continued - St James's Place

Interim Management ReportFinancial CommentarycontinuedReturn on Investment in New BusinessAs noted in the table on page 10, £34.0 million (2010: £33.9 million) of the cash arising from the in-forcebusiness has been re-invested in acquiring the new business during the six month period.This investment in the new business is expected to generate cash earnings in the future that will significantlyexceed the cost of investment and therefore provide positive returns for shareholders. The table below providesdetails of the new business added during the reporting periods and different measures of valuing the investment:SixMonthsEnded30 June2011SixMonthsEnded30 June2010TwelveMonthsEnded31 December2010Post-tax investment in new business (£ million) (34.0) (33.9) (61.4)Post-tax present value of expected profit from investment (£ million) 96.9 74.7 161.3Gross inflow of funds under management (£ billion) 2.7 2.3 4.7Investment as % of gross inflow* 1.3% 1.5% 1.3%New business margin (% of APE) 38.1% 34.5% 37.4%Cash payback period (years) 4 5 5Internal rate of return (net of tax) 23.6% 20.5% 19.6%* The investment as a % of net inflow of funds under management was 2.0% compared with 2.3% for the comparative period and 2.0%for the complete year.The cost of this re-investment to acquire new business has not increased with the increase in new business andnet inflow of funds under management, and going forward it is not expected to increase significantly.Therefore the proportion of cash generated from the in-force business available to pay dividends to shareholderswill expand.Capital PositionThe capital position of the Group, assessing net assets on a regulatory basis (“solvency net assets”) and requiredcapital on an entity basis, together with a categorisation of the net assets, is shown in the table below.It will be noted that the regulated entities continue to remain well capitalised over their solvency requirementand that the assets are prudently managed – being predominantly in cash, AAA money market funds andgovernment backed securities.22St. James’s Place plc Registered No. 3183415