• Expand the global reach of our investment management business to become a high value-add investment manager, delivering superior performance over a wide range of products, asset classes and markets.
Performance across the industry has been affected by volatile financial markets and the global recession. Whilst financial market levels have shown some recovery recently, the economic environment continues to be challenging.
Change in accounting estimate of a reinsurance treaty 1.3 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.
PVNBP sales decreased by 10% to £10,180m (2008: £11,267m) with lower average market values during 2009 having an inevitable adverse impact on sales. New business contribution (NBC) decreased to £139m (2008: £199m), with a PVNBP margin of 1.4% (2008: 1.8%). The IRR decreased to 16% (2008: 18%), while the discounted payback period extended slightly to 8 years (2008: 7 years). Individual pensions PVNBP margin was adversely impacted by lower volumes and relatively flat acquisition expenses, while the higher annuity margin reflects a change in our pricing in response to market conditions. The mix of sales towards lower margin institutional pensions contributed to the reduction in overall PVNBP margin.
IFRS underlying profit before tax 1.4 Business segment performance continued 1.4.1 UK continued
We have developed and embedded an Enterprise Risk Management framework that enables the risks of the Group to be identified, assessed, controlled and monitored consistently, objectively and holistically.
Market risk: Currency Foreign exchange risk is the risk that the value of overseas operations and profits generated by them falls in Sterling terms when Sterling appreciates against the local currency.
The Group also has the ability to invoke deferral terms on the majority of unit linked contracts. As at 31 December 2009, three of the funds under management were subject to deferral. The aggregate net asset value of these funds was £15m at 31 December 2009.
Strategic risk is the risk associated with the robustness of the strategic planning process and the threats to the achievement of the strategy.
Appetite The Group has an extremely low appetite for significant reputational damage or regulatory censure. This appetite statement is embedded in our Group’s risk culture and is reflected in our Group’s values, mission and vision.
UK customer satisfaction 1.7 Our customers We are committed to driving shareholder value by becoming a leading, customer-centric business focused on long-term savings and investments. We believe we can derive strength and a competitive advantage from putting customers at the heart of our strategy, having an absolute focus on the end customer, understanding their needs and meeting these in a way that is mutually beneficial.
We will continue to develop our ability to obtain distinctive and actionable insight about our customers. In early 2010, we launched the Active Money Personal Pension, a new product which responds directly to the needs of 28-40 year olds in the UK, which we have identified through rigorous research into this group of customers.
1.7 Our customers continued • Financial Adviser Life & Pensions Awards: - Best Group Pensions Provider - SIPP and/or SSAS Provider of the Year (fourth consecutive year) - Best Income Drawdown Provider (third consecutive year) - Best Alternatively Secured Pension Provider (third consecutive year)
• Lipper 2009 Best Fund in the one-year Canadian Neutral Balanced category: Standard Life's Moderate Portrait Portfolio Fund
We are committed to ensuring that all our people understand, and have the opportunity to apply, their own unique skills and experience within their roles. Additionally, we support the engagement of our people through the way in which we select and develop our leaders, by promoting a working environment where feedback is given and received and by rewarding performance fairly and appropriately.
To this end, during 2009 we developed a bespoke leadership development framework that sets out our expectations of leaders. This is now being introduced progressively throughout our business, beginning with our most senior leaders. We are putting in place development processes and solutions tailored for leaders at each level, to support new and existing leaders in enhancing their leadership capabilities and behaviour.
Impairment loss on discontinued banking operations - (10) (10) - - -
Total comprehensive income for the period attributable to equity holders 2.7 291 250 1 Consistent with the IFRS consolidated statement of comprehensive income for the year ended 31 December 2009. 2 Exchange differences primarily relate to: Canada £71m; Europe (£37m); and Asia (£14m). 3 Other comprehensive income from discontinued operations includes fair value gains on cash flow hedges of £11m (2008: losses of £38m) and aggregate equity holder tax effect of items not recognised in the income statement of negative £3m (2008: positive £11m).
Effect of economic assumption changes (243) (292) (6) (7) 9 (539)
Actuarial (losses)/gains on defined benefit pension schemes - (16) 13 - - (3)
Non-market risk has been allowed for via a specific deduction to the PVIF, based on a non-market risk ‘cost of capital’ approach. This has reduced the PVIF at 31 December 2009 by £21m (31 December 2008: £15m). Similarly, the 2009 pre-tax NBC of £16m has been reduced by £12m as an allowance for non-market risk.
The sensitivities tested were: • 1% increase and decrease in the risk discount rates
The demographics sensitivities shown above represent a standard change to the assumptions for all products. Different products will be more or less sensitive to the change, and impacts may partially offset one another.
Non-covered business EEV operating profit is represented by IFRS normalised underlying profit as adjusted for Standard Life Investments (global investment management) look through profits and the return on mutual funds which are recognised in covered business. The only difference between IFRS normalised underlying profit and IFRS underlying profit arises within global investment management as described in Note 2.6(b) – Non-covered business – Global investment management EEV profits before tax.
2.16 EEV methodology continued For Germany, new business comprises new contracts written into the equity holder owned funds during the period.
Subordinated liabilities The liabilities in respect of the UK subordinated guaranteed bonds and Mutual Assurance Capital Securities plus the subordinated debt issued by Canada form part of covered business and have been deducted at market value within the EEV. The Canada subordinated liability is owned by a non-covered subsidiary of the Group, where the asset is valued on an amortised cost basis. Total Group EEV has been adjusted to exclude the difference between the market value and the amortised cost value of the Canada subordinated liability.
Diluted (pence per share) 3.7 7.8 6.9 * The Group’s banking business, Standard Life Bank plc, was sold on 1 January 2010 and has therefore been classified as a discontinued operation. Refer to Note 3.18 – Events after the reporting period. The presentation of the 2008 comparatives in certain primary statements and in the corresponding notes has been reclassified accordingly, as indicated.
Aggregate equity holder tax effect of items not recognised in the income statement (3) 11
Derivative volatility comprises amounts in respect of volatility arising from derivatives that are part of economic hedges undertaken by Standard Life Bank that do not qualify as hedge relationships under IAS 39 Financial Instruments: Recognition and Measurement.
The Group operates share incentive plans, allowing employees the opportunity to buy shares from their salary each month. The maximum purchase that an employee can make in any one year is £1,500. The Group offers to match the first £25 of shares bought each month. During the year ended 31 December 2009, the Company allotted 630,003 (2008: 559,061) ordinary shares to its employees under the share incentive plans.
On 11 February 2009, Standard Life Bank launched its Euro Medium Term Note programme under which it can issue debt, including debt covered by the Credit Guarantee Scheme (CGS). Under the terms of the CGS, HM Treasury guarantees specific bank and building society debt instruments issued during the period beginning from the announcement of the CGS (13 October 2008) and ending on 31 December 2009. On 18 February 2009, Standard Life Bank issued £500m of debt under the CGS.
The Group is not obliged to support any losses suffered by the note holders and does not intend to provide such support. The notes were issued on the basis that note holders are only entitled to obtain payment, of both principal and interest, to the extent that the available resources of the respective SPEs, including funds due from customers in respect of the securitised mortgages, are sufficient and that note holders have no recourse whatsoever to the Group. This has been clearly stated in the legal agreements with note holders.
The amounts recognised in the summary consolidated income statement for defined contribution and defined benefit schemes are as follows: £m £m
Original term to maturity of more than one year 1,859 2,165
During the year ended 31 December 2009, the key management personnel contributed £11.1m (2008: £0.5m) to products sold by the Group.
Analysed as follows: Capital not subject to constraints - - 2,380 2,380 436 2,816 424 3,240 * Capital resources amounting to £2m in respect of other with profits funds are disclosed within the Heritage With Profits Fund column shown above.
Intra-group transactions The Group, through subsidiaries and joint ventures, provides insurance and other financial services in the UK, Canada, India and China, and also through branches, provides such services in Ireland and Germany. With the exception of the requirements of the Scheme and the intra-group subordinated debt referred to below and the capital support mechanisms, there are no formal arrangements to provide capital to particular funds or business units. Any allocations of capital would need to be approved on a case-by-case basis by the Board.
Assets of newly acquired subsidiaries classified as held for sale 48 -
The assets and liabilities of discontinued banking operations classified as held for sale as at 31 December 2009 are analysed as follows: Assets
4.1 Group assets under administration and net flows Group assets under administration (AUA) represent the IFRS gross assets of the Group adjusted to include third party AUA, which are not included in the statement of financial position. In addition, certain assets are excluded from the definition, for example deferred acquisition costs, intangibles and reinsurance assets.
(a) Included within non-insured SIPP is an element which is also included within UK mutual funds net flows in the third party Investment operations figures. (b) The mutual funds net flows are also included within mutual funds net flows in the third party Investment operations figures. (c) Annuities include assets deposited back with the Group as a result of the reinsurance of certain annuity contracts. (d) The offshore bond business is shown within Ireland AUA in 2009. This was previously included within UK life and pensions. Opening balances for UK and Ireland have been restated by £1.0bn to reflect this. (e) Includes net flows in respect of our Hong Kong subsidiary and Standard Life’s share of the Asia Joint Ventures. (f) In order to be consistent with the presentation of new business information, certain products are included in both life and pensions AUA and Investment operations. Therefore, at a Group level an elimination adjustment is required to remove any duplication, in addition to other necessary consolidation adjustments.
Total worldwide life and pensions 131.1 16.8 (14.1) 2.7 (12.2) 121.6
PVNBP and policies in-force movements used for the life and pensions businesses; assets under management used for Standard Life Investments; and savings and mortgages account balances used for Standard Life Bank. 4 Difference between the movement in the cost base implied by the organic growth calculation and the actual change that has taken place, plus realised savings from cost initiatives and other reductions. 5 Movements in the operating cost base, which are specifically identifiable and relate to investing for growth, one-off items or the impact of acquisitions.