St James's Place Regulatory News (STJ)

-1-

PRESS RELEASE AND HALF-YEAR REPORT AND ACCOUNTS

27 July 2023

ANNOUNCEMENT OF HALF-YEAR RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2023

RECORD FUNDS UNDER MANAGEMENT AND STRONG FINANCIAL RESULTS

St. James's Place plc (SJP) today issues its interim results for the six months ended 30 June 2023:

New investment and funds under management

· Gross inflows of £8.0 billion (2022: £9.1 billion)

· Continued strong retention of client funds at 95.6%1

· Net inflows of £3.4 billion (2022: £5.5 billion), representing 4.6% of opening FUM (annualised)

· Group funds under management of £157.5 billion (31 December 2022: £148.4 billion)

Financial highlights and dividend

· Underlying cash result £207.1 million (2022: £198.8 million)2

· IFRS profit after tax £161.7 million (2022: £208.2 million)3

· Interim dividend of 15.83 pence per share (2022: 15.59 pence), representing 30% of prior full year dividend

Other highlights

· We are now represented by 4,766 qualified advisers across the Partnership, an increase of 73 year-to-date

· 169 advisers graduated from our Academy programmes; 346 now enrolled

· EEV net asset value per share £16.28 (31 December 2022: £16.66)2

Consumer Duty

· Significant programme of work undertaken ahead of new regulatory regime

· Implemented a number of changes to further good outcomes for clients, including a decision to reward clients with long-term investments through the introduction of an annual product management cap on bond and pension investments after they have been invested for ten years

1 Throughout this press release our retention rate is calculated as annualised surrenders and part-surrenders, divided by average funds under management. It excludes regular income withdrawals and maturities.   

2 The Underlying cash result and EEV net asset value per share are alternative performance measures (APMs). The glossary of alternative performance measures on page 114 defines these APMs and explains why they are useful. The Underlying cash result is reconciled to International Financial Reporting Standards (IFRS) on pages 19 and 20.

3 Restated to reflect the adoption of IFRS 17. See details of restatement on pages 51 to 69.

-2-

Andrew Croft, Chief Executive Officer, commented:

"I am pleased to report a robust business performance in the first half of 2023, highlighting once more the fundamental resilience of our business model and the strength of relationships our advisers enjoy with their clients.

This has been a challenging period for many UK savers and investors who have had to contend with high and persistent inflation, rising borrowing costs, a mini banking crisis in the US and attendant stock market volatility, and continued macro-economic and geo-political uncertainty. Despite this, we attracted £8.0 billion of new client investments during the first half of 2023.

We are also pleased at the continued strong retention of client funds under management, with annualised retention of 95.6% in the first half of the year. Given the scale of inflationary pressures facing consumers in the UK it is, however, little surprise that we have seen a return to more normal investment withdrawal rates across our pensions and bonds business, together with an increase in surrender rates across smaller unit trusts and ISA portfolios.

As a result, we achieved net inflows of £3.4 billion. A strong outcome given the market environment and one that supported funds under management increasing 6% over the six months to a record £157.5 billion.

This operating performance has been mirrored by a strong financial outturn for the period. Despite the headwinds of a challenging new business environment, the impact of inflationary pressures on our cost base, and a marked increase in the rate of UK corporation tax, we have delivered an underlying post-tax cash result of £207.1 million, up 4% versus the prior year.

Beyond our operating and financial performance, it has been a period of intense activity regarding progress against our six business priorities, as well as in our preparation for the FCA's new Consumer Duty regime. As a business focused on driving good client outcomes, we have welcomed the opportunity to further strengthen our commitment to clients and enhance the value we deliver to them.

As we look ahead, there continue to be challenges for UK consumers, but as a long-term business our focus remains on ensuring we are well positioned to support our advisers build great relationships and deliver trusted and valued face-to-face advice over time. This commitment underpins our 2025 plan and will enable SJP to capitalise on the scale of long-term market opportunity ahead."

The details of the announcement are attached.

Enquiries:

-3-

2023 Half-Year Results Presentation

Date: 27 July 2023

Time: 08:30 BST

Duration: 2 hours

If you have not registered to access SJP webcasts before, please complete the registration form in the link below and verify your email address in advance of the presentation. Registered viewers can access the webcast by entering your email address and clicking sign in, also using the link below.

Click here to register for and to access the webcast

Q&A session

The event will conclude with a live Q&A session starting at 9:30am BST. The event platform will remain open to listen to the Q&A, but if you wish to ask questions during this session please dial-in to the conference call line from 9:00am BST using the details below:

United Kingdom: 0800 358 1035United Kingdom (Local): 020 3936 2999All other locations: Global Dial-In Numbers [netroadshow.com]

Participant Access code: 477484

Press *1 to ask a question, *2 to withdraw your question, or *0 for operator assistance.

Accessing the telephone replay

A recording will be available until Thursday 3 August 2023

United Kingdom: 020 3936 3001

United Kingdom (Local): 0800 640 6442

All other locations: +44 20 3936 3001

Access Code: 895937

-4-

New Business Inflows and Funds Under Management

The following table shows how FUM evolved during the six months to 30 June 2023 and 30 June 2022, and the year to 31 December 2022. Investment return is presented net of all charges.

Included in the table above is:

· Rowan Dartington Group FUM of £3.33 billion at 30 June 2023 (30 June 2022: £3.23 billion, 31 December 2022: £3.29 billion), gross inflows of £0.20 billion for the period (six months to 30 June 2022: £0.25 billion, year to 31 December 2022: £0.44 billion) and outflows of £0.09 billion for the period (six months to 30 June 2022: £0.06 billion, year to 31 December 2022: £0.14 billion); and

· SJP Asia FUM of £1.62 billion at 30 June 2023 (30 June 2022: £1.51 billion, 31 December 2022: £1.52 billion), gross inflows of £0.12 billion for the period (six months to 30 June 2022: £0.17 billion, year to 31 December 2022: £0.28 billion) and outflows of £0.06 billion for the period (six months to 30 June 2022: £0.04 billion, year to 31 December 2022: £0.10 billion).

-5-

Interim Management Statement

Chief Executive's Report

Introduction

I am pleased to report a period of robust business performance, highlighting once more the fundamental resilience of our business model and the strength of relationships our advisers enjoy with their clients.

This has been delivered amidst a challenging period for many UK savers and investors who have had to contend with high and persistent inflation, rising borrowing costs, a mini banking crisis in the US and attendant stock market volatility, as well as continued macro-economic and geo-political uncertainty. Despite this, many stock markets have proven reasonably resilient and consumer and business confidence have been on an improving trend after reaching a low ebb in late 2022.

Operating and financial performance

During the first half of 2023 we attracted £8.0 billion of new client investments. The environment for new business has clearly been challenging in recent months but activity has remained high as our advisers continued to focus their attention on supporting clients with timely, personal advice to help them manage near-term challenges whilst maintaining a long-term mindset. This has resulted in stable gross inflows across much of our core business, but it is evident that there has been some softening in the pace of more discretionary one-off investments, particularly into our unit trust and ISA wrappers. Given rising deposit rates on cash savings, we have also seen a considerable increase in client investment into our third-party cash management platform.

We are also pleased at the continued strong retention of client funds under management, with annualised retention of 95.6% in the first half of the year. It is, however, little surprise that we have seen a return to more normal investment withdrawal rates across our pensions and bonds business, together with an increase in surrender rates across smaller unit trust and ISA portfolios as some clients access their investments to smooth the impact of the inflationary pressures they might be facing.

As a result, we achieved net inflows of £3.4 billion or 4.6% of opening funds under management on an annualised basis. A resilient outcome given the market environment.

With investment performance having been positive overall during the half, funds under management closed at a record £157.5 billion.

This operating performance has been mirrored by a strong financial outturn for the period. Despite the headwinds of a challenging new business environment, the impact of inflationary pressures on our cost base, and a marked increase in the rate of UK corporation tax, we have delivered an underlying post-tax cash result of £207.1 million, up 4% versus the prior year.

The IFRS profit after tax of £161.7 million was down 22% versus the prior year, due to tax asymmetry.

Dividend

In line with our guidance that interim dividends will be set at 30% of the prior full year payout, the Board has declared an interim dividend for 2023 of 15.83 pence per share.

Strategic progress

In the first six months of the year, we have continued to make good progress against the business priorities that underpin the strategic ambitions and objectives that we have set as part of our 2025 business plan and ambitions, which we remain committed to. Some highlights during the first half include:

- Building community: we attracted a net 73 new advisers to the Partnership. We now have 4,766 advisers around the UK and Asia supporting and advising more than 941,000 clients so they can have confidence in their futures. Our Academy continues to go from strength to strength, delivering more than 169 new advisers to the Partnership during the period and underpinning our confidence in continued net adviser growth in the years ahead. During the first half we also built on our established presence in attractive markets in Asia with the opening of a new office in Dubai. While it is early days, we are confident that our business model and proposition, together with learnings from our experience in other regional wealth hubs, will drive long-term success for our business in the region.

-6-

- Being easier to do business with: we continue to develop tools around our Salesforce systems, providing additional capabilities for the benefit of our advisers and the broader SJP community. One example of this is the launch of Advice Assistant, a tool that utilises Salesforce and other data to simplify and automate elements of the advice process for new ISA business, freeing time for advisers and their support staff.

- Delivering value to advisers and clients through our investment proposition: we've announced we're making changes to several of our funds, including broadening the geographic remit of our government bond proposition beyond UK gilts, appointing Dalton Investments to co-manage the Japan Fund, and appointing Fulcrum Asset Management to the roster of fund managers on our Global Absolute Return Fund. 

- Building and protecting our brand and reputation: we've reflected on our Client Wealth Account survey results from early in 2023, which highlight that while scores remain very strong, with advocacy and value for money scores improving, overall client satisfaction levels have seen a small decline since 2022, a feature that we note is consistent with broader industry trends and reflecting the more difficult economic environment. As always, we are taking the opportunity to explore what more we can do to drive great experiences and outcomes for clients.

- Our culture and being a leading responsible business: we continue to embed our responsible business strategy across SJP, ensuring shared understanding within our community of our goals and ambitions to drive positive change. This complements our traditional strength in community and charitable giving where our support for the St. James's Place Charitable Foundation continues with £5.1 million raised in the first half alone.

- Continued financial strength: we continue to demonstrate financial strength despite the challenging operating environment, and this is covered in detail in the Chief Financial Officer's Report on page 8.

Consumer Duty

We have been working hard to prepare ahead of the FCA's new Consumer Duty regulation that comes into effect at the end of July 2023. This regulation sets higher and clearer standards of consumer protection across financial services and requires firms to act to deliver good outcomes for customers. We have engaged proactively with this important regulatory initiative.

While we consistently aim to achieve good outcomes for our clients, Consumer Duty has given us the opportunity to strengthen this commitment to clients even further. We've looked at every part of our business through the lens of clients - the people who trust us to help create the future they want for them and for their families - and we've examined how we provide evidence that the processes and frameworks we have in place deliver good client outcomes.

There are three core commitments we have that underpin 'good client outcomes' at SJP:

1. We deliver fair value

2. We support each client to make effective, timely and informed decisions throughout their journey with us

3. We help clients to achieve their financial objectives

Having considered the principles and the processes we have in place, we have made a number of changes in how we and our advisers operate in order to ensure we continue to deliver and evidence good client outcomes. In addition, reflecting on the scale and maturity of the business today, and to further increase the competitiveness of our bonds and pensions business through the life-cycle, we are capping annual product management charges on client bond and pensions contributions at the point each contribution has been invested for ten years. This cap, which is set at 85 basis points, represents support for clients who have invested over the long-term and we estimate there are around 65,000 clients who will immediately benefit from this positive action, a figure that will grow over time.

This change takes effect from August onwards and the impact will be to lower the margin range on net income from funds under management by some four basis points going forward.

-7-

Now that Consumer Duty is coming into effect, we are treating the completion of the specific work that was required, as an opportunity to continue to evaluate our business and enhance long-term and sustainable value for clients, the Partnership, shareholders and all other stakeholders.

Summary and outlook

While the trading environment has been challenging, we can be pleased with the resilience of our new business performance and the strength of our financial results in the first half of 2023. Our business model is inherently robust, but this good outcome is testament to the contribution of all in the SJP community who work hard to support clients and each other.

As we look ahead, there continues to be near-term challenges for UK consumers, but as a long-term business our focus remains on ensuring we are well positioned to support our advisers build great relationships and deliver trusted and valued face-to-face advice over time. It is this commitment that underpins our 2025 ambitions and will enable SJP to capitalise on the scale of longer-term market opportunity ahead.

Andrew Croft, Chief Executive

26 July 2023

-8-

Chief Financial Officer's Report

We are pleased to report a robust set of financial results, despite the challenging operating environment in the first half of 2023.

The resilience of the business model is demonstrated with the continued scale of net inflows which will drive long-term profit growth into the future. During the period, our advisers attracted £8.0 billion (six months to 30 June 2022: £9.1 billion, year to 31 December 2022: £17.0 billion) of new client investments and while withdrawal rates have returned to more normal levels as expected, overall client retention rates of 95.6% (six months to 30 June 2022: 96.5%, year to 31 December 2022: 96.5%) remain high and above the targets set out in our 2025 business plan. Together, these have contributed to net inflows of £3.4 billion (six months to 30 June 2022: £5.5 billion, year to 31 December 2022: £9.8 billion), equivalent to an annualised 4.6% of opening funds under management (FUM); a strong result given the operating environment.

Ongoing net inflows combined with positive investment market returns during the period has resulted in FUM closing at £157.5 billion (30 June 2022: £142.3 billion, 31 December 2022: £148.4 billion).

Our financial results are presented in more detail on pages 13 to 40 of the Financial Review, but there follows here 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

On 1 January 2023 the Group adopted IFRS 17 'Insurance Contracts', with comparatives restated from 1 January 2022. The adoption of IFRS 17 resulted in an increase to IFRS profit after tax of £2.6 million for the six months ended 30 June 2022 and a £1.8 million increase for the year ended 31 December 2022. The movement occurred due to the revised pattern of profit recognition under IFRS 17, which replaces implicit prudent margins in the measurement of insurance contract liabilities under IFRS 4 with an explicit allowance for risk and a Contractual Service Margin (CSM) which recognises profit more evenly over the coverage period.

IFRS profit before tax is heavily distorted by the inclusion of policyholder tax and the associated charges, which have resulted in a profit of £385.0 million (six months to 30 June 2022: negative £295.5 million, year to 31 December 2022: positive £2.8 million).

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 £215.7 million for the year (six months to 30 June 2022: £259.5 million, year to 31 December 2022: £503.9 million), down 17% year on year. This decrease is driven by the impact of policyholder tax asymmetry which adversely impacts the IFRS result in periods of stronger markets or higher interest rates, contributing a negative £17.5 million in the six months to June 2023, compared to a positive £39.4m in the six months to June 2022, a delta of £56.9m. Further detail on this asymmetry is included in the Financial Review on page 19. Excluding the short-term impact of the policyholder tax asymmetry, IFRS profit before shareholder tax has increased by 6%, with similar drivers to those described for the Cash result below.

IFRS profit after tax was £161.7 million in 2023 (six months to 30 June 2022: £208.2 million, year to 31 December 2022: £407.2 million), down 22%, additionally impacted by an increase in the rate of corporation tax.

The IFRS result also includes the impact of non-cash accounting adjustments such as equity-settled share-based payment expenses, deferred income and deferred acquisition costs, so we continue to supplement our statutory reporting with the presentation of our financial performance using two APMs: the Cash result and the EEV result.

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. They 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, with prior period comparisons impacted by a change in the rate of corporation tax on 1 April 2023.

-9-

The Cash result of £202.4 million for the first half of 2023 (six months to 30 June 2022: £194.1 million, year to 31 December 2022: £410.1 million) and the Underlying cash result of £207.1 million (six months to 30 June 2022: £198.8 million, year to 31 December 2022: £410.1 million) are each up 4%. Excluding the impact of an increased rate of corporation tax, the Underlying cash result has increased by 10%. These strong half-year results have been driven by average mature FUM being higher during 2023 than it was in 2022, delivery of controllable expenses consistent with our guidance, and increased shareholder interest on our working capital due to Bank of England base rate rises. More detail is set out below and in the Financial Review on pages 21 to 33.

During the period, the net income from funds under management was £299.6 million (six months to 30 June 2022: £300.2 million, year to 31 December 2022: £607.7 million), representing a margin within our range of 0.59% to 0.61% (2022: 0.63% to 0.65%) on average mature FUM, excluding Discretionary Fund Management (DFM) and Asia FUM, in line with prior guidance and reflecting the increased rate of corporation tax in 2023.

As noted in the Chief Executive's Report, a decision has been taken to cap annual management charges on client bond and pension investments with a duration longer than 10 years. This change takes effect from August 2023 and the impact will be to lower our margin range to 0.55% to 0.57%. This will amount to a post-tax reduction in net income from funds under management of c.£12m for the second half of 2023. 

This 0.04% reduction in the range will replicate into future periods but will be compounded in 2024 with a further 0.01% reduction as a result of a higher effective rate of tax with 25% applying for the whole year.

It is mature FUM that contributes to the net income figure and at any given time it 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 therefore driven by 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 after a six-year period;

3. The retention of FUM; and

4. Investment returns.

As a result, growth in FUM is a strong positive indicator of future growth in profits, despite not all new business contributing to net income from funds under management for the first six years of its existence.

At 30 June 2023, the balance of gestation FUM stood at £47.2 billion (31 December 2022: £45.5 billion). Once this current stock of gestation FUM has all matured, it will (assuming no market movements or withdrawals) contribute in excess of a further £368 million to annual net income from funds under management and hence to the Underlying cash result, at no additional cost.

St. James's Place also generates a margin arising from new business where initial product charges levied on gross inflows exceed new business-related expenses. The decrease in margin arising from new business in 2023 largely reflects the decrease in gross flows over the period, although the relationship between the two is generally directionally consistent rather than linear as the margin includes some expenses which do not vary with gross inflows.

Controllable expenses are a key metric for the business and despite the persistence of high inflation we have contained the annual growth to 8% in the first half of 2023, equivalent to a 2% increase on a post-tax basis, reflecting the impact of the increased rate of corporation tax. We therefore remain on track with our guidance of limiting growth in full year controllable expenses to 8% pre-tax and remain committed to returning towards our medium-term target of 5%, as and when inflation moderates towards more normal levels.

Growth in income, coupled with this delivery of controllable expenses in line with our guidance, has been the primary driver of a record half-year Underlying cash result for the six months to 30 June 2023 of £207.1 million (six months to 30 June 2022: £198.8 million, year to 31 December 2022: £410.1 million).

Recognised below the Underlying cash result is the variance, which is a timing effect included in the Half-Year results that arises due to there being fewer days of annual management charge (AMC) in the first half of the year, which unwinds by the end of the year.

The Cash result for the period was therefore £202.4 million (six months to 30 June 2022: £194.1 million, year to 31 December 2022: £410.1 million).

-10-

EEV

The EEV operating profit before exceptional item for the period is £740.1 million (six months to 30 June 2022: £914.2 million profit, year to 31 December 2022: £1,589.7 million profit). Adjusting for the persistency assumption change in 2022, the result for the period is higher by 8% due to the increase in the opening risk discount rate to which it is sensitive, partially offset by a reduced new business contribution in line with gross fund flows.

The EEV operating loss after exceptional item for the period is £119.1 million (six months to 30 June 2022: £914.2 million profit, year to 31 December 2022: £1,589.7 million profit), reflecting the exceptional item of £859.2m from introducing a charge cap on longer duration client bond and pension investments, as described in the Chief Executive's Report.

The EEV profit before tax for the period has benefited from a positive investment return variance of £157.6 million (six months to 30 June 2022: negative £1,346.2 million, year to 31 December 2022: negative £1,314.0 million). The positive return reflects increased market values across our FUM that exceeded our long-term assumptions, and this compares to a significant negative impact from market returns in the comparative period.

The EEV profit after tax of £55.7 million (six months to 30 June 2022: negative £208.2 million, year to 31 December 2022: positive £371.4 million) reflects profit emergence as above.

The EEV net asset value per share was £16.28 at 30 June 2023 (30 June 2022: £15.74, 31 December 2022: £16.66).

Financial position

Our IFRS Statement of Financial Position, presented on page 48, contains policyholder interests in unit-linked liabilities and the underlying assets that are held to match them. To understand the true assets and liabilities that the shareholder can benefit from, these policyholder balances, along with non-cash 'accounting' balances such as deferred income (DIR) and deferred acquisition costs (DAC), are removed in the Solvency II Net Assets balance sheet.

This balance sheet is straightforward and demonstrates that the Group has liquid assets of £1,527.2 million (30 June 2022: £1,652.8 million, 31 December 2022: £1,532.9 million), of which £1,250.5 million (30 June 2022: £1,370.5 million, 31 December 2022: £1,271.7 million), is invested in AAA-rated money market funds. This deep liquidity represents 41% of total assets on the Solvency II Net Assets balance sheet (30 June 2022: 53%, 31 December 2022: 50%). Further information about liquidity is set out on page 31.

Analysis of the key movements in the Solvency II Net Assets balance sheet during the year is set out on pages 28 to 33.

Solvency and capital

We continue to manage the balance sheet prudently to ensure the Group's solvency is safely maintained.

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 30 June 2023 we held surplus assets over the MSB of £824.2 million (30 June 2022: £714.4 million, 31 December 2022: £847.2 million).

We also ensure that our approach meets the requirements of the Solvency II regime. Our UK life company, the largest insurance entity in the Group, targets capital equal to 110% of the standard formula requirement, as agreed with the Prudential Regulation Authority (PRA) since 2017. This is a prudent and sustainable policy given the risk profile of our business, which is largely operational.

At 30 June 2023, the solvency ratio for our Life businesses was 131%, which continues to be impacted by the positive effect of the policyholder tax asymmetry which benefits our own funds and hence solvency ratio in the same way as it benefits our IFRS result. This also takes into consideration the small impact of the charge cap explained within the Chief Executive's Report.

Excluding this temporary effect which will unwind as markets improve, the solvency ratio for our Life businesses was 121%. The temporary effect of the equity dampener seen in previous periods has unwound due to the increase in equity markets during the six months to 30 June 2023.

-11-

Taking into account entities in the rest of the Group, the Group solvency ratio at 30 June 2023 was 151% (30 June 2022: 155%, 31 December 2022: 155%), with this result also reflecting the positive impact of policyholder tax asymmetry and equity dampener effects noted above.

Dividends

As set out in our 2025 business plan, our dividend guidance includes making an interim payment set at 30% of the prior year total dividend. The Board is therefore declaring an interim dividend of 15.83 pence per share, equal to 30% of the prior year dividend per share of 52.78 pence.

Craig Gentle, Chief Financial Officer

26 July 2023

-12-

Summary financial information

1 Restated to reflect the adoption of IFRS 17. See Note 2c.

The Cash result should not be confused with the IFRS Consolidated Statement of Cash Flows, which is prepared in accordance with IAS 7.

-13-

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 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 15 to 17.

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 18 to 38.

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 39 to 40.

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: www.sjp.co.uk/charges. A breakdown of fee and commission income, our primary source of revenue under IFRS, is set out in Note 4 on page 73.

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 as 'mature' FUM. More information about our FUM and the fees we earn on it can be found in Sections 1 and 2 of the Financial Review on pages 15 and 18.

Initial and ongoing advice charges, and initial product charges levied when a client first invests into one of our products, are not major drivers of the Group's profitability, because:

· most advice charges received are offset by corresponding remuneration for Partners, so an increase in these revenue streams will correspond with an increase in the associated expense and vice versa; and

· under IFRS, initial product charges are spread over the expected life of the investment through deferred income (DIR - see page 19 for further detail). The contribution to the IFRS result from spreading these historic charges can be seen in Note 4 as amortisation of DIR. Initial product charges contribute immediately to our Cash result through margin arising on new business.

-14-

Our income is used to meet overheads, pay ongoing product expenses and invest in the business. Controllable expenses, being the costs of running the Group's infrastructure, the Academy and development expenses, are carefully managed. Other ongoing expenses, including payments to Partners, increase with business levels and are generally aligned with product charges.

-15-

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 the six months to 30 June 2023 and 30 June 2022, and the year to 31 December 2022. Investment return is presented net of all charges.

Included in the table above is:

· Rowan Dartington Group FUM of £3.33 billion at 30 June 2023 (30 June 2022: £3.23 billion, 31 December 2022: £3.29 billion), gross inflows of £0.20 billion for the period (six months to 30 June 2022: £0.25 billion, year to 31 December 2022: £0.44 billion) and outflows of £0.09 billion for the period (six months to 30 June 2022: £0.06 billion, year to 31 December 2022: £0.14 billion); and

· SJP Asia FUM of £1.62 billion at 30 June 2023 (30 June 2022: £1.51 billion, 31 December 2022: £1.52 billion), gross inflows of £0.12 billion for the period (six months to 30 June 2022: £0.17 billion, year to 31 December 2022: £0.28 billion) and outflows of £0.06 billion for the period (six months to 30 June 2022: £0.04 billion, year to 31 December 2022: £0.10 billion).

The following table shows the significant net inflows and the progression of FUM over recent periods.

-16-

The table below provides a geographical and investment-type analysis of FUM at the end of each period.

1.2 Gestation

As explained in our financial business model on page 13, 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 enters 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. Approximately 54% of gross inflows in the first half of 2023, after initial charges, moved into gestation FUM (six months to 30 June 2022: 54%, year to 31 December 2022: 54%).

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 30 June 2023, as well as at the year-end for the past five years. The value of both mature and gestation FUM is impacted by investment return as well as net inflows.

-17-

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 including the charge cap, and so how the gestation balance of £47.2 billion at 30 June 2023 may start to contribute to the Cash result, factoring in the change in the main rate of corporation tax to 25% from 1 April 2023. 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.

-18-

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 IFRS Statement of Financial Position includes policyholder liabilities and the corresponding assets held to match them, and so policyholder liabilities increase or decrease to match increases or decreases experienced on these assets. This means that shareholders are not exposed to any gains or losses on the £157.4 billion of policyholder assets and liabilities recognised in our IFRS Statement of Financial Position, which represented over 97% of our IFRS total assets and liabilities at 30 June 2023.

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 on 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 114 to 117, 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)

On 1 January 2023 the Group adopted IFRS 17 'Insurance Contracts', with comparatives restated from 1 January 2022. The adoption of IFRS 17 resulted in an increased IFRS profit after tax of £2.6 million for the six months ended 30 June 2022 and £1.8 million increase for the year ended 31 December 2022. For further explanation, refer to Note 2c page 51.

As referenced above, our IFRS results are impacted by 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. The scale and direction of these amounts can vary significantly: for example, in the six months to 30 June 2023, we deducted £169.3 million from clients due to investment market gains, which flowed through our IFRS profit before tax as income, whereas in the six months to 30 June 2022 we were required to refund £555.0 million from clients due to investment market falls, which flowed through as an expense. See Note 4 Fee and commission income for further information. This leads to substantial distortion within our IFRS profit before tax: for the six months to 30 June 2023, it was £385.0 million profit, compared to a loss of £295.5 million for the six months ended 30 June 2022.

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:

· IFRS profit before shareholder tax; and

· underlying profit.

Further information on these IFRS-based measures is set out below.

-19-

Profit before shareholder tax

This is a profit measure based on IFRS which aims to remove the impact of policyholder tax. The policyholder tax expense or credit is typically matched by an equivalent deduction or credit from the relevant funds, which is recorded within fee and commission income in the Consolidated Statement of Comprehensive Income. Policyholder tax does not therefore normally impact the Group's overall profit after tax. The following table demonstrates the way in which IFRS profit before shareholder tax is presented in the Consolidated Statement of Comprehensive Income on page 46.

1 Restated to reflect the adoption of IFRS 17. See Note 2c.

However, in both the current and prior year IFRS profit before shareholder tax and IFRS profit after tax have been impacted by another nuance of life insurance tax, which has led to decreases of over 15% in each of these balances year-on-year.

As set out above, life insurance tax incorporates a policyholder tax element, and the financial statements of a life insurance group need to reflect the liability to HMRC, with the corresponding deductions incorporated into policy charges. In particular, the tax liability to HMRC is assessed using IAS 12 Income Taxes, which does not allow discounting, whereas the policy charges are designed to ensure fair outcomes between clients and so reflect a wide range of possible outcomes. This gives rise to different assessments of the current value of future cash flows and hence an asymmetry in the Consolidated Statement of Financial Position between the deferred tax position and the offsetting client balance. The net balance reflects a temporary position, and in the absence of market volatility we expect it will unwind as future cash flows become less uncertain and are ultimately realised. Movement in the asymmetry is recognised in the Consolidated Statement of Comprehensive Income and analysed in Note 4 Fee and commission income. We refer to it as the impact of policyholder tax asymmetry.

Under normal conditions this asymmetry is small, but market volatility and interest rate movements can result in significant impacts. Market gains combined with higher interest rates in the six months to 30 June 2023 have resulted in a negative impact of £17.5 million, whereas market falls in the six months to 30 June 2022 led to a positive £39.4 million movement in policyholder tax asymmetry. This leads to a £56.9 million year-on-year difference in both IFRS profit after tax and IFRS profit before shareholder tax. Ultimately the effect will be eliminated from the Consolidated Statement of Financial Position, and so it is temporary.

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 6 Income and deferred taxes.

Underlying profit

This is IFRS 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.

-20-

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:

1 Restated to reflect the adoption of IFRS 17. See Note 2c.

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 and DIR on new business for the period set out below cannot be agreed to those set out in Note 7, which is presented before both policyholder tax and shareholder tax.

1 Restated to reflect the adoption of IFRS 17. See Note 2c.

Net impact of DAC

The scale of the £15.2 million negative overall impact of DAC on the IFRS result (six months to 30 June 2022: negative £17.1 million, year to 31 December 2022: negative £42.3 million) is largely due to changes arising from the 2013 Retail Distribution Review (RDR). After these changes, 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 two or three 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

The reduction in new business in the year means income deferred in the first half of 2023 is lower than it was in 2022. Income released from the deferred income liability has remained broadly static. Together, these effects mean that DIR has had a positive £16.7 million impact on the IFRS result in the six months to 30 June 2023 (six months to 30 June 2022: £12.7 million positive, year to 31 December 2022: £32.5 million positive).

-21-

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 equity-settled share-based payment costs. Further details, including the full definition of the Cash result, can be found in the Glossary of Alternative Performance Measures on pages 114 to 117. 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:

1 Restated to reflect the adoption of IFRS 17. See Note 2c.

Equity-settled share-based payments have reduced in the six months to 30 June 2023 compared to the same period in 2022, reflecting a lower average share price, partially offset by an increase in the number of shares and share options granted during the year.

The impact of deferred tax is the recognition in the Cash result of the benefit from realising tax relief on various items including capital losses, share options, capital allowances and deferred expenses. 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 6.

The impact of policyholder tax asymmetry is a temporary effect caused by asymmetries between fund tax deductions and the policyholder tax due to HMRC. Movement in the asymmetry can be significant dependent on market conditions such as were experienced in 2022. For further explanation, refer to page 19.

Other represents a number of other small items, including the difference between the lease expense recognised under IFRS 16 Leases and lease payments made.

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

· Underlying cash result

This measure represents the regular emergence of cash from the business, excluding any items of a one-off nature and temporary timing differences; and

· Cash result

This measure includes items of a one-off nature and temporary timing differences.

-22-

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 insurance tax on onshore investment business.

As noted on page 13 however, our investment and pension business product structure means that these products do not contribute to the net Cash result, after the margin arising from new business, during the first six years. This is known as the 'gestation period' and is reflected in the reduction in fees in gestation period line.

Net income from FUM reflects Cash result income from FUM that has reached maturity, including FUM which has emerged from the gestation period during the year, and this line is the focus of our explanatory analysis. As with net annual management fees, the average rate can vary over time with business mix and tax. For the six months to 30 June 2023, our net income from FUM is within our range of 0.59% - 0.61%, which has reduced to reflect the increase in the main rate of corporation tax from 19% to 25% from 1 April 2023.

As noted in the Chief Executive's Report, a decision has been taken to cap annual management charges on client bond and pension investments with a duration longer than 10 years. This change takes effect from August 2023 and the impact will be to lower our margin range to 0.55% - 0.57%. This will amount to a post-tax reduction in net income from funds under management of c.£12m for the second half of 2023. 

This 0.04% reduction in the range will replicate into future periods but will be compounded in 2024 with a further 0.01% reduction as a result of a higher effective rate of tax with 25% applying for the whole year.

Net income from Asia and DFM FUM is not included in this line. Instead, this is included in the Asia - net investment and DFM - net investment lines.

-23-

2. Margin arising from new business

This is the net positive Cash result impact of new business in the year, reflecting initial charges levied on gross inflows and new-business-related expenses. The majority of these expenses vary with new business levels, such as the incremental third-party administration costs of setting up a new policy on our back-office systems, and payments to Partners for the initial advice provided to secure clients' investment. As a result, gross inflows are a key driver behind this line.

However, the margin arising from new business also contains some fixed expenses, and elements which do not vary exactly in line with gross inflows. For example, our third-party administration tariff structure includes a fixed fee, and to provide some stability for Partner businesses, elements of our support for them are linked to prior year new business levels.

The margin arising from new business is a net of tax metric has also been impacted in the first half of 2023 by an increase in the rate of corporation tax.

Therefore, whilst the margin arising from new business tends to move directionally with the scale of gross inflows generated during the year, the relationship between the two is not linear.

3. Controllable expenses

Alongside our 2022 results, we set out an expectation that the full year growth in controllable expenses would be contained to 8% on a pre-tax basis, balancing disciplined expense management with the need to invest in the business for the future, despite the high inflation environment. This is equivalent to a 2% increase on a post-tax basis as presented in the Cash result, reflecting an increase in the rate of corporation tax. We are pleased to have delivered a half-year outturn in line with this guidance for the full year, with these costs increasing by 2% to £134.0 million and we remain committed to returning towards our medium-term target of 5%, as and when inflation moderates towards more normal levels.

Establishment expenses in the six months to 30 June 2023 were broadly flat year on year on net of tax basis at £95.1 million (six months to 30 June 2022: £95.9 million, year to 31 December 2022: £198.9 million) as inflation driven increases were offset by an increased level of tax relief. These costs predominantly relate to people, property and technology and hence are relatively fixed in nature.

Development expenses were £33.0 million (six months to 30 June 2022: £29.7 million, year to 31 December 2022: £67.4 million). Our investment in technology, alongside our commitment to making it easier to do business, is the driver behind the increase in our development expenses. We continue to improve our technology infrastructure and data quality, and to invest in Salesforce.

Reflecting its critical role in providing a source of future organic growth in our adviser population, we continue to invest in building our Academy programme.

-24-

4. Asia and DFM

These lines represent the net income from Asia and DFM FUM. They include the Asia and DFM expenses set out in the reconciliation on page 26 between expenses presented separately on the face of the Cash result before tax and IFRS expenses.

We have continued to invest in developing our presence in Asia, as well as in discretionary fund management via Rowan Dartington, both in the UK and overseas. The increased investment in Asia includes the cost of restructuring during the year. While both Asia and Rowan Dartington have been impacted by the challenging market conditions in 2023, they both remain well positioned well for the years ahead.

5. Regulatory fees and FSCS levy

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. The FSCS levy has fallen substantially in 2023, reflecting the short-term utilisation of scheme surpluses that had built up in prior years. The levy is anticipated to increase again from 2024.

6. Shareholder interest

This is the income accruing on shareholder 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. It has increased significantly during the year following rises in the Bank of England base rate.

7. Tax relief from capital losses

A deferred tax asset has been recognised under IFRS for historic capital losses which were 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 period of £2.1 million tax value (six months to 30 June 2022: £13.9 million, year to 31 December 2022: £20.7 million), reflects the utilisation in full of the remaining stock of capital losses. Due to the exhaustion of the balance, this will not feature in future years.

8. Miscellaneous

This category represents the net cash flow of the business not covered in any of the other categories. It includes Group contributions to the St. James's Place Charitable Foundation and movements in the fair value of renewal income assets.

9. Variance

The variance recognised at the half-year reflects an allowance for fewer days of AMC income in the first half compared to the second half. It will reverse in the second half of the year and will not feature in the full year Cash result.

-25-

Reconciliation of Cash result expenses to IFRS expenses

Whilst certain expenses are recognised in separate line items on the face of the Cash result, 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. In order to reconcile to the IFRS expenses presented on the face of the Consolidated Statement of Comprehensive Income on page 46, the expenses netted from income lines in the Cash result need to be added in, as do certain IFRS expenses which by definition are not included in the Cash result. In addition, all expenses need to be converted from post-tax, as they are presented in the Cash result, to pre-tax, as they are presented under IFRS.

Expenses presented on the face of the Cash result before and after tax are set out below:

-26-

The total expenses presented separately on the face of the Cash result before tax then reconciles to IFRS expenses as set out below:

1 Restated to reflect the adoption of IFRS 17. See Note 2c.

Expenses which vary with business volumes

Other performance-related costs, for both Partners and employees, vary with the level of new business and the financial 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 significantly.

Each of these items is recognised within the most relevant line of the Cash result, which is determined based on the nature of the expense. In most cases, this is either the net annual management fee or margin arising from new business lines.

Other expenses include interest expense and bank charges, operating costs of acquired financial adviser businesses 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 both reflect disciplined expense control during the year, whilst continuing to invest to support growth. The increased investment in Asia includes the cost of restructuring during the year.

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

Reconciling items to IFRS expenses

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

Expenses associated with insurance contract expenses are included in the Cash result but are shown within the Insurance service expense rather than the Expenses line under IFRS 17.

-27-

Derivation of the Cash result

The Cash result is derived from the IFRS Condensed 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 at 30 June 2023.

-28-

1 Restated to reflect the adoption of IFRS 17. See Note 2c.

2 Restated to reclassify balances between Other receivables and Other payables. See Note 2c.

Adjustment 1 strips out the policyholder interest in unit-linked assets and liabilities, to present solely shareholder-impacting balances.

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.

-29-

Notes to the Solvency II Net Assets Balance Sheet

1. Property and equipment, and other payables

£124.5 million (30 June 2022: £115.2 million, 31 December 2022: £114.4 million) of the property and equipment balance represents the right to use leased assets. It has increased year-on-year as a result of taking on a lease for the new London Paddington office, partially offset as the leased assets are depreciated. Lease liabilities of £127.0 million are recognised within the other payables line (30 June 2022: £120.0 million, 31 December 2022: £116.6 million).

Note 10 Other payables to the IFRS Financial Statements provide further detail on lease liabilities.

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 6 Income and deferred taxes within the IFRS Financial Statements.

3. Other receivables and other payables

Detailed breakdowns of other receivables and other payables can be found in Note 9 Other receivables and Note 10 Other payables within the IFRS Financial Statements.

Other receivables on the Solvency II Net Assets Balance Sheet have increased from £1,369.2 million at 31 December 2022 to £2,064.1 million at 30 June 2023, principally reflecting an increase in short-term outstanding market trade settlements in the life unit-linked funds and consolidated unit trusts. Further information is set out below and in Note 9 Other receivables.

In order to maintain consistency with the balance sheet presentation under IFRS 17, outstanding reinsurance receipts and insurance claims within the Solvency II Net Assets Balance sheet have been reclassified from Other receivables and Other payables to Reinsurance assets and Insurance claims respectively.

Within other receivables there are two items which merit further analysis:

Operational readiness prepayment asset

One of the items within other receivables is the operational readiness prepayment asset. This arose from the investment we have made into our back-office infrastructure project, which was 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 capitalised Bluedoor development costs as a prepayment asset on the IFRS Statement of Financial Position. The asset, which stood at £277.1 million at 30 June 2023 (30 June 2022: £283.9 million, 31 December 2022: £278.3 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 30 June 2023 is 10.5 years.

During 2022 a project to migrate our offshore business onto Bluedoor commenced, which to date has added £17.9 million to the total operational readiness prepayment asset. We expect to add approximately £40 million to the total operational readiness prepayment over the course of the project.

The movement schedule below demonstrates how the operational readiness prepayment has developed since1 January 2022.

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 more than offset by the lower tariff charges on Bluedoor compared to the previous system, which grow as the business grows, benefiting both the IFRS and Cash results.

Business loans to Partners

Facilitating business loans to Partners is a keyway in which we are able to support growing Partner businesses. Such loans are principally used to enable Partners to take over the businesses of retiring or downsizing Partners, and this process creates broad stakeholder benefits. First, clients benefit from enhanced continuity of St. James's Place advice and service over time; second, Partners are able to build and ultimately realise value in the high-quality and sustainable businesses they have created; and finally the Group and, in turn, shareholders, benefit from high levels of adviser and client retention.

In addition to recognising a strong business case for facilitating such lending, we recognise too the fundamental strength and credit quality of business loans to Partners. Over more than ten years, cumulative write-offs have totalled less than 5bps of gross loans advanced, with such low impairment experience attributable to a number of factors that help to mitigate the inherent credit risk in lending. These include taking a cautious approach to Group credit decisions, with lending secured against prudent business valuations. Demonstrating this, loan-to-value (LTV) information is set out in the table below.

-31-

If FUM were to decrease by 10%, the net exposure to loans where LTV is over 100% at 30 June 2023 would increase to £8.8 million (30 June 2022: increase to £9.1 million, 31 December 2022: increase to £9.3 million).

Our credit experience also benefits from the repayment structure of business loans to Partners. The Group collects advice charges from clients. Prior to making the associated payment to Partners, we deduct loan capital and interest payments from the amount due. This means the Group is able to control repayments.

During the period we have continued to facilitate business loans to Partners. Following the sale, in the second half of 2022, of a portfolio of securitised business loans to Partners, this balance was negligible at 31 December 2022. Since then, we have continued to make use of the securitisation vehicle to support further business loans to Partners.

Further information is provided in Note 9 Other receivables.

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 as follows:

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 guidance is set such that appropriate cash is retained in the business to support the investment needed to meet our future growth aspirations.

-32-

5. Borrowings

The Group continues to pursue a strategy of diversifying and broadening its access to debt finance. We have done this successfully over time, including via the creation and execution of the securitisation vehicle. For accounting purposes, we are obliged to disclose on our Consolidated Statement of Financial Position the value of loan notes relating to the securitisation. However, as the securitisation loan notes are secured only on the securitised portfolio of business loans to Partners, they are non-recourse to the Group's other assets. This means that the senior tranche of non-recourse securitisation loan notes, whilst included within borrowings, are very different from the Group's senior unsecured corporate borrowings, which are used to manage working capital and fund investment in the business.

Following the sale in the second half of 2022 of a portfolio of business loans to Partners backing these loan notes, this balance was repaid in full and so was negligible at 31 December 2022. Since then, we have continued to make use of the securitisation vehicle to support further business loans to Partners and this has increased the reported level of borrowings by £25.3 million at 30 June 2023.

Senior unsecured corporate borrowings of £163.9 million at 30 June 2023 is materially unchanged from 31 December 2022. Further information is provided in Note 12 Borrowings and financial commitments within the IFRS Financial Statements.

During the year our revolving credit facility, one of our primary senior unsecured corporate borrowings facilities, was renewed. The undrawn credit available under this facility is £345 million at 30 June 2023, which is repayable at maturity in 2028.

6. Other Provisions

Further information on other provisions, including how the balance has moved period-on-period, is set out in Note 11 Other provisions and contingent liabilities.

7. Income tax liabilities

The Group has an income tax liability of £26.6 million at 30 June 2023 compared to an asset of £35.0 million at 31 December 2022. This is due to a current tax charge of £160.7 million, offset by tax paid of £99.1 million in the period. Further detail is provided in Note 6 Income and deferred taxes.

-33-

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 to the total movement.

-34-

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 both in 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, and we have sought to align them as closely as possible. 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 3 Segment Reporting within the IFRS Financial Statements.

Notes to the EEV result

1. Funds management business EEV operating profit before exceptional item

The funds management business operating profit has reduced to £818.7 million (six months to 30 June 2022: £985.9 million, year to 31 December 2022: £1,725.8 million) and a full analysis of the result is shown below:

-35-

The new business contribution for the period at £463.7 million (six months to 30 June 2022: £525.6 million, year to 31 December 2022: £977.2 million) was 12% lower than the prior year, primarily reflecting the reduction in new business volumes.

The unwind of the discount rate for the period was higher at £346.8 million (six months to 30 June 2022: £216.2 million, year to 31 December 2022: £440.7 million), reflecting the increase in the opening risk discount rate to 7.0% (2022: 4.2%).

The experience variance during the period was negative £3.8 million (six months to 30 June 2022: £9.9 million positive, year to 31 December 2022: £89.0 million positive). This reflects positive retention experience offset by increased development expenses.

The impact of operating assumption changes in the year was £nil (six months to 30 June 2022: positive £230.6 million, year to 31 December 2022: positive £210.1 million). The impact in the prior year reflects a small improvement to the persistency assumptions for unit trust and ISA business.

2. Distribution business

The distribution loss includes the positive gross margin arising from advice income less payments to advisers, offset by the costs of supporting the Partnership and building the distribution capabilities in Asia. The reported loss has benefited from a reduction in the FSCS levy expense for our distribution business to £10.8 million (six months to 30 June 2022: £23.8 million, year to 31 December 2022: £23.8 million), offsetting a reduction in the gross margin reflecting lower new business volumes.

3. Exceptional item: Charge cap

The exceptional charge reflects the introduction of the charge cap on client bond and pension investments with a duration longer than 10 years as described in the Chief Executive's Report.

4. 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 6% after charges, compared to the assumed investment return of 5.0%. This resulted in an investment return variance of £157.6 million (six months to 30 June 2022: negative £1,346.2 million, year to 31 December 2022: negative £1,314.0 million).

5. Economic assumption changes

The positive variance of £37.8 million arising in the year (six months to 30 June 2022: positive £166.9 million, year to 31 December 2022: positive £235.1 million) reflects the positive effect from an increase in the risk-free rate.

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.

-36-

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