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Interim Management ReportFinancial CommentarycontinuedThe new business contribution for the six months at £91.6 million (2010: £70.1 million) was over 30%higher than the prior year. This reflected the higher volume of manufactured new business, which was up 16%on an APE basis, lower growth in associated expenses, a reduction in the corporation tax rate and a reductionin the level of the initial Partner remuneration on unit linked bond sales.Consequently the new business margin as a percentage of APE expanded from 31.4% to 36.1%The unwind of the discount rate for the six months was £46.6 million (2010: £37.2 million). This increaseprincipally reflects the higher opening value of in-force at the start of 2011 compared with the prior year.There was a negative experience variance in the six months of £0.2 million compared with a positive£8.8 million for the same period last year. Included in the current year figure is a negative £3.4 millionresulting from an increase in the level of premium reductions on regular premium pension business followingthe changes to the maximum contribution allowance from April 2011. The positive £8.8 million for the prioryear principally reflected stronger than assumed retention of funds under management.Investment income for the year at £1.9 million (2010: £1.6 million) reflects the interest rate we earn on ourfree assets and is slightly higher than 2010 due to the higher underlying net assets.Unit Trust BusinessThe unit trust operating profit was £51.9 million (2010: £44.0 million) and a full analysis of the result isshown below:SixMonthsEnded30 June2011SixMonthsEnded30 June2010TwelveMonthsEnded31 December2010£ million £ million £ millionNew business contribution 36.1 30.8 59.9Profit from existing business– unwind of discount rate 12.5 9.6 19.5– experience variance 3.0 3.3 1.6– operating assumption change – – –Investment income 0.3 0.3 0.7Unit Trust operating profit 51.9 44.0 81.7New business contribution at £36.1 million (2010: £30.8 million) was 17% higher than the prior year as aresult of the strong new business in the period with the margin as a percentage of APE remaining around the44% level.The unwind of the discount rate at £12.5 million (2010: £9.6 million) reflects the respective value ofin-force at the start of each of the reporting periods.There was a positive experience variance of £3.0 million (2010: £3.3 million) which is accounted for by anumber of small positive items.14St. James’s Place plc Registered No. 3183415
Distribution and Other OperationsThe result from distribution and other operations have previously been commented on in the IFRS section.Investment ReturnDespite significant volatility in the world stock markets during the first half of the year, at the end of theperiod markets have moved very little from their 2010 year end position.The investment return of our funds marginally exceeded the assumed return of 2.9% and consequently therewas a small positive investment variance of £0.9 million. In the first six months of the prior year the lowerstock markets contributed to a negative investment variance of £84.5 million.Economic Assumption ChangesAn increase in market expectations of future inflation during the first six months of the year has resulted in asmall negative £1.9 million economic assumption change. This compares to a positive £9.4 million for the prioryear which reflected a larger than expected fall in inflation.The total pre-tax result for the six months was a profit of £182.6 million (2010: £87.0 million).Taxation ChangeThe budget on 23 March 2011 implemented an immediate 1% reduction in the corporation tax rate to 26% forthe 2011/2012 tax year. The impact of this reduction in corporation tax was to increase the post-tax profit by£17.8 million and this has been shown within the tax charge.The 2011 Finance Act was substantively enacted in early July and confirmed a further 1% reduction in tax rateto 25% for the 2012/2013 tax year. Furthermore, the Government has stated its intention to reduce thecorporation tax by a further 1% per year in each of the following two years. The combined impact of all thesefuture tax changes will increase the embedded value by £36.7 million and increase the net asset value per shareby 7.5p.New Business MarginThe insurance sector has historically disclosed new business in terms of Annual Premium Equivalent (APE).Most commentators would agree that APE no longer has much correlation with the underlying profitability ofthe new business and consequently the industry is moving to provide additional disclosure on the present valueof new business premiums (PVNBP).APE is calculated as the sum of regular premiums plus 1/10th single premiums. PVNBP is calculated as singlepremiums plus the present value of expected premiums from regular premium business, allowing for lapsesand other EEV assumptions.Half Year Report 201115
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