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

PRESS RELEASE

27 February 2020

ANNOUNCEMENT OF ANNUAL RESULTS

FOR THE YEAR ENDED 31 DECEMBER 2019

RECORD FUNDS UNDER MANAGEMENT AND CONFIDENCE IN OUR BUSINESS

UNDERPINS 5% 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 2019:

Financial highlights

·; EEV new business contribution £793.0 million (2018: £852.7 million)

·; EEV operating profit £952.0 million (2018: £1,002.0 million)

·; IFRS profit before shareholder tax £187.1 million (2018: £211.9 million)

·; IFRS profit after tax £146.6 million (2018: £173.5 million)

·; Underlying cash result £273.1 million (2018: £309.0 million)

·; Underlying cash earnings per share of 51.4 pence (2018: 58.7 pence per share)

Dividend

·; Final dividend up 5% to 31.22 pence per share (2018: 29.73 pence per share); full year dividend of 49.71 pence per share (2018: 48.22 pence per share), growth of 3%

Other highlights

·; Gross inflows of £15.1 billion (2018: £15.7 billion)

·; Net inflow of funds under management of £9.0 billion (2018: £10.3 billion)

·; Funds under management of £117.0 billion (2018: £95.6 billion)

·; We are now represented by 4,271 qualified advisers across the Partnership

·; UK business successfully migrated to modern technology platform

·; A+ rating in the latest United Nations Principles for Responsible Investment annual assessment.

Andrew Croft, Chief Executive Officer, commented:

"Last year was challenging for the UK wealth management sector with investor sentiment being impacted by uncertain macro-economic indicators, the US/China trade dispute, and the domestic political environment. Therefore, I am pleased to report a solid set of results. Positive net flows, together with the impact of positive investment returns, increased client funds under management to a record £117.0 billion, once again demonstrating the resilience of St. James's Place.

The fundamentals underlying the business remain strong and over time, increasing funds under management will generate increased returns. However, in the short term, our profit has been impacted by the more modest gross flows relative to the planned investment in the business for future growth.

Given the progression of funds under management and our confidence for the future, the Board proposes to increase the final dividend by 5% to 31.22 pence per share (2018: 29.73 pence per share) making for a full year dividend of 49.71 pence per share (2018: 48.22 pence per share), growth of 3%.

The Parliamentary majority following the December 2019 General Election provides for longer-term political stability, which has translated into improved investor sentiment. This has consequently resulted in an increase in activity across the business with new investments seeing a return to good growth in the early part of 2020. Uncertainties remain for the UK and there are market concerns as a result of coronavirus, but we are encouraged by this start to the year which, together with the strength and scale of our business today, gives us confidence that we are well placed to continue to grow."

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The details of the announcement are attached.

Enquiries: Tel: 020 7514 1963

Tony Dunk, Investor Relations Director

Hugh Taylor, Investor Relations Director

Jamie Dunkley, External Communications Director

Brunswick Group: Tel: 020 7404 5959

·; Tom Burns - Email: tburns@brunswickgroup.com

·; Eilis Murphy - Email: emurphy@brunswickgroup.com

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 King Edward Hall

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):

https://www.investis-live.com/st-jamess-place/5e2ab28952202e0d0075b0dd/obad [investis-live.com]

There will also be a Dial-in:

United Kingdom (Local) : 020 3936 2999

All other locations : +44 20 3936 2999

Participant Access Code : 374262 - this must be entered in order for participants to gain access to the conference. Participants' requested details will be taken before being placed into the conference.

Replay information:

A recording will be available until Thursday 5th March 2020

UK: 020 3936 3001

USA: 1 845 709 8569

All other locations: +44 20 3936 3001

Access Code: 266324

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Chief Executive's report

Introduction

Last year was challenging for the UK wealth management sector with investor sentiment being impacted by the uncertain macro-economic indicators, the US/China trade dispute, and the domestic political environment. Therefore, I am pleased to report a solid set of results, once again demonstrating the resilience of the St. James's Place business.

Gross new inflows for the period, at £15.1 billion, were some 4% lower than 2018, while strong retention of client funds contributed to net inflows of £9.0 billion, equivalent to some 9% of opening funds under management. These positive net flows, together with the impact of positive investment markets, resulted in closing funds under management of a record £117.0 billion, up 22% since the beginning of the year.

Business performance and dividend

Over time, increasing funds under management will generate increased returns, but in the short term our profit has been impacted by the more modest gross flows relative to the planned higher cost of our investment in the business to underpin future growth. The Underlying cash result for the year at £273.1 million (2018: £309.0 million) was therefore lower than the same period last year.

The fundamentals underlying the business remain strong, so the Board remains confident in our prospects, supported by a growing Cash result that will benefit from the contribution of client investments attracted in previous years. Given the progression of funds under management and our confidence for the future, the Board proposes a final dividend of 31.22 pence per share (2018: 29.73 pence per share) making for a full year dividend of 49.71 pence per share (2018: 48.22 pence per share) growth of 3% .This will provide for a pay-out ratio of 97% against the Underlying cash result, higher than our stated medium-term aim of an 80% pay-out ratio.

The final dividend, subject to approval of shareholders at our AGM, will be paid on 22 May 2020 to shareholders on the register at the close of business on 17 April 2020. A Dividend Reinvestment Plan continues to be available for shareholders.

Clients

The continued success of St. James's Place is built on establishing and maintaining long lasting, highly personal relationships with our clients through the St. James's Place Partnership. Our aim is to put positive client outcomes at the heart of everything we do, with our advisers helping their clients to fulfil their ambitions and aspirations through sound financial planning advice, together with our distinctive investment management approach, backed by a FTSE100 company.

From the 39,000 responses we received from last year's Wealth Account Survey, 89% of those clients who responded tell us that they were either satisfied or very satisfied with their overall relationship with St. James's Place. Encouragingly, more than 93% said they would recommend St. James's Place to others, with 54% suggesting that they had already done so. Furthermore, when asked to describe our proposition in terms of value for money, 96% of the clients who responded, said "reasonable", "good" or "excellent". These results underpin the strong retention of client investments noted earlier.

We are naturally very pleased with these responses, but we are not complacent and have already responded to the feedback with further improvements to our service and proposition. In the past year we have broadened access to the Flagstone cash management service, which provides a simple and secure solution for clients wishing to hold cash savings, and added new propositions related to lifetime care plans to help clients ensure care fees can be met if a need were to arise in the future.

We now have more than 733,000 clients, an increase of some 51,000 during the year, and I would like to take this opportunity to thank all of these individuals for entrusting us with their long-term investments and financial planning needs.

Awards

I am pleased to report that St. James's Place has once again received numerous awards. Two highlights were being voted the Wealth Management Company of the Year in the 2019 City of London Awards and Best Wealth Manager in the 2019 Share Awards. Both awards are voted by members of the public and I would like to thank our clients who voted for us.

The St. James's Place Partnership

After another year of strong recruitment, the St. James's Place Partnership now numbers 4,271 growth of 8%. We continue to attract experienced high-quality advisers to the Partnership whilst at the same time 172 individuals graduated from our Academy and Next Generation Academy. We continue to invest in the Academies and there are currently 458 people in the programme who are not included in the Partnership numbers but who will graduate over the coming years.

This sustained growth in the Partnership provides us with confidence in our ability to both service existing clients well and attract new clients to St. James's Place. However, the increasing scale of the Partnership requires us to continue to invest in the supporting infrastructure. Consequently, during the year we opened a new office in Cardiff, and we consolidated the Academy, our previous City office, and a number of corporate functions into a new office in Lombard Street in the City. Both offices have very good environmental credentials.

We also continue to invest in the professional development of our advisers and take pride in the fact that last year one in four of all new qualified Chartered Financial Planners were St. James's Place advisers. We now have more than 900 advisers with Chartered status across the Partnership.

The Partnership is a key differentiator for St. James's Place and we will continue to ensure we provide support for our advisers so that they can, in turn, provide an excellent service to clients.

Investment markets

2019 saw a strong performance across major investment markets with a reversal of the falls experienced in the final quarter of 2018; the FTSE 100 was up some 12%, the S&P 500 up 29% and the MSCI World up 20% over the year as a whole. Against this backdrop our clients have benefited from very good returns with all our portfolios delivering strong growth.

In early June we took the decision to move the investment management of our segregated mandate from Woodford Investment Management (WIM) to a combination of RWC and Columbia Threadneedle. This was possible as the core tenet of our investment proposition is to appoint managers to specifically manage our own funds through a sub-advisory mandate, rather than by investing into third-party funds. Our segregated mandate with WIM limited the investments to liquid stocks and did not allow investments in unquoted stocks, and consequently our clients continued to have full access to their investments.

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We also continue to make good progress on our Responsible Investing approach and build on our integration of Environmental, Social and Governance (ESG) factors into our fund managers' investment decision making. It is therefore pleasing that we were awarded an A+ rating in the latest United Nations Principles for Responsible Investment annual assessment. Further, we continue to influence positive change elsewhere with some 90% of our investment managers now signatories to the United Nations Principals for Responsible Investment (UNPRI), up from 70% this time last year.

We recognise that climate change poses a risk to our business and to client outcomes. Therefore, in 2019 we became a supporter of the Taskforce for Climate-related Disclosures (TCFD) and have committed to implementing the TCFD framework across our business.

Investment for growth

We continue our investment in our business in Asia and Rowan Dartington (RD) with good progress made during 2019.

Asia reported gross inflows for the year of £252 million, some 7% lower than the corresponding period in 2018 having been impacted by investor concerns over heightened market volatility, the US/China trade rhetoric and the demonstrations in Hong Kong. However, boosted by the recovery in stock markets, St. James's Place funds under management increased to £934 million, growth of 49% during the year. It has been a good year for growth in the SJP Asia Partnership with a net increase of 34 Partners and advisers taking the total to 167, a 26% increase since the start of the year. In addition, there is a strong pipeline of individuals who have applied to join our Asia business, boding well for future recruitment.

RD reported gross inflows of £514 million for the year, marginally lower than last year by 1%, whilst total funds under management increased by 24% to £2.81 billion. After a period of investment, the number of Investment Executives remained stable at 54 during the period and is expected to remain so in the short term as we continue to focus on increasing the quantum of funds managed by each executive.

Back-office infrastructure

2019 has been a significant period for our multi-year back-office infrastructure project as we successfully completed the smooth migration of all our core UK business to the new Bluedoor platform. We also completed all the remaining internal system changes required during the second half of the year and are now in the process of decommissioning the legacy system.

All our core UK business is now processed on a modern IT platform which provides us with the scalability to accommodate our growing business needs and greater operational resilience, as well as enabling us to offer an improved service to clients going forwards.

This was a significant milestone for the business and the whole project team, both internal and external, have done a terrific job on what has been a complex multi-year project with little disruption.

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

Embedded in our culture is a desire to achieve a positive social impact with the Charitable Foundation being the beating heart. Our whole community is committed to supporting the Charitable Foundation from fund raising events with over 80% of Partners and employees giving monthly to the Charitable Foundation from their pay or earnings.

I am delighted to say that in 2019 we raised £12.1 million which includes the Company matching every pound raised. Since 1992, we have now raised £93.1 million, enabling the Charitable Foundation to distribute this amount to a wide variety of charitable causes. We are very proud that according to the Association of Charitable Foundations the St. James's Place Charitable Foundation is now the sixth largest Corporate Foundation measured by giving.

Alongside the Charitable Foundation, we also continue to enhance our corporate footprint in areas such as diversity, inclusion, volunteering, responsible investing, sustainability and the environment. An area of focus is on providing Financial Education in schools and in 2019 we worked face-to-face with 9,600 young people through over 300 volunteers giving around 1,800 hours. We have also recently extended the programme to provide Workplace Financial Education. Further details on the Charitable Foundation and our Community Engagement will be set out in our annual report and accounts.

New Non-executive Directors

I am delighted to welcome Rosemary Hilary, Dame Helena Morrissey, Emma Griffin and (from 1 June 2020) Lesley-Ann Nash to the Board as new Non-executive Directors. All bring extensive experience and a fresh insight, and I look forward to working with them.

Our community

The continued growth and resilience of the business does not occur by chance but rather the hard work and dedication of our Partners, their staff, our management teams and all our employees and administration support teams. In 2019 the Board has worked to make explicit the culture and values that underpin our success: details will be provided in our annual report and accounts. On behalf of the Board and shareholders I would like to once again thank the entire St. James's Place community for their continued hard work, dedication and commitment to all aspects of our business.

Outlook

Looking ahead, the fundamental financial planning requirements of individuals remain considerable whilst, at the same time, the availability of high-quality professional financial advice continues to be limited. The strength, depth and quality of the growing Partnership, together with the investments we are making in the business and our distinctive investment proposition, affords us real competitive advantage.

The Parliamentary majority following the December 2019 General Election provides for greater political stability, which has translated into improved investor sentiment. This has consequently resulted in an increase in activity across the business with new investments seeing a return to good growth in the early part of 2020. Uncertainties remain for the UK and there are market concerns as a result of coronavirus, but we are encouraged by this start to the year which, together with the strength and scale of our business today, gives us confidence that we are well placed to continue to grow.

Andrew Croft

Chief Executive

26 February 2020

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Chief Financial Officer's report

As already stated in the Chief Executive's Report, 2019 was a challenging year but nevertheless one of resilient new business performance as the Partnership attracted gross inflows of £15.1 billion (2018: £15.7 billion) and net inflows of £9.0 billion (2018: £10.3 billion). The level of political uncertainty throughout most of the year particularly impacted the pace of discretionary investment flows as some clients took a more cautious approach to investing new funds. Discretionary investment aside, we saw continued net inflows throughout the year as clients sought to consolidate investments through St. James's Place and utilise the value of their tax allowances. As we have seen in similar periods historically, client retention remained strong as our advisers worked hard to provide reassurance and sound counsel in an uncertain environment.

Coupled with the impact of positive investment market returns, this new business performance resulted in funds under management closing at a record £117.0 billion (31 December 2018: £95.6 billion), up some 22% over the year and boding well for the development of our financial results in the years ahead.

Our financial business model remains straightforward. We attract and then retain funds under management (FUM) on which we receive advice and product charges. Ongoing product charges are the principal source of income for the Group, out of which we meet the overheads of the business and invest in growing the scale and capability of the Partnership, our client propositions, and our core Group infrastructure. Further information about our financial business model can be found on page 10.

Our financial results are presented in more detail on pages 10 to 27 of the Financial Review, but we provide below a summary of financial performance on a statutory IFRS basis, as well as our chosen alternative performance measures (APMs). We also summarise key developments from a balance sheet perspective and provide shareholders with an overview of capital, solvency and liquidity.

Financial results

IFRS

IFRS profit after tax was £146.6 million in 2019 (2018: £173.5 million), with the result lower year-on-year largely due to the challenging external environment which resulted in lower gross inflows of approximately 4% which in turn reduced income arising from new business.

To address the challenge of policyholder tax being included in the IFRS results we focus on IFRS profit before shareholder tax as our pre-tax measure. On this basis the result was £187.1 million in 2019 (2018: £211.9 million), reflecting the same underlying business drivers.

The IFRS results also include the impact of non-cash accounting adjustments such as equity-settled share-based payment expenses, deferred income and deferred expenses, so we continue to supplement our statutory reporting with the presentation of our financial performance using two APMs: the Cash result and the European Embedded Value (EEV) result. Taking each in turn:

Cash result

The Cash result, and the Underlying cash result contained within it, are based on IFRS but adjusted to exclude certain non-cash items, so therefore represent useful guides to the level of cash profit generated by the business. All items in the Cash result, and in the commentary below, are presented net of tax.

During the year, the net income from funds under management was £424.9 million (2018: £388.1 million), representing a margin of 0.63% (2018: 0.65%) on average 'mature' FUM, in line with prior guidance. It is only 'mature' FUM that contributes to this net income figure and this 'mature' stock of FUM at any given time substantially comprises all unit trust and ISA business, as well as life and pensions business written more than six years ago. The development of 'mature' FUM year-on-year is dependent on four principal factors:

1) new unit trust and ISA flows;

2) the amount of life and pensions FUM that moves from 'gestation' into 'mature' FUM;

3) the retention of FUM; and

4) investment returns on FUM.

Growth in 'gestation' FUM has been more rapid than growth in 'mature' FUM in recent years, mainly due to the strength of new pensions business following pensions freedom. While this therefore constrains growth in net income from funds under management today, it bodes well for the future as 'gestation' FUM matures and begins making a positive contribution. At 31 December 2019, the balance of 'gestation' FUM stood at £40.2 billion (31 December 2018: £33.5 billion). Once this current stock of gestation FUM has all matured, it will (assuming no market movements or withdrawals) contribute in excess of £350 million to net income from funds under management and hence to the Underlying cash result.

St. James's Place also generates a margin arising from new business where initial product charges exceed new business-related expenses. The 9% reduction in margin arising from new business in 2019 largely reflects the 4% decline in gross flows over the period, as well as the timing effect associated with an element of new business costs being linked to prior year production levels. This impact will unwind as new business volumes grow.

2019 was another year of considerable investment into the business as we sought to lay the foundations for long-term growth in the business. However, it was also a year where, given the nature of the external environment around us, we took an even more disciplined approach to expense management, deferring or delaying expenditure where possible and where long-term growth would not be compromised.

Establishment expenses in 2019 were £186.2 million (2018: £170.6 million), up 9% over the year and some £4 million below the guidance that we published last year. The 9% increase however reflects growth in the Partnership and client base during the year.

Our contribution to the FSCS levy also increased during the year to £22.3 million, up from £12.8 million in 2018, reflecting both an increased rate of levy and also a full 12 month charging period compared to 9 months in 2018.

Reflecting its critical role in providing a source of future organic growth in our adviser population, we made further investment into building our Academy in order to accommodate additional capacity with greater geographic reach. We have also further invested in developing our presence in Asia, as well as in discretionary fund management via Rowan Dartington both in the UK and overseas.

The Underlying cash result, which is a key metric that provides a good indicator of underlying performance and the impact of our investment programmes, was £273.1 million (2018: £309.0 million), some 12% lower.

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Recognised below the Underlying cash result, our back-office infrastructure activity has been a critical multi-year project. In 2019 we successfully completed the smooth migration of all our core UK business to the new Bluedoor platform. Costs in 2019 were £38.8 million post-tax (2018: £35.8 million) reflecting the significant migration activity we undertook. We would anticipate up to £10 million of decommissioning expense in 2020 but then, as we have previously stated, this cost will cease. 

The Cash result in 2019 was therefore £229.4 million (2018: £268.7 million).

EEV

The EEV performance disclosure provides a useful measure of the longer-term impact of results and developments during the year. It ascribes a value on the long-term economic benefit of attracting additional FUM, takes account of the ongoing costs of doing so, reflects long term benefits and costs of improved or deteriorating retention, and it takes account of current and projected market conditions. Although the EEV statement includes no valuation for the Group's ability to gather and maintain additional future FUM, it does serve as an indication of the value of the business written thus far.

The EEV operating profit is sensitive to new business written within the year and the 4% reduction in gross flows year-on-year is the main factor behind a reduced EEV operating profit of £952.0 million (2018: £1,002.0 million). Whilst new business levels were slightly lower in 2019, our retention experience remained very strong at 96%.

A significant positive in the 2019 EEV profit before tax is the positive investment return variance of £768.6 million. This positive return reflects improved market values across our funds under management, and follows the £460.9 million charge disclosed in last year's statement as markets weakened sharply in the final quarter of 2018.

Key financial position developments

The shareholder, or Solvency II Net Assets Balance Sheet, is one that is derived from the statutory IFRS statement of financial position and a reconciliation between the two can be found on page 19 of the Financial Review. There are several areas that are worthy of note.

Movements in business loans to Partners

Ensuring good client outcomes and experience is at the heart of what we strive to do. Providing business loans to Partners continues to play an important part in achieving this, with most loans supporting Partner business succession planning and execution. This principally involves providing capital support for growing Partner businesses to take on those businesses of retiring or contracting Partners.

Total business loans to Partners reported on the statement of financial position has been somewhat distorted by the execution of successful securitisation during the course of the past two years. To facilitate the securitisation, some lending that was provided directly to Partners from third-party lenders, and so was outside of the Group statement of financial position, was bought onto it. This inflated the size of the business loan to Partners balance.

Following this a portfolio of business loans to Partners were ring-fenced from the other assets of the Group and used as security in the issue of non-recourse securitisation loan notes. Since inception of the securitisation, additional lending to Partners has also been funded in this way. The following table demonstrates the split of business loans to Partners between those which are directly funded by the Group, and those which have been securitised and so are funded by the issue of securitisation loan notes.

The impairment experience on the overall portfolio of business loans to Partners remains very low and this reflects the financial strength of the borrowing businesses together with the Group's approach to credit decisions and the structural strength of the Group's security over the loans. Further information is set out in Note 12 to the Financial Statements.

Movements in borrowings

St. James's Place continues to pursue a strategy of diversifying and broadening its access to debt finance. We have done this successfully over time, including the creation and execution of the securitisation vehicle referred to above in the past two years. As highlighted above, for accounting purposes we are obliged to disclose on our statement of financial position the value of loan notes relating to the securitisation, which has had the effect of inflating the reported level of borrowings. However, these are secured only on the securitised portfolio of business loans to Partners, and hence are non-recourse to the Group's other assets.

After adjusting for this non-recourse debt, borrowings have increased broadly in line with the scale of the business over time and we remain comfortable not only with our level of borrowings, but also the headroom we have within our range of facilities.

Movement in operational readiness prepayment asset

The investment into our back-office infrastructure project has been a complex, multi-year programme. In addition to expensing our internal project costs through the IFRS statement of comprehensive income and Cash result as incurred, we have been capitalising Bluedoor development costs as a prepayment asset on the statement of financial position. The asset, which stood at £299.2 million at 31 December 2019 (31 December 2018: £236.4 million) has been amortising through the IFRS statement of comprehensive income and the Cash result since 2017 and will continue to do so over the remaining life of the contract, which at 31 December 2019 is nine years at the earliest. The movement schedule below demonstrates how the operational readiness prepayment has built up over the past two years.

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The amortisation expense is recognised within third-party administration expenses in the IFRS result, and within the net annual management fee and margin arising from new business lines of the Cash result. It is offset by the lower tariff charges on Bluedoor compared to the previous system. The amortisation charge will remain constant year-on-year following the final operational readiness spend planned for 2020, however the tariff saving benefits will grow as the business grows, benefiting both the IFRS and Cash results.

Solvency, capital and liquidity

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

Given the simplicity of our business model, our approach to managing solvency remains to hold assets to match client unit-linked liabilities plus a Management Solvency Buffer (MSB). At 31 December 2019 we held surplus assets over the MSB of £580.6 million (2018: £617.0 million). We also ensure that our approach meets with the requirements of the Solvency II regime where we have an approach, agreed with the Prudential Regulatory Authority (PRA) since 2017, for our largest insurance company, the UK Life company, that targets capital equal to 110% of the standard formula requirement. This is a prudent and sustainable policy given the risk profile of our business which is largely operational.

At 31 December 2018 the solvency ratio for our Life businesses was 117%, which included the positive effect of the equity dampener depressing the market risk capital component. Management chose not to release this volatile additional amount of free assets, which course of action has been justified through its unwind over the year. At 31 December 2019 the equity dampener was (0.1)% (31 December 2018: (6.3)%), hence the solvency ratio for our Life business was 112%. Taking into account entities in the rest of the Group, the Group solvency ratio at 31 December 2019 was 132% (2018: 143%), with the 2018 Group result also reflecting the positive equity dampener effect noted above. It is worth noting that continuing growth of the UK life company within the Group will gradually dilute the Group solvency ratio. However, because we manage capital requirements of regulated entities on a solo basis, there will be no change in the underlying solvency risk of the Group.

Given the importance we place on investing to underpin the future growth and sustainability of our business, it is necessary that we manage and balance Group resources accordingly. Historically these were boosted by the exceptional release of excess solvency capital from our UK Life company as a result of the adoption of Solvency II during 2016, which also provided an opportunity to remove market risk in the business by better matching assets and liabilities. More recently the development of our corporate debt facilities, as well as the securitisation and those facilities put in place to provide finance from third parties direct to Partners, signal good progress in maintaining a sustainable path for investment into the business whilst facilitating future Partner lending activity in support of positive client service and outcomes.

As noted above, there has been steady but modest growth in lending to Partners in recent years, but by contrast considerable cash resource has been deployed in our back-office infrastructure project. This programme will shortly be coming to end, and whilst the successful completion of the Bluedoor migration in no way marks an end to our investment in technology given our ambition to continually enhance the way in which we enhance our Partner and client propositions, it does mark the end of a planned but significant demand on cash resources that were held at the outset.

The Group has £1,429.8 million of liquid assets (31 December 2018: £1,550.9 million) largely comprising investments in AAA-rated money market funds and cash balances, as demonstrated in the table below. This represents a considerable stock of liquidity and excludes the additional headroom that we have in our borrowing facilities.

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Dividend and concluding remarks

As noted above, 2019 was not an easy year, with domestic political uncertainty compounded by global economic uncertainty. We were not immune and our Cash Result for the year tells a story of lower discretionary flows providing less funding for investment in future growth. However, our business remains in great shape and, post the UK election, 2020 is feeling different. Activity levels are currently higher and we are seeing a pick-up in investor confidence which is driving higher activity levels in our business. This more positive outlook, coupled with the material flow of cash to come from our stock of gestation FUM over the medium term, has given the Board the confidence to recommend a 5% increase in the final dividend to 31.22 pence per share (2018: 29.73 pence per share), giving a full year dividend of 49.71 pence per share (2018: 48.22 pence per share), growth of 3%.This will provide for a pay-out ratio of 97% against the Underlying cash result, which is higher than our stated medium term aim of an 80% pay-out ratio.

Craig Gentle

Chief Financial Officer

26 February 2020

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Summary financial information

The Cash result should not be confused with the IFRS consolidated statement of cash flows which is prepared in accordance with IAS 7.

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Financial Review

This Financial Review provides analysis of the Group's financial position and performance.

The Review is split into the following sections:

Section 1: Funds under Management (FUM)

1.1 FUM analysis

1.2 Gestation

As set out in our financial business model below, FUM is a key driver of ongoing profitability on all measures, and so information on growth in FUM is provided in Section 1.

Find out more on pages 11 and 12.

Section 2: Performance measurement

2.1 International Financial Reporting Standards (IFRS)

2.2 Cash result

2.3 European Embedded Value (EEV)

Section 2 analyses the performance of the business using three different bases: IFRS, the Cash result, and EEV.

Find out more on pages 13 to 25.

Section 3: Solvency

Section 3 addresses Solvency, which is an important area given the multiple regulated activities carried out within the Group.

Find out more on pages 26 and 27.

Our financial business model

Our financial business model is straightforward. We generate revenue by attracting clients through the value of our proposition, who trust us with their investments and then stay with us. This grows our funds under management (FUM), on which we receive:

·; advice charges for the provision of valuable, face-to-face advice; and

·; product charges for our manufactured investment, pension and ISA/unit trust products.

Further information on our charges can be found on our website at www.sjp.co.uk/charges. A breakdown of our fee and commission income, our primary source of revenue under International Financial Reporting Standards (IFRS), is set out in Note 5 on page 44.

Most of the initial and ongoing advice charges received are offset by corresponding remuneration for Partners, and so an increase in these revenue streams will correspond with an increase in the associated expense and vice versa. This means that advice charges are not a major driver of the Group's profitability.

Neither are initial product charges, which are levied when a client first invests into one of our products. Under IFRS initial product charges are spread over the expected life of the investment through deferred income (DIR - see page 14 for further detail), and the contribution to the IFRS result from spreading these historic charges can be seen in Note 5 as amortisation of DIR. Initial product charges contribute immediately to our Cash result through margin arising on new business.

The primary source of the Group's profit is the income we receive from annual product management charges on FUM. As a result, growth in FUM is a strong positive indicator of future growth in profits. However, most of our investment and pension products are structured so that annual product management charges are not taken for the first six years after the business is written, so the ongoing benefit of these gross inflows into FUM for a given year will not be seen until six years later. This means that the Group always has six years' worth of FUM in the 'gestation' period. FUM subject to annual product management charges is known 'mature' FUM. More information about our fees on FUM can be found in Section 1 of this Financial Review.

Our income is used to meet overheads, the ongoing product expenses and to invest in the business. Overhead expenditure is carefully managed with clear targets set for growth in the core costs of running the Group's infrastructure, which are known as 'establishment expenses'. Other ongoing expenses, including payments to Partners, increase with business levels and are aligned with product charges. The Group is investing to support long-term growth through St. James's Place Asia, Rowan Dartington, our back-office infrastructure programme, and other strategic initiatives.

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Section 1: Funds Under Management

1.1 FUM analysis

Our financial business model is to attract and retain FUM on which we receive an annual management fee. As a result, the level of income we receive is ultimately dependent on the value of our FUM, and so its growth is a clear driver of future growth in profits. The key drivers for FUM are:

·; our ability to attract new funds in the form of gross inflows;

·; our ability to retain FUM by keeping unplanned withdrawals at a low level; and

·; net investment returns.

The following table shows how FUM evolved during 2019 and 2018:

The following table shows the significant in net inflows over the past six years, which combined with strong retention has resulted in consistent growth in FUM. FUM has more than doubled over a five-year period:

1 Other movements in 2017 related to the matching strategy disinvestment, and in 2016 related to the acquisition of the Rowan Dartington Group.

The table below provides a geographical and investment type analysis of FUM at 31 December:

1 The geographical and investment type analysis of FUM for 31 December 2018 has been restated to better reflect the nature of the underlying investment holdings.

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1.2 Gestation

As explained in our financial business model on page 10, due to our product structure, at any given time there is a significant amount of FUM that has not yet started to contribute to the Cash result.

When we attract new FUM there is a margin arising on new business that emerges at the point of investment, which is a surplus of income over and above the initial costs incurred at the outset. Within our Cash result presentation, this is recognised as it arises, but it is deferred under IFRS.

Once the margin arising on new business has been recognised the pattern of future emergence of cash from annual product management charges differs by product. Broadly, annual product management charges from unit trust and ISA business begin contributing positively to the Cash result from day one, whilst investment and pensions business enter a six-year gestation period during which no net income from FUM is included in the Cash result. Once this business has reached its six-year maturity point, it starts contributing positively to the Cash result, and will continue to do so in each year that it remains with the Group.

The following table shows an analysis of FUM, after initial charges, split between mature FUM that is contributing net income to the Cash result and FUM in gestation which is not yet contributing, as at the year-end for the past five years:

The proportion of new business that moves into gestation has increased over the past five years as follows:

The increasing proportion of gross inflows moving into gestation FUM is attributable to the strength of pensions inflows in recent years, in part reflecting the positive impact to our business from pensions freedom. The long-term nature of this type of investment results in a long post-gestation period of Cash result emergence.

The following table gives an indication, for illustrative purposes, of the way in which the reduction in fees in the gestation period element of the Cash result could unwind, and so how the gestation balance of £40.2 billion at 31 December 2019 may start to contribute to the Cash result over the next six years and beyond. For simplicity it assumes that FUM values remain unchanged, that there are no surrenders, and that business is written at the start of the year. Actual emergence in the Cash result will reflect the varying business mix of the relevant cohort and business experience:

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Section 2: Performance measurement

In line with statutory reporting requirements we report profits assessed on an IFRS basis. The presence of a significant life insurance company within the Group means that, although we are a wealth management Group in substance with a simple business model, we apply IFRS accounting requirements for insurance companies. These requirements lead to financial statements which are more complex than those of a typical wealth manager and so our IFRS results may not provide the clearest presentation for users who are trying to understand our wealth management business. Key examples of this include the following:

Our IFRS statement of comprehensive income includes policyholder tax balances which we are required to recognise as part of our corporation tax arrangements. This means that our Group IFRS profit before tax includes amounts charged to clients to meet policyholder tax expenses, which are unrelated to the underlying performance of our business; and

Our policy is to fully match our liabilities to clients, and so policyholder liabilities increase or decrease to match increases or decreases experienced on the assets held to cover them. This means that shareholders are not exposed to any gains or losses on the £113.5 billion of policyholder assets and liabilities recognised on our IFRS statement of financial position, which represented over 96% of our IFRS total assets and liabilities at 31 December 2019.

To address this, we developed APMs with the objective of stripping out the policyholder element to present solely shareholder impacting balances, as well as removing items such as deferred acquisition costs and deferred income to reflect Solvency II recognition requirements and to better match the way in which cash emerges from the business. We therefore present our financial performance and position under three different bases, using a range of APMs to supplement our IFRS reporting. The three different bases, which are consistent with those presented last year, are:

·; International Financial Reporting Standards (IFRS);

·; Cash result; and

·; European Embedded Value (EEV).

APMs are not defined by the relevant financial reporting framework (which for the Group is IFRS), but we use them to provide greater insight to the financial performance, financial position and cash flows of the Group and the way it is managed. A complete Glossary of Alternative Performance Measures is set out on pages 64 to 66, in which we define each APM used in our Financial Review, explain why it is used and, if applicable, explain how the measure can be reconciled to the IFRS financial statements.

2.1 International Financial Reporting Standards (IFRS)

IFRS profit after tax was £146.6 million in 2019 (2018: £173.5 million), with the result lower year-on-year principally due to two factors: first, a more challenging new business environment resulted in a lower margin arising from new business; second, a planned increase in investment expense as we continued to put in place the foundations to underpin future growth in the business. Together, these resulted in a degree of operational deleverage.

To address the challenge of policyholder tax being included in the IFRS results we focus on the following two APMs, based on IFRS, as our pre-tax metrics:

·; Profit before shareholder tax; and

·; Underlying profit.

Further information on these IFRS-based measures is set out below, on pages 13 to 14.

Profit before shareholder tax

This is a profit measure based on IFRS which removes the impact of policyholder tax. The policyholder tax expense or credit is matched by an equivalent deduction or credit from the relevant funds, which is recorded within fee and commission income in the IFRS statement of comprehensive income. Policyholder tax does not therefore impact the Group's overall profit after tax. As a result, profit before shareholder tax, but after policyholder tax, is a useful metric.

The following table demonstrates the way in which profit before shareholder tax is presented in the IFRS consolidated statement of comprehensive income on page 35:

Profit before shareholder tax has decreased by 12% year-on-year. As with the reduction in profit after tax, this reflects the more challenging new business environment and an increase in expenses.

Shareholder tax reflects the tax charge attributable to shareholders and is closely related to the performance of the business. However, it can vary year-on-year due to several factors: further detail is set out in Note 7 Income and deferred taxes.

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Underlying profit

This is profit before shareholder tax (as calculated above) adjusted to remove the impact of accounting for deferred acquisition costs (DAC), deferred income (DIR) and the purchased value of in-force business (PVIF).

IFRS requires certain up-front expenses incurred and income received to be deferred. The deferred amounts are initially recognised on the statement of financial position as a DAC asset and DIR liability, which are subsequently amortised to the statement of comprehensive income over a future period. Substantially all of the Group's deferred expenses are amortised over a 14-year period, and substantially all deferred income is amortised over a six-year period.

The impact of accounting for DAC, DIR and PVIF in the IFRS result is that there is a significant accounting timing difference between the emergence of accounting profits and actual cash-flows. For this reason, underlying profit is considered to be a helpful metric. The following table demonstrates the way in which IFRS profit reconciles to Underlying profit:

The impact of movements in DAC, DIR and PVIF on IFRS profit before shareholder tax is further analysed as follows. Due to policyholder tax on DIR, the amortisation of DIR during the year and DIR on new business for the year set out below cannot be agreed to the figures provided in Note 8, which is presented before both policyholder and shareholder tax:

Net impact of DAC

The scale of the £68.5 million negative overall impact of DAC on the IFRS result (2018: negative £64.5 million) is largely due to changes arising from the 2013 Retail Distribution Review (RDR). After this change, the level of expenses that qualified for deferral reduced significantly, but the large balance accrued previously is still being amortised. As deferred expenses are amortised over a 14-year period there is a significant transition period, which could last for another five to six years, over which the amortisation of pre-RDR expenses previously deferred will significantly outweigh new post-RDR expenses deferred despite significant business growth, resulting in a net negative impact on IFRS profits.

Net impact of DIR

Income deferred during 2019 is 6% lower than income deferred during 2018, driven by the reduction in new business year-on-year. Conversely, income released from the deferred income liability has increased, primarily as a result of the increase in new business in prior year compared to 2017. Together, these effects mean that DIR has had a positive £39.9 million impact on the IFRS result in 2019 (2018: positive £1.0 million).

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2.2 Cash result

The Cash result is used by the Board to assess and monitor the level of cash profit (net of tax) generated by the business. It is based on IFRS with adjustments made to exclude policyholder balances and certain non-cash items, such as DAC, DIR, deferred tax and non-cash-settled share option costs. Further details, including the full definition of the Cash result, can be found in the Glossary of Alternative Performance Measures on pages 64 to 66. Although the Cash result should not be confused with the IAS 7 consolidated statement of cash-flows, it provides a helpful supplementary view of the way in which cash is generated and emerges within the Group.

The Cash result reconciles to Underlying profit, as presented in Section 2.1, as follows:

The decrease in non-cash-settled share-based payments reflects the reduction in expense for adviser share schemes.

The most significant impact of deferred tax in 2019 and 2018 relates to the utilisation of capital losses in the Cash result. This has already been recognised under IFRS, and hence Underlying profit, through the establishment of deferred tax assets. More information can be found in Note 7 on pages 46 to 48.

Other represents both the change in tax charge discounting and the difference between IFRS 16 lease expense and lease payments made. The former represents a timing difference between the tax liability due to HMRC and tax deductions charged to clients. The size of the difference will increase as markets grow and decrease as markets fall. This timing difference is adjusted out of the Cash result, which therefore does not reflect the negative effect arising in the IFRS result as a consequence of market increases during the year (2018: positive effect as a consequence of market falls).

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

·; Operating cash result

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

·; Underlying cash result

This measure includes the cost of a number of strategic investments which are being incurred and expensed in the year, but which are expected to create long-term value.

·; Cash result

This measure includes the short-term costs associated with the back-office infrastructure project together with other items of a one-off nature.

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Consolidated Cash result (presented post-tax)

Notes to the Cash result

1. Net income from FUM

The net annual management fee is the net manufacturing margin that the Group retains from FUM after payment of the associated costs, for example, investment advisory fees and Partner remuneration. Each product has standard fees, but they vary between products. Overall post-tax margin on FUM reflects business mix but also the different tax treatment, particularly Life tax on onshore investment business.

As noted on page 10 however, our investment and pension business product structure means that these products do not generate net Cash result (after the margin arising from new business) during the first six years, (the gestation period). This is reflected in the reduction in fees in gestation period line. Further information is provided on page 12.

Net income from FUM reflects Cash result income from FUM that has reached maturity and, consistent with our 2019 half-year reporting, this line is the focus of our explanatory analysis. As with net annual management fees, the average rate can vary between time periods with business mix and tax. For 2019, our net income is 0.63% (post-tax) of FUM (2018: 0.65%). In 2020, we expect this margin on FUM to remain in the range of 0.63% - 0.65%.

Net income from Asia and DFM FUM is not included in this line, instead this is included in the net Cash result presented separately for Asia and DFM.

2. Margin arising from new business

This is the net positive Cash result impact of new business in the year, reflecting gross inflows and production related expenses. The driver for this income line is gross inflows and the result is expected to move broadly in line with the pattern of gross inflows attracted, subject to the timing effect associated with an element of new business costs being linked to prior year production levels.

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3. Overhead expenses and development expenses

Expenses are treated in two different ways in the Cash result depending on their type:

i. Overhead expenses, such as establishment expenses, and development expenses which relates to the Group's core business such as back-office infrastructure costs, are presented in separate lines on the face of the Cash result.

ii. Expenses which vary with business volumes, such as payments to Partners and third-party administration expenses, and expenses which relate to investment in specific areas of the business such as DFM are netted from the relevant income lines rather than presented separately.

The table below provides a breakdown of the Group's overhead and development expenses as presented in separate lines in the Cash result:

Overhead expenses

Overhead expenses represent the cost of running the Group.

Establishment costs have increased by 9% year-on-year as additional expenses are incurred to support the growth in the Partnership.

The costs of operating in a regulated sector include regulatory fees and the Financial Services Compensation Scheme (FSCS) levy. On a post-tax basis, these are as follows:

Our position as a market-leading provider of advice means we make a very substantial contribution to supporting the FSCS, thereby providing protection for clients of other businesses in the sector that fail. Over the last few years the levy has been at an elevated level, which was further exacerbated this year by the supplementary levy announced in December 2019. Whilst we remain hopeful that it will return to a more normalised level in future, we are expecting an increase of at least 15% in 2020 based on the indicative levy information announced for the 2020/21 funding year.

For the 2019/20 funding year the FSCS levy covers a 12-month period, compared to nine months for the 2018/19 funding year. As a result, the post-tax levy expense of £22.3 million recognised in the year to 31 December 2019 reflects the levy for a 12-month period, whereas the £12.8 million post-tax levy expense recognised in the year to 31 December 2018 was in respect of a nine-month period.

Academy expenses represent the cost of running our Academy and Next Generation Academy. They have increased in 2019 as a result of expansion of the programme both geographically and in terms of the number of individuals recruited into the programme.

Development expenses

Operational development costs have increased in 2019 due to further investment, particularly in our investment management approach, technology infrastructure and cyber security.

Strategic development costs continue to increase as result of investment in the business, particularly from the creation of regional hubs to better support our Partner practices and from our acquisition projects.

Costs associated with our Bluedoor back-office infrastructure programme have increased in 2019 due to increased levels of activity leading up to the final successful migration of business, and to complete internal system changes to facilitate the decommissioning of the legacy system. We expect to spend up to £10 million in 2020 completing the final decommissioning work, after which point this cost will cease.

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4. Reconciliation to IFRS expenses

In order to reconcile the overhead and development expenses presented on separate lines in the Cash result to the total IFRS expenses set out in the statement of comprehensive income on page 35, the expenses which vary with business volumes and those which relate to investment in specific areas of the business, both of which are included in the Cash result but are netted against the relevant income lines and so cannot be seen explicitly, and certain IFRS expenses which by definition are not included in the Cash result need to be added in:

Expenses which vary with business volumes

Other performance related costs, for both Partners and employees, vary with the level of new business and the operating profit performance of the business. Payments to Partners, investment expenses and third-party administration costs are met through charges to clients, and so any variation in them from changes in the volumes of new business or the level of the stock markets does not impact Group profitability.

Each of these items are recognised within the net annual management fee or margin arising from new business lines of the Cash result, depending on the nature of the expense.

Other expenses include interest expense and bank charges, operating costs of acquired independent financial advisers (IFAs) and donations to the St. James's Place Charitable Foundation. They are recognised across various lines in the Cash result, including shareholder interest and miscellaneous.

Expenses relating to investment in specific areas of the business

Asia expenses and DFM expenses have both increased during the year as investment is required to support their growth. Such investment will continue going forwards.

Asia and DFM expenses are presented net of the income they generate in the Asia and DFM lines of the Cash result.

Expenses which are not included in the Cash result

DAC amortisation, net of additions, PVIF amortisation and non-cash-settled share-based payment expenses are the primary expenses which are recognised under IFRS but are excluded from the Cash result.

5. 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. It is presented net of funding-related expenses, including interest paid on borrowings and securitisation costs.

6. Tax relief from capital losses

In recent years, a deferred tax asset has been established in IFRS for historic capital losses which are regarded as being capable of utilisation over the medium term. The tax asset is ignored for Cash result purposes as it is not fungible, but instead the cash benefit realised when losses are utilised is shown in the tax relief from capital losses line. Utilisation during the year of £10.3 million tax value (2018: £29.7 million) was in line with previous guidance that gave the expected rate of utilisation as c.£10 - £12 million per year. Going forwards we expect the rate of utilisation to slow to c.£8 - £10 million per year due to the extension of the existing loss restriction rules to cover capital losses, which is expected to have effect from 1 April 2020.

7. Miscellaneous

This category represents the cash flow of the business not covered in any of the other categories. It includes ongoing administration expenses and associated policy charges, utilisation of the deferred tax asset in respect of prior years' unrelieved expenses (due to structural timing differences in the life company tax computation) and movements in the fair value of renewal income assets.

8. Asia and DFM

These lines represent the net income from Asia and DFM FUM, including the Asia and DFM expenses set out in note 4 above. Both of these business areas continue to grow: combined, Asia and DFM FUM has increased 29% year-on-year, from £2.90 billion at 31 December 2018 to £3.74 billion at 31 December 2019. Significant investment is required to support this growth hence their contribution to the Cash result is currently a net expense. However, as set out in our financial business model on page 10, growth in FUM is a strong positive indicator of future profits.

9. Variance

This reflects a number of small non-recurring items incurred during the year.

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SOLVENCY II NET ASSETS BALANCE SHEET

The Cash result is derived from the IFRS consolidated statement of financial position in a two-stage process:

Stage 1: Solvency II Net Assets Balance Sheet

Firstly, the IFRS consolidated statement of financial position is adjusted for a number of material balances that reflect policyholder interests in unit-linked liabilities together with the underlying assets that are held to match them. Secondly, it is adjusted for a number of non-cash 'accounting' balances such as DIR, DAC and associated deferred tax. The result of these adjustments is the Solvency II Net Assets Balance Sheet and the following table shows the way in which it has been calculated for 2019.

Adjustment 1 strips out the policyholder interest in unit-linked assets and liabilities, to present solely shareholder impacting balances. For further information refer to Note 11 Investments, investment property and cash and cash equivalents to the IFRS financial statements.

Adjustment 2 removes items such as DAC, DIR, PVIF and their associated deferred tax balances from the IFRS statement of financial position to bring it in line with Solvency II recognition requirements.

Notes to the Solvency II Net Assets Balance Sheet

1. Property and equipment, and other payables

On 1 January 2019, the Group adopted IFRS 16 Leases. This new accounting standard fundamentally changes the accounting for lessees, that is an entity which leases an asset from its owner, as it requires the recognition of almost all leases on the statement of financial position. The right to use the leased item is recognised as an asset, and the obligation to pay lease rentals is recognised as a liability.

As a result, the property and equipment line has increased significantly year-on-year: At 31 December 2019 it includes £126.6 million of leased assets (31 December 2018: Nil). Lease liabilities of £118.6 million are recognised within the other payables line (31 December 2018: Nil). The initial recognition of lease liabilities is a driver behind the increase in other payables on the Solvency II Net Assets Balance Sheet, which increased from £956.9 million at 31 December 2018 to £1,033.7 million at 31 December 2019.

Further information on the adoption of IFRS 16 can be found in Note 1 Accounting policies to the IFRS financial statements. Additionally, Notes 9, 10 and 13 provide further detail on property and equipment, leases and other payables respectively.

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2. Deferred tax assets and liabilities

Analysis of deferred tax assets and liabilities, including how they have moved year-on-year, is set out in Note 7 Income and deferred taxes. The most significant movement in the year is the increase in deferred tax liability associated with impact of stock markets on investments and the resulting increase in policyholder tax liability.

3. Other receivables and other payables

Detailed breakdowns of other receivables and other payables can be found in Note 12 Other receivables and Note 13 Other payables of the IFRS financial statements.

Other receivables on the Solvency II Net Assets Balance Sheet have increased from £890.1 million at 31 December 2018 to £1,391.9 million at 31 December 2019, principally reflecting movement in fund tax deductions. This increase is associated with, and largely offsets, the increase in Deferred Tax liability above.

4. Liquidity

Cash generated by the business is held in highly rated government securities, AAA-rated money market funds, and bank accounts. Although these are all highly liquid, only the latter is classified as cash and cash equivalents on the Solvency II Net Assets Balance Sheet. The total liquid assets held are:

The Group's primary source of net cash generation is product charges. In line with profit generation, as most of our investment and pension business enters a gestation period, there is no cash generated (apart from initial charges) for the first six years of an investment. This means that the amount of cash generated will increase year-on-year as FUM in the gestation period becomes mature and is subject to annual product management charges. Unit trust and ISA business does not enter the gestation period, and so generates cash immediately from the point of investment.

Cash is used to invest in the business and to pay the Group dividend. Our dividend policy is set such that appropriate cash is retained in the business to support the investment needed to meet our future growth aspirations.

Our most significant investment in the business in recent years has been the development of Bluedoor, which has had a substantial impact on our liquid assets, and borrowings positions. Since the inception of the project in 2014 we have capitalised £360.1 million of development spend on Bluedoor in our operational readiness prepayment asset. This is in addition to £183.9 million of internal project costs that we have expensed as incurred. The total cash outflow on the project is £543.7 million.

5. Borrowings

The Group has two different types of borrowings: senior unsecured corporate borrowings, which are used to manage working capital and to fund investment in the business; and a senior tranche of non-recourse securitisation loan notes, which is secured on a legally segregated portfolio of the Group's business loans to Partners. Holders of the senior tranche of non-recourse securitisation loan notes have no recourse to the assets held by any other entity within the Group:

After adjusting for this non-recourse debt, borrowings have increased broadly in line with the scale of the business over time, and we remain comfortable not only with our level of borrowings but also the headroom we have within our range of facilities. Further information is provided in Note 14 Borrowings and financial commitments of the IFRS financial statements.

6. Income tax liabilities

The Group has an income tax liability of £115.4 million at 31 December 2019 compared to an income tax asset of £9.7 million at 31 December 2018. This is due to a current tax charge of £227.9 million and tax paid of £102.8 million during the year. Further detail on the current tax charge and tax paid is provided in Note 7 Income and deferred taxes.

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Stage 2: Movement in Solvency II Net Assets Balance Sheet

After the Solvency II Net Assets Balance Sheet has been determined, the second stage in the derivation of the Cash result identifies a number of movements in that balance sheet which do not represent cash flows for inclusion within the Cash result. The following table explains how the overall Cash result reconciles into the total movement:

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2.3 European Embedded Value (EEV)

Wealth management differs from most other businesses, in that the expected shareholder income from client investment activity emerges over a long period in the future. We therefore supplement the IFRS and Cash results by providing additional disclosure on an EEV basis, which brings into account the net present value of the expected future cash flows. We believe that a measure of the total economic value of the Group's operating performance is useful to investors.

As in previous reporting, our EEV continues to be calculated on a basis determined in accordance with the EEV principles originally issued in May 2004 by the Chief Financial Officers Forum (CFO Forum) and supplemented in both October 2005 and, following the introduction of Solvency II, in April 2016.

Many of the principles and practices underlying EEV are similar to the requirements of Solvency II. In the prior year, we had made a number of small changes to our EEV methods and assumptions to align them as closely as possible to Solvency II. These changes were reflected in the Economic assumption changes line.

The table below and accompanying notes summarise the profit before tax of the combined business:

A reconciliation between EEV operating profit before tax and IFRS profit before tax is provided in Note 4.

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Notes to the EEV result

1. Funds management business EEV operating profit

The funds management business operating profit has decreased to £1,121.2 million (2018: £1,151.6 million) and a full analysis of the result is shown below:

The new business contribution for the year at £793.0 million (2018: £852.7 million) was 7% lower than the prior year, reflecting both the decrease in new business volumes and operational deleverage during the year as fixed expenses and overheads have not reduced in line with volumes.

The unwind of the discount rate for the year increased to £248.5 million (2018: £242.3 million), reflecting the higher opening value of in-force business. The experience variance during the year was £82.1 million (2018: £24.5 million), reflecting positive retention experience. The impact of operating assumption changes in the year was a negative £9.9 million, reflecting revisions to the expense basis and the treatment of partial withdrawals on offshore bond business. The significant benefit of £25.9 million in 2018 reflected a reduction in the allowance for dual running costs associated with the Bluedoor migrations following improved understanding of the expected migration dates.

2. Distribution business

The distribution loss includes the positive gross margin arising from advice income less payments to advisers offset by the costs of investment in growing the Partnership, building the distribution capabilities in Asia and a charge of £18.9 million for the FSCS levy (2018: £11.3 million).

3. Investment return variance

The investment return variance reflects the capitalised impact on the future annual management fees resulting from the difference between the actual and assumed investment returns. Given the size of our FUM, a small difference can result in a large positive or negative variance.

The typical investment return on our funds during the year was positive 15% after charges, compared to the assumed investment return of positive 2%. This resulted in a positive investment return variance of £768.6 million (2018: negative £460.9 million).

4. Economic assumption changes

The negative variance of £27.0 million arising in the year (2018: negative £15.1 million) reflects the negative effect from a reduction in real yields over the year.

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New Business Margin

The largest single element of the EEV operating profit (analysed in the previous section) is the new business contribution. The level of new business contribution generally moves in line with new business levels. To demonstrate this link, and aid understanding of the results, we provide additional analysis of the new business margin (the 'margin'). This is calculated as the new business contribution divided by the gross inflows, and is expressed as a percentage.

The table below presents the margin before tax from our manufactured business:

The overall margin for the year was lower at 5.3% (2018: 5.4%) reflecting a decrease in new business volumes and an increase in establishment expenses during the year.

Economic assumptions

The principal economic assumptions used within the cash flows at 31 December are set out below:

The risk-free rate is set by reference to the yield on ten-year gilts. Other investment returns are set by reference to the risk-free rate.

The inflation rate is derived from the implicit inflation in the valuation of ten-year index-linked gilts. This rate is increased to reflect higher increases in earnings-related expenses.

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EEV Sensitivities

The table below shows the estimated impact on the reported value of new business and EEV to changes in various EEV calculated assumptions. The sensitivities are specified by the EEV principles and reflect reasonably possible levels of change. In each case, only the indicated item is varied relative to the restated values.

Notes to the EEV sensitivities

1. This is the key economic basis change sensitivity. The business model is relatively insensitive to change in economic basis. Note that the sensitivity assumes a corresponding change in all investment returns but no change in inflation.

2. The 10% increase is applied to the withdrawal rate. For instance, if the withdrawal rate is 8% then a 10% increase would reflect a change to 8.8%.

3. For the purposes of this sensitivity all unit-linked funds are assumed to be invested in equities. The actual mix of assets varies and in recent years the proportion invested directly in UK and overseas equities has exceeded 70%.

4. For the purposes of this sensitivity only non-fixed elements of the expenses are increased by 10%.

5. This reflects a 100bp increase in the assumed RPI underlying the expense inflation calculation.

Although not directly relevant under a market-consistent valuation, this sensitivity shows the level of adjustment which would be required to reflect differing investor views of risk.

Analysis of the EEV result

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

The EEV result above reflects the specific terms and conditions of our products. Our pension business is split between two portfolios. Our current product, the Retirement Account, was launched in 2016 and incorporates both pre-retirement and post-retirement phases of this investment in the same product. Earlier business was written in our separate Retirement Plan and Drawdown Plan products, targeted at the each of the two phases separately, and therefore has a slightly shorter term and lower new business margin.

Our experience is that much of our Retirement Plan business converts into Drawdown business at retirement, but, in line with the EEV guidelines, we are required to defer recognition of the additional value from the Drawdown Plan until it is crystallised. If instead we were to assess the future value of Retirement Plan business (beyond the immediate contract boundary) in a more holistic fashion, in line with Retirement Account business, this would result in an increase of approximately £385 million to our embedded value (31 December 2018: approximately £350 million).

In November 2019, the UK Prime Minister pledged to postpone the reduction in the corporation tax rate to 17%. This change has yet to be substantively enacted and therefore is not reflected in the total embedded value presented above. The impact, were the change to be substantively enacted, would be a reduction our embedded value of approximately £98 million.

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Section 3: Solvency

St. James's Place has a business model and risk appetite that results in underlying assets being held that fully match with our obligations to clients. Our clients can access their investments 'on-demand' and because the encashment value is matched, movements in equity markets, currency markets, interest rates, mortality, morbidity and longevity have very little impact on our ability to meet liabilities. We also have a prudent approach to investing shareholder funds and surplus assets in cash, AAA-rated money market funds and highly rated government securities. The overall effect of the business model and risk appetite is a resilient solvency position capable of enabling liabilities to be met even 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 (MSB). This has ensured that, not only can we meet client liabilities at all times (beyond the Solvency II requirement of a '1 in 200 years' event), but we also have a prudent level of protection against other risks to the business. At the same time, we have ensured that the resulting capital held meets with the requirements of the Solvency II regime, to which we are ultimately accountable.

For the year ended 31 December 2019 we reviewed the level of our MSB and concluded that it was appropriate to decrease the MSB for the Life businesses from £355 million to £320 million. The decrease primarily reflects the reduction in risk in our UK Life business as we come towards the end of the back-office infrastructure programme. All of this business is administered on Bluedoor following the final successful migrations during the year.

The Group's overall Solvency II net assets position, MSB and management solvency ratios are as follows:

Solvency II net assets reflect the assets of the Group in excess of those matching clients' unit linked liabilities. It includes a £98.5 million (2018: £111.6 million) deferred tax asset which is not immediately fungible, although we expect it will be utilised over the next ten years. The actual rate of utilisation will depend on business growth and external factors, particularly investment market conditions.

Solvency II Balance Sheet

Whilst we focus on Solvency II net assets and the MSB to manage solvency, we provide additional information about the Solvency II free asset position for information. The presentation starts from the same Solvency II net assets, but includes recognition of an asset in respect of the expected value of in-force cash flows (VIF) and a risk margin (RM) reflecting the potential cost to secure the transfer of the business to a third party. The Solvency II net assets, VIF and RM comprise the 'own funds', which are assessed against our regulatory solvency capital requirement (SCR), reflecting the capital required to protect against a range of '1 in 200' stresses. The SCR is calculated on the standard formula approach. No allowance has been made for transitional provisions in the calculation of technical provisions or the SCR.

An analysis of the Solvency II position for our Group, split by regulated and non-regulated entities at the year end is presented in the table below:

The solvency ratio after payment of the proposed Group final dividend is 126% at the year end (2018: 137%).

In 2018 the solvency ratio reflected the positive effect of the equity dampener depressing the market risk capital component. Management chose not to release this volatile additional amount of free assets, which course of action has been justified through its unwind over the year. At 31 December 2019 the equity dampener is (0.1)% (31 December 2018: (6.3)%). We continue to target a solvency ratio of 110% for SJPUK, our largest insurance subsidiary, as agreed with our regulator the PRA. As the business grows, the weighting of the balance sheet towards SJPUK will result in a gradual dilution of the group solvency ratio, but this will not reflect any change in risk appetite, nor risk inherent in the business.

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Solvency II sensitivities

The table below shows the estimated impact on the Solvency II free assets, the SCR and the solvency ratio from changes in various assumptions underlying the Solvency II calculations. In each case, only the indicated item is varied relative to the restated values.

The solvency ratio is not very sensitive to changes in experience or assumptions, and, due to the approach to matching unit-linked liabilities with appropriate assets, can move counter-intuitively depending on circumstances, as demonstrated by the sensitivity analysis presented below:

Notes to the Solvency II sensitivities

1. This is the key economic basis change sensitivity. The business model is relatively insensitive to change in economic basis. Note that the sensitivity assumes a corresponding change in all investment returns but no change in inflation.

2. The 10% increase is applied to the lapse rate. For instance, if the lapse rate is 8% then a 10% increase would reflect a change to 8.8%.

3. For the purposes of this sensitivity all unit-linked funds are assumed to be invested in equities. The actual mix of assets varies and in recent years the proportion invested directly in UK and overseas equities has exceeded 70%.

4. For the purposes of this all expenses are increased by 10%.

5. This reflects a 100bp increase in the assumed RPI underlying the expense inflation calculation.

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RISK AND RISK MANAGEMENT

OVERVIEW AND CULTURE

Effective risk management is critical to the success of the St. James's Place Group. We are exposed to a wide variety of inherent risks due to the business activities and the industry in which we operate. We choose carefully the risks we accept and those to limit or avoid through the design and operation of our client and Partner proposition, including the way in which it is delivered and administered.

In addition, the Group is also exposed to a number of current and emerging external factors and trends (including political risks such as Brexit, macro-economic factors, cyber crime and climate change) some of which may impact on our short- and/or longer-term profitability. Under the leadership, direction and oversight of our Board, these risks are carefully understood and managed to achieve our client and business objectives.

We do not, and cannot, seek to eliminate risk entirely, rather we seek to understand our risks fully and manage them appropriately. The emphasis is on applying effective risk management strategies, so that all material risks are identified and managed within the agreed risk appetite. Risk management is embedded within our culture and is therefore a core aspect of decision-making.

Risk management forms a key part of the business planning process, including decisions on strategic developments to our client and Partner propositions, investments and dividend payments.

OUR RISK AND CONTROLS MANAGEMENT FRAMEWORK

The internal control environment is built upon a strong control culture and organisational delegation of responsibility. The "first line" business is responsible and accountable for risk management. This is then combined with oversight from the "second line" risk, controls and compliance functions and assurance from the "third line" internal audit to form a 'three lines of defense' model.

The risk management and control framework is the combined processes by which the Group identifies, assesses, measures, manages and monitors the risks that may impact on the successful delivery of its strategic objectives. Based upon our risk appetite, the risks identified are either accepted or appropriate actions taken to mitigate them.

The Board, through the Risk Committee, takes an active role in overseeing the Risk Management Framework, for which it is responsible. As part of this the Board robustly assesses its principal and emerging risks, which are considered in regular reporting and summarised annually in the Own Risk and Solvency Assessment: further information on this is provided below.

On behalf of the Board, the Audit Committee takes responsibility for assessing the effectiveness of the Group's risk management and internal control systems, covering all material controls, including financial, operational and compliance controls. It does this via an annual review of risk and control self-assessments and a programme of control effectiveness reviews, the results of which are reviewed quarterly.

OUR RISK APPETITE

The Board carefully sets its appetite for taking risk against strategic objectives. These choices are set out in detail in our Risk Appetite Statement, which is reviewed at least annually by the risk committees of the Board (the 'Risk Committee') and Executive Board ('Group Risk Executive Committee') and ultimately approved by the Board. The Risk Appetite Statement also provides clarity over ownership, enabling us to identify the key individuals within the Group who have responsibility for managing these risks.

The Risk Appetite Statement includes a risk appetite scale. This scale has several risk acceptance levels, ranging from no appetite for taking risks at all, through to acceptance of risk. The level of risk we are willing to accommodate will vary dependant on individual risk scenarios. The decisions the Board takes when setting appetite will be based on understanding the likelihood and impact of a risk materialising.

Risk appetite can and will change over time, sometimes rapidly as economic and business environment conditions change, and therefore the statement is an evolving document. A comprehensive suite of Key Risk Indicators (KRIs) is reported regularly to enable the Risk Committee, on behalf of the Board, to monitor that the Group remains within its accepted appetite.

OWN RISK AND SOLVENCY ASSESSMENT (ORSA)

We are classified as an insurance group and are subject to Solvency II insurance regulation. A key part of this regulation requires a consistent approach to risk management across the Group, supported by the production of an annual ORSA, which considers both the individual insurance entities and the Group.

The ORSA process follows an annual cycle, which links the business activity and strategic objectives with comprehensive risk assessments that the business faces, and ensures the Group is resilient to stresses in the short term and over a five-year period.

The Solvency Capital Requirement for insurers allow for at least a "1 in 200-year" risk event over a one-year time horizon. In addition, a broad range of severe stresses and scenarios are used to help provide insight into the ability to maintain the regulatory capital in these conditions. Our results show that with appropriate management action it would be possible to maintain regulatory capital across the Group under all scenarios modelled for the business planning horizon. The outcomes of these activities assist us when considering the calculations and allocation of risk capital to all major risks in the Group, and the adequacy of capital positions. This process ensures our continued confidence that the regulated entities remain strongly capitalised.

The ORSA uses a five-year projection period for the medium term. Due to the gestation period across some of our pension and investment product range, we do not earn annual management fees in the first six years and so considering a five year period gives a prudent view of the Group's viability as we consider revenues generated on existing business only. The ORSA is particularly useful in assessing viability as it has a similar purpose and requires a comprehensive assessment of risk management and risk capital requirements of the business. Consideration is given to factors or events that impact on our funds under management, investment growth, retention of clients and ability to attract new clients, in addition to the effects of a market downturn. Combinations of these factors are used to form scenarios which are tested, providing for more extreme combinations of events. Therefore, assumptions are robustly analysed to predict both the immediate impact of an event along with the impact over the longer term (in the wake of the event). In addition to these more extreme 'combination' scenarios, assessments are also completed based on more current/topical or emerging risk exposures affecting the Group or financial services more generally.

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The ORSA aids decision making by bringing together the following processes:

·; strategic planning;

·; risk appetite consideration;

·; risk identification and management; and

·; capital planning and management.

The ORSA continues to evolve and further strengthen risk management processes throughout the Group.

PRINCIPAL RISKS AND UNCERTAINTIES

The types of principal risks and uncertainties have not changed significantly over the past year. The strategic areas on which these risks impact, and the high-level controls and processes through which we aim to mitigate them, are set out in the tables on the following pages. Reputational damage and impacts to shareholders and other stakeholders are a likely consequence of any of our principal risks materialising.

Over the past year, the continued uncertainties around Brexit and international trade have impacted investor sentiment. Whilst some of the UK political uncertainties have recently reduced, global economic factors, such as the impact on trade of the Coronavirus, continue to impact on markets and investor behaviour. While we have very little direct exposure to market risk because of our matching policy (where we hold assets which match our liability to clients), we do have indirect exposure because of the impact these uncertainties have on new business and funds under management. Stress and scenario testing has been performed which demonstrates that the businesses is resilient to extreme but plausible scenarios. We continually monitor the changing environment, to ensure our analysis and scenario testing remains current. Although scenarios of political change (Brexit, general elections and trade wars) can drive changes in risk, the potential impacts on our business would manifest in ways with which we are familiar, notably market risk, persistency risk, changes in new business levels and operational risks. We cover these risks more specifically in the table in the following pages.

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EMERGING RISKS

Emerging risks are identified through conversations and workshops with stakeholders throughout the business, attending industry events, reviewing academic papers, watching emerging risk webinars and other horizon scanning by Group Risk.

The purpose of monitoring and reporting emerging risks is to give assurance that we are prioritising our response to emerging risks appropriately in our strategy, which is the primary risk management tool for longer-term strategic risks. Examples of emerging risks which have been considered during the year include:

·; risks that may result from changes in the political environment that could impact our business, including changes in regulation and legislation, and also investment market volatility or disruption;

·; risks from digital disruption from competitors or shifts in consumer trends away from face-to-face advice;

·; failing to capitalise on our significant investment in administration systems;

·; risks relating to an ageing population of our clients and failure to appeal to future generations of clients; and

·; risks relating to climate change.

VIABILITY STATEMENT

HOW WE ASSESS OUR VIABILITY

The business considers five-year financial forecasts when developing the strategy. These incorporate our budget for the next financial year and four further years of forecasts based on reasonable central assumptions around development of business drivers.

At the core of assessing our viability we seek to understand how different principal risks could materialise. We consider risks which might present either in isolation or in combination and which could result in acute shocks to the business or long-term underperformance against forecasted business drivers. We consider the five-year time horizon sufficiently long to assess potential impacts and ensure that the business could remain viable whilst enacting any management actions to restore the business' prospects.

When considering how the principal risks previously described might impact the business, we consider our ability to deal with particular events and changes to the following key financial drivers:

·; Reduction in client retention

·; Reduction in new business relative to forecasts

·; Market stresses

·; Increases in expenses

·; Direct losses through operational risk events

We carry out stress and scenario testing on these key financial drivers, alongside operational risk assessments. To provide comfort over viability over the next five years, the scenarios and assessments look at events which would be extreme, whilst still remaining plausible. This work demonstrates that, although there would be impacts on profitability, the Group is resilient and could continue to meet regulatory capital requirements over five years should even the more extreme risks materialise.

As well as robust scenario testing the Directors have given consideration to assessments of the current risk environment, including how risks are managed through controls relative to the risk appetite, and emerging risks.

EXAMPLE SCENARIO

A wide variety of stresses and scenarios are applied to test all material drivers in a variety of ways to provide understanding of any dynamic impacts. As an example of a type of scenario which is considered, we assessed the direct financial implications of dealing with a major cyber-attack. We also modelled the impact of a large reduction in new business levels alongside a large mass lapse. We looked at the immediate impacts and the impact over five years, where we further assumed there was no subsequent growth in new business levels and no market growth.

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RESILIENCE OVER DIFFERENT TIME HORIZONS

The table below provides an indication of which risk are relevant over different timeframes and why the Group is considered to be resilient over these timeframes.

CONCLUSION

In accordance with UK Corporate Governance Code (Provision 31), the Directors have assessed the Group's current financial position and prospects over the next five-year period and have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due. The Directors believe that the risk planning, management processes and culture, allow for a robust and effective risk management environment.

In addition to the assessment of longer-term viability and resilience set out above, the Board have assessed the Group's going concern status. Further information will be provided in the Directors' Report in our annual report and accounts.

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Chair's REPORT

Introduction

Despite external challenges, St. James's Place continued to grow in 2019. This is testament to the trust put in us by existing and new clients, the professionalism of the Partnership and the strength of the St. James's Place proposition, which, in turn, underpins the enduring success and resilience of the business.

Our role is to plan, grow and protect the financial future of clients, and we do so by developing long-term relationships, working hand in hand with our clients, to advise them on their long-term financial strategies. We are operating in an environment where the value of trusted face-to-face advice has never been more important.

The industry

The asset and fund management sector, including St. James's Place, came under significant scrutiny last year, with the failure of Woodford Investment Management (WIM). St. James's Place funds managed by WIM were held as segregated mandates and our distinctive Investment Management Approach (IMA) prevented WIM from investing any St. James's Place client funds in unquoted stocks. We quickly moved funds away from WIM and preserved full client access. Whilst this was a tangible demonstration of the value of our IMA, the Board has, nevertheless, fully considered the wider implications of this episode and identified areas in which we could strengthen it further.

The industry remains under scrutiny on the levels of fees, charges and value delivered to clients. The St. James's Place proposition is fundamentally different to that of an online funds platform, and it is unfortunate that much of the public commentary on fees and charges has been overly simplistic. Independent third-party analysis demonstrates that, for our target market, St. James's Place charges are competitive, and our wealth account survey demonstrates that clients support this view. However, the Board recognises the need to further improve the transparency and client understanding of fees and to ensure that we continue to deliver value for clients. This will remain a focus.

Clients

For many clients 2019 proved a very positive one in terms of investment returns, buoyed by strong, but at times volatile, investment performance across major investment markets globally. We are naturally pleased that all of our investment portfolios delivered strong growth, supporting positive client outcomes.

The Board continues to support the evolution of our proposition so that we improve our ability to serve client needs. One example of this in 2019 is the work we undertook to enhance our approach to identifying, servicing and supporting vulnerable clients. Another is the development of propositions around long-term care, again signifying our desire to make sure we can support clients as their needs change and develop.

Investment for the future

We continue to invest in the future growth of the business including the St. James's Place Academy, through which we train new advisers for the Partnership, as well as our Rowan Dartington and Asian operations.

The pace of technological change in our industry is relentless, and the Board believes it is important to continue to invest in this area to meet client and adviser expectations and to improve our operating excellence. In October we completed the successful migration of all our core UK business to the new Bluedoor platform which will provide a solid operating system for future growth.

Purpose and culture

The Board spent considerable time in 2019 reflecting on purpose, culture and values. The founding principles of the business recognised the importance of wider social purpose: "doing the right thing" and "giving something back". Our desired culture is best exemplified by the St. James's Place Charitable Foundation which is a core part of our business model. More than eight out of ten of our Partners and employees make regular donations to the Charitable Foundation, and many actively participate in fund raising and other charitable activities.

There are many other ways in which St. James's Place makes an active contribution to society: we directly benefit the financial well-being of 733,000 clients and their families; we help 4,271 advisers thrive in providing high-quality advice across 2,564 separate Partner businesses; we are stewards, on behalf of our clients, of £117.0 billion of assets; we employ 2,634 people; we are the largest provider of financial advice in the UK and seek to be a good regulatory citizen; the Company and the Partnership are an active part of many local communities; and, we are a significant tax payer. During the last year, the Board took account of all of these stakeholders in its decision making and will continue to do so in future (the S.172(1) Statement in our annual report and accounts will provide examples of this).

It was clearly disappointing when some aspects of our culture were subject to criticism last year, particularly in relation to way in which the Partnership is rewarded. Recognising achievement and bringing advisers together to provide development and networking opportunities remains an important part of how we operate, and indeed it is an essential way of strengthening culture in what is a geographically widely dispersed Partnership. Whilst we do not believe that the criticism we received is reflective of our community as a whole, we continue to review all aspects of Partnership recognition and remuneration to ensure they remain appropriate in today's world and we will continue to further develop our approach in this area in 2020.

The Board will spend further time in 2020 considering the wider societal purpose and the culture of the business and how best to refine the way in which it assesses them.

Succession, diversity and workforce engagement

In my report last year I highlighted that one of the main priorities for the Board was long-term succession planning for the Non-executive and Executive Directors and I am pleased to report that good progress has been made.

I am delighted to welcome Rosemary Hilary, Dame Helena Morrissey, Emma Griffin and (from 1 June 2020) Lesley-Ann Nash to the Group Board, and Dawn Hyams to the board of St. James's Place Unit Trust Group Limited. All of them bring valuable skills and experience to the business and add to the diversity of our governance. Once the Board has managed through its current transitional succession phase I would expect the number of Non-executive Directors on the Board to return to a more normal figure. Further information will be presented in the Report of the Nomination Committee in our annual report and accounts.

The Board has also had a particular focus, in conjunction with external specialist support, on further strengthening succession planning and career development at senior levels amongst the Executive, and as part of this the Board was delighted that Elizabeth Kelly was appointed to the Executive Board.

The Board is committed to ensuring greater diversity, in all its facets, throughout the St. James's Place community. Getting to where we want to be will take time, but our significantly increased focus on diversity over the last two years has begun to deliver results. The Board has been active in overseeing plans and monitoring performance in this area and will continue to be so.

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St. James's Place is fundamentally a people business and engagement with both employees and the Partnership has always been an essential part of the way in which the business is run. In addition to its normal course of engagement with the business, the Board has formalised an employee engagement programme, led by Baroness Wheatcroft, but with the participation of all of the Directors. The programme has built on the pre-existing mechanisms for colleague engagement and consists of focus groups, surveys and Director lunches. Last year the programme covered topics including reward and recognition, business strategy, diversity and inclusion, Board and management interaction, and culture and ethics. The Board received regular reports on the feedback received and the actions taken as a result.

Responsible investing and climate change

The impact of climate change is clearly a significant concern for society in general and consequently a growing focus from clients, regulators and politicians. The Board recognises that environmental, social and governance factors are vital components of a sustainable investment strategy, and that as a major investor, St. James's Place has a key responsibility in this area. It also believes that the Company has an opportunity to take a leadership position in responsible investing. Last year we achieved an A+ rating in the United Nations Principles for Responsible Investment annual assessment and the Board agreed that the Company should become a supporter of the Task Force on Climate Related Finance Disclosure. The Board spent time last year considering the multi-year plan for the continued evolution of the IMA, of which responsible investment is a key pillar, and we will continue to oversee progress against it.

Dividend and concluding remarks

St. James's Place delivered a solid performance in 2019 in an environment characterised by uncertainty. While we acknowledge that there are lessons to be learned from some of the events which took place in 2019, the Board remains confident in the fundamental strength of the business and in its ability to take advantage of the long-term structural opportunities which exist in its market, to the benefit of all of its stakeholders.

Reflecting our confidence in the business and its future prospects, the Board is pleased to propose a final dividend of 31.22 pence per share, making a total of 49.71 pence per share for the year. This is a 3% increase on 2018.

Finally, I would like to offer the sincere appreciation of the Board to the entire SJP community for their efforts.

IAIN CORNISH

Chair

26 February 2020

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CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME