St James's Place Regulatory News (STJ)

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ST. JAMES'S PLACE PLC

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

Telephone 020 7493 8111 Facsimile 020 7493 2382

27 July 2016

INTERIM STATEMENT

FOR THE SIX MONTHS TO 30 JUNE 2016

FUNDS UNDER MANAGEMENT AT £65.6 BILLION

FOLLOWING RECORD FUND FLOWS

New Investment and Funds under Management

• Gross inflow of funds under management of £5.3 billion (2015: £4.4 billion)

• Continued strong retention of client funds

• Net inflow of funds under management of £3.1 billion (2015: £2.7 billion)

• Group funds under management of £65.6 billion (2015: £55.5 billion)

St. James's Place Partnership

• Partnership numbers at 2,320 up 2.5% since the start of the year

• Total number of advisers at 3,259 up 4.7% since start of the year

Profit

- EEV basis:

• New business profits of £228.9 million (2015: £205.9 million)

• Operating profit at £284.0 million (2015: £265.3 million)

• Net asset value per share 791.9 pence (2015: 683.7 pence)

- IFRS basis:

• Underlying profit before shareholder tax of £73.8 million (2015: £72.9 million)

• Profit before shareholder tax of £60.5 million (2015: £67.0 million)

• Net asset value per share 201.2 pence (2015: 189.3 pence)

- Cash result:

• Underlying post tax cash result of £94.4 million (2015: £84.9 million)

Interim Dividend

• Interim dividend 12.33 pence per share (2015: 10.72 pence per share)

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David Bellamy, Chief Executive, commented:

"Despite continued volatility in world stock markets and political uncertainty across Europe, I am pleased to once again be reporting a strong first half performance and continued positive momentum in our business. Bearing testament to the reassuring consistency and resilience of our business, I am particularly pleased that we achieved record gross and net inflows in the second quarter, up 23% and 25% respectively. That, together with our usual high retention results and good performance of our client funds, has increased our funds under management by £10 billion in the last 12 months.

Whilst the UK's decision to leave the EU has created a period of economic uncertainty in the UK, the challenges and responsibilities that many people face when considering how to manage their wealth and the ever changing tax considerations, remain. We believe we are extremely well placed to meet this increasing need for advice and remain focused on growing our number of qualified advisers and providing them with all the tools and support to deliver high quality outcomes for clients.

Consequently, without being complacent about the possible consequences of Brexit, the proven strength in our business model and ongoing momentum gives us confidence in our ability to deliver continued growth in line with our objectives. Indeed, I can report that new fund flows since the Referendum remain in line with those medium term objectives.

Given the continued strong business performance, the Board has declared a 15% increase in the interim dividend to 12.33 pence per share. We intend to continue to grow the dividend in line with the underlying performance of the business, as previously stated."

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The details of the announcement are attached.

Enquiries:

An interview with David Bellamy, discussing today's results, will be available later today on www.sjp.co.uk

Analyst presentation 11am (GMT)

Bank of America Merrill Lynch Financial Centre

2 King Edward Street

London EC1A 1HQ

To be held in King Edward Hall

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

(Live and On-demand):

http://www.investis-live.com/st-jamess-place/577f754a2a4e360b00bb41a5/dia2

There will also be a Dial in:

Conference call dial in details:

United Kingdom (Local) 020 3059 8125

All other locations + 44 20 3059 8125

Participant Password: St James's Place

Replay Dial-in details (available for 7 days)

United Kingdom 0121 260 4861

United States 1 866 268 1947

All other locations + 44 121 260 4861

Passcode: 3815352 followed by #

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ST. JAMES'S PLACE WEALTH MANAGEMENT

GROSS INFLOWS

FOR THE SIX MONTHS TO 30 JUNE 2016

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INTERIM MANAGEMENT STATEMENT

CHIEF EXECUTIVE'S REPORT

I am pleased to be reporting once again a strong first half performance and, importantly, continued positive momentum in our business. Bearing testament to the reassuring consistency and resilience that is a feature of our relationship based, advice led model, gross inflows grew by 20% in the first half to £5.3 billion, while the retention of our existing client funds remained consistent with previous years such that net inflows increased by 15% to £3.1 billion. As a result, our client funds under management now stand at £65.6 billion, up 12% since the beginning of the year and £10 billion higher than at the end of June last year.

Whilst we are mindful that the UK's decision to leave the EU will have created economic uncertainty in the UK, the challenges and responsibilities that many people face when considering how to manage their wealth and their ever changing tax considerations, remain. Through our strategy of building long-term relationships with our clients, providing them with reliable face-to-face advice and successfully managing their investments across well-diversified portfolios with significant exposure to non-UK assets and different sources of return, we continue to be very well placed to meet this increasing need for advice and support.

Financial Performance

As reported by our Chief Financial Officer, the strong business performance in the first half of the year is reflected in the financial performance for the period.

The underlying strength of the financial performance is once again impacted by a heightened levy charged by the Financial Services Compensation Scheme (FSCS levy) of £17 million. This expense impacts all profit measures, but we remain hopeful that the elevated levy imposed over the last two years will return to a more normalised level in future years.

Dividend

Given the continued strong business performance, the Board has declared a 15% increase in the interim dividend to 12.33 pence per share and we intend to continue to grow the dividend in line with the underlying performance of the business, as previously stated.

The interim dividend for 2016 will be paid on 30 September to shareholders on the register at the close of business on 2 September 2016. A Dividend Reinvestment Plan ("DRP") continues to be available for shareholders.

Clients

At the heart of our sustained growth is the importance we place on building and maintaining long lasting relationships with our Partners and clients and serving them well.

The financial demands on our core clients, those aged 45 and above, are changing quite quickly. They or their parents are living longer or expect to do so and that is changing the nature of their financial planning for, at and in retirement. At the same time, they increasingly want to support their children or grandchildren in education or in purchasing a property.

Our business is about supporting our Partners in helping clients with these challenges. Earlier this year, alongside the launch of a Lasting Power of Attorney service, we introduced an intergenerational mortgage range in association with Metro Bank, allowing clients to use their St. James's Place investments as the collateral for a relative's mortgage application and helping them to access lower rates. Later this year we have further initiatives planned including an intergenerational gifting service, family and general insurance protection products to complete our existing family health insurance and the development of later life planning services including a long term care proposition and probate support services.

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We firmly believe that our highly personalised approach has a strong place in UK financial services both today and in the future. Indeed, at a historically significant point of economic and political change for the UK, our advisers will play an important role in helping clients to understand the impact of such changes and the options that are available to them, so that clients can make the right decisions and plan accordingly.

Investment Management

Despite the challenging market conditions, I'm pleased to report that our investment funds and range of client portfolios have performed in line with our expectations, benefitting from our longer term strategy of building broadly diversified portfolios with significant exposure to non-UK assets and different sources of return. Less than 25% of our clients' money is invested in UK equities and of that, 75% is in FTSE 100 companies who generally have global businesses.

Central to our approach to investment management is the work of our Investment Committee. They are tasked with identifying the most talented investment managers from across the world and making available to clients a range of investment solutions that meet their current and future needs.

Equity income is a proven investment strategy and one which, in an environment of low interest rates and low growth rates, remains of great importance to clients. Whilst the UK has long been an important market for income investors, today there is a much broader universe of companies with a strong dividend culture. With this in mind, alongside some changes we are making to our existing investment strategies later this year, we are introducing a new Worldwide Income Fund managed by Clyde Rossouw of Investec Asset Management, based in Cape Town, South Africa. The new fund will provide additional flexibility for clients seeking alternative sources of income in the current environment.

Over the last ten years we have developed a truly global approach to the management of our client funds, which I believe has served them well and will continue to do so.

The St. James's Place Partnership

In the first half of this year, through the sustained efforts of our business acquisition team, we continued to attract established adviser businesses, often with more than one qualified adviser. We also built on the success of our expanded Academy program and increased our advisory presence in Asia. Our existing Partners too are investing in their own practices by recruiting qualified advisers to work for them, such that our Partner numbers increased by 2.5% to 2,320 and our total qualified adviser capacity grew by 4.7% to 3,259.

I believe that the strong growth in Partner and total adviser numbers bodes well for our continued growth and succession in our Partner businesses.

As we look ahead, I'm confident that we will find additional opportunities for growth in Asia, where our business is developing nicely and in the Discretionary Fund Management market, through our recent acquisition of Rowan Dartington. The range of additional services Rowan Dartington can offer has already been very well received by Partners and clients and since announcing the completion of this acquisition earlier this year, the team of client and Partner facing Investment Executives has increased.

Partners, Employees and the St. James's Place Foundation

I'd like to once again thank the entire St. James's Place community for these results. There is no doubt in my mind that the strength and continued growth of the business is due to their hard work, dedication and commitment to clients and each other.

The St. James's Place Foundation has always been an important part of the Group's culture and we aim to make a significant difference to the lives of those less fortunate than us. Earlier this year we passed a significant milestone as the total funds raised, through the collective efforts of the whole of our community, including employees, Partners, advisers, suppliers and others connected to SJP, reached in excess of £50 million. All funds raised are distributed to hundreds of charities, with grants ranging from a few thousand pounds to more than £1 million.

I would like to thank everyone, including our shareholders, for their continued support in helping to raise such impressive sums.

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Outlook

As we continue to grow our advisory presence, we look to build strong advocacy with and through our existing clients and advisers, in the strong belief that if we maintain our focus on doing this well, we will continue to attract advisers, acquire new clients and grow our client funds under management.

Without being complacent about the possible consequences of Brexit, the proven strength in our business model and good momentum in our business gives us confidence in our ability to deliver continued growth in line with our objectives. Indeed, I can report that new fund flows since the Referendum remain in line with those medium term objectives.

David Bellamy

Chief Executive

26 July 2016

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INTERIM MANAGEMENT STATEMENT

CHIEF FINANCIAL OFFICER'S REPORT

The strong business performance we have experienced in recent years has continued in the first half of the year and this is reflected in the financial performance for the period.

Financial results

As shareholders will be aware from previous periods, we report our results on both IFRS and EEV bases, as well as providing further detail on the cash emergence from the business. Detailed explanation and analysis of the results on these measures is provided in the Financial Review on pages 11 to 36.

The results reflect the underlying strong business performance and the business mix in the period. There were also a number of other drivers impacting the results (all measures impacted unless otherwise stated):

(i) Our required contribution to the Financial Services Compensation Scheme (FSCS) was again at an elevated level, negatively impacting the results by £17.0 million pre-tax (£13.6 million post-tax) compared with a pre-tax £20.0 million (£15.9 million post-tax) for the prior year. This charge is accounted for in full in the first half of the year. We remain hopeful that the elevated levy we have seen over the last two years will return to a more normal level in future.

(ii) We continue to invest in the Academy, our recent acquisitions and other strategic initiatives, with the impact for the current year at £10.0 million pre-tax (£8.7 million post-tax) being higher than last year's £6.0 million pre-tax (£5.2 million post tax).

(iii) The continuation of our back office infrastructure investment cost £10.5 million pre-tax (£8.4 million post tax) for the six months compared with £9.1 million (£7.3 million post-tax) for the prior year.

(iv) As part of a review of our legacy business we are voluntarily reviewing charges on two small cohorts of business: waiving exit charges at the minimum retirement age where they existed on some older pension contracts (written before July 1999); and reassessing risk charges on a reviewable protection contract. The combined impact of these actions is a negative one-off £8.2 million pre-tax (£6.6 million post tax) on the cash and IFRS results, which rises to £13.6 million pre-tax in the EEV result when the reduction in future charges is also fully capitalised.

(v) (EEV only) In April 2016 the CFO Forum published an amended set of principles for calculating the EEV result following the introduction of Solvency II at the start of 2016. The key change impacting the result for June 2016 is a reduction in the cost of holding a revised level of solvency capital, which has benefitted the EEV operating profit by a one-off £7.5 million pre-tax.

IFRS Result

The Underlying profit before shareholder tax was £73.8 million (2015: £72.9 million), whilst the IFRS Profit before shareholder tax, which takes account of the amortisation of intangible assets and liabilities, was £60.5 million (2015: £67.0 million).

The results reflect the items noted above, whilst the Profit before shareholder tax in the current period also reflects a £7.4 million increase in the amortisation charge that continues a trend we have noted previously. This amortisation charge is unrelated to the performance of the business and we therefore present the Underlying profit as a useful alternative measure (based upon IFRS) for assessing operating performance.

Cash Result

The Underlying cash result for the six months was £94.4 million (2015: £84.9 million), some 11% higher, reflecting the increased annual management fees from the higher funds under management offset by the increase in our investment into the strategic initiatives.

The Cash result was £82.5 million (30 June 2015: £81.8 million) reflecting the Underlying cash result adjusted for the cost of the back office infrastructure investment and a number of one-off items including the reviews noted in (iv) above.

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Note that the Cash and Underlying cash results should not be confused with the IFRS cash flow statement which is prepared in accordance with IAS 7 and disclosed on page 54.

EEV Result

The EEV New Business Contribution was up 11% during the period at £228.9 million (30 June 2015: £205.9 million). The growth was lower than the gross inflows (+20%) due to the change in business mix.

The Operating Profit for the period was £284.0 million (2015: £265.3 million). The prior year benefitted from a £16.4 million positive experience variance that was not repeated in the current year.

Despite the stock market volatility our investment funds have performed strongly and exceeded the EEV assumption by 6-7% resulting in a positive investment variance of £168.8 million. (2015: £24.1 million).

Total profit before tax for the period was therefore £442.7 million with the positive investment variance explaining most of the increase compared with £289.1 million for the prior year. The net asset value per share on an EEV basis at the end of the period was 791.9 pence (31 December 2015: 737.3 pence).

Dividend

Given the continued strong performance of the business during the period and continued growth in the Underlying cash result, the Board has declared an interim dividend of 12.33p per share, an increase of 15%. The cost of the dividend will be £65.0 million (2015: £56.0 million). We intend to continue to grow the dividend in line with the underlying performance of the business, as previously stated.

Capital & Solvency II

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

We assess our solvency against a Management solvency buffer (see page 29) and with solvency free assets after the dividend considerably in excess of the buffer, our solvency position remains strong. We also provide an estimate of our Solvency II free assets position, which at £851.3 million (after deducting the interim dividend), gives a solvency ratio of 151% and also demonstrates the strength of our covenant.

Concluding remarks

The business, financials and lead indicators are in good shape.

Whilst the country faces some uncertainty following the Referendum result on 23 June, current business flows remain in line with our medium term objectives.

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

Andrew Croft

Chief Financial Officer

26 July 2016

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INTERIM MANAGEMENT STATEMENT

FINANCIAL REVIEW

The Financial Model

The Group's strategy is to attract and retain retail Funds under Management (FUM) on which we receive an annual management fee for as long as we retain the funds. This is the principal source of income for the Group out of which we meet the overheads of the business, invest in growing the Partnership and invest in acquiring new funds under management.

The level of income is dependent on the level of client funds and the level of asset values. In addition, since around half of our business does not generate net income in the first six years, the level of income will increase as a result of new business from six years ago becoming cash generative. This deferral of cash generation means the business always has six years' worth of funds in the 'gestation' period. More information about our Fees on Funds under Management can be found in Section 1 on page 13.

Group expenditure is carefully managed with clear targets set for growth in establishment expenses in the year. Many other expenses increase with business levels and are met from margins in the products. The Group also invests in ensuring the quality of our proposition for clients and Partners through investment in new client services and existing IT systems. Finally we are also looking to the future, with investment in strategic initiatives, including the Academy, Asia, DFM and our Back-office infrastructure programme. More information about our expenses can be found in Section 2 on page 17.

A small proportion of Group expenditure is required to support management of existing funds, but the majority of expenditure is investment in growing the Partnership and acquiring new funds. The resulting new business is expected to generate income for an average of 14 years, and is expected to provide a good return on the investment (see page 16).

As the business matures, the proportion of the cash emergence from the existing business required to support the acquisition of new business is reducing. This has resulted in strong growth in Underlying cash emergence in recent years which has ultimately fed through to growth in the dividend.

Profit Measurement

In line with statutory reporting requirements we report profits assessed on an IFRS basis. However, given the long-term nature of the business and the high level of investment in new business generation each year, we believe the IFRS result does not provide an easy guide to the cash likely to emerge in future years, nor does it reflect the total economic value of the business. Therefore, consistent with last year, we complement our statutory IFRS reporting with additional analysis.

Firstly, we provide additional analysis in relation to the tax reported under IFRS. The IFRS methodology requires that the tax recognised in the financial statements should include the tax incurred on behalf of policyholders in our UK life assurance company. Since the policyholder tax charge is unrelated to the performance of the business, we believe it is useful to separately identify the Profit before shareholder tax. This measure reflects the profit before tax adjusted for tax paid on behalf of policyholders.

Secondly, the IFRS methodology promotes recognition of profits in line with the provision of services and so, for long-term business, some of the initial cash flows are spread over the life of the contract through the use of intangible assets and liabilities (known as DAC - Deferred Acquisition Costs and DIR - Deferred Income). Due to regulation change in 2013, there was a step change in the progression of these items, which resulted in significant accounting presentation changes despite the fundamentals of our vertically-integrated business remaining unchanged. We therefore present an additional 'non-GAAP' Underlying profit measure which is derived from the IFRS result by adjusting for these intangibles. We believe this adjusted IFRS result provides a useful measure of operating performance.

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Thirdly, the IFRS methodology recognises other non-cash items such as deferred tax and share options. Since a dividend can only be paid to shareholders from appropriately fungible assets, when determining the level of dividend the principal measures that the Board considers are the Cash result and Underlying cash result as they best reflect the cash generated by the business.

The Board starts by considering the Underlying cash result, which reflects the impact of the primary drivers of the business (being FUM and expenses as described in Sections 1 and 2). This can be derived from the Underlying profit measure by adjusting tax to reflect a normalised level of current tax, allowing for insurance provisions on an IFRS basis, and allowing for share option costs. The strategic investment in our back office infrastructure is also excluded when considering the Underlying cash result, but is included in the Cash result, which also reflects actual tax settlements.

The Cash result and Underlying cash result are presented with a breakdown explaining the sources of profit based on the key drivers of the business, with the aim of assisting investors to understand the development of profits. The Board also believes it is useful to understand the contribution to profits from just the in-force business as this reflects the value being generated by the existing business, and so the breakdown identifies the new business impact and makes clear the ongoing contribution from the established business.

Finally, we also present an Embedded value result. We believe this is useful for investors seeking to assess the full value of the long-term emergence of shareholder cash returns, since it includes an asset in the valuation reflecting the net present value of the expected future cash flows from the business. This type of presentation is commonly referred to as a 'discounted cash flow' valuation.

Our embedded value has been determined in line with the EEV principles, originally set out by the Chief Financial Officers (CFO) Forum in 2004, and amended for changes to the principles published in April 2016, following the implementation of Solvency II in January 2016.

Many of the future cash flows derive from fund charges, which change with movements in stock markets. Since the impact of these changes is unrelated to the performance of the business, we believe that the EEV operating profit (reflecting the EEV profit before tax, adjusted to reflect only the expected investment performance and no change in economic basis) provides the most useful measure of embedded value performance in the year.

Given the importance of Funds under Management (FUM) to profit generation by the business, we have provided an analysis of the FUM make-up and development in Section 1. Section 2 covers Expenses, which is the other significant driver of profits, with Sections 3-5 reporting on the performance of the business on the IFRS, Cash and EEV result bases, and providing commentary on Solvency and Liquidity.

A Glossary of terms was included in the most recent Annual Report and Accounts, which is available on the website.

Related Party Transactions

The related party transactions during the first six month period are set out in Note 17 to the condensed half year statements.

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SECTION 1: FUNDS UNDER MANAGEMENT

During 2016 we have seen gross inflows of funds under management of £5.27 billion (30 June 2015: £4.40 billion), up 20% and a net inflow of £3.07 billion (30 June 2015: £2.67 billion) growth of 15%. This result, combined with the addition of £1.26 billion Rowan Dartington funds under management at the date of acquisition, together with a positive investment performance, provided for total funds under management of £65.6 billion.

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

Included within "UT/ISA & DFM" are gross inflows of £0.17 billion and outflows from regular income withdrawals and maturities of £0.07 billion in relation to the Rowan Dartington Group funds under management.

In addition, there is a further £434 million of funds under management in third party funds within our Asia business.

In addition, there was a further £473 million of funds under management in third party funds within our Asia business.

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In addition, there was a further £430 million of funds under management in third party funds within our Asia business.

Notes:

1. Regular income withdrawals represent those amounts selected by clients which are paid out by way of periodic income. The withdrawals are anticipated in the calculation of EEV New Business Profit.

2. Maturities are those sums paid out where the plan has reached the selected maturity date (e.g. retirement date). The expected maturity date is anticipated in the calculation of EEV New Business Profit.

3. Surrenders and part surrenders are those amounts where clients have chosen to withdraw money from their plan. Surrenders are assumed in the calculation of the EEV New Business Profit and the level is based on analysis of actual experience taking into account plan duration and the age of the client. The implied surrender rate shown in the table above is very much a simple average and reflects only recent experience. Whilst it could be compared with the long-term assumptions underlying the calculation of the embedded value, it should not be assumed that small movements in this rate will result in a change to the long term EEV assumptions.

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Fees on Funds Under Management

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

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

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

This £21.4 billion of funds under management in the gestation period represents approximately a third of the total funds under management which, if all the business reached the end of the gestation period, would contribute some £165 million to the annual post-tax cash result.

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The Business Case for new Funds Under Management

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

As detailed later in this review on page 25, a net cost of £59.0 million (2015: £52.7 million) has been incurred to attract the £5.27 billion of gross new funds (2015: £4.40 billion).

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

* The investment as a percentage of net inflow of funds under management was 1.9% compared with 2.0% for June 2015. The full year cost is expected to be lower at 1.5% (2015: 1.5%), because the FSCS levy is fully expensed in the first half of the year.

Geographical and segmental analysis

*Included within "Other" is £1.35 billion (2015: £nil) in relation to Rowan Dartington Group funds under management.

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SECTION 2: EXPENSES

Management Expenses

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

Notes

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

As indicated at the time of our 2015 results, we anticipate the full year growth in these expenses will be some 11% as we are expanding our presence in London during 2016.

2. Other performance related costs, for both Partners and employees, vary with the level of new business and operating profit performance of the business.

3. Operational development costs represent business as usual expenditure to support the business, such as the on-going development of our investment proposition and our technology, including focus on cyber security.

4. As a growth business we are constantly looking to new opportunities and expect to incur a small level of ongoing expense associated with pursuing other strategic developments.

5. The Academy is an important strategic investment for the future and we are continuing to grow our investment in this programme. Costs have increased in recent years as we have increased the number of students within the programme and launched more regional academies. Full year costs are expected to be some £7.5 million.

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

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

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8. Our back-office infrastructure programme is a multi-year initiative to upgrade our administration so it can support our future business goals. Having achieved the migration of our ISA and Unit Trust proposition to our new Bluedoor system in 2015, the focus in 2016 is the launch of a new retirement account with the eventual aim being to migrate pension and drawdown business onto the new system. We anticipate a similar level of costs for the remainder of the year.

9. The costs of operating in a regulated sector include fees charged by the regulators and our contribution to the Financial Services Compensation Scheme. Our position as a market-leading provider of advice, means we make a very substantial contribution to supporting the industry compensation scheme, the FSCS, thereby providing protection for clients of other sector businesses that fail. In the last couple of years, the levy has been at an elevated level and we remain hopeful that it will return to a more normalised level in future.

Group Expenses

The table below provides a reconciliation from the management expenses above to the total Group expenses included in the Consolidated Statement of Comprehensive Income on page 50.

Notes

10. These costs are met from corresponding policy margins and any variation in them from changes in the volumes of new business or the level of the stock markets does not directly impact the profitability of the Group.

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

12. In November 2015, as a result of the migration of business to the Bluedoor platform and as noted last time, the business moved to a new administration tariff with IFDS. The ultimate impact of this change will be a significant reduction in the cost of administration, but some administration costs which were previously charged to the trusts are now being treated as expenses, with a corresponding offsetting increase in fee income; again a neutral impact overall. As a result, the Third Party Administration costs reported in 2016 will increase by c.10% in addition to the growth in business. The rate of growth in costs in future years will then be slower than business growth, allowing the expected future saving to emerge.

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SECTION 3: INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS)

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

As noted in the CFO's report, the results reflect the underlying strong business performance and the business mix in the period, but also a number of other drivers including: the FSCS levy; continued investment in the Academy, recent acquisitions and other strategic initiatives, as well as our back-office infrastructure; and costs of reviewing charges in two small cohorts of legacy business.

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Underlying Profit before Shareholder Tax

The result for the six months was £73.8 million (30 June 2015: £72.9 million). A breakdown by segment of the Underlying profit is provided in the following table:

Funds Management

The increase in profit in the period by 3% to £122.1 million (30 June 2015: £118.2 million) principally reflects higher income from funds under management, albeit offset by costs of reviewing charges in two small cohorts of legacy business. The change in split of the profit between Life and Unit Trust business reflects an internal reallocation of overhead expenses.

Distribution Business

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

The result reflects the increase in new business, but offset by continued investment in our recent Asia acquisition, as well as another elevated FSCS levy of £17.0 million (30 June 2015: £20.0 million). Excluding these effects the core Distribution activity would have made a small loss of £0.5 million (30 June 2015: £1.6 million loss).

Back-Office Infrastructure Development

As noted on page 17, the investment during the period in the back office development project (known as Bluedoor) was £10.5 million (2015: £9.1 million).

Other

Other operations made a negative contribution of £18.6 million (30 June 2015: loss of £12.7 million).

The result reflects our continued investment in the business, including the Academy costs of £3.5 million (30 June 2015: £2.5 million) and other investments in developments of £5.2 million (30 June 2015: £3.7 million) (see Section 2 on page 17 for more detail on these expenses).

Also reflected is the cost of expensing share options of £7.5 million (30 June 2015: £5.6 million), which includes the cost of the new Partner share scheme launched in 2015.

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DAC/DIR/PVIF

The net movement in the DAC, DIR and PVIF intangibles has a negative contribution to profit as summarised in the table below. A more detailed analysis is included in Notes 10 and 14 on pages 70 and 71.

The change, year on year, in the amortisation charge stems from the changes in adviser charging rules in 2013, which changed the nature of certain cash flows in the Group, moving them from long term manufacturing margins to short term advice margins.

The net impact of amortisation of the accumulated balances of DAC and PVIF assets, and DIR liability, reduced again during the period, turning negative for the first time. We expect it will become more negative over the next few years before levelling out and eventually reversing. By contrast, the new business addition amount is expected to move in line with new business growth.

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

Shareholder Tax

The actual tax rate in each of the periods may be impacted by significant one-off items and events such as a change in corporation tax rate. The table below provides a high level analysis of shareholder tax, and a more detailed analysis is included in Note 5 to the condensed half year financial statements.

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

There has been a small reassessment in the value of capital losses of £1.5 million in the period (30 June 2015: £nil) and the combined negative impact of a number of other small tax adjustments was £1.9 million (30 June 2015: £0.2 million).

The overall impact of these effects was to decrease the tax charge on an IFRS basis to £12.1 million at 30 June 2016 (30 June 2015: £12.9 million).

In the Budget of 18 March 2016, the Chancellor announced a future tax reduction to 17% from 18% effective from 1 April 2020. We estimate that this reduction in rate will reduce our net deferred tax asset by around £1 million. This will be recognised when the change in rate is substantively enacted.

IFRS Profit

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

The Profit before shareholder tax for the six months was £60.5 million (30 June 2015: £67.0 million). The impact of the negative contribution from the net movement in DAC/DIR/PVIF intangibles was a major contributor to the lower Profit before shareholder tax result in the current period.

Both the IFRS profit before tax and the IFRS profit after tax results reduced between the two periods, reflecting the same drivers underlying the reduction in Profit before shareholder tax. The lower level of profit also resulted in a small reduction in the level of Shareholder tax. As noted elsewhere, the level of Policyholder tax is unrelated to the performance of the business and more related to investment performance, but nevertheless the charges were also similar in each year.

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Analysis of IFRS Assets and Net Assets per Share

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

* net of deferred tax

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SECTION 4: CASH RESULT, SOLVENCY AND LIQUIDITY

The Cash and Underlying cash results should not be confused with the IFRS cash flow statement which is prepared in accordance with IAS 7 and disclosed on page 54.

This section now brings together our reporting on the Cash result, Solvency II net assets, and our solvency in line with the approach we outlined at the year end. Following the introduction of Solvency II at the start of 2016, the Cash result has been adjusted to remove the impact of Solvency I reserves, and now reflects the movement in the Solvency II net assets during the period adjusted for movements in non-cash items (see page 31). The Cash result for the prior year reflected the Solvency I reserves as that was the regulatory regime at the time.

The Cash result and Underlying cash result are the principal measures the Board considers when determining the dividend payment to shareholders. The Board starts by considering the Underlying cash result, which reflects the impact of the primary drivers of the business (being FUM and expenses as described in Sections 1 and 2). This can be derived from the Underlying profit measure by adjusting tax to reflect a normalised level of current tax, allowing for insurance provisions on an IFRS basis, and allowing for share option costs. The strategic investment in our back office infrastructure is also excluded when considering the Underlying cash result, but is included in the Cash result, which also reflects actual tax settlements.

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

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