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

28 February 2017

ANNOUNCEMENT OF ANNUAL RESULTS

FOR THE YEAR ENDED 31 DECEMBER 2016

STRONG GROWTH UNDERPINS 20% 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 2016:

Financial highlights

· EEV new business profit £520.2 million (2015: £440.7 million)

· EEV operating profit £673.6 million (2015: £660.2 million)

· EEV net asset value per share 900.7p (2015: 737.3p)

· Profit before shareholder tax £140.6 million (2015: £151.3 million)

· Operating cash result (post tax) £226.0 million (2015: £195.6 million)

· Underlying cash result (post tax) £199.5 million (2015: £182.1 million)

Dividend

· Final dividend of 20.67 pence per share (2015: 17.24 pence per share) up 20% providing a full year dividend of 33.00 pence per share (2015: 27.96 pence per share) growth of 18%

Other highlights

· Record gross inflows of £11.4 billion (2015: £9.2 billion)

· Net inflow of funds under management of £6.8 billion (2015: £5.8 billion)

· Funds under management of £75.3 billion (2015: £58.6 billion)

· We now have 3,415 qualified advisers, up 10% for the year

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David Bellamy, Chief Executive Officer, commented:

"Despite the economic and political uncertainty, challenging markets and the surprising political events, St. James's Place once again achieved strong growth across all key aspects of the business, resulting in another record year of new investments, funds under management and operating profits.

At the heart of our sustained growth is our commitment to achieving good outcomes for our clients and the importance we place on building long term relationships. That very nearly 90% of new investments come from existing clients, referrals and introductions and 99% of our clients, who responded to our recent survey, feel our proposition offers value for money, is testament to the fact that we are doing this.

At the time of our half year results, we increased the interim dividend by 15% and reaffirmed our commitment to continue to grow the dividend in line with the underlying performance of the business. Consequently, and supported by the continued strong performance of the business, the Board has proposed a final dividend of 20.67p per share, up 20%, which brings the full year dividend to 33.0p per share, growth of 18%.

Looking forward, we entered 2017 with a stronger adviser team, a more diversified investment proposition and a greater need for advice clients can rely on. We remain committed to relationship based advice and believe we are better placed than ever to serve our clients well and for the opportunities that lie ahead."

Enquiries:

Analyst presentation at 9.15am for 9.30am at:

Bank of America Merrill Lynch Financial Centre,

2 King Edward Street,

London EC1A 1HQ

to be held in the King Edward Hall

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

(Live and On-demand):

http://www.investis-live.com/st-jamess-place/5882271b8c50771000744476/znps

There will also be a Dial in:

Conference call dial in details:

United Kingdom (Local) 020 3059 8125

All other locations + 44 20 3059 8125

Participant Password: St James Place

Replay Dial-in details

United Kingdom 0121 260 4861

All other locations + 44 121 260 4861

Passcode: 5151971 followed by #

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CHIEF EXECUTIVE'S REPORT

2016 was an extraordinary year when market participants, most commentators and the public were surprised by how events unfolded.

First it was the vote to leave the EU in June and then it was the outcome of the US Presidential election. Both seemed to defy the pollsters' predictions and both have impacted stock markets in a somewhat unexpected way.

If they teach us one thing (again) it's to avoid trying to predict the future!

Despite this political uncertainty St. James's Place once again achieved strong growth across all key aspects of the business. Gross inflows were 23% higher at a record £11.4 billion which, together with characteristically high retention of client funds, resulted in record net inflows in the twelve months of £6.8 billion. These net inflows, together with the strong investment returns our clients enjoyed, gave rise to 28% growth in funds under management to £75.3 billion.

At the heart of our sustained growth is our commitment to achieving good outcomes for our clients and the importance we place on building long term relationships and serving them well. That very nearly 90% of new investments come from existing clients, referrals and introductions and 99% of our clients, who responded to our recent survey, feel our proposition offers value for money, is testament to the fact that we are doing this.

For most people, their finances and wealth are personal and they want to be treated in a highly personalised way and by someone they trust. Indeed, we see a growing demand for sound, personal, financial planning advice as individuals begin to fully comprehend, amongst other things, the financial implication of increased life expectancy whilst being faced with increasingly complex options in respect of their pension arrangements, supporting their offspring and other family matters. The scale and quality of the Company's relationship based approach to wealth management, twinned with our distinctive investment management proposition, which has been positioned to serve this market, is doing so.

We work to offer a consistent service to our Partners, and through them to their clients who do not have the time, expertise, inclination or confidence to look after their own affairs and we recognise that, for most of them, their main priority is to keep their money safe, ensure it is invested efficiently and at the very least realise a decent return. Our portfolio approach, which gives access to a globally diversified range of assets, the holistic advice available from our Partners on everything from tax to intergenerational planning, is designed with this objective in mind.

FINANCIAL PERFORMANCE

As reported within the Chief Financial Officer's report on pages 6 to 8 the strong operating performance of the business during the year is reflected in the financial performance for the year.

As well as paying a growing dividend to shareholders we are continuing to invest in the business for the future be it the Academy, our growing operations in Asia, our new investment into Discretionary Fund Management or our back office infrastructure. Whilst these investments are consuming capital today we are very pleased with how each initiative is developing and we expect a good return for shareholders in the future.

DIVIDEND

At the half year, we increased the interim dividend by 15% and reaffirmed our commitment to continue to grow the dividend in line with the underlying performance of the business.

Consequently, and supported by the continued strong performance of the business, the Board has proposed a final dividend of 20.67 pence per share, up 20%, which brings the full year dividend to 33.0 pence per share, up 18%.

The final dividend for 2016, subject to approval of shareholders at our AGM, will be paid on 12 May to shareholders on the register at the close of business on 7 April. As usual, a Dividend Reinvestment Plan continues to be available for shareholders.

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CLIENTS

Key to our sustained success has been our core commitment to achieving the best possible outcome for our clients and ensuring that they remain well served by our long-term, face-to-face approach to wealth management. While the evolution of the UK wealth management landscape means that UK savers and investors have an array of options available to them today, we know that a highly personalised, relationship-driven model is in high demand and we are confident that this will remain so in the future.

However, we are not complacent and we regularly take the opportunity to seek feedback directly from all our clients. The most recent research, carried out in early 2017 following receipt of annual Wealth Account statements, indicates that overall client satisfaction remains very strong with 94% of clients who responded telling us that that they are either satisfied or very satisfied with the overall relationship. This sentiment is echoed by the fact that more than 97% of clients confirmed that they would recommend St. James's Place to others, indeed 56% say they have already done so. And, as I commented earlier, when asked to indicate whether they feel our proposition offers value for money, 99% of the clients who responded, said reasonable, good or excellent, with 82% in the higher categories.

We will build upon these excellent results and seek further improvements, to our standards of service and proposition, to ensure clients continue to receive high quality, face-to-face advice they can trust and demonstrable value creation for their wealth.

INVESTMENT MANAGEMENT

2016 was a year of strong growth for many major stock markets across the globe. There were two great political events that dominated much of the political and economic debate during the year - the UK's Brexit vote and election of Donald Trump as US President - but these surprise outcomes ultimately did little to dent market momentum as both the S&P 500 and FTSE 100, for example, struck new highs in late 2016.

Meanwhile, our funds performed strongly over the period, and all eight of our portfolios delivered positive returns, ranging from 5.2% for the Defensive portfolio to 20.7% for the Adventurous portfolio, net of all charges.

For much of the year, low and negative interest rates created headwinds for those seeking income, and a summer interest rate cut by the Bank of England only added to the challenge. By the end of the year, however, the tide appeared to be turning, as US yields rose following the presidential election, and the Federal Reserve used its December meeting to raise interest rates.

It was against this backdrop that we launched our new Worldwide Income fund in October. The fund aims to obtain an attractive level of income through investing largely in global equities. Equities are a proven source of long-term income, and the new fund add to the diversity of income sources we can provide our investors. The fund is managed by Clyde Rossouw of Investec Asset Management based in Cape Town, demonstrating once again the global nature of our investment manager selection process.

The political surprises of 2016 offer a reminder of the importance of diversification, whether by geography or asset class. We will continue to adapt our investment approach to ensure we are responding to the evolving investment environment. In doing so, we believe we can continue to help our clients fulfil their long-term financial goals.

THE ST. JAMES'S PLACE PARTNERSHIP

Increasing the number of Partners and advisers, whilst at the same time providing them with the tools and support to deliver high quality outcomes for clients remains one of the key drivers to achieving our long-term growth objectives.

I am therefore pleased to report that through the continued acquisition of highly established advisers, the integration of new Partners in Asia and the success of our extended Academy programme, our qualified Adviser population increased by 10% to 3,415, across the 2,378 Partner businesses. In many ways, the added momentum in growth in our qualified adviser population reflects the evolution of Partner businesses, as they seek to acquire more clients and continue to provide a high level of service to their existing clients.

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

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Alongside the Partnership we completed the acquisition of Rowan Dartington in the first half of 2016 and we have seen the number of investment executives increase by 21% from 34 to 41.

THE ST. JAMES'S PLACE FOUNDATION AND COMMUNITY ENGAGEMENT

Raising funds for those less fortunate has always been at the heart of the Group's culture, and the collective efforts of the whole of our community, including employees, Partners, suppliers and others connected to St. James's Place, resulted in total funds raised of £7.6 million (including company matching). This means the total amount raised to date is now over £54 million, benefitting the hundreds of causes it has and will continue to support and quite literally changing people's lives.

To mark our 25th Anniversary year and in keeping with our strong desire to further support fund-raising efforts, the Board, on behalf of shareholders, has agreed to double the matched funding. It is a special incentive for 2017 only and subject to an overall cap of £10 million.

In addition to these fund-raising efforts, the cultural driver of 'doing the right thing' runs through the whole organisation, underpinning all our interactions with our local and extended communities. Our continued membership of FTSE4GOOD recognises the positive nature of our work in these areas.

We take a great deal of pride in the significant contribution we make through the Foundation and other initiatives including our structured programmes for summer interns and Apprenticeships. We are also committed to maintaining our Living Wage accreditation, being one of only 20 FTSE100 companies to achieve this status.

OUR COMMUNITY

The strength and continued growth of the business is due to the hard work and dedication of our Partners, their staff, 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.

OUTLOOK

Looking forward, we entered 2017 with a stronger adviser team, a more diversified investment proposition and a greater need for advice clients can rely on. We remain committed to relationship based advice and believe we are better placed than ever to serve our clients well and for the opportunities that lie ahead.

David Bellamy

Chief Executive

27 February 2017

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CHIEF FINANCIAL OFFICER'S REPORT

Despite the uncertainties caused by political events during the year, our business has performed strongly, with growth in all the business fundamentals.

As already covered in the Chief Executive's Report the growth in gross and net inflows, together with the investment return in our funds, gave rise to a 28% growth in our funds under management to £75.3 billion.

Shareholders will be aware that our financial model is to attract and retain funds under management on which we will receive an annual management fee, and consequently this strong growth in funds under management is reflected in our financial results.

At the same time we are investing in the business for the future. The increase in costs of these initiatives is also reflected in the results, but with an expectation of future returns for the business.

FINANCIAL RESULTS

As shareholders will be aware from previous periods, we report our results on both IFRS and EEV bases, as well as providing further detail on the cash emergence from the business. Detailed explanation and analysis of the results on these measures is provided in the Financial Review on pages 9 to 34.

Overall, the results reflect the underlying strong business performance over the year, but there are a number of particular factors which have also impacted the results:

(i) Our required contribution to the Financial Services Compensation Scheme (FSCS) was again at an elevated level, negatively impacting the results by £17.2 million pre-tax (£13.7 million post-tax) compared with a £20.1 million pre-tax (£15.9 million post-tax) for the prior year.

(ii) During the year we have continued to invest strongly in our future with a current year impact of £34.0 million pre-tax (2015: £17.2 million pre-tax). We are very pleased with the success of our Academy, and both the Asia operations and our new DFM offering, Rowan Dartington, are developing well.

(iii) The continuation of our back office infrastructure investment cost £20.9 million for the year compared with £18.1 million for the prior year.

(iv) As noted at the half year we have been voluntarily reviewing charges on two small cohorts of business: waiving exit charges at the minimum retirement age where they existed on some older pension contracts (written before July 1999); and reassessing risk charges on a reviewable protection contract. The combined impact of these actions is a negative one-off £8.2 million pre-tax in the cash and IFRS results, which rises to £13.6 million pre-tax in the EEV result when the reduction in future charges is also fully capitalised.

Also, at the end of the year, we have reassessed the value of the investment contract unit liability to better reflect recent experience and to match the encashment value of client investments. This reassessment reduces the liability by £267 million, with an offsetting increase in the Deferred Income liability in the IFRS statement of financial position. There is no impact on IFRS net assets or profit, nor will there be any impact on the emergence of profit in future years. This change better reflects our business and we believe it will simplify reporting in future. Where this change has any presentation impact on each of the reporting metrics, it is commented on in the relevant sections of the Financial Review.

IFRS Result

The IFRS profit after tax was £111.7 million (2015: £202.0 million). The principle reason for the reduction in the current year was that the prior year result was enhanced by recognition of £74.8 million of deferred tax asset on historic capital losses. The 2016 result is also impacted by the continuing unwind of intangible DAC/DIR/PVIF balances.

The Underlying profit before shareholder tax was £163.5 million (2015: £163.7 million) reflecting an increase in the income from funds under management, offset by the higher expenses, the cost of investment and the other items noted at the start of this statement.

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The Profit before shareholder tax, which takes account of the amortisation of intangible assets and liabilities, was £140.6 million (2015: £151.3 million). As previously indicated, the amortisation of the intangible assets and liabilities will for a number of years exceed the establishment of new intangibles and be a negative to both the Profit before shareholder tax and the IFRS profit after tax results.

Cash Result (presented post tax)

The Operating cash result for the year was £226.0 million (2015: £195.6 million), growth of 16%, reflecting the increased annual management fees from the higher funds under management offset by higher expenses.

Some of this operating cash is then expensed through investment in the Academy, the Asian operations, our new DFM offering and other strategic investments. The total post tax investment during the year was £26.5 million (2015: £13.5 million) resulting in the Underlying cash result of £199.5 million (2015: £182.1 million), growth of 10%.

The Cash result was £175.4 million (2015: £171.5 million) reflecting 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 28.

The reassessment of the investment contract unit liability will change the emergence of cash in future years (detailed in the Financial Review on page 28). Had the change been implemented at the start of 2016 then the cash results noted above would have been some £25 million higher.

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 50.

EEV Result

In line with our previous guidance, we have reduced the level of EEV reporting and now only provide summarised disclosure in the Financial Review rather than full supplementary information.

The EEV new business contribution for the year was £520.2 million (2015: £440.7 million), growth of 18%. The growth was slightly lower than the new business growth (+23%) due to higher expenses associated with the strong adviser growth and a change in business mix.

The EEV operating profit for the year was £673.6 million (2015: £660.2 million) growth of 2%, however, the prior year benefitted from a significantly higher experience variance and operating assumption changes. Excluding these items in both years, together with the 2016 benefit from the inclusion of Rowan Dartington, the growth in the operating profit would have been 18%, in line with the growth in the new business contribution.

The rise in global stock markets during the second half of the year, partly arising out of the currency impact from the depreciation of sterling, has contributed to a very strong investment return for our funds. This gave rise to a positive investment variance of £537.2 million compared to a small negative variance of £24.4 million for the prior year.

Total EEV profit before tax for the period was therefore £1,198.4 million with the positive investment variance explaining most of the significant increase compared with £636.7 million for the prior year. The net asset value per share on an EEV basis at the end of the year was 900.7 pence (31 December 2015: 737.3 pence).

The EEV result is unaffected by the reassessment of the investment contract unit liability.

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DIVIDEND

At the half year we increased the interim dividend by 15% to 12.33p and re-iterated our intention to continue to grow the dividend in line with the underlying performance of the business. Given the continued strong performance of the business during the second half of 2016, the Board has recommended a final dividend of 20.67p per share, an increase of 20% which will consume £109 million. This will provide for a full year dividend of 33p growth of 18%.

Over the last ten years we have progressively grown the dividend, even during 2008/09, with compound growth of some 25% per annum.

CAPITAL AND SOLVENCY II

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

We assess our solvency against a Management solvency buffer (see page 29) and with Management free assets considerably in excess of the buffer, our solvency position remains strong. We also provide an estimate of our Solvency II free assets position, which at £952.2 million before the dividend (2015: £899.7 million), provides a solvency ratio of 147% (2015: 156%) also demonstrating the financial strength of the business.

CONCLUDING REMARKS

The business, financials and lead indicators are in very good shape. The cash emergence is expected to continue to grow as business matures from the gestation period and starts to contribute to the cash earnings.

In addition to increasing the dividend to shareholders we are continuing to invest in the business for the future.

Finally, as noted in the Chief Executive's Report, the proven strength of our business model and good momentum in our business gives us confidence in our ability to deliver continued growth in line with our objectives.

Andrew Croft

Chief Financial Officer

27 February 2017

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FINANCIAL REVIEW

The Financial Model

The Group's strategy is to attract and retain retail Funds under Management (FUM) on which we receive an annual management fee 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 income 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 14.

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 strategic initiatives, including the Academy, Asia, DFM and our Back-office infrastructure programme. More information about our expenses can be found in Section 2 on page 16.

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 15).

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.

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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.

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SECTION 1: FUNDS UNDER MANAGEMENT

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

Movement in funds under management

During 2016 we have seen gross new funds of £11.35 billion (2015: £9.24 billion), growth of 23% and a net inflow of funds under management of £6.78 billion (2015: £5.78 billion), growth of 17%. The investment return contributed £8.7 billion (2015: £0.8 billion contribution) to funds under management during the year with this contribution reflecting both the higher stock markets but also the positive impact of the deprecation of Sterling on the overseas assets. Given the strong net inflow, and the positive investment performance, funds under management increased to £75.31 billion (2015: £58.61 billion).

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

Included within "UT/ISA & DFM" are gross inflows of £0.42 billion and outflows of £0.16 billion relating to Rowan Dartington. 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.

A further £466 million of investments is managed in third party funds within our Asia business.

A further £430 million of investments is managed in third party funds within our Asia business.

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Notes

1. Regular income withdrawals are those amounts, pre-selected by clients, which are paid out by way of periodic income. Maturities are those sums paid out where the plan has reached the intended, pre-selected, maturity event (e.g. retirement).

2. Surrenders and part surrenders are those amounts where clients have chosen to withdraw money from their plan which were not pre-selected regular income withdrawals or maturities.

Fees on funds under management

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

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

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

This £25.1 billion of funds under management in the gestation period represents approximately a third of the total funds under management which, if all the business reached the end of the gestation period, would contribute some £195 million to the annual post-tax cash result.

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The Business Case for new Funds Under Management

The Group incurs costs associated with attracting new funds. We believe it is useful to provide details of the economic return we expect will be generated from the new business; in other words, the business case for the investment in attracting new clients and funds under management.

As detailed later in this review on page 26, a net cost of £106.7 million (2015: £84.2 million) has been incurred to attract the £11.35 billion of gross new funds (2015: £9.24 billion).

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

* The investment as a percentage of net inflow of funds under management was 1.6% compared with 1.5% for 2015.

Geographical and segmental analysis

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

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SECTION 2: EXPENSES

Management Expenses

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

Notes

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

The growth in the establishment expenses during the year was higher than our targeted growth due to the very strong new business result together with above target growth in new advisers, a primary driver to the infrastructure costs.

We expect the growth in the establishment costs for 2017 to be more in line with our medium term business targets.

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 2017 to be at a similar level.

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 2017 with expected costs of some £8.0 million.

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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 ex-pat market. Costs reflect both the ongoing operational costs, but also the development costs associated with growing these businesses to achieve sustainable scale. We have also seen these costs increase due to the depreciation of Sterling.

Our investment will continue in 2017 and we expect this investment cost to increase by £3-4 million.

7. Completion of the purchase of Rowan Dartington in March 2016 facilitated a new DFM operation within the SJP proposition. We expect this business will grow quickly, requiring investment to support these ambitions.

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 system in 2015, the focus in 2016 has been the launch of a new retirement account with the eventual aim being to migrate pension and drawdown business onto the new system. The costs in 2017 will be at a similar level to 2016.

9. The costs of operating in a regulated sector include fees charged by the regulators and our contribution to the Financial Services Compensation Scheme. 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. In the last couple of 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 third year of an elevated contribution in the 2017/18 funding year. The FSCS levy is met by our various regulated companies and is split £16.5 million (2015: £19.8 million) via the Distribution business and £0.7 million (2015: £0.3 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 Consolidated Statement of Comprehensive Income on page 47.

Notes

10. 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.

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11. As noted in the 2015 Annual Report & Accounts, in preparation for migration of business to the Bluedoor platform, we restructured our funds so that Investment expenses of all unit trusts are charged directly to the trust rather than some being settled by the manager or life company. As a result, the Investment expenses for most funds are no longer consolidated in the financial statements, but neither is the equal and offsetting fee, resulting in a neutral profit impact overall (and a neutral impact on clients).

12. Also as noted in the 2015 Annual Report & Accounts, as a result of the migration of business to a new back office platform, a new administration tariff with our outsourced provider now applies to business transacted. Consequently, some administration costs which were previously charged to the trusts are now being treated as expenses, with a corresponding offsetting increase in fee income; again resulting in a neutral impact overall. As a result, the Third Party Administration costs reported in 2016 increased by c.10% in addition to the growth in business.

SECTION 3: INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS)

As noted at the start of this review, two key measures based on IFRS are Profit before shareholder tax, which removes the impact of policyholder tax, and Underlying profit result, which removes the impact of changes in certain intangibles (DAC/DIR/PVIF). Of these two we believe Underlying profit provides the more useful measure, based on IFRS, for assessing operating performance.

As noted in the Chief Financial Officer's report, the results reflect the underlying strong business performance, but also a number of other drivers most notably including the FSCS levy and the continued investment in our business (not least our back-office infrastructure, the Academy and recent acquisitions).

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Underlying Profit before Shareholder tax

The result for the year was £163.5 million, in line with the result of £163.7 million in 2015. A breakdown by segment is provided in the following table:

Funds management

The profit for the year to 31 December 2016 was £258.1 million (2015: £244.9 million), which was 5% higher than the prior year. Higher income from funds under management was partially offset by higher expenses and some one-off costs from reviewing charges in two small cohorts of legacy business. The investment in the infrastructure of Rowan Dartington for future growth reduced profit by £5.1 million. Finally, a reallocation of expenses between Life and Unit Trust business has impacted the respective results of each business.

Distribution business

St. James's Place is a vertically integrated firm, allowing it to benefit from the synergies of combining funds management with distribution. Therefore, as well as the income generated on the funds under management, there is a further margin from the distribution activity, which depends principally on the levels of new business, expenses and investment.

The 2016 result has been negatively impacted by a continued, albeit slightly reduced year on year, high contribution to the FSCS, which for the year was £16.5 million (2015: £19.8 million). The Asian business also made a loss in the year of £13.2 million (2015: £7.0 million) reflecting the corporate investment in securing this business. After adjusting for these costs in both years, there was a trading profit of £3.8 million in the current year which was similar to the trading profit of £5.6 million in 2015.

Back office development

As noted on page 16 our investment in our back office development project (known as Bluedoor) during the year was £20.9 million (2015: £18.1 million).

Other

Other operations made a negative contribution of £47.8 million (2015: negative contribution of £41.9 million). The largest contributors to the result were the costs of share options and the impact of strategic investment (other than the back office development identified separately above).

The higher share option cost of £23.9 million in the current year (2015: £15.7 million) principally reflected a full year expense of the new Partner share scheme which was launched in the second half of 2015. Additionally, National Insurance associated with share options cost £1.9 million in the year (2015: £3.4 million).

In 2016 investment in RD and Asia which have been allocated above, but other strategic development costs, including the Academy, were £15.7 million compared to £10.2 million in 2015 (see Section 2 on page 16 for more detail on the associated expenses).

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Finally, our matching grant and other contributions to the work of the Foundation totalled £3.7 million in 2016 (2015: £3.8 million).

DAC, DIR and PVIF

The net movement in the DAC, DIR and PVIF intangibles has a negative contribution to profit as summarised in the table below. Additional analysis is included in Note 8 on page 62.

The net impact of amortisation of the accumulated balances of DAC and PVIF assets, and DIR liability, has, as expected, reduced again during the period, turning negative compared with the prior year.

The amortisation pattern of DAC and DIR is different, with the DAC balance amortising steadily over 14 years while a substantial proportion of the DIR balance will amortise over 6 years. Historically this has resulted in faster deferred income recognition than acquisition expense accrual, and a positive impact overall from amortisation.

However, since the implementation of RDR in 2013 the level of new DAC and DIR has reduced significantly and the large historic balances have been unwinding down towards the new normal. The faster amortisation of DIR means that its trend towards a new lower rate has been quicker, causing the net amortisation level to reduce and ultimately turn negative, which developing effect can also be seen in Note 8.

Previous guidance stated this reducing trend would continue until the pre-RDR DIR balance had unwound (over 6 years, say 2020), at which point the net amortisation level would stabilise before starting to increase back towards a new long-term level as the pre-RDR DAC balance unwinds (by 14 years, say 2028). However, the reassessment of £267 million of investment contract liability at the end of 2016 has re-established a significant DIR balance, which will amortise over the next 6 years. We therefore expect a change in the overall amortisation in 2017 to a positive £30-35 million before shareholder tax. The equivalent in 2016 would have been c.£50 million before shareholder tax and c.£40 million after tax, which reflect an increase of c.£55 million before shareholder tax and c.£45 million after tax. (For clarity, there is no change in expected pattern of DAC amortisation.)

At the same time, the revised assessment of investment contact liability results in a change in the income deferred from future new business. If the revised approach was applied to business in 2016 the impact would have been an increase in new DIR of c.£90 million (c.£70 million after tax), taking the total negative impact from new business to around £110 million before shareholder tax and c.£90 million after tax. In future years we would expect this negative contribution to move in line with new business growth albeit reflecting business mix impacts.

Overall, and since our business has been growing, we expect that the negative impact of deferring more income from new business will exceed the positive impact of amortising the historic balances, meaning the DAC/DIR/PVIF adjustment will be more negative in future. But of course this will simply offset the equal and opposite positive impact we are expecting in the Cash result (see page 25).

Tax rate changes in both years impacted the post-tax movements.

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Finally, it is important to note the intangible and deferred nature of these items, meaning that they do not reflect the operating performance of the business. This is why we believe the Underlying profit measure, which is adjusted from IFRS to remove these impacts, provides a useful measure of operating performance.

Shareholder Tax

The actual tax rate in each of the periods may be impacted by significant one-off items and events such as a change in corporation tax rate. The table below provides a high level analysis of shareholder tax, and a more detailed analysis is included in Note 7.

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

There has been a small reassessment in the recognition of capital losses adding £2.2 million to profit (negative tax impact) in the year (2015: £74.8 million negative tax impact, positive profit) and the combined impact of a number of other small tax adjustments was a £2.6 million negative impact on profit, or increase to tax (2015: £0.6 million negative impact on tax, positive on profit).

The reduction in the rate of corporation tax to 17% from 1 April 2020 was enacted in the Finance Act 2016. The impact of this reduction on the net deferred tax assets and liabilities results in a negative impact of £1.3 million due to the level of deferred tax assets being greater than the level of deferred tax liabilities (2015: £4.5 million positive impact).

The overall impact of these effects was to increase the tax charge on an IFRS basis to £28.9 million (2015: negative impact on tax of £50.7 million).

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IFRS profit

Analysis of the IFRS profit before tax, Profit before shareholder tax and IFRS profit after tax is presented in the table below, which also shows the impact of the tax incurred on behalf of policyholders:

The Profit before shareholder tax for the year was £140.6 million (31 December 2015: £151.3 million). The impact of the increasingly negative contribution from the net movement in DAC/DIR/PVIF intangibles was a major contributor to the lower Profit before shareholder tax result in the current period.

The IFRS profit after tax result similarly reflected the impact of the negative net movement in DAC/DIR/PVIF in the current period, but the prior period result also benefitted significantly from recognition of £74.8 million of capital losses. These two factors more than reversed the underlying growth in the business and resulted in a significant reduction in profit between the years.

By contrast the IFRS profit before tax increased significantly to £486.3 million (31 December 2015: £174.1 million). This significant increase reflects the underlying positive investment performance in client policies, which generates higher policy charges intended to meet the Policyholder tax element of the corporate tax charge (as described in the definition of Policyholder tax provided on page 11). In practice, the very substantial increase in IFRS profit before tax is offset by the equivalent increase in Policyholder tax, and it is the Profit before shareholder tax which provides a better indication of the underlying performance of the business.

Analysis of IFRS Assets and Net Assets per Share

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

* net of deferred tax

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SECTION 4: SOLVENCY, LIQUIDITY AND CASH RESULTS

This section brings together our reporting on the Solvency II net assets and liquidity, together with our reporting of the Cash results and solvency.

Solvency II Net Assets

In addition to presenting an IFRS statement of financial position (on page 49), we believe it is beneficial to provide a balance sheet reflecting our approach to managing solvency. Solvency II net assets are based on the IFRS statement of financial position, but with adjustments made to accounting assets and liabilities to reflect the Solvency II regulations. In addition provision for insurance liabilities is set equal to the associated unit liabilities. The following table sets out the adjustments to move from IFRS to Solvency II net assets.

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, deferred tax, goodwill and other intangibles.

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Liquidity

Included in the previous table are holdings in Fixed Interest Securities, Collective Investment Schemes and other cash and cash equivalents. It is our policy is always to hold such assets in high credit quality liquid assets. An analysis of these holdings is provided below:

In the normal course of business, the Company is expected to generate regular, positive cashflow from annual management income exceeding expenses. As noted previously, future growth in cashflow 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 will be investment to support the business and payment of the Group dividend. As noted previously, our policy is to increase the dividend in line with the underlying performance of the business. We believe this will also enable us to continue to invest in the business to support our growth aspirations.

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Movement in Solvency II Net Assets

The table below details the movement in the Solvency II net assets over the year which after adjusting for changes in non-cash items such as deferred tax assets, goodwill and intangibles, as well as changes in equity such as dividends paid in the year (see also page 48 - consolidated statement of changes in equity) provides the net cash result for the period.

* The Solvency II net assets disclosed at 31 December 2015 were adjusted for submission to the regulator.

The closing Solvency II Net Assets reflects an increase of £267 million as a result of unit liability reassessment (impacting Adjustment 2 in the table on page 23). This increase in net assets does not reflect a change in the underlying business and so, when considering solvency, management offsets the positive increase in Solvency II Net Assets by increasing the capital requirement (the Management Solvency Buffer) by a similar amount (see also page 29).

Cash results

As noted above, the change in the Solvency II Net Assets, after adjusting for changes in non-cash items such as deferred tax assets, goodwill and intangibles, as well as changes in equity such as dividends paid in the year (see also page 48 - consolidated statement of changes in equity) provides the Cash result for the period. The Cash result provides an alternative view of the cash generation of the Group during a reporting period. The Cash result should not be confused with the IFRS consolidated statement of cash flows which is prepared in accordance with IAS 7 and disclosed on page 50.

The following tables show: an Operating cash result, reflecting the regular emergence of cash from the business operations; and an Underlying cash result which additionally reflects the cash impact of our strategic investments. The reconciliation of the Underlying cash result to the Underlying profit measure is presented on page 18.

There are also some cash items whose emergence is volatile, varying over time, and which are influenced by market movements. These impacts, together with the short term costs associated with the back office infrastructure project are shown after the Underlying cash result.

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

The Cash results are the principal measures the Board considers when determining the dividend payment to shareholders.

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\* The Cash result for 2015 reflected the movement in certain Solvency I reserves as that was the regulatory regime at the time.

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Notes

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

1. The net annual management fee is the manufacturing margin the Group retains from funds under management after payment of the associated costs (e.g. investment advisory fees and payments to Partners). Broadly speaking the Group receives an average net annual management fee of 0.77% (post tax) of funds under management (2015: 0.77% post tax).

However, as noted in Section 1 on page 14, due to our product structure, investment and pension business does not generate cash in the first six years (known as the 'gestation period'). This is reflected in an adjustment which is the reduction in fees in gestation period.

The overall result is the net income from funds under management which was some 15% higher than 2015, reflecting higher average funds under management during the year.

The reassessment of the level of the investment contract liability has resulted in an increase in Solvency II Net Assets of £267 million at the year end, but this amount will gradually unwind during the next 6 years through a higher reduction in fees in the gestation period. If the approach had been implemented at the start of the year, the impact would have been an increase in the negative amount by some £45 million.

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.

The revised assessment of investment contact liabilities results in an increase in the level of initial margin recognised in the Cash result through the margin arising from new business. If this approach had been adopted at the start of 2016 the margin would have been some £70 million higher. In future years, this additional margin will move in line with new businesses volumes, albeit adjusted for any business mix effects.

3. Expenses: These reflect the expenses of running the Group and more detail is provided in the table on page 16 in Section 2. In line with the rest of the table they are presented after allowance for tax.

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

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 £12.6 million tax value (2015: £12.1 million) was slightly ahead of our expected rate of c. £8-10 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 16, 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 generated in Asia and all fees generated by DFM are reflected in the relevant line.

8. Variance: This reflects variances in the settlement of tax related liabilities between the policyholders (unit-linked funds), the shareholder and HMRC. It also reflects a £6.6 million negative one-off cost of reviewing charges in two small cohorts of legacy business and a number of other small positive and negative one-off items.

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Solvency

St. James's Place is a simple wealth management group offering mainly investment products. Our strategy is to attract and administer retail funds under management, from which we receive an annual management fee; we are a fee-based business. Our clients can access their investments on demand but, because we match the encashment value on the unit-linked business, movements in equity markets, interest rates, mortality, morbidity, longevity and currency rates have little impact on our ability to meet liabilities (although they can impact emergence of profit). We also have a prudent capital management approach and invest surplus assets in cash, AAA rated money-market funds and UK government securities. The overall effect is assurance that we can meet liabilities, and a resilient solvency position that is dependable even through adverse market conditions.

We manage solvency of our business on the basis of holding assets in excess of the client unit-linked liabilities plus a Management Solvency Buffer (MSB). This ensures we are able not only to meet client liabilities at all times, but the prudence of the MSB acts as protection against other risks.

At 2015 year end we assessed the MSB for our life businesses as £150 million, having taken into account a wide range of factors and information, not least the results from stress and scenario testing carried out as part of our annual ORSA (Own Risk and Solvency Assessment). At the 2016 year end, on the same basis, we assessed the MSB for our life businesses as £170 million, increasing slightly as a result of economic conditions.

However, as a result of our reassessing the unit liability in line with the encashment value the Solvency II net assets have increased by £267 million, with no change in our risk profile. We therefore believe it is appropriate to increase our MSB to £437 million at the year-end (equal to £170 million plus £267 million).

During H1 2017, we are undertaking an asset-liability matching exercise which will reduce our corporate exposure to market risk and result in a reduction in risk capital requirement. Following this exercise, we will review the MSB and we expect it will reduce. We will report on the outcome of that review at half year.

We continue to hold capital within the Group in respect of the other regulated (but non-insurance) companies, based on holding excess capital significantly above the regulatory requirement.