St James's Place Regulatory News (STJ)

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ST. JAMES'S PLACE PLC

27 St. James's Place, London SW1A 1NR

Telephone 020 7493 8111 Facsimile 020 7493 2382

PRESS RELEASE

25 February 2016

ANNOUNCEMENT OF

ANNUAL RESULTS FOR THE YEAR ENDED 31 DECEMBER 2015

STRONG GROWTH UNDERPINS 20% INCREASE IN DIVIDEND

St. James's Place plc ("SJP"), the wealth management group, today issues its annual results for the year ended 31 December 2015:

Financial highlights:

· EEV new business profit £440.7 million (2014: £373.1 million)

· EEV operating profit £660.2 million (2014: £596.4 million)

· EEV net asset value per share 737.3 pence (2014: 657.9 pence)

· IFRS profit before shareholder tax £151.3 million (2014: £182.9 million)

· Underlying post tax cash result £182.1 million (2014: £173.8 million)

· Final dividend of 17.24 pence per share (2014: 14.37 pence per share) giving a full year dividend of 27.96 pence per share - up 20%

· Group Solvency II free assets of £809.2 million compared with £440.2 million on Solvency I basis, giving Solvency ratio of 151% (156% before the final proposed dividend)

Strategic initiatives:

· Rowan Dartington acquisition now completed

· New office opening in Canary Wharf in May

· Academy concept extended to include training specialist staff and Regional Academy in Scotland

New business highlights:

· Record gross inflows of £9.24 billion (2014: £7.88 billion)

· Net inflow of funds under management of £5.78 billion (2014: £5.09 billion)

· Funds under management of £58.6 billion (2014: £52.0 billion)

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David Bellamy, Chief Executive Officer, commented:

"Despite the continued uncertainty in world stock markets, the strong growth across all key areas once again demonstrates the resilience of the business and delivered another record year of new investments, funds under management and operating performance.

The continuing growth and maturity in funds under management has, as expected, translated into continued growth in the underlying cash result. I am therefore pleased to confirm the final dividend of 17.24 pence per share, taking the total dividend for the year to 27.96 pence per share, up 20% on 2014.

Our success has been, and continues to be, built on our fundamental belief that for most people their finances and wealth are personal and they want to be treated in a highly personalised way and by someone they trust.  We see a growing demand for sound, personal, financial planning advice as individuals recognise the financial implications of increased life expectancy, whilst being faced with increasingly complex options in respect of their investments.

That increasing demand, coupled with the ongoing growth in the size of the Partnership, means that we remain well placed to continue our growth in 2016 and beyond, in line with our medium term objectives."

Enquiries:

Analyst presentation at 11am for 11.15 am at:

Bank of America Merrill Lynch Financial Centre,

2 King Edward Street,

London EC1A 1HQ

to be held in the Auditorium

Alternatively, if you are unable to attend but would like to watch a livestream of the presentation on the day, please click on the link below or via our website:

(Live and On-demand):

http://www.investis-live.com/st-jamess-place/56a8b2bf4abaa50b005dd901/fy15

There will also be a Dial in:

Conference call dial in details:

United Kingdom (Local) 020 3059 8125

All other locations + 44 20 3059 8125

Participant Password: St James Place

Replay Dial-in details

United Kingdom 0121 260 4861

All other locations + 44 121 260 4861

Passcode: 2608111 followed by #

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CHIEF EXECUTIVE'S REPORT

In many ways, 2015 was a quite extraordinary year. From the continuation of the Greek bailout saga to the crisis in Syria and Iraq, including the rise of ISIS and the atrocities committed by its supporters across the world and the desperate images of migrants in Turkey, the Mediterranean and throughout Europe. Closer to home, we had what for many was a surprise result in the UK general election, and an equally surprising leadership result for the Labour Party. The year ended with severe flooding in the North, with those dreadful scenes of disruption to many families, but where we saw how a great community spirit and resilience can endure. A difficult time for many people and a volatile one for markets.

Despite the continued uncertainty in world stock markets, St. James's Place (SJP) has once again achieved strong growth across all of the key aspects of the business. Gross inflows were 17% higher at a record £9.24 billion which, when combined with the sustained high retention of clients and their investments, resulted in record net inflows in the twelve months of £5.78 billion, taking funds under management to £58.6 billion, up 13% for the year.

Our success has been, and continues to be, built on our fundamental belief that for most people their finances and wealth are personal and they want to be treated in a highly personalised way and by someone they trust. Indeed, we see a growing demand for sound, personal, financial planning advice as individuals begin to fully comprehend the financial implication of increased life expectancy whilst being faced with increasingly complex options in respect of their pension funds.

As investor behaviours adapt to this changing retirement landscape and the prolonged environment of low interest rates, we have continued to evolve our investment approach, through the introduction of new investment funds, the Strategic Income and Diversified Bond funds, launched in November to provide increased investment diversification for clients. Alongside the evolution of our investment management approach, the acquisition of Rowan Dartington Holdings Limited, a specialist stockbroking and discretionary investment service, broadens our range of supplementary investment services, to include advisory portfolio management, direct equity, trust and charity portfolio management. We plan to make these enhanced services available to our existing clients later in the spring, whilst enabling our Partners and advisers to access new clients who value such services.

At the other end of the spectrum, we recognise the intergenerational challenges that some of our clients tell us they face in trying to help their offspring, particularly in relation to owning their own homes or funding education. So in 2016, in addition to looking to enhance our estate planning services through a more formalised probate service and expansion of our long-term care offerings, we will explore with our third party providers bespoke mortgage and protection products to meet this need.

Financial Performance

The strong growth in new business and funds under management are reflected in the financial results in all measures. However, the results were negatively impacted by a significant £14.2 million increase in our levy to the Financial Services Compensation Scheme.

The figures also reflect our continued strategic investments including the SJP Academy, our Asian operations and our back office infrastructure development.

The operating profit on a European Embedded Value (EEV) basis was £660.2 million (2014: £596.4 million) which reflects the above factors, together with a positive experience and operating assumption change.

The profit before shareholder tax, on an International Financial Reporting Standards (IFRS) basis of £151.3 million (2014: £182.9 million) was also impacted by the negative £21.7 million change in the movement of certain accounting intangible assets and liabilities. The underlying profit for the year was £163.7 million compared with £173.6 million for the prior year.

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A more detailed commentary on the financial results is included in the CFO Report on pages 7 to 9 and the Financial Review on pages 10 to 39.

Dividend

At the half year we increased the interim dividend by 20% and said it was our intention to increase the final dividend at a similar rate.

Consequently, and supported by the continued strong performance of the business, the Board has proposed a final dividend of 17.24p per share, up 20%, which brings the full year dividend to 27.96p per share, also up 20%.

The final dividend for 2015, subject to approval of shareholders at our AGM, will be paid on 13 May to shareholders on the register at the close of business on 8 April. As usual a Dividend Reinvestment Plan continues to be available for shareholders.

Clients

At the heart of our sustained growth is our commitment to achieving the best possible outcome for our clients and the importance we place on maintaining long lasting relationships with them and serving them and our Partners well. We firmly believe that this highly personalised approach continues to have a very important place in UK financial services today and will do so in the future.

However, we are not at all complacent and every year we take the opportunity to seek feedback, from our clients directly, in response to their annual Wealth Account statement. The research carried out in the last two months once again shows a consistently high advocacy score, where 95% of our clients confirmed that they would recommend St. James's Place to others, with around 60% having already done so. Similarly, when asked to assess our proposition in terms of value for money, 79% of our clients said excellent or good, with a further 19% describing it as reasonable.

I said earlier that for most people their finances and wealth are personal and these survey results, together with the direct contact our Partners maintain with clients, reassures us that our clients value the personal face-to-face relationship they provide. Last year, largely through the strong advocacy of our existing clients a further 54,000 new clients were introduced to St. James's Place, taking the total number of clients to over 525,000.

Investment Management

Stock markets started 2015 very positively reaching record highs in both the US and UK before retreating over the remainder of year on concerns of slowing global growth and in particular in respect of China.

Year on year stock markets fell with the FTSE 100, for example, down 4.9% in capital terms albeit the return including dividends was only marginally negative.

Against this backdrop, the relative performance of our funds was good and in particular all our portfolios made positive returns, with the Balance Income portfolio, for example, up 3.2%.

Low interest rates continue to present a challenge for income seeking investors. In recognition of this, as I mentioned earlier, we launched two new income focused funds in November.

Firstly, the Diversified Bond fund which aims to provide an attractive level of income by investing across a broad universe of global fixed-interest markets. The fund combines three complementary investment strategies managed by Payden & Rygel, Brigade Capital Management and TwentyFour Asset Management.

The second new fund is the Strategic Income fund which aims to generate a higher level of income than traditional fixed-interest and equity funds. This fund blends four independent investment strategies managed by MidOcean Credit Fund Management, Schroders, BlueBay Asset Management and TwentyFour Asset Management and predominantly invests in high-yielding fixed-interest assets whilst having some exposure to global equity markets.

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With the addition of these new funds and specialist investment managers, our investment proposition for clients now includes 70 carefully selected managers from around the world.

Market volatility and continued global uncertainty underline the importance of diversification, which remains one of our core investment principles. By continuing to develop our investment approach, so that it takes account of a changing investment world, we are confident we can help our clients fulfil their long term financial goals.

The St. James's Place Partnership

Increasing the number of Partners and providing them with the tools and support to deliver high quality outcomes for clients is one of the key drivers to achieving our long term growth objectives.

In 2015, alongside the impressive financial results, I am therefore pleased to report that through the continued acquisition of highly established advisers, the integration of new Partners in Asia and the success of our extended Academy programme, the size the Partnership increased to 2,264, whilst our total qualified adviser community increased by 10% to 3,113.

The sustained growth in our Partner and adviser community bears testimony to the reputation that we have built for both the quality of our client proposition and the level of support and development our Partners and advisers receive.

As our Partner practices grow and the administration of their clients' affairs becomes increasingly complex, we will look to find ways to make it easier for our Partners, advisers and their support staff to serve their clients well and build even more successful businesses. This is the driver behind our investment in our back-office development and the extension of our Academy concept to the training of specialist support staff for our existing Partners.

This community, of around 4,000 people, perform a variety of roles for Partners and we plan to deepen our relationship with these teams in 2016 so as to help with the smooth running of our Partners' businesses.

Alongside these initiatives, we are investing in additional space for our London offices and we will be opening a new office, in Canary Wharf, in May.

Our business in Asia is making good progress and we continue to focus our overseas efforts here such that, whilst we will continue to explore an entry into the Middle East, if we do decide to enter it's unlikely we will do so until 2017.

'Back-office' Administration

In 2014, we embarked on one of the most significant developments in our back office for some time. The initial phase saw the unification of our two major back office teams, in Craigforth and Essex, coming together under the management of IFDS.

That was followed by the development of a new software platform, called 'Bluedoor', for the combined administration teams and towards the end of last year, we began the migration of our business to the new platform, starting with our unit trust and ISA business, which was successfully completed in October.

This year our focus is on pensions and we anticipate launching our new retirement account on the platform later in the summer.

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The St. James's Place Foundation & Community Engagement

2015 was again a record year for fund raising for our Foundation. Raising funds for those less fortunate has always been at the heart of the Group's culture, and the collective efforts of the whole of our community, including employees, Partners, suppliers and others connected to St. James's Place, resulted in over £3.5 million being raised which, when matched by the Company, meant over £7 million for the Foundation. The cumulative total raised to date is now approaching £50 million, and we were again able to support over 600 charitable projects in the year.

Our cultural driver of 'doing the right thing' runs through the whole organisation, underpinning all our interactions with our local and extended communities. Our continued membership of FTSE4GOOD recognises the positive nature of our work in these areas. We're proud of the significant contribution we make through our Foundation, and our other initiatives, including our structured programmes for summer interns and Apprenticeships. We are also committed to maintaining our Living Wage accreditation, being one of only 20 FTSE100 companies to achieve this status.

Finally, we're also very proud of the contribution that our whole community makes to their communities, not least through the wide variety of fund raising events for the Foundation that took place throughout the year.

Partners and Employees

The strength and continued growth of the business is due in no small part to the hard work and dedication of our Partners, their staff and all of our employees and administration support teams.

On behalf of the Board and shareholders I thank everyone connected with St. James's Place for their contribution to these results and for their continued enthusiasm, dedication and commitment.

Outlook

We have once again achieved strong growth across all of the key aspects of the business and are well placed to achieve further growth in 2016 and beyond.

David Bellamy

Chief Executive

24 February 2016

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CHIEF FINANCIAL OFFICER'S REPORT

As highlighted earlier, 2015 was another year of strong operating performance with growth in all the business fundamentals.

The financial results reflect this operating performance but they were also impacted by both a significant increase in the levy charged by the Financial Services Compensation Scheme (FSCS levy) and the higher costs associated with a number of strategic investments we are making in the business, laying foundations for the future.

The FSCS levy for the year was £20.1 million (£15.9 million post tax), an increase of £14.2 million compared to the prior year charge of £5.9 million (£4.7 million post tax).

The costs associated with our strategic investments includes the Academy at £5.5 million (2014: £4.1 million), our Asian operations at £7.5 million (2014: £3.6 million) and our back office infrastructure development at £18.1 million (2014: £11.9 million).

The additional FSCS levy and these investment costs effect all the profit measures.

Financial results

We continue to report our results on both IFRS and EEV bases, as well as providing further detail on the cash result, reflecting cash emergence from the business. Detailed explanation and analysis of these measures is provided on page 10 and 11.

IFRS Result

We present both the Profit before shareholder tax, which removes the impact of policyholder tax, and Underlying profit before shareholder tax, which adjusts the Profit before shareholder tax for movements in intangible assets and liabilities (DAC/DIR/PVIF see page 21).

We regard Underlying profit as the most appropriate measure, based upon IFRS, for assessing operating performance.

The performance on these measures is noted in the table below:

Both measures have been impacted by the £14.2 million increase in the FSCS levy together with the higher costs associated with our investment in laying the foundations for the future. In addition, the Profit before shareholder tax result has also been adversely effected by a reduction of £21.7 million in contribution from movements in the DAC/DIR/PVIF adjustments.

Cash Result

At £182.1 million (2014: £173.8 million), the Underlying cash result for the year was up 5%, reflecting the strong underlying growth in income from Funds under Management (up 18%), partially offset by the additional FSCS levy (£11.2 million post-tax) together with the Academy and Asian expenditure. For comparison, if we were to adjust for the increase in the FSCS levy, the Underlying Cash Result would have been some 11% higher.

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Taking into account the cost of our investment into the back office infrastructure and other timing variances, the Cash result was £171.5 million (2014: £165.1 million).

EEV Result

The New business profit of £440.7 million (2014: £373.1 million) was up 18% reflecting the strong gross inflows, whilst the Operating profit for the period was £660.2 million (2014: £596.4 million).

The Operating profit reflects not only the higher New business profit but also a further positive experience variance and a positive operating assumption change, partially offset by the higher FSCS levy and investment costs. The 2015 result is also negatively impacted by a lower opening risk discount rate (5.0% in 2015 v 6.2% in 2014), resulting in a lower contribution from the unwind of discount rate of some £41.4 million less than that expected if the discount rate was unchanged.

The net asset value per share increased 12% over the year to 737.3p (2014: 657.9p).

Dividend

At the half year we increased the interim dividend by 20% and commented it was our intention to increase the final dividend at a similar rate.

Given the continued strong performance of the business, the Board has proposed a final dividend of 17.24p per share, up 20%. This provides for a full year dividend of 27.96 pence per share, also growth of 20%, and represents a payout ratio compared to underlying cash of 80%. However, if we adjust the underlying cash result to remove increase in the FSCS levy, then the payout ratio would be 76%.

It is our intention to continue our policy of increasing the dividend in line with the underlying performance of the business.

Capital & Solvency II

We continue to manage the balance sheet prudently to ensure the Group's solvency is maintained safely through the economic cycle. This is important not only for the safeguarding of our clients' assets, but also to ensure we can maintain returns to shareholders.

The start of 2016 sees the introduction of a new regulatory solvency regime known as Solvency II. The underlying driver of the new Solvency II regulation is to focus attention on risk and risk management. Whilst the regulations introduce extensive new valuation and reporting requirements, some presentational changes and a number of moving parts, it has not altered our business or risk profile, and our solvency position remains both robust and secure.

After taking account of the £90.5 million cost of the proposed final dividend, we are reporting Solvency II free assets at the group level of £809.2 million compared to corresponding Solvency I free assets of £440.2 million.

The new Solvency II solvency ratio at the Group level is 151% (156% before the final proposed dividend).

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Concluding remarks

2015 was another strong financial performance which has enabled the Board to propose a 20% increase in the dividend.

Our core business and its financials are in good shape. As noted in my opening remarks, we have already been laying strategic foundations for the future, which now includes the acquisition of the discretionary fund management business Rowan Dartington. We are well set for further growth, and continuing to increase the return to shareholders.

Andrew Croft

Chief Financial Officer

24 February 2016

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FINANCIAL REVIEW

The Financial Model

The Group's strategy is to attract and retain retail funds under management (FUM) on which we receive an annual management fee. This is the principal source of income for the Group, from which we invest in growth and development of the Partnership, acquiring new funds under management and meeting the expenses of the business.

The level of income is dependent on the level of client funds and asset values. In addition, since much of our business does not generate net cash in the first six years, the level of income will increase as a result of new business from six years ago becoming cash generative. This deferral of cash generation means the business always has six years' worth of funds in the 'gestation' period. (Analysis of the FUM from which income is generated is presented in Section 1.)

Group expenditure is carefully managed with clear targets set for growth in establishment expenses in the year. Many other expenses increase with business levels and are met from margins in the products. However, the Group also invests in new client services, computer systems and other corporate initiatives, all of which are reported as development expenditure. (Analysis of the Expenses is presented in Section 2.)

A small proportion of Group expenditure is required to support management of existing funds, but the majority of expenditure is investment in growing the Partnership and acquiring new funds. The resulting new business is expected to generate income for an average of 14 years, and provide a good return on the investment (see page 14).

As the business matures, the proportion of the cash emergence from the existing business required to support the acquisition of new business is reducing. This has resulted in strong growth in underlying cash emergence in recent years which has ultimately fed through to growth in the dividend.

Profit Measurement

In line with statutory reporting requirements we report profits assessed on an IFRS basis. However given the long-term nature of the business and the high level of investment in new business generation each year, management believes the IFRS result does not provide an easy guide to the cash likely to emerge in future years, nor does it reflect the total economic value of the business. We therefore complement our statutory IFRS reporting with additional analysis.

Firstly, we provide additional analysis in relation to the tax reported under IFRS. 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 and is paid on to HMRC, management believes it is useful to separately identify the profit before shareholder tax. This measure reflects the IFRS profit before tax, adjusted for tax paid on behalf of policyholders.

Secondly, the IFRS standards promote 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 (known as DAC - Deferred Acquisition Costs and DIR - Deferred Income). Due to regulation change in 2013 there was a step change in the progression of these items, which resulted in significant accounting presentation changes despite the fundamentals of our vertically-integrated business remaining unchanged. We therefore present an additional 'non-GAAP' underlying profit measure which is derived from the IFRS result by adjusting for these intangibles. Management believes this adjusted IFRS result provides the most useful measure of operating performance.

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Thirdly, the cash result and underlying cash result are the principal measures that the Board considers when determining the dividend payment to shareholders as they best reflect the cash generated by the business.

The Board starts by considering the underlying cash result, which most clearly reflects the impact of the primary drivers of the business (being FUM and expenses as described in Sections 1 and 2). This is derived from the underlying profit measure, principally by adjusting for differences between deferred and current tax, share option costs and some solvency reserve impacts.

Other cash flows are taken into account in the Cash result, not least tax settlement timing variances and changes in solvency reserving requirements. Allowance is also made for the cost of the back-office infrastructure development.

These two measures are presented with a breakdown explaining the sources of profit based on the key drivers of the business, with the aim of assisting investors to understand the development of profits. The Board also believes it is useful to understand the contribution to profits from just the in-force business as this reflects the value being generated by the existing business, and so the breakdown identifies the new business impact and makes clear the ongoing contribution from the established business.

Neither the cash result nor the underlying cash result should be confused with the IFRS cash flow statement which is prepared in accordance with IAS 7 and disclosed on page 68.

Finally, we also present an embedded value result. Management believes this approach is particularly useful for investors seeking to assess the full value of the long-term emergence of shareholder cash returns, since it includes an asset in the valuation reflecting the net present value of the expected future cash flows from the business. This type of presentation is also commonly referred to as a 'discounted cash flow' valuation.

Our embedded value is based on the EEV principles, which were set out as an industry standard by the Chief Financial Officers (CFO) Forum in 2004.

Many of the future cash flows derive from fund charges, which change with movements in stock markets. Since the impact of these changes is unrelated to the performance of the business, management believes that the EEV operating profit (reflecting the EEV profit before tax, adjusted to reflect only the expected investment performance and no change in economic basis) provides the most useful measure of performance in the year.

We have provided an analysis of the FUM development in Section 1 and Expenses in Section 2. Section 3 provides a commentary on the performance of the business on the IFRS basis whilst Sections 4 and 5 provide further detail on the Cash and EEV results. Finally, Section 6 covers the Solvency and Capital Management.

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SECTION 1: FUNDS UNDER MANAGEMENT

This section starts with analysis of the movement in the funds under management of the group. This is followed by information about the income the group earns from managing these funds, together with the profile of these earnings, and finally a geographical and segmental analysis of the funds under management.

Movement in funds under management

During 2015 we have seen gross new funds of £9.24 billion, growth of 17% and a net inflow of funds under management of £5.78 billion (2014: £5.09 billion), growth of 14%. Investment return has also been positive although not as strong as in the prior year. Nevertheless, given the strong net inflow, and the positive investment performance, funds under management increased to £58.61 billion.

Analysis of the development of the funds under management is provided in the following tables:

In addition, there is a further £430 million of funds under management in third party funds within our Asia business.

In addition, there was a further £449 million of funds under management in third party funds within our Asia business.

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Notes

1. Regular income withdrawals are those amounts selected by clients which are paid out by way of periodic income. The withdrawals have been assumed in the calculation of the embedded value new business profit.

Maturities are those sums paid out where the plan has reached the selected maturity date (e.g. retirement date). The expected maturities have been assumed in the calculation of the embedded value new business profit.

2. Surrenders and part surrenders are those amounts where clients have chosen to withdraw money from their plan. Surrenders are assumed to occur in the calculation of the embedded value new business profit based on actual experience, updated on an annual basis, by plan duration and the age of the client. The implied surrender rate shown in the table above is very much a simple average and reflects only recent experience. Whilst it could be compared with the long-term assumptions underlying the calculation of the embedded value, it should not be assumed that small movements in this rate will result in a change to the long term embedded value assumptions.

Fees on funds under management

As noted at the start of this Financial Review, our financial model is to attract and retain retail funds under management (FUM) on which we receive an annual management fee.

The net annual management fee retained by the Group is c.0.77% post tax. However, due to our product structure, investment and pension business does not generate net cash in the first six years. Consequently, the level of income we are receiving today is not fully representative of the expected earnings from the funds we are managing, and these earnings will increase as a result of the new business from six years ago becoming cash generative. This deferral of cash generation means there is always six years' worth of business in the 'gestation' period.

Our product structure involves an early withdrawal charge that reduces to zero over the first six years of the life of the policy. This allows us to establish an opening liability net of the outstanding withdrawal charge that would apply if the policy were to be encashed.

As the withdrawal charge reduces to zero over the first six years of the policy, so the liability to the policyholder is enhanced by increasing their funds by 1% per annum. In other words there is a cost which offsets the annual management fee above. This is known as the 'unwind' of the withdrawal charge.

As a result this business does not make a meaningful contribution to the cash result until year seven. The table below provides an estimated current value of the funds under management where the early withdrawal charge applies.

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These funds under management are not yet generating income within the cash result but will do so once the six year early withdrawal charge is fully unwound. This £19.2 billion represents approximately a third of the total funds under management which, if all the business reached the end of the early withdrawal charge period, would contribute an additional £147.7 million to the annual post-tax cash result.

Although, as noted above, a proportion of the new client funds do not generate a meaningful net income to the Group within the first six years, the Group does incur costs associated with attracting these new funds and therefore the Directors believe it is useful to provide details of the economic return we expect will be generated from the new business. In other words, the business case for the investment in attracting new clients and funds under management.

As detailed later in this review on page 24, a net cost of £84.2 million (2014: £62.7 million) has been incurred to attract the £9.24 billion of gross new funds (2014: £7.88 billion). The increase in this net cost has been impacted by a significant increase in the FSCS levy.

We regard this as an investment in new business which we expect to generate income in the future significantly exceeding this cost and therefore provide positive returns for shareholders. The table below provides details of the new business added during the reporting periods and different measures of valuing the investment:

* The investment as a percentage of net inflow of funds under management was 1.5% compared with 1.2% for 2014.

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Geographical and segmental analysis

The table below provides a geographical and segmental analysis of funds under management at the end of each year.

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SECTION 2: EXPENSES

Management Expenses

The table below provides the usual breakdown of the management expenditure (before tax) for the combined financial services activities.

Notes

1. These costs are met from corresponding policy margins and any variation in them from changes in the volumes of new business or the level of the stock markets does not directly impact the profitability of the Group.

2. Other performance related costs, for both Partners and employees, vary with the level of new business and operating profit performance of the business.

3. Establishment costs are the running costs of the Group's infrastructure and are relatively fixed in nature in the short term, although they are subject to inflationary increases. These costs will increase as the infrastructure expands to manage the higher number of clients, the growing number of advisers and increasing business volumes.

The growth in establishment expenses during the year was higher than our original expectations as a consequence of an increase in expenditure associated with the high level of adviser recruitment in the year together with the costs relating to the higher business volumes.

During 2016 we will be expanding our presence in London with a new office opening in Canary Wharf as well as taking additional space in our existing London locations. Reflecting this additional expenditure we expect establishment expenses in 2016 to increase by c.11% (8.5% before these additional property costs).

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4. The Academy continues to be an important strategic investment for the future. The additional expenditure during 2015 reflected both the increased number of Academy participants, together with the expansion of the programme to Manchester and Solihull.

2016 spend will increase further to an expected £7.5 million, reflecting continued Academy intakes in London, additional intakes in Manchester and Solihull, plus our first Academy intake in Edinburgh.

5. Other development costs represent the expenditure associated with the on-going development in our investment proposition, corporate initiatives, technology improvements and other system developments. These costs amounted to £21.1 million for the year (2014: £15.6 million). Included within these costs is £1.6 million in relation to due diligence and transaction costs of our acquisition of Rowan Dartington.

We will continue to invest in the business and anticipate development spend in 2016 to be in line with the previous year.

6. The costs of the back office investment programme and related costs were £18.1 million (2014: £11.9 million).

The change programme has continued to progress well during 2015, albeit the project is running behind and costing more than our original plan. During the final quarter of last year we undertook full migration of the unit trust and ISA business onto the new system. This was a significant milestone for the project and we will start to see the benefits accrue in 2016 (within the EEV result an assumption change has been made to reflect the lower charges which now apply to the existing business).

Having successfully completed this phase of the project, during 2016 we will launch a new retirement account and plan the migration of the existing pension and drawdown business once the pensions landscape is clear. As we continue to develop the system and migrate the existing business we will incur further investment expenditure and anticipate costs for 2016 of a similar amount to 2015.

7. The regulatory costs represent the fees payable to the regulatory bodies of £7.5 million (2014: £6.1 million), we expect 2016 costs to increase to some £8.5 million.

8. This represents our required contribution to the Financial Services Compensation Scheme of £20.1 million (2014: £5.9 million).

The key driver of this increase relates to our share of compensation claims made by the FSCS in relation to external failures within the life and pension intermediary regulatory category. Whilst we are anticipating a further elevated levy in 2016 (our current estimate is for a levy of c.£16.0 million), we expect a more normalised level in future years.

9. Contribution from third party product new business reflects the net income received from wealth management business of £10.0 million (2014: £9.0 million), from group pension business of £0.9 million (2014: £0.8 million) and from protection business of £14.5 million (2014: £12.6 million).

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The table below provides a reconciliation from these management expenses to the total group expenses included in the Consolidated Statement of Comprehensive Income on page 64.

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SECTION 3: INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS)

The performance of the business and the IFRS result are best understood through the key drivers of FUM and expenses as described in the previous sections, together with other miscellaneous cash flows. These combine to explain the Underlying cash result on which the Underlying profit and the IFRS result develop.

The table below starts with the Underlying cash result (detailed in Section 4 on page 24) and provides a reconciliation to the Underlying profit result and the IFRS result.

The results are reported "after tax" and also "before shareholder tax". In arriving at the profit before shareholder tax (which is effectively "after policyholder tax"), it is necessary to estimate the analysis of the total tax charge between that payable in respect of policyholders and that payable by shareholders. Shareholder tax is assessed based on the effective rate of tax that is applicable to the shareholders, with the balance being treated as tax in respect of policyholders. Further detail is provided on page 22 of this review and in Note 6 on page 78.

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Underlying Profit before Shareholder tax

A breakdown by segment of the underlying profit result is provided in the following table:

Funds management

The profit for the year to 31 December 2015 was £244.9 million (2014: £221.9 million) which was 10% higher than the prior year. The increase mainly reflects higher income from funds under management.

Distribution business

St. James's Place is a vertically integrated firm, allowing it to benefit from the synergies of combining management of funds with distribution. Therefore, as well as the income generated on the funds under management, there is a profit or loss from the distribution activity. In any one year, this result will depend upon the level of new business and expenses.

The 2015 result has been negatively impacted by a significantly higher contribution to the FSCS, which for the year was £20.1 million (2014: £5.9 million). The Asian business also made a loss in the year of £7.0 million (2014: £1.7 million for the part-year) reflecting the corporate investment in securing this business. After adjusting for these costs in both years, there was a trading profit of £5.9 million in the current year compared with a trading loss of £3.3 million in 2014.

Back office development

As noted on page 17 the costs incurred during the year on the back office development project (known as Bluedoor) were £18.1 million (2014: £11.9 million).

Other

Other operations made a negative contribution of £41.9 million (2014: loss of £25.5 million). The largest contributors to the result are share option activity and strategic investment activity (other than the back office development identified separately above). The higher share option cost of £15.7 million in the current year (2014: £11.4 million) reflects the launch of a new Partner share scheme in the second half of 2015. The expected full year share option cost for 2016 is £19.7 million.

NI costs associated with the exercise of share options were also higher in the year at £3.4 million (2014: £2.7 million). Investment in strategic developments, including the Academy, Asia proposition development, and Rowan Dartington also increased from £6.4 million to £8.4 million.

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Total

The total underlying profit before shareholder tax for the year was £163.7 million compared with £173.6 million in 2014. The lower result in 2015 reflects the increase in share option costs, the higher FSCS levy and the back office development costs in the year. Adjusting for these items in both years provides a like for like comparison of £217.6 million for 2015, up 7.3% from £202.8 million for the prior year.

DAC/DIR/PVIF

As noted in the table below the net movement in these intangibles resulted in a negative contribution to profit before tax of £12.4 million for the year compared with a positive contribution to profit of £9.3 million in 2014.

The reduction, year on year, in the amortisation credit before shareholder tax is the consequence of the changes in adviser charging rules in 2013, which altered the nature of certain cash flows in the Group, moving them from long term manufacturing margins to short term advice margins. The positive contribution from the amortisation of accumulated DAC, DIR and PVIF balances from prior years has, as anticipated and reported previously, reduced during 2015. In 2016 we expect it to reduce by a further £20 million and become a charge as the amortisation of outstanding deferred expenses exceeds the recognition of deferred income. Further reductions in future years should be expected as the historic balances are unwound.

The smaller reduction in the amortisation credit after tax includes a £5.9 million credit which is the impact of the changes in future Corporation tax rates which is explained in more detail in the section on Shareholder tax on page 22. The impact is a credit because the deferred tax liability associated with the DAC and PVIF balances exceeds the deferred tax liability associated with the DIR balances.

By contrast with the amortisation credit, the negative contribution arising on new business has increased during 2016 reflecting the higher new business levels. This will continue to move in line with new business volumes.

It is important to note the intangible and deferred nature of these items, meaning that they don't reflect the operating performance of the business. This is why management regards the Underlying profit measure as the most appropriate measure, based upon IFRS, for assessing operating performance.

Profit before shareholder tax

The profit before shareholder tax for the year was £151.3 million compared with £182.9 million in 2014. As the analysis in the paragraphs above demonstrates, the lower result in the current year reflects the significant increase in the FSCS levy, the increased investment in back-office development and other corporate initiatives, but also a negative £21.7 million contribution from the movement in DAC/DIR/PVIF intangibles.

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Shareholder Tax

The tax reported under IFRS each year is impacted by a variety of effects, both current and future, particularly one-off events such as the change in corporation tax rate. Therefore, to assist shareholders, the table below provides a high level analysis of shareholder tax and the implied tax rate. A more detailed analysis is included in Note 6 on page 78.

The expected shareholder tax principally reflects the current UK corporation tax and overseas rates applicable and will vary from year to year depending upon the emergence of profit between the different tax regimes which apply to the St. James's Place Group companies.

In the second half of 2015, management completed the review of all historic Group companies, a project that commenced a number of years ago. During this process management identified further capital losses which it is expected will be utilised over the next ten years, albeit the actual rate of utilisation will depend on business growth and external factors, particularly investment market conditions. The rate of utilisation has been tested for sensitivity to experience and it is resilient to a range of reasonably foreseeable scenarios. Therefore a further deferred tax asset of £74.8 million has been established within the IFRS result.

A further two reductions in the Corporation tax rate (from 20% to 19% in April 2017 followed by a further cut to 18% in April 2020) were announced in the 2015 Summer budget and included in the Finance (No2) Act 2015. The impact of these changes on the deferred tax assets and liabilities has been included as a reduction in tax of £4.5 million.

The overall impact of the above effects is to increase the tax credit reported in the profit before shareholder tax result to a credit of £50.7 million (2014: credit of £5.0 million).

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IFRS profit

The total IFRS result, is presented in the table below, grossed up for the inclusion of tax incurred on behalf of policyholders:

In 2015, the IFRS profit before tax for the year was £174.1 million (2014: £294.4 million) with the principal contribution to the change being the decrease in the policyholder tax charges from £111.5 million in 2014 to £22.8 million in the current year.

The policyholder tax charge depends on the level of underlying policyholder taxable benefit determined by growth in value of the SJP funds. The higher charge in 2014 reflects higher growth in policyholders funds in that year compared to the current year.

The IFRS profit after tax after tax for the year was £202.0 million compared to £187.9 million for 2014, which reflects the impact from the recognition of capital losses as already covered.

Analysis of IFRS Assets and Net Assets per Share

The table below provides a summarised breakdown of the IFRS position at the reporting dates:

* net of deferred tax

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SECTION 4: CASH RESULT

The cash and underlying cash results should not be confused with the IFRS cash flow statement which is prepared in accordance with IAS 7 and disclosed on page 68.

The cash result and underlying cash result are the principal measures the Board considers when determining the dividend payment to shareholders. The Board starts by considering the underlying cash result, which most clearly reflects the impact of the primary drivers of the business (being FUM and expenses as described in Sections 1 and 2). This is derived from the Underlying profit measure, principally by adjusting for differences between deferred and current tax, share option costs and some solvency reserve impacts.

Other cash flows are also taken into account in the Cash result, not least tax settlement timing variances and changes in solvency reserving requirements. Allowance is also made for the cost of the back-office development. In considering the dividend the Directors will take into account the impact of the Cash result on the overall capital position of the Group.

The Cash result and Underlying cash result, which are presented after tax, are a combination of the cash emerging from the business in force at the start of the year less the investment made to acquire new business during the year. The tables and commentary below provide an indicative analysis of the cash result into these two elements.

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Notes

All numbers are expressed after tax at the prevailing tax rate for each year.

1. The net annual management fee: This is the manufacturing margin the Group retains from funds under management after payment of the associated costs (e.g. investment advisory fees and Partner remuneration). Broadly speaking the Group retains an average rate of 0.77% (post tax) of funds under management (2014: 0.77% post tax).

The level of net annual management fee was some 18% higher than last year, reflecting the higher average funds under management in 2015.

Further analysis of the FUM generating the net annual management fee, and the outlook is presented in Section 1 on page 12.

2. Unwind of early withdrawal charge: This relates to the reserving methodology applied to the early withdrawal charge within the structure of single premium life and pension business. At the outset of the product we establish a liability net of the outstanding withdrawal charge which would apply if the policy were to be encashed. As the withdrawal charge reduces by 1% per annum to zero over the first six years (the 'gestation' period), the liability to the policyholder increases. This cost is known as the 'unwind of early withdrawal charge'. In practice it offsets the annual management fee above.

Like the net annual management fee, the unwind of the withdrawal charge has increased due to growth in funds under management. However, the movement is also impacted by the fact that the funds under management added six years ago have completed the withdrawal charge period.

Further commentary on the unwind of the withdrawal charge, together with information on the FUM still in the gestation period is presented in Section 1 on page 13.

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3. Margin arising from new business: This is the cash impact of new business in the year, reflecting growth in new business and production related expenses.

4. Establishment expenses: These are the expenses of running the Group's infrastructure. Further analysis is presented in Section 2 on page 16.

5. Development expenses: These represent the expenditure on Group developments. Further analysis is presented in Section 2 on page 17.

6. Regulatory fees: This reflects the fees payable to the Regulatory bodies. Further analysis is presented in Section 2 on page 17.

7. FSCS levy: This reflects the full year levy. Further analysis is presented in Section 2 on page 17.

8. Shareholder interest: This is the assumed income accruing on the investments and cash held for regulatory purposes together with the interest received on the surplus capital held by the Group.

9. Tax relief from capital losses: In recent years, a deferred tax asset has been established for historic capital losses which are now regarded as being capable of utilisation over the medium term. During the year £12.1 million tax value of these losses has been utilised (2014: £16.7 million) benefiting the cash result by the same amount. In both years the actual tax losses utilised exceeded the expected £8 - 10 million benefit in a year.

Since the tax losses have been recognised immediately through a deferred tax asset in the IFRS result, utilisation of tax losses in the cash result is offset in the IFRS results because of the reduction in the deferred tax asset.

10. Miscellaneous: This represents the cash flow of the business not covered in any of the other categories, including tax relief arising from deferred recognition of insurance business acquisition expenses (due to structural timing differences in the life company tax computation).

11. Back office infrastructure: These costs relate to a major project which has combined our back offices under one management team and put in place one unified, client centric administration system, enabling them to deliver improved service and improved efficiency for the business. Further analysis is presented in Section 2 on page 17.

12. Variance: This reflects variances in the cash result in a year due to the impact of actual experience (including economic assumptions changes and investment performance) on insurance reserves, as well as variances in the settlement of tax related liabilities between the policyholders (unit-linked funds), the shareholder and HMRC. In both years the variances arise mainly from policyholder-tax charge effects.

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Cash Balance Sheet

In addition to presenting an IFRS balance sheet (on page 67) and an EEV balance sheet (on page 53), we believe it is beneficial to provide a balance sheet using the approach underlying our cash result. This is because the cash result is adjusted for non-cash items such as DAC, DIR and deferred tax as well as removing the policyholder interest in the unit-linked funds.

The following table analyses the differences between the IFRS balance sheet and the Cash result balance sheet. These adjustments include netting out assets and liabilities of the policyholder interest in unit-linked funds (Adjustment 1), and removal of a number of significant 'non-cash' items (Adjustment 2) - in particular DAC, DIR, deferred tax).

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Adjustments

1. Nets out the policyholder interest in unit-linked assets and liabilities

2. Removal of IFRS non-cash adjustments

The movement in the Cash result net assets is equal to the Cash result adjusted for dividends paid in the year and other changes in equity excluding the cost of share options (see page 66 - Consolidated Statement of Changes in Equity).

Going forward the Solvency I regulations no longer apply and therefore we will change the Cash result and the Cash result balance sheet that we present to reflect the equivalent movement in net assets under the new Solvency II regulations - see also page 34.

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SECTION 5: EUROPEAN EMBEDDED VALUE (EEV)

Life business and wealth management business differ from most other businesses, in that the shareholder profit from the sale of a product emerges over a long period in the future. We therefore complement the IFRS result by providing additional disclosure on a realistic basis, in line with the European Embedded Value principles. This result brings into account the net present value of the expected future cash flows and we believe this measure is useful to investors when assessing the total economic value of the Group's operating performance.

The table below and accompanying notes summarise the profit before tax of the combined business. The detailed result is shown on pages 51 to 63.

EEV Operating Profit

Funds Management Business

The funds management business operating profit has increased to £741.4 million (2014: £644.7 million) and a full analysis of the result is shown below:

The new business contribution for the year at £440.7 million (2014: £373.1 million) was some 18% higher than the prior year reflecting new business growth.

The unwind of the discount rate for the year was £172.4 million (2014: £182.0 million). The unwind is calculated by multiplying the opening VIF by the discount rate but adjusting to reflect emergence of profits into cash during the year. The lower result in the current year principally reflects the lower opening discount rate, as the opening VIF balance was higher.

The discount rate is based on the risk free rate, which is set by reference to the yield on a UK 10 year gilt at the start of the year. As a result the unwind for the current year is based on a discount rate of 5.0% compared with 6.2% for the prior year. Had the current year discount rate been consistent with 2014 then the unwind and operating profit, would have been £41.4 million higher.

There was a very strong positive experience variance during the year of £78.1 million, which follows a similarly strong positive variance of £78.5 million in the prior year. As covered on page 22, further capital losses were identified within historic group companies, and the net present value of the future benefit is recognised in the EEV as a positive £63.1 million experience variance.

The balance of the experience variance reflects continuing strong retention and other miscellaneous items.

There was a large positive operating assumption change in the year of £44.1 million (2014: £3.0 million). The major contributors to this result are changes to the pension retention assumption and the maintenance expense assumption, as follows:

1. Pension retention assumption - For a number of years, retention of pension funds under management has been better than the EEV operating assumption. Following the 2015 annual actuarial investigation, the assumption has been amended better to reflect experience. The maximum term has also been extended, reflecting the potential for continuation of the business beyond the client age of 75.

2. Maintenance expense assumption - During 2015 the contract with our third party back office administrator was updated to reflect administration charges for business administered on the new Bluedoor administration platform. This resulted in a change in the maintenance expense operating assumption. However, it will take some time for the remaining business to be migrated to the new system, and so the valuation also reflects the expected costs of both the future systems development and migration of the remaining existing business.

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The operating assumption change therefore reflects the full cost of the change in tariff on existing business, but we also expect savings will arise on new business costs. These are not reflected in the embedded value and will emerge within the future new business contribution.

The investment income for the year was lower at £6.1 million (2014: £8.1 million), reflecting the lower risk free interest rate.

Distribution business, back office development and other

These items have already been commented on in the IFRS section on page 20.

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 funds under management, a small difference can result in a large positive or negative variance.

The fall in global stock markets during the second half of 2015 has impacted the investment return on our funds. However, in comparison to the falls experienced in world stock markets (for example the FTSE 100 fell 4.9%), the investment returns on our funds were only slightly lower than allowed for in the calculation of the embedded value. Consequently there was a small negative investment return variance of £24.4 million for the year (2014: positive £80.2 million reflecting the strong market growth in that year).

Economic Assumption Changes

There was a small positive variance of £0.9 million arising from changes in the economic basis adopted at the year-end (2014: £7.0 million negative).

EEV Profit before Tax

The total profit before tax for the year was £636.7 million, compared with £669.6 million, although the comparison is obscured by the different investment market experience and consequential investment return variance in the two years.

Tax

The tax charge at £116.5 million (2014: £132.6 million) reflects the underlying result.

A further two reductions in the Corporation tax rate (from 20% to 19% in April 2017 followed by a further cut to 18% in April 2020) were announced in the 2015 Summer budget and included in the Finance (No2) Act 2015. The capitalised effect of these changes has been included as a reduction in tax of £47.8 million.

EEV Profit after Tax

The EEV profit after tax was £568.0 million (2014: £537.0 million) reflecting the movement in EEV Profit before Tax, but also the positive impact of the tax rate change.

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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 ('Margin'). This is calculated as the new business contribution divided by the new money invested, and is expressed as a percentage.

The table below presents the margin before tax from our manufactured business based on gross fund flows:

Overall the margin has increased to 4.8% (2014: 4.7%). The changes in margin in the different business lines result from different drivers. The reduction in Investment business margin reflects particular features of the business written in the year. The increase in margin on Pension business reflects the change in retention assumptions. The increase in margin on Unit Trust business reflects revised allocation of expenses as a result of migration of the business to the new administration system.

The benefit of lower expenses associated with the new administration contract will be reflected in the 2016 results, as an increase in the new business margin for all business in future years.

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Analysis of the EEV result and Net Assets per Share

The table below provides a summarised breakdown of the embedded value position at the reporting dates: