St James's Place Regulatory News (STJ)

-1-

PRESS RELEASE

28 July 2022

ANNOUNCEMENT OF HALF YEAR RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2022

STRONG NEW BUSINESS AND FINANCIAL PERFORMANCE

St. James's Place plc ("SJP") today issues its interim results for the six months ended 30 June 2022:

New investment and funds under management

· Gross inflows of £9.1 billion (2021: £9.2 billion)

· Continued strong retention of client funds at 96.5%

· Net inflows of £5.5 billion (2021: £5.5 billion), representing 7.1% of opening FUM (annualised)

· Group funds under management of £142.3 billion (31 December 2021: £154.0 billion)

Financial highlights and dividend

· Underlying cash result £198.8 million (2021: £189.3 million)

· EEV operating profit £914.2 million (2021: £844.8 million)

· IFRS profit after tax £205.6 million (2021: £120.9 million)

· Interim dividend of 15.59 pence per share (2021: 11.55 pence per share), representing 30% of prior full year dividend

Other highlights

· We are now represented by 4,626 qualified advisers across the Partnership, an increase of 70 year to-date

· EEV net asset value per share £15.74 (31 December 2021: £16.57)

-2-

Andrew Croft, Chief Executive Officer, commented:

"After a year that saw global economies and investment markets rebound across the world, the first half of 2022 has presented fresh challenges for individuals looking to save and invest for the future. Sharply rising inflation, geo-political tensions, domestic political uncertainty and a more uncertain economic outlook, all present risks for those seeking confidence in their future. This is an environment in which our advisers can add real value for their clients, helping them to stay on track.

I am therefore very encouraged, but not at all surprised, by the strength of our business performance during the period, which is a testament to the qualities of our business model and the hard work of our entire SJP community.

During the first half we attracted £9.1 billion of new client investments as advisers continued to support clients in achieving their long-term ambitions despite a more challenging external environment. The importance of retaining a long-term mindset is also a key factor behind the continued strength of retention rates, which has underpinned net inflows of £5.5 billion, in line with the first half of 2021 and equivalent to 7.1% of opening funds under management on an annualised basis.

While our new business performance has been strong, significant reversals in global investment markets have impacted our funds under management (FUM), which closed the half at £142.3 billion. 

Although FUM has fallen since the start of the year, our income has been supported by the maturing of funds in gestation during the first half. This, together with continued discipline around how we manage our resources, has supported a strong financial result for the period with an Underlying cash result of £198.8 million, up 5% period-on-period.

We enter the second half of the year with a growing Partnership ideally placed to continue helping clients in these uncertain times. Financial advice is needed now more than ever given the challenges facing individuals, both in the short- and long-term. Given current market conditions, we now expect full year gross and net flows of around £18 billion and £11 billion respectively, which would make 2022 our second highest ever year for flows and put the business even further ahead against our 2025 business plan objectives." 

The details of the announcement are attached.

Enquiries:

Hugh Taylor, Investor Relations Director, 07818 075143

Jamie Dunkley, External Communications Director, 07779 999651

Brunswick Group: Tel: 020 7404 5959

• Charles Pretzlik - Email: cpretzlik@brunswickgroup.com

• Eilis Murphy - Email: emurphy@brunswickgroup.com

-3-

2022 Half Year Results Presentation

Date: 28 July 2022

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 view 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 640 6441United Kingdom (Local): 020 3936 2999All other locations: +44 20 3936 2999

Participant Access code: 306192

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 4 August 2022 using the details below:

UK: 020 3936 3001

USA: 1 845 709 8569

All other locations: +44 20 3936 3001

Access Code: 307725

-4-

Gross Inflow Figures

Gross inflows for the six months to 30 June 2022

-5-

INTERIM MANAGEMENT STATEMENT

Chief Executive's Report

Introduction

After a year that saw global economies and investment markets rebound across the world, the first half of 2022 has presented fresh challenges for individuals looking to save and invest for the future. Sharply rising inflation, geo-political tensions, domestic political uncertainty and a more uncertain economic outlook, all present risks for those seeking confidence in their future. This is an environment in which our advisers can add real value for their clients, helping them to stay on track.

I am therefore very encouraged, but not at all surprised, by the strength of our business performance during the period, which is a testament to the qualities of our business model and the hard work of our entire SJP community.

Operating and financial performance

During the first half we attracted £9.1 billion of new client investments as advisers continued to support clients in achieving their long-term ambitions despite a more challenging external environment.

A particular topic of discussion for clients is undoubtedly inflation, which reached 40-year highs during the period and is forecast to rise even higher. Many people across the UK will not have experienced inflation running at such levels during their adult lives so our advisers have been working hard to ensure that clients understand how inflation might impact their finances and consider this in the context of their long-term financial plans.

The importance of retaining a long-term mindset is also a key factor behind the continued strength of retention rates, which has underpinned net inflows of £5.5 billion, in line with the first half of 2021 and equivalent to 7.1% of opening funds under management on an annualised basis.

While our new business performance has been strong, significant reversals in global investment markets have impacted our funds under management (FUM), which closed the half at £142.3 billion.

Although FUM has fallen since the start of the year, our income has been supported by the maturing of funds in gestation during the first half. This, together with continued discipline around how we manage our resources, has supported a strong financial result for the period with an Underlying cash result of £198.8 million, up 5% period-on-period.

Dividend

In line with our guidance that interim dividends will be set at 30% of the prior full year pay-out, the Board has declared an interim dividend for 2022 of 15.59 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. Some highlights during the first half include:

- Building community: we attracted a net 70 new advisers to the Partnership. We now have 4,626 advisers around the UK and Asia supporting and advising more than 900,000 clients so they can have confidence in their futures. Furthermore, the pipeline is strong with 358 individuals at various stages of their journey through the Academy.

- Being easier to do business with: as a key part of our programme to deliver a next-generation client experience, we soft-launched a new mobile SJP app for testing within digital app stores. We're pleased that feedback has been positive, and we remain on track to complete a full roll-out later this year.

- Delivering value to advisers and clients through our investment proposition: we made changes to our Global Growth and Emerging Markets Equity funds, appointing additional managers to those funds as well as amending other elements of the fund mandates, consistent with the seven beliefs that underpin our investment proposition. These investment beliefs are explained in the third edition of our annual Value Assessment Statements (Annual Value Assessment Statement | St. James's Place (sjp.co.uk)), which we published recently.

- Building and protecting our brand and reputation: we launched our refreshed brand identity early in the year and have made good progress in rolling out our new brand assets across the business and the Partnership, with our refreshed brand scoring well with all stakeholders.

- Our culture and being a leading responsible business: after two years where charitable fundraising activities were curtailed due to COVID-19 related restrictions, we are delighted that the St. James's Place Charitable Foundation (the Charitable Foundation) has been able to resume a fuller programme of activity in 2022. Inclusive of company matching the St. James's Place community raised £5.6 million for the Charitable Foundation in the period, of which £1.4 million is to support the people of Ukraine. Our financial education programmes continue at pace, with nearly 3,500 young people across the UK involved so far this year.

- Continued financial strength: this is covered in detail in the Chief Financial Officer's Report on page 7.

-6-

Summary and outlook

The first half of 2022 has presented extraordinary challenges for businesses and individuals alike, creating an uncertain and unpredictable environment. However, ours is a business characterised by resilience, underpinned by the strength of relationships our advisers nurture with their clients, and our collective focus on helping clients have confidence in their long-term future. This has meant we have been able to deliver new business performance broadly in line with the very strong outturn we achieved in the first half of 2021, together with improved financial performance.

We enter the second half of the year with a growing Partnership ideally placed to continue helping clients in these uncertain times. Financial advice is needed now more than ever given the challenges facing individuals, both in the short- and long-term. Given current market conditions, we now expect full year gross and net flows of around £18 billion and £11 billion respectively, which would make 2022 our second highest ever year for flows and put the business even further ahead against our 2025 business plan objectives.

ANDREW CROFT 

Chief Executive 

27 July 2022

-7-

Chief Financial Officer's Report

 We are pleased to be reporting a strong set of financial results against the backdrop of macroeconomic and geo-political uncertainty that prevailed in the six months to 30 June 2022. This once again demonstrates the resilience of our business model.

As set out in the Chief Executive's Report, the Partnership attracted gross inflows of £9.1 billion (six months to 30 June 2021: £9.2 billion, year to 31 December 2021: £18.2 billion) and net inflows of £5.5 billion (six months to 30 June 2021: £5.5 billion, year to 31 December 2021: £11.0 billion) during the first half. Following the exceptional 27% growth in gross inflows we achieved in 2021, we are delighted that new business performance has been strong during 2022 despite the more challenging market conditions.

The strength of our new business flows has been offset by negative investment market returns during the period, resulting in funds under management (FUM) closing at £142.3 billion (30 June 2021: £143.8 million, 31 December 2021: £154.0 billion).

These results mean we are making good progress towards the goals we set out in our 2025 strategy at the start of 2021, aiming to achieve long-term compound new business growth of 10% per annum and consistent retention above 95% to reach £200bn of FUM by 2025, all whilst containing growth in controllable expenses to 5% per annum.

Our financial results are presented in more detail on pages 15 to 30 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 an overview of our capital, solvency and liquidity.

Financial results

IFRS

As a result of significant movements in investment markets, our IFRS results have exhibited volatility period-on-period as the following table demonstrates:

The key driver of the volatility is distortion caused by policyholder tax impacts associated with market movements on policyholder investments held on the life company balance sheet. When markets fall as they did in during the first half of 2022, we are required to reflect refunds of fund tax deductions to clients as if they were an expense. This expense then effectively reverses through the policyholder tax line as a credit. When markets rise as they did in 2021, the opposite happens and fund tax deductions are recognised as our income, which then reverses as a policyholder tax charge. This dynamic has resulted in our IFRS result before tax moving from a profit of £482.6 million for the six months to 30 June 2021 to a loss of £298.4 million for the six months to 30 June 2022.

Our IFRS results have also been distorted by 'policyholder tax asymmetry', a feature we have highlighted in recent reporting periods. The market falls in the first half of 2022 have resulted in the asymmetry contributing a positive £39.4 million to the IFRS result for the period (six months to 30 June 2021: negative £29.2 million), but we expect this benefit to unwind over time as markets recover. Further detail on this asymmetry is included in the Financial Review on page 16 and in Note 4 Fee and commission income on page 44. The impact of the asymmetry together with growth in net income from FUM, are the key drivers behind the 70% increase in IFRS profit after tax from £120.9 million in the six months to 30 June 2021 to £205.6 million in the six months to 30 June 2022.

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. 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.

During the period, the net income from funds under management was £300.2 million (six months to 30 June 2021: £278.2 million), representing a margin within our range of 0.63% to 0.65% (six months to 30 June 2021: 0.63% to 0.65%) on average mature FUM, excluding Discretionary Fund Management (DFM) and Asia FUM, in line with prior guidance. It is only mature FUM that contributes to this net income figure and, at any given time, this comprises all unit trust and ISA business, as well as life and pensions business written more than six years ago.

-8-

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.

At 30 June 2022, the balance of gestation FUM stood at £44.5 billion (30 June 2021: £47.3 billion, 31 December 2021: £49.3 billion) with the reduction in the balance since the start of the year attributable to the impact of weaker investment markets during the period. Once this current stock of gestation FUM has all matured, assuming no market movements or withdrawals and allowing for the tax rate change in 2023, it will contribute over £390 million to annual net income from funds under management and hence to the Underlying cash result. Gestation FUM therefore provides a high degree of visibility of future income and earnings growth.

We also generate a margin arising from new business where initial product charges levied on gross inflows exceed new business-related expenses. The margin arising from new business tends to move directionally with gross inflows generated during the year but, as we've indicated in the past, the relationship between the two is not linear. This is because it contains some fixed expenses, such as a fixed fee in our third-party administration tariff, and some payments to Partners which are linked to prior year business levels to provide stability to Partner businesses. As a result, in periods of modest change in gross inflows following periods of high growth, such as the first half of 2022 compared to 2021, some degree of short-term operating deleverage can be experienced: the margin for the six months to 30 June 2022 was £67.4 million (six months to 30 June 2021: £73.8 million).

As part of our 2025 business plan, we set out our ambition to contain growth in controllable expenses to around 5% per annum. Controllable expenses, which are the categories shown in the table below (stated after tax), are a key metric for the business. We are committed to strong cost control and have good visibility over our controllable expense base in 2022, so while we currently face pressures from the inflationary environment, we remain committed to containing growth in controllable expenses to 5% for 2022.

Controllable expenses in the first half of the year were in line with our plan. Although this total is 10% higher than in the first half of 2021, this is simply a result of the unusual phasing of expenses we experienced in 2021, where we highlighted an 'underspend' in the first half of the year due to COVID-19 linked lockdown restrictions being in place during the period. We are expecting phasing for 2022 to be more consistent with our historic pre-COVID-19 average, where 47-48% of controllable expenses are recognised in the first half of the year.

Tax relief from capital losses has contributed £13.9 million to the Cash result in the six months to 30 June 2022 (six months to 30 June 2021: £4.3 million). This level of relief is greater than our guidance of £5-7 million per annum, which has been driven by market conditions. For further information see page 21.

As a result of the items noted above, the Underlying cash result for the six months to 30 June 2022 was £198.8 million (six months to 30 June 2021: £189.3 million).

Recognised below the Underlying cash result is the variance. In the Half-Year results this always includes a timing effect from fewer days of AMC in first half of the year, which unwinds by the year-end.

The Cash result for the period was therefore £194.1 million (six months to 30 June 2021: £175.8 million).

EEV

The EEV operating profit has increased by 8% from £844.8 million for the six months to 30 June 2021 to £914.2 million for the six months to 30 June 2022. The key driver behind this increase is the higher unwind of the discount rate in the current period, reflecting the larger in-force book at the start of 2022 compared to 2021, and an increase in the risk discount rate. As we did in the first half of 2021, we have made a small improvement to persistency assumptions, which enhances new business margin, as well as contributing a one-off improvement in the period of £230.6 million through an operating assumption change (six months to 30 June 2021: £249.4 million).

The EEV result before tax for the period has been significantly impacted by the negative investment return variance of £1,346.2 million. This negative return reflects reduced market values across our FUM as markets weakened significantly during the period. This is in contrast with the £593.6 million positive impact for the comparative period, which reflected market gains in the first six months of 2021.

As a result, the EEV loss after tax was £208.2 million for the six months to 30 June 2022 (£714.7 million EEV profit after tax for the six months to 30 June 2021).

-9-

EEV net asset value per share was £15.74 at 30 June 2022 (30 June 2021: £15.31, 31 December 2021: £16.57).

Financial position

Our IFRS Condensed Consolidated Statement of Financial Position, presented on page 39, 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 £1,652.8 million (30 June 2021: £1,601.2 million, 31 December 2021: £1,858.8 million), of which £1,370.5 million (30 June 2021: £1,295.3 million, 31 December 2021: £1,605.3 million) is invested in AAA-rated money market funds. This deep liquidity represents 53% of total assets on the Solvency II Net Assets balance sheet (30 June 2021: 46%, 31 December 2021: 52%). Further information about liquidity is set out on page 25.

Analysis of the key movements in the Solvency II Net Assets balance sheet during the period is set out on pages 24 to 26.

Solvency, capital and liquidity

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 2022 we held surplus assets over the MSB of £714.4 million (30 June 2021: £607.2 million, 31 December 2021: £727.3 million). We also ensure that our approach meets 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 30 June 2022, the solvency ratio for our Life businesses was 139%. Whilst this solvency ratio has strengthened significantly from 119% at 30 June 2021 and 115% at 31 December 2021, the ratio at 30 June 2022 benefits from two temporary effects arising from the significant investment market falls during the period:

· a 10% positive impact from policyholder tax asymmetry, which benefits our own funds and hence solvency ratio in the same way as it benefits our IFRS result. For further details, refer to page 16; and

· a 3% positive effect of the equity dampener depressing the market risk capital component.

Excluding these temporary effects which will unwind as markets improve, the solvency ratio for our Life businesses was 126%, which is more closely aligned with prior periods. These effects are not normally significant, as the following table demonstrates.

Taking into account entities in the rest of the Group, the Group solvency ratio at 30 June 2022 was 155% (30 June 2021: 130% and 31 December 2021: 134%), with the current Group result also reflecting the positive equity dampener and impact of policyholder tax asymmetry effects noted above.

Dividend

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 15.59 pence per share, equal to 30% of the prior year dividend per share of 51.96 pence.

CRAIG GENTLE

Chief Financial Officer

27 July 2022

-10-

Key financial information

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

-11-

Financial Review

This Financial Review provides analysis of the Group's financial position and performance. It is split into the following sections:

Section 1: Funds under Management (FUM)

·  1.1 FUM analysis

·  1.2 Gestation

FUM is a key driver of ongoing profitability on all measures, and so information on FUM is provided in Section 1.

Find out more on pages 13 to 15

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 15 to 30

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 page 31

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 our fee and commission income, our primary source of revenue under IFRS, is set out in Note 4 on page 44.

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 FUM and the fees we earn on it can be found in Sections 1 and 2 of this Financial Review.

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, and 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 pages 17 and 18 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.

Our income is used to meet overheads, pay the ongoing product expenses and to invest in the business. Controllable expenses, being the costs of running the Group's infrastructure, the Academy and development expenses, are carefully managed in line with our 2025 business plan ambition to contain their growth to 5% per annum. Other ongoing expenses, including payments to Partners, increase with business levels and are generally aligned with product charges.

-12-

Related party transactions

The related party transactions during the six-month period to 30 June 2022 are set out in Note 17 to the Financial Statements.

-13-

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 2022 and 30 June 2021, and the year to 31 December 2021. Investment return is presented net of charges.

Included in the table above is:

· Rowan Dartington Group FUM of £3.23 billion at 30 June 2022 (30 June 2021: £3.24 billion, 31 December 2021: £3.52 billion), gross inflows of £0.25 billion for the period (six months to 30 June 2021: £0.28 billion, year to 31 December 2021: £0.55 billion) and outflows of £0.06 billion (six months to 30 June 2021: £0.08 billion, year to 31 December 2021: £0.14 billion); and

· SJP Asia Group FUM of £1.51 billion at 30 June 2022 (30 June 2021: £1.41 billion, 31 December 2021: £1.57 billion), gross inflows of £0.17 billion for the period (six months to 30 June 2021: £0.19 billion, year to 31 December 2021: £0.36 billion) and outflows of £0.04 billion (six months to 30 June 2021: £0.04 billion, year to 31 December 2021: £0.10 billion).

The following table shows the progression of FUM over recent periods.

1. Other movements in 2017 related to the matching strategy disinvestment.

-14-

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 11, 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 ongoing 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. Approximately 54% of gross inflows for 2022 to date, after initial charges, move into gestation FUM (six months to 30 June 2021: 51%, year to 31 December 2021: 51%).

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 2022, 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:

-15-

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 £44.5 billion at 30 June 2022 may start to contribute to the Cash result over the next six years and beyond.

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 Condensed Consolidated 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 £144.5 billion of policyholder assets and liabilities recognised in our IFRS Condensed Consolidated Statement of Financial Position, which represented over 97% of our IFRS total assets and liabilities at 30 June 2022.

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 into 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 80 to 82, 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.

-16-

2.1 International Financial Reporting Standards (IFRS)

IFRS profit after tax was £205.6 million for the period (six months to 30 June 2021: £120.9 million, year to 31 December 2021: £287.6 million), with the result significantly higher period-on-period due to the volatile experience of policyholder tax asymmetry between the periods coupled with the strong underlying business performance. Policyholder tax asymmetry is described further in the following paragraphs.

Life insurance tax incorporates a policyholder tax element, and the financial statements of a life insurance group need to reflect the liability to HMRC and 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 IFRS Condensed Consolidated Statement of Financial Position between the deferred tax position and the offsetting client balance. This 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 IFRS Condensed Consolidated Statement of Comprehensive Income and analysed in Note 4 Fee and commission income. We refer to it in this Report as the impact of policyholder tax asymmetry.

In benign markets this asymmetry is small, however recent market volatility has resulted in significant swings. The market falls in 2022 to-date have resulted in the asymmetry contributing a positive £39.4 million to the IFRS result for the six months to 30 June 2022, whereas the market gains in 2021 resulted in the asymmetry contributing a negative £29.2 million in the six months to 30 June 2021 as some of the benefit built up due to market falls in 2020 unwound. This £68.6 million movement increases both IFRS profit after tax and IFRS profit before shareholder tax. The asymmetry on the IFRS Condensed Consolidated Statement of Financial Position currently stands positive £69.4 million (30 June 2021: £55.1 million, 31 December 2021: £30.1million). Over time this balance will reduce as markets increase.

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 and on the following page.

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 generally matched by an equivalent fund tax deduction or credit from the relevant funds, which is recorded within fee and commission income in the IFRS Condensed Consolidated Statement of Comprehensive Income. Policyholder tax does not therefore normally impact the Group's overall profit after tax. As a result, profit before shareholder tax, but after policyholder tax, is typically a useful metric, although it has been distorted by policyholder tax asymmetry as referenced above in both the current and prior periods.

The following table demonstrates the way in which profit before shareholder tax is presented in the IFRS Condensed Consolidated Statement of Comprehensive Income on page 37.

IFRS profit after tax and IFRS profit before shareholder tax have both increased period-on-period, reflecting both the impact of policyholder tax asymmetry and growth in average FUM period-on-period leading to growth in income from FUM.

Shareholder tax reflects the tax charge attributable to shareholders and is closely related to the performance of the business. However, it can vary period-on-period due to several factors: further detail is set out in Note 6 Income and deferred taxes.

-17-

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 IFRS Condensed Consolidated Statement of Financial Position as a DAC asset and DIR liability, which are subsequently amortised to the IFRS Condensed Consolidated 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, which removes the impact of these accounting adjustments, 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 and DIR on new business for the period set out below cannot be agreed to those provided in Note 7, which is presented before both policyholder and shareholder tax:

-18-

Net impact of DAC

The scale of the £17.1 million negative overall impact of DAC on the IFRS result (six months to 30 June 2021: £23.7 million negative, year to 31 December 2021: £44.9 million negative) 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. During this time 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 released from the deferred income liability has remained largely static, and is offset in the overall balance by a similar level of addition reflecting new business volumes. Together, these effects mean that DIR has had a positive £12.7 million impact on the IFRS result in the six months to 30 June 2022 (six months to 30 June 2021: £5.8 million positive, year to 31 December 2021: £17.5 million positive).

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 certain non-cash items, such as DAC, DIR, deferred tax and equity-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 80 to 82. Although the Cash result should not be confused with the IAS 7 IFRS Condensed 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 increase in equity-settled share-based payments reflects the increase in expense from the impact on employee schemes of the Group's performance during the period.

The most significant impact of deferred tax in all periods presented is recognition in the Cash result of the benefit from realising tax relief on capital losses. 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 on pages 46 to 49.

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 in volatile markets. For further explanation, refer to page 16.

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 resultThis measure represents the regular emergence of cash from day-to-day business operations and 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 items of a one-off nature, for example costs associated with restructuring.

-19-

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 12 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.

Net income from FUM reflects Cash result income from FUM that has reached maturity and 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 the six months to 30 June 2022, it represented a margin on average mature FUM that was within our range of guidance for the full year of 0.63% - 0.65% on an annualised basis.

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 period, 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 the 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.

Therefore, whilst the margin rising 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.

-20-

3. Controllable expenses

As stated in the Chief Financial Officer's Report, as part of the 2025 business planning assumptions we set our ambition to contain growth in controllable expenses to around 5% per annum. Controllable expenses, which are the categories shown in the table above (stated after tax), are a key metric for the business. We are committed to strong cost control, and so despite the current inflationary environment we expect to contain growth in controllable expenses to 5% across 2022 as a whole. Controllable expenses in the first half of 2022 have been 10% higher than they were in the first half of 2021, however this is a result of the unusual phasing of expenses we experienced in 2021 only, where approximately 45% of our full-year controllable expenses were recognised in the first half of the year. We are expecting phasing for 2022 to be more consistent with our historic pre-COVID-19 average, where 47-48% of controllable expenses are recognised in the first half of the year. 

Establishment expenses in the six months to 30 June 2022 were £95.9 million (six months to 30 June 2021: £93.0 million, year to 31 December 2021: £200.3 million). This outcome reflects the return of a more normal pattern of connectivity across our community in a post-COVID-19 world.

Development expenses were £29.7 million (six months to 30 June 2021: £21.3 million, year to 31 December 2021: £54.0 million) reflecting recent periods of considerable investment in the business, laying the foundations for long-term growth and a drive to secure future operating efficiencies. This included further development in our collaboration with Salesforce, our next-generation client experience including our new client app, and projects focused on intelligent automation. These projects will all contribute to improved efficiency, enhancing the experience for advisers and clients and making SJP easier to do business with.

Reflecting its critical role in providing a source of future organic growth in our adviser population, we continue to invest in building our Academy programmes to accommodate additional capacity with greater geographic reach. The transition to a hybrid format, where we combine in-class learning with greater digital content, has meant we have been able to scale up our Academy programmes efficiently.

4. Asia and DFM

These lines represent the net income from Asia and DFM FUM, including the Asia and DFM expenses set out in the reconciliation between the expenses presented separately on the face of the Cash result before tax and to IFRS expenses on page 22.

We have continued to invest in developing our presence in Asia, as well as discretionary fund management via Rowan Dartington both in the UK and overseas. Both have achieved outcomes in line with prior guidance, positioning them 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. Whilst the FSCS levy across the industry has fallen significantly for the current year, our charge has only reduced modestly due to substantial gains in our market share. 

6. 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.

-21-

7. 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 period of £13.9 million (six months to 30 June 2020: £4.3 million, year to 31 December 2020: £9.2 million) is significantly ahead of our £5-7 million per annum guidance, which has been driven by market conditions. Utilisation is determined on an annual basis based on the market conditions prevailing at 31 December each year.

8. Miscellaneous

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

9. Restructuring

In 2021 we recognised the one-off cost of a restructuring exercise associated with an employee redundancy programme in the year.

10. Change in capitalisation policy

In 2021 we recognised a further one-off cost following the guidance released by the International Financial Reporting Standards Interpretations Committee in relation to the recognition of software configuration costs.

11. 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.

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 IFRS Condensed Consolidated Statement of Comprehensive Income on page 37, 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.

-22-

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

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 significantly.

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 both reflect disciplined expense control during the period, whilst continuing to invest to support growth. Such investment will continue going forward.

The Cash result on page 19 presents the net investment in Asia and DFM. This comprises the income that these business generate, net of the Asia and DFM expenses as set out in the table above.

Expenses which are not included in the Cash result

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.

-23-

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 Condensed 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 2022.

Adjustment 1 nets out the policyholder interest in unit-linked assets and liabilities. For further information, refer to Note 8 of the IFRS Financial Statements.

Adjustment 2 removes items such as DAC, DIR, PVIF and their associated deferred tax balances from the IFRS Condensed Consolidated Statement of Financial Position to bring it in line with Solvency II recognition requirements.

-24-

Notes to the Solvency II Net Assets Balance Sheet

1. Property and equipment

£115.2 million (30 June 2021: £125.2 million, 31 December 2021: £120.3 million) of the property and equipment balance represents the right to use leased properties. It has decreased period-on-period mainly as a result of the depreciation charge. Lease liabilities of £120.0 million are recognised within the other payables line (30 June 2021: £126.5 million, 31 December 2021: £124.1 million).

2. Deferred tax assets and liabilities

Analysis of deferred tax assets and liabilities, including how they have moved period-on-period, 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 of the IFRS Financial Statements.

Other receivables on the Solvency II Net Assets Balance Sheet have decreased from £1,587.6 million at 31 December 2021 to £1,265.2 million at 30 June 2022, principally reflecting a decrease in outstanding market trade settlements in the life unit-linked funds and the consolidated unit trusts due to decreased volumes of business close to the period end date.

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 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 been capitalising Bluedoor development costs as a prepayment asset on the Statement of Financial Position. The asset, which stood at £283.9 million at 30 June 2022 (30 June 2021: £305.8 million, 31 December 2021: £296.3 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 2022 is 11.5 years.

The movement schedule below demonstrates how the operational readiness prepayment has built up since 1 January 2021.

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.

-25-

Business loans to Partners

Facilitating business loans to Partners is a key way 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, key loan-to-value (LTV) information is set out in the table below.

If FUM were to decrease by 10%, the net exposure to loans where LTV is over 100% at 30 June 2022 would increase to £9.1 million (30 June 2021: increase to £7.7 million; 31 December 2021: increase to £6.6 million).

Our credit experience also benefits from the structure of business loan to Partner repayments. 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. Our focus is primarily on securitised loans and so this balance has increased, with a reduction in business loans to Partners directly funded by the Group as repayments received have exceeded new loans advanced.

4. Liquidity

Cash generated by the business is held in highly rated government securities, AAA-rated money market funds, and investment grade bank accounts. Although these are all highly liquid, only the latter are 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 policy is set such that appropriate cash is retained in the business to support the investment needed to meet our future growth aspirations.

-26-

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 the creation and execution of a securitisation vehicle. For accounting purposes, we are obliged to disclose on our IFRS Condensed Consolidated Statement of Financial Position the value of loan notes relating to the securitisation. 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.

This means that the senior tranche of non-recourse securitisation loan notes, whilst included within borrowing, are very different from the Group's senior unsecured corporate borrowings, which are used to manage working capital and to fund investment in the business.

Further information is provided in Note 12 Borrowings and financial commitments of the IFRS Financial Statements.

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 asset of £65.8 million at 30 June 2022 compared to an income tax liability of £6.1 million at 31 December 2021. This is due to a current tax charge of £37.4 million and tax paid of £109.3 million during the period. Further detail on the current tax charge and tax paid is provided in Note 6 Income and deferred taxes.

Stage 2: Movement in Solvency II Net Assets Balance Sheet

After the Solvency II Net Asset Balance Sheet has been determined, the second stage in the derivation of the Cash result identified 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.

-27-

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 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. Our EEV methods and assumptions are aligned as closely as possible to Solvency II.

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

Notes to the EEV result

1. Funds management business EEV operating profit

The funds management business operating profit has increased to £985.9 million (six months to 30 June 2021: £915.6 million, year to 31 December 2021: £1,662.9 million) and a full analysis of the result is shown below.

The new business contribution for the period at £525.6 million (six months to 30 June 2021: £525.6 million, year to 31 December 2021: £1,002.2 million) was consistent with the prior period. Whilst this primarily reflects the consistent new business levels, there has been a favourable impact from the change in persistency assumptions for unit trust and ISA business (see operating assumption change below) which has been offset by higher expenses.

The unwind of the discount rate for the period increased by 56% to £216.2 million (six months to 30 June 2021: £138.5 million, year to 31 December 2021: £275.8 million). This reflects both a higher opening value of in-force business and a higher discount rate for the period (4.2% in 2022 versus 3.4% in 2021).

The operating assumption change during the period was £230.6 million (six months to 30 June 2021: £249.4 million, year to 31 December 2021: £293.0 million). The change in the current period arises from a small improvement to the persistency

-28-

assumptions for unit trust and ISA business, similar to the change in the prior period which arose due to a small improvement to the persistency assumptions for onshore bond and pension business. Both of these changes reflect positive experience over recent years. No further changes to persistency assumptions are planned in the short- to medium-term.

2. Distribution business

The distribution loss includes the positive gross margin arising from advice income less payments to advisers, offset by the cost of building the distribution capabilities in Asia and the FSCS Levy, which is a significant charge within the distribution business result. The latter has reduced modestly to £23.8 million in the period (six months to 30 June 2021: £25.9 million, year to 31 December 2021: £23.6 million), leading to modest decrease in the overall reported loss.

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.

Due to the significant market falls experienced during the period, the typical investment return on our funds was negative 10.9% after charges, compared to the assumed investment return of positive 1.7%. This resulted in a negative investment return variance of £1,346.2 million (six months to 30 June 2021: positive £593.6 million, year to 31 December 2021: positive £894.5 million).

4. Economic assumption changes

The positive variance of £166.9 million arising in the period (six months to 30 June 2021: positive £22.8 million, year to 31 December 2021: positive £4.2 million) reflects the positive effect from the increase in gilt yields, and the decrease in the long-term inflation rate from the position at 31 December 2021.

5.Corporation tax rate change

The corporate tax rate change recognised in the prior period reflects the impact on the relevant deferred tax balances from the increase in the main rate of corporation tax from 19% to 25% with effect from 1 April 2023, as substantively enacted on 24 May 2021 within the Finance Bill 2021.

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.