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 2015

ANNOUNCEMENT OF

ANNUAL RESULTS FOR THE YEAR ENDED 31 DECEMBER 2014

STRONG PERFORMANCE OF THE BUSINESS,

 RESULTING IN A 50% INCREASE IN FINAL DIVIDEND

St. James's Place plc ("SJP"), the wealth management group, today issues its annual results for the year ended 31 December 2014:

*Excluding a positive one off item of £8.9m for reinsurance transaction

Full year dividend:

• Final dividend of 14.37 pence per share - up 50%

• Giving a full year dividend of 23.30 pence per share - up 46%

Strategic initiatives:

• Continued expansion of regional Academy centres

• St. James's Place Money Management Account, in association with Metro Bank to be launched in April

• Back office infrastructure project on target to drive business efficiencies

New business highlights:

• Total new single investments of £7.8 billion (2013: £6.6 billion) - up 18%

• Net inflow of funds under management of £5.09 billion (2013: £4.23 billion) - up 20%

• Funds under management of £52 billion (2013: £44.3 billion)

• Total number of qualified advisers up 10.3% to 2,835

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David Bellamy, Chief Executive Officer, commented:

"I am pleased to once again be reporting strong performance in all aspects of our business in 2014.

Our success has been built on our fundamental belief in the value of a human relationship and the highly personal interaction, putting the client and adviser at the core of everything we do. That focus will not change and will continue to be the foundation of our future growth.

At the time of our interim results, given our confidence in the continuing growth and maturity in funds under management, and expectation of strong growth in the underlying cash result, we announced a 40% increase in the 2014 interim dividend and indicated that the full year dividend would increase by a similar amount. The final underlying cash result of £173.8 million was higher than expected at that time, enabling the Board to propose a 50% increase in the final dividend of 14.37 pence per share, taking the total dividend for the year to 23.30 pence per share, up 46% on 2013. This gives a full year payout of 70% of the underlying cash and in future years we expect our dividend payout ratio to be broadly in line with 75% of the cash result.

This year we will seek to further strengthen our relationship with our clients by exploring opportunities to enhance our proposition, through the continual development of our approach to the management of their wealth and the addition of complementary services, so that we are able to offer a more complete proposition. We're going to start with the introduction of a new banking service in April, The St. James's Place Money Management Account. Fully branded St. James's Place, but powered by Metro Bank, the account will offer eligible clients a fully functional banking service. In addition, the account will have the added benefit of an integrated secured overdraft facility, providing immediate access to short term funds, secured against the value of their St. James's Place investment portfolio. We are delighted to be working with Metro Bank and look forward to being able to offer this additional facility for our clients.

I have said on many occasions, that there is a reassuring consistency about our business that is once again reflected in these results. We begin 2015 with confidence that we are well positioned for future growth, in line with our medium to long-term objectives."

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Enquiries:

An interview with David Bellamy, discussing today's results, will be available later today on www.sjp.co.uk.

Analyst presentation 10.45 am (GMT)

Bank of America Merrill Lynch Financial Centre,

2 King Edward Street,

London EC1A 1HQ

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

http://www.axisto-live.com/investis/clients/st-jamess-place/presentations/54be446f96cead5939616e0c/fr14

There will also be a Dial in:

Conference call dial in details:

UK & International Number: + 44 20 3059 8125

Participant Password: St. James's Place

Replay details (available for 7 days)

UK & International Number: + 44 121 260 4861

Passcode: 0237287 followed by #

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CHIEF EXECUTIVE'S REPORT

I began my statement last year by commenting that 2013 would be remembered as one of the most significant years in our history, the year in which we became a wholly independent FTSE company for the first time.

However, if anything, 2014 will be remembered as an even more significant year. It was the year that we were elevated to the FTSE100, recognition of the hard work and commitment shown by everyone in the St. James's Place community over the 23 years since the company was launched and of course the support of our clients and shareholders.

It was also a year when, despite some uncertainty in world stock markets, we once again achieved record new investments, experienced improved retention and positive investment returns, leading to our client funds under management increasing by £7.7 billion, to a record £52 billion.

Our success has been and continues to be built on our fundamental belief in the value of a human relationship and the highly personal interaction, putting the client and adviser at the core of everything we do. That focus will not change and will continue to be the foundation of our future growth. In many respects, more of the same, but better. Indeed, at a time when more people are living longer, not saving enough and having to take greater personal responsibility for their long term prosperity, we believe that the vast majority will welcome the encouragement coming from government and recognise the need to seek advice, from an experienced adviser that they can trust. With over 2,500 qualified advisers, in the St. James's Place Partnership, we are very well positioned to meet this increasing need.

At the same time, we also believe that we can strengthen our relationship with our clients by exploring opportunities to enhance our proposition, through the development of our investment approach and the addition of complementary services, so that we are able to offer a more complete proposition.

We're going to start with the introduction of a new banking service in April, The St. James's Place Money Management Account. Fully branded St. James's Place, but powered by Metro Bank, the account will offer eligible clients a fully functional banking service, including cheques, debit cards, mobile access and other on line services. In addition, the account will have the added benefit of an integrated secured overdraft facility, providing immediate access to short term funds, secured against the value of their St. James's Place investment portfolio. We are delighted to be working with Metro Bank and look forward to being able to offer this additional facility for our clients.

Financial Performance

As a consequence of another year of good growth in new business, and helped by another positive experience variance, the operating profit for 2014, on a European Embedded Value (EEV) basis, has grown by 29% to £596.4 million (2013: £462.7 million).

The profit before shareholder tax, on an International Financial Reporting Standards (IFRS) basis reflects the sustained growth in our business in recent years, and was £182.9 million for 2014. The 2013 result was £190.7 million having benefited by £8.9 million from a reinsurance transaction during the year. As reported in more detail in the Chief Financial Officer's Report, growth in this measure has also been impacted by certain accounting implications arising from the changes to the adviser charging rules in 2013.

We have therefore introduced a new measure to aid investors, as covered in the comprehensive presentation of the financial results for the year in our Chief Financial Officer's Report and Financial Review.

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Dividend

We continue to see a growing cash result, a trend that is expected to continue with the increasing maturity of funds under management.

At the time of our interim results, given our ongoing confidence in the emergence of future cash, we announced a 40% increase in the 2014 interim dividend and indicated that the full year dividend would be increased by a similar amount.

The final underlying cash result of £173.8 million, up 24%, was higher than expected at that time and given this strong growth, the Board proposes increasing the final dividend by 50% to 14.37 pence per share, bringing the full year dividend to 23.30 pence per share, up 46% on 2013. This gives a full year payout of 70% of the underlying cash (the 2013 payout was 60%).

In future years, we expect our dividend payout ratio to be broadly in line with 75% of the cash result.

The final dividend for 2014, subject to approval of shareholders at our AGM, will be paid on 15 May to shareholders on the register at the close of business on 10 April and as with last year, a Dividend Reinvestment Plan ("DRP") continues to be available for shareholders.

Clients

At the heart of the sustained growth I mentioned earlier is the importance we place on maintaining long lasting relationships with our Partners and clients and serving them well. We passionately believe that this personalised and face-to-face approach has a very strong place in UK financial services both today and in the future. Whilst technology is proving to be a game changer and disruptive in a number of retail services, we will embrace the use of technology to enhance the personal service we provide to our clients, not to replace it.

If we do this well, we will maintain our strong retention record and attract new clients and investments through referrals and introductions. That was further evidenced last year by the introduction of over 52,000 new clients to St. James's Place and new investments of £7.8 billion.

However, we are not complacent. Every year, we seek feedback from our clients both through the services of the independent research specialists, Ledbury Research, and by inviting every single client to provide feedback directly in response to their annual Wealth Account statement. Whilst there is room for improvement, the research carried out in the last three months once again shows a very considerable out-performance on all key measures compared to the wider marketplace and an improving trend. Most pleasing is the extremely high advocacy score, where 97% of our clients confirmed that they would recommend St. James's Place to others, with 52% having already done so.

Such research, together with the direct contact we maintain with clients, reassures us that our clients value the personal face-to-face relationship that we provide.

2014 also saw other significant changes for investors, with the government raising the annual ISA allowance to £15,000 and announcing the most radical changes to pensions in a generation. Both of these measures represent good news for our clients and also further strengthens the need for advice.

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Investment Management

At the start of last year, the Investment Committee and Stamford Associates were in the process of reviewing the funds managed by Neil Woodford, following his decision to leave Invesco Perpetual. In the event, we decided to retain Neil's services and our clients continue to invest with him via their St. James's Place funds. The seamless transition to his new investment firm is a good example of the strength and the efficiency of our investment approach, which sits at the heart of what it is we do to look after clients' wealth.

Throughout the year, the UK's economy has continued to improve with lower unemployment, lower inflation and higher growth than many had forecast. Yet there remains a sense of fragility, due in part to the much poorer economic performance of the major developed economies of the EU and Japan. There is also the added uncertainty of the forthcoming General Election in May and the wider international uncertainty of the impact from lower oil prices and continuing tension both in the Middle East and between Russia and its neighbours.

Nevertheless, although the UK stock markets were largely unchanged in the year, with the FTSE 100 down 2.7% in capital terms but up 0.7% with dividends reinvested, higher growth was achieved in other asset classes, most notably the US stock market, some sectors of the fixed interest markets and property.

Against a background of mixed performance across the world's economies and more volatility in financial markets, our Growth and Income portfolios produced solid single digit returns, performing in line with our expectations. For individual clients, returns will of course reflect the specific funds held.

The St. James's Place Partnership

In 2014, alongside the impressive financial results, I am pleased to report that through the continued acquisition of highly established advisers, the integration of our new Partners in Asia and the graduation of students from our Academy, we attracted 10% more advisers to the St. James's Place Partnership. The sustained growth in our adviser capacity 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 receive. 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.

We are very encouraged by the success of the Academy, including those joining family practices through our next generation initiative. Last year, 47 students graduated as fully qualified Partners or advisers from the first three cohorts who joined the London Academy in 2012 and we expect a similar number to qualify this year from the 2013 intake. We also extended the Academy program through the addition of a regional centre in the North West and in 2015 we will extend this initiative further, with two intakes in the North West and the establishment of a regional Academy in the Midlands. We also plan to open our first regional Academy in Scotland in early 2016.

Notwithstanding the fact that we remain very focused on our UK business, we also see further opportunities to expand our services overseas to the expatriate community. Building on the successful integration of our newly acquired team in Hong Kong, Shanghai and Singapore, we are in discussions with the relevant authorities in Dubai and Abu Dhabi and expect to make progress in the provision of financial advice to members of the British expatriate community in these jurisdictions in the near future.

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'Back-office'Administration

In 2013, we embarked on one of the most significant developments in our back office for some time. The initial phase, in 2014, saw the unification of our two major back office teams, in Craigforth and Essex, coming together under the management of IFDS. The integrated technology platform that will support them is also well advanced and we expect to begin the migration of our business to the platform during 2015.

We expect to see the benefits of this important investment begin to crystallise in 2016.

The St. James's Place Foundation & Community Engagement

Raising funds for those less fortunate has always been at the heart of the Group's culture, so I am delighted to report that through the collective effort of the whole of our community, including employees, Partners, suppliers and others connected to St. James's Place, 2014 was another record year of fund raising for The St. James's Place Foundation. In total we raised over £3 million which, when matched by the company, meant over £6 million for the Foundation, taking the cumulative total raised to date to over £40 million and enabling us to support over 600 charitable projects in the year.

Our cultural driver of 'doing the right thing' extends to all of our community involvement, which is why we are committed to, and proud of, our continued membership of FTSE4GOOD. It is also why we have been actively developing structured programmes for summer interns and a longer term commitment to Apprenticeships. In 2014, we were particularly pleased to get recognition in the National Apprentices Awards for our work with over 30 Apprentices in recent years. We were also pleased to receive the Living Wage accreditation, one of only 20 FTSE100 companies to have achieved this qualification to date.

I would like to thank our entire community and also our clients, not only for their sponsorship but also for their participation in many of the hundreds of fund raising events 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

I am confident that the growth we achieved in 2014, in both new investments and Partner numbers, bodes well for the continued growth in our business, in line with our medium term objectives.

David Bellamy

Chief Executive

24 February 2015

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CHIEF FINANCIAL OFFICER'S REPORT

Following the very strong performance of the business in recent years I am pleased to report the continuation of this trend in 2014.

We have commented earlier in this report on the record £7.8 billion of new investments which, together with the continuing excellent retention of client funds and strong investment markets, have led to a 17% growth in funds under management to a record £52.0 billion.

We have also provided an update on the Partnership and adviser numbers. Whilst the investment in new advisers translates into expense today, it is a lead indicator for future new business. Therefore, the strong growth in advisers over the last few years and, in particular the 10% growth in 2014, has resulted in higher establishment expenses but it bodes well for new business in 2015 and future years.

In this report, I will comment on the other financial results and, as usual, a more detail review is provided in the Financial Review which accompanies this announcement.

Financial results

As shareholders will be aware, we report our results on both IFRS and EEV bases, as well as providing further detail on the cash result emerging from the business.

The EEV result reflects the full economic value of the business and is primarily driven by current year events, particularly new business and investment performance. The IFRS and cash results are the cumulative effect of all previous years and so the increase in these measures over recent years is due as much to our strong underlying retention as our success in attracting new business. Of course, retention and new business are related, as it is the positive experience of clients which means they remain with the Group, which leads to additional investment and also advocacy.

The continuing strong performance of the underlying business and excellent retention of clients are once again key features of the results on all measures. However, shareholders will be aware of the changes to regulatory rules on adviser charging which were introduced in 2013. Whilst the fundamentals of our business were unaffected by the rule changes, we commented at the time on a number of changes to the accounting treatment of certain cashflows which particularly impacted our IFRS reporting. These effects are long-term and will develop in our accounts over the coming years. Therefore to further aid investors understanding we have added a new measure called underlying profit, which is based on the IFRS result but adjusted to exclude the impact of the DAC, DIR and PVIF intangibles. Hopefully investors will find this additional disclosure helpful. Detail on the definition of all the measures is provided on pages 13 and 14.

The key drivers to the result both this year and 2013 are the growth in new business, the continued strong retention and the investment we have made in future new business with the growth in the number of advisers. In addition, in each year, we have been able to recognise the value of a capital loss arising in certain legacy companies we originally inherited as part of the St. James's Place group.

The impact of the capital loss in the current year has been a positive within the IFRS post tax result of £39.5 million (2013: £27.9 million) and a positive in the EEV post tax result of £33.6 million (2013: £22.8 million). The benefit of these losses will offset current tax in future years, which we estimate will increase the cash result by c£5 million per annum for the foreseeable future. However, in 2014 there was a positive impact of £16.7 million in the cash result. We will continue the review of the remaining handful of legacy companies during 2015 but it is too early to say if any further capital losses exist.

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Looking now at the performance of the key financial measures:

IFRS basis

The IFRS result includes a gross-up for the tax incurred on behalf of policyholders in our UK life assurance company and so historically we have presented the profit before shareholder tax eliminating this effect which is unrelated to the performance of the business. As noted above, this year we are also introducing a new 'non GAAP' measure of underlying profit which is based on the IFRS result but adjusted for the DAC and DIR intangibles as well as the amortisation of the PVIF. In future the Board will be using underlying profit as the most appropriate measure based upon IFRS when considering the operating performance for the year.

Table A below, provides the last five years results on both the profit before shareholder tax and the underlying profit measure.

Table A: Profit and Underlying Profit

The progression of profit before shareholder tax in recent years has been impacted by the effect of the changes in the adviser charging rules in 2013. In addition the reinsurance transaction in 2013 resulted in a one off positive £8.9 million in that year, which reflects the net impact of a £21.4 million underlying benefit less a reduction in the value of the DAC asset associated with this business. However, growth over the five year period is still strong at 117%.

The effect of the change in adviser charging rules is mitigated in the underlying profit result, although the 2013 result does reflect the £21.4 million benefit from the reinsurance transaction. There is no DAC in this measure and so no DAC asset reduction.

Removing this item would give a like for like comparison of £165.8 million and an increase of 5% between the periods, which reflects an increase in income from funds under management, partially offset by both an increased share option expense and a higher cost associated with the back office infrastructure project in the current year.

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EEV result

The three key measures within the EEV results are the new business profit, the operating profit and the net asset value per share. The development of these measures over the last five years is shown in Table B.

Table B: Key EEV financial measures

The new business profit at £373.1 million was up 14% during the year, in line with the average growth through the whole period. The growth in new business profit reflects increasing new business volumes, positive business mix and expense management.

The operating profit increased by 29% during the year to £596.4 million reflecting the growth in the new business profit together with strong positive experience variances in the year.

The net asset value per share on an EEV basis at the end 2014 was 657.9 pence, some 14% higher than the start of the year and has almost doubled over the period.

Cash result

The Group's underlying cash result is principally dependent on the value of client funds under management. Since much of our business does not generate net cash in the first six years, the level of cash result will increase as a result of new business from six years ago becoming cash generative.

The first column in the table below shows how the underlying cash arising from the business in-force at the valuation date (in-force business) has grown by 26% in the year.

Over 30% of funds under management are currently not yet generating any positive cash flow. However, they are expected to become cash generative once they reach the end of their sixth year, at which time they will support future strong organic growth in the cash arising from the in-force.

Column 2 of the table shows the underlying level of cash earnings that is 're-invested' in acquiring new business. Despite the new business growth during the five year period, the level of the investment required has stayed fairly constant. Consequently the return which shareholders can expect from this investment has increased.

The net effect of growing the cash arising from the in-force business, whilst keeping the level of cash invested in new business relatively flat, is growth in the underlying cash result. As can be seen from Table C, the underlying cash result was up 24% in the year, resulting in a quadrupling of the result over the period.

We fully expect the cash result to continue to grow as the business continues to mature.

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Table C: Cash result

The underlying cash result is an important indicator for investors as this is the key determinant in setting the annual dividend to shareholders. The continuing strong growth in this measure has enabled the Board to increase the dividend significantly in recent years.

The underlying cash result is presented adjusting for a number variances totalling a negative £8.7 million. The total post tax cash result for the year was therefore £165.1 million, slightly lower than the prior year.

Dividend

As the business matures, the cash emerging from the in-force business is increasing year by year, whilst the proportion of this cash that is re-invested in acquiring new business is falling.

This combination means the cash available for corporate purposes and to return to shareholders is increasing. Consequently the Board has been able to follow a strategy of increasing the dividend each year.

Having increased the dividend by 50% last year, and by 33% in each of the three previous years, we declared an increase in the 2014 interim dividend of 40% at the time of the interim results, and indicated that the full year dividend would be increased by a similar amount. However, given the strong results and in particular the strong underlying cash result, the Board has proposed a 50% increase in the final dividend. This will provide for a pay-out ratio of 70% for the current year and we expect the pay-out ratio to increase to 75% in the near term.

Table D: Dividend

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Capital

A key financial objective is to ensure the Group's solvency is managed safely through both good and difficult times. This is important not only for the safeguarding of our clients' assets, but also to ensure we can maintain returns to shareholders.

The Group continues to be capitalised well in excess of regulatory solvency requirements, and the surplus solvency assets remain invested prudently in cash, AAA rated money market funds and UK government securities. We also believe we will continue to be well capitalised when the new Solvency II regime is implemented in 2016. The relative lack of balance sheet risk, not least due to our prudent investment policy, has provided for an increasingly resilient solvency position over recent years despite the difficult financial and market environment recently experienced.

Future developments

We have commenced an investment programme working with our key 'back-office' administration provider to enhance our 'back office' systems to accommodate both continued growth and achieve future efficiency savings. Whilst the major systems development costs will be amortised over the term of the contract, we will incur our own internal project costs over the next couple of years and this is covered in more detail in Section 4 of the Financial Review.

Over a similar timeframe, national regulators are required to implement the new EU Solvency II regulations. We are well prepared for implementation and do not believe the Group will be adversely impacted.

Concluding remarks

2014 has been another year of strong growth in the fundamentals of our business, which feed through into the healthy underlying financials. Our business is in good shape and we expect to continue our growth trend.

The developing cash result has enabled the Board to significantly increase the dividend over the last five years and given the strength and resilience of the business we will move towards a dividend pay-out ratio of 75% of the underlying cash in the future.

Andrew Croft

Chief Financial Officer

24 February 2015

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FINANCIAL REVIEW

The Financial Model

As described earlier, the Group's strategy is to attract and retain retail funds under management on which we receive an annual management fee for as long as we retain the funds. This is the principal source of income for the Group out of which we meet the overheads of the business, invest in growing the Partnership, and invest in acquiring new funds under management.

The level of income is dependent on the level of client funds and changes with market movements. Since a proportion 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" (see page 23).

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 (see page 35). However, the Group also invests in new client services, computer systems and other corporate initiatives, all of which are reported as development expenditure.

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 is expected to provide a good return on the investment (see page 24).

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.

Presentation of financial results

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, management believes it is useful to separately identify the profit before shareholder tax. This measure reflects the 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). Our products are typically well matched in relation to initial charges to meet initial costs, and this treatment results in the establishment of largely offsetting DAC and DIR balances. However, the implementation of the changes to adviser charging rules in 2013 resulted in changes to the nature of some of those cashflows, moving them from long-term manufacturing margins to short-term advice margins, which resulted in significant accounting presentation changes despite the fundamentals of our vertically-integrated business remaining unchanged. Management has therefore developed a new 'non-GAAP' underlying profit measure which doesn't have the complexity associated with these adjustments since it is derived from the IFRS profit by adjusting for these intangibles. Management believes this measure will provide the most useful measure, based upon IFRS, of operating performance in the future.

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The cash result measure was developed with the aim of assisting investors seeking to understand the sources of cash emergence and to create a measure which more reflected the underlying cash generated by the business.

It is similar to the new underlying profit measure in that it is based upon the IFRS result adjusted for the DAC, DIR and PVIF intangibles, but also for deferred tax and share-option costs. In addition it also includes adjustments to reflect solvency constraints on profits emerging from regulated companies such as our insurance businesses.

Since the cash result can be impacted by one off items, timing variances and changes in insurance reserves, management believes it is also useful to present an underlying cash result, which excludes these effects. Neither of the cash result measures should be confused with the IFRS cash flow statement which is prepared in accordance with IAS 7 and disclosed on page 64.

It is the underlying cash result that the Board considers when determining the dividend payment to shareholders.

As noted previously, the reported results reflect strong investment in new business each year. Management 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 underlying business. We therefore provide breakdown of the cash result, identifying the new business impact and making clear the ongoing contribution from the established business.

Finally, we also present an embedded value result. Management believes this 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.

Sections 1-3 below provide a commentary on the performance of the business on the IFRS, Cash and EEV result bases; whilst Section 4 covers other matters of interest to shareholders.

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SECTION 1: INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS)

As noted at the start of this review the IFRS result includes the tax incurred on behalf of policyholders in our UK life assurance company and therefore we present the IFRS profit before shareholder tax. As IFRS also spreads the initial cash flows over the life of the contract through the use of intangible assets, we present an underlying profit in addition which adjusts for these items together with the amortisation of the PVIF. In future the Board will be using the underlying profit as the most appropriate measure, based upon IFRS, for considering the operating performance in the year.

The detailed IFRS result is shown on pages 60 to 80 and is analysed in the table below:

* includes the impact of the corporation tax rate change 

Underlying Profit before shareholder tax

The result for the year was £173.6 million compared with £187.2 million for the prior year. However, 2013 benefitted from a one-off £21.4 million relating to a reinsurance transaction in that year. Removing this item would give a like for like comparison of £165.8 million and an increase of 5% between the periods, which reflects an increase in income from funds under management partially offset by both an increased share option expense and a higher cost associated with the back office infrastructure project in the current year.

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

Life business

The Life business profit for the year was £160.7 million (2013: £162.7 million) marginally lower than last year.

However, adjusting the prior year result for the £21.4 million one off from the reinsurance transaction, would give a like for like comparison of £141.3 million and therefore growth of some 14%. The principal contributor to this growth in profit was the increase in income derived from higher funds under management.

Unit Trust business

The Unit Trust business profit for the year was £61.2 million (2013: £58.3 million) was higher than last year. As with life business, the principal contributor to this rise in profit was the increase in income arising from higher funds under management.

Distribution business

The impact of distribution activity is separately identified from 'Other' operations. 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 further margin from the distribution activity. In any one year, this result will depend upon the level of new business and expenses.

The Distribution business loss for the year was £10.9 million (2013: loss of £6.1 million) which includes a negative contribution of £1.7 million from the recently acquired Henley group as we integrate and invest in the growth of this business. The result also reflects higher expenses in 2014 associated with the strong increase in adviser recruitment in recent years and the benefit from this investment will be seen in future periods.

The result continues to be impacted by the Financial Services Compensation Scheme levy which remains at an elevated level for the industry and which impacted St. James's Place by £5.9 million (2013: £5.5 million).

Other

Other operations contributed a loss of £37.4 million (2013: loss of £27.7 million). Included within this figure is the £11.9 million (2013: £5.0 million) development costs related to the investment in the back-office infrastructure, and £11.4 million (2013: £7.8 million) for the cost of expensing share options. The comparative was impacted by one-off costs in relation to the reduction in the Lloyds Banking Group ("LBG") shareholding on 11 March 2013 of £6.2 million. The balance, in both years, included the corporate donation to the St. James's Place Foundation but principally reflected costs associated with corporate initiatives and projects.

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DAC/DIR/PVIF before shareholder tax

As noted in the table below the net movement in theses intangibles provided for a positive contribution to profit of £9.3 million for the year compared with an increase in profit of £3.5 million for 2013. However, the 2013 figure was negatively impacted by the previously mentioned reinsurance transaction and therefore, on a like for like basis, the net movement in the intangibles in 2013 increased profit by £16.0 million.

The reduction in the like for like net movement in the intangibles arises because of the changes in adviser charging rules in 2013, which changed the nature of certain cash flows in the Group, moving them from long term manufacturing margins to short term advice margins. Consequently, the positive contribution from the amortisation of accumulated DAC, DIR and PVIF balances from prior years is reducing and in 2015 is expected to be £17.2 million lower at £11.1 million. In future years the contribution is expected to turn negative. The DAC/DIR arising on new business is expected to move in line with new business growth.

However 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 believes the new underlying profit will be the most appropriate measure, based upon IFRS, for considering the operating performance in future.

Profit before shareholder tax

The profit before shareholder tax for the year was £182.9 million, which was lower than the prior year result of £190.7 million. As with the underlying profit result, the prior year figure includes the impact of the one off reinsurance treaty. The reduced contribution from the net movement in DAC/DIR/PVIF intangibles, as noted above, also contributed to the lower result in the current year.

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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 to this announcement.

The expected shareholder tax principally reflects the current corporation tax rate 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. More detail is included in Note 6 to this announcement.

As previously commented, the recognition of the future effect of Group capital losses reduced the shareholder tax recognised in the year by £39.5 million (2013: £27.9 million).

The impact of the corporation tax rate change on deferred assets and liabilities reduced the tax charge in 2013 by £12.0 million. This impact reflected implementation of the full corporation tax rate reductions from 23% to 20%.

The overall impact of all of the above effects is to decrease the tax charge reported in the IFRS results, moving it from a charge of £0.4 million to a credit of £5.0 million. However it is worth noting that when deferred tax effects are stripped out, the total current tax charge in the year was £95.5 million (see Note 6 on page 74).

In arriving at the profit before shareholder 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 estimated by making an assessment of the effective rate of tax that is applicable to the shareholders, with the balance being treated as tax in respect of policyholders.

IFRS profit before tax

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

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In 2014, the IFRS profit before tax for the year was £294.4 million (2013: £461.2 million) with the principal contribution to the change being the reduction in the policyholder tax charges from £270.5 million in 2013 to £111.5 million in 2014.

The policyholder tax charge depends on the level of underlying policyholder taxable benefit determined by growth in value of the funds. The lower charge in 2014 reflecting the lower stock growth compared to 2013. The movement between the reporting dates has resulted in a tax charge of £111.5 million.

IFRS profit after tax

The IFRS profit after tax reduced marginally from £190.3 million in 2013 to £187.9 million in 2014. The result reflects not only the business performance in each year but also the recognition of deferred tax assets for capital losses emerging in both years. The 2013 result also benefitted from both the reinsurance transaction and the corporation tax rate change.

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 2: CASH RESULT AND CAPITAL

In addition to presenting the financial performance on the IFRS basis, we also provide an analysis of the sources of cash emergence in the year, which we refer to as the cash result and is shown post tax. This cash result is based on the underlying profit after tax but is adjusted for deferred tax (including the corporation tax rate change in 2013) and to reflect the level of regulatory solvency constraint on profits emerging from regulated companies, such as our insurance businesses, in line with that required by Regulators. It is also adjusted for the share option cost in the year.

Since the cash result can be impacted by timing variances and capitalised impacts in solvency requirements, management believes it is also useful to present an underlying cash result excluding these effects, which the Board reviews, in conjunction with Group solvency, when determining the proposed dividend to shareholders.

The table below shows the movement from the underlying profit on page 15 to the underlying cash result:

The underlying cash result for the year at £173.8 million increased by 24% over the same period last year principally reflecting the higher income from funds under management.

The cash result is 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.

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The tables and commentary below provide an indicative analysis of the cash result, identifying the different contributions from the business in-force at the start of the year, and the new business added during the year.

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Notes

Since all numbers are expressed after tax, they are impacted by the prevailing tax rate for each year.

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

The level of net annual management fee was some 18% higher than the prior year reflecting the higher average funds under management in 2014 compared to 2013.

2. Unwind of early withdrawal charge: This relates to the reserving methodology applied to the early withdrawal charge within the charging structure of the single premium life bonds and pensions. At the outset of the product, we establish a liability net of the outstanding early withdrawal charge which would apply if the policy were to be encashed.

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

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

3. Margin arising from new business: This is the cash impact of new business in the year after taking into account the directly attributable expenses.

The result will be impacted by volumes of new business, business mix and the level of production related costs.

4. Establishment expenses: These are the expenses of running the Group's infrastructure as shown in the table on page 35. In line with the rest of this table, they are presented after allowance for tax.

5. Development expenses: These represent the sum of the other expenditure noted in the table on page 35 (e.g. developments, the cost of regulatory change and Academy). The impact on the cash result in the year was £15.6 million (2013: £10.8 million).

6. Regulatory fees: This relates to the fees payable to the Regulatory bodies.

7. FSCS levy: This relates to the charge levied by the FSCS for the current year.

8. Shareholder interest arising from regulated and non-regulated business: This is the actual income accruing on the investments and cash held for regulatory purposes together with the interest received on the surplus capital held by the Group.

The small increase in interest received reflects the increased level of assets invested.

9. Utilisation of capital losses: In 2013, a deferred tax asset of £27.9 million was established for old capital losses which were regarded as being capable of utilisation over the medium term. During 2014, £16.7 million tax value of these losses has been utilised benefiting the cash result by the same amount.

10. Miscellaneous: This represents the cash flow of the business not covered in any of the other categories, together with the utilisation of the deferred tax asset in respect of prior year's unrelieved expenses (due to structural timing differences in the life company tax computation).

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11. Reinsurance transaction: During 2013 a reinsurance treaty was entered into by the UK life company which reinsured the company's remaining insurance and persistency risk of its closed book of Protection business. As a result of the transaction there was a one-off impact on the cash result of £18.3 million, reflecting the release of the associated prudent solvency reserves together with the realisation of the capitalised value of expected future margins.

12. Back office infrastructure: These costs relate to a major project seeking to combine our back offices under one management team and to put in place one unified, client centric administration system, enabling them to deliver improved service and improved efficiency for the business.

13. 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.

The small benefit of £0.6 million in 2014 reflects a number of offsetting impacts whilst the larger variance of £14.6 million in 2013 reflects a release of solvency reserves, the utilisation of brought forward pension losses and positive impacts from tax timing variances.

Return on In-Force business

As shown in the tables above, the return on the in-force business is mainly driven by the level of the annual management fees, the unwind of the early withdrawal charge, and the level of expenses.

The vast majority of the return relates to the net income from funds under management (annual management fees less the unwind of the early withdrawal charge). Funds under management have been increasing and, as they continue to develop, the future net income should also increase correspondingly. 

In addition, a proportion of the new business has an early withdrawal charge which unwinds during the first six years and, consequently, 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. This funds under management is not yet generating income within the cash result.

This £16.1 billion represents some 31% of the total funds under management which, if all the business reached the end of the early withdrawal charge period, would contribute an additional £123.9 million to the annual post-tax cash result (based on 0.77% post-tax earnings from funds under management).

The Board therefore expects the cash earnings from the in-force business to increase as funds under management grows and the business matures.

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Return on investment in new business

As noted in the table on page 21, £62.7 million (2013: £48.3 million restated to exclude the £4.0 million of back office infrastructure cost) of the cash arising from the in-force business has been re-invested in acquiring the new business during the year.

This investment in new business will generate income in the future that should significantly exceed the cost of investment 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 1.2% compared with 1.2% for the prior year.

The level of investment to acquire new business is not expected to increase significantly in future years and therefore the proportion of the cash generated from the in-force business that will be available to pay dividends to shareholders is expected to continue expanding.

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Capital Position

In addition to presenting an IFRS balance sheet (on page 63) and an EEV balance sheet (on page 50), 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. The Board therefore considers this cash result balance sheet provides the best indication of the net asset position of the Group.

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, and removal of a number of significant 'non-cash' adjustments (in particular DAC, DIR and 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 62 - Consolidated Statement of Changes in Equity).

The table above provides an analysis of the differences between the IFRS balance sheet and the cash result balance sheet. As in previous years, we also provide an analysis of the Solvency position. The key difference between the cash result net assets (above) and the Solvency net assets is an amount of additional reserves arising from the Irish solvency regulations. These reserves include additional prudential reserves over that required by the UK regulator. As a result, the Solvency position is £572.0 million, which is £31.1million lower than the cash result net assets of £603.1 million. (2013: £507.6 million and £532.7 million, respectively).

The table below provides an analysis of the Solvency position between regulated and non-regulated entities, together with an assessment of the solvency position against both the required minimum regulatory capital and the internal capital requirement set by the Board (referred to as the management solvency requirement).

Comparison with previous valuations will show that the Group solvency position remains resilient, reflecting the Group's low appetite for market, credit and liquidity risk in relation to solvency.

A further measure of solvency for an insurance group is the Insurance Groups Directive (IGD) resources. This is calculated by considering the level of net assets in the Group (outside of the insurance companies) that could be available to support the solvency of the insurance company (and other regulated companies). It therefore represents additional solvency cover over the £327.1 million Life company solvency assets identified in the table above. At 31 December 2014 the IGD resources amount was estimated as £240 million (2013: £260.0 million).

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The balance of Other assets after intra-group dividends received and the payment of the final 2014 dividend is £273.2 million which includes £112.5 million of non-cash items. The balance represents free group resources, including an amount of £90 million held as a buffer to maintain future dividends in the event of stock market volatility impacting the cash result in a particular year.

The Group continues to be capitalised well in excess of regulatory solvency requirements, with over 60% of cash result balance sheet assets (and solvency assets) invested prudently in cash, AAA rated money market funds and UK government securities. Other assets (principally other receivables) are less liquid. An analysis of the liquid asset holdings is provided below.

Analysis of liquid assets

* HSBC, Barclays, Lloyds, Bank of Scotland, RBS, Santander, NatWest and Metro Bank

Solvency II

National regulators are required to implement the Solvency II regulations (when finalised) on 1 January 2016. As noted previously, we do not believe the Group will be adversely impacted by the new requirements and expect to see a reduction in the total capital we are required to hold for regulatory purposes.

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Share options maturity

At 31 December 2014, there were 4.9 million share options outstanding under the various share option schemes which, if exercised, will provide up to £15.4 million (2013: £19.1 million) of future capital for the Company.

The table below provides a breakdown by date and exercise price.

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SECTION 3: EUROPEAN EMBEDDED VALUE (EEV)

Life assurance and wealth management business differs 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 complement the IFRS and cash result by providing additional disclosure on an EEV basis. The EEV 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 results are shown on pages 48 to 59 and include information about the sensitivity of the results to key assumptions on pages 57 and 58.

Total EEV operating profit for the year, at £596.4 million, was 29% higher than the 2013 result of £462.7 million.

EEV operating profit

Life business

The Life business operating profit has increased to £467.0 million in the year (2013: £365.7 million) mainly due to the significant contribution from experience variances in the year. A full analysis of the result is shown below:

The increase in the new business contribution for the year to £233.7 million (2013: £213.6 million) reflects the positive impact of the growth in new business being greater than the growth in the associated expenses (the operational gearing).

The unwind of the discount rate was £144.9 million (2013: £89.4 million), reflecting both the higher opening value of in-force business and higher discount rate.

As the discount rate is set by reference to the yield on a UK 10 year gilt at the start of each reporting period, then the 1.2% lower gilt yield at the start of 2015 will negatively impact the unwind of the discount rate for the current year.