2023
Full Year Results Presentation
Date:
28 February 2024
Time:
08:30 GMT
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Chair's report
Leading through change
Overview
2023 was a challenging year. High
rates of inflation and interest rates have characterised both 2022
and 2023, as have global conflict and political instability.
Against this background, clients have understandably used their
savings and investments to support themselves and their
families. However, the resilience evident in the underlying
performance of the business, with funds under management reaching
record levels in 2023, continues to give us confidence in the
strength of our business model. More disappointing has been
our share price performance, which reacted to the actions we have
taken to modernise our fee structure. We believe these
actions on our fees leave us well positioned for growth and aligned
with the FCA's Consumer Duty. The system changes we need to
make to accommodate a different fee structure will inevitably come
at a cost.
We have also experienced a marked
increase in clients registering complaints relating to whether they
have received ongoing servicing historically. Given this, an
initial assessment of client servicing records has been undertaken
and the findings from this indicate the need for us to take action
to refund clients where ongoing service has not been
evidenced. The action we have taken has led to us increasing
our provisions for refunds which has impacted our 2023 results.
While this is disappointing, we know for the future that our
investment in 2021 in our Salesforce customer relationship
management system will enable us to monitor service levels to
ensure our clients receive the advice and support they expect. The
actions we have taken have involved close engagement with our key
regulators and, as strong advocates for regulated advice, we remain
determined to work with all policymakers and other stakeholders to
help drive better financial resilience across society.
We cannot be complacent of our
market leading position and we will evolve to continue to meet the
needs of our clients. Expectations of clients are rightfully
high and where we risk falling short of those expectations we must
act.
The Board and
governance
Our continued growth and success
over time have owed much to the strength of our Partnership
structure and our management's ability to ensure continuity during
periods of transition. Culture plays an important part in an
organisation's success and was a key consideration in the
appointment of Mark FitzPatrick as Chief Executive Officer.
Succession planning is an ongoing process and the Board and Group
Nomination and Governance Committee have spent considerable time in
the last couple of years ensuring that success criteria balanced
the importance of continuity with the value that diversity and
a fresh perspective could provide.
The robust process identified Mark
FitzPatrick as the outstanding candidate and Mark joined the Board
on 1 October 2023, succeeding Andrew Croft as Chief Executive
Officer on 1 December 2023. Andrew has been with St. James's Place
since 1993, serving as its Chief Financial Officer and then Chief
Executive Officer since 2018, and on behalf of the Board I would
like to thank Andrew for his unwavering commitment to the business.
He will be greatly missed by everyone at SJP, and we wish him our
very best in his retirement.
As we announced on 9 November
2023, Dominic Burke also stepped down as a Director on 31 January
2024. Dominic contributed much in his short time with us and I wish
him all the best in his future ventures. As part of our ongoing
succession planning, plans to recruit further Non-executive
Directors were already underway and we hope to appoint a new Senior
Independent Director in the near future.
Further detail on the work of the
Group Nomination and Governance Committee can be found in its
report in the Annual Report and Accounts.
The Board's priorities and our
strategy
In recent years I have outlined
the Board's key areas of focus alongside our strategy to 2025: the
Partnership, investment performance, administration and digital.
These are all key contributors to good client outcomes and the
Board continues to monitor our progress in these areas.
Our work on strategy beyond 2025 is also well
underway.
While our financial results have
been significantly impacted by the increase in the provisions
relating to ongoing
servicing evidence, the underlying performance of the business
remains strong. The Board recognises the importance of returns to
shareholders and is confident that sufficient capital and liquidity
has been set aside to deal with this legacy matter. In light of
this, the Board believes it prudent to recommend a final
dividend for 2023 of 8.00 pence per share. Combined with the
interim dividend of 15.83 pence per share we declared at the half
year, this brings our full-year dividend to 23.83 pence per
share.
The Board has also made the
decision to revise guidance for future shareholder distributions,
believing that this approach strikes an appropriate balance of
ensuring the business retains sufficient capacity for investment
alongside the importance of returns to shareholders.
Our culture and
responsibilities
Culture is a critical enabler for
any organisation and what we understand by the term culture
continues to change over time. We have committed to being a
responsible business, and what it means to be a responsible
business is not solely about the actions we take but also about how
we respond to threats to our culture and how we foster inclusive
behaviour.
Responsibility is also not
measured just through our own expectations, but through the eyes of
our stakeholders. Our corporate governance report sets out how the
Board has listened to our stakeholders and taken account of their
views in our decision-making. The Board also recognises that there
is a compelling commercial case for being a responsible business
and the progress we have made in 2023 is detailed in the Our
Responsible Business section of the Annual Report and Accounts.
Further information on how our commitment to being a responsible
business feeds through to the remuneration of Executives, can be
found in the report of the Group Remuneration Committee.
Concluding remarks
I would like to express my thanks
to my Board colleagues and management for their support and hard
work during a challenging year, and commend employees and in
particular our Partner businesses for the strong underlying
performance achieved in a challenging year. I have provided a
high-level overview of some of the key areas of the Board's
activity in 2023, and would encourage you to read the corporate
governance report which covers this in more detail. Whilst 2022 and
2023 have presented tough environments for clients, savers and
investors in general, the value of advice has never seemed more
important. This is reflected in the FCA's recent statement of its
aims for forthcoming consumer policy initiatives which highlighted
that it wants consumers of all wealth levels to be able to make
good investment decisions and invest with confidence, understanding
the risks and the protection involved. The Board is confident that
SJP can contribute to helping the FCA meet its aims. I look forward
to welcoming shareholders to this year's Annual General Meeting,
which will be held on 15 May 2024.
Paul Manduca, Chair
27 February 2024
Chief Executive Officer's
report
Setting up for success
I am delighted to be leading
St. James's Place, the largest advice-led wealth manager
in the UK, and a business that has a critical role to play in
helping secure the futures of our clients and their
families.
During my initial weeks and months
at the Company, I've met a lot of people from across the
St. James's Place community and I've listened carefully,
with every conversation bringing new insight. I've been really
struck by the importance of what we do for clients and how
passionately the whole community cares: supporting clients with
trusted financial advice that provides peace of mind and the
confidence to benefit from investing over the long
term.
This focus has helped us to build
a fantastic position within our marketplace over the past three
decades, where we now look after £168.2 billion of funds under
management for our clients. We've achieved a lot already, but I
believe we can still do better for all our stakeholders.
Operating and financial
performance
The economic environment in 2023
was undoubtedly challenging. It is at precisely these times that
financial advice can really help clients, acting as a steady hand
to keep them on track to meet their long-term financial goals. High
inflation and high interest rates have put pressure on UK consumers
with rising mortgage rates contributing to rising living costs more
generally. This impacted some individuals' capacity and confidence
to invest. Meanwhile, those with capacity to invest may have been
attracted to elevated short-term savings rates over long-term
investing.
Against this backdrop, we have
attracted £15.4 billion of new client investments and client
retention rates have remained high at 95.3%, contributing to net
inflows of £5.1 billion; these figures highlight the sheer
scale of SJP today and the fundamental resilience of our business
model in challenging market conditions. This new business
performance, together with strong investment returns, has seen
funds under management close the year at a record £168.2 billion,
up 13% compared to the beginning of the year.
We have delivered an Underlying
cash result of £392.4 million (2022: £410.1 million), which is
4% lower year on year. This result reflects growth in average
funds under management during the year and tight cost control in
line with guidance, but this robust underlying financial
performance was largely offset by an increased UK corporation tax
rate.
Our Cash result for the year of
£68.7 million (2022: £410.1 million) has been significantly
impacted by an assessment we undertook into the evidencing and
delivery of historic ongoing servicing and the provision we have
now established for any client refunds required. The underlying
performance of our business means I'm confident we will emerge from
these short-term historic challenges as an even stronger
business.
Delivering change
While our business continues to
perform well against a difficult backdrop, it's important that
we address our challenges and develop our client offering so
that we remain in good shape for the future.
Managing ongoing servicing
complaints
We saw a marked increase in the
number of clients registering complaints linked to the evidencing
and delivery of ongoing servicing in the past. We've taken this
very seriously and where gaps in record-keeping mean that there is
a lack of evidence of the delivery of ongoing servicing, we've
refunded these charges to clients. With the number of complaints
accelerating in late 2023, we engaged extensively with the FCA on
this matter and the resulting assessment of historic client
servicing records. This assessment indicates that we have an
improved body of evidence for the delivery of ongoing servicing
since we invested in Salesforce in 2021, but that evidence is less
complete before then. Based on assumptions derived from this
assessment, we have established a provision of £426 million for
refunds, impacting our financial results in 2023. We recognise that
this is a disappointing outcome for everyone.
We know that our clients really
value what we offer them, and we take comfort from outstanding
client retention and advocacy, but we must be able to evidence the
delivery of ongoing servicing that clients trust and value. Through
leveraging the investment we've made in our Salesforce CRM system
and our Consumer Duty work, in 2023 we switched off ongoing
servicing charges for 2% of clients where there was a lack of
evidence that ongoing servicing was provided in this period. Our
central CRM capability gives us confidence in our ability to
minimise the risks that clients will be charged for services they
do not receive.
Introducing simple and comparable
charging
Our charging structures have often
been interpreted by commentators as being complex and this has
brought some challenge for our business. In 2023 we made some
significant decisions around our charges, including the
announcement in October that we are implementing our programme
to simplify our charging structures, which will be completed in the
second half of 2025. The changes enhance the value that clients
receive and introduce improved comparability that will help market
perceptions of our services.
Our current charging structures
have also limited the comparability of our investment performance
over time, impacting our brand and reputation. Our simplified
charging structure will make it much easier to compare investment
performance across the industry on a like-for-like basis, enabling
us to tell a more accurate story of how we are delivering for
clients.
This move to unbundle our charges,
which we announced in October, has been designed to ensure
sustainability for the long-term. This gives confidence that we can
grow the business without the need for further changes to our
charges that would impact the guidance we communicated to
shareholders last October. The changes we are making will be good
for clients, appropriate for our marketplace and built for a
Consumer Duty world. By extension, they will be good for our
long-term business health by giving us the opportunity to consider
new propositions and real agility in how we grow the
business.
Evolving our investment
proposition
We've got an investment
proposition that works well for clients, and it's important that we
continue to develop our offer so that we meet client needs as they
change over time. In late 2022 we launched our Polaris range of
portfolios, supporting clients looking to grow their long-term
finances, and I am pleased to report that this range has got off to
a very strong start with all four portfolios outperforming
their IA and ARC benchmarks since launch. Polaris has
also proved incredibly popular with clients, attracting more
than £25bn in investments already. We are exploring further
developments in our investment approach, including the role of
passives in providing greater choice for clients.
Developing our investment
proposition is just one example of how we're making changes that
ensure we continue to support our clients and the communities
in which we operate. Beyond these actions, as the market leader in
financial advice we have the opportunity, and indeed
responsibility, to promote our business, our brand, and our broader
industry. We will build a stronger voice, supported by a new
national marketing and media campaign that will launch this
spring.
Building for the future
The structural market opportunity
for financial advice is clear. The savings gap in the UK is already
considerable and it continues to grow because planning for
retirement is complicated, as is thinking about investing, managing
risk, and considering protection. This is where personal and
trusted financial advice can make a real difference.
We're well positioned to seize
this market opportunity: we have the largest group of financial
advisers in the UK, and we continue to grow it through our
market-leading Academy programmes and by recruiting talented
financial advisers who are attracted to us because they know we can
help them thrive. We accomplish this through scale that gives us
real advantage, from helping us curate a distinct investment
proposition that works for clients, partner with leading global
businesses to underpin our technology and administrative
capabilities, and better support the 2,666 businesses that comprise
the SJP Partnership. We have a strong and enviable track record of
driving growth through an unbroken history of net inflows in every
year over three decades.
Our marketplace will evolve as
client expectations and preferences change over time, so it's
important that we keep looking forward to consider how we are best
placed to capture both existing and emerging opportunities over
time, and drive sustained growth in the business.
I've therefore commenced a
business review, supported by a leading external consultancy, so
that we build on everything we've achieved and the changes we're
already making. Putting aside the matter of our charges, which has
already been dealt with, the review is comprehensive in its scope,
with the aim of ensuring we plot a sustained path for growth as
market trends evolve, focus on cost and efficiency to drive
operating leverage, and manage our resources effectively and
efficiently so that we drive improving returns.
This work is underway and we plan
to update the market on the outcome of the review at the time of
our half-year results.
Summary and outlook
The underlying performance of our
business has been robust in what has been a very difficult
external environment, highlighting the strength of our advice-led
model in attracting and retaining client investments, as well
as the resilience of our financial model. 2023 was also a year in
which we faced into some important historic challenges. We are
working hard to put these challenges behind us so that we can move
forward with confidence as we plot our path to
2030.
In the near-term, we expect the
industry outlook to remain challenging in 2024 given the pressures
consumers continue to face. The near-term environment
notwithstanding, the longer-term structural opportunity for the
financial advice industry is hugely attractive. With scale
advantage, a strong Partnership of fantastic advisers, and an
investment approach that delivers for clients, we are very well
placed to capture this opportunity and perform for all our
stakeholders.
Mark
FitzPatrick, Chief Executive
Officer
27 February 2024
Chief Financial Officer's
report
Robust underlying financial
results
We are pleased to report a year of
robust underlying financial results, despite a continued
challenging operating environment.
Our underlying business has
performed well, delivering growth in average funds under management
(FUM) and therefore fee income. Paired with continued discipline in
managing controllable costs in line with guidance, this has enabled
us to deliver a pre-tax Underlying cash result that is broadly in
line with the prior year, albeit 4% lower on a post-tax basis due
to the impact of a higher corporation tax rate in 2023.
In the context of an external
environment that has been challenging for our industry, this
outcome for 2023 highlights that our underlying business
performance is robust, putting us in a good position for a bright
future despite the near-term challenges we face.
Our reported financial results for
2023 have been significantly impacted by the Ongoing Service
Evidence provision that we have established following the
appointment of a skilled person and an assessment undertaken into
the evidencing and delivery of historic ongoing servicing. The
anticipated cost of refunding ongoing servicing charges, together
with the interest, and the administrative costs associated with
completing the work, is reflected in our Financial Statements
through an Ongoing Service Evidence provision of £426.0 million,
which is £323.7 million net of tax within the Cash
result.
Our financial results are
presented in the Financial Review, but this report provides a
summary of financial performance on a statutory International
Financial Reporting Standard (IFRS) basis, as well as our chosen
alternative performance measures (APMs). We also summarise the
progression of our FUM and provide shareholders with an overview of
our balance sheet.
Funds under management
Client capacity and confidence to
commit to long-term investment continues to be impacted by the
economic environment and the short-term alternative arising from
elevated cash deposit rates.
While this has presented a
challenging backdrop, our new business performance has remained
robust, with our advisers attracting £15.4 billion (2022: £17.0
billion) of new client investments, and client retention rates
remaining strong at 95.3% (2022: 96.5%). As a consequence, we
continue to generate significant levels of net inflows, once again
demonstrating the resilience and strength of our advice-led
business model.
The combined impact of ongoing net
inflows and strong investment performance during the year has
resulted in FUM increasing by 13% to a record £168.2 billion (2022:
£148.4 billion). Growth in FUM, and indeed an accelerating balance
of gestation FUM maturing in the coming years, provides our
business with good visibility over future growth in income and the
creation of sustainable value for shareholders over
time.
Financial results
IFRS
As is often the case,
IFRS profit before tax of £439.6 million (2022: £2.8 million) and
IFRS loss before shareholder tax
of £4.5 million (2022: £503.9 million
profit) are each heavily distorted by the inclusion of policyholder
tax and the associated charges, with further detail included in the
Financial Review.
Excluding the short-term impact of
items related to policyholder tax, IFRS
profit before shareholder tax is subject
to similar drivers as those described for the Cash result
below.
Cash result
The Cash
result, and the Underlying cash result contained
within it, are based on IFRS but adjusted to exclude certain
non-cash items. They therefore represent useful guides to the level
of cash profit generated by the business. All items in the Cash
result, and in the commentary below, are presented net of
tax.
The Underlying Cash result of £392.4
million for 2023 (2022: £410.1 million) is 4% lower than the
prior year. Excluding the impact of an increased rate of
corporation tax, the Underlying cash result is broadly unchanged,
representing a robust result in a challenging market environment.
The Cash result of £68.7 million for 2023 (2022: £410.1 million) has been
significantly impacted by the Ongoing Service Evidence provision
that we have established. More detail is set out below and in the
financial review.
During the year, the
Net income from funds under management
was £599.2 million (2022: £607.7 million),
comprising an increase of 4% on a pre-tax basis, together with the
impact of a higher rate of corporation tax. This outcome reflects
an increase in average mature FUM, including a contribution of over
£40 million from gestation balances that matured during the
period.
For the first half of 2023, our
margin range for net income was 0.59% to 0.61%, reducing by 0.04%
from August 2023 to a range from 0.55% to 0.57%, reflecting the
introduction of a charge cap applicable to bond and pension
investments with a duration longer than ten years. Looking forward,
2024 will see the corporation tax rate of 25% being applicable for
the whole year, with the effect being to further reduce our margin
range by 0.01%, resulting in a range from 0.54% to
0.56%.
This margin range is applicable to
average mature FUM, excluding discretionary fund management (DFM)
and Asia FUM, in line with prior guidance. It is this mature FUM
that contributes to the net income figure and, at any given time,
it comprises all unit trust and ISA business, as well as life and
pensions business written more than six years ago.
Under our current charging
structure, new life and pensions business does not contribute
annual product management charges for the first six years after the
business is written. This means that the Group has six years' worth
of FUM in the gestation period that does not materially contribute
to the Cash result. At 31 December 2023, the balance of gestation
FUM stood at £47.6 billion (2022: £45.5 billion). Once this current
stock of gestation FUM has all matured, it will (assuming no market
movements or withdrawals, and allowing for the corporation tax rate
in 2024 and new charging structure in 2025) contribute in excess of
a further £270 million to annual net income from FUM and hence to
the Underlying cash result, at no additional cost.
St. James's Place also generates
a Margin arising from new business
where initial product charges levied on gross
inflows exceed new-business-related expenses. The decrease in
margin arising from new business in 2023 largely reflects the
decrease in gross flows over the year, although the relationship
between the two is generally directionally consistent rather than
linear, as the margin includes some expenses which do not vary with
gross inflows.
Controllable expenses
are a key metric for the business and despite the
persistence of high inflation we contained the annual growth of
controllable expenses in 2023 to 2% on a post-tax basis (2022: 5%),
in line with the guidance we set out early in the year. We are
currently budgeting to contain growth in controllable expenses for
2024 to 3% post-tax, or 5% pre-tax.
Growth in income, coupled with
this management of controllable expenses, has enabled us to deliver
a resilient underlying financial performance despite significant
short-term challenges.
In addition to these key
components of the Cash result, we have seen an increase in
Shareholder interest,
which represents the interest earned on shareholder working capital
and business loans to Partners. We have also seen a short-term
reduction in the FSCS levy
as a result of a prior year surplus that had
built up within the FSCS scheme. Partially offsetting these effects
is a reduced benefit from Tax relief from
capital losses as we utilised our
remaining historic balances, with the result being that this line
will no longer feature in the Cash result going forward.
Reported as a Miscellaneous cost, we have seen a
significant increase in client complaints over the last 12 months
as a result of the activity of claims management firms.
European Embedded Value
We supplement our IFRS and Cash
results with additional disclosure on a European Embedded Value
(EEV) basis, providing a measure of the total value that might be
expected to arise over the lifetime of the existing business,
though without making any allowance for new business that may be
written in the future.
The EEV result has been
significantly impacted by the changes to our charging structure
that we announced during the year. As a result of these changes,
the contribution to EEV operating profit from new business written
in the year has reduced. It has also been necessary to remeasure
the future cash flows expected to arise from our existing business,
with the impact reflected in an exceptional item of £2,506.6
million.
The EEV
operating profit before exceptional items for the year is £1,041.0 million (2022: £1,589.7 million),
reflecting a lower contribution from new business, which is
impacted by reduced inflows and the effects of changes to our
charging structure, as well as the significant benefit of
persistency assumption changes in 2022.
The EEV
operating loss after exceptional items for
the year is £1,891.6 million (2022: £1,589.7 million profit),
reflecting the exceptional items of £2,932.6 million arising from
changes to our charging structure during the year, as well as the
impact of the Ongoing Service Evidence provision that we have
established.
The EEV
loss before tax for the year of £1,387.4
million (2022: £510.8 million profit) has benefitted from a
positive investment return variance of £501.7 million (2022:
negative £1,314.0 million). The positive return reflects increased
market values across our FUM that exceeded our long-term
assumptions, and this compares to a significant negative impact
from market returns in 2022.
The EEV
net asset value per share was £14.11 at
31 December 2023 (2022: £16.66).
Charge Structure
During the year we made some
important changes related to our charges, ensuring both compliance
with an evolving regulatory environment, and the creation of a
sustainable charging platform that will see the business thrive
over the long-term.
In July, we announced the
introduction of a fee cap on long term bond and pension investments
which came into effect in August 2023. Later in the year, we
announced the conclusion of a comprehensive review of our client
charging structure, resulting in simplifying charging from the
middle of 2025 that will improve comparability across the
marketplace and enable a clearer articulation of the value that we
provide to clients across all elements of our
proposition.
The effect of these changes will
be to reduce the net income margin range by 0.11% to a range
between 0.43% and 0.45%, though this will be applicable to all FUM
once the existing gestation FUM has matured, with no further
concept of gestation. There will also no longer be a material
contribution from margin arising on new business.
These changes will impact the
shape of our financial results over time and will require
investment in systems and processes in order to deliver. However,
they will result in long-term simplicity and comparability, which
can only strengthen our proposition, our brand and our reputation.
They also give us confidence that we can grow the business without
the need for further changes to our charges that would impact the
guidance set out above.
Financial position
Our prudent approach to managing
our balance sheet has ensured that we have more than sufficient
funding capacity to cover the financial implications of setting up
the Ongoing Service Evidence provision. We are confident that the
provision we have set up is sufficient. We have, however, arranged
access to an additional £250 million of credit which we do not
anticipate utilising, but which provides for additional funding
certainty.
Solvency and capital
We have always taken a simple and
prudent approach to managing the balance sheet and our capital
requirements. This continues to be the case, with both the Group
and our life companies in a strong financial position. Given the
simplicity of our business model, our preferred approach to
considering solvency remains to hold assets to match client
unit-linked liabilities and allow for a management solvency buffer
(MSB).
At 31 December 2023 we held
surplus assets over the MSB of £603.5 million (2022: £847.2
million), reducing as a result of the Ongoing Service Evidence
provision that we have established.
We also ensure that our approach
meets the requirements of the Solvency II regime. Our UK life
company, the largest Solvency II entity in the Group, has increased
its target capital from 110% to 130% of the standard formula,
reflecting the change in its financial model as a result of the
charging structure changes we have announced. This has been
discussed with its regulator, the PRA.
At 31 December 2023, the solvency
ratio for our life companies after payment of a year-end
intra-Group dividend was 162% (2022: 130%), reflecting the impact
of the change in charging structures, and the Solvency II reform
changes to the risk margin.
Dividends
While our financial results have
been significantly impacted by the Ongoing Service Evidence
provision, the Board recognises the importance of returns to
shareholders and is confident that sufficient capital and
liquidity is available to deal with this legacy matter. In light of
this, the Board therefore proposes a final dividend of 8.00 pence
per share (2022: 37.19 pence per share) to make a total dividend of
23.83 pence per share for the full year (2022: 52.78 pence per
share).
A combination of the provision we
have established and an expected decrease in the level of profit
growth in the next few years as we transition to our new charging
structure, reduces our ability to invest for long term growth in
our business over the next few years. Accordingly, the Board has
decided to revise our approach to shareholder distributions. Going
forward, the Board expects that total annual distributions will be
set at 50% of the full year Underlying cash result. For the next
three years this will comprise 18.00 pence per share in annual
dividends declared with the balance distributed through share
repurchases.
Once our new charging structure is
fully embedded, we anticipate that the business will be on an
improving earnings trajectory during 2027 and beyond. The Board
expects that distributing 50% of the Underlying cash result will
continue to strike the right balance between investment for growth
and returns to shareholders, while seeing shareholder distributions
increase over time. The upward trajectory in profits should then
provide the Board with options to grow the dividend element within
the total return.
Craig Gentle, Chief Financial Officer
27 February 2024
Summary financial
information
|
|
Year
ended
31
December
2023
|
Year
ended
31
December
20221
|
FUM-based metrics
|
|
|
|
Gross inflows
(£'Billion)
|
|
15.4
|
17.0
|
Net inflows (£'Billion)
|
|
5.1
|
9.8
|
Total FUM (£'Billion)
|
|
168.2
|
148.4
|
Total FUM in gestation
(£'Billion)
|
|
47.6
|
45.5
|
|
|
|
|
IFRS-based metrics
|
|
|
|
IFRS (loss)/profit after tax
(£'Million)
|
|
(9.9)
|
407.2
|
IFRS (loss)/profit before
shareholder tax (£'Million)
|
|
(4.5)
|
503.9
|
Underlying (loss)/profit before
shareholder tax (£'Million)
|
|
(8.0)
|
516.9
|
IFRS basic earnings per share
(EPS) (Pence)
|
|
(1.8)
|
75.0
|
IFRS diluted EPS
(Pence)
|
|
(1.8)
|
74.3
|
IFRS net asset value per share
(Pence)
|
|
179.3
|
233.7
|
Dividend per share
(Pence)
|
|
23.83
|
52.78
|
|
|
|
|
Cash result-based
metrics
|
|
|
|
Controllable expenses
(£'Million)
|
|
283.3
|
277.9
|
Underlying cash result
(£'Million)
|
|
392.4
|
410.1
|
Cash result (£'Million)
|
|
68.7
|
410.1
|
Underlying cash result basic EPS
(Pence)
|
|
71.7
|
75.6
|
Underlying cash result diluted EPS
(Pence)
|
|
70.5
|
74.9
|
|
|
|
|
EEV-based metrics
|
|
|
|
EEV operating (loss)/profit before
tax (£'Million)
|
|
(1,891.6)
|
1,589.7
|
EEV operating (loss)/profit after
tax basic EPS (Pence)
|
|
(260.6)
|
218.8
|
EEV operating (loss)/profit after
tax diluted EPS (Pence)
|
|
(256.5)
|
216.8
|
EEV net asset value per share
(£)
|
|
14.11
|
16.66
|
|
|
|
|
Solvency-based metrics
|
|
|
|
Solvency II net assets
(£'Million)
|
|
1,133.0
|
1,379.9
|
Management solvency buffer
(£'Million)
|
|
529.5
|
532.7
|
Solvency II free assets
(£'Million)
|
|
1,572.1
|
1,921.4
|
Solvency ratio
(Percentage)
|
|
191%
|
155%
|
1 Restated to reflect the
adoption of IFRS 17. See Note [1a].
A complete glossary of APMs is
below.
The Cash result should not be
confused with the IFRS Consolidated Statement of Cash Flows, which
is prepared in accordance with IAS 7.
Financial Review
This financial review provides
analysis of the Group's financial position and
performance.
It is split into
the following sections:
Section 1
Funds under management
(FUM)
1.1 FUM
analysis
1.2
Gestation
As set out below, FUM is a key
driver of ongoing profitability on all measures, and
so information on growth in FUM is provided in Section
1.
Section 2
Performance measurement
2.1 International
Financial Reporting Standards (IFRS)
2.2 Cash
result
2.3 European Embedded
Value (EEV)
Section 2 analyses the performance
of the business using three different bases: IFRS, the Cash result,
and EEV.
Section 3
Solvency
Section 3 addresses solvency,
which is an important area given the multiple regulated activities
carried out within the Group.
Our financial business
model
Our financial business model
is straightforward. We generate revenue by attracting
clients through the value of our proposition, who trust us
with their investments and then stay with us. This grows
our funds under management (FUM), on which
we receive:
· advice charges for the provision of valuable, face-to-face
advice; and
· product charges for our manufactured investment, pension and
ISA/unit trust products.
Further information on our charges
can be found on our website: www.sjp.co.uk/charges.
A breakdown of fee and commission income, our primary source of
revenue under IFRS, is set out in Note 4.
The primary source of the Group's
profit is the income we receive from annual product
management charges on FUM. However, under our current charging
structure, most of our investment and pension products are
structured so that annual product management charges are not taken
for the first six years after the business is written. This
means that the Group has six years' worth of FUM in the 'gestation'
period that is not generating annual product management charges,
but will 'mature' over a six-year period and begin to contribute
annual product management charges.
We will be simplifying our
charging structure from the middle of 2025 and new business will no
longer enter a gestation period, but in the meantime, gestation FUM
represents a significant store of shareholder value.
Initial and ongoing advice
charges, and initial product charges levied when a client
first invests into one of our products, are not major
drivers of the Group's profitability, because:
· most
advice charges received are offset by corresponding
remuneration for Partners, so an increase in these revenue
streams will correspond with an increase in the associated
expense and vice versa; and
· under IFRS, initial product charges are spread over the
expected life of the investment through deferred income (DIR).
The contribution to the IFRS result from spreading these
historic charges can be seen in Note 4 as amortisation of DIR.
Initial product charges contribute immediately to our Cash result
through margin arising on new business.
Our income is used to meet
overheads, pay ongoing product expenses and invest in the business.
Controllable expenses, being the costs of running the Group's
infrastructure, the Academy and development expenses, are carefully
managed in line with our 2025 business plan ambition to
limit their growth to 5% per annum. Other ongoing
expenses, including payments to Partners, increase with business
levels and are generally aligned with product charges.
Gross inflows into FUM
Section 1
Funds under management
1.1 FUM analysis
Our financial business model is to
attract and retain FUM, on which we receive an annual management
fee. As a result, the level of income we receive is ultimately
dependent on the value of our FUM, and so its growth is a clear
driver of future growth in profits. The key drivers for FUM
are:
· our
ability to attract new funds in the form of gross
inflows;
· our
ability to retain FUM by keeping unplanned withdrawals at a low
level; and
· net
investment returns.
The following table shows how FUM
evolved during 2023 and 2022. Investment return is presented net of
all charges.
|
|
|
Investment
|
Pension
|
UT/ISA
and DFM
|
Total
|
Total
|
£'Billion
|
£'Billion
|
£'Billion
|
£'Billion
|
£'Billion
|
Opening FUM
|
33.29
|
73.86
|
41.22
|
148.37
|
153.99
|
Gross inflows
|
2.09
|
9.77
|
3.53
|
15.39
|
17.03
|
Net investment return
|
2.89
|
8.23
|
3.59
|
14.71
|
(15.40)
|
Regular income withdrawals and
maturities
|
(0.36)
|
(2.41)
|
-
|
(2.77)
|
(2.01)
|
Surrenders and
part-surrenders
|
(1.92)
|
(2.13)
|
(3.45)
|
(7.50)
|
(5.24)
|
Closing FUM
|
35.99
|
87.32
|
44.89
|
168.20
|
148.37
|
Net inflows
|
(0.19)
|
5.23
|
0.08
|
5.12
|
9.78
|
Implied surrender rate as a
percentage of average FUM
|
5.5%
|
2.6%
|
8.0%
|
4.7%
|
3.5%
|
Included in the table above
is:
· Rowan Dartington Group FUM of £3.43 billion at 31 December
2023 (31 December 2022: £3.29 billion), gross inflows
of £0.36 billion for the year (2022: £0.44 billion) and
outflows of £0.18 billion (2022: £0.14 billion); and
· SJP
Asia FUM of £1.72 billion at 31 December 2023 (31 December 2022:
£1.52 billion), gross inflows of £0.21 billion for
the year (2022: £0.28 billion) and outflows of £0.15
billion (2022: £0.10 billion).
The following table shows the
significant net inflows and the progression of FUM over the past
six years.
Year
|
FUM as
at 1 January
|
Net
inflows
|
Investment return
|
FUM as
at 31 December
|
£'Billion
|
£'Billion
|
£'Billion
|
£'Billion
|
2023
|
148.4
|
5.1
|
14.7
|
168.2
|
2022
|
154.0
|
9.8
|
(15.4)
|
148.4
|
2021
|
129.3
|
11.0
|
13.7
|
154.0
|
2020
|
117.0
|
8.2
|
4.1
|
129.3
|
2019
|
95.6
|
9.0
|
12.4
|
117.0
|
2018
|
90.7
|
10.3
|
(5.4)
|
95.6
|
The table below provides a
geographical and investment-type analysis of FUM at 31
December.
|
|
|
£'Billion
|
Percentage
of
total
|
£'Billion
|
Percentage
of
total
|
North American equities
|
57.4
|
34%
|
49.1
|
33%
|
Fixed income securities
|
27.1
|
16%
|
23.1
|
16%
|
European equities
|
23.6
|
14%
|
19.3
|
13%
|
Asia and Pacific
equities
|
20.5
|
12%
|
17.8
|
12%
|
UK equities
|
16.0
|
10%
|
16.0
|
11%
|
Alternative investments
|
10.5
|
6%
|
12.4
|
8%
|
Cash
|
7.2
|
4%
|
5.7
|
4%
|
Other
|
4.1
|
3%
|
2.8
|
2%
|
Property
|
1.8
|
1%
|
2.2
|
1%
|
Total
|
168.2
|
100%
|
148.4
|
100%
|
1.2 Gestation
As explained in our financial
business model, due to our current product structure, there is
a significant amount of FUM that has not yet started to
contribute to the Cash result.
When we attract new FUM there is a
margin arising on new business that emerges at the point of
investment, which is a surplus of income over and above the
initial costs incurred at the outset. Within our Cash result
presentation this is recognised as it arises, but it is deferred
under IFRS.
Once the margin arising on new
business has been recognised the pattern of future emergence of
cash from annual product management charges differs by product.
Broadly, annual product management charges from unit trust and ISA
business begin contributing positively to the Cash result from day
one, whilst investment and pensions business enters a six-year
gestation period during which no net income from FUM is included in
the Cash result. Once this business has reached its six-year
maturity point, it starts contributing positively to the Cash
result, and will continue to do so in each year that it remains
with the Group. Approximately 54% of gross inflows for 2023, after
initial charges, moved into gestation FUM (2022: 54%).
The following table shows an
analysis of FUM, after initial charges, split between mature FUM
that is contributing net income to the Cash result and FUM in
gestation which is not yet contributing, as at the year-end for the
past five years. The value of both mature and gestation FUM is
impacted by investment return as well as net inflows.
Position as at
|
Mature
FUM contributing to the Cash result
|
Gestation FUM that will contribute to the Cash result in
the future
|
Total
FUM
|
£'Billion
|
£'Billion
|
£'Billion
|
31 December 2023
|
120.6
|
47.6
|
168.2
|
31 December 2022
|
102.9
|
45.5
|
148.4
|
31 December 2021
|
104.7
|
49.3
|
154.0
|
31 December 2020
|
85.9
|
43.4
|
129.3
|
31 December 2019
|
76.8
|
40.2
|
117.0
|
During the year, we announced the
outcome of an internal review which will see us simplify our
charging structure from the second half of 2025,
following a period of investment in the required systems and
processes. Under the revised charging structure, new business will
no longer enter a period of gestation and the existing gestation
business at the point of implementation will gradually mature,
after which there will be no further concept of gestation FUM. In
the meantime, gestation FUM continues to be a material store of
shareholder value that will make a significant contribution to the
Cash result in the future.
The following table gives an
indication, for illustrative purposes, of the way in which the
reduction in fees in the gestation period element of the Cash
result could unwind, and so how the gestation balance of £47.6
billion at 31 December 2023 may start to contribute to the Cash
result over the next six years and beyond, allowing for the changes
to our charging structure in 2025 and the applicable rate of
corporation tax in each year. For simplicity it assumes that FUM
values remain unchanged, that there are no surrenders, and that
business is written at the start of the year. Actual emergence
in the Cash result will reflect the varying business mix of
the relevant cohort and business experience.
Year
|
Gestation FUM maturity profile
|
Gestation FUM future contribution to the Cash
result
|
£'Billion
|
£'Million
|
2024
|
7.0
|
58.0
|
2025
|
14.3
|
100.0
|
2026
|
21.9
|
124.9
|
2027
|
30.4
|
173.5
|
2028
|
39.4
|
224.8
|
2029 onwards
|
47.6
|
271.7
|
Section 2
Performance measurement
In line with statutory reporting
requirements we report profits assessed on an IFRS basis. The
presence of a significant life insurance company within the
Group means that, although we are a wealth management group in
substance with a simple business model, we apply IFRS
accounting requirements for insurance companies. These requirements
lead to financial statements which are more complex than those of a
typical wealth manager and so our IFRS results may not provide the
clearest presentation for users who are trying to understand our
wealth management business. Key examples of this include the
following:
· our
IFRS Statement of Comprehensive Income includes policyholder tax
balances which we are required to recognise as part of our
corporation tax arrangements. This means that our Group IFRS profit
before tax includes amounts charged to clients to meet policyholder
tax expenses, which are unrelated to the underlying performance of
our business; and
· our
IFRS Statement of Financial Position includes policyholder
liabilities and the corresponding assets held to match them, and so
policyholder liabilities increase or decrease to match increases or
decreases experienced on these assets. This means that shareholders
are not exposed to any gains or losses on the £167.8 billion
of policyholder assets and liabilities recognised in our IFRS
Statement of Financial Position, which represented over 97% of our
IFRS total assets and liabilities at 31 December 2023.
To address this, we developed
alternative performance measures (APMs) with the objective of
stripping out the policyholder element to present solely
shareholder-impacting balances, as well as removing items such as
deferred acquisition costs and deferred income to reflect
Solvency II recognition requirements and to better match the way in
which cash emerges from the business. We therefore present our
financial performance and position on three different bases, using
a range of APMs to supplement our IFRS reporting. The three
different bases, which are consistent with those presented last
year, are:
· International Financial Reporting Standards
(IFRS);
· Cash
result; and
· European Embedded Value (EEV).
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 APMs is set out below, in
which we define each APM used in our financial review, explain why
it is used and, if applicable, explain how the measure can be
reconciled to the IFRS Financial Statements.
2.1 International Financial
Reporting Standards (IFRS)
On 1 January 2023, the Group
adopted IFRS 17 Insurance Contracts, with comparatives restated
from 1 January 2022. The adoption of IFRS 17 resulted in an
increased IFRS profit after tax of £1.8 million for the year ended
31 December 2022. For further explanation, refer to Note
1a.
As referenced above, our IFRS
results are impacted by policyholder tax balances which we are
required to recognise as part of our corporation tax
arrangements. This means that our Group IFRS profit before tax
includes amounts charged to clients to meet policyholder tax
expenses, which are unrelated to the underlying performance of our
business. The scale and direction of these amounts can vary
significantly: for example in 2023 we deducted £444.1 million from
clients due to investment market gains which flowed through our
IFRS profit before tax as income, whereas in 2022 we were required
to refund £501.1 million to clients due to investment market falls
which flowed through our IFRS profit before tax as an expense. See
Note 4 Fee and commission income for further information. This
leads to substantial distortion within our IFRS profit before tax:
for the year ended 31 December 2023 it was £439.6
million, compared to £2.8 million for the year ended
31 December 2022.
To address the challenge of
policyholder tax being included in the IFRS results we focus on the
following two APMs, based on IFRS, as our pre-tax
metrics:
· IFRS
profit before shareholder tax; and
· underlying profit.
Further information on these
IFRS-based measures is set out below.
Profit before shareholder
tax
This is a profit measure based on
IFRS which aims to remove the impact of policyholder tax. The
policyholder tax expense or credit is typically matched by an
equivalent deduction or credit from the relevant funds, which is
recorded within fee and commission income in the Consolidated
Statement of Comprehensive Income. Policyholder tax does not
therefore normally impact the Group's overall profit after tax. The
following table demonstrates the way in which IFRS profit before
shareholder tax is presented in the Consolidated Statement of
Comprehensive Income.
|
Year
ended 31 December 2023
|
Year ended 31 December
20221
|
£'Million
|
£'Million
|
IFRS profit before tax
|
439.6
|
2.8
|
Policyholder tax
|
(444.1)
|
501.1
|
IFRS (loss)/profit before
shareholder tax
|
(4.5)
|
503.9
|
Shareholder tax
|
(5.4)
|
(96.7)
|
IFRS (loss)/profit after
tax
|
(9.9)
|
407.2
|
1 Restated to reflect the
adoption of IFRS 17. See Note 1a.
However, in both the current and
prior year IFRS profit before shareholder tax and IFRS profit after
tax have been impacted by another nuance of life insurance tax,
which has led to decreases in each of these balances year on
year.
As set out above, life insurance
tax incorporates a policyholder tax element, and the financial
statements of a life insurance group need to reflect the
liability to HMRC and the corresponding deductions incorporated
into policy charges. In particular, the tax liability to HMRC is
assessed using IAS 12 Income Taxes, which does not allow
discounting, whereas the policy charges are designed to ensure
fair outcomes between clients and so reflect a wide range of
possible outcomes. This gives rise to different assessments of
the current value of future cash flows and hence an asymmetry in
the Consolidated Statement of Financial Position between the
deferred tax position and the offsetting client balance.
The net balance reflects a temporary position, and in the
absence of market volatility we expect it will unwind as
future cash flows become less uncertain and are ultimately
realised. Movement in the asymmetry is recognised
in the Consolidated Statement of Comprehensive Income and
analysed in Note 4 Fee and commission income.
We refer to it throughout this Annual
Report and Accounts as the impact of policyholder tax
asymmetry.
Under normal conditions this
asymmetry is small, but market volatility can result in significant
balances. Market gains combined with higher interest rates in the
year to 31 December 2023 have resulted in a negative policyholder
tax asymmetry impact of £44.4 million, whereas market falls in the
year to 31 December 2022 resulted in a positive movement of £50.6
million. This leads to a £95.0 million year-on-year difference in
both IFRS profit after tax and IFRS profit before shareholder
tax.
Ultimately the effect will be
eliminated from the Consolidated Statement of Financial Position,
and so it is temporary and we expect it to reverse as markets
increase further.
Shareholder tax reflects the tax
charge attributable to shareholders and is closely related to the
performance of the business. However, it can vary year on year due
to several factors: further detail is set out in Note 6 Income and
deferred taxes.
Underlying profit
This is IFRS profit before
shareholder tax (as calculated above) adjusted to remove the impact
of accounting for deferred acquisition costs (DAC), deferred income
(DIR) and the purchased value of in-force business
(PVIF).
IFRS requires certain upfront
expenses incurred and income received to be deferred. The deferred
amounts are initially recognised on the Statement of Financial
Position as a DAC asset and DIR liability, which are subsequently
amortised to the Statement of Comprehensive Income over a
future period. Substantially all of the Group's deferred expenses
are amortised over a 14-year period, and substantially all
deferred income is amortised over a six-year period.
The impact of accounting for DAC,
DIR and PVIF in the IFRS result is that there is a significant
accounting timing difference between the emergence of accounting
profits and actual cash flows. For this reason, Underlying profit
is considered to be a helpful metric. The following table
demonstrates the way in which IFRS profit reconciles to Underlying
profit.
|
Year
ended 31 December 2023
|
Year ended 31 December
20221
|
£'Million
|
£'Million
|
IFRS (loss)/profit before
shareholder tax
|
(4.5)
|
503.9
|
Remove the impact of movements in
DAC/DIR/PVIF
|
(3.5)
|
13.0
|
Underlying (loss)/profit before
shareholder tax
|
(8.0)
|
516.9
|
1 Restated to reflect the
adoption of IFRS 17. See Note 1a.
The impact of movements in DAC,
DIR and PVIF on IFRS profit before shareholder tax is further
analysed as follows. Due to policyholder tax on DIR, the
amortisation of DIR during the year and DIR on new business for the
year set out below cannot be agreed to the figures provided in Note
11 in the Annual Report and Accounts, which are presented before
both policyholder and shareholder tax.
|
Year
ended 31 December 2023
|
Year ended 31 December
20221
|
£'Million
|
£'Million
|
Amortisation of DAC
|
(72.2)
|
(79.6)
|
DAC on new business for the
year
|
39.9
|
37.3
|
Net impact of DAC
|
(32.3)
|
(42.3)
|
Amortisation of DIR
|
149.3
|
166.2
|
DIR on new business for the
year
|
(110.3)
|
(133.7)
|
Net impact of DIR
|
39.0
|
32.5
|
Amortisation of PVIF
|
(3.2)
|
(3.2)
|
Movement in year
|
3.5
|
(13.0)
|
1 Restated to reflect the
adoption of IFRS 17. See Note 1a.
Net impact of DAC
The scale of the £32.3 million
negative overall impact of DAC on the IFRS result (2022: negative
£42.3 million) is largely due to changes arising from the 2013
Retail Distribution Review (RDR). After these changes, the level of
expenses that qualified for deferral reduced significantly, but the
large balance accrued previously is still being amortised. As
deferred expenses are amortised over a 14-year period there is a
significant transition period, which could last for another few
years, over which the amortisation of pre-RDR expenses previously
deferred will significantly outweigh new post-RDR expenses deferred
despite significant business growth, resulting in a net negative
impact on IFRS profits.
Net impact of DIR
The reduction in new business in
the year means income deferred in 2023 is lower than it was in
2022. Income released from the deferred income liability has
reduced as balances arising from the reassessment of investment
contract liabilities in 2016 were fully amortised by the end of
2022. Together, these effects mean that DIR has had a positive
£39.0 million impact on the IFRS result in 2023 (2022: £32.5
million positive).
2.2 Cash result
The Cash result is used by the
Board to assess and monitor the level of cash profit (net of tax)
generated by the business. It is based on IFRS with
adjustments made to exclude policyholder balances and certain
non-cash items, such as DAC, DIR, deferred tax and
equity-settled share-based payment costs. Further details,
including the full definition of the Cash result, can be found in
the glossary of APMs. Although the Cash result should not be
confused with the IAS 7 Consolidated Statement of Cash Flows, it
provides a helpful supplementary view of the way in which cash is
generated and emerges within the Group.
The Cash result reconciles to
Underlying profit, as presented in Section 2.1, as
follows.
|
Year
ended 31 December 2023
|
Year
ended 31 December 20221
|
Before
shareholder tax
|
After
tax
|
Before
shareholder tax
|
After
tax
|
£'Million
|
£'Million
|
£'Million
|
£'Million
|
Underlying
(loss)/profit
|
(8.0)
|
(13.0)
|
516.9
|
416.5
|
Equity-settled share-based
payments
|
5.4
|
5.4
|
20.5
|
20.5
|
Impact of deferred tax
|
-
|
24.9
|
-
|
30.5
|
Impact of policyholder tax
asymmetry
|
44.4
|
44.4
|
(50.6)
|
(50.6)
|
Other
|
15.2
|
7.0
|
(1.3)
|
(6.8)
|
Cash result
|
57.0
|
68.7
|
485.5
|
410.1
|
1 Restated to reflect the
adoption of IFRS 17. See Note 1a.
Equity-settled share-based
payments have reduced compared to 2022,
reflecting a lower average share price, partially offset by an
increase in the number of shares and share options granted during
the year.
The impact of deferred tax is the
recognition in the Cash result of the benefit from realising tax
relief on various items including capital losses, share options,
capital allowances and deferred expenses. These have already been
recognised under IFRS, and hence Underlying profit, through the
establishment of deferred tax assets. Two notable points in the
year, are the need for life companies to spread acquisition
expenses equally across 7 years is removed with immediate allowance
for tax relief instead, and that recognition has been allowed for
the deferred tax relief arising from the establishment of the
exceptional Ongoing Service Evidence provision. More
information can be found in Note 6.
The impact of policyholder tax
asymmetry is a temporary effect caused by
asymmetries between fund tax deductions and the policyholder tax
due to HMRC. Movement in the asymmetry can be significant in
volatile markets.
Other represents a number of other small items, including the
removal of other intangibles and the difference between
the lease expense recognised under IFRS 16 Leases and lease
payments made.
The following table shows an
analysis of the Cash result using two different
measures:
· Underlying cash result
This measure represents the regular emergence of cash from the
business, excluding any items of a one-off nature
and temporary timing differences; and
· Cash
result
This measure includes items of a one-off nature and temporary
timing differences.
Consolidated cash result (presented
post-tax)
|
Note
|
Year
ended 31 December 2023
|
Year
ended 31 December 2022
|
In-force
|
New
business
|
Total
|
Total
|
£'Million
|
£'Million
|
£'Million
|
£'Million
|
Net annual management
fee
|
1
|
942.6
|
58.2
|
1,000.8
|
1,020.6
|
Reduction in fees in gestation
period
|
1
|
(401.6)
|
-
|
(401.6)
|
(412.9)
|
Net income from FUM
|
1
|
541.0
|
58.2
|
599.2
|
607.7
|
Margin arising from new
business
|
2
|
-
|
104.5
|
104.5
|
122.4
|
Controllable expenses
|
3
|
(20.6)
|
(262.7)
|
(283.3)
|
(277.9)
|
Asia - net investment
|
4
|
-
|
(19.4)
|
(19.4)
|
(11.3)
|
DFM - net investment
|
4
|
-
|
(6.4)
|
(6.4)
|
(10.9)
|
Regulatory fees and FSCS
levy
|
5
|
(2.3)
|
(20.8)
|
(23.1)
|
(40.0)
|
Shareholder interest
|
6
|
61.8
|
-
|
61.8
|
15.9
|
Tax relief from capital
losses
|
7
|
2.1
|
-
|
2.1
|
20.7
|
Charge structure implementation
costs
|
8
|
-
|
(7.2)
|
(7.2)
|
-
|
Miscellaneous
|
9
|
(35.8)
|
-
|
(35.8)
|
(16.5)
|
Underlying cash result
|
|
546.2
|
(153.8)
|
392.4
|
410.1
|
Ongoing Service Evidence
provision
|
10
|
(323.7)
|
-
|
(323.7)
|
-
|
Cash result
|
|
222.5
|
(153.8)
|
68.7
|
410.1
|
The Cash result comprises the
emergence of cash from in-force business of £222.5 million (2022:
£544.3 million) and an investment in new business of £153.8 million
(2022: £134.2 million)
Notes to the Cash result
1. Net income from FUM
The net
annual management fee is the net
manufacturing margin that the Group retains from FUM after payment
of the associated costs: for example, advice fees paid to
Partners, investment management fees paid to external fund managers
and the policy servicing tariff paid to our third-party
administration provider. Each product has standard fees, but they
vary between products. Overall post-tax margin on FUM reflects
business mix but also the different tax treatments, particularly
life insurance tax on onshore investment business.
Our investment and pension
business product structure means that these products
do not generate net Cash result, after the margin arising
from new business, during the first six years. This is known
as the 'gestation period' and is reflected in the
reduction in fees in gestation period
line.
Net income from FUM
reflects Cash result income from FUM that
has reached maturity, including FUM which has emerged from the
gestation period during the year, and this line is the focus of our
explanatory analysis. As with net annual management fees, the
average rate can vary over time with business mix and
tax.
For 2023, our net income
from FUM is consistent with the weighted average of our margin
range throughout the year. The margin range for the first half
of the year was year 0.59% to 0.61%, reducing by 0.04% from August
2023 to a range from 0.55% to 0.57%, reflecting the
introduction of a charge cap applicable to client bonds and pension
investments with a duration longer than ten
years.
There will be another, more modest
impact in 2024 when the tax rate will be 25% for the full year,
with the effect of this being to further reduce our margin range by
0.01%, resulting in a range from 0.54% to 0.56%. Following the
simplification of our charging structure from the middle of 2025,
the range will reduce by a further 0.11%, resulting in a range from
0.43% to 0.45%, though this will be applicable to all FUM once the
existing gestation FUM has matured.
Net income from Asia and DFM FUM
is not included in this line. Instead, this is included in
the Asia - net investment
and DFM - net
investment lines.
2. Margin arising from new
business
This is the net positive Cash
result impact of new business in the year, reflecting initial
charges levied on gross inflows and new-business-related expenses.
The majority of these expenses vary with new business levels, such
as the incremental third-party administration costs of setting up a
new policy on our back-office systems, and payments to Partners for
the initial advice provided to secure clients' investment. As
a result, gross inflows are a key driver behind this
line.
However, the margin arising from new business also contains some fixed expenses, and elements which do not
vary exactly in line with gross inflows. For example, our
third-party administration tariff structure includes a fixed fee,
and to provide some stability for Partner businesses, elements of
our support for them are linked to prior-year new business
levels.
Therefore, whilst the margin
arising from new business tends to move directionally with the
scale of gross inflows generated during the year, the relationship
between the two is not linear.
3. Controllable
expenses
|
Year
ended 31 December 2023
|
Year
ended 31 December 2022
|
|
£'Million
|
£'Million
|
Establishment expenses
|
206.2
|
198.9
|
Development expenses
|
65.3
|
67.4
|
Academy
|
11.8
|
11.6
|
Controllable expenses
|
283.3
|
277.9
|
Controllable expenses
are those expenses which do not vary with
business volumes, including establishment expenses, development
expenses and the costs associated with running our Academy. Growth
in controlled expenses has been contained to 8% on a pre-tax basis,
with the increase driven by the high inflation environment. This is
equivalent to a 2% increase on a post-tax basis as presented in the
Cash result, reflecting an increase in the rate of corporation
tax.
We anticipate returning to our
target of 5% annual growth in pre-tax controllable expenses in
2024, balancing disciplined expense management with the need
to invest in the business for the future.
Establishment expenses
in 2023 increased by 4% on a net-of-tax basis to
£206.2 million (2022: £198.9 million), as inflation driven
increases were partially offset by an increased level of tax
relief. These costs predominantly relate to people, property and
technology and hence are relatively fixed in nature.
Development expenses
were £65.3 million (2022: £67.4 million). Our
investment in technology, alongside our commitment to making
it easier to do business, is the driver behind our development
expenditure. We continue to improve our technology infrastructure
and data quality, and to invest in Salesforce.
Reflecting its critical role in
providing a source of future organic growth in our adviser
population, we continue to invest in building our
Academy programme.
4. Asia and DFM
These lines represent the net
income from Asia and DFM FUM, they include the Asia and DFM
expenses set out in the reconciliation between expenses presented
separately on the face of the Cash result before tax and IFRS
expenses.
We have continued to invest in
developing our presence in Asia, as well as in
discretionary fund management via Rowan Dartington. The increased investment in Asia
includes the cost of restructuring during the year, as well as the
cost of setting up a new office in Dubai. While both Asia and
Rowan Dartington have been impacted by the challenging market
conditions in 2023, they remain well positioned for the years
ahead.
5. Regulatory fees and FSCS
levy
The costs of operating in a
regulated sector include regulatory fees and the Financial Services
Compensation Scheme (FSCS) levy. On a post-tax basis, these are as
follows:
|
Year
ended 31 December 2023
|
Year
ended 31 December 2022
|
£'Million
|
£'Million
|
FSCS levy
|
10.0
|
27.3
|
Regulatory fees
|
13.1
|
12.7
|
Regulatory fees and FSCS
levy
|
23.1
|
40.0
|
Our position as a market-leading
provider of advice means we make a substantial contribution to
supporting the FSCS, thereby providing protection for clients of
other businesses in the sector that fail. The FSCS levy has fallen
substantially in 2023, reflecting the short-term utilisation
of scheme surpluses that had built up in prior years. The levy is
anticipated to increase again in 2024.
6. Shareholder interest
This is the income accruing on
investments and cash held for regulatory purposes together with the
interest received on the surplus capital held by the Group. It is
presented net of funding-related expenses, including interest paid
on borrowings and securitisation costs. It has increased
significantly during the year following rises in the Bank of
England base rate.
7. Tax relief from capital
losses
A deferred tax asset was
previously recognised under IFRS for historic capital losses which
were regarded as being capable of utilisation over the medium term.
The tax asset is ignored for Cash result purposes as it is not
fungible, but instead the cash benefit realised when losses are
utilised is shown in the tax relief from
capital losses line.
Utilisation during the year of
£2.1 million tax value (2022: £20.7 million) reflects the
utilisation in full of the remaining stock of capital losses.
Due to the exhaustion of the balance, this will not feature in the
Cash result in the future.
8. Charge structure implementation
costs
We announced in October 2023 that
we would be simplifying our charging structure and disaggregating
our charges into their component parts, supporting clients by
making it easier to compare charges for advice, investment
management and other services, on a component-by-component
basis.
We have commenced a broad and
complex programme to accommodate these changes, investing £140-160
million over a two-year period to develop our systems and
processes to support the new charging structure to be implemented
in the second half of 2025.
9. Miscellaneous
This category represents the net
cash flow of the business not covered in any of the other
categories. Miscellaneous has increased in 2023, reflecting an
increase in remediation costs as a result of elevated complaints
experience.
10. Ongoing Service Evidence
provision
The Ongoing Service Evidence
provision has been established following the appointment of a
skilled person and an assessment undertaken into the evidencing and
delivery of historic ongoing servicing. The anticipated cost of
refunding ongoing servicing charges, together with the interest,
and the administrative costs associated with completing the work,
is reflected in our Financial Statements through an Ongoing Service
Evidence provision of £426.0 million, which is £323.7 million net
of tax (and a deferred tax balance) within the Cash
result.
Reconciliation of Cash result
expenses to IFRS expenses
Whilst certain expenses are
recognised in separate line items on the face of the Cash result,
expenses which vary with business volumes, such as payments to
Partners and third-party administration expenses, and expenses
which relate to investment in specific areas of the business
such as DFM, are netted from the relevant income lines rather than
presented separately. In order to reconcile to the IFRS expenses
presented on the face of the Consolidated Statement
of Comprehensive Income, the expenses netted from income lines
in the Cash result need to be added in, as do certain IFRS
expenses which by definition are not included in the Cash result.
In addition, all expenses need to be converted from post-tax, as
they are presented in the Cash result, to pre-tax, as they are
presented under IFRS.
Expenses presented on the face of
the Cash result before and after tax are set out below.
|
Year
ended 31 December 2023
|
Year
ended 31 December 2022
|
Before
tax
|
Tax
rate
|
After
tax
|
Before
tax
|
Tax
rate
|
After
tax
|
£'Million
|
Percentage
|
£'Million
|
£'Million
|
Percentage
|
£'Million
|
Controllable expenses
|
|
|
|
|
|
|
Establishment expenses
|
269.6
|
23.5%
|
206.2
|
245.5
|
19.0%
|
198.9
|
Development expenses
|
85.4
|
23.5%
|
65.3
|
83.2
|
19.0%
|
67.4
|
Academy
|
15.4
|
23.5%
|
11.8
|
14.3
|
19.0%
|
11.6
|
Total controllable
expenses
|
370.4
|
|
283.3
|
343.0
|
|
277.9
|
Other costs presented
separately
on the face of the Cash result
|
|
|
|
|
|
|
Regulatory fees and FSCS
levy
|
30.2
|
23.5%
|
23.1
|
49.4
|
19.0%
|
40.0
|
Charge structure implementation
costs
|
9.4
|
23.5%
|
7.2
|
-
|
-
|
-
|
Total expenses presented
separately
on the face of the Cash result
|
410.0
|
|
313.6
|
392.4
|
|
317.9
|
The total expenses presented
separately on the face of the Cash result before tax then reconcile
to IFRS expenses as set out below.
|
Year
ended 31 December 2023
|
Year
ended 31 December 20221,2
|
£'Million
|
£'Million
|
Total expenses presented
separately on the face of the Cash result before tax
|
410.0
|
392.4
|
Expenses which vary with business
volumes
|
|
|
Other performance costs
|
147.4
|
160.4
|
Payments to Partners
|
1,013.2
|
1,011.8
|
Investment expenses
|
96.9
|
85.7
|
Third-party
administration
|
151.8
|
135.0
|
Other
|
513.3
|
44.5
|
Expenses relating to investment in
specific areas of the business
|
|
|
Asia expenses
|
26.5
|
20.9
|
DFM expenses
|
33.3
|
35.7
|
Total expenses included in the
Cash result
|
2,392.4
|
1,886.4
|
Reconciling items to IFRS
expenses
|
|
|
Amortisation of DAC and PVIF, net
of additions
|
35.5
|
45.5
|
Equity-settled share-based payment
expenses
|
5.4
|
20.5
|
Insurance contract expenses
presented elsewhere
|
2.4
|
(4.5)
|
Other
|
(2.4)
|
1.3
|
Total IFRS Group expenses before
tax
|
2,433.3
|
1,949.2
|
1 Restated to reflect the
adoption of IFRS 17. See Note 1a.
2 Restated to reclassify
other finance income. See Note 1a.
Expenses which vary with business
volumes
Other performance costs vary with
the level of new business and the operating profit performance of
the business.
Payments to Partners, investment
expenses and third-party administration costs are met through
charges to clients, and so any variation in them from changes in
the volumes of new business or the level of the stock markets does
not impact Group profitability significantly.
Each of these items is recognised
within the most relevant line of the Cash result, which is
determined based on the nature of the expense. In most cases, this
is either the net annual management fee or margin arising from new
business lines.
Other expenses includes the
provision that we have established following a review into the
evidencing of historic ongoing servicing, as well as the operating
costs of acquired financial adviser businesses, donations to
the St. James's Place Charitable Foundation and complaint
costs. They are recognised across various lines in the Cash
result.
Expenses relating to investment in
specific areas of the business
Asia expenses and DFM expenses
both reflect disciplined expense control during the year, whilst
continuing to invest to support growth. The increased
investment in Asia includes the cost of restructuring during the
year.
In the Cash result, Asia and DFM
expenses are presented net of the income they generate in the Asia
- net investment and DFM - net investment lines.
Reconciling items to IFRS
expenses
DAC amortisation, net of
additions, PVIF amortisation and equity-settled share-based payment
expenses are the primary expenses which are recognised under IFRS
but are excluded from the Cash result.
Expenses associated with insurance
contract expenses are included in the Cash result but are shown
within the Insurance service expense rather than the expenses line
under IFRS 17.
Derivation of the Cash
result
The Cash result is derived from
the IFRS Consolidated Statement of Financial Position in a
two-stage process:
Stage 1: Solvency II Net Assets
Balance Sheet
Firstly, the IFRS Consolidated
Statement of Financial Position is adjusted for a number of
material balances that reflect policyholder interests in
unit-linked liabilities together with the underlying assets that
are held to match them. Secondly, it is adjusted for a number
of non-cash 'accounting' balances such as DIR, DAC and associated
deferred tax. The result of these adjustments is the Solvency II
Net Assets Balance Sheet and the following table shows the way in
which it has been calculated at 31 December 2023.
31 December 2023
|
Note
|
IFRS
Balance Sheet
|
Adjustment 1
|
Adjustment 2
|
Solvency
II Net Assets Balance Sheet
|
Solvency II Net Assets Balance
Sheet: 20221
|
£'Million
|
£'Million
|
£'Million
|
£'Million
|
£'Million
|
Assets
|
|
|
|
|
|
|
Goodwill
|
|
33.6
|
-
|
(33.6)
|
-
|
-
|
Deferred acquisition
costs
|
|
304.4
|
-
|
(304.4)
|
-
|
-
|
Purchased value of in-force
business
|
|
8.0
|
-
|
(8.0)
|
-
|
-
|
Computer software
|
|
28.0
|
-
|
(28.0)
|
-
|
-
|
Property and equipment
|
1
|
153.1
|
-
|
-
|
153.1
|
145.7
|
Deferred tax assets 1
|
2
|
36.5
|
-
|
(16.1)
|
20.4
|
2.5
|
Investment in
associates
|
|
10.2
|
-
|
-
|
10.2
|
1.4
|
Reinsurance
assets 1
|
|
13.0
|
-
|
(6.3)
|
6.7
|
5.6
|
Other
receivables 1
|
3
|
2,997.4
|
(846.9)
|
(3.2)
|
2,147.3
|
1,369.2
|
Income tax assets
|
7
|
-
|
-
|
-
|
-
|
35.0
|
Investment property
|
|
1,110.3
|
(1,110.3)
|
-
|
-
|
-
|
Equities
|
|
116,761.5
|
(116,761.5)
|
-
|
-
|
-
|
Fixed income securities
|
4
|
27,244.7
|
(27,236.5)
|
-
|
8.2
|
7.9
|
Investment in Collective
Investment Schemes
|
4
|
13,967.5
|
(12,513.1)
|
-
|
1,454.4
|
1,271.7
|
Derivative financial
instruments
|
|
3,420.6
|
(3,420.6)
|
-
|
-
|
-
|
Cash and cash
equivalents
|
4
|
6,204.3
|
(5,918.9)
|
-
|
285.4
|
253.3
|
Total assets
|
|
172,293.1
|
(167,807.8)
|
(399.6)
|
4,085.7
|
3,092.3
|
Liabilities
|
|
|
|
|
|
|
Borrowings
|
5
|
251.4
|
-
|
-
|
251.4
|
163.8
|
Deferred tax
liabilities
|
2
|
411.7
|
-
|
2.8
|
414.5
|
165.1
|
Insurance contract
liabilities 1
|
|
496.0
|
(435.2)
|
(42.6)
|
18.2
|
17.9
|
Deferred income
|
|
491.5
|
-
|
(491.5)
|
-
|
-
|
Other provisions
|
6
|
500.1
|
-
|
-
|
500.1
|
46.0
|
Other payables 1
|
1,
3
|
2,388.1
|
(613.3)
|
(17.8)
|
1,757.0
|
1,319.6
|
Investment contract
benefits
|
|
123,149.8
|
(123,149.8)
|
-
|
-
|
-
|
Derivative financial
instruments
|
|
3,073.0
|
(3,073.0)
|
-
|
-
|
-
|
Net asset value attributable to
unit holders
|
|
40,536.5
|
(40,536.5)
|
-
|
-
|
-
|
Income tax liabilities
|
7
|
11.5
|
-
|
-
|
11.5
|
-
|
Total liabilities
|
|
171,309.6
|
(167,807.8)
|
(549.1)
|
2,952.7
|
1,712.4
|
Net assets
|
|
983.5
|
-
|
149.5
|
1,133.0
|
1,379.9
|
1 Restated to reflect the
adoption of IFRS 17. See Note 1a.
Adjustment 1 strips out the policyholder interest in unit-linked assets
and liabilities, to present solely shareholder-impacting
balances.
Adjustment 2 removes items such as DAC, DIR, PVIF and their associated
deferred tax balances from the IFRS Statement of Financial
Position to bring it in line with Solvency II recognition
requirements.
Notes to the Solvency II Net
Assets Balance Sheet
1. Property and equipment, and
other payables
The property and equipment balance
includes the right to use leased assets of £118.5 million (2022:
£114.4 million), together with fixtures, fittings and office
equipment of £32.1 million (2022: £28.6 million) and computer
equipment of £2.5 million (2022: £2.7 million).
The right to use leased assets has
increased year on year as a result of taking on a lease for the new
London Paddington office, partially offset as the leased assets are
depreciated. Lease liabilities of £120.5 million are recognised
within the other payables line (2022: £116.6 million).
2. Deferred tax assets and
liabilities
Analysis of deferred tax assets
and liabilities, including how they have moved year on year, is set
out in Note 6 Income and deferred taxes within the IFRS
Financial Statements.
3. Other receivables and other
payables
Detailed breakdowns of other
receivables and other payables can be found in Note 7 Other
receivables and Note 8 Other payables within the IFRS Financial
Statements.
Other receivables on the Solvency
II Net Assets Balance Sheet have increased from £1,369.2 million at
31 December 2022 to £2,147.3 million at 31 December 2023,
principally reflecting an increase in short-term outstanding market
trade settlements in the unit-linked funds and consolidated unit
trusts.
Within other receivables there are
two items which merit further analysis:
Operational readiness prepayment
asset
One of the items within other
receivables is the operational readiness prepayment asset. This
arose from the investment we have made into our back-office
infrastructure project, which was a complex, multi-year programme.
In addition to expensing our internal project costs through the
IFRS Statement of Comprehensive Income and Cash result as incurred,
we capitalised Bluedoor development costs as a prepayment
asset on the IFRS Statement of Financial Position.
The asset, which stood at £283.5
million at 31 December 2023 (31 December 2022: £278.3 million) has
been amortising through the IFRS Statement of Comprehensive Income
and the Cash result since 2017 and will continue to do so over
the remaining life of the contract, which at 31 December 2023
is 10 years.
A project to migrate our offshore
business onto Bluedoor is in progress, with £29.9 million added to
the total operational readiness prepayment asset during 2023 that
will begin to amortise from 2024.
The movement schedule below
demonstrates how the operational readiness prepayment has developed
over the past two years.
|
2023
|
2022
|
£'Million
|
£'Million
|
Cost
|
|
|
At 1 January
|
420.2
|
413.5
|
Additions during the
year
|
29.9
|
6.7
|
At 31 December
|
450.1
|
420.2
|
Accumulated
amortisation
|
|
|
At 1 January
|
(141.9)
|
(117.2)
|
Amortisation during the
year
|
(24.7)
|
(24.7)
|
At 31 December
|
(166.6)
|
(141.9)
|
Net book value
|
283.5
|
278.3
|
The amortisation expense is
recognised within third-party administration expenses in the IFRS
result, and within the net annual management fee line of the Cash
result. It is more than offset by the lower tariff charges on
Bluedoor compared to the previous system, which grew as the
business grew, benefiting both the IFRS and Cash
results.
Business loans to
Partners
Facilitating business loans to
Partners is a key way in which we are able to support growing
Partner businesses. Such loans are principally used to enable
Partners to take over the businesses of retiring or downsizing
Partners, and this process creates broad stakeholder benefits.
First, clients benefit from enhanced continuity of
St. James's Place advice and service over time; second,
Partners are able to build and ultimately realise value in the
high-quality and sustainable businesses they have created; and
finally, the Group and, in turn, shareholders, benefit from high
levels of adviser and client retention.
In addition to recognising a
strong business case for facilitating such lending, we recognise
too the fundamental strength and credit quality of business loans
to Partners. Over more than ten years, cumulative write-offs have
totalled less than 5 bps of gross loans advanced, with such low
impairment experience attributable to a number of factors that help
to mitigate the inherent credit risk in lending. These include
taking a cautious approach to Group credit decisions, with lending
secured against prudent business valuations. Demonstrating this,
loan-to-value (LTV) information is set out in the table
below.
|
31
December 2023
|
31
December 2022
|
Aggregate LTV across the total
Partner lending book
|
29%
|
32%
|
Proportion of the book where LTV
is over 75%
|
5%
|
10%
|
Net exposure to loans where LTV is
over 100% (£'Million)
|
6.7
|
7.1
|
If FUM were to decrease by 10%,
the net exposure to loans where LTV is over 100% at 31 December
2023 would increase to £7.7 million (31 December 2022:
increase to £8.3 million).
Our credit experience also
benefits from the repayment structure of business loans to
Partners. The Group collects advice charges from clients. Prior to
making the associated payment to Partners, we deduct loan capital
and interest payments from the amount due. This means the Group is
able to control repayments.
During the year we have continued
to facilitate business loans to Partners. Following the sale, in
the second half of 2022, of a portfolio of securitised
business loans to Partners, the balance was negligible at 31
December 2022. Since then, we have continued to make use of
the securitisation vehicle to support the advance of further loans
to Partners.
|
31
December 2023
|
31
December 2022
|
£'Million
|
£'Million
|
Total business loans to
Partners
|
408.0
|
315.6
|
Split by funding type:
|
|
|
Business loans to Partners
directly funded by the Group
|
340.8
|
315.6
|
Securitised business loans to
Partners
|
67.2
|
-
|
4. Liquidity
Cash generated by the business is
held in highly rated government securities, AAA-rated money market
funds and bank accounts. Although these are all highly liquid, only
the latter is classified as cash and cash equivalents on the
Solvency II Net Assets Balance Sheet. The total liquid assets held
are as follows.
|
31
December 2023
|
31
December 2022
|
£'Million
|
£'Million
|
Fixed interest
securities
|
8.2
|
7.9
|
Investment in Collective
Investment Schemes (AAA-rated money market funds)
|
1,454.4
|
1,271.7
|
Cash and cash
equivalents
|
285.4
|
253.3
|
Total liquid assets
|
1,748.0
|
1,532.9
|
The Group's primary source of net
cash generation is product charges. In line with profit generation,
as most of our investment and pension business enters a gestation
period, there is no cash generated (apart from initial charges)
for the first six years of an investment. This means that
the amount of FUM that is contributing to the Cash result will
increase year on year as FUM in the gestation
period becomes mature and is subject to annual product management
charges. Unit trust and ISA business does not enter the
gestation period, and so generates cash immediately from the point
of investment.
Cash is used to invest in the
business and to pay the Group dividend. Our dividend guidance is
set such that appropriate cash is retained in the business to
support the investment needed to meet our future growth
aspirations.
5. Borrowings
The Group continues to pursue a
strategy of diversifying and broadening its access to debt finance.
We have done this successfully over time, including via the
creation and execution of the securitisation vehicle referred to
above. For accounting purposes we are obliged to disclose on
our Consolidated Statement of Financial Position the value of
loan notes relating to the securitisation. However, as the
securitisation loan notes were secured only on the securitised
portfolio of business loans to Partners, they were non-recourse to
the Group's other assets. This means that the senior tranche of
non-recourse securitisation loan notes, whilst included within
borrowing, is very different from the Group's senior unsecured
corporate borrowings, which are used to manage working capital and
fund investment in the business.
Further information is provided in
Note 10 Borrowings and financial commitments within the IFRS
Financial Statements.
|
31
December 2023
|
31
December 2022
|
£'Million
|
£'Million
|
Corporate borrowings: bank
loans
|
50.0
|
-
|
Corporate borrowings: loan
notes
|
151.1
|
163.8
|
Senior unsecured corporate
borrowings
|
201.1
|
163.8
|
Senior tranche of non-recourse
securitisation loan notes
|
50.3
|
-
|
Total borrowings
|
251.4
|
163.8
|
During the year our revolving
credit facility, one of our primary senior unsecured corporate
borrowings facilities, was renewed. The credit available under this
facility is £345 million, which is repayable at maturity in
2028.
6. Other provisions
Further information on other
provisions, including how the balance has moved year on year, is
set out in Note 9 Other provisions and contingent liabilities
within the IFRS Financial Statements.
Provisions have increased from
£46.0 million at 31 December 2022 to £500.1 million at 31 December
2023, driven by a £426.0 million Ongoing Service Evidence provision
that we have established following a review into the evidencing and
delivery of historic ongoing servicing.
7. Income tax
liabilities
The Group has an income tax
liability of £11.5 million at 31 December 2023 compared to an asset
of £35.0 million at 31 December 2022. This is due to a current
tax charge of £225.3 million, tax paid in the year of £179.4
million and other impacts of £0.6 million including those related
to the acquisition of Group entities. Further detail is provided in
Note 6 Income and deferred taxes.
Stage 2: Movement in Solvency II
Net Assets Balance Sheet
After the Solvency II Net Assets
Balance Sheet has been determined, the second stage in the
derivation of the Cash result identifies a number of movements in
that balance sheet which do not represent cash flows for inclusion
within the Cash result. The following table explains how the
overall Cash result reconciles to the total movement.
|
Year
ended 31 December 2023
|
Year
ended 31 December 2022
|
£'Million
|
£'Million
|
Opening Solvency II net
assets
|
1,379.9
|
1,245.3
|
Dividend paid
|
(289.9)
|
(303.9)
|
Issue of share capital and
exercise of options
|
6.8
|
14.5
|
Consideration paid for own
shares
|
(0.5)
|
(0.3)
|
Change in deferred tax
|
(24.9)
|
(30.5)
|
Impact of policyholder tax
asymmetry
|
(44.4)
|
50.6
|
Reassurance recapture
add-back
|
39.8
|
-
|
Change in goodwill, intangibles
and other non-cash movements
|
(2.5)
|
(10.9)
|
Non-controlling interests arising
on the part-disposal of subsidiaries
|
-
|
5.0
|
Cash result
|
68.7
|
410.1
|
Closing Solvency II net
assets
|
1,133.0
|
1,379.9
|
2.3 European Embedded Value
(EEV)
Wealth management differs from
most other businesses, in that the expected shareholder income from
client investment activity emerges over a long period in the
future. We therefore supplement 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 the 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 both in
October 2005 and, following the introduction of Solvency II, in
April 2016.
Many of the principles and
practices underlying EEV are similar to the requirements of
Solvency II, and we have sought to align them as closely as
possible. The table below and accompanying notes summarise the
(loss)/profit before tax of the combined business.
|
Note
|
Year
ended 31 December 2023
|
Year
ended 31 December 2022
|
£'Million
|
£'Million
|
Funds management
business
|
1
|
1,234.3
|
1,725.8
|
Distribution business
|
2
|
(68.3)
|
(58.8)
|
Other
|
3
|
(125.0)
|
(77.3)
|
EEV operating profit before
exceptional items
|
|
1,041.0
|
1,589.7
|
Exceptional item: Charge
structure
|
4
|
(2,506.6)
|
-
|
Exceptional item: Ongoing Service
Evidence provision
|
4
|
(426.0)
|
-
|
EEV operating (loss)/profit after
exceptional items
|
|
(1,891.6)
|
1,589.7
|
Investment return
variance
|
5
|
501.7
|
(1,314.0)
|
Economic assumption
changes
|
6
|
2.5
|
235.1
|
EEV (loss)/profit before
tax
|
|
(1,387.4)
|
510.8
|
Tax
|
|
340.3
|
(139.4)
|
EEV (loss)/profit after
tax
|
|
(1,047.1)
|
371.4
|
A reconciliation between EEV
operating (loss)/profit before tax and IFRS profit before tax is
provided in Note 3 Segment reporting within the IFRS Financial
Statements.
Notes to the EEV result
1. Funds management business EEV
operating profit
The funds management business
operating profit has reduced to £1,234.3 million (2022: £1,725.8
million) and a full analysis of the result is shown
below.
|
Year
ended 31 December 2023
|
Year
ended 31 December 2022
|
£'Million
|
£'Million
|
New business
contribution
|
695.4
|
977.2
|
Profit from existing
business
|
|
|
- unwind of the discount
rate
|
506.0
|
440.7
|
- experience variance
|
(11.3)
|
89.0
|
- operating assumption
change
|
13.9
|
210.1
|
Investment income
|
30.3
|
8.8
|
Funds management EEV operating
profit
|
1,234.3
|
1,725.8
|
The new
business contribution for the year at
£695.4 million (2022: £977.2 million) was 29% lower than the prior
year, reflecting the reduction in new business volumes, together
with the impact of changes to our charging structure described
opposite.
The unwind of the discount rate for the
year was higher at £506.0 million (2022: £440.7 million),
reflecting the increase in the opening risk discount rate to
7.0% (2022: 4.2%), offset by a lower value of in-force business
after allowing for the changes to our charging structure described
opposite.
The experience variance during the year
was £(11.3) million (2022: £89.0 million). The change relative to
2022 principally reflects the lower persistency experience in the
year.
The impact of operating assumption changes in the year was £13.9 million (2022: positive £210.1
million), reflecting a small change to the persistency
assumptions for our offshore bond business. The impact in the
prior year reflects a small improvement to the
persistency assumptions for unit trust and ISA business.
2. Distribution
business
The distribution loss includes the
positive gross margin arising from advice income less payments to
advisers, offset by the costs of supporting the Partnership
and building distribution capabilities in Asia. The reported loss
has benefited from a reduction in the FSCS levy expense for our
distribution business to £10.6 million (2022: £23.8 million),
offsetting a reduction in the gross margin reflecting lower new
business volumes.
3. Other
Other represents a number of
miscellaneous items including development expenditure, the costs of
running our Academy and implementing our new charging
structure, as well as the cost of redress associated with client
complaints. The increase reflects elevated complaints experience
seen during the year.
4. Exceptional items:
The exceptional charge reflects
the impact on the opening position of changes to our charge
structure announced during the year as well as the impact of a
provision that we have established following a review into the
evidencing of historic ongoing servicing. The changes announced to
our charge structure include:
· the
change, announced in July 2023, to improve value for long-term
clients by capping annual product management charges at 0.85% for
bond and pension investments with a duration longer than ten
years;
· the
change, announced in October 2023, to simplify our charging
structure from the middle of 2025.
5. 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 FUM, a small difference
can result in a large positive or negative
variance.
The typical investment return on
our funds during the year was 11.2% after charges, compared to the
assumed investment return of 4.8%. This resulted in an investment
return variance of £501.7 million (2022: negative £1,314.0
million).
6. Economic assumption
changes
The positive variance of £2.5
million arising in the year (2022: positive £235.1 million)
reflects broadly neutral economic assumption changes overall,
compared to the significant increase in real yields seen in the
prior year.
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 (the margin). This
is calculated as the new business contribution divided by the
gross inflows, and is expressed as a percentage.
The table below presents the
margin before tax from our manufactured business.
|
Year
ended 31 December 2023
|
Year
ended 31 December 2022
|
Investment
|
|
|
New business contribution
(£'Million)
|
96.6
|
148.2
|
Gross inflows
(£'Billion)
|
2.09
|
2.31
|
Margin (%)
|
4.6
|
6.4
|
Pension
|
|
|
New business contribution
(£'Million)
|
469.2
|
495.3
|
Gross inflows
(£'Billion)
|
9.77
|
9.90
|
Margin (%)
|
4.8
|
5.0
|
Unit trust and DFM
|
|
|
New business contribution
(£'Million)
|
129.6
|
333.7
|
Gross inflows
(£'Billion)
|
3.53
|
4.82
|
Margin (%)
|
3.7
|
6.9
|
Total business
|
|
|
New business contribution
(£'Million)
|
695.4
|
977.2
|
Gross inflows
(£'Billion)
|
15.39
|
17.03
|
Margin (%)
|
4.5
|
5.7
|
Post-tax margin (%)
|
3.4
|
4.3
|
The overall margin for the year
was 4.5% (2022: 5.7%), reflecting the impact of the impact of
exceptional changes to our charge structure.
Economic assumptions
The principal economic assumptions
used within the cash flows at 31 December are set out
below.
|
Year
ended 31 December 2023
|
Year
ended 31 December 2022
|
Risk-free rate
|
3.7%
|
3.9%
|
Inflation rate
|
3.5%
|
3.6%
|
Risk discount rate
|
6.8%
|
7.0%
|
Future investment
returns:
|
|
|
- Gilts
|
3.7%
|
3.9%
|
- Equities
|
6.7%
|
6.9%
|
- Unit-linked funds
|
6.0%
|
6.2%
|
The risk-free rate is set by
reference to the yield on ten-year gilts. Other investment returns
are set by reference to the risk-free rate.
The inflation rate is derived from
the implicit inflation in the valuation of ten-year index-linked
gilts. This rate is increased to reflect higher increases in
earnings-related expenses.
EEV sensitivities
The table below shows the
estimated impact on the 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.
|
Note
|
Change
in new business contribution
|
Change
in European Embedded Value
|
Pre
tax
|
Post
tax
|
Post
tax
|
£'Million
|
£'Million
|
£'Million
|
Value at 31 December
2023
|
|
695.4
|
524.7
|
7,739.1
|
100bp reduction in risk-free
rates, with corresponding change in fixed interest asset
values
|
1
|
(10.8)
|
(8.2)
|
(63.6)
|
10% increase in withdrawal
rates
|
2
|
(44.9)
|
(33.8)
|
(364.1)
|
10% reduction in market value of
equity assets
|
3
|
-
|
-
|
(745.3)
|
10% increase in
expenses
|
4
|
(10.0)
|
(7.6)
|
(72.1)
|
100bps increase in assumed
inflation
|
5
|
(12.2)
|
(9.2)
|
(68.4)
|
Notes to the EEV
sensitivities
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.
2. The 10% increase is applied to
the withdrawal rate. For instance, if the withdrawal rate is 8%
then a 10% increase would reflect a change to 8.8%.
3. For the purposes of this
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%.
4. For the purposes of this
sensitivity only non-fixed elements of the expenses are increased
by 10%.
5. This reflects a 100bps increase
in the assumed RPI underlying the expense inflation
calculation.
|
Change in new business
contribution
|
Change
in European Embedded Value
|
Pre
tax
|
Post
tax
|
Post
tax
|
£'Million
|
£'Million
|
£'Million
|
100bps reduction in risk discount
rate
|
94.0
|
70.6
|
619.6
|
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.
Analysis of the EEV
result
The table below provides a
summarised breakdown of the embedded value position at the
reporting dates.
|
31
December 2023
|
31
December 2022
|
£'Million
|
£'Million
|
Value of in-force
business
|
6,606.1
|
7,684.8
|
Solvency II net assets
|
1,133.0
|
1,379.9
|
Total embedded value
|
7,739.1
|
9,064.7
|
|
31
December 2023
|
31
December 2022
|
|
£
|
£
|
Net asset value per
share
|
14.11
|
16.66
|
The EEV result above reflects the
specific terms and conditions of our products. Our pension business
is split between two portfolios. Our current product, the
Retirement Account, was launched in 2016 and incorporates both
pre-retirement and post-retirement phases of investment in the same
product. Earlier business was written in our separate Retirement
Plan and Drawdown Plan products, targeted at each of the two phases
separately, and therefore has a slightly shorter term
and lower new business margin.
Our experience is that much of our
Retirement Plan business converts into Drawdown Plan business at
retirement, but, in line with the EEV guidelines, we are
required to defer recognition of the additional value from the
Drawdown Plan until it crystallises. If instead we were to
assess the future value of Retirement Plan business (beyond the
immediate contract boundary) in a more holistic fashion, in line
with Retirement Account business, this would result in an increase
of approximately £250 million to our embedded value at 31 December
2023 (31 December 2022: £340 million).
Section 3
Solvency
St. James's Place has a
business model and risk appetite that result in underlying assets
being held that fully match our obligations to clients. Our
clients can access their investments 'on demand' and because the
encashment value is matched, movements in equity markets,
currency markets, interest rates, mortality, morbidity and
longevity have very little impact on our ability to meet
liabilities. We also have a prudent approach to investing
shareholder funds and surplus assets in cash, AAA-rated money
market funds and highly rated government securities. The overall
effect of the business model and risk appetite is a resilient
solvency position capable of enabling liabilities to be met even
during adverse market conditions.
Our Life businesses are subject to
the Solvency II capital regime which applied for the first time in
2016. Given the relative simplicity of our business compared to
many, if not most, other organisations that fall within the scope
of Solvency II, we have continued to manage the solvency of the
business on the basis of holding assets to match client unit-linked
liabilities plus a management solvency buffer (MSB). This has
ensured that not only can we meet client liabilities at all times
(beyond the Solvency II requirement of a '1-in-200-years' event),
but we also have a prudent level of protection against other risks
to the business. At the same time, we have ensured that the
resulting capital held meets with the requirements of the Solvency
II regime, to which we are ultimately accountable.
For the year ended 31 December
2023 we reviewed the level of our MSB for the Life businesses, and
chose to maintain it at £355.0 million (31 December 2022:
£355.0 million).
The Group's overall Solvency II
net assets position, MSB, and management solvency ratios are as
follows.
31 December 2023
|
Life 1
|
Other
regulated
|
Other 1,2
|
Total
|
31
December 2022 total
|
£'Million
|
£'Million
|
£'Million
|
£'Million
|
£'Million
|
Solvency II net assets before
exceptional item
|
446.9
|
354.7
|
655.1
|
1,456.7
|
1,379.9
|
MSB
|
355.0
|
174.5
|
-
|
529.5
|
532.7
|
Management solvency ratio before
exceptional item
|
126%
|
203%
|
|
|
|
Exceptional item: Ongoing Service
Evidence provision
|
-
|
(323.7)
|
-
|
(323.7)
|
-
|
Capitalisation after the end of
the reporting period
|
-
|
323.7
|
(323.7)
|
-
|
-
|
Solvency II net assets
|
446.9
|
354.7
|
331.4
|
1,133.0
|
1,379.9
|
1 After payment of year-end
intra-Group dividend.
2 Before payment of the Group
final dividend.
Our regulated wealth management
business has been impacted by an exceptional item, being the
recognition of an Ongoing Service Evidence provision. On 27
February 2024, the Group completed a capital injection
into the regulated wealth management
business, of which £323.7 million was used to meet the cost of the
Ongoing Service Evidence provision. The liquidity necessary to
support this capital injection was provided by a £260.0
million intra-Group dividend, together with a £190.0 million
intra-Group loan, both from St James's Place UK plc, our main
life company.
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 (VIF) cash flows 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
are assessed against our regulatory 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 the SCR.
During the year, we announced the
outcome of an internal review which will see us simplify our
charging structure from the second half of 2025, addressing the
evolution over time of an external environment that is increasingly
seeking simple comparability of all advice, investment management
and other services on a component-by-component basis. As a result
of this disaggregation of charges, the proportion of Group profit
that will arise within our life companies will reduce, in favour of
increased profit emergence in our other regulated companies.
Reflecting the different regulatory treatment of these businesses,
the effect of this change is to reduce the value of in-force, risk
margin and the solvency capital requirements associated with our
life companies at 31 December 2023, with a corresponding increase
in the solvency ratio.
The solvency ratio has been
further improved by the confirmation in December 2023 of a number
of regulatory changes to the calculation of the risk margin as
part of a wider package of Solvency II reform, with the effect
being a material reduction in the risk margin.
An analysis of the Solvency II
position for our Group, split by regulated and non-regulated
entities at the year-end,
is presented in the table
below.
31 December 2023
|
Life 1
|
Other
regulated
|
Other 1,2
|
Total
|
31
December 2022 total
|
£'Million
|
£'Million
|
£'Million
|
£'Million
|
£'Million
|
Solvency II net assets before
exceptional item
|
446.9
|
354.7
|
655.1
|
1,456.7
|
1,379.9
|
Value of in-force (VIF)
|
2,485.2
|
-
|
-
|
2,485.2
|
5,580.4
|
Risk margin
|
(318.4)
|
-
|
-
|
(318.4)
|
(1,516.4)
|
Own funds (A) before exceptional
item
|
2,613.7
|
354.7
|
655.1
|
3,623.5
|
5,443.9
|
Solvency capital requirement
(B)
|
(1,611.5)
|
(116.2)
|
-
|
(1,727.7)
|
(3,522.5)
|
Solvency II free assets before
exceptional item
|
1,002.2
|
238.5
|
655.1
|
1,895.8
|
1,921.4
|
Exceptional item: Ongoing Service
Evidence provision
|
-
|
(323.7)
|
-
|
(323.7)
|
-
|
Capitalisation after the end of the
reporting period
|
-
|
323.7
|
(323.7)
|
-
|
-
|
Solvency II free assets
|
1,002.2
|
238.5
|
331.4
|
1,572.1
|
1,921.4
|
Solvency ratio
|
162%
|
305%
|
|
191%
|
155%
|
1 After payment of year-end
intra-Group dividend.
2 Before payment of the Group
final dividend.
As a result of these key changes,
the solvency ratio after payment of the proposed Group final
dividend is 188% at 31 December 2023, increased from 149% at
31 December 2022.
We target a solvency ratio of 130%
for St. James's Place UK plc, our largest insurance
subsidiary. The combined solvency ratio for our life companies,
after payment of the year-end intra-Group dividend,
is 162% at 31 December 2023 (31 December
2022: 130%).
Solvency II
sensitivities
The table below shows the
estimated impact on the Solvency II free assets, the SCR and the
solvency ratio of changes in various assumptions underlying
the Solvency II calculations. In each case, only the indicated item
is varied relative to the restated values.
The solvency ratio is not very
sensitive to changes in experience or assumptions and, due to our
approach of matching unit-linked liabilities with appropriate
assets, can move counter-intuitively depending on circumstances, as
demonstrated by the sensitivity analysis presented
below.
|
Note
|
Solvency
II free assets
|
Solvency
II capital requirement
|
Solvency
ratio
|
£'Million
|
£'Million
|
%
|
Value at 31 December
2023
|
|
1,572.1
|
1,727.7
|
191%
|
100bps reduction in risk-free
rates, with corresponding change in fixed interest asset
values
|
1
|
1,490.5
|
1,723.6
|
186%
|
10% increase in withdrawal
rates
|
2
|
1,339.5
|
1,626.6
|
182%
|
10% reduction in market value of
equity assets
|
3
|
1,543.2
|
1,417.1
|
209%
|
10% increase in
expenses
|
4
|
1,526.3
|
1,720.6
|
189%
|
100bps increase in assumed
inflation
|
5
|
1,507.8
|
1,723.9
|
187%
|
Notes to the Solvency II
sensitivities
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.
2. The 10% increase is applied to
the lapse rate. For instance, if the lapse rate is 8% then a 10%
increase would reflect a change to 8.8%.
3. For the purposes of this
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%. The sensitivity reflects the impact of changes in the
equity dampener on market risk capital.
4. For the purposes of this
sensitivity all expenses are increased by 10%.
5. This reflects a 100bps increase
in the assumed RPI underlying the expense inflation
calculation.
Risk and Risk
Management
Effective risk
management
Overview and culture
The business activities and the
industry within which the Group operates expose us to a wide
variety of inherent risks. Therefore, effective risk management,
underpinned by a strong risk and control culture, is critical
to our success. We rigorously identify and assess risks, agree our
appetite for those risks, and then manage them accordingly. When
assessing risks and deciding on the appropriate response we
consider the potential impacts and harms these risks could have
on our key stakeholders: clients, advisers, shareholders,
regulators, employees and society.
The inherent risk environment
faced by the Group changes over time as emerging factors and
trends (including macroeconomic factors, regulation, cyber crime,
climate change, and political risks such as changes in taxation)
may impact on our short- and/or longer-term profitability. Under
the leadership, direction and oversight of our Board, these risks
are carefully assessed and managed in accordance with our strategic
objectives and to meet our obligations towards our clients,
shareholders, regulators and other key stakeholders.
We do not, and cannot, seek to
eliminate risk entirely; rather we aim to understand our risks
and deal with them appropriately. The emphasis is on applying
effective risk management strategies, so that all material risks
are identified and managed within the agreed risk appetite. Risk
management is linked to culture and therefore is a core aspect of
our governance and decision-making.
Risk management forms a key part
of our strategic and business processes, including decisions
on strategic developments affecting our client and Partner
propositions, investments, change delivery, recruitment and
retention, and dividend payments.
Our risk appetite
The Board sets its appetite for
taking risk in the context of the Group's strategic
objectives. These choices are set out in detail in our Group
risk appetite statement, which is reviewed at least
annually by the Group Executive Committee, senior risk owners
and the Group Risk Committee before being approved by the
Board. The Group risk appetite statement also provides a mechanism
to record the key individuals within the Group who have
responsibility for managing particular risks. It also informs the
risk appetite statements prepared for and approved by the
regulated subsidiary boards within the Group.
The Group risk appetite statement
includes a risk appetite scale. This scale has several risk
acceptance levels, ranging from no appetite for taking risks
at all, through to acceptance of risk. The level of risk we
are willing to accommodate will vary depending on individual risk
scenarios. Risk appetite can and will change over time, sometimes
rapidly as economic and business environment conditions change, and
therefore the statement is an evolving document.
A comprehensive suite of key risk
indicators (KRIs) is incorporated into regular risk reporting,
alongside qualitative information, to enable the Group Risk
Committee, on behalf of the Board, to monitor the
Group's risk profile.
Our risk management and control
framework
The internal control environment
is built upon a strong risk and control culture and
organisational assignment of responsibility. The 'first line'
business is responsible and accountable for risk management.
This is then overlaid with oversight and challenge from the
'second line' risk and compliance functions, with independent
assurance from the 'third line' internal audit function
to form a 'three lines of defence' model.
The risk management and control
framework is a combination of processes by which the Group
identifies, assesses, measures, manages and monitors the risks
that may impact the successful delivery of its strategic
objectives and its ability to meet obligations towards clients,
regulators and other key stakeholders. Based upon our risk
appetite, the risks identified are either accepted
or appropriate actions are taken to mitigate them.
The Board, through the Group Risk
Committee, takes an active role in overseeing the risk
management and control framework, for which it is responsible. To
this end the Board robustly assesses its principal and emerging
risks, which are considered in regular reporting and summarised
annually in the Group's own risk and solvency assessment
(ORSA). Further information on this is provided
overleaf.
On behalf of the Board, the Group
Audit Committee takes responsibility for assessing the
effectiveness of the Group's risk management and internal
control systems, covering all material controls, including
financial, operational and compliance controls.
It does this by monitoring the effectiveness of the
internal control model throughout the year, which is supplemented
by an annual review of risk and control self-assessments
accompanied by executive-level attestations. The risk management
and internal control systems have been in place for the year under
review and up to the date of approval of the Annual Report and
Accounts.
The Board receives regular reports
from the Group Risk Committee and Group Audit Committee and
approves key aspects of the Group's risk management and control
framework including the risk appetite statement and Group
ORSA.
Own risk and solvency assessment
(ORSA)
We are classified as an insurance
group and are subject to Solvency II insurance regulation. A
key part of this regulation requires a consistent approach to risk
management across the Group, supported by the production of an
annual ORSA.
The ORSA process follows an annual
cycle, which applies comprehensive risk assessments to the
business's activity, and ensures the Group is resilient to stresses
in both the short term and over a five-year period.
The Solvency Capital Requirement
for insurers allows for at least a '1-in-200-year' risk event
over a one-year time horizon. In addition, severe stresses and
scenarios are used to help provide insight into the ability to
maintain regulatory capital in such conditions. Our results show
that it would be possible to maintain regulatory capital across the
Group under all stresses for the business planning horizon. This
assists us when considering the calculations and allocation of risk
capital to all major risks in the Group, and the adequacy of
capital positions.
The ORSA uses a five-year
projection period for the medium term. Due to the gestation period
on some of our current pension and investment product ranges we do
not earn annual management fees on these in the first six years.
The revised charging structure, which will be launched in
mid-2025, will have no gestational period and will instead earn
annual management fees from year 1.
The ORSA is particularly
useful in assessing viability, as it involves
a comprehensive assessment of risks and capital requirements
for the business.
For example, consideration is
given to factors or events that impact on the income from
funds under management such as market movements, retention of
clients or ability to attract new clients. We also consider factors
which impact costs, such as inflation, non-inflationary expense
increases and operational event-related losses. Combinations of
these factors are used to form scenarios which are tested,
providing for more extreme combinations of events.
This scenario testing process was used to inform strategic
decisions relating to 2023.
The scenarios are used to assess
both the immediate impact of an event and the impact over the
longer term (in the wake of an event). In addition to a
standard set of extreme 'combination' scenarios which we test
every year, assessments are also completed based on more
current/topical or emerging risk exposures affecting the Group
or financial services more generally.
The ORSA assists decision-making
by bringing together the following:
· strategic planning;
· risk
appetite consideration;
· risk
identification and management; and
· capital planning and management.
The ORSA continues to evolve and
further strengthen risk management processes throughout the
Group.
Current risk
environment
There was a complex and rapidly
evolving macroeconomic risk picture through 2022 and 2023, which
was exacerbated in the UK by political turmoil. We expect to see
challenges at a national level in 2024 and beyond as people and
businesses continue to adjust to a higher interest rate environment
and the higher cost of living. This is despite the fact that
towards the end of 2023, inflation appeared to be on a trajectory
to return towards the Bank of England's target and interest rates
are expected to reduce over 2024. We are also mindful of potential
longer term risks relating to changes in tax policy which
could affect the amount our clients have available to save and
how much tax they pay on income (particularly with tax thresholds
frozen) and investments. However, with 2024 being an election
year, we do not expect taxes to rise further in the very short
term. We also recognise an opportunity for our advisers, through
ongoing financial advice, to support clients in managing their
financial affairs in a volatile market; to combat the effects of
inflation on the standard of living they are aiming for in
retirement; and to remain tax-efficient in their savings as the tax
landscape changes. We are also mindful of the potential for
global geopolitical tensions to escalate, which could have
relevance to the Group through impacts on financial markets and
through heightened cyber risk.
In October SJP announced important
changes to its costs and charges for clients, which are expected to
come into force through 2024 and into mid-2025. To date there has
been minimal reaction from clients to these changes; however, we
are at the start of an important period of communication and
engagement with them to ensure that they understand how their
charges will change. We believe the change improves our proposition
for clients and as such will have long-term benefits for the
business. It also reflects the Group's long-term commitment to
improving client outcomes.
Although the new charging
structure will not be launched until mid-2025, a significant amount
of the systems development that is required will be conducted in
2024. We are conscious of the risk introduced through this
significant project and the need for strong change practices and
careful management. We believe the timeline is realistic for safely
implementing the changes and we have a positive track record,
including recent large-scale system migrations.
Whilst we consistently aim to
achieve good outcomes for our clients, we have reconsidered all our
client-focused activities and challenged where there may be
features that could inadvertently lead to, or insufficiently
mitigate, risk of harm to clients. This includes gathering further
evidence from our clients on their understanding of our key
literature and making changes to enhance the evidence we record to
monitor and assess the value delivered to clients. For example,
this has led to changes which will give more consistent,
centralised evidence of the activities of the Partnership with
clients and reduce the risk of clients not receiving an ongoing
advice service of value to them. During the year the Group has
experienced elevated levels of complaints principally in connection
with the delivery of historic ongoing advice services.
Given the claims experience and further analysis
the Group has committed to review the sub-population of clients
that has been charged for ongoing advice services since the start
of 2018 but where the evidence of delivery falls below an
acceptable standard. A provision has been recognised at 31 December
2023 which includes an estimated refund of charges.
The emergence of Claims Management
Companies (CMC) interest in the Group and its clients may also have
an impact in relation to the ongoing cost of complaints.
This could be through other CMCs targeting the Group,
or general growth in clients seeking redress due to CMC
marketing. Alongside our existing advice standards and checking
processes, the actions we have been taking to develop our
proposition; enhanced evidential standards for ongoing advice; and
switching off ongoing advice charges for clients who haven't
received an ongoing advice service are expected to help to further
manage the risk, and mitigate the potential level of complaints
over the medium to long term.
Overall, we remain confident in
our ability to withstand further challenges that may or may not
emerge from the risk environment, which is described in more detail
below.
Macroeconomic
The macroeconomic risks associated
with high inflation, the unwinding of 15 years of low interest
rates and the threat of increasing geopolitical tension are not to
be underestimated and the Group is not immune. For instance, whilst
noting that variations in new business flows are not absolutely
attributable to any one factor, the reduction in net and gross
new business levels over 2023 is believed to be principally driven
by changing economic conditions for clients. Nevertheless, the
Group's business model has demonstrated resilience, with
inflows remaining significantly positive through 2023, and we
continue to be well positioned to survive adverse conditions
whilst investing for long-term growth. We remain mindful of
key macroeconomic risks:
· Asset prices could fall if the economic outlook
deteriorates. Asset price falls reduce future profitability but,
counter-intuitively, improve the Group's solvency position in the
short to medium term because our capital requirement reduces at a
quicker rate than our own funds. The Group's financial
resilience is demonstrated through stress and scenario testing,
and we remain highly confident in our ability to
weather further extreme market falls, should they
occur, although such scenarios would negatively
impact cash generation.
· Whilst inflation has fallen over the last year, there can
be lagging effects (e.g. contractual inflation-related
increases) which render our strategic targets of both limiting
growth in controllable expenses to 5% per annum and investing in
the business to support future growth more difficult jointly to
achieve. A key strategic consideration for the business is value
creation through development expenditure which will improve our
proposition for clients and Partners. The inflationary environment
also reduces clients' investable income, resulting in reduced new
business and higher outflows, particularly in the ISA and unit
trust products.
· Business loans to advisers continue to have higher interest
payments. However, we have operated careful lending criteria, which
we are confident will limit the number of advisers who could
require support, and we maintain the capacity to do so. Our Field
Management team work with advisers to help them develop their
businesses and, if required, SJP is able to provide targeted
financial assistance.
Despite the potential
macroeconomic risks we believe there are good reasons to be
optimistic about investment opportunities across financial markets,
and our advisers are well placed to advise clients on the benefits
of taking a long-term view and investing or continuing to
invest when markets are relatively low, the advantages of
which would have been experienced through 2023.
Regulatory change
Regulatory change is a constant
and, amongst the significant regulatory changes we face, the FCA
continues to reinforce the need for firms to embed the Consumer
Duty regulation. We are a client-focused business and
have engaged proactively with this important regulatory
initiative. Whilst we believe that we have consistently
aimed to achieve good outcomes for our clients, we
have reconsidered all our client-focused activities and
challenged on how we develop these activities to meet current and
ever-increasing expectations. The business is embedding
activity to monitor and assess clients' outcomes and implementing
Consumer Duty requirements for closed books by July 2024. A very
small relative proportion of the Group's liabilities are in closed
book policies; however, we recognise the importance of
these policies to the clients who have them.
Changes to the determination of
the risk margin requirement under Solvency II regulation were
applied prior to 31 December 2023. These changes saw a
significant reduction in capital requirements for SJPUK, the
Group's UK insurance company. This has resulted in an improvement
in the Solvency II capital coverage for SJPUK. Whilst recognising
the rationale for the change and the potential benefits of
a release of capital, the SJPUK Board is giving careful
consideration to its financial risk appetite and ensuring a prudent
approach to capital management, recognising the interests of
SJPUK's clients.
Climate change
Tackling climate change is of high
importance. We aim to grow in a sustainable way, taking a long-term
view which ensures we are a force for good for our clients and the
wider world. As an example of how we are putting this into practice
we have pledged that our operations will become climate positive by
2025 and that our investments will be net zero by 2050. More
information on the actions we are taking can be found in the Our
Responsible Business section under climate change.
Climate-change-related risks
affect companies in different ways, and periodically we carefully
consider how climate change could impact the Group. This allows us
to identify, understand and manage the risks and opportunities.
Climate change is a driver of market-related risk, be
that through physical climate events or impacts from
transitioning away from fossil fuels. Whilst recognising the unique
ways in which climate change can affect individual investments, our
approach to managing this risk is very similar to how we manage
other drivers of market-related risk: namely through our investment
management approach (IMA) and within that our approach to
responsible investing. Through this we aim to take account of
climate risks whilst seeking to deliver returns for clients in line
with their risk appetite. Further, to ensure our resilience as a
Group to market movements, our liabilities to clients are fully
matched by our invested assets.
We also consider physical
climate-related risks on our business as we look to enhance our
operational resilience. Generally, through the nature of our
operations and the geography in which we operate, the physical
risks to our business are low. We further work to understand the
risk to our material third parties' and engage with them to share
and remediate material concerns.
Principal risks and
uncertainties
Whilst the risk landscape evolved
over the course of the year, the inherent principal risk areas that
the business faces remain consistent with the previous year. An
example of this is that security and resilience remains a principal
risk area and we recognise that the cyber environment continues
to develop, particularly with state-sponsored
threats.
The business priority areas which
our principal risks impact are set out in the tables in the
following pages, together with the high-level controls and
processes through which we aim to mitigate them. Reputational
damage and impacts to shareholders and other stakeholders are a
likely consequence of any of our principal risks
materialising.
The following descriptions are
used to indicate which primary business priorities our principal
risks could impact, while recognising that they could also have a
secondary impact on other business priorities:
· Building community
· Being easier to do business with
· Delivering value to advisers and clients through our
investment proposition
· Building and protecting our brand and reputation
· Our
culture and being a leading responsible business
· Continued financial strength
|
Risk description
|
Risk considerations
|
Mitigations/controls
|
Client proposition
|
Our product proposition fails
to meet the needs, objectives and expectations
of our clients. This includes poor relative
investment performance and poor product design.
|
• Investments provide poor returns relative to their benchmarks
and/or do not deliver expected
client outcomes.
• Range of solutions does not align with the product and
service requirements of our current and potential future
clients.
• Failure to meet client expectations of a sustainable
business, not least in respect of climate change and responsible
investing.
|
• Monitoring of asset allocations across portfolios to consider
whether they are performing as expected in working towards
long-term objectives.
• Monitoring funds against their objectives, mindful of an
appropriate level of investment risk.
• Ongoing assessment of value delivered by funds and portfolios
versus their objectives.
• Where necessary, fund managers are changed in the most
effective way possible.
• Continuous review and development of the range of
services offered to clients.
• Engagement with fund managers around principles of
responsible investment.
|
Conduct
|
We fail to provide quality, suitable
advice or service to clients.
|
• Advisers deliver poor-quality or unsuitable
advice.
• Failure to evidence the provision of good-quality service and
advice.
• Increasing complaint volumes.
|
• Licensing programme which supports the quality of advice
and service from advisers.
• Technical support helplines for advisers.
• Client complaint handling process and reporting.
• Evidence of ongoing servicing of clients and charge
switch-off process where ongoing advice has not been
provided.
• Review of the provision of ongoing advice services in line
with expectations and acceptable evidential standards, and refund
of charges as appropriate.
• Robust oversight process of the advice provided to clients
delivered by Business Assurance, Field Risk, Advice Guidance and
Compliance Monitoring teams.
• Partner financial monitoring.
|
Financial
|
We fail to effectively manage the
business's finances.
|
• Failure to meet client liabilities.
• Investment/market risk.
• Credit risk.
• Liquidity risk.
• Insurance risk.
• Expense risk.
|
• Policyholder liabilities are fully matched.
• Excess assets appropriately invested in high-quality,
high-liquidity cash and cash equivalents.
• Direct lending to the Partnership is secured.
• Part-reinsurance of insurance risks.
• Ongoing monitoring of all risk exposures and experience
analysis.
• Setting and monitoring budgets.
• Monitoring and management of subsidiaries' solvency to
minimise Group interdependency.
|
Partner proposition
|
Our proposition solution fails to
meet the needs, objectives and expectations of our current and
potential future advisers.
|
• Failure to attract new members to the Partnership.
• Failure to retain advisers.
• Failure to increase adviser productivity.
• Available technology falls short of client and adviser
expectations and fails to support growth objective.
• The Academy does not adequately support growth of the
partnership.
|
• Focus on providing a market-leading Partner
proposition.
• Adequately skilled and resourced population of supporting
field managers.
• Reliable systems and administration support.
• Expanding the Academy capacity and supporting recruits
through the Academy and beyond.
• Market-leading support to Partners' businesses.
|
People
|
We are unable to attract, retain and
organise the right people to run the business.
|
• Failure to attract and retain personnel with key
skills.
• Poor employee engagement.
• Failure to create an inclusive and diverse
business.
• Poor employee wellbeing.
• Our culture of supporting social value is eroded.
|
• Measures to maintain a stable population of employees,
including competitive total reward packages.
• Monitoring of employee engagement
and satisfaction.
• Employee wellbeing is supported through various initiatives,
benefits and services.
• Corporate incentives to encourage social value engagement,
including matching of employee charitable giving to the
SJP Charitable Foundation.
• Whistleblowing hotline.
|
Regulatory
|
We fail to meet current, changing or
new regulatory and legislative expectations.
|
• Failure to comply with existing regulations.
• Failure to comply with changing regulation or respond to
changes in regulatory expectations.
• Inadequate internal controls.
|
• Compliance functions provide guidance and carry out extensive
assurance work over the control environment, particularly over
highly regulated areas
• Maintenance of appropriate solvency capital buffers, and
continuous monitoring of solvency experience.
• Clear accountabilities and understanding of responsibilities
across the business.
• Fostering of positive regulatory relationships.
|
Security and resilience
|
We fail to adequately secure our
physical assets, systems and/or sensitive information, or
to deliver critical business services to our
clients.
|
• Internal or external fraud.
• Core system failure.
• Corporate, Partnership or third-party information
security and cyber risks.
• Disruption in key business services to our
clients.
|
• Business continuity planning for SJP and its key
suppliers.
• Focus on building and strengthening operational resilience
capabilities and undertaking robust identification, assessment
and testing of important business services.
• Mandatory 'Cyber Essentials Plus' accreditation for Partner
practices or use of an SJP 'Device as a Service'
solution.
• Clear cyber strategy and data protection roadmap for
continuous development.
• Data leakage detection technology and incident reporting
systems.
• Identification, communication, and response planning for a
cyber event.
• Group-Executive-Committee-level cyber scenario work to test
strategic response.
• Internal awareness programmes.
|
Strategy, competition and
brand
|
Challenge from competitors and
impact of reputational damage.
|
• Unnecessary delays/errors caused by failures in change
delivery.
• Increased competitive pressure from traditional and
disruptive (non-traditional) competitors.
• Cost and charges pressure.
• Negative media coverage.
• Failure to meet our commitments to net zero.
|
• Robust change governance and change management practices,
including testing.
• Clear demonstration of value delivered to clients through
advice, service and products.
• Investment in improving positive brand
recognition.
• Ongoing development of client
and Partner propositions.
• Proactive engagement with external agencies including media,
industry groups, shareholders and regulators.
• Clear interim targets to be tracked towards meeting our
long-term net zero targets.
|
Third parties
|
Third-party outsourcers' activities
impact our performance and risk management.
|
• Operational failures by material outsourcers.
• Failure of critical services. Significant outsourced areas
include:
- investment
administration
- fund
management
-
custody
- policy
administration
- cloud
services
|
• Oversight regime in place to identify prudent steps to reduce
risk of operational failures by material third-party
providers.
• Ongoing monitoring, including assessment of operational
resilience.
• Due diligence on key suppliers.
• Oversight of service levels of our third‑party administration
provider.
|
Emerging risks
Emerging risks are identified
through many activities: conversations and workshops with
stakeholders and governance forums throughout the business,
reviewing academic papers, attending industry events and other
horizon scanning by the Group Risk team.
The purpose of monitoring and
reporting emerging risks is to give assurance that we are well
positioned to manage the risks to our future strategy. The Group
Risk Committee reviewed emerging risks during 2023.
Examples of emerging risks that
have been considered include:
· economic risks including cost of living and
inflation;
· geopolitical factors including consequences of the invasion
of Ukraine and the conflict in Gaza and Israel;
· regulatory framework and increasing regulatory
landscape;
· increasing regulation and legislation relating to climate
change;
· employee-related risks including future specialist skillset
requirements for areas such as artificial intelligence
technologies;
· competitor threat analysis including potential impacts on
Partnership;
· technology enhancements including digitisation and
automation, artificial intelligence and ChatGPT;
· cyber crime threats; and
· energy supply risks including energy blackouts.
Viability statement
How we assess our
viability
The business considers five-year
financial forecasts when developing its strategy. These incorporate
our budget for the next financial year and four further years of
forecasts based on reasonable central assumptions around the
development of business drivers.
At the core of assessing our
viability we seek to understand how different principal risks could
materialise. We consider risks which might present either in
isolation or in combination and which could result in acute shocks
to the business or long-term underperformance against
forecasted business drivers. We consider that a five-year time
horizon is sufficiently long to assess potential impacts and aim to
ensure that the business remains viable, noting that identified
management actions could also be taken to restore the
business's prospects.
When considering how the principal
risks previously described might impact the business, we consider
our ability to deal with particular events which may impact
one or more of the following key financial drivers:
· reduction in client and Partner retention;
· reduction in new business relative to forecasts;
· market stresses;
· increases in expenses; and
· direct losses through operational risk events.
We carry out stress and scenario
testing on these key financial drivers, alongside operational risk
assessments. To provide comfort over viability over the next five
years, the scenarios and assessments look at events which would be
extreme, whilst still remaining plausible. This work as at year-end
2023 demonstrated that the Group is resilient and is expected to be
able to continue to meet regulatory capital requirements over five
years should even the more extreme risks materialise. For adverse
stresses and scenarios there would be impacts on profitability, and
depending on the severity of the scenario the Group would review
and implement recovery actions which aim to protect and/or restore
the Group's finances. We have demonstrated the use of these
recovery actions through the establishment of the provision
relating to the review of clients that have been charged for
ongoing advice services since the start of 2018 but where the
evidence of delivery falls below an acceptable standard.
Example stress and scenario
test
As part of the strategic
decision-making process, the new charging structure was re-tested
using our standard suite of stresses and scenarios to understand
the resilience of the Group under different charging models. While
the new charging structure was focused on improving our client
proposition it was imperative also to focus on the outcomes
for our advisers and shareholders. We therefore stress tested
a scenario whereby the changes might be adversely received by
the Partnership and/or clients. In this scenario we applied
the following stresses to the cash flow and solvency forecasts for
the new charging structure: reductions in new business; increases
in lapses; reductions in the proportion of clients paying ongoing
advice charges; and increases in expenses (beyond those planned to
implement the changes). The results showed that whilst this
scenario would have an impact on profit prior to any mitigating
management actions, it would not cause solvency concerns.
Furthermore, we have been encouraged by the response so far to the
announced changes, which gives us further confidence that the
scenario tested is highly unlikely.
Resilience over different time
horizons
The table below provides an
indication of which risks are relevant over which timeframes, and
why the Group is considered to be resilient over these
timeframes.
Over
the next year
|
Risks:
Over the short term, key risks are
most likely to be operational, such as cyber crime, business
disruption, or failure of operational processes resulting in
operational losses and/or material client redress. There is also a
risk that, despite establishing a provision, we incur greater costs
than provisioned for our review of ongoing advice
services.
Additionally, there are change
delivery risks during 2024 due to necessary upgrades to systems and
business processes and alterations to the business model, most
notably to implement the important changes to our charging
structure which will take effect in 2025. We adopt robust change
control practices involving periods of significant testing and take
actions to manage and mitigate the risks associated with the
delivery of change.
Reputational risks from media
attention can impact ability to generate new and retain existing
business.
The cost-of-living crisis and
higher interest rates are also key risks to business performance if
they restrict clients' capacity to invest and stay
invested.
Strategic risks which could have a
shorter-term impact relate to: managing expenses in a high
inflationary environment whilst investing for growth; maintaining
high engagement with
the Partnership and supporting them through a tough macroeconomic
environment; the pace of regulatory
change; and talent management.
It is not expected that solvency
will be an issue in the short term, due to our matching approach on
liabilities and the stress and scenario testing work. Liquidity
risks would be relevant for this time window since they tend to be
short term in nature. However, we do not anticipate there being
liquidity risks given the approach to Group and subsidiary entity
dividends and liquidity management in general. These risks are also
relevant for the longer time periods.
|
Resilience:
Operational resilience and
business continuity are important control frameworks that are
carefully managed through regular assessments and a schedule of
testing, working closely and collaboratively with our third
parties.
During 2023 the Group has
experienced elevated levels of complaints principally in connection
with the delivery of historic ongoing advice services. During 2024,
the Group has committed to review the sub-population of clients
that has been charged for ongoing advice services since the start
of 2018 but where the evidence of delivery falls below an
acceptable standard.
Changing regulatory expectations
following the introduction of the new Consumer Duty regulation
continue to be considered in depth. We are a client-focused
business and so any changes we make are designed to be positive for
our business over the longer term, reducing regulatory and
reputational risk and supporting good client outcomes.
The Group generates relatively
steady cash profits on new business and existing funds under
management which increase each year as funds in gestation 'mature'.
The change to the charging structure announced in October 2023 will
alter the pattern of cash generation due to the removal of the
early withdrawal charge and business written will be
cash-generative from year 1, once this change takes effect in
mid-2025.
In stress and scenario testing the
Group demonstrates a high degree of resilience in its solvency
level to falls in markets and new business. If severe risks
materialised over the year, the Group's profitability would reduce
and, whilst various options exist, curtailing investment or
reducing dividends would be potential ways to protect the financial
strength of the business. The business currently benefits from
higher interest rates on cash reserves and has significant
financial resources to support Partner businesses if required and
where appropriate, though the need is likely to be limited due
to the application of careful lending criteria for business loans
to Partners.
|
Over
the next five years
|
Risks:
Over the medium term key risks
are: investor sentiment; market impacts; changes to regulation or
regulatory expectations particularly relating to advice; and
further tax changes to tackle the UK's increased national
debt.
Our charging structure changes are
expected to be implemented in this timeframe. With this change will
come operational risk and expectations that cash profits will, all
else being equal, reduce in 2025 and 2026. However, they are then
expected to increase.
The importance of technology in
the client proposition is only likely to grow, and risks may
materialise from rapidly developing artificial intelligence
technology and/or non-traditional competitors seeking to disrupt
the UK financial advice market.
An example of a strategic risk
relates to ensuring we continue to provide the best proposition for
advisers at each stage of their journey with SJP, to support
productivity and retention.
|
Resilience:
In counteracting the medium-term
risks, there is more time to respond and take actions to manage the
Group's prospects. As already referenced, stress and scenario
testing takes place, which provides comfort over the Group's
ability to weather storms over a five-year time horizon and
adapt. The Group's strategy is designed to navigate the threats and
keep our proposition attractive for both existing and potential
clients. As the largest wealth manager in the UK, the
Group is well resourced to respond effectively to regulatory change
and deal with increased regulatory complexity.
Whilst the importance of
technology in the advice space will grow, we believe that overall
our target market will continue to value human interaction in
discussing sensitive financial matters. Delivery of our technology
strategy will however support clients and advisers in making
the most of their interactions and drive efficiency in the back
office.
Ensuring that we have an excellent
proposition for Partners is a core focus for the Group, and
careful consideration is given to how we should evolve our
proposition over time to ensure we develop and retain excellent
advisers in the Partnership
|
Beyond
2028
|
Most of the shorter term risks
will remain relevant; however, over the longer term, the
impact of artificial intelligence and machine learning in both
investment management and advice will become
greater.
Risks from climate change relating
to investor sentiment and political change are already relevant
now, but the consequences of failure to act will be felt more
and more over time. We are committed to become climate positive in
our operations by 2025, net zero in our supply chain by 2035
and net zero in our investments by 2050. If we fail to deliver
on these commitments, this could have a reputational impact within
this time horizon.
|
We are exploring opportunities in
relation to artificial intelligence and other technology
solutions as part of our technology strategy. This is being done
cautiously to manage potential risks, but failure to build
capabilities in this space may present a greater competitive
risk.
We have been developing our
responsible investing proposition for some years and welcome
the focus in this area, as it is the right thing to do and provides
an opportunity to maximise client benefit through our active
investment management approach.
We are increasing our focus on
governance and measurement of delivery against our responsible
business commitments to ensure confidence of delivery.
Finally, when we look five or six
years ahead all current funds in 'gestation' will be expected
to be contributing to profits, alongside any new business written
under the new charging structure from mid-2025 onwards. This will
therefore increase our expected financial resilience. The changes
we announced in October 2023 should also at this point be well
embedded and contributing to further strengthening our competitive
position.
|
Conclusion
In accordance with the UK
Corporate Governance Code (Provision 31), the Directors have
assessed the Group's current financial position and prospects over
the next five-year period and have a reasonable expectation that
the Group will be able to continue in operation and meet
its liabilities as they fall due. The Directors believe that the
Group's risk planning, management processes and culture allow for a
robust and effective risk management environment.
Consolidated Statement of
Comprehensive Income
|
Note
|
Year
ended
31
December
2023
|
Year
ended
31
December
20221,2,3
|
£'Million
|
£'Million
|
Fee and commission
income2
|
4
|
2,788.9
|
1,929.6
|
Expenses1,3
|
|
(2,433.3)
|
(1,949.2)
|
|
|
|
|
Investment return1,3
|
5
|
16,197.6
|
(13,757.9)
|
Movement in investment contract
benefits2
|
5
|
(16,130.9)
|
13,759.4
|
|
|
|
|
Insurance revenue1
|
|
25.3
|
26.5
|
Insurance service
expenses1
|
|
(24.5)
|
(13.5)
|
Net reinsurance expense1
|
|
(5.0)
|
(9.6)
|
Insurance service
result1
|
|
(4.2)
|
3.4
|
|
|
|
|
Net insurance finance
(expense)/income1
|
|
(10.0)
|
2.4
|
Other finance income3
|
|
31.5
|
15.1
|
Profit before tax
|
|
439.6
|
2.8
|
Tax attributable to policyholders'
returns
|
6
|
(444.1)
|
501.1
|
(Loss)/profit before tax
attributable to shareholders' returns
|
|
(4.5)
|
503.9
|
Total tax
(charge)/credit
|
6
|
(449.5)
|
404.4
|
Less: tax attributable to
policyholders' returns
|
6
|
444.1
|
(501.1)
|
Tax attributable to shareholders'
returns
|
6
|
(5.4)
|
(96.7)
|
(Loss)/profit and total
comprehensive income for the year
|
|
(9.9)
|
407.2
|
Profit attributable to
non-controlling interests
|
|
0.2
|
0.4
|
(Loss)/profit attributable to
equity shareholders
|
|
(10.1)
|
406.8
|
(Loss)/profit and total
comprehensive income for the year
|
|
(9.9)
|
407.2
|
|
|
|
|
|
Note
|
Pence
|
Pence
|
Basic earnings per share
|
12
|
(1.8)
|
75.0
|
Diluted earnings per
share
|
12
|
(1.8)
|
74.3
|
1 Restated to reflect the
adoption of IFRS 17. See Note 1a.
2 Restated to reclassify
revenue from investment and insurance business. See Note
1a.
3 Restated to reclassify Other
finance income. See Note 1a.
The results relate to continuing
operations.
Consolidated Statement of Changes
in Equity
|
Note
|
Equity
attributable to owners of the Parent Company
|
Non-controlling interests
|
Total
equity
|
Share
capital
|
Share
premium
|
Shares in trust
reserve
|
Misc.
reserves
|
Retained
earnings
|
Total
|
£'Million
|
£'Million
|
£'Million
|
£'Million
|
£'Million
|
£'Million
|
£'Million
|
£'Million
|
At 1 January 2022
|
|
81.1
|
213.8
|
(8.5)
|
2.5
|
830.3
|
1,119.2
|
-
|
1,119.2
|
Impact of the adoption
of IFRS 171
|
|
-
|
-
|
-
|
-
|
9.6
|
9.6
|
-
|
9.6
|
At 1 January 2022
(restated)
|
|
81.1
|
213.8
|
(8.5)
|
2.5
|
839.9
|
1,128.8
|
-
|
1,128.8
|
Profit and total comprehensive
income for the year1
|
|
-
|
-
|
-
|
-
|
406.8
|
406.8
|
0.4
|
407.2
|
Dividends
|
12
|
-
|
-
|
-
|
-
|
(303.6)
|
(303.6)
|
(0.3)
|
(303.9)
|
Issue of share capital
|
12
|
0.1
|
5.6
|
-
|
-
|
-
|
5.7
|
-
|
5.7
|
Exercise of options
|
12
|
0.4
|
8.4
|
-
|
-
|
-
|
8.8
|
-
|
8.8
|
Consideration paid for own
shares
|
|
-
|
-
|
(0.3)
|
-
|
-
|
(0.3)
|
-
|
(0.3)
|
Shares sold during the
year
|
|
-
|
-
|
4.7
|
-
|
(4.7)
|
-
|
-
|
-
|
Retained earnings credit in respect
of share option charges
|
|
-
|
-
|
-
|
-
|
20.5
|
20.5
|
-
|
20.5
|
Non-controlling interests arising
on the part-disposal of subsidiaries
|
|
-
|
-
|
-
|
-
|
4.9
|
4.9
|
0.1
|
5.0
|
At 31 December
20221
|
|
81.6
|
227.8
|
(4.1)
|
2.5
|
963.8
|
1,271.6
|
0.2
|
1,271.8
|
(Loss)/profit and total
comprehensive income for the year
|
|
-
|
-
|
-
|
-
|
(10.1)
|
(10.1)
|
0.2
|
(9.9)
|
Dividends
|
12
|
-
|
-
|
-
|
-
|
(289.6)
|
(289.6)
|
(0.3)
|
(289.9)
|
Exercise of options
|
12
|
0.7
|
6.1
|
-
|
-
|
-
|
6.8
|
-
|
6.8
|
Consideration paid for own
shares
|
|
-
|
-
|
(0.5)
|
-
|
-
|
(0.5)
|
-
|
(0.5)
|
Shares sold during the
year
|
|
-
|
-
|
3.9
|
-
|
(3.9)
|
-
|
-
|
-
|
Retained earnings credit in respect
of share option charges
|
|
-
|
-
|
-
|
-
|
5.4
|
5.4
|
-
|
5.4
|
Retained earnings debit arising on
disposal of subsidiary
|
|
-
|
-
|
-
|
-
|
(0.2)
|
(0.2)
|
-
|
(0.2)
|
At 31 December 2023
|
|
82.3
|
233.9
|
(0.7)
|
2.5
|
665.4
|
983.4
|
0.1
|
983.5
|
1 Restated to reflect the
adoption of IFRS 17. See Note 1a.
The number of shares held in the
Shares in trust reserve is given in Note 12 Share capital, earnings
per share and dividends.
Miscellaneous reserves represent
other non-distributable reserves.
Consolidated Statement of
Financial Position
|
Note
|
As
at
31
December
2023
|
As
at
31
December
2022 1
|
£'Million
|
£'Million
|
Assets
|
|
|
|
Goodwill
|
|
33.6
|
33.6
|
Deferred acquisition
costs1
|
|
304.4
|
336.6
|
Intangible assets
|
|
|
|
- Purchased value of in-force
business
|
|
8.0
|
11.2
|
- Computer software
|
|
28.0
|
33.3
|
Property and equipment, including
leased assets
|
|
153.1
|
145.7
|
Deferred tax assets1
|
6
|
36.5
|
12.5
|
Investment in associates
|
|
10.2
|
1.4
|
Reinsurance assets1
|
|
13.0
|
54.6
|
Other receivables1
|
7
|
2,997.4
|
2,977.2
|
Income tax assets
|
6
|
-
|
35.0
|
Investments
|
|
|
|
- Investment property
|
|
1,110.3
|
1,294.5
|
- Equities
|
|
116,761.5
|
103,536.0
|
- Fixed income
securities
|
|
27,244.7
|
27,552.7
|
- Investment in Collective
Investment Schemes
|
|
13,967.5
|
5,735.4
|
- Derivative financial
instruments
|
|
3,420.6
|
3,493.0
|
Cash and cash
equivalents
|
|
6,204.3
|
6,432.8
|
Total assets
|
|
172,293.1
|
151,685.5
|
Liabilities
|
|
|
|
Borrowings
|
10
|
251.4
|
163.8
|
Deferred tax liabilities
|
6
|
411.7
|
162.9
|
Insurance contract
liabilities1
|
|
496.0
|
470.5
|
Deferred income
|
|
491.5
|
530.4
|
Other provisions
|
9
|
500.1
|
46.0
|
Other payables1
|
8
|
2,388.1
|
2,180.7
|
Investment contract
benefits
|
|
123,149.8
|
106,964.7
|
Derivative financial
instruments
|
|
3,073.0
|
3,266.3
|
Net asset value attributable to
unit holders
|
|
40,536.5
|
36,628.4
|
Income tax liabilities
|
|
11.5
|
-
|
Total liabilities
|
|
171,309.6
|
150,413.7
|
Net assets
|
|
983.5
|
1,271.8
|
Shareholders' equity
|
|
|
|
Share capital
|
12
|
82.3
|
81.6
|
Share premium
|
|
233.9
|
227.8
|
Shares in trust reserve
|
|
(0.7)
|
(4.1)
|
Miscellaneous reserves
|
|
2.5
|
2.5
|
Retained earnings
|
|
665.4
|
963.8
|
Equity attributable to owners of
the Parent Company
|
|
983.4
|
1,271.6
|
Non-controlling
interests
|
|
0.1
|
0.2
|
Total equity
|
|
983.5
|
1,271.8
|
|
|
Pence
|
Pence
|
Net assets per share
|
|
179.3
|
233.7
|
1 Restated to reflect the
adoption of IFRS 17. See Note 1a.
Consolidated Statement of Cash
Flows
|
Note
|
Year
ended
31
December
2023
|
Year
ended
31
December
20221
|
£'Million
|
£'Million
|
Cash flows from operating
activities
|
|
|
|
Cash generated/(used in) from
operations1
|
11
|
114.0
|
(712.6)
|
Interest received
|
|
108.0
|
61.8
|
Interest paid
|
|
(17.3)
|
(12.4)
|
Income taxes paid
|
6
|
(179.4)
|
(121.1)
|
Contingent consideration
paid
|
|
(6.7)
|
(6.3)
|
Net cash inflow/(outflow) from
operating activities1
|
|
18.6
|
(790.6)
|
Cash flows from investing
activities
|
|
|
|
Payments for property and
equipment
|
|
(11.2)
|
(4.0)
|
Payment of software development
costs
|
|
(10.9)
|
(16.1)
|
Payments for acquisition of
subsidiaries and other business combinations,
net of cash acquired
|
|
(5.4)
|
(13.9)
|
Payments for associates
|
|
(8.8)
|
-
|
Proceeds from sale of shares in
subsidiaries and other business combinations,
net of cash disposed
|
|
1.1
|
4.0
|
Net cash outflow from investing
activities1
|
|
(35.2)
|
(30.0)
|
Cash flows from financing
activities
|
|
|
|
Proceeds from the issue of share
capital and exercise of options
|
|
6.8
|
8.8
|
Consideration paid for own
shares
|
|
(0.5)
|
(0.3)
|
Proceeds from borrowings
|
10
|
233.1
|
204.0
|
Repayment of borrowings
|
10
|
(144.8)
|
(475.3)
|
Principal elements of lease
payments
|
|
(14.2)
|
(13.8)
|
Dividends paid to Company's
shareholders
|
12
|
(289.6)
|
(303.6)
|
Dividends paid to non-controlling
interests in subsidiaries
|
|
(0.3)
|
(0.3)
|
Net cash (outflow) from financing
activities
|
|
(209.5)
|
(580.5)
|
Net decrease in cash and cash
equivalents
|
|
(226.1)
|
(1,401.1)
|
Cash and cash equivalents at 1
January
|
|
6,432.8
|
7,832.9
|
Effects of exchange rate changes on
cash and cash equivalents
|
|
(2.4)
|
1.0
|
Cash and cash equivalents at 31
December
|
|
6,204.3
|
6,432.8
|
1 Restated to reclassify
Proceeds from sale of financial assets held at amortised cost from
net cash flows from investing activities to net cash flows from
operating activities. See Note 1a.
Notes to the Consolidated Financial Statements under
International Financial Reporting Standards
1. Accounting policies
The Group Financial Statements
consolidate those of the Company and its subsidiaries (together
referred to as the Group).
The Group Financial Statements
have been prepared in accordance with UK-adopted International
Accounting Standards and with the requirements of the Companies Act
2006 as applicable to companies reporting under those
standards.
As at 31 December 2023, the
following relevant new and amended standards, which the Group
adopted as of 1 January 2023, have been applied:
· IFRS
17 Insurance Contracts;
· Amendments to IAS 1 Presentation of Financial Statements -
Classification of Liabilities as Current
or Non-Current;
· Amendments to IAS 1 Presentation of Financial Statements -
Disclosure of Accounting Policies;
· Amendments to IAS 8 Accounting Policies, Changes
in Accounting Estimates and Errors - Definition of Accounting
Estimates;
· Amendments to IAS 12 Income Taxes - Deferred Tax related to
Assets and Liabilities arising from a Single
Transaction;
· Amendments to IAS 12 Income Taxes - International Tax Reform
- Pillar Two Model Rules.
As at 31 December 2023 there were
no new or amended accounting standards not yet effective which are
relevant to the Group.
Basis of preparation
The going concern basis has been
adopted in preparing these Financial Statements.
The Group's business activities,
together with the factors likely to affect its future development,
performance and position, are set out in the Chief Executive's
report and the Chief Financial Officer's report. The financial
performance and financial position of the Group are described in
the financial review.
As shown in Section 3 of the
financial review, the Group's capital position remains strong and
well in excess of regulatory requirements. In addition, it has
continued to operate within its external banking covenants. The
S&P rating of St. James's Place UK plc remains at A-
(BBB at SJP PLC). Similarly, the Fitch rating remains at
A+ for St. James's Place UK plc (A at SJP PLC level).
Further, the long-term nature of the business results in
considerable positive cash flows arising from existing
business.
The Board has considered the
challenging macroeconomic and geopolitical conditions which
prevailed during 2023, noting that the business continued to be
successful in this environment. Notwithstanding market challenges,
the Group attracted gross inflows of £15.4 billion. Net flows came
under pressure as a result of competition from cash-based
investments subduing the total for 2023 to £5.1 billion. This,
along with the performance of our key outsource providers,
monitored through our ongoing oversight, supports its view that the
business will continue to remain operationally
resilient.
The Board has also considered a
profitability forecast including base case scenario and severe but
plausible downside scenarios. In modelling these scenarios, the
Group has considered its liquidity, cash and IFRS results. The
downside scenarios are severe but plausible and would still leave
the Group with positive cash result and
IFRS profit.
The Board has also considered
elevated client complaints and potential options and mitigations
available to the Group should there be a need to take additional
action in relation to increased levels of client
complaints.
As a result of its review, the
Board believes that the Group will continue to operate, with
neither the intention nor the necessity of liquidation, ceasing
trading or seeking protection from creditors pursuant to laws or
regulations, for a period of at least 12 months from the date of
approval of the Group Financial Statements.
The Financial Statements are
presented in pounds Sterling rounded to the nearest one hundred
thousand pounds. They are prepared on a historical cost basis,
except for assets classified as investment property and financial
assets and liabilities at fair value through profit and
loss.
The preparation of the Financial
Statements in conformity with IFRSs requires management to make
judgements, estimates and assumptions that affect the application
of policies and reported amounts of assets and liabilities, income
and expenses. The estimates and associated assumptions are based on
historical experience and various other factors that are believed
to be reasonable under the circumstances, the results of which form
the basis of making judgements about the carrying values of assets
and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates.
The estimates and underlying
assumptions are reviewed on an ongoing basis. Revisions to
accounting estimates are recognised in the year in which the
estimate is revised if the revision affects only that year, or in
the year of the revision and future years, if the revision affects
both current and future years.
Judgements made by management in
the application of IFRSs that have material effect on the Financial
Statements and estimates with a significant risk of material
adjustment in the next year are discussed in Note 2.
The Financial Statements are
prepared in accordance with the Companies Act 2006 as applicable to
companies reporting under IFRS, and the accounting policies set out
below have been applied consistently to all years presented in
these Consolidated Financial Statements.
Other accounting
policies
The other accounting policies used
by the Group in preparing the results are consistent with those
applied in preparing the statutory accounts for the year ended 31
December 2022.
Alternative Performance
Measures
Within the Financial Statements, a
number of alternative performance measures (APMs) are disclosed. An
APM is a measure of financial performance, financial position or
cash flows which is not defined by the relevant financial reporting
framework, which for the Group is International Financial
Reporting Standards as adopted by the UK Endorsement Board. APMs
are used to provide greater insight into the performance of the
Group and the way it is managed by the Directors. A definition of
each APM is included in The Glossary of Alternative Performance
Measures, which explains why it is used and, where applicable,
explains how the measure can be reconciled to the IFRS
Financial Statements.
1a. Restatement of prior
periods
Adjustment 1 - Adoption of IFRS 17
Insurance Contracts
On 1 January 2023 the Group
adopted IFRS 17 Insurance Contracts and, as required by the
standard, applied the requirements retrospectively with
comparatives restated from 1 January 2022.
The adoption of IFRS 17 resulted
in an increase of £1.8 million for the year ended 31 December 2022
to the IFRS profit after tax. The movement occurred due to the
revised pattern of profit recognition under IFRS 17, which replaces
margins in the measurement of insurance contract liabilities under
IFRS 4 with an explicit allowance for risk and a Contractual
Service Margin (CSM) which defers the recognition of profit over
the coverage period.
There is no impact on the Group's
2022 APMs except for 'Underlying profit', which is affected to the
same extent that IFRS 17 impacts IFRS profit after
tax.
IFRS 17 incorporates revised
principles for the recognition, measurement, presentation and
disclosure of insurance contracts. The presentation of insurance
revenue and insurance service expenses in the Statement of
Comprehensive Income is based upon the concept of insurance
services provided during the period.
IFRS 17 transition approach
The fair value approach (FVA) has
been applied to all insurance and reinsurance contracts on
transition to IFRS 17, as the Group considers that application of a
fully retrospective approach is impractical (since our accounting
and actuarial systems hold information on historic business at a
higher level of aggregation than that required for the fully
retrospective approach).
Under the FVA, the CSM recognised
at transition is determined as the difference between the fair
value of contracts at the transition date and the Fulfilment Cash
Flows at the transition date. The fair value on transition
has been derived in accordance with IFRS 13 Fair Value
Measurement and represents the price a market participant would
require to assume the liabilities in an orderly transaction. Under
the fair value approach, the simplification permitting contracts in
different annual cohorts to be placed into a single group of
contracts has been adopted. The Group closed to new insurance
business, as defined under IFRS 17, in 2011.
On transition to IFRS 17 a
deferred tax liability has been established representing the tax in
relation to the movement in equity on transition to IFRS 17. The
deferred tax liability will fully unwind over ten years from the
transition date.
Adjustment 2 - Consolidated Statement of Comprehensive
Income, Revenue
IFRS 17 provides greater clarity
on the split of profit between insurance and investment contracts;
during the implementation, a review of revenue identified that some
items within the Consolidated Statement of Comprehensive Income
were misclassified and required restatement. The restatement
totalled £24.6 million for the year ended 31 December 2022,
decreasing fee and commission income and increasing movement in
investment contract benefits, by the same amount, resulting in a
net nil impact on the profit for the year.
Adjustment 3 - Consolidated Statement of Comprehensive
Income, Other finance income
During the year it was identified
that other finance costs had been misclassified and required
restatement. For the year ended 31 December 2022 the restatement
comprised an increase of £27.6 million in investment return,
decrease of £12.5 million in expenses, and a corresponding net
£15.1 million other finance income recognised. The restatement
resulted in a net nil impact on the profit for the year.
Adjustment 4 - Consolidated Statement of
Cashflows, Proceeds from sale of financial
assets held at amortised cost
During the year, following a
review by the Financial Reporting Council, it was determined that
it was more appropriate to classify the sale in 2022 of a portfolio
of Partner loans as an operating cash flow rather than an investing
cash flow. Accordingly the Consolidated Statement of Cashflows for
the year ended 31 December 2022 has been restated to reflect this.
The restatement, totalling £262.5 million, decreases proceeds from
sale of financial assets held at amortised cost, included within
investing activities, and increases the movement in other
receivables, included within operating activities, by the same
amount.
Restatement for the year ended 31
December 2022
Impact on Consolidated Statement of
Comprehensive Income
|
Year
ended
31
December 2022
|
(Decrease)/increase
|
Restated
year
ended
31
December 2022
|
Adj
1
|
Adj
2
|
Adj
3
|
£'Million
|
£'Million
|
£'Million
|
£'Million
|
£'Million
|
Insurance premium income
|
33.7
|
(33.7)
|
-
|
-
|
-
|
Less premiums ceded to
reinsurers
|
(23.3)
|
23.3
|
-
|
-
|
-
|
Net insurance premium
income
|
10.4
|
(10.4)
|
-
|
-
|
-
|
Fee and commission
income
|
1,954.2
|
-
|
(24.6)
|
-
|
1,929.6
|
Investment return
|
(13,771.9)
|
41.6
|
-
|
(27.6)
|
(13,757.9)
|
Net expense
|
(11,807.3)
|
31.2
|
(24.6)
|
(27.6)
|
(11,828.3)
|
Policy claims and
benefits
|
|
|
|
|
|
- Gross amount
|
(48.0)
|
48.0
|
-
|
-
|
-
|
- Reinsurers' share
|
14.6
|
(14.6)
|
-
|
-
|
-
|
Net policyholder claims and
benefits incurred
|
(33.4)
|
33.4
|
-
|
-
|
-
|
Change in insurance contract
liabilities
|
|
|
|
|
|
- Gross amount
|
88.8
|
(88.8)
|
-
|
-
|
-
|
- Reinsurers' share
|
(16.0)
|
16.0
|
-
|
-
|
-
|
Net change in insurance contract
liabilities
|
72.8
|
(72.8)
|
-
|
-
|
-
|
Movement in investment contract
benefits
|
13,734.8
|
-
|
24.6
|
-
|
13,759.4
|
Expenses
|
(1,966.2)
|
4.5
|
-
|
12.5
|
(1,949.2)
|
Insurance revenue
|
-
|
26.5
|
-
|
-
|
26.5
|
Insurance service
expenses
|
-
|
(13.5)
|
-
|
-
|
(13.5)
|
Net reinsurance expense
|
-
|
(9.6)
|
-
|
-
|
(9.6)
|
Net insurance finance
income
|
-
|
2.4
|
-
|
-
|
2.4
|
Other finance income
|
-
|
-
|
-
|
15.1
|
15.1
|
Profit before tax
|
0.7
|
2.1
|
-
|
-
|
2.8
|
Tax attributable to policyholders'
returns
|
501.1
|
-
|
-
|
-
|
501.1
|
Profit before tax attributable to
shareholders' returns
|
501.8
|
2.1
|
-
|
-
|
503.9
|
Total tax credit
|
404.7
|
(0.3)
|
-
|
-
|
404.4
|
Less: tax attributable to
policyholders' returns
|
(501.1)
|
-
|
-
|
-
|
(501.1)
|
Tax attributable to shareholders'
returns
|
(96.4)
|
(0.3)
|
-
|
-
|
(96.7)
|
Profit and total comprehensive
income for the year
|
405.4
|
1.8
|
-
|
-
|
407.2
|
Profit attributable to
non-controlling interests
|
0.4
|
-
|
-
|
-
|
0.4
|
Profit attributable to equity
shareholders
|
405.0
|
1.8
|
-
|
-
|
406.8
|
Profit and total comprehensive
income for the year
|
405.4
|
1.8
|
-
|
-
|
407.2
|
|
Pence
|
|
|
|
Pence
|
Basic earnings per share
|
74.6
|
|
|
|
75.0
|
Diluted earnings per
share
|
73.9
|
|
|
|
74.3
|
Impact on Consolidated Statement of
Changes in Equity
Increase
|
Equity attributable to owners
of the Parent Company
|
Total
equity
|
Retained
earnings
|
Total
|
£'Million
|
£'Million
|
£'Million
|
At 1 January 2022
|
9.6
|
9.6
|
9.6
|
Profit and total comprehensive
income for the year
|
1.8
|
1.8
|
1.8
|
At 31 December 2022
|
11.4
|
11.4
|
11.4
|
Impact on Consolidated Statement of
Financial Position
|
31
December
2022
|
(Decrease)/increase
|
Restated
31
December 2022
|
Restated
1
January
2022
|
Adj
1
|
£'Million
|
£'Million
|
£'Million
|
£'Million
|
Assets
|
|
|
|
|
Deferred acquisition
costs
|
337.3
|
(0.7)
|
336.6
|
378.9
|
Deferred tax assets
|
13.9
|
(1.4)
|
12.5
|
19.5
|
Reinsurance assets
|
66.4
|
(11.8)
|
54.6
|
74.8
|
Other receivables
|
2,982.8
|
(5.6)
|
2,977.2
|
2,913.1
|
Total assets
|
151,705.0
|
(19.5)
|
151,685.5
|
155,710.6
|
Liabilities
|
|
|
|
|
Insurance contract
liabilities
|
483.5
|
(13.0)
|
470.5
|
568.6
|
Other payables
|
2,198.6
|
(17.9)
|
2,180.7
|
2,579.3
|
Total liabilities
|
150,444.6
|
(30.9)
|
150,413.7
|
154,581.8
|
Net assets
|
1,260.4
|
11.4
|
1,271.8
|
1,128.8
|
Impact on Consolidated Statement of
Cash Flows
|
31
December
2022
|
Increase/ (decrease)
|
Restated
31
December 2022
|
Adj
4
|
£'Million
|
£'Million
|
£'Million
|
Cash flows from operating
activities
|
|
|
|
Cash (used in)/generated from
operations
|
(975.1)
|
262.5
|
(712.6)
|
Net cash outflow from operating
activities
|
(1,053.1)
|
262.5
|
(790.6)
|
Cash flows from investing
activities
|
|
|
|
Proceeds from sale of financial
assets held at amortised cost
|
262.5
|
(262.5)
|
-
|
Net cash inflow/(outflow) from
investing activities
|
232.5
|
(262.5)
|
(30.0)
|
Restatement of 1 January
2022
Impact on Consolidated Statement of
Financial Position
|
Restated
1
January
2022
|
£'Million
|
Assets
|
|
Goodwill
|
29.6
|
Deferred acquisition
costs
|
378.9
|
Intangible assets
|
|
- Acquired value of in-force
business
|
14.4
|
- Computer software
|
27.0
|
Property and equipment
|
154.5
|
Deferred tax assets
|
19.5
|
Investment in associates
|
1.4
|
Reinsurance assets
|
74.8
|
Other receivables
|
2,913.1
|
Investments
|
|
- Investment property
|
1,568.5
|
- Equities
|
106,782.3
|
- Fixed income
securities
|
29,305.9
|
- Investments in Collective
Investment Schemes
|
5,513.2
|
- Derivative financial
instruments
|
1,094.6
|
Cash and cash
equivalents
|
7,832.9
|
Total assets
|
155,710.6
|
Liabilities
|
|
Borrowings
|
433.0
|
Deferred tax liabilities
|
649.8
|
Insurance contract
liabilities
|
568.6
|
Deferred income
|
562.6
|
Other provisions
|
44.1
|
Other payables
|
2,579.3
|
Investment contract
benefits
|
110,349.8
|
Derivative financial
instruments
|
1,019.5
|
Net asset value attributable to
unit holders
|
38,369.0
|
Income tax liabilities
|
6.1
|
Total liabilities
|
154,581.8
|
Net assets
|
1,128.8
|
Shareholders' equity
|
|
Share capital
|
81.1
|
Share premium
|
213.8
|
Treasury shares reserve
|
(8.5)
|
Miscellaneous reserves
|
2.5
|
Retained earnings
|
839.9
|
Shareholders' equity
|
1,128.8
|
Non-controlling
interests
|
-
|
Total equity
|
1,128.8
|
2. Critical accounting estimates
and judgements in applying accounting policies
Estimates
Critical accounting estimates are
those which give rise to a significant risk of material
adjustment to the balances recognised in the Financial Statements
within the next 12 months. The Group's critical accounting
estimates relate to:
· determining the value of insurance contract liabilities and
reinsurance assets;
· determining the fair value of investment property;
· determining the fair value of Level 3 fixed income securities
and equities; and
· determining the value of an Ongoing Service Evidence
provision.
Estimates are also applied in
calculating other assets of the Financial Statements, including
determining the value of deferred tax assets, investment contract
benefits, the operational readiness prepayment and other
provisions.
Determining the value of insurance
contract liabilities and reinsurance assets
In accordance with IFRS 17, the
Group has used the following assumptions in the calculation of
insurance contract liabilities and reinsurance assets:
· the
assumed rate of investment return, which is based on current
risk-free swap rates;
· the
mortality and morbidity rates, which are based on the results of an
investigation of experience during the year;
· the
level of expenses, which for the year under review is based on
actual expenses in 2023 and expected rates in 2024 and over the
long term;
· the
lapse assumption, which is set based on an investigation of
experience during the year; and
· the
risk adjustment, which is determined using a cost of capital
approach with a 3% charge (2022: 3%). There has been no change
during the period.
Determining the fair value of investment
property
In accordance with IAS 40, the
Group initially recognises investment properties at cost, and
subsequently remeasures its portfolio to fair value in the
Statement of Financial Position. Fair value is determined at least
monthly by professional external valuers. It is based on
anticipated market values for the properties in accordance with the
guidance issued by the Royal Institution of Chartered Surveyors
(RICS), being the estimated amount that would be received from a
sale of the assets in an orderly transaction between market
participants.
The valuation of investment
property is inherently subjective as it requires, among other
factors, assumptions to be made regarding the ability of existing
tenants to meet their rental obligations over the entire life of
their leases, the estimation of the expected rental income into the
future, the assessment of a property's potential to remain as an
attractive technical configuration to existing and prospective
tenants in a changing market and a judgement on the attractiveness
of a building, its location and the surrounding environment.
Wherever appropriate, sustainability and environmental matters are
an integral part of the valuation approach. In a valuation context,
sustainability encompasses a wide range of physical, social,
environmental and economic factors that can affect value. The range
of issues includes key environmental risks, such as flooding,
energy efficiency and climate, as well as design, configuration,
accessibility, legislation, management and fiscal considerations -
and, additionally, current and historical land use. As such,
investment properties are classified as Level 3 in the IFRS 13 fair
value hierarchy because they are valued using techniques which are
not based on observable inputs.
Determining the fair value of
Level 3 fixed income securities and equities
In accordance with IFRS 9, the
Group elects to classify its portfolio of policyholder fixed income
securities at fair value through profit and loss to match the
accounting for policyholder liabilities. Its portfolio of equities
is required to be held at fair value through profit and loss. As a
result, all fixed income securities and equities are held at fair
value, with the best evidence of the fair value at initial
recognition typically being the transaction price, i.e. the fair
value of the consideration given or received.
A number of investments are held
in private credit and private equity assets, which are recognised
within fixed income securities and within equities, respectively,
on the Consolidated Statement of Financial Position. The fair value
of these assets is determined following a monthly valuation process
which uses two different valuation models and includes verification
by professional external valuers. The models use suitable market
comparatives and an estimate of future cash flows expected to flow
from the issuing entity.
The valuations are inherently
subjective as they require a number of assumptions to be made, such
as determining which entities provide suitable market comparatives
and their relevant performance metrics (for example earnings before
interest, tax, depreciation and amortisation), determining
appropriate discount rates and cash flow forecasts to use in
models, the weighting to apply to each valuation methodology, and
the point in the range of valuations to select as the fair value.
As the inputs to the valuation models are unobservable, the
investments in private credit and private equity assets are
classified as Level 3 in the IFRS 13 fair value
hierarchy.
Following the invasion of Ukraine
by Russia, sanctions and trading restrictions were placed on
foreign investors. As a result, fair value pricing was applied to
Russian assets that represents a significant markdown in the value
of these assets.
Determining the value of an
Ongoing Service Evidence provision
The Group has committed to review
the sub-population of clients that has been charged for ongoing
advice services since the start of 2018 but where the evidence of
delivery falls below the acceptable standard. Where the standard of
evidence is deemed by the Group to be marginal the Group will
invite clients to join the review (the "Opt-In population"), but
where the standard of evidence is deemed to be poor the Group will
include clients in the review unless instructed otherwise (the
"Opt-Out population").
In accordance with IAS 37, and
reflecting an initial assessment of a statistically credible
representative cohort of clients undertaken by a skilled person,
the Group has quantified the Ongoing Service Evidence provision as
the best estimate of the amount necessary to settle the present
obligation, taking into account the associated risks and
uncertainties.
The period for the review has been
determined by the Group to commence from 2018 following an
assessment of the regulatory regime in force during this period and
the requirement to retain evidence of delivery for this period of
time.
Key estimates and assumptions in
assessing the estimated value are:
· extrapolation from a representative cohort - that the initial
assessment, of a statistically credible representative cohort of
client records, can be extrapolated to the wider review
population;
· Opt-In response rate - the response rate by clients to an
invitation, taking into account industry experience; and
· administration costs - that in-house historic experience and
wider market experience of similar exercises can be used to
estimate the cost to fulfil the exercise.
Further details of the provision,
including sensitivity analysis, are set out in Note 9.
Judgements
The primary areas in which the
Group has applied judgement are as follows:
Consolidation
Entities are consolidated within
the Group Financial Statements if they are controlled by the Group.
Control exists if the Group is exposed to, or has rights to,
variable returns from its involvement with the entity and the Group
has the ability to affect those returns through its power
over the entity. Significant judgement can be involved in
determining whether the Group controls an entity, such as in
the case of the structured entity set up for the Group's
securitisation transaction, SJP Partner Loans No.1 Limited, and for
the Group's unit trusts.
A structured entity is one that
has been designed so that voting or similar rights are not the
dominant factor in deciding who controls the entity. As a result,
factors such as whether a Group entity is able to direct the
relevant activities of the entity and the extent to which the Group
is exposed to variability of returns are considered. In the case of
SJP Partner Loans No.1 Limited, it was determined that the Group
does control the entity and hence it is consolidated. This is due
to an entity in the Group holding the junior tranche of loan notes,
hence being subject to variability of returns, and the same
entity being able to direct the relevant activities of the
structured entity through its role of servicer to the
securitised portfolio.
Unit trusts are consolidated when
the Group holds more than 30% of the units in that unit trust. This
is the threshold at which the Group is considered to achieve
control, having regard to factors such as:
· the
scope of decision-making authority held by
St. James's Place Unit Trust Group Limited, the unit
trust manager;
· rights held by external parties to remove the unit trust
manager; and
· the
Group's exposure to variable returns through its holdings in the
unit trusts and its ability to influence the unit trust
manager's remuneration.
Determining non-performing business loans
to Partners
Business loans to Partners are
considered to be non-performing (Stage 3), in the context of the
definition prescribed by IFRS 9, if they are in default. This is
defined as a loan to either:
· a
Partner who has left the St. James's Place Partnership;
or
· a
Partner whom management considers to be at significant risk of
leaving the Partnership and where an orderly settlement of
debt is considered to be in question.
Determining the derecognition of
business loans to Partners
Business loans to Partners are
derecognised, in the context of the definition prescribed by IFRS
9, when:
· the
assets have been sold to a third party;
· there
is an obligation to pay received cash flows in full without
material delay to a third party under a 'pass-through' arrangement;
and
· the
originator has transferred substantially all the risks and rewards
of owning the assets.
See Note 7 for further information
on the derecognition of business loans to Partners.
Determining the value of insurance
contract liabilities and reinsurance assets on transition to IFRS
17
The fair value on transition has
been derived in accordance with IFRS 13 Fair Value Measurement and
represents the price a market participant would require to assume
the liabilities in an orderly transaction. Fair value has been
determined based on the Solvency II best estimate liability,
together with an additional margin for risk calculated using a cost
of capital approach. The Solvency II best estimate liability
utilises economic assumptions based on relevant market information,
together with non-economic assumptions including lapse rates,
expenses and mortality rates.
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 Group's only reportable
segment under IFRS 8 is a 'wealth management' business - which is a
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
discretionary fund management (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 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 details 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 the pre-tax European Embedded
Value (EEV) profit, both of which are alternative performance
measures. Further details can be found within the Glossary of
Alternative Performance Measures section.
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 IFRS result excluding the impact of intangibles, principally
DAC, DIR, PVIF, goodwill, deferred tax, and strategic expenses. As
the cost associated with equity-settled share-based payments is
reflected in changes in shareholder equity, they are also not
included in the Underlying cash result.
More detail is provided in Section
2.2 of the financial review.
The Cash result should not be
confused with the IFRS Consolidated Statement of Cash Flows, which
is prepared in accordance with IAS 7.
|
Year
ended
31 December 2023
|
Year
ended
31 December 20221
|
£'Million
|
£'Million
|
Underlying cash result after
tax
|
392.4
|
410.1
|
Equity-settled share-based
payments
|
(5.4)
|
(20.5)
|
Deferred tax impacts
|
(24.9)
|
(30.5)
|
Ongoing Service Evidence
provision
|
(323.7)
|
-
|
Impact in the year of
DAC/DIR/PVIF
|
3.1
|
(9.3)
|
Impact of policyholder tax
asymmetry (see Note 4) 1
|
(44.4)
|
50.6
|
Other2
|
(7.0)
|
6.8
|
IFRS (loss)/profit after
tax
|
(9.9)
|
407.2
|
Shareholder tax2
|
5.4
|
96.7
|
(Loss)/profit before tax
attributable to shareholders' returns
|
(4.5)
|
503.9
|
Tax attributable to policyholder
returns
|
444.1
|
(501.1)
|
IFRS profit before tax
|
439.6
|
2.8
|
1 Further information on
policyholder tax asymmetry can also be found in Section 2.1 of the
financial review.
2 Restated to reflect the
adoption of IFRS 17. See Note 1a.
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 the financial
review within the Annual Report and Accounts.
|
Year
ended
31 December 2023
|
Year
ended
31 December 2022 1
|
|
£'Million
|
£'Million
|
|
EEV operating (loss)/profit before
tax after exceptional items
|
(1,891.6)
|
1,589.7
|
|
Investment return
variance
|
501.7
|
(1,314.0)
|
|
Economic assumption
changes
|
2.5
|
235.1
|
|
EEV (loss)/profit before
tax
|
(1,387.4)
|
510.8
|
|
Adjustments to IFRS
basis:
|
|
|
|
Deduct: amortisation of purchased
value of in-force business
|
(3.2)
|
(3.2)
|
|
Movement of balance sheet life
value of in-force business (net of tax) 1
|
2,769.6
|
105.6
|
|
Movement of balance sheet unit
trust and DFM value of in-force business (net of tax)
|
226.0
|
(94.9)
|
|
Movement of balance sheet other
value of in-force business (net of tax)
|
(1,918.9)
|
-
|
Tax on movement in value of
in-force business
|
309.4
|
(14.4)
|
|
(Loss)/profit before tax
attributable to shareholders' returns
|
(4.5)
|
503.9
|
|
Tax attributable to policyholder
returns
|
444.1
|
(501.1)
|
|
IFRS profit before
tax
|
439.6
|
2.8
|
|
1 Restated to reflect the
adoption of IFRS 17. See Note 1a.
The movement in life, unit trust
and DFM, and other value of in-force business is the difference
between the opening and closing discounted value of the profits
that will emerge from the in-force book over time, after adjusting
for DAC and DIR impacts which are already included under
IFRS.
Segment assets
Funds under management (FUM)
FUM, as reported in Section 1 of
the financial review, is the measure of segment assets which is
monitored on a monthly basis by the Board.
|
31 December 2023
|
31 December 2022 1
|
£'Million
|
£'Million
|
Investment
|
35,990.0
|
33,290.0
|
Pension
|
87,320.0
|
73,860.0
|
Unit trust/ISA and DFM
|
44,890.0
|
41,220.0
|
Total FUM
|
168,200.0
|
148,370.0
|
Exclude client and third-party
holdings in non-consolidated unit trusts and DFM
|
(4,360.4)
|
(4,407.3)
|
Other
|
3,968.2
|
4,153.6
|
Gross assets held to cover unit
liabilities
|
167,807.8
|
148,116.3
|
IFRS intangible assets1
|
399.6
|
476.9
|
Shareholder gross
assets
|
4,085.7
|
3,092.3
|
Total assets
|
172,293.1
|
151,685.5
|
1 Restated to reflect the
adoption of IFRS 17. See Note 1a.
Other represents liabilities
included within the underlying unit trusts. The unit trust
liabilities form a reconciling item between total FUM, which is
reported net of these liabilities, and total assets, which exclude
these liabilities.
More detail on IFRS intangible
assets and shareholder gross assets is provided in Section 2.2 of
the financial review.
4. Fee and commission
income
|
Year ended
31
December
2023
|
Year ended
31 December
2022
|
£'Million
|
£'Million
|
Advice charges (post
RDR)
|
954.3
|
987.6
|
Third-party fee and commission
income
|
132.4
|
131.9
|
Wealth management fees1
|
1,065.0
|
1,014.4
|
Investment management
fees
|
68.4
|
60.8
|
Fund tax
deductions/(refunds)
|
444.1
|
(501.1)
|
Policyholder tax
asymmetry
|
(44.4)
|
50.6
|
Discretionary fund management
fees
|
23.6
|
23.4
|
Fee and commission income before
DIR amortisation
|
2,643.4
|
1,767.6
|
Amortisation of DIR
|
145.5
|
162.0
|
Total fee and commission
income
|
2,788.9
|
1,929.6
|
1 Restated to reclassify balances
between wealth management fees and movement in investment contract
benefits. See Note 1a.
Advice charges are received from
clients for the provision of initial and ongoing advice in relation
to a post-Retail Distribution Review (RDR) investment into a
St. James's Place or third-party product.
Third-party fee and commission
income is received from the product provider where an investment
has been made into a third-party product.
Wealth management fees represent
charges levied on manufactured business.
Investment management fees are
received from clients for the provision of all aspects of
investment management. Broadly, investment management fees match
investment management expenses.
Fund tax deductions/(refunds)
represent amounts credited to, or deducted from, the life insurance
business to match policyholder tax credits or charges. Market
conditions will impact the level of fund tax deductions/(refunds).
This may lead to significant year on year movements when markets
are volatile.
Life insurance tax incorporates a
policyholder tax element, and the financial statements of a life
insurance group need to reflect the liability to HMRC, with
the corresponding deductions incorporated into policy charges
('Fund tax deductions/(refunds)' in the table above). The tax
liability to HMRC is assessed using IAS 12 Income Taxes, which does
not allow discounting, whereas the policy charges are designed to
ensure fair outcomes between clients and so reflect a wide range of
possible outcomes. This gives rise to different assessments of the
current value of future cash flows and hence an asymmetry in
the IFRS Consolidated Statement of Financial Position between the
deferred tax position and the offsetting client balance. The net
tax asymmetry balance reflects a temporary position, and in the
absence of market volatility we expect it will unwind as future
cash flows become less uncertain and are ultimately
realised.
Market conditions and other
macroeconomic factors will impact the level of asymmetry
experienced in a year and may be significant where there is
volatility. These drivers in 2023 resulted in a significant
negative movement reversing the positive impact seen in
2022.
Discretionary fund management fees
are received from clients for the provision of DFM
services.
Where an investment has been made
in a St. James's Place product, the initial product
charge and any dealing margin is deferred and recognised as a
deferred income liability. This liability is extinguished, and
income recognised, over the expected life of the investment. The
income is the amortisation of DIR in the table above.
5. Investment return and movement
in investment contract benefits
The majority of the business
written by the Group is unit-linked investment business, and so
investment contract benefits are measured by reference to the
underlying net asset value of the Group's unitised investment
funds. As a result, investment return on the unitised investment
funds and the movement in investment contract benefits are
linked.
Investment return
|
Year ended
31
December
2023
|
Year ended
31 December
2022
|
£'Million
|
£'Million
|
Attributable to unit-linked
investment contract benefits:
|
|
|
Rental income
|
69.9
|
70.1
|
Loss on revaluation of investment
properties
|
(44.9)
|
(244.5)
|
Net investment return on financial
instruments classified as fair value through profit and
loss1
|
13,013.4
|
(9,416.3)
|
|
13,038.4
|
(9,590.7)
|
|
|
|
Income/(expense) attributable to
third-party holdings in unit trusts
|
3,092.5
|
(4,168.7)
|
|
|
|
Investment return on net assets
held to cover unit liabilities
|
16,130.9
|
(13,759.4)
|
|
|
|
Net investment return on financial
instruments classified as fair value through profit and
loss 2
|
60.2
|
(8.2)
|
Net investment return on financial
instruments held at amortised cost 2
|
6.5
|
9.7
|
Investment return on shareholder
assets
|
66.7
|
1.5
|
|
|
|
Total investment return
|
16,197.6
|
(13,757.9)
|
1 Restated to reflect the
adoption of IFRS 17. See Note 1a.
2 Restated to reclassify
interest received on business loans to Partners and shareholder
cash and cash equivalents to other finance income.
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 income of £1,499.1 million
(2022: £1,216.0 million).
Movement in investment contract
benefits
|
2023
|
2022
|
£'Million
|
£'Million
|
Balance at 1 January
|
106,964.7
|
110,349.8
|
Deposits
|
11,842.3
|
12,194.6
|
Withdrawals
|
(7,459.6)
|
(5,645.1)
|
Movement in unit-linked investment
contract benefits
|
13,038.4
|
(9,590.7)
|
Fees and other
adjustments
|
(1,236.0)
|
(343.9)
|
Balance at 31 December
|
123,149.8
|
106,964.7
|
Current
|
6,584.5
|
5,546.3
|
Non-current
|
116,565.3
|
101,418.4
|
|
123,149.8
|
106,964.7
|
Movement in unit
liabilities
|
|
|
Unit-linked investment contract
benefits
|
13,038.4
|
(9,590.7)
|
Third-party unit trust
holdings
|
3,092.5
|
(4,168.7)
|
Movement in investment contract
benefits in the
Consolidated Statement of Comprehensive Income
|
16,130.9
|
(13,759.4)
|
6. Income and deferred
taxes
Tax for the year
|
Year ended
31
December
2023
|
Year ended
31 December
2022
|
£'Million
|
£'Million
|
Current tax
|
|
|
UK corporation tax
|
|
|
- Current year charge
|
222.8
|
66.0
|
- Adjustment in respect of prior
year
|
(0.5)
|
3.5
|
Overseas taxes
|
|
|
- Current year charge
|
2.9
|
10.2
|
- Adjustment in respect of prior
year
|
0.1
|
-
|
|
225.3
|
79.7
|
Deferred tax
|
|
|
Unrealised capital gains/(losses)
in unit-linked funds
|
243.4
|
(504.0)
|
Unrelieved expenses
|
|
|
- Additional expenses recognised in
the year
|
-
|
(9.9)
|
- Utilisation in the
year
|
11.3
|
11.4
|
Capital losses
|
|
|
- Revaluation in the
year
|
-
|
4.0
|
- Utilisation in the
year
|
2.2
|
25.2
|
- Adjustment in respect of prior
year
|
(0.1)
|
(4.5)
|
DAC, DIR and PVIF
|
(7.8)
|
(8.5)
|
Share-based payments
|
8.1
|
3.3
|
Renewal income assets
|
(1.4)
|
(3.0)
|
Fixed asset timing
differences
|
2.6
|
1.0
|
UK trading losses
|
(36.1)
|
-
|
Other items1
|
1.8
|
(1.2)
|
Overseas losses
|
0.3
|
0.1
|
Adjustment in respect of prior
year
|
(0.1)
|
2.0
|
|
224.2
|
(484.1)
|
Total tax charge/(credit) for the
year
|
449.5
|
(404.4)
|
Attributable to:
|
|
|
- policyholders
|
444.1
|
(501.1)
|
- shareholders
|
5.4
|
96.7
|
|
449.5
|
(404.4)
|
1 Restated to reflect the adoption
of IFRS 17. See Note 1a.
The prior year adjustment of £0.4
million credit in current tax above represents a £1.4 million
credit in respect of policyholder tax (2022: £7.3 million charge)
and a charge of £1.0 million in respect of shareholder tax (2022:
£3.8 million credit). The prior year adjustment of £0.2 million
credit in deferred tax above represents £nil in respect of
policyholder tax (2022: £nil) and a credit of £0.2 million in
respect of shareholder tax (2022: £2.5 million credit).
In arriving at the profit before
tax attributable to shareholders' returns, it is necessary to
estimate the distribution of the total tax charge/(credit) between
that payable in respect of policyholders and that payable by
shareholders. Shareholder tax is estimated by making an assessment
of the effective rate of tax that is applicable to the shareholders
on the profits attributable to shareholders. This is calculated by
applying the appropriate effective corporate tax rates to the
shareholder profits. The remainder of the tax charge/(credit)
represents tax on policyholders' investment returns. This
calculation method is consistent with the legislation relating to
the calculation of tax on shareholder profits.
Reconciliation of tax charge to
expected tax
|
Year ended
31
December
2023
|
|
Year ended
31 December
2022
|
|
£'Million
|
£'Million
|
Profit before
tax 1
|
439.6
|
|
2.8
|
|
Tax attributable to policyholders'
returns
|
(444.1)
|
|
501.1
|
|
(Loss)/profit before tax
attributable to shareholders' returns
|
(4.5)
|
|
503.9
|
|
Shareholder tax (credit)/charge at
corporate tax rate of 23.5% (2022: 19%)
|
(1.1)
|
23.5%
|
95.7
|
19.0%
|
Adjustments:
|
|
|
|
|
Lower rates of corporation tax in
overseas subsidiaries
|
(1.8)
|
39.4%
|
(1.3)
|
(0.3%)
|
Expected shareholder
tax
|
(2.9)
|
62.9%
|
94.4
|
18.7%
|
Effects of:
|
|
|
|
|
Non-taxable income
|
(2.5)
|
|
(1.5)
|
|
Revaluation of historic capital
losses in the Group
|
-
|
|
4.0
|
|
Adjustment in respect of prior
year
|
|
|
|
|
- Current tax
|
1.0
|
|
(3.8)
|
|
- Deferred tax
|
(0.2)
|
|
(2.5)
|
|
Differences in accounting and tax
bases in relation to employee share schemes
|
0.3
|
|
2.5
|
|
Impact of difference in tax rates
between current and deferred tax
|
(2.3)
|
|
(3.0)
|
|
Disallowable expenses
|
4.3
|
|
5.6
|
|
Provision for future
liabilities
|
5.1
|
|
0.5
|
|
Tax losses not
recognised
|
1.9
|
|
2.2
|
|
Other 1
|
0.7
|
|
(1.7)
|
|
|
8.3
|
(182.9%)
|
2.3
|
0.5%
|
Shareholder tax charge
|
5.4
|
(120.0%)
|
96.7
|
19.2%
|
Policyholder tax
charge/(credit)
|
444.1
|
|
(501.1)
|
|
Total tax charge/(credit) for the
year
|
449.5
|
|
(404.4)
|
|
1 Restated to reflect the adoption
of IFRS 17. See Note 1a.
Tax calculated on profit before
tax at 23.5% (2022: 19%) would amount to a charge of £103.3 million
(2022: charge of £0.5 million). The difference of £346.2
million (2022: £404.9 million) between this number and the total
tax charge of £449.5 million (2022: £404.4 million credit) is
made up of the reconciling items above which total a charge of £6.5
million (2022: £1.0 million charge) and the effect of the
apportionment methodology on tax applicable to policyholder returns
of £339.7 million (2022: £405.9 million).
Tax paid in the year
|
Year ended
31
December
2023
|
Year ended
31 December
2022
|
£'Million
|
£'Million
|
Current tax charge for the
year
|
225.3
|
79.7
|
Refunds due to be received in
future years in respect of current year
|
1.7
|
39.5
|
(Refunds received)/payments made
in current year in respect of prior years
|
(39.7)
|
1.6
|
Other
|
(7.9)
|
0.3
|
Tax paid
|
179.4
|
121.1
|
Tax paid can be analysed
as:
|
|
|
- Taxes paid in UK
|
156.4
|
110.1
|
- Taxes paid in overseas
jurisdictions
|
6.2
|
3.9
|
- Withholding taxes suffered on
investment income received
|
16.8
|
7.1
|
Total
|
179.4
|
121.1
|
Deferred tax balances
Deferred tax assets
|
As at
1 January
2023 1
|
Credit/(charge) to
the Statement of Comprehensive Income
|
Impact of
acquisitions
|
Reanalysis to deferred tax
liabilities
|
As at 31 December
2023
|
Expected utilisation
period
|
Utilised and created in
year
|
Total
credit/(charge)
|
As at 31 December
2023
|
£ Million
|
£ Million
|
£ Million
|
£ Million
|
£ Million
|
£ Million
|
|
Deferred acquisition costs
(DAC)
|
(20.4)
|
1.8
|
1.8
|
-
|
-
|
(18.6)
|
14 years
|
Deferred income (DIR)
|
37.7
|
(2.6)
|
(2.6)
|
-
|
-
|
35.1
|
14 years
|
Fixed asset temporary
differences
|
3.9
|
(2.6)
|
(2.6)
|
-
|
-
|
1.3
|
6 years
|
Renewal income assets
|
(20.7)
|
1.5
|
1.5
|
(0.7)
|
-
|
(19.9)
|
20 years
|
Share-based payments
|
12.9
|
(8.1)
|
(8.1)
|
-
|
-
|
4.8
|
3 years
|
UK trading losses
|
-
|
36.1
|
36.1
|
-
|
-
|
36.1
|
1 years
|
Other temporary
differences 1
|
(0.9)
|
(2.3)
|
(2.3)
|
0.9
|
-
|
(2.3)
|
-
|
Total
|
12.5
|
23.8
|
23.8
|
0.2
|
-
|
36.5
|
|
|
As at
1 January 2022
|
(Charge)/credit to the Statement of Comprehensive
Income
|
Impact
of acquisitions
|
Reanalysis to deferred tax liabilities
|
As at
31 December 2022 1
|
Expected
utilisation period
|
Utilised
and created in year
|
Total
(charge)/credit
|
As at
31 December 2022
|
£
Million
|
£
Million
|
£
Million
|
£
Million
|
£
Million
|
£
Million
|
|
Deferred acquisition costs
(DAC)
|
(21.6)
|
1.2
|
1.2
|
-
|
-
|
(20.4)
|
14
years
|
Deferred Income (DIR)
|
37.8
|
(0.1)
|
(0.1)
|
-
|
-
|
37.7
|
14
years
|
Fixed asset temporary
differences
|
7.8
|
(3.9)
|
(3.9)
|
-
|
-
|
3.9
|
6
years
|
Renewal income assets
|
(19.4)
|
3.1
|
3.1
|
(4.4)
|
-
|
(20.7)
|
20
years
|
Share-based payments
|
16.2
|
(3.3)
|
(3.3)
|
-
|
-
|
12.9
|
3
years
|
Other temporary
differences 1
|
(1.3)
|
0.9
|
0.9
|
-
|
(0.5)
|
(0.9)
|
-
|
Total
|
19.5
|
(2.1)
|
(2.1)
|
(4.4)
|
(0.5)
|
12.5
|
|
1 Restated to reflect the adoption
of IFRS 17. See Note 1a.
Deferred tax liabilities
|
As at 1 January
2023
|
Charge/(credit) to the
statement of Comprehensive Income
|
Impact of
acquisitions
|
Reanalysis from deferred tax
assets
|
As at
31
December
2023
|
Expected utilisation
period
|
Utilised and created in
year
|
Impact of tax rate
change
|
Total charge/
(credit)
|
As at 31 December
2023
|
£ Million
|
£ Million
|
£ Million
|
£ Million
|
£ Million
|
£ Million
|
£ Million
|
|
Capital losses
(available for future relief)
|
|
(2.1)
|
2.1
|
-
|
2.1
|
-
|
-
|
-
|
-
|
Deferred acquisition costs
(DAC)
|
20.2
|
(7.9)
|
-
|
(7.9)
|
-
|
-
|
12.3
|
14 years
|
Purchased value of in-force
business (PVIF)
|
|
2.8
|
(0.8)
|
-
|
(0.8)
|
-
|
-
|
2.0
|
2 years
|
Unrealised capital gains on
life insurance (BLAGAB) assets
backing unit liabilities
|
180.1
|
243.3
|
-
|
243.3
|
-
|
-
|
423.4
|
6 years
|
Unrelieved expenses on life
insurance business
|
|
(37.5)
|
11.3
|
-
|
11.3
|
-
|
-
|
(26.2)
|
5 years
|
Other temporary
differences
|
(0.6)
|
0.1
|
-
|
0.1
|
0.7
|
-
|
0.2
|
-
|
Total
|
|
162.9
|
248.1
|
-
|
248.1
|
0.7
|
-
|
411.7
|
-
|
|
|
As at
1 January 2022
|
Charge/(credit) to the statement of Comprehensive
Income
|
Impact
of acquisitions
|
Reanalysis from deferred tax assets
|
As at
31 December 2022
|
Expected
utilisation period
|
|
Utilised
and created in year
|
Impact
of tax rate change
|
Total
charge/(credit)
|
As at
31 December 2022
|
|
£
Million
|
£
Million
|
£
Million
|
£
Million
|
£
Million
|
£
Million
|
£
Million
|
|
|
Capital losses
(available for future relief)
|
|
(26.8)
|
20.7
|
4.0
|
24.7
|
-
|
-
|
(2.1)
|
1
year
|
|
Deferred acquisition costs
(DAC)
|
28.0
|
(7.8)
|
-
|
(7.8)
|
-
|
-
|
20.2
|
14
years
|
|
Purchased value of in-force
business (PVIF)
|
|
3.4
|
(0.6)
|
-
|
(0.6)
|
-
|
-
|
2.8
|
3
years
|
|
Unrealised capital gains on
life insurance (BLAGAB) assets backing unit
liabilities
|
684.1
|
(504.0)
|
-
|
(504.0)
|
-
|
-
|
180.1
|
6
years
|
|
Unrelieved expenses on life
insurance business
|
|
(39.1)
|
1.6
|
-
|
1.6
|
-
|
-
|
(37.5)
|
6
years
|
|
Other temporary
differences
|
0.2
|
(0.3)
|
-
|
(0.3)
|
-
|
(0.5)
|
(0.6)
|
-
|
|
Total
|
|
649.8
|
(490.4)
|
4.0
|
(486.4)
|
-
|
(0.5)
|
162.9
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Appropriate investment income,
gains or profits are expected to arise against which the tax assets
can be utilised. Whilst the actual rates of utilisation will
depend on business growth and external factors, particularly
investment market conditions, they have been tested for sensitivity
to experience and are resilient to a range of reasonably
foreseeable scenarios.
During the year the Group have
fully utilised the shareholder capital losses. The Group do not
expect further material capital losses to arise in the
future.
At the reporting date there were
unrecognised deferred tax assets of £17.3 million (2022: £15.0
million) in respect of £101.9 million (2022: £92.1 million) of
losses in companies where appropriate profits are not considered
probable in the forecast period. These losses primarily relate to
the Group's Asia-based businesses and can be carried forward
indefinitely.
Future tax changes
The main rate of corporation tax
has increased from 19% to 25% with effect from 1 April 2023. The
Group has applied a blended rate of 23.5% for the year ended
31 December 2023.
IFRS 17
The transitional adjustment
arising from the restatement of the 31 December 2022 balance sheet
on adoption of IFRS 17 is to be spread evenly for tax purposes
over 10 years in the UK, and 5 years in Ireland. As a result, a
total opening deferred tax liability of £1.8 million has been
recognised in respect of St. James's Place UK plc (£0.4
million) and St. James's Place International plc (£1.4
million) at the relevant expected future tax rate applicable to the
jurisdiction of 25% (UK) and 12.5% (Ireland). Whilst this is a
deferred tax liability, it was adjusted for within other temporary
differences in deferred tax assets due to the offsetting principle.
Following the unwind during the year of £0.3m, the remaining
balance as at 31 December 2023 is £1.5 million (being £1.1 million
in respect of St. James's Place International plc and
£0.4 million in respect of St. James's Place UK
plc).
Pillar Two - Global minimum tax
Effective from 1 January 2024, the
Group will be subject to the Global minimum tax rules introduced by
the Organisation for Economic Co-operation and Development
(OECD) and adopted into local legislation of various territories in
which the Group operates; including the UK and Ireland. The Group
expects to be subject to top-up tax in relation to its operations
in Ireland, where the statutory corporate tax rate is 12.5%.
As a result of the Introduction of this minimum tax rule, Ireland
have introduced a Qualifying Domestic Minimum Top-up Tax which will
Increase the effect tax rate of in scope businesses to 15% -
the Group expects the Irish profits to be in scope for
this.
If the top-up tax had been applied
during the year ended 31 December 2023, then the amount to be
assessed on profits relating to the Group's operations in Ireland
would have been immaterial.
The Group has applied the
exemption afforded by the International Tax Reform - Pillar Two
Model Rules (Amendments to IAS 12), and as such does not
recognise deferred tax impacts of any future top-up tax.
7. Other receivables
|
31
December
2023
|
31 December
2022
|
£'Million
|
£'Million
|
Receivables in relation to unit
liabilities excluding policyholder interests 1
|
956.0
|
440.5
|
Other receivables in relation to
insurance and unit trust business 2
|
151.9
|
75.8
|
Operational readiness
prepayment
|
283.5
|
278.3
|
Advanced payments to
Partners
|
127.4
|
83.8
|
Other prepayments and accrued
income1
|
37.9
|
40.8
|
Business loans to
Partners
|
408.0
|
315.6
|
Renewal income assets
|
138.3
|
115.5
|
Miscellaneous
|
44.3
|
18.9
|
Total other receivables on the
Solvency II Net Assets Balance Sheet
|
2,147.3
|
1,369.2
|
Policyholder interests in other
receivables
|
846.9
|
1,604.8
|
Other
|
3.2
|
3.2
|
Total other receivables
|
2,997.4
|
2,977.2
|
Current
|
2,243.8
|
2,357.4
|
Non-current
|
753.6
|
619.8
|
|
2,997.4
|
2,977.2
|
1 Receivables in relation to
unit liabilities excluding policyholder interests and other
prepayments and accrued income have been re-presented
to better reflect the nature of the balances included.
Receivables in relation to unit liabilities excluding policyholder
interests has increased £43.5 million and other prepayments
and accrued income decreased £43.5 million.
2 Restated to reflect the
adoption of IFRS 17. See Note 1a.
All items within other receivables
meet the definition of financial assets with the exception of
prepayments and advanced payments to Partners. The fair value of
those financial assets held at amortised cost is not materially
different from amortised cost.
Receivables in relation to unit
liabilities relate to outstanding market trade settlements (sales)
in the life unit-linked funds and the consolidated unit trusts.
Other receivables in relation to insurance and unit trust business
primarily relate to outstanding policy-related settlement timings.
Both of these categories of receivables are short-term.
The operational readiness
prepayment consists of directly invoiced operational readiness
costs advanced and relates to the Bluedoor administration platform
which has been developed by our key outsourced back-office
administration provider. Management has assessed the recoverability
of this prepayment against the expected cost saving benefit of
lower future tariff costs arising from the platform. It is believed
that no reasonably possible change in the assumptions applied
within this assessment, notably levels of future business, the
anticipated future service tariffs and the discount rate, would
have an impact on the carrying value of the asset.
Renewal income assets represent
the present value of future cash flows associated with business
combinations or books of business acquired by the Group.
Business loans to
Partners
|
31
December
2023
|
31 December
2022
|
£'Million
|
£'Million
|
Business loans to Partners directly
funded by the Group
|
340.8
|
315.6
|
Securitised business loans to
Partners
|
67.2
|
-
|
Total business loans to
Partners
|
408.0
|
315.6
|
Business loans to Partners are
interest-bearing (linked to Bank of England base rate plus a
margin), repayable in line with the terms of the loan contract and
secured against the future income streams of the respective
Partners.
During 2022, £262.5 million of
business loans to Partners previously recognised in the
Consolidated Statement of Financial Position were sold to a
third-party. The sale occurred at book value and met the
derecognition criteria of IFRS 9 as substantially all risks
and rewards of ownership were transferred. The risks and rewards of
ownership were assessed as transferred primarily due to the
following:
· the
loans were sold to a third-party Special Purpose Vehicle (SPV)
which the Group does not manage or control;
· the
third-party SPV has the ability to remove the Group as the
servicing party;
· there is no exposure from the loans sold to the third-party
SPV through clawback, or any residual credit risk; and
· the
transaction was structured by identifying a portfolio of loans
(totalling £276.3 million), selling 95% of the full individual
loans within that portfolio (realising proceeds of £262.5 million)
without recourse and retaining 5% of the full individual loans
within the portfolio as required under the securitisation
regulation. The loans were assessed for derecognition on an
individual basis and the retained 5% do not meet the derecognition
criteria of IFRS 9.
As a result, these business loans
to Partners are no longer recognised on the Consolidated Statement
of Financial Position.
The Group has a continued
involvement with the derecognised assets through the servicing of
the transferred loan portfolio. A servicing fee is received in
respect of this servicing, which is immaterial to the Group. The
servicing fee is included within expenses on the face of the
Consolidated Statement of Comprehensive Income. The sale included
£222.8 million of securitised business loans to Partners, reducing
the securitised loan balance to £nil. The senior tranche of
securitisation loan notes that were secured upon those securitised
business loans to Partners were repaid as part of the transaction.
See Note 10 for further information.
Reconciliation of the business
loans to Partners opening and closing gross loan
balances
|
Stage 1
performing
|
Stage 2
under-
performing
|
Stage 3
non-
performing
|
Total
|
|
£'Million
|
£'Million
|
£'Million
|
£'Million
|
|
Gross balance at 1 January
2023
|
297.1
|
17.7
|
4.6
|
319.4
|
|
Business loans to Partners
classification changes:
|
|
|
|
|
|
- Transfer to
underperforming
|
(11.9)
|
11.9
|
-
|
-
|
|
- Transfer to
non-performing
|
(3.2)
|
(0.2)
|
3.4
|
-
|
|
- Transfer to
performing
|
4.2
|
(3.5)
|
(0.7)
|
-
|
|
New lending activity during the
year
|
195.0
|
16.9
|
0.7
|
212.6
|
|
Interest charged during the
year
|
26.2
|
3.1
|
0.8
|
30.1
|
|
Repayment activity during the
year
|
(147.7)
|
(1.3)
|
(0.3)
|
(149.3)
|
|
Gross balance at 31 December
2023
|
359.7
|
44.6
|
8.5
|
412.8
|
|
Stage 1
performing
|
Stage 2
under-
performing
|
Stage 3
non-
performing
|
Total
|
|
£'Million
|
£'Million
|
£'Million
|
£'Million
|
|
Gross balance at 1 January
2022
|
500.5
|
21.0
|
4.1
|
525.6
|
|
Business loans to Partners
classification changes:
|
|
|
|
|
|
- Transfer to
underperforming
|
(4.8)
|
4.8
|
-
|
-
|
|
- Transfer to
non-performing
|
(0.5)
|
(0.9)
|
1.4
|
-
|
|
- Transfer to
performing
|
5.2
|
(5.2)
|
-
|
-
|
|
Sale to a third party during the
year
|
(262.5)
|
-
|
-
|
(262.5)
|
|
New lending activity during the
year
|
216.6
|
2.1
|
0.4
|
219.1
|
|
Interest charged during the
year
|
20.6
|
0.9
|
0.2
|
21.7
|
|
Repayment activity during the
year
|
(178.0)
|
(5.0)
|
(1.5)
|
(184.5)
|
Gross balance at 31 December
2022
|
297.1
|
17.7
|
4.6
|
319.4
|
During the year the Group
experienced an increase in stage 2 - underperforming as a result of
higher interest rates and the challenging operating environment
having an impact on Partners' ability to meet loan repayments in
full.
Business loans to Partners:
provision
The expected loss impairment model
for business loans to Partners is based on the levels of loss
experienced in the portfolio, with due consideration given to
forward-looking information. For those business loans to Partners
sold to a third party in the prior year, full credit risk was
transferred.
The provision held against
business loans to Partners as at 31 December 2023 was £4.8 million
(2022: £3.8 million). During the year, £0.2 million of the
provision was released (2022: £0.3 million), £3.4 million was
utilised (2022: £0.2 million) and new provisions and adjustments to
existing provisions increased the total by £4.6 million (2022: £0.3
million).
There is no provision held against
any other receivables held at amortised cost.
Business loans to Partners as
recognised on the Statement of Financial Position
|
31
December
2023
|
31 December
2022
|
£'Million
|
£'Million
|
Gross business loans to
Partners
|
412.8
|
319.4
|
Provision
|
(4.8)
|
(3.8)
|
Net business loans to
Partners
|
408.0
|
315.6
|
Renewal income assets
Movement in renewal income
assets
|
2023
|
2022
|
£'Million
|
£'Million
|
Balance at 1 January
|
115.5
|
102.5
|
Additions
|
32.0
|
36.1
|
Disposals
|
(2.1)
|
(7.8)
|
Revaluation
|
(7.1)
|
(15.3)
|
Balance at 31 December
|
138.3
|
115.5
|
The key assumptions used for the
assessment of the fair value of the renewal income are as
follows:
|
31
December
2023
|
31 December
2022
|
Lapse rate - SJP Partner renewal
income 1
|
5.0% to 15.0%
|
5.0% to 15.0%
|
Lapse rate - non-SJP renewal
income 1
|
6.5% to 25.0%
|
15.0% to 25.0%
|
Discount rate
|
11.8%
|
12.0% to 13.7%
|
1 Future income streams
are projected making use of retention assumptions derived from the
Group's experience of the business or, where insufficient data
exists, from external industry experience. These assumptions are
reviewed on an annual basis.
These assumptions have been used
for the analysis of each business combination classified within
renewal income.
8. Other payables
|
31
December
2023
|
31 December
2022
|
|
£'Million
|
£'Million
|
Payables in relation to unit
liabilities excluding policyholder interests
|
437.1
|
326.2
|
Other payables in relation to
insurance and unit trust business 1
|
738.6
|
399.9
|
Accrual for ongoing advice
fees
|
150.0
|
133.2
|
Other accruals
|
101.1
|
105.8
|
Contract payment
|
84.2
|
95.8
|
Lease liabilities:
properties
|
120.5
|
116.6
|
Other payables in relation to
Partner payments
|
75.1
|
74.8
|
Miscellaneous
|
50.4
|
67.3
|
Total other payables on the
Solvency II Net Assets Balance Sheet
|
1,757.0
|
1,319.6
|
Policyholder interests in other
payables
|
613.3
|
842.0
|
Other (see adjustment
2)
|
17.8
|
19.1
|
Total other payables
|
2,388.1
|
2,180.7
|
Current 1
|
2,212.9
|
2,000.6
|
Non-current
|
175.2
|
180.1
|
|
2,388.1
|
2,180.7
|
1 Restated to reflect the adoption
of IFRS 17. See Note 1a.
Payables in relation to unit
liabilities relate to outstanding market trade settlements
(purchases) in the life unit-linked funds and the consolidated
unit trusts. Other payables in relation to insurance and unit trust
business primarily relate to outstanding policy-related
settlement timings. Both of these categories of payables are
short-term.
The contract payment of £84.2
million (2022: £95.8 million) represents payments made by a
third-party service provider to the Group as part of a
service agreement, which are non-interest-bearing and repayable
over the life of the service agreement. The contract payment
received prior to 2020 is repayable on a straight-line basis over
the original 12-year term, with repayments commencing on 1 January
2017. The contract payment received in 2020 is repayable on a
straight-line basis over 13 years and 4 months, with repayments
commencing on 1 September 2020.
The lease liabilities: properties
line item represents the present value of future cash flows
associated with the Group's portfolio of property
leases.
The fair value of financial
instruments held at amortised cost within other payables is not
materially different from amortised cost.
Policyholder interests in other
payables are short-term in nature and can vary significantly from
period to period due to prevailing market conditions and
underlying trading activity.
9. Other provisions and contingent
liabilities
|
Complaints
provision
|
Ongoing
Service Evidence provision
|
Lease
provision
|
Clawback
provision
|
Total
provisions
|
£'Million
|
£'Million
|
£'Million
|
£'Million
|
£'Million
|
At 1 January 2022
|
30.9
|
-
|
10.0
|
3.2
|
44.1
|
Additional provisions
|
28.5
|
-
|
3.5
|
-
|
32.0
|
Utilised during the year
|
(14.0)
|
-
|
(0.1)
|
(0.2)
|
(14.3)
|
Release of provision
|
(15.7)
|
-
|
(0.1)
|
-
|
(15.8)
|
At 31 December 2022
|
29.7
|
-
|
13.3
|
3.0
|
46.0
|
Additional provisions
|
61.8
|
426.0
|
2.6
|
0.1
|
490.5
|
Utilised during the year
|
(21.0)
|
-
|
(0.8)
|
-
|
(21.8)
|
Release of provision
|
(14.4)
|
-
|
(0.2)
|
-
|
(14.6)
|
At 31 December 2023
|
56.1
|
426.0
|
14.9
|
3.1
|
500.1
|
Other provisions
Complaints provision
The complaints provision is based
on complaints identified, an assessment of the proportion upheld,
estimated cost of redress and the expected timing of
settlement. The Group expects significantly all of the provision to
be utilised within one year. See contingent liabilities below for
further information on the movement in the year.
Ongoing Service Evidence
provision
During the year the Group has
experienced elevated levels of complaints in connection with the
delivery of historic ongoing advice services.
Given the claims experience, a
skilled person was engaged to undertake an initial assessment of a
statistically credible representative cohort of clients to explore whether issues raised by the complaints
were replicated across the wider client base. Following the
assessment, the Group has committed to review the sub-population of
clients that has been charged for ongoing servicing since the start
of 2018 but where the evidence of delivery falls below the
acceptable standard. Where the standard of evidence is deemed by
the Group to be marginal the Group will invite clients to join the
review (the "Opt-In population"), but where the standard of
evidence is deemed to be poor the Group will include clients in the
review unless instructed otherwise (the "Opt-Out
population").
The provision that has been
recognised includes an estimated refund of charges, together with
interest at FOS rates, plus the administration costs associated
with completing this work. Allowance is also made for discounting
over the expected duration of the exercise.
A provision of £426.0 million has
been recognised at 31 December 2023 with the best estimate
assessment based on extrapolation of the experience of the
statistically credible representative cohort of clients.
IAS 37 and IAS 1 requires the Group
to set out sensitivities. In compliance with these requirements,
the following table sets out the potential change to the provision
balance at 31 December 2023 if the key assumptions were to vary as
described:
Sensitivity analysis
|
Change
in assumption
|
Change
in profit/(loss) before tax
|
Favourable changes
|
Unfavourable changes
|
Percentage
|
£'Million
|
£'Million
|
Extrapolation from a representative
cohort
- Variation in proportion of client
population subject to the review
|
2%
|
22.0
|
(22.0)
|
Extrapolation from a representative
cohort
- Variation in the level of
charges, based on average client FUM, subject to refund
|
10%
|
31.0
|
(31.0)
|
Opt-In response rate
- Variation in response
rate
|
10%
|
17.0
|
(17.0)
|
Administration costs
- Change in estimation of the cost
to fulfil the exercise (cost per claim)
|
10%
|
12.0
|
(12.0)
|
It is estimated that significantly
all the provision will be utilised over a two-to-three-year period
from the reporting date.
Lease provision
The lease provision represents the
value of expected future costs of reinstating leased property to
its original condition at the end of the lease term. The estimate
is based on the square footage of leased properties and typical
costs per square foot of restoring similar buildings to their
original state. The Group expects £1.5 million (2022: £1.6 million)
of the provision to be utilised within one year. The majority
of the provision relates to leased property with a maturity date of
greater than five years.
Clawback provision
The clawback provision represents
amounts due to third-parties less amounts recovered from Partners.
The provision is based on estimates of the indemnity
commission that may be repaid. The Group expects to utilise the
provision on a straight-line basis over four years.
With the exception of the Ongoing
Service Evidence provision, it is considered that no reasonably
possible level of changes in estimates would have a material impact
on the value of the best estimate of the
provisions.
Contingent liabilities
Complaints and disputes
The Group is committed to
achieving good client outcomes but does, in the normal course of
business receive complaints and claims. Also, and as described in
the Strategic Report, the FCA continues to reinforce the need for
Firms to embed the Consumer Duty regulation and there remains a
risk that we fail to provide quality suitable advice to clients, or
that we fail to evidence the provision of good quality service and
advice, which could result in regulatory sanction and/or a need to
refund or compensate clients.
The costs, including legal costs,
of these issues as they arise can be significant and where
appropriate, provisions have been established in accordance with
IAS 37.
Guarantees
During the normal course of
business, the Group may from time to time provide guarantees to
Partners, clients or other third parties. However, based upon the
information currently available to them, the Directors do not
believe there are any guarantees which would have a material
adverse effect on the Group's financial position, and so the fair
value of any guarantees has been assessed as £nil (2022:
£nil).
For further information, see the
list of principal risks and uncertainties in the Risk and risk
management section of the Strategic report.
10. Borrowings and financial
commitments
Borrowings
Borrowings are a liability arising
from financing activities. The Group has two different types of
borrowings:
· senior unsecured corporate borrowings which are used to
manage working capital, bridge intra-Group cash flows and fund
investment in the business; and
· securitisation loan notes which are secured only on a legally
segregated pool of the Group's business loans to Partners, and
hence are non-recourse to the Group's other assets. Further
information about business loans to Partners is provided in Note
7.
Senior unsecured corporate
borrowings
|
31
December
2023
|
31 December
2022
|
£'Million
|
£'Million
|
Corporate borrowings: bank
loans
|
50.0
|
-
|
Corporate borrowings: loan
notes
|
151.1
|
163.8
|
Senior unsecured corporate
borrowings
|
201.1
|
163.8
|
The primary senior unsecured
corporate borrowings are:
· a
revolving credit facility of £345 million which is repayable at
maturity in 2028 with a variable interest rate. At 31 December 2023
the undrawn credit available under this facility was £295 million
(2022: £345 million);
· a
Note Purchase Agreement for £51.1 million, which had the first
annual instalment of £12.8 million repaid in 2023. The notes are
repayable in four further annual instalments ending in 2027, with
variable interest rates; and
· a
Note Purchase Agreement for £100 million. The notes are repayable
in one amount in 2031, with variable interest rates.
The Group has a number of
covenants within the terms of its senior unsecured corporate
borrowing facilities. These covenants are monitored on a regular
basis and reported to lenders on a six-monthly basis. During the
course of the year all financial covenants were complied
with. The Group
is currently in discussion with a number of lenders regarding some
routine disclosure matters and expects these matters to be
satisfactorily concluded shortly.
As at 31 December 2023 and 31
December 2022 the Group had sufficient headroom available under its
covenants to fully draw the remaining commitment under its senior
unsecured corporate borrowing facilities.
Total borrowings
|
31
December
2023
|
31 December
2022
|
£'Million
|
£'Million
|
Senior unsecured corporate
borrowings
|
201.1
|
163.8
|
Senior tranche of non-recourse
securitisation loan notes
|
50.3
|
-
|
Total borrowings
|
251.4
|
163.8
|
Current
|
62.0
|
12.8
|
Non-current
|
189.4
|
151.0
|
|
251.4
|
163.8
|
Following the full loan sale to a
third party conducted in late 2022, the facility was renegotiated
and extended effective February 2023. The facility has been
utilised to purchase more eligible loans throughout 2023, and the
associated senior notes are repayable over the expected life of the
securitisation (estimated to be five years) with a variable
interest rate. They are held by a third-party investor and secured
on a legally segregated portfolio of business loans to Partners,
and on the other net assets of the securitisation entity SJP
Partner Loans No.1 Limited. Holders of the securitisation loan
notes had no recourse to the assets held by any other entity within
the Group. For further information on business loans to Partners,
including the sale of securitised business loans to Partners during
the year, refer to Note 7.
In addition to the senior tranche
of securitisation loan notes, a junior tranche has been issued to
another entity within the Group. The junior notes were eliminated
on consolidation in the preparation of the Group Financial
Statements and so do not form part of Group borrowings.
|
31
December
2023
|
31 December
2022
|
£'Million
|
£'Million
|
Junior tranche of non-recourse
securitisation loan notes
|
20.9
|
2.1
|
Senior tranche of non-recourse
securitisation loan notes
|
50.3
|
-
|
Total non-recourse securitisation
loan notes
|
71.2
|
2.1
|
Backed by
|
|
|
Securitised business loans to
Partners (see Note 7)
|
67.2
|
-
|
Other net assets of SJP Partner
Loans No.1 Limited
|
4.0
|
2.1
|
Total net assets held by SJP
Partner Loans No.1 Limited
|
71.2
|
2.1
|
Movement in borrowings
Borrowings are liabilities arising
from financing activities. The cash and non-cash movements in
borrowings over the year are set out below, with the cash
movements also set out in the Consolidated Statement of Cash
Flows.
|
Senior
unsecured
corporate
borrowings
|
Senior
tranche of securitisation
loan notes
|
Total
borrowings
|
Senior
unsecured
corporate
borrowings
|
Senior
tranche of
securitisation
loan notes
|
Total
borrowings
|
2023
|
2023
|
2023
|
2022
|
2022
|
2022
|
£'Million
|
£'Million
|
£'Million
|
£'Million
|
£'Million
|
£'Million
|
Balance at 1 January
|
163.8
|
-
|
163.8
|
270.6
|
162.4
|
433.0
|
|
Additional borrowing during the
year
|
175.0
|
58.1
|
233.1
|
145.0
|
59.0
|
204.0
|
|
Repayment of borrowings during the
year
|
(137.7)
|
(7.1)
|
(144.8)
|
(252.0)
|
(223.3)
|
(475.3)
|
|
Costs on additional borrowings
during the year
|
-
|
-
|
-
|
(1.6)
|
-
|
(1.6)
|
|
Unwind of borrowing costs (non-cash
movement)
|
-
|
-
|
-
|
0.6
|
0.5
|
1.1
|
|
Reclassification of prepaid loan
facility expense to prepayments
|
-
|
(0.7)
|
(0.7)
|
1.2
|
1.4
|
2.6
|
|
Balance at 31 December
|
201.1
|
50.3
|
251.4
|
163.8
|
-
|
163.8
|
|
The fair value of the outstanding
borrowings is not materially different from amortised cost.
Interest expense on borrowings is recognised within Other finance
income in the Consolidated Statement of Comprehensive
Income.
Financial commitments
Guarantees
The Group guarantees loans
provided by third parties to Partners. In the event of default on
any individual Partner loan, the Group guarantees to repay the
full amount of the loan, with the exception of Metro Bank. For this
third party the Group guarantees to cover losses up to 50% of the
value to the total loans drawn. These loans are secured against the
future income streams of the Partner. The value of the loans
guaranteed is as follows:
|
Loans
drawn
|
Facility
|
31
December
2023
|
31 December
2022
|
31
December
2023
|
31 December
2022
|
£'Million
|
£'Million
|
£'Million
|
£'Million
|
Bank of Scotland
|
19.6
|
28.7
|
35.0
|
70.0
|
Investec
|
33.3
|
28.8
|
50.0
|
50.0
|
Metro Bank
|
17.6
|
27.3
|
50.0
|
40.0
|
NatWest
|
32.2
|
37.9
|
75.0
|
75.0
|
Santander
|
186.5
|
167.7
|
189.1
|
179.0
|
Total loans
|
289.2
|
290.4
|
399.1
|
414.0
|
The fair value of these guarantees
has been assessed as £nil (2022: £nil).
11. Cash generated from
operations
|
Year ended
31
December
2023
|
Year ended
31 December
2022
|
|
£'Million
|
£'Million
|
|
Cash flows from operating
activities
|
|
|
Profit before tax for the
year1
|
439.6
|
2.8
|
Adjustments for:
|
|
|
Amortisation of purchased value of
in-force business
|
3.2
|
3.2
|
Amortisation of computer
software
|
15.4
|
9.3
|
Depreciation
|
24.0
|
21.7
|
Impairment of goodwill
|
-
|
1.5
|
Loss on disposal of computer
software
|
0.8
|
0.5
|
Loss on disposal of property and
equipment, including leased assets
|
2.3
|
0.9
|
Gain on disposal of
subsidiary
|
(1.2)
|
-
|
Share-based payment
charge
|
4.9
|
20.5
|
Interest income
|
(108.0)
|
(61.8)
|
Interest expense
|
17.3
|
12.4
|
Increase in provisions
|
454.1
|
1.9
|
Exchange rate
losses/(gains)
|
2.3
|
(0.7)
|
|
415.1
|
9.4
|
Changes in operating assets and
liabilities
|
|
|
Decrease in deferred acquisition
costs
|
32.2
|
42.3
|
Decrease in investment
property
|
184.2
|
274.0
|
(Increase)/decrease in other
investments
|
(21,077.2)
|
2,378.9
|
Decrease in reinsurance
assets1
|
41.6
|
20.2
|
Increase in other
receivables1,2
|
(14.2)
|
(40.6)
|
Increase/(decrease) in insurance
contract liabilities1
|
25.5
|
(98.1)
|
Increase/(decrease) in financial
liabilities (excluding borrowings)
|
15,991.8
|
(1,138.3)
|
Decrease in deferred
income
|
(38.9)
|
(32.2)
|
Increase/(decrease) in other
payables1
|
206.2
|
(390.4)
|
Increase/(decrease) in net assets
attributable to unit holders
|
3,908.1
|
(1,740.6)
|
|
(740.7)
|
(724.8)
|
Cash generated from/(used in)
operations2
|
114.0
|
(712.6)
|
1 Restated to reflect the
adoption of IFRS 17. See Note 1a.
2 Restated to reclassify
Proceeds from sale of financial assets held at amortised cost from
net cash flows from investing activities to net cash flows from
operating activities. See Note 1a.
12. Share capital, earnings per
share and dividends
Share capital
|
Number of
ordinary shares
|
Called-up
share capital
|
|
£'Million
|
At 1 January 2022
|
540,530,529
|
81.1
|
- Issue of shares
|
459,028
|
0.1
|
- Exercise of options
|
3,246,200
|
0.4
|
At 31 December 2022
|
544,235,757
|
81.6
|
-
Issue of shares
|
-
|
-
|
-
Exercise of options
|
4,369,037
|
0.7
|
At 31 December 2023
|
548,604,794
|
82.3
|
Ordinary shares have a par value
of 15 pence per share (2022: 15 pence per share) and are fully
paid.
Included in the issued share
capital are 3,411,743 (2022: 2,207,186) shares held in the Shares
in trust reserve with a nominal value of £0.5 million (2022: £0.3
million). The shares are held by the SJP Employee Share Trust and
the St. James's Place 2010 SIP Trust to satisfy certain
share-based payment schemes. The Trustees of the SJP Employee Share
Trust retain the right to dividends on the shares held by the Trust
but have chosen to waive their entitlement to the dividends on
1,896,985 shares at 31 December 2023 and 815,737 shares at 31
December 2022. The trustees of St. James's Place 2010 SIP
Trust have chosen to waive their entitlement to the dividend on 556
shares at 31 December 2023 (2022: nil).
Share capital increases are
included within the exercise of options line in the table above
where they relate to the Group's share-based payment schemes. Other
share capital increases are included within the issue of shares
line.
Earnings per share
|
Year ended
31
December
2023
|
Year ended
31 December
2022
|
£'Million
|
£'Million
|
Earnings
|
|
|
Profit after tax attributable to
equity shareholders (for both basic and diluted
EPS) 1
|
(10.1)
|
406.8
|
|
|
|
|
Million
|
Million
|
Weighted average number of
shares
|
|
|
Weighted average number of ordinary
shares in issue (for basic EPS)
|
547.6
|
542.7
|
Adjustments for outstanding share
options
|
8.8
|
5.1
|
Weighted average number of ordinary
shares (for diluted EPS)
|
556.4
|
547.8
|
|
|
|
|
Pence
|
Pence
|
Earnings per share (EPS)
|
|
|
Basic earnings per
share 1
|
(1.8)
|
75.0
|
Diluted earnings per
share 1
|
(1.8)
|
74.3
|
1 Restated to reflect the
adoption of IFRS 17. See Note 1a.
Dividends
The following dividends have been
paid by the Group:
|
Year ended
31
December
2023
|
Year ended
31 December
2022
|
Year ended
31
December
2023
|
Year ended
31 December
2022
|
Pence per share
|
Pence per share
|
£'Million
|
£'Million
|
Final dividend in respect of
2021
|
-
|
40.41
|
-
|
218.9
|
Interim dividend in respect of
2022
|
-
|
15.59
|
-
|
84.7
|
Final dividend in respect of
2022
|
37.19
|
-
|
203.1
|
-
|
Interim dividend in respect of
2023
|
15.83
|
-
|
86.5
|
-
|
Total dividends
|
53.02
|
56.00
|
289.6
|
303.6
|
In respect of 2023 the Directors
have recommended a 2023 final dividend of 8.00 pence per share.
This amounts to £43.9 million and will, subject to shareholder
approval at the Annual General Meeting, be paid on 24 May 2024 to
those shareholders on the register as at 26 April 2024.
13. Related party
transactions
Transactions with associates and
non-wholly owned subsidiaries
Associates
Outstanding at the year-end were
business loans of £2.9 million (2022: £1.2 million) to associates
of the Group. During the year £1.6 million (2022: £0.3 million) was
advanced and £1.8 million (2022: £nil) was repaid. Business loans
to associates are interest-bearing (linked to the Bank of England
base rate plus a margin) and repayable in line with the terms of
the loan contract. Interest of £nil was received during 2023 (2022:
£nil).
In addition, commission, advice
fees and other payments of £2.3 million were paid (2022: £0.4
million paid), under normal commercial terms, to associates of the
Group. The outstanding amount at 31 December 2023 was £0.5 million
payable (2022: £nil).
Non-wholly owned
subsidiaries
Commission, advice fees and other
payments of £3.8 million were paid (2022: £4.3 million paid), under
normal commercial terms, to non-wholly-owned Group companies. The
outstanding amount at 31 December 2023 was £0.6 million payable
(2022: £0.1 million receivable).
Transactions with key management personnel
Key management personnel have been
defined as the Board of Directors and members of the Group
Executive Committee. The remuneration paid to the Board of
Directors of St. James's Place plc is set out in the
Directors' Remuneration Report, in addition to the disclosure
below.
The Directors' Remuneration Report
also sets out transactions with the Directors under the Group's
share-based payment schemes, together with details of the
Directors' interests in the share capital of the
Company.
Compensation of key management
personnel is as follows:
|
Year ended
31
December
2023
|
Year ended
31 December
2022
|
£'Million
|
£'Million
|
Short-term employee
benefits
|
5.0
|
6.3
|
Post-employment benefits
|
0.5
|
0.5
|
Share-based payments
|
0.2
|
6.5
|
Total
|
5.7
|
13.3
|
The total value of Group FUM held
by related parties of the Group as at 31 December 2023 was £17.9
million (2022: £41.1 million). The total value of
St. James's Place plc dividends paid to related parties
of the Group during the year was £1.0 million (2022: £0.8
million).
During 2022 total consideration of
£20.3 million was agreed under normal commercial terms to key
management personnel and their connected parties for the
acquisition of Edwards Wealth Ltd (formerly JEWM Ltd). As at 31
December 2023 there was deferred contingent consideration
outstanding of £nil (2022: £3.2 million), with £3.2 million
deferred contingent consideration paid during the year (2022:
£nil).
Commission, advice fees and other
payments of £1.3 million (2022: £3.2 million) were paid, under
normal commercial terms, to St. James's Place advisers
who were related parties by virtue of being connected persons with
key management personnel. The outstanding amount payable at 31
December 2023 was £nil (2022: £0.1 million).
Outstanding at the year-end were
Partner loans of £nil (2022: £nil) due from
St. James's Place advisers who were related parties by
virtue of being connected persons with key management personnel.
The Group either advanced, or guaranteed, these loans. During the
year £nil (2022: £0.5 million) was advanced and £0.1 million (2022:
£3.0 million) was repaid by advisers who were related
parties.
Business loans to Partners are
interest-bearing (linked to the Bank of England base rate plus a
margin), repayable in line with the terms of the loan contract and
secured against the future renewal income streams of the respective
Partners. Interest of £nil was received during 2023 (2022: £0.1
million).
14. Events after the end of the
reporting period
On the 27 February 2024, the
Company signed an external debt facility for £250.0 million. Debt
drawn is repayable over 2 years at a margin over a variable
interest rate.
15. Non-statutory
accounts
The financial information set out
above does not constitute the Company's statutory accounts for the
years ended 31 December 2023 or 2022 but is derived from those
accounts. Statutory accounts for 2022 have been delivered to the
registrar of companies, and those for 2023 will be delivered in due
course. The auditors have reported on those accounts; their report
was (i) unqualified, (ii) did not include a reference to any
matters to which the auditors drew attention by way of emphasis
without qualifying their report and (iii) did not contain a
statement under section 498 of the Companies Act 2006.
16. Annual Report
The Company's Annual Report and
Accounts for the year ended 31 December 2023 is expected to be
posted to shareholders by 9 April 2024. Copies of both this
announcement and the Annual Report and Accounts will be available
to the public through the Company's website at
www.sjp.co.uk.
Glossary of alternative
performance measures
Within this document various
alternative performance measures (APMs) are disclosed.
An APM is a measure of financial
performance, financial position or cash flows which is not defined
by the relevant financial reporting framework, which for the Group
is International Financial Reporting Standards as adopted by the UK
(adopted IFRSs). APMs are used to provide greater insight into the
performance of the Group and the way it is managed by the
Directors. The table below defines each APM, explains why it is
used and, if applicable, details where the APM has been reconciled
to IFRS:
Financial-position-related
APMs
APM
|
Definition
|
Why is this measure used?
|
Reconciliation
to the Financial Statements
|
Solvency II net assets
|
Based on IFRS Net Assets, but with
the following adjustments:
1. Reflection of the recognition
requirements of the Solvency II regulations for assets and
liabilities. In particular this removes deferred acquisition costs
(DAC), deferred income (DIR), purchased value of in-force (PVIF)
and their associated deferred tax balances, other intangibles
and some other small items which are treated as inadmissible from a
regulatory perspective; and
2. Adjustment to remove the
matching client assets and the liabilities as these do not
represent shareholder assets.
No adjustment is made to deferred
tax, except for that arising on DAC, DIR and PVIF, as this is
treated as an allowable asset in the Solvency II
regulation.
|
Our ability to satisfy our
liabilities to clients, and consequently our solvency, is central
to our business. By removing the liabilities which are fully
matched by assets, this presentation allows the reader to focus on
the business operation. It also provides a simpler comparison with
other wealth management companies.
|
Refer to the Reconciliation of Cash
result experiences to IFRS expenses.
|
Total embedded value
|
A discounted cash flow valuation
methodology, assessing the long-term economic value of the
business.
Our embedded value is determined in
line with the European Embedded Value (EEV) principles originally
set out by the Chief Financial Officers (CFO) Forum in 2004,
and amended for subsequent changes to the principles, including
those published in April 2016, following the implementation of
Solvency II.
|
Life business and wealth management
business differ 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 supplement the
IFRS and Cash results by providing additional disclosure on an
embedded value basis, which brings into account the net present
value of expected future cash flows, as we believe that a measure
of the total economic value of the Group is useful to
investors.
|
Not applicable.
|
EEV net asset value (NAV) per
share
|
EEV net asset value per share is
calculated as the EEV net assets divided by the year-end number of
ordinary shares.
|
Total embedded value provides a
measure of total economic value of the Group, and assessing
the EEV NAV per share allows analysis of the overall value of the
Group by share.
|
Not applicable.
|
IFRS NAV per share
|
IFRS net asset value per share is
calculated as the IFRS net assets divided by the year-end number of
ordinary shares.
|
Total IFRS net assets provides a
measure of value of the Group, and assessing the IFRS NAV per
share allows analysis of the overall value of the Group by
share.
|
Not applicable.
|
Financial-performance-related
APMs
APM
|
Definition
|
Why is this measure used?
|
Reconciliation
to the Financial Statements
|
Cash result, and Underlying cash
result
|
The Cash result is defined as the
movement between the opening and closing Solvency II net assets
adjusted as follows:
1. The movement in deferred tax is
excluded, except that arising from the establishment of the
exceptional Ongoing Service Evidence provision;
2. The movements in goodwill and
other intangibles are excluded; and
3. Other changes in equity, such as
dividends paid in the year and equity-settled share option costs,
are excluded.
The Underlying cash result reflects
the regular emergence of cash from the business, excluding any
items of a one-off nature and temporary timing
differences.
The Cash result reflects all other
cash items, including items of a one-off nature and temporary
timing differences.
Neither the Cash result nor the
Underlying cash result should be confused with the
IFRS Consolidated Statement of Cash Flows which is prepared in
accordance with IAS 7.
|
IFRS income statement methodology
recognises non-cash items such as deferred tax and equity-settled
share options. By contrast, dividends can only be paid to
shareholders from appropriately fungible assets. The Board
therefore uses the Cash results to monitor the level of cash
generated by the business.
While the Cash result gives an
absolute measure of the cash generated in the year, the Underlying
cash result is particularly useful for monitoring the expected
long-term rate of cash emergence, which supports dividends and
sustainable dividend growth.
|
Refer to Sections 2.1 and 2.2
of the financial review and also see Note 3 to
the Consolidated Financial Statements.
|
Underlying cash basic and diluted
earnings per share (EPS)
|
These EPS measures are calculated
as Underlying cash divided by the number of shares used in the
calculation of IFRS basic and diluted EPS.
|
As Underlying cash is the best
reflection of the cash generated by the business, Underlying cash
EPS measures allow analysis of the shareholder cash generated by
the business by share.
|
Not applicable.
|
EEV profit
|
Derived as the movement in the
total EEV during the year.
|
Both the IFRS and Cash results
reflect only the cash flows in the year. However our business
is long-term, and activity in the year can generate business
with a long-term value. We therefore believe it is helpful to
understand the full economic impact of activity in the year, which
is the aim of the EEV methodology.
|
See Note 3 to the Consolidated
Financial Statements.
|
EEV operating profit
|
A discounted cash flow valuation
methodology, assessing the long-term economic value of the
business.
Our embedded value is determined
in line with the EEV principles originally set out by the
Chief Financial Officers (CFO) Forum in 2004, and amended for
subsequent changes to the principles, including those published in
April 2016, following the implementation of Solvency II.
The EEV operating profit reflects
the total EEV result with an adjustment to strip out the impact of
stock market and other economic effects during the year.
Within EEV operating profit is new
business contribution, which is the change in embedded value
arising from writing new business during the year.
|
Both the IFRS and Cash results
reflect only the cash flows in the year. However, our business
is long-term, and activity in the year can generate business
with a long-term value. We therefore believe it is helpful to
understand the full economic impact of activity in the year, which
is the aim of the EEV methodology.
Within the EEV, many of the future
cash flows derive from fund charges, which change
with movements in stock markets. Since the impact of these
changes is typically unrelated to the performance of the
business, we believe that the EEV operating profit (reflecting the
EEV profit, adjusted to reflect only the expected investment
performance and no change in economic basis) provides the most
useful measure of embedded value performance in the
year.
|
See Note 3 to the Consolidated
Financial Statements.
|
EEV operating profit basic and
diluted earnings per share (EPS)
|
These EPS measures are calculated
as EEV operating profit after tax divided by the number of shares
used in the calculation of IFRS basic and diluted
EPS.
|
As EEV operating profit is the best
reflection of the EEV generated by the business, EEV operating
profit EPS measures allow analysis of the long-term value generated
by the business by share.
|
Not applicable.
|
Policyholder and shareholder
tax
|
Shareholder tax is estimated by
making an assessment of the effective rate of tax that is
applicable to the shareholders on the profits attributable to the
shareholders. This is calculated by applying the appropriate
effective corporate tax rates to the shareholder
profits.
The remainder of the tax charge
represents tax on policyholders' investment returns.
This calculation method is
consistent with UK legislation relating to the calculation
of the tax on shareholders' profits.
|
The UK tax regime facilitates the
collection of tax from life insurance policyholders by making
an equivalent charge within the corporate tax of the Company. The
total tax charge for the insurance companies therefore comprises
both this element and an element more closely
related to normal corporation tax.
Life insurance business impacted by
this tax typically includes policy charges which align with the tax
liability, to mitigate the impact on the corporate entity. As
a result, when policyholder tax increases, the charges
also increase. Since these offsetting items can be large,
and typically do not perform in line with the business, it is
beneficial to be able to identify the two elements separately. We
therefore refer to that part of the overall tax charge which is
deemed attributable to policyholders as policyholder tax,
and the rest as shareholder tax.
|
Disclosed as separate line items in
the Statement of Comprehensive Income.
|
Profit before shareholder
tax
|
A profit measure which reflects the
IFRS result adjusted for policyholder tax, but before deduction of
shareholder tax. Within the Consolidated Statement
of Comprehensive Income the full title of this measure is
'Profit before tax attributable to shareholders'
returns'.
|
The IFRS methodology requires that
the tax recognised in the Financial Statements should include
the tax incurred on behalf of policyholders in our UK life
assurance company. Since the policyholder tax charge
is unrelated to the performance of the business, we believe it
is also useful to separately identify the profit before shareholder
tax, which reflects the IFRS profit before tax, adjusted only for
tax paid on behalf of policyholders.
|
Disclosed as a separate line item
in the Statement of Comprehensive Income.
|
Underlying profit
|
A profit measure which reflects the
IFRS result adjusted to remove the DAC, DIR and PVIF
adjustments.
|
The IFRS methodology promotes
recognition of profits in line with the provision of services and
so, for long-term business, some of the initial cash flows are
spread over the life of the contract through the use of intangible
assets and liabilities (DAC and DIR). Due to the Retail
Distribution Review (RDR) regulation change in 2013, there was
a step-change in the progression of these items in our accounts,
which resulted in significant accounting presentation changes
despite the fundamentals of our vertically-integrated business
remaining unchanged. We therefore believe it is useful to consider
the IFRS result having removed the impact of movements in these
intangibles, as it better reflects the underlying performance of
the business.
|
Refer to Section 2.1 of the
financial review
|
Controllable expenses
|
The total of expenses which
reflects establishment, development, and our Academy.
|
We are focused on managing
long-term growth in controllable expenses.
|
Full detail of the breakdown of
expenses is provided in Section 2.2 of the financial
review
|
Responsibility Statement of the
Directors in respect of the Annual Financial Report
The Directors confirm to the best
of their knowledge that:
· The
Financial Statements have been prepared in accordance with
UK-adopted International Accounting Standards and with the
requirements of the Companies Act 2006 as applicable to companies
reporting under those standards and give a true and fair view of
the assets, liabilities, financial position and profit for the
Company and the undertakings included in the consolidation as a
whole; and
· Pursuant to Disclosure and Transparency Rules Chapter 4, the
Directors' Report and Strategic Report of the Company's Annual
Report and Accounts includes a fair review of the development and
performance of the business and the position of the Company and the
undertakings included in the consolidation taken as a whole,
together with a description of the principal risks and
uncertainties faced by the business.
On behalf of the Board
Mark FitzPatrick
|
Craig Gentle
|
Chief Executive Officer
|
Chief Financial Officer
|
27 February 2024
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.