St James's Place Regulatory News (STJ)

-1-

ST. JAMES'S PLACE PLC

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

Telephone 020 7493 8111 Facsimile 020 7493 2382

PRESS RELEASE

28 February 2018

ANNOUNCEMENT OF ANNUAL RESULTS

FOR THE YEAR ENDED 31 DECEMBER 2017

RECORD BUSINESS PERFORMANCE

SUPPORTS 30% INCREASE IN FULL YEAR DIVIDEND

St. James's Place plc ("SJP"), the wealth management group, today issues its annual results for the year ended 31 December 2017:

Financial highlights

· EEV new business profit £779.8 million (2016: £520.2 million) - up 50%

· EEV operating profit £918.5 million (2016: £673.6 million) - 36%

· IFRS profit before shareholder tax £186.1 million (2016: £140.6 million) - up 32%

· Operating cash result (post tax) £315.2 million (2016: £226.0 million) - up 39%

· Underlying cash result (post tax) £281.2 million (2016: £199.5 million) - up 41%

· Underlying cash earnings per share of 53.6 pence (2016: 38.2 pence per share) - up 40%

Dividend

· Final dividend of 27.45 pence per share (2016: 20.67 pence per share) up 33% providing a full year dividend of 42.86 pence per share (2016: 33.00 pence per share), growth of 30%

Other highlights

· Record gross inflows of £14.6 billion (2016: £11.4 billion)

· Net inflow of funds under management of £9.5 billion (2016: £6.8 billion)

· Funds under management of £90.7 billion (2016: £75.3 billion)

· We are now represented by 3,661 qualified advisers across our Partnership businesses

-2-

Andrew Croft, Chief Executive, commented:

"As we announced in January, during 2017 we achieved record gross inflows which at £14.6 billion were up 29% whilst net inflows were up 40% to £9.5 billion, reflecting the continued strong retention of existing client investments. These net flows, together with strong investment returns, increased the funds we manage on behalf of our clients by 20% over the year to close at an all-time high of £90.7 billion.

I am very pleased to confirm that this record new business performance is reflected in the strong financial performance, across all measures, that we are reporting today. Given the strong performance of the business, the Board has proposed a final dividend of 27.45 pence per share, up 33%, which brings the full year dividend to 42.86 pence per share, up 30%.

I believe there are great opportunities ahead for St. James's Place. Our core target market is already large and forecast to grow further still, driven by favourable demographic trends and the accumulation of investable assets as savers take on the responsibility for providing for their own well-being in retirement. Meanwhile, the environment for UK savers seeking to plan their long-term financial affairs has rarely felt more difficult whether due to complexities around personal taxation, pensions freedoms, or the implications of a sustained low interest rate environment.

As a result, demand for trusted, personal face-to-face advice has never been greater. With our focus on developing long-term relationships that span client generations, our advisers can provide a level of tailored and expert advice that clients truly value. Allied with our distinct Investment Management Approach that offers clients access to best-in-class fund managers from around the world, we have a clear and compelling client proposition that I believe stands St. James's Place in great stead to capture the market opportunities ahead.

Our continuing focus on achieving the best possible outcomes for our clients, through the provision of sound personal financial advice, together with our distinctive approach to the management of their wealth, gives us confidence that we will continue to grow our business, in line with our stated medium-term objective of 15 -20%, in 2018 and beyond."

Enquiries:

-3-

Analyst presentation at 10.15am for 10.30am 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 refer to the link below or via our website:

(Live and On-demand):

http://www.investis-live.com/st-jamess-place/5a6ef2d525d9c011009a22b5/qlbe

There will also be a Dial-in:

UK Local: 020 3936 2999

All other locations: +44 20 3936 2999

Participant Access Code: 94 17 01

Once participants have entered this code, name and company details will be taken.

Replay information:

UK: 020 3936 3001

United States: 1 845 709 8569

All other locations: +44 20 3936 3001

Please slowly enter your replay code: 87 68 77

-4-

CHIEF EXECUTIVE'S REPORT

Introduction

I should like to begin my first Chief Executive's Report by acknowledging the enormous contribution made by my predecessor David Bellamy. David joined at the inception of the Company and has given 26 years of service to the Group, the last 11 as CEO. It has been my pleasure to have worked alongside David over 25 of these years and as his Chief Financial Officer over the last 11 years. I would also like to say that it is a great honour and a privilege to be taking on the role of Chief Executive.

Looking forward, I fully intend to continue with our successful business model of providing trusted face-to-face financial advice through the St. James's Place Partnership. In doing so, we will continue to get better at everything we do well and improve those areas where we do less well, while refining and evolving our business so that the next 25 years for St. James's Place are as successful as the last. We will continue to invest in our service to clients and in increasing our support to the Partnership.

I believe there are great opportunities ahead for St. James's Place. Our core target market is already large and forecast to continue to grow, driven by favourable demographic trends and the accumulation of investable assets as savers take on the responsibility for providing for their own well-being in retirement. Meanwhile, the environment for UK savers seeking to plan their long-term financial affairs has rarely felt more difficult, whether due to complexities around personal taxation, pensions freedoms or the implications of a sustained low interest rate environment.

As a result, demand for trusted, personal face-to-face advice has never been greater. With our focus on developing long-term relationships that span client generations, our advisers can provide a level of tailored and expert advice that clients truly value. Allied with our distinct Investment Management Approach that offers clients access to best-in-class fund managers from around the world, we have a clear and compelling client proposition that I believe stands St. James's Place in great stead to capture the market opportunities ahead. Indeed, we remain confident of being able to achieve 15 - 20% annual growth in gross inflows over the medium-term.

Business performance & dividend

During 2017, our 25th anniversary year, we achieved record gross inflows which at £14.6 billion were up 29%, whilst net inflows were up 40% to £9.5 billion reflecting the continued strong retention of existing client investments. These net flows, together with a strong investment return, increased funds under management by 20% over the year to close at an all-time high of £90.7 billion. Against the backdrop of continued political and economic uncertainty that prevailed in the UK during the year, we are very pleased with these achievements which are a testament to the strength of our business model, the attractiveness of our client proposition, and the hard work of all in the St. James's Place community.

The financial performance naturally reflects these outcomes with all the key measures the Board monitors also seeing strong growth. The Chief Financial Officer's Report and Financial Review on pages 8 to 44 provide a comprehensive analysis of the financial performance for the year.

Of particular note was the 41% growth in the Underlying cash result, which is a key measure the Board considers when determining the dividend. This outcome, supported by a small capital release, has enabled the Board to increase the final dividend by 33% to 27.45 pence per share, which provides a full year dividend of 42.86 pence per share, growth of 30%.

This will result in an 80% full year pay-out ratio to Underlying cash and our expectation is that going forward future dividends will be set using this higher pay-out ratio. 

The final dividend, subject to approval of shareholders at our AGM, will be paid on 1 June 2018 to shareholders on the register at the close of business on 6 April 2018. A Dividend Reinvestment Plan continues to be available for shareholders.

-5-

Clients

Our success has been built on a core commitment to achieving the best possible outcomes for clients and ensuring that they are well served by our long-term, face-to-face relationship-based approach to the management of their financial affairs. Although in recent years we have seen the UK wealth management landscape evolve to incorporate new, digital-led solutions, we know that a highly personalised service remains in high demand and are confident that this will continue to be the case in the future as the management of individuals' financial affairs becomes more, not less, complex.

In the past year, we have seen increased activity around pension transfers, driven in part by the flexibility afforded around defined contribution schemes following the introduction of pensions freedoms but also due to increased transfer values. Transferring out of defined benefit schemes is not without considerable risk and complexity which requires expert bespoke advice, so we have naturally been relatively cautious in recommending such a course of action, but we expect this to be an area of heightened interest for clients and one which we will continue to manage carefully in the years ahead.

We continue to enhance and evolve our client proposition. In 2017, we launched a new Retirement Account with added flexibility for clients as they move from accumulation of savings before retirement to drawdown of benefit in retirement. We also introduced a cash management portal, a probate service as part of our intergenerational initiative, a panel of private banks to serve our higher net worth clients and a further range of savings accounts.

Looking ahead, a key opportunity and challenge for the wealth management industry over the long-term will be how to sensibly manage the generational transfer of wealth, which is forecast to total some £2.8 trillion over the next 30 years. We have already made good steps in developing our intergenerational proposition for clients in recent years, but this will continue to be an area of further focus going forward.

In 2017, we won a number of awards that are voted for by investors including the City of London Wealth Management Company of the Year Award, Shares Award - Best Wealth Manager, Wealth Adviser - Best Private Client Investment Manager, and The Personal Finance Award for Best Financial Adviser, the last of which we've won for eight consecutive years. Thank you to everyone who voted for St. James's Place.

The St. James's Place Partnership

Partners and advisers build long-term relationships with their clients, firstly by providing trusted holistic financial advice to help them achieve their personal objectives, and then by providing an on-going advisory service to ensure they remain on track to achieve their financial goals.

Our future growth is dependent upon increasing the number of advisers and helping our existing Partners grow their businesses. It was therefore pleasing that during 2017 we grew the number of advisers working across the Partnership by 246, growth of 7%, whilst the new business per adviser increased by 19%. These new advisers comprised recruitment of experienced advisers from the industry together with graduates from our highly successful St. James's Place Academy.

We now have 3,661 qualified advisers and, going forward, we will continue to develop the infrastructure and support that we provide to Partner businesses to assist them with their client relationships and to help them grow their businesses. If we do this well, we will remain the 'go to' place for successful financial advisers and attract highly talented individuals to join St. James's Place. At the same time, we will continue to invest in our Academy, which aims to 'grow our own advisers'. We look forward to seeing many of the 261 individuals currently in the programme graduating in 2018 and 2019. We will also continue to support those advisers who wish to progress to Chartered status.

Investment Markets and our Investment Management Approach

The strong performance from major stock and bond markets around the world continued during 2017. This was despite the growing tensions around North Korea, conflicts in the Middle East and the continuing uncertainty in the UK arising from negotiations to leave the EU in March 2019. The backdrop of strong corporate earnings and high levels of consumer confidence drove many indices, including the FTSE 100 and the S&P 500, to new highs.

In general our Portfolios performed strongly through 2017, with the most cautious strategy, the Defensive Portfolio, increasing by 4.6% and the higher-risk Adventurous Portfolio increasing by 12.6%, net of all charges.

-6-

Nevertheless, the continued strong economic environment creates the possibility of a return to higher inflation. In the UK, inflation crept above its target level of 2.0% and, by the end of the year, recorded a figure of 3.1%. In response, the Monetary Policy Committee of the Bank of England increased interest rates for the first time in ten years. Meanwhile, in the United States, the Federal Reserve increased interest rates no less than three times. Looking ahead, there are expectations that rates will increase further in both the US and the UK during 2018. Accommodative monetary policy is also slowing in other major economies, as quantitative easing programmes elsewhere in the world are beginning to be pulled back.

Towards the end of the year, we announced the launch of a strategy investing in Japan - a new opportunity for our clients. There are signs that the corporate governance environment in that country continues to improve and, in Nippon Value Investors, the Investment Committee has identified a manager which gives us access to some of the most interesting ideas in the world's third-largest economy.

The start of 2018 has seen some volatility return to markets. However, our broadly diversified Portfolios continue to give clients access to a variety of different asset classes, dampening down the impact of market gyrations as and when they occur. It is for this reason we remain confident that our investment approach will continue to support clients in realising their long-term financial goals.

Investment for growth

As well as working to meet our shorter-term objectives as a business, we have been sowing the seeds for longer-term growth through new markets both in the UK and overseas.

St. James's Place Asia, which has been operating since 2014, continues to progress well. We now have 120 advisers, an increase of 18% during the year, and over £400 million of funds under management in St. James's Place funds, which has more than doubled during the 12 months. We currently operate across three separate markets: Hong Kong, Shanghai and Singapore, each of which has its own distinct characteristics. What is common to all, however, is the long-term market opportunity for a well-managed, well capitalised, wealth management business with a strong client proposition. In the past year we have made further operational progress on building our business and proposition.

We have also been investing for the future through Rowan Dartington (RD), our discretionary fund management business. In 2017, funds under management grew by 34% to £2.1 billion, while the number of RD investment executives has increased from 41 to 46 as we have broadened the reach of the business from its historic roots in the south west of England. We have also launched an RD service in Hong Kong alongside our Asian operations. Importantly, the capabilities provided by Rowan Dartington have served to enrich our overall client proposition.

Neither St. James's Place Asia nor Rowan Dartington are expected to achieve critical mass or contribute materially to Group profitability in the short-term. Rather, it will take some time for these businesses to achieve scale as we build the appropriate infrastructure to support their long-term growth, but we remain confident they will generate value over time.

Back-office infrastructure

We continue to make good progress on our important programme to consolidate our UK back-office administration onto a single client-centric platform. This will deliver a more holistic administration service to our clients whilst leveraging modern technology. 

We already have £27.9 billion funds under management administered on the new platform and approximately two-thirds of our gross inflows are currently going onto the new platform. Migrations planned for 2018 mean that by the end of the year, we expect to administer approximately two-thirds of our funds under management on the new platform as we continue our programme to transform the UK back-office. The final third of UK funds under management will complete this significant transformation project in 2019. 

-7-

The St. James's Place Charitable Foundation and community engagement

Helping people in need is a very important part of the St. James's Place culture, with the whole community, including employees, the Partnership and their teams, together with suppliers and fund managers committed to supporting charitable causes and making a positive and lasting difference to the lives of people in need. In 2017, the St. James's Place community celebrated 25 years of giving by raising a record £5.5 million which, after including the company matching of £2 for every £1 raised by our community and gift aid, provided for total funds raised during the year of £16.8 million. On behalf of the Trustees and all the charities receiving grants, I would like to thank everyone who supported the Charitable Foundation.

In addition to these fund-raising efforts, our desire to be '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.

Mike Wilson CBE

It is with sadness and a heavy heart that I inform shareholders of the recent passing of Mike Wilson, one of our original Founders and the inspiration behind St. James's Place. He will be missed as a friend and mentor to many of the SJP community.

Mike was also instrumental in establishing the St. James's Place Charitable Foundation and leaves a legacy within our community of giving back to others.

Our community

The strength and continued growth of the business is due to the hard work and dedication of the Partnership, their teams, our management teams and all 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.

I very much look forward to working with everyone going forward.

Outlook

The global economy is in good shape, with companies trading profitably as new technologies continue to evolve at pace driving economic growth.

Of course, there are global economic and geopolitical risks, in the UK we advance towards Brexit and we are starting to see interest rates rise on both sides of the Atlantic and some increase in market volatility. Whilst there are no certain outcomes we remain comfortable advising clients to invest through a well-diversified portfolio in order to benefit over the medium-term and we continue to see a growing need for financial advice. We remain confident that the Partnership is ideally placed to help their clients through the complexities of their financial lives, reducing their risks and investing their money wisely.

Our continuing focus on achieving the best possible outcomes for our clients, through the provision of trusted financial advice together with our distinctive Investment Management Approach, gives us confidence that we will continue to grow our business, in line with our stated medium-term objective of 15-20%, in 2018 and beyond.

Andrew Croft

Chief Executive

27 February 2018

-8-

CHIEF FINANCIAL OFFICER'S REPORT

The business fundamentals have performed very strongly against a backdrop of uncertainty.

As already stated in the Chief Executive's Report, Gross and Net Inflows in 2017 grew by 29% and 40% respectively and we completed the year with £90.7 billion of funds under management, growth of 20% compared to 31 December 2016.

Our financial business model remains straightforward and unchanged. We attract and then retain funds under management on which we receive an annual management fee. The continued strong growth in funds under management is therefore a significant positive indicator, particularly in combination with surrender rates under 5%.

During the year, as in previous years, we have also continued to invest in the future of the business. This investment is reflected in our results and is expected to result in additional medium and long-term growth together with more efficient administration systems and processes.

Financial Results

Whilst our financial business model remains straightforward, the impact of having a significant life insurance company at the heart of the Group results in accounting complexity under IFRS. For this reason we continue, in our Financial Review on pages 11 to 44, to supplement IFRS information with EEV information as well as further detail on the way in which cash emerges within the business. The Financial Review shows strong results on every measure but there are a number of factors that merit emphasis: 

1. Our contribution to the Financial Services Compensation Scheme for 2017 pre-tax was £21.2 million (2016: £17.2 million). This negatively impacted post tax results for the group by £17.1 million in 2017 (2016: £13.7 million).

2. We continue to invest in growing the Partnership and the number of advisers within it. In particular we invested £6.6 million post tax in our Academy and Next Generation Academy (2016: £5.8 million) and saw 124 qualified advisers graduate during the year.

3. Our Asia and DFM operations are medium to long-term investments and are developing well. During the year, investment in these areas of future growth amounted to £22.0 million post tax (2016: £15.4 million).

4. Our back-office infrastructure initiative has been a multi-year project and in 2017 we had progressed to the point where approximately two-thirds of new business was written using the new Bluedoor system. By 31 December 2017, 31% of all funds under management were recorded on the new platform (2016: 26%). Costs in 2017 were £21.7 million post tax (2016: £16.7 million).

Last year, we reassessed the fair value of investment contract liabilities in order to reflect recent experience and match the encashment values of client investments. As explained in last year's Chief Financial Officer's Report, this had, and will continue to have, no impact on IFRS profit before tax. However, it has significantly increased the operating cash result for new business, which for 2017 was positive £10.5 million (2016: negative £80.2 million). This positive impact is a consequence of more cash being recognised at the point at which business is written whereas in the past it emerged in the cash result over a 6-year period.

-9-

IFRS Result

The IFRS profit after tax was £145.8 million (2016: £111.7 million). The results continue to be impacted by IFRS requirements to defer income and costs associated with new business and the significant excess of income over expense subject to this deferral continues to result in a net reduction to IFRS profit. Nonetheless, the IFRS profit after tax has increased as a result of the increase in funds under management which is the long-term driver of profit.

The Underlying profit before shareholder tax was £245.1 million (2016: £163.5 million). This measure excludes the impact of the deferral accounting explained above and is therefore more sensitive to new business. The result for 2017 is underpinned by increased funds under management but also reflects a 29% increase in gross inflows for the year.

Cash Result (presented post tax)

The Operating cash result for the year was £315.2 million (2016: £226.0 million), growth of 39%. This result reflects the positive impact of continued growth in funds under management and also increased expenses incurred to both support and grow the business.

As we explained previously, last year's reassessment of investment contract liabilities has also had a positive impact on the Cash result because it results in an earlier emergence of cash on new Investment and Pensions business. This earlier emergence will continue with future new business.

Operating cash is then used for investment in the Academy, our Asian operations, our new DFM offering and other strategic investments. The total post tax investment during the year was £34.0 million (2016: £26.5 million) resulting in the Underlying cash result of £281.2 million (2016: £199.5 million), growth of 41%.

The Cash result was £252.6 million (2016: £175.4 million) represented by the Underlying cash result adjusted for the cost of the back-office infrastructure investment and a number of one-off items detailed in the Financial Review on page 30.

It is important to note that the cash, operating cash and underlying cash results should not be confused with the IFRS consolidated statement of cash flows which is prepared in accordance with IAS 7 and disclosed on page 58.

EEV Result

The EEV new business contribution for the year was £779.8 million (2016: £520.2 million) growth of 50%. This reflects both the increase in new business together with operational economies of scale achieved as fixed costs are spread across more business.

The EEV operating profit for the year was £918.5 million (2016: £673.6 million), growth of 36%. This reflected the strong growth in EEV new business contribution above, but also the positive effect of improved retention assumptions and operational economies of scale.

A continued rise in the value of global stocks resulted in an investment return variance of £340.8 million building on the positive variance of £537.2 million in the prior year.

Total EEV profit before tax for the year was therefore £1,289.1 million compared with £1,198.4 million for the prior year. The net asset value per share on an EEV basis at the end of the year was 1,067.5 pence (31 December 2016: 900.7 pence).

-10-

Dividend

At the half year we increased the interim dividend by 25% to 15.41 pence and stated an intention to grow the full year dividend by a similar amount. Given the continued strong performance of the business during the second half of 2017, the Board has recommended a final dividend of 27.45 pence per share, an increase of 33% which will consume £145.2 million. This will provide for a full year dividend of 42.86 pence per share, growth of 30%.

This will result in an 80% full year pay-out ratio to Underlying cash and our expectation is that going forward future dividends will be set using this higher pay-out ratio.

Capital and Solvency

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

We assess our solvency against a management solvency buffer (MSB). During 2017 we completed a review of our Life business MSB, which, despite growth in the businesses, has resulted in a release of £82.0 million. This has been partially offset by an increase in solvency requirements for the rest of the Group, resulting in an overall release of £65.1 million. The MSB held by the Group reduced from £527.0 million at 31 December 2016 to £461.9 million at 31 December 2017. Further details of the MSB review are provided on page 51. Management free assets are £1,095.1 million at 31 December 2017 (31 December 2016: £1,070.0 million), well in excess of the Group MSB.

We provide information on our Solvency II position on page 36. Our solvency ratio at 31 December 2017, prior to the payment of the proposed final dividend, is 139% (31 December 2016: 147%) which demonstrates the financial strength of the business.

Concluding Remarks

The business fundamentals and financials are in very good shape. The cash result is expected to continue to grow, even alongside the significant investments we are making. We are therefore pleased to be able to set an expected dividend policy based on a pay-out ratio to Underlying cash of 80%.

Our business is long-term in nature with emergence of shareholder value over time. The growth we have reported therefore bodes well for the future.

Craig Gentle

Chief Financial Officer

27 February 2018

-11-

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 for as long as the clients remain invested. 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 FUM.

The level of income is dependent on the level of client funds and the level of asset values. In addition, since around half of our business does not generate net cash result 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. More information about our fees on Funds under Management can be found in Section 1 on page 17.

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. The Group also invests in ensuring the quality of our proposition for clients and Partners, through investment in new client services and existing IT systems. Finally, we are also looking to the future, with investment in our back-office infrastructure programme and strategic initiatives, including the Academy, Asia and DFM. More information about our expenses can be found in Section 2 on page 20.

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 together with investment in future back-office and administrative capabilities.

Given the importance of FUM to profit generation by the business, we provide an analysis of the FUM make-up and development in Section 1. Section 2 covers Expenses, which is the other significant driver of profits, with Sections 3-5 reporting on the performance of the business on the IFRS, Cash and EEV result bases, and providing commentary on solvency and liquidity.

-12-

Performance Measurement

In line with statutory reporting requirements we report profits assessed on an International Financial Reporting Standards (IFRS) basis. However, given the long-term nature of the business and the high level of investment in new business generation each year, we believe 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. Therefore, consistent with last year, we complement IFRS reporting with additional disclosure on various alternative performance measures (APMs).

APMs are not defined by the relevant financial reporting framework (which for the Group is IFRS), but we use them to provide greater insight to the financial performance, financial position and cash flows of the Group and the way it is managed. Summary information about the key APMs used in our Financial Review is provided in the following table.

-13-

-14-

-15-

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 2017 we have seen gross new funds of £14.60 billion (2016: £11.35 billion), growth of 29% and a net inflow of funds under management of £9.51 billion (2016: £6.78 billion), growth of 40%. The investment return contributed £6.20 billion (2016: £8.71 billion) to funds under management during the year reflecting growth in world stock markets. Given the strong net inflow, and the positive investment performance, funds under management increased to £90.75 billion (2016: £75.31 billion).

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

Included within "UT/ISA & DFM" are closing funds under management of £2.10 billion, gross inflows of £0.49 billion and outflows of £0.10 billion in relation to the Rowan Dartington Group funds under management.

-16-

Included within "UT/ISA & DFM" are closing funds under management of £1.57 billion, gross inflows of £0.42 billion and outflows of £0.16 billion in relation to the Rowan Dartington Group funds under management. Also included is the £0.05 billion reduction in funds under management relating to the disposal of Rowan Dartington's non-core international platform business, Ardan International, in December 2016.

Geographical and segmental analysis

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

-17-

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 average net annual management fee retained by the Group (net of investment advisory fees and Partner remuneration) is c.0.77% post tax. However, due to our product structure, investment and pension business does not generate net cash result (after the initial margin) during the first six years. Consequently, the level of Cash result we are reflecting today is not fully representative of the expected earnings from the funds we are managing, and will increase as a result of the new business from six years ago becoming net Cash result generative. This deferral of Cash result generation means there is always six years' worth of business in the 'gestation' period.

The table below provides an estimated current value, for illustrative purposes, of the funds under management in the gestation period.

This £30.6 billion of funds under management in the gestation period represents approximately a third of the total funds under management. If all the business reached the end of the gestation period, it would then contribute some £235.6 million to the annual post-tax Cash result, calculated using the Group's average net annual management fee of 0.77% (post tax).

-18-

The business case for continued investment in growth in FUM

The Group invests in order to:

· Continue building capacity and attract new funds;

· Enhance the Group's future capability to grow; and

· Develop administration systems and processes that will accommodate growth, contribute to future improvements in Partner and client experience, and reduce the cost of processing.

Building capacity and attracting new funds

The Group has continued to invest in expanding high quality adviser capacity, with total adviser numbers growing by 7% during the year from 3,415 in 2016 to 3,661 at 31 December 2017. At the same time Gross inflows increased by 29% which contributed to an overall net increase in funds under management of £15.4 million, or 20%.

As previously reported, the reassessment of the investment contract liability that was implemented at 31 December 2016 has had a significant positive impact on the pattern of cash emergence for new business. As a result, the Operating cash result on new business is now positive £10.5 million (2016: negative £80.2 million). The emergence of this Cash result takes time to be reflected within IFRS profit as a result of the action of the DIR, but provides a useful reminder of the future value embedded within the business.

On an EEV post tax basis, the expected present value of this new business is £642.0 million (2016: £427.8 million).

Investing in the Group's future capability to grow

Academy

Investment in our Academy and Next Generation Academy is in anticipation of medium and long-term pay-back. We have now categorised the associated costs as investment related for over 5 years on the basis that it would take a certain amount of time for individuals starting their training to be productive. In 2017, 124 individuals graduated from the Academy and the Next Generation Academy, and we expect the 2018 equivalent to be 140. By the end of 2018, we expect to have over 500 Academy and Next Generation Academy graduates active as advisers, and so, reflecting the fact that this has become core to our operations, from 2019 onwards we will include the cost of our Academy within our new business Operating cash result.

Rowan Dartington

Our DFM business now has £2.10 billion of funds under management, growth of 34% from £1.57 billion at 31 December 2016. We continue to invest in operational, regulatory and IT infrastructure to provide the business with a robust platform for growth in the future. We expect funds under management will grow at a similar rate over the next few years and anticipate reclassifying DFM from Investment to business as usual by 2020.

Asia

Our investment in Hong Kong, Singapore and Shanghai is long-term in nature and we now have 120 advisers on board, and a fully licensed and operational Life Company in Hong Kong to complement our branch in Singapore. The business is growing strongly and will contribute a positive EEV in the next few years.

-19-

Investing in next generation administration systems and processes

The most significant investment in this category is in a new back-office infrastructure which represents a multi-year programme to ensure our future systems and processes can support our overall business goals. As we have reported previously, our Unit Trust and ISA propositions are now administered using the Bluedoor platform and in 2016 and early 2017, the focus was on the launch of a new Retirement Account meaning that new pensions business is now also administered on Bluedoor.

The result of the progress made to date is that approximately two-thirds of all business written in 2017 was done so using Bluedoor and as at 31 December 2017 31% of total FUM was on Bluedoor (2016: 26%). The next significant phase will be the migration of existing pension and drawdown business, and plans for the final key migrations are being prepared. We anticipate heightened activity levels throughout 2018 and into 2019 in order to complete the project. This is likely to result in costs in 2018 being ahead of 2017.

-20-

SECTION 2: EXPENSES

Management expenses

The table below provides a breakdown of the management expenditure (before tax):

Notes

1. Establishment costs are the running costs of the Group's infrastructure, which although relatively fixed in nature will inevitably increase with inflation, but also as the infrastructure expands to manage higher numbers of clients, growing numbers of advisers and increasing business volumes. Establishment costs in 2017 have been higher than expected due to strong business growth.

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. Operational development costs represent business as usual expenditure to support the business, such as the on-going development of our investment proposition and our technology, including focus on cyber security. We expect costs in 2018 will grow in line with the business.

4. As a growth business we are constantly looking to new opportunities and expect to incur a small level of ongoing expense associated with pursuing other strategic developments. We will continue to explore opportunities and undertake appropriate initiatives.

5. The Academy is an important strategic investment for the future and we are continuing to grow our investment in this programme. Costs have increased in recent years as we have increased the number of students within the programme and launched more regional academies.

Our investment in the Academy will continue in 2018 with expected costs of some £10.0 million.

6. Our expansion into Asia through operations in Singapore, Hong Kong and Shanghai is intended to provide diversification of our growth model through exporting our successful wealth management proposition to new markets, starting with the UK expat market. Costs reflect both the ongoing operational costs, but also the development costs associated with growing these businesses to achieve sustainable scale.

Our investment will continue in 2018 and we expect expenses to increase by £2-3 million, but the level of investment reflected in the Cash result will be similar as a result of offsetting increases in Asia income.

-21-

7. Our DFM operation, which became part of the SJP proposition in March 2016 following the Rowan Dartington acquisition, continues to grow quickly. Investment is required to support this growth, and we expect that expenses in 2018 will be some £6-7 million higher. However, the level of investment reflected in the Cash result will be at a similar level as a result of offsetting increases in DFM income.

8. Our back-office infrastructure programme is a multi-year initiative to upgrade our administration so it can support our future business goals. Having achieved the migration of our ISA and Unit Trust proposition to our new Bluedoor platform in 2015, the focus in 2016 and early 2017 has been the launch of a new Retirement Account with the intention of migrating pension and drawdown business onto the new system in 2018. With the final key migrations being planned, we expect heightened activity levels through 2018 and into 2019 in order to complete the project. This is likely to result in costs in 2018 being ahead of 2017.

9. The costs of operating in a regulated sector include fees charged by the regulators and our contribution to the Financial Services Compensation Scheme (FSCS). Our position as a market-leading provider of advice, means we make a very substantial contribution to supporting the industry compensation scheme, the FSCS, thereby providing protection for clients of other sector businesses that fail. Over the last few years, the levy has been at an elevated level and we remain hopeful that it will return to a more normalised level in future, albeit we now expect a fourth year of an elevated contribution in the 2018/19 funding year. The FSCS levy is met by our various regulated companies and is split £18.9 million (2016: £16.5 million) via the Distribution business and £2.3 million (2016: £0.7 million) via the Life and Unit Trust regulated business.

Group expenses

The table below provides a reconciliation from the management expenses above to the total Group expenses included in the IFRS consolidated statement of comprehensive income on page 55.

Notes

1. These costs are met from corresponding 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. Costs in 2017 reflect double matching of contributions for the year in recognition of the Group's 25th Anniversary.

-22-

SECTION 3: INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS)

IFRS reporting is a statutory requirement and, although the level of non-cash accounting adjustments are such that it does not reflect the pattern of cash emergence in the Group, its statutory importance means that there are two key measures used that are based upon it. These are:

· Profit before shareholder tax

This is a profit measure based on IFRS which removes the impact of policyholder tax.

· Underlying profit

This is profit before shareholder tax adjusted to remove the impact of accounting for DAC, DIR and PVIF.

Of these two measures, Underlying profit is considered to be the most helpful for assessing operating performance given its greater similarity with the way in which cash emerges within the Group. Further information on these IFRS-based alternative performance measures can be found on page 13.

IFRS profit before tax

The following table demonstrates the way in which profit before shareholder tax is presented in the IFRS consolidated statement of comprehensive income on page 55:

Policyholder tax is accounted for as part of the Group's own corporation tax arrangements. The amount to be accounted for is a reflection of investment return in the underlying funds. The significant reduction in policyholder tax in 2017 is matched by an equivalent reduction in policyholder fund tax deductions that are credited to fee and commission income within the IFRS statement of comprehensive income, and hence IFRS profit before policyholder tax. These fund deductions are similarly unrelated to the performance of the business and for this reason profit after policyholder tax (i.e. Profit before shareholder tax) is the measure used.

IFRS profit after tax

Shareholder tax reflects the tax charge attributable to shareholders and is closely related to the performance of the business.

-23-

The following table demonstrates the way in which IFRS profit and Underlying profit reconcile to the Cash result presented in Section 4:

-24-

The following table shows an analysis of Underlying profit before shareholder tax by activity:

Funds management business

The Underlying profit, which excludes DAC, DIR and PVIF movements for the year, was £371.0 million, which was 44% higher than the prior year (2016: £258.1 million). The key driver for this improvement in performance is the increase in fee income from higher funds under management during the year.

Distribution business

An analysis of the distribution result shown above is as follows:

The result for the Distribution business reflects continued significant investment in future growth, investment in our new businesses in Asia, and the impact of the FSCS costs which continue to run at elevated rates.

-25-

Other

Items categorised within other are as follows:

-26-

DAC, DIR and PVIF

The following table sets out the impact of IFRS accounting for DAC, DIR and PVIF:

Income and expense deferral rates

The effect of our IFRS accounting policies is that substantially all income deferred is amortised over a 6 year period and substantially all expense deferred is amortised over a 14 year period.

Impact of RDR in 2013

One of the impacts of RDR in 2013 was that under IFRS, from that point on, fewer expenses would qualify for deferral. This has resulted in a period of transition where the continued amortisation of expenses previously deferred will significantly outweigh new expenses deferred. Although this position will eventually reverse, it results in a net negative impact on IFRS profits until the reversal takes place.

Impact of the 2016 reassessment of the investment contract liability

The reassessment carried out in 2016 had, and will have, no impact on the IFRS profit and comprehensive income for the year. This is because amounts that were recognised as an accelerated emergence of Cash result in 2016, together with the accelerated emergence of Cash result reflected in the New business margin for 2017, have been deferred over a 6 year period starting on the date the business was written. This is the key driver behind both the increase in income deferred and also the amount of amortisation.

Impact of the continued growth in new business

Continued growth in new business has the effect of increasing the amount of income deferred in each accounting period and the corresponding DIR amortisation over the following 6 years.

With growth in new business comes an increase in costs required to be deferred. These are then amortised over 14 years but as can be seen above, the amount of expense that qualifies for deferral is significantly exceeded by the amount of income required to be deferred. This will result in a continued net deferral of emergence of IFRS profits and the net amortisation impact will grow in line with the long-term business growth rate.

-27-

Analysis of IFRS Assets and Net Assets per Share

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

(1) net of deferred tax

-28-

SECTION 4: CASH RESULT DERIVED FROM IFRS AND SOLVENCY II NET ASSETS BALANCE SHEETS

This section sets out the Cash result for the year and the way in which the Solvency II net asset balance sheet, from which it is derived, is prepared using the IFRS balance sheet as a source.

Solvency II Net Assets Balance Sheet

The Group's consolidated IFRS balance sheet is largely dominated by a number of material balances that reflect policyholder interests in unit linked liabilities together with the underlying assets that are held to match them.

To determine the Solvency II net assets balance sheet, policyholder interests in unit-linked assets and liabilities, plus a number of other items including intangible assets and certain 'accounting' balances such as DIR, DAC and associated deferred tax, are removed. Given the relevance of the resulting Solvency II net assets balance sheet to shareholders, we believe it is helpful to show how it is calculated and how the cash result has contributed to its year on year movement.

-29-

Adjustments:

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

2. Adjustments to the IFRS statement of financial position in line with Solvency II requirements, including removal of DAC, DIR, PVIF and their associated deferred tax balances, goodwill and other intangibles.

Movement in Solvency II Net Assets

The following table sets out the year on year movement in Solvency II net assets. As well as highlighting the Cash result, it also shows other movements such as dividend payments and non-cash movements such as deferred tax.

Cash result

Although the Cash result should not be confused with the IAS 7 consolidated statement of cash-flows, we believe that it provides a helpful alternative view of the way in which cash is generated and emerges within the Group.

The cash result is derived from the movement in the IFRS balance sheet and the Solvency II Net Assets balance sheet within it as shown on pages 28 and 29.

The following table shows an analysis of the Cash result using the following measures:

· Operating cash result

This measure represents the regular emergence of cash from day to day business operations.

· Underlying cash result

This measure is the Operating cash result adjusted for the expense of a number of strategic investments which are being incurred and expensed in year but which are expected to create long-term benefit.

· Cash result

This measure is the Underlying cash result adjusted for certain one-off items together with the short-term costs associated with the back-office infrastructure project.

-31-

-32-

Notes

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

1. The net annual management fee is the manufacturing margin the Group retains from funds under management after payment of the associated costs (for example, investment advisory fees and Partner remuneration). Broadly speaking the Group receives an average net annual management fee of 0.77% (post tax) of funds under management (2016: 0.77% (post tax)).

As noted on page 17 however, our investment and pension business product structure means that these products do not generate net cash result (after the initial margin) during the first six years, which we call the 'gestation period'. This effect is reflected through the reduction in fees in gestation period line. This deduction represents the offsetting of management fee income through the gestation period.

The reduction in fees line has been impacted in 2017 by the reassessment of investment contract liabilities that took place at the end of 2016. The reassessment had the impact of bringing forward £267.0 million of cash emergence that would otherwise have emerged in the following six years within net income from funds under management.

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

As noted previously, the reassessment of the investment contract liability at 31 December 2016 resulted in an increase in the level of initial margin on investment and pension business. This was the main driver for the increase between the two periods.

3. Expenses: These reflect the expenses of running the Group and more detail is provided in the table on page 20. In line with the rest of the table they are presented after allowance for tax.

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

5. 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. Utilisation during the year of £12.1 million tax value (2016: £12.6 million) was slightly ahead of our expected rate of c. £10-12 million benefit in a year.

6. Miscellaneous: This represents the cash flow of the business not covered in any of the other categories, including ongoing administration expenses and associated policy charges, together with utilisation of the deferred tax asset in respect of prior years' unrelieved expenses (due to structural timing differences in the life company tax computation).

7. Strategic investments, including back-office infrastructure: These reflect significant investments in developing our business for the future. Further analysis of the expenses associated with these initiatives is presented in section 2 on page 20 but all are expected to result in either additional funds (Academy, Asia and DFM) or expense savings (Back-office infrastructure) in the future. Advice margin and fees generated in Asia, and all fees generated by DFM, are reflected in the relevant line.

8. Variance: This principally reflects the impact of double matching for the Charitable Foundation during the year and other 25th anniversary costs. Costs arising from reviewing charges on legacy business were funded by one-off investment profits arising in the year. The prior year also reflected costs associated with reviewing charges in legacy business cohorts (2016: £6.6 million).

-33-

Liquidity

Included in the Solvency II net assets balance sheet are holdings in Fixed Interest Securities, Collective Investment Schemes and other cash and cash equivalents. It is our policy to always hold such assets in high credit quality liquid assets. An analysis of liquid asset holdings as at 31 December 2017 is provided below:

The Group's holdings in money market funds and cash and cash equivalent are spread across a number of different AAA rated unitised money market funds and approved banking counterparties. Diversification ensures that the Group's appetite for credit and liquidity risk are appropriately managed.

In the normal course of business, the Group is expected to generate regular, positive cash flow from annual management income exceeding expenses. As noted previously, future growth in cash flow is driven by new business, but in the short-term growth will reflect the transition as new business from six years ago becomes cash generative.

The key calls on liquidity are payments of Group dividends and investment to support the business. As noted previously, our expected dividend policy is based on a pay-out ratio to Underlying cash of 80%. We believe this will enable us to continue to invest in the business to support our growth aspirations.

-34-

Solvency

St. James's Place has a business model and risk appetite that results in underlying assets being held that fully match with client investments. Our clients can access their investments 'on - demand' and because the encashment value is matched, movements in equity markets, currency markets, interest rates, mortality, mortality and longevity have very little impact on our ability to meet liabilities. We also have a prudent approach to investing shareholder funds and surplus assets in cash, AAA rated money market funds and highly rated government securities. The overall effect of the business model and risk appetite is a resilient solvency position capable of enabling liabilities to be met even through adverse market conditions.

Our Life businesses are subject to the Solvency II Capital regime which applied for the first time in 2016. Given the relative simplicity of our business compared to many, if not most, other organisations that fall within the scope of Solvency II, we have continued to manage the solvency of the business on the basis of holding assets to match client unit-linked liabilities plus a Management Solvency Buffer. This has ensured that, not only can we meet client liabilities at all times (beyond the Solvency II requirement of 1 in 200 years), but we also have a prudent level of protection against other risks to the business. At the same time, we have ensured that the resulting capital held meets with the requirements of the Solvency II regime, to which we are ultimately accountable.

In the year ended 31 December 2016, we re-assessed our approach to investment contract liabilities, and the revised approach of recording them at their encashment value resulted in a reduction in the liability of £267.0 million in the life companies. Although this exercise was completed at 31 December 2016, the need for further work on the MSB proxy in the second year of Solvency II was flagged and a decision was made to re-allocate the £267.0 million to the MSB, temporarily, in order that we would continue to hold unchanged total capital while the review was ongoing. However, at that point we explained that an asset-liability matching exercise would likely result in a reduction in our corporate exposure to market risk, and would therefore likely result in a reduction in risk capital requirement.

During the second half of 2017 we have competed our review of the MSB. The review was able to take into account stress and scenario testing completed as part of our 2017 ORSA process, together with our plans to continue investing in the business. It has also taken account of a forward Capital Management approach within our largest insurance company, the UK Life company, that will require capital to be equal to 110% of the Solvency II standard formula requirement. Given the risk profile of the business we consider this to be a prudent and sustainable policy.

Under normal circumstances we would expect the MSB to grow with the business, but as a result of this review we are able to reduce the MSB for the Life businesses this year from £437.0 million at 31 December 2016 to £355.0 million at 31 December 2017. As previously noted, we plan to manage capital in the Life businesses in order to meet the MSB, and therefore at this valuation we will be releasing the excess assets (including the reduction in MSB) and reducing capital to be in line with the MSB.

The following table demonstrates the movement in the MSB for the Life business over the year: