Capital and cash generation

Key performance indicators

Please refer to Basis of preparation and the Glossary of this report.

¹ Net of tax.
² Based on draft regulatory returns.

Group capital and cash generation

The Group’s IFRS cash flow statement, included in the Group IFRS consolidated financial statements section of this report, shows that our net cash inflows from operating activities were £2,304m (2007: £2,828m). This statement combines cash flows relating to both policyholders and equity holders, but the practical management of cash within the Group maintains a distinction between the two, as well as taking into account regulatory and other restrictions on availability and transferability of capital. As a result, we analyse cash flow within the Group on a number of additional bases, and take the view that an analysis of the movement in the EEV shareholders’ net worth is more representative of underlying shareholder capital and cash flow than the IFRS cash flow statement. Under existing EEV principles, we are also required to identify required capital for all covered business. Increases/(decreases) in required capital will not reduce the shareholders’ net worth because no external cash flows are made, but will decrease/(increase) the free surplus.

The analysis in the table below highlights the most significant influences on free surplus and shareholders’ net worth, including investment of shareholder capital in new business, or new business strain (NBS) and the amount of capital and cash emerging from existing business. Our covered business capital and cash flows from new business and expected return have remained stable during a year of economic volatility at £322m (2007: £324m).

NBS is covered two times by capital and cash flow from existing business. In overall terms, our operating profit capital and cash generation decreased from £563m to £423m.

All figures are net of tax. Net income directly recognised in the EEV balance sheet, including exchange differences and distributions to and injections from shareholders, are not included as these are not trading related cash flows.

Back to top

We also analyse capital and cash generation in the three components that reflect the focus of our business effort – core, efficiency and back book management.

* 2006 results are shown on a pro forma basis.

Back to top

Core and back book management were the main contributors to our capital and cash generation during the year. The core capital and cash flows of £303m, primarily reflect robust capital and cash generation from new business and expected return, and after-tax profits from non-life operations, partially offset by development expenses. The back book management capital and cash flows of £113m largely arise from the impact of the UK immediate annuities reinsurance and profits from the release of provisions in relation to UK deferred annuities, partially offset by the charge in relation to the Pension Sterling Fund. Capital and cash generation from efficiency of £7m represent ongoing cost control and efficiencies.

Non-operating capital and cash generation of negative £87m (2007: positive £37m) is driven by £138m of non-operating losses in the non-life businesses and includes unrealised fair value losses on derivatives, losses relating to restructuring of a sub-fund of Standard Life Investments (Global Liquidity Funds) plc and non-life restructuring costs. Life business non-operating capital and cash generation remained positive at £93m (2007: £70m) and reflected net worth investment variances and assumption changes after negative £27m of restructuring expenses (2007: negative £4m). Non-operating capital and cash generation also includes an after tax Group consolidation adjustment for the Canadian subordinated liability of negative £42m.

Holding company capital and cash flows

In addition to the movement in capital and cash on an EEV basis, the following summary has been provided to show an analysis of holding company cash flows and capital, in relation to the Group’s holding company, Standard Life plc. The capital position is based on the Company balance sheet, excluding its investments in operating subsidiaries.

The capital and cash held in the holding company is managed at a level to fund the dividend obligations and strategic investments of the Group. During 2008, Standard Life plc’s capital, excluding its investment in subsidiaries, increased by £121m, primarily as a result of receiving £436m of dividends from subsidiaries offset by dividends paid to shareholders of £257m and a further investment in subsidiaries of £54m.

Standard Life plc’s ability to pay dividends to shareholders is determined by the distributable reserves of the Company which broadly comprise its retained earnings and special reserve. The Board must also consider the Group’s future business plans, market conditions and regulatory solvency when determining the level of dividends.

Dividends

During the year, the Group paid the final dividend for 2007 of 7.70p per share, amounting to £168m, and the 2008 interim dividend of 4.07p per share, amounting to £89m. The Board proposes a final dividend of 7.70p per share, making a total of 11.77p for 2008, an increase of 2.3%. This reflects the solid progress made during the year. Looking forward the Group will continue to apply its existing progressive dividend policy taking account of market conditions and the Group’s financial performance.

Back to top