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Standard Life plc - Annual Report and Accounts 2007
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Segmental analysis of IFRS underlying profit

This table sets out the IFRS underlying profit attributable to equity holders for 2007 and also pro forma comparative results for 2006.

   
2007
£m		 Pro forma
2006
£m
Underlying profit before tax attributable
to equity holders of Standard Life plc		    
Life and pensions:    
 UK 395 230
 Canada 168 168
 Europe 63 108
 Other (12) (9)
Total life and pensions 614 497
Investment management3 83 70
Banking 32 38
Healthcare 13 12
Group Corporate Centre costs (57) (89)
Other 29 12
Underlying profit before tax attributable to equity
holders of Standard Life plc and adjusted items		 714 540
Profit attributable to minority interest 111 112
Underlying profit before tax attributable
to equity holders and adjusted items		 825 652
Adjustments for the following items:    
 Volatility arising on different asset
 and liability valuation bases4		 (302) 25
 Impairment of intangibles - (14)
 Restructuring and corporate transaction expenses (31) (17)
 Profit on part disposal of joint venture 17 -
Profit before tax attributable to equity holders 509 646
Tax credit/(expense) attributable to:    
 Underlying profit 11 (66)
 Non-operating items 56 (1)
Total tax credit/(expense) attributable
to equity holder profits		 67 (67)
Profit for the year 576 579
Basic underlying earnings per share (EPS)5 33.9p 22.5p
Diluted underlying EPS6 33.3p 21.8p

3 The investment management result for both periods includes the profits of other general insurance operations managed by our investment management business. In previous periods all general insurance was included in healthcare and general insurance.
4 Underlying profit has been adjusted by £(302)m (2006: £25m) in respect of volatility that arises from different IFRS measurement bases for liabilities and backing assets in the UK, Canada and Europe of £(104)m, £(159)m and £nil respectively (2006: £(5)m, £(11) m and £(7)m respectively). In addition, this adjustment includes volatility arising from derivatives that are part of economic hedges but do not qualify as hedge relationships under IFRS which amounted to £(39)m (2006: £48m).
5 Basic EPS is based on 2,138m shares (2006: 2,102m shares) and underlying profit after tax attributable to equity holders of Standard Life plc of £725m (2006: £474m).
6 Diluted EPS is based on 2,177m shares (2006: 2,173m shares).

IFRS underlying profit

Underlying profit before tax rose by 32% to £714m. Total life and pensions underlying profit before tax increased by 24% to £614m. Non-life operations generated a profit of £128m, an increase of 7%. There was a £32m reduction in Group Corporate Centre (GCC) costs, which meant that we achieved our target of reducing GCC costs to pre demutualisation levels. There was also an increase of £17m of other income, mainly relating to Standard Life plc, the Group's holding company.

Total life and pensions

UK life and pensions underlying profit before tax increased by 72% to £395m (2006: £230m). This increase was primarily driven by one off adjustments which included a £136m release of reserves relating to the adoption of PS06/14, a £143m release of statutory reserves in relation to deferred annuity business and £94m of other modelling and assumption changes, offset by £100m of additional annuity reserves to reflect the strengthening of mortality assumptions. In Canada underlying profit remained steady at £168m, excluding the volatility caused by new Canadian accounting guidelines. Europe underlying profit fell by 42% to £63m mainly due to a decrease, in line with expectations, in profits transferred from the HWPF. The amount of profit transferred between the HWPF and the Proprietary Business Fund is determined by the Scheme of Demutualisation (the Scheme). This was expected to fall in the short-term following the run-off of the income earned on the exceptional level of sales in Germany in 2004 and early 2005 following changes in German tax legislation. The life and pensions result also included a £12m underlying loss for the Asia Pacific business as we continue to invest in its development.

Non-life business

Profits from our non-life businesses rose by 7% to £128m (2006: £120m). The increase was due to the strong results reported by our investment management business. This reflected strong inflows into third party funds, tight management of costs and continued strong investment performance, despite the volatile market conditions. Our banking business experienced a decline in profits due to the market pressures on net interest margin.

Group Corporate Centre costs and other

We succeeded in cutting GCC costs by 36% to £57m and therefore achieved our target of maintaining these costs at the 2005 level of £58m. We achieved this despite the additional costs of operating in a plc environment.

'Other' increased to £29m from £12m in 2006 primarily due to the inclusion of a full year of income in relation to assets held by the Group's holding company, Standard Life plc, compared to 2006 when income only arose in the period post demutualisation. This was partially offset by a provision of £10m in respect of a guarantee provided by the Company. 'Other' also includes a £4m loss in relation to the development of our new Standard Life Wealth business.

Please see the business segment performance section for further detail on the IFRS underlying result for our business units.