21% to £125m (2010: £103m). Revenue rose by 16% as a result of third party new business flows into higher margin products, such as GARS and UK mutual funds, and the fee received following the external transfer of the money market funds. This raised the average revenue yield on third party AUM to 37bps
The refreshed brand identity will ensure communications are more consistent, with greater clarity in information provided to our clients, resulting in increased investor confidence. The refresh is supported by a major advertising campaign under the theme of ‘Potential. Delivered’. This reflects our ongoing commitment to exceed our clients’ expectations.
1.5 Risk management “We are focused on delivering a strong framework that enables the risks of the Group to be identified, assessed, controlled and monitored consistently, objectively and holistically. This helps provide resilience and financial strength in the face of extreme conditions and a strong support for future growth and development.” Colin Ledlie, Chief Risk Officer
Appetite The Group has no appetite for market risk exposures except where they arise as a consequence of core strategic activity. Business units are expected to limit market risk exposures by matching the features of liabilities to features of assets. Exposures may be incurred where there is an overriding business need and specific appetites will be established as necessary.
• Exchange rate movements that reduce the value of overseas operations and profits generated by them
We launched a new ‘Master Trust’ proposition for employers wishing to move away from defined benefit or own trust solutions but wanting the reassurance of governance and modern investment choices for their employees.
• The offshore bonds business received an International Adviser Award for ‘Best Adviser Support and Customer Service – UK Offshore’ in 2011
After making appropriate enquiries, the Directors have a reasonable expectation that the Company and the Group as a whole have adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the financial statements.
Transfer to retained earnings for vested employee share-based payment schemes - - - 11 (11) - - -
Comprises £9,187m (2010: £5,805m) of cash and cash equivalents and (£62m) (2010: (£104m)) of overdrafts which are reported in Borrowings in the statement of financial position.
The accounting policies as set out in the Group’s Annual Report and Accounts for the year ended 31 December 2011 have been applied in the preparation of this preliminary announcement. The Group’s accounting policies have not changed since the issue of the Annual Report and Accounts 2010.
Canada Canadian operations provide long-term savings, investment and insurance solutions to individuals, and group benefit and retirement plan members.
Profit attributable to non-controlling interests (48) - - - - - (48)
Non-operating loss before tax 95 4 74 16 25 - 214
Profit/(loss) for the year 321 79 145 4 (56) - 493
Investments in associates and joint ventures 2,697 42 123 211 14 - 3,087
Adjustment to tax expense in respect of prior years 12 4
Tax (expense)/credit attributable to: Profit attributable to non-controlling interests (48) (2.1) (61) (2.7)
The Scheme of Demutualisation sets a 10-year limit, ending in 2016, for those eligible members of The Standard Life Assurance Company (SLAC) who were not allocated shares at the date of demutualisation to claim their entitlements. During the year ended 31 December 2011, no ordinary shares were issued to eligible members in respect of their demutualisation entitlements (2010: 490).
Aggregate tax effect of items not recognised in income statement 27 (59)
The EEV consolidated income statement presents EEV operating profit from continuing operations only and therefore excludes the results from discontinued operations.
Transfer back of surplus to Standard Life Investments (47) (3) (2) - (52)
Third party related covered business EEV operating profits relate to products actively marketed and sold to third parties through global investment management distribution channels. If these profits are added to the global investment management third party non-covered business EEV operating profits of £69m (2010: £33m), there are £101m (2010: £66m) of total third party related profits for global investment management.
3.7 EEV reconciliation of movements in consolidated statement of financial position £m £m
Contribution from in-force business: Expected return on existing business (1) 5 4 169 173
Annuity-in-payment profits were recognised for certain classes of deferred annuities in Germany during 2011. Refer to Note 3.5 – Operating assumption changes. The recognition of the additional non-market risks within these annuity-in-payment profits has increased the risk discount rates used to value the German and Ireland domestic business. This generated a loss of £9m which has been included within other assumption changes in the International EEV operating profit.
Risk margin before cost of capital adjustment: Risk margin after cost of capital adjustment 2.90 2.80 2.00 3.10 1.20 2.20 2.90
The levels of required capital are reviewed in detail at least once a year.
The value of TVOG arising from the HWPF at any point in time will be sensitive to: • The level of the residual estate (working capital in the HWPF)
Acquisition costs used within the calculation of NBC reflect the full acquisition expenses incurred in writing new business in the period.
4.4 Group assets under administration and net flows continued Group assets under administration (summary)
Joint ventures long-term savings 82 74 100 119 500 550 (9%) (5%)
Total worldwide long-term savings 13,970 13,246 1,024 940 19,738 18,483 7% 7%
4.5 Analysis of new business continued Investment operations Three months ended 31 December 2011
The three month period to 31 December 2011 and to 31 December 2010 exclude the full impact of year end changes to non-economic assumptions. The effect of changes to year end non-economic assumptions was an increase in total PVNBP of £91m in the final PVNBP results published in the 2011 Preliminary results (2010: increase £171m).