• IFRS profit after tax attributable to equity holders of £298m (2010: £432m) lower largely due to year end financial market levels
• Final dividend up 6.4% to 9.20p, resulting in total dividend for 2011 up 6.2% to 13.80p
We continue to build strong relationships with employers and corporate benefit consultants and are working with them to deliver the most comprehensive benefit solution to auto enrolment ahead of the launch in the third quarter of 2012. Combining the quality of our propositions with the high levels of customer service we offer, means we are well positioned for both pensions reform and RDR. We are working on our existing pipeline of schemes and are seeing strong levels of enquiries which will drive further growth in our business in the second half of this year.
Although investment conditions have been difficult, longer term investment performance continues to be robust, with the money weighted average for third party assets well above median over three, five and ten years. Our fixed interest funds have performed well over the twelve months to 31 December 2011 with the Global Index Linked Fund top percentile and the AAA Income Fund top decile. The strength of our mutual fund and unit trust range is demonstrated by the proportion of actively managed funds (22 out of 29) rated ‘A’ or above by Standard & Poor’s in the UK.
Fee based revenue increased by 11%. The decrease in acquisition costs was primarily due to lower commission charges while the increases in maintenance expenses and capital management were mainly due to the rise in AUA.
• Transformed our Adviserzone service in February 2011, introducing new market-leading features • Launched a new online stocks and shares ISA which has helped simplify investment options for our customers • Increased use of guided architecture which provides simple and easy investment choices to meet the needs of customers and advisers • UK corporate sales momentum continued with 167 new schemes (2010: 182 new schemes), while 66,000 new employees joined schemes implemented in 2011 (2010: 46,000 employees) • Standard Life Wealth continues to build a strong presence in the IFA market with the launch of the Managed Portfolio Service, and now has over £1bn of assets under administration (AUA) • Enhanced our distribution in Canada through an agreement with Qtrade Financial Group, an online brokerage and investment dealer
• Our agreement with John Hancock Financial gives the GARS fund access to the United States market and allows us to work with a leading distributor
NEST is targeted at employers with employees on low-to-moderate incomes. Many employers will be looking for greater flexibility when setting up a pension scheme, so we do not consider NEST to be a major threat to our corporate pension business.
Find out more about these measures in Section 1.3 – Chief Financial Officer’s overview and also Section 1.8 – Basis of preparation
IFRS profit after tax attributable to equity holders of Standard Life plc £298m £432m (31%)
Restructuring costs of £73m (2010: £71m) primarily represent costs incurred relating to a number of restructuring programmes including Solvency 2. Volatility arising from adjustments for different accounting bases resulted in a gain of £58m (2010: £51m).
• The external transfer of the money market funds of approximately £4bn is included within market/other movements
UK EEV operating profit, including HWPF time value of options and guarantees and non-covered business, increased by 16% to £528m (2010: £456m).
Total UK net inflows for the year were £2,125m. Core retail and corporate fee based business net inflows which drive UK profits, increased 37% to £2,863m.
Changing demographics including an ageing population, extensive personal debt and falling birth rates, emphasises the need for individuals to ensure that they have adequate pension provision. The Canadian Government is expected to introduce Pooled Registered Pension Plans, opening a new market to pension providers. We are one of the largest defined contribution (DC) pension providers in Canada and are developing our plans for this new market. We are also seeing acceleration in the conversion of defined benefit plans (DB) to DC plans, which will generate a significant opportunity for us to grow our AUA over the next few years.
A key theme from our customers is the importance of clear communication and helping them to better understand the issues and choices they have in planning for their financial future. Responding to this has been a major theme in 2011.
Adjusted for the following items: Short-term fluctuations in investment return and economic assumption changes2 2.6 (139) 157
Reserves credit for employee share-based payment schemes - - - - 24 24 - 24
Transfer to retained earnings for vested employee share-based payment schemes - - - 15 (15) - - -
Capital flows from non-controlling interests and third party interest in consolidated funds 2,177 2,553
Income statement and asset information is presented by reportable segment in the tables that follow. As described beneath the pro forma reconciliation of consolidated operating profit to IFRS profit for the year, operating profit is considered to present an indication of the long-term operating business performance of the Group. Operating profit is one of the key measures utilised by the Group’s management in their evaluation of segmental performance and is therefore also presented by reportable segment.
Profit/(loss) for the year 183 92 101 19 (49) - 346
Tax attributable to equity holders’ profits (10) 29 12 5 (4) - 32
Amortisation of deferred acquisition costs 79 1 9 43 - - 132
Basic earnings per share from continuing operations (pence per share) 13.0 18.4
Non-economic assumptions changes of £159m (net of reinsurance) include an increase of £105m (net of reinsurance) in respect of changes in Canadian mortality assumptions. This increase is primarily in respect of a change in mortality improvement rates.
Expected return on plan assets 5.45 5.75 4.00 6.15 7.00 5.00 2.11 Contingent liabilities, indemnities and guarantees
The Group’s capital position is analysed between UK regulated life business, overseas life operations and other activities. The UK regulated life business is analysed by the nature of the underlying funds and includes German and Irish business written by branches of UK regulated companies. Other activities comprise investment management and group corporate centre. The Group’s capital position, based on draft regulatory returns, is set out below: UK regulated life business
2.15 Business combinations On 11 January 2011, the Group purchased the entire issued and to be issued share capital of Focus Solutions Group plc (Focus). On 17 May 2011, Focus delisted its ordinary shares from trading and was re-registered as a private limited company, Focus Solutions Group Limited. Focus is a provider of software and consultancy solutions to the financial services industry, enabling its clients to automate the delivery of financial products and services to their customers across multiple distribution channels in a rapid and efficient manner. Continued investment in innovative technology is central to the delivery of the Group’s accelerated growth strategy. The acquisition will enable the development of new and existing propositions, enhancing the customer experience and driving greater efficiencies. The consideration, acquisition date final fair value of net assets acquired and resulting goodwill are as follows: £m
2.15 Business combinations continued The goodwill is attributable to the workforce of the acquired business and its growth prospects as well as the significant synergies expected to arise as a result of the acquisition. None of the goodwill recognised is expected to be deductible for income tax purposes.
The opening and closing EEV numbers, and therefore the profit arising in the period, for the covered business are determined on an after-tax basis. The tax assumptions are based upon the best estimate of the actual tax expected to arise. Profit before tax is derived by grossing up profit after tax at the long-term rate of corporation tax appropriate to each territory. While for some territories this rate does not equate to the actual effective rate of tax used in the calculation of after-tax profits, it provides a consistent grossing-up basis upon which to compare results from one year to another and is in line with the Group’s expectation of the rate of tax applicable to business sold after demutualisation.
UK Canada International HWPF TVOG Total 12 months to 31 December 2011 Notes £m £m £m £m £m
Transfer back of mutual funds net worth 28 (4) - - 24
The £11m loss from mortality assumption changes in the UK mainly arise from annuities, reflecting updates for recent experience and revised longevity improvement rates. In Canada, most of the £139m loss from mortality assumptions reflects the impact of revised industry-standard mortality improvement rates.
The £57m other assumption changes in Canada include a £109m profit from various changes in asset allocation strategies, including the benefits of management actions aimed at enhancing the investment yield on assets. This was partly offset by a loss of £62m from a reduction in expected fee income in our group savings and retirement products.
The Company operated a Scrip dividend scheme for dividends paid in 2010 and 2011. Investors taking part in the Scrip scheme receive their dividend entitlement in the form of new shares issued in lieu of cash dividends. For the 12 months ended 31 December 2011, dividends paid comprise £141m (2010: £92m) settled by the issue of shares under the Scrip scheme, and £162m paid in cash (2010: £186m).
Transfer back of surplus to Standard Life Investments (36) - (36) - (36)
UK and Europe HWPF TVOG reflects the value of shareholder exposure to the policyholder guarantees within the HWPF. The value of this exposure has increased by £175m during 2011. This mainly arose from adverse economic assumption changes reflecting the increased cost of guarantees in a low yield environment, in particular for German business, alongside a general increase in both implied volatility and corporate bond spreads.
See also Note 3.2(c) – Segmental analysis – covered business – Segmental analysis of opening and closing EEV.
Proprietary Business Fund (PBF) denotes the equity holder owned fund in SLAL.
Risk margin before cost of capital adjustment: Risk margin after cost of capital adjustment 2.30 2.70 2.60 2.30 2.70 2.70 5
Cash and bond returns These variables are calibrated using repo rates and government strips.
The model swaption-implied volatilities are set out in the following table: 31 December 2011 31 December 2010 UK Sterling Swap term (years) Swap term (years) Option term (years) 10 15 10 15 31 December 2011 31 December 2010 Euro Swap term (years) Swap term (years) Option term (years) 15 20 15 20
For the UK and Europe, the model is calibrated to property-implied volatility of 15% for 31 December 2011 and 15% for 31 December 2010.
Average to 31 December 3.16 Sensitivity analysis – economic and non-economic assumptions The tables below show the sensitivity of the embedded value and NBC to different scenarios.
The Group’s non-covered business predominantly consists of the third party global investment management business of Standard Life Investments, Standard Life plc, the non-covered business of Standard Life Savings Limited, other non-life and pensions entities and the Group’s UK pension scheme. The Group’s healthcare business, Standard Life Healthcare Limited, was sold on 31 July 2010.
In determining future expenses in relation to covered business, no allowance has been made in the EEV or NBC for any allocation of group corporate centre costs.
IFRS profit/(loss) for the year from continuing operations 135 92 101 19 (49) - 298
IFRS profit/(loss) for the year from continuing operations 240 79 145 4 (56) - 412
Level 1 Level 2 Level 3 Total £m £m £m £m £m £m £m £m
3 Movement in the cost base implied by the growth of the organisation – a combination of PVNBP and policies in-force movements used for the life and pensions businesses and assets under management used for Standard Life Investments.