Fee business AUA has increased 17% to £163.1bn, driven by a 14% increase in net inflows to £7.9bn and higher markets. Spread/risk business AUA has increased 5% over the year to £23.5bn. The rise in AUA has been driven by positive market movements, offsetting the £1.0bn of net outflows in the year.
A presentation for investors and analysts will take place at 9:30am at Deutsche Bank, Winchester House, 1 Great Winchester Street, London EC2N. A live webcast of the presentation and the presentation slides will be available on the Group’s website. In addition a replay will be available on this website later today.
We took part in the recent QIS5 exercise and have a formal development programme in place to ensure Standard Life is well prepared for the implementation of the new framework.
1.2 IFRS – Group The IFRS results demonstrate our ability to deliver high quality returns for shareholders and the ongoing dividend paying capability of the Group. We will continue to streamline operational processes and enhance efficiency to reduce costs.
Acquisition expenses are the costs we incur in writing new business. Acquisition expenses increased to £267m reflecting the strong growth in sales volumes. Acquisition expenses expressed as a proportion of sales improved to 149bps (2009: 171bps).
Our core non-covered business (predominantly our investment management business and other businesses that support our long-term savings businesses) produced an operating loss of £37m (2009: loss £22m). This was mainly due to higher spend on growth investment.
Initiatives to significantly increase our AUA were tightly controlled. As a result, acquisition expenses were only slightly higher than last year. Maintenance expenses increased, mainly because of Vebnet and Standard Life Wealth forming part of the UK business in 2010.
Our long-term savings and investments business in Canada offers a range of savings, retirement and insurance products. With a strong focus on the needs of our 1.4 million Canadian retail and corporate customers, we continue to build client and distributor relationships, while also introducing innovative solutions to protect clients’ assets.
International IFRS operating profit before tax - wholly owned £38m £34m £50m
In India, PVNBP was £444m (2009: £362m), up 15% in constant currency. In China, sales fell by 10% in constant currency to £106m (2009: £116m). This reflects a greater focus on profitability by increasing the proportion of regular premium business.
In China, the outcome of negotiations with Bank of China over a possible deal was not as we would have hoped. We are now focused on developing our joint venture partnership to deliver a successful business that meets customer needs in this growth market.
Third party AUM was up by 26% to a record level of £71.6bn (2009: £56.9bn). This was caused by strong inflows in the UK and international markets and the recovery of market levels in 2010. Third party AUM now represents 46% of total AUM (2009: 41%). In-house AUM increased to £85.3bn (2009: £81.8bn) with favourable market movements offsetting outflows from the with profits business and from the sale of Standard Life Bank plc. As a result, total assets managed by Standard Life Investments stood at a record level of £156.9bn (2009: £138.7bn).
1.5 Capital and cash generation continued Reconciliation of key capital measures
During 2010, we established a Group Board level Risk and Capital Committee in line with the Walker Review recommendations. The Committee serves to oversee, challenge and advise the Group Board on: • The Group’s current risk appetite, tolerance and strategy, material risk exposures and future risk strategy and their impact on capital
• The structure of the Group’s Enterprise Risk Management Framework and its suitability to react to forward-looking issues and the changing nature of risks
Strategic risk is the risk associated with the robustness of the strategic planning process and threats to achieving the strategy.
We continue to attract and recruit high calibre graduate entrants across the range of our programmes, with just under 40 new people joining Standard Life in 2010, along with a number of interns.
The 2010 IFRS reconciliation of consolidated operating profit to profit for the year, presented on page 46 of this report, presents profit before tax attributable to equity holders adjusted for non-operating items. The 2010 EEV consolidated income statement on page 72, presents EEV profit showing both operating and non-operating items. By presenting IFRS and EEV results in this way, the Directors believe they are presenting a more meaningful indication of the underlying business performance of the Group.
Tax (expense)/credit attributable to: Total tax (expense)/credit attributable to equity holders’ profits (98) 20
Issue of share capital other than in cash 6 - 96 - - 102 - 102
• Amendments to IFRS 2 Share-based Payment – Group Cash-settled Transactions
The table below presents the effect of these changes to the Group's chosen measure of IFRS performance for the year ended 31 December 2009: Underlying profit 2009 Effect of change of measure Operating profit
Volatility arising on different asset and liability valuation bases (18) 18 -
The preliminary announcement for the year ended 31 December 2010 does not constitute statutory accounts as defined in Section 435 of the UK Companies Act 2006. PricewaterhouseCoopers LLP have audited the consolidated statutory accounts for the Group for the years ended 31 December 2009 and 31 December 2010 and their reports were unqualified and did not contain a statement under Section 498(2) or (3) of the UK Companies Act 2006. The Group’s consolidated statutory accounts for the year ended 31 December 2009 have been filed with the Registrar of Companies. The Group’s Annual Report and Accounts for the year ended 31 December 2010 will be available from 4 April 2011.
Profit/(loss) for the year 321 145 4 79 (56) - 493
Adjustment to tax expense in respect of prior years 4 (3)
Tax relating to each component of other comprehensive income 56 www.standardlife.com
Total comprehensive income for the year from discontinued operations 44 57 www.standardlife.com 57
For share options, a calculation is made to determine the number of shares that could have been acquired at fair value (determined as the average annual market share price of the Company’s shares) based on the monetary value of the subscription rights attached to outstanding share options. The number of shares calculated is compared with the number of shares that would have been issued, or purchased, assuming the exercise of the share options.
Diluted earnings per share from discontinued operations (pence per share) 0.9 2.2
Tax (expense)/credit attributable to: (Profit)/loss attributable to non-controlling interests (61) (2.7) 33 1.5
The table above represents basic alternative earnings per share. On a diluted basis short-term fluctuations in investment return and economic assumption changes is 5.6p (2009: (9.7p)) per share.
In 2010 a credit from past service costs of £59m has been recognised as a result of a change in the basis of future pension increases in the UK staff pension scheme.
2 The Group’s banking business, Standard Life Bank plc, was sold on 1 January 2010. For the year ended 31 December 2009, its capital resources were included within life business equity holders’ funds.
Included within the International reporting segment are the Group’s operations in Ireland and Germany, which for 31 December 2009 reporting were included in the Europe segment. Also included are the Group’s business in Hong Kong and the Group’s joint venture businesses in India and China, which were previously included in the Asia segment for 31 December 2009 reporting. This change in composition of reportable segments corresponds to changes made during the reporting period to the way in which the Group is managed and is consistent with the reportable segments in the IFRS financial information. The comparative information for the 12 months ended 31 December 2009 has been restated accordingly.
Restructuring expenses primarily represent the covered business costs associated with the Group’s Transformation and Solvency 2 Programmes as described in the IFRS financial information Note 2.3 – Administrative expenses.
The losses from mortality assumption changes in the UK and in Canada mainly arise from valuation and best estimate annuitant mortality.
3.6 Non-covered business continued (a) Segmental analysis – non-covered business continued
Present value of in-force life and pensions business net of cost of capital (3,838) (3,384)
Using the value of in-force for new business as weights, the average risk discount rates for UK and Europe were 6.77% and 6.31% respectively. The weighted average for Europe includes an allowance for SLIL which uses the same risk discount rate assumptions as UK business.
Fall in property market values by 10% (1) - - - (1)
Development expenses represent specific expenses incurred which are considered temporary in nature and are not expected to occur again.
For Germany, new business comprises new contracts written into the equity holder owned funds during the period. The new business contribution for Germany is calculated assuming a specific level of future premium indexation. Similarly, it is assumed that premiums on ‘low start’ policies increase at the end of the low start period.
Profit/(loss) for the year from continuing operations 182 (41) 14 51 (42) - 164
Look through to investment management 47 3 2 (52) - -
Impact of different treatment of assets and reserves 10 69 (3) (1) (9) 66
EEV operating profit/(loss) after tax from continuing operations 440 141 16 35 (35) 597 112 www.standardlife.com
Included within non-insured SIPP is an element which is also included within UK mutual funds net flows in the third party investment operations figure.
Included within mutual funds are cash inflows which have also been reflected in UK and Canada mutual funds new business sales and net flows for UK mutual funds, an element of UK non-insured SIPP and Canada mutual funds. 2 In the three months to 31 December 2009 UK mutual funds gross inflows were £499m and net inflows were £225m.