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Standard Life Aberdeen plc (rest of Annual report and accounts)
Published by Adare SEC (Nottingham) Limited
Please remember that the value of shares can go down as well
as up and you may not get back the full amount invested or any
income from it. All figures and share price information have been
calculated as at 31 December 2018 (unless otherwise indicated).
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plc for information only. It is based on our understanding as at
March 2019 and does not provide financial or legal advice.
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at 1 George Street, Edinburgh EH2 2LL.
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Aberdeen, images reproduced under licence. All rights reserved.
UKARA18 0319
Standard Life Aberdeen plc Annual report and accounts 2018Investing for a better future
Financial highlights
Key performance indicators from continuing operations1
Adjusted profit before tax
Cost/income ratio
Adjusted diluted earnings per share3
KPI R
KPI R
KPI R
2018
£650m
2017
Pro forma basis2
£660m
2017
Reported basis2
£475m
68%
71%
70%
17.8p
17.2p
15.1p
Assets under management and administration
(AUMA)
KPI
£551.5bn
£608.1bn
Gross inflows
Net flows
Investment performance
Percentage of AUM above benchmark over three years
Full year dividend per share
KPI R
KPI R
KPI R
KPI
£75.2bn
£72.4bn
£32.9bn
outflow
63%
£40.9bn
outflow
50%
21.6p
21.3p
Certain measures such as adjusted profit before tax, are not defined under IFRS and are therefore termed alternative performance measures
(APMs). Further details on APMs are included in Supplementary information in Section 10.
We include financial measures below which have not been determined to be KPIs but we believe are integral to the Group’s performance.
Other financial highlights
IFRS (loss)/profit before tax from continuing
operations1
IFRS profit after tax attributable to
equity holders (including discontinued operations)
Diluted earnings per share3
(including discontinued operations)
Non-financial highlights
Employee survey
2018 Defaqto ratings
Engagement
56%
KPI
Gold rating for service
Wrap and Elevate
5 star rating for discretionary
portfolio services
Aberdeen Standard Capital and
Parmenion
(£787m)
£830m
29.1p
£438m
£699m
29.6p
Investment innovation
of the year
2019 Insurance Asset Risk
Awards
Financial services company
of the year
2018 Better Society Awards
FTSE4Good
Ranked in top 1% of
companies
(2017: Top 3%)
KPI
R
Key performance indicators (KPIs) are defined as the measures by which the development, performance or position of the business can be measured effectively.
The KPIs that we use may not be directly comparable with similarly named measures used by other companies. See Supplementary information in Section 10 for
further information.
Measure is a key input to a metric used for executive remuneration. See page 86 for more information.
1 Continuing operations excludes the UK and European insurance business. The sale of this business to Phoenix completed on 31 August 2018.
2 This report includes results for comparative periods on both a Reported basis and a Pro forma basis. See page 1 for details.
3
In accordance with IAS 33, earnings per share have not been restated following the share consolidation as there was an overall corresponding change in resources. As a
result of the share consolidation and share buyback earnings per share from continuing operations for the year ended 31 December 2018 is not directly comparable with the
prior year. Refer to Note 11 of the Group financial statements for information relating to the calculation of diluted earnings per share.
Contact us
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Aberdeen’s Investor App
Our purpose is to invest
for a better future.
We do it to make a
difference to the lives of
our clients, customers,
employees and
shareholders.
We have a commitment to excellence in
everything that we do – drawing on the
innovation and global collaboration of our
talented people.
Our aim is to build a world-class investment
company. We develop products and services for
evolving client needs and create meaningful
relationships with all of our stakeholders.
We strive to make a positive long-term impact.
As well as delivering for clients, this means
creating an inclusive culture for our people and
contributing to wider society. We operate
ethically, encourage good practices among the
companies we invest in, and support our local
communities.
The Annual report and accounts 2018 and the Strategic report and
financial highlights 2018 are published on the Group’s website at
www.standardlifeaberdeen.com/annualreport
Access to the website is available outside the UK, where comparable information
may be different.
Integrating environmental, social and governance (ESG) factors
The integration of ESG factors is fundamental to us both operationally and within
our investment process. Details of our approach to ESG are integrated throughout
this report, and in our Corporate sustainability report 2018 which can be found at
www.standardlifeaberdeen.com/annualreport
1. Strategic report
Message from the Chairman
Co-Chief Executives’ overview
Our business and values
Our market and strategy
Our people and culture
Chief Financial Officer’s overview
Risk management
Responsible business practices
Basis of preparation
Governance
2. Board of Directors
3. Corporate governance statement
4. Directors’ report
5. Directors’ remuneration report
6. Statement of Directors’ responsibilities
Financial information
7. Independent audit report
8. Group financial statements
9. Company financial statements
10. Supplementary information
Other information
11. Glossary
12. Shareholder information
13. Contact us
How to navigate this report
Page cross reference
2
4
8
24
28
30
40
48
49
52
54
75
81
103
106
117
225
237
252
255
IBC
For more information visit our corporate website:
www.standardlifeaberdeen.com/annualreport
Reported and Pro forma results
The merger of Standard Life plc and Aberdeen Asset Management PLC
(Aberdeen) completed on 14 August 2017, with the merger accounted for as an
acquisition of Aberdeen by Standard Life plc on that date. Pro forma results for the
Group are prepared as if Standard Life Group and Aberdeen had always been
merged and are included for comparative periods to assist in explaining trends in
financial performance by showing a full 12 months performance for the combined
Group for all years. The difference between the Reported results and Pro forma
results is the results of Aberdeen prior to completion of the merger.
Our results for 2018 includes our 19.98% share of the Phoenix results for the four
months ended 31 December 2018. Comparative periods have not been restated
and therefore Phoenix is not included prior to 31 August 2018 in either Reported
or Pro forma results.
Discontinued operations
Discontinued operations relate to the UK and European insurance business. The
sale of this business to Phoenix completed on 31 August 2018.
1
Standard Life Aberdeen 2018StrAtegic report
Message from the Chairman
A global opportunity
This is a great company, with a great
future, which I am proud to now be a part
of. With a challenging year ahead, our
priorities are improved investment
performance, transformation and growth.
I am confident that we have the talented
people, the resources and the expertise
to deliver on our potential.
Sir Douglas Flint
Global ambitions
I am delighted to be able to share my thoughts for the first time as
Chairman of Standard Life Aberdeen. Before I look to the year ahead,
I want to share with you a little about what attracted me to the role. In
essence, it was through being impressed by the scale of the
company’s global ambitions, the trust that our clients and customers
put in us and the fact that the world is very much in need of the
products and services we offer. I believe these together present an
exciting opportunity.
That opportunity is truly global. Our company is one of the world’s
leading investment companies, with a strong presence in the UK,
Europe and Asia Pacific, and importantly, developing capabilities in
the Americas. There are, I believe, considerable opportunities and
significant potential for future growth in all our markets, in particular in
the UK and Asia Pacific. We are well positioned and I am confident
that we can, through successful delivery of our strategy, capitalise on
these opportunities going forward.
There is no denying that it will be challenging, particularly in the short
term, considering the current economic and geopolitical landscapes.
A continuous eye on improving what we do and how we do it, always
putting the customer first, will, I believe, keep us on the path to
success.
Transformation and transition
I would like to pay tribute to my predecessor, Sir Gerry Grimstone,
who stepped down at the end of 2018. Over the last 11 years he led
the Company through one of the most significant transformations in
its near-200 year history. Taking on the Chairmanship a year after the
company’s demutualisation, he steered the company successfully
through the global financial crisis, constitutional change and large-
scale reforms to the UK pensions and savings markets. Beyond this,
he led the re-shaping of the business through major acquisitions and
disposals to create Standard Life Aberdeen as it is today. The merger
with Aberdeen Asset Management and the sale of the UK and
European insurance business to Phoenix in the last two years marked
the culmination of the transformation to a capital-light, broad based,
investment company.
Such a period of change puts considerable demands on any
organisation. It is testament to the talented people in Standard Life
Aberdeen that they have absorbed the additional integration and
transition challenges, while remaining focused on meeting the needs
of our clients and customers.
2
Looking ahead, delivering on our potential
The savings and investment industry is evolving rapidly as individuals
are faced with taking on more personal responsibility for their long-
term needs. Technology is playing a large part to offer a variety of
platforms and direct channels to fulfil such savings and investment
needs. In the wholesale and institutional space, advanced quantitative
tools are enabling more tailored solutions to be developed to meet the
complex needs of our clients. Increased investment in our people and
research capabilities underpins all of the above. As a client-centric
business in an ever changing world we must continue to adapt and
evolve to meet observable trends and invest in capabilities to
anticipate what lies ahead.
The priorities for the year ahead are three-fold. First, improve
investment performance, particularly in multi-asset absolute returns
and equities, and deliver fresh solutions that meet the needs of an
ever more demanding client base. Second, progress integration of the
merged businesses and the transition of the technology services that
went as part of the Phoenix transaction, so working towards delivering
the cost savings promised. And third, deliver the revenue growth
potential created both by the merger and the enhanced strategic
partnership with Phoenix. All of these are necessary steps to restore
value for you, our shareholders.
Shareholder value is, of course, an important topic which I know is
concerning to all of us. Our share price has not been where we would
have wanted over the past year. Clearly there have been sectoral
factors, outside our control, which impacted investor sentiment and
therefore investment flows. This was driven in large part by
geopolitical risks, including uncertainty over the form Brexit would
take and trade tensions between the US and China. These factors
contributed to the write-off of a portion of the goodwill recognised on
the combination of Standard Life with Aberdeen Asset Management
which is referred to in more detail on page 36. There have also been
factors specific to ourselves, most notably investment performance in
some of our larger strategies, which has led to significant outflows, as
well as the notice given of termination of our asset management
agreement with Lloyds Banking Group and Scottish Widows, which
we have challenged.
We have all the capabilities needed to recover from these setbacks,
notably in research, in investment talent, through the depth and
breadth of our product range, the diversity of our geographic footprint
and most of all, our brand. The sale of our UK and European
insurance business has also given us the capital strength to make
significant capital returns to shareholders, invest in our businesses
while we complete our transition, as well as providing capacity to
our strategic relationships with key clients, winning new business and
maintain our dividend while this process completes. This capacity will
realising the potential from our global network and product
be further augmented by the recently announced sale of shares in
capabilities.
HDFC Life to facilitate achieving the Minimum Public Shareholding
required in India.
Proposed dividend
Having reflected on all the above, your Board is proposing a final
dividend of 14.3p, the same amount as was paid at this stage last
year. Assuming shareholders vote to approve this at the upcoming
Annual General Meeting (AGM), this would give a total dividend for
2018 of 21.6p, up 1.4% on the year. It is the Board’s current intention
that the total annual dividend per share should be held at this level
while the business is transformed, cost synergies are delivered and
future financial performance confirms the sustainability of this level of
distribution and provides line of sight to its future growth.
Brexit and other geopolitical uncertainties
This report is being delivered shortly ahead of the UK’s scheduled
departure from the EU. We have two significant angles of interest in
the Brexit outcome. First, in relation to the ability of our own business
to continue seamless service to our clients and customers in any
foreseeable scenario; and second, how the shape of Brexit will impact
markets and the individual underlying stocks and debt instruments in
which we are invested on behalf of the ultimate beneficiaries. We
have accordingly been planning across the full range of scenarios
under which the UK could leave the EU – including the possibility of
leaving without a deal. So far as we are able, we have put in place
measures intended to mitigate the impacts on our customers, clients
and operations. In particular we have structured the activities and
responsibilities of our Dublin and Luxembourg operations to allow us
to continue to serve clients across Europe who require such services
to be delivered from within the EU.
As the UK’s future trading arrangement both with the EU and beyond
are clarified, there may be significant market adjustments. Similarly as
US/China trade relations develop, markets will reflect the assessed
impact of changes to the terms of trade between the world’s two
largest economies and the related impact on global supply chains. As
active asset managers, these geopolitical events, as they impact
markets, provide opportunities to assist clients to seek or protect
value for their underlying beneficiaries. It is in such market conditions,
perhaps more than others, that our distinctive investment style has
the potential to create most value.
Management changes
Recognising the progress made since the merger, with the
encouragement of the Board, the co-CEOs instigated discussions
around the management structure best placed to deliver the strategy
agreed by the Board. The management changes now being
announced are designed to strengthen our client focus, simplify
reporting lines and put in place a structure which will facilitate robust
execution of the next stages of our transition and transformation
programmes.
With effect from 13 March, the Board has unanimously approved the
dissolution of its current co-Chief Executive structure. Keith Skeoch
has been appointed sole Chief Executive Officer. Recognising the
critical importance of his client facing responsibilities, Martin Gilbert
becomes Vice Chairman of Standard Life Aberdeen, Chairman of
Aberdeen Standard Investments and will continue to be an executive
Director of the Board. In this role, Martin will be able to focus solely on
After an outstanding career with the Group of some 34 years, Bill
Rattray will retire from the Board on 31 May 2019. He will be
succeeded by Stephanie Bruce who, subject to satisfying all relevant
regulatory requirements and processes, will take up the position of
Chief Financial Officer (CFO) and executive Director on 1 June 2019.
Stephanie’s appointment will be subject to election by shareholders at
the AGM on 14 May 2019.
Stephanie Bruce is a highly experienced financial services practitioner
with over 25 years sector knowledge of technical, reporting and
commercial practices. She has been a partner in PwC since 2002
and a member of the Assurance Executive since 2016, leading the
Financial Services practice for Assurance in the UK. We are delighted
she is joining us.
Governance
Over the past year, much has been done to reshape the Board, to
ensure we have the right skills and experience to take our
transformed business forward. In addition to the retirement of Sir
Gerry Grimstone, we said goodbye to Kevin Parry OBE and Gerhard
Fusenig, who both also stepped down from the Board at the end of
last year. On behalf of the Board and shareholders I want to thank
them both for their considerable contributions over many years.
As previously reported, Cathi Raffaeli joined the Board in August
2018, bringing broad-based financial industry experience and, in
particular, knowledge of fintech and high tech services companies.
Also as previously announced, Simon Troughton, our Deputy
Chairman, will retire at the forthcoming AGM after a 10 year
combined association with the Company and Aberdeen Asset
Management. His wise counsel has been of great value to the Board
over this period and to me as I took up the position of Chairman.
Richard Mully has also indicated his intention to step down from the
Board at the upcoming AGM, having completed seven years of Board
service, in order to concentrate on his other interests. On behalf of
shareholders I want to express our deep gratitude for their service
and wish them well in their other endeavours.
I am looking forward to our AGM in May for my first opportunity to
meet and talk with shareholders about our company in general, its
ambitions and future direction. I hope to see as many of you as
possible there.
The year ahead will be challenging and there is a very full schedule of
actions that the executive is charged with delivering. There will
undoubtedly also be unforeseen events to which we will need to
respond. Whatever arises, I am confident that we have all the skills
and resources in place within Standard Life Aberdeen to capture the
opportunities that arise and deal with the challenges. In my three
months in role I have been enormously impressed with the talent and
dedication of our employees and it is to them that I pay tribute in
closing, for their efforts and support.
Sir Douglas Flint
Chairman
Standard Life Aberdeen 2018
Message from the Chairman
A global opportunity
This is a great company, with a great
future, which I am proud to now be a part
of. With a challenging year ahead, our
priorities are improved investment
performance, transformation and growth.
I am confident that we have the talented
people, the resources and the expertise
to deliver on our potential.
Sir Douglas Flint
Global ambitions
Looking ahead, delivering on our potential
I am delighted to be able to share my thoughts for the first time as
The savings and investment industry is evolving rapidly as individuals
Chairman of Standard Life Aberdeen. Before I look to the year ahead,
are faced with taking on more personal responsibility for their long-
I want to share with you a little about what attracted me to the role. In
term needs. Technology is playing a large part to offer a variety of
essence, it was through being impressed by the scale of the
platforms and direct channels to fulfil such savings and investment
company’s global ambitions, the trust that our clients and customers
needs. In the wholesale and institutional space, advanced quantitative
put in us and the fact that the world is very much in need of the
tools are enabling more tailored solutions to be developed to meet the
products and services we offer. I believe these together present an
complex needs of our clients. Increased investment in our people and
exciting opportunity.
That opportunity is truly global. Our company is one of the world’s
leading investment companies, with a strong presence in the UK,
Europe and Asia Pacific, and importantly, developing capabilities in
research capabilities underpins all of the above. As a client-centric
business in an ever changing world we must continue to adapt and
evolve to meet observable trends and invest in capabilities to
anticipate what lies ahead.
the Americas. There are, I believe, considerable opportunities and
The priorities for the year ahead are three-fold. First, improve
significant potential for future growth in all our markets, in particular in
investment performance, particularly in multi-asset absolute returns
the UK and Asia Pacific. We are well positioned and I am confident
and equities, and deliver fresh solutions that meet the needs of an
that we can, through successful delivery of our strategy, capitalise on
ever more demanding client base. Second, progress integration of the
these opportunities going forward.
There is no denying that it will be challenging, particularly in the short
term, considering the current economic and geopolitical landscapes.
A continuous eye on improving what we do and how we do it, always
putting the customer first, will, I believe, keep us on the path to
success.
Transformation and transition
I would like to pay tribute to my predecessor, Sir Gerry Grimstone,
who stepped down at the end of 2018. Over the last 11 years he led
the Company through one of the most significant transformations in
its near-200 year history. Taking on the Chairmanship a year after the
company’s demutualisation, he steered the company successfully
through the global financial crisis, constitutional change and large-
scale reforms to the UK pensions and savings markets. Beyond this,
he led the re-shaping of the business through major acquisitions and
disposals to create Standard Life Aberdeen as it is today. The merger
with Aberdeen Asset Management and the sale of the UK and
European insurance business to Phoenix in the last two years marked
the culmination of the transformation to a capital-light, broad based,
investment company.
Such a period of change puts considerable demands on any
organisation. It is testament to the talented people in Standard Life
Aberdeen that they have absorbed the additional integration and
transition challenges, while remaining focused on meeting the needs
of our clients and customers.
merged businesses and the transition of the technology services that
went as part of the Phoenix transaction, so working towards delivering
the cost savings promised. And third, deliver the revenue growth
potential created both by the merger and the enhanced strategic
partnership with Phoenix. All of these are necessary steps to restore
value for you, our shareholders.
Shareholder value is, of course, an important topic which I know is
concerning to all of us. Our share price has not been where we would
have wanted over the past year. Clearly there have been sectoral
factors, outside our control, which impacted investor sentiment and
therefore investment flows. This was driven in large part by
geopolitical risks, including uncertainty over the form Brexit would
take and trade tensions between the US and China. These factors
contributed to the write-off of a portion of the goodwill recognised on
the combination of Standard Life with Aberdeen Asset Management
which is referred to in more detail on page 36. There have also been
factors specific to ourselves, most notably investment performance in
some of our larger strategies, which has led to significant outflows, as
well as the notice given of termination of our asset management
agreement with Lloyds Banking Group and Scottish Widows, which
we have challenged.
We have all the capabilities needed to recover from these setbacks,
notably in research, in investment talent, through the depth and
breadth of our product range, the diversity of our geographic footprint
and most of all, our brand. The sale of our UK and European
insurance business has also given us the capital strength to make
significant capital returns to shareholders, invest in our businesses
while we complete our transition, as well as providing capacity to
maintain our dividend while this process completes. This capacity will
be further augmented by the recently announced sale of shares in
HDFC Life to facilitate achieving the Minimum Public Shareholding
required in India.
Proposed dividend
Having reflected on all the above, your Board is proposing a final
dividend of 14.3p, the same amount as was paid at this stage last
year. Assuming shareholders vote to approve this at the upcoming
Annual General Meeting (AGM), this would give a total dividend for
2018 of 21.6p, up 1.4% on the year. It is the Board’s current intention
that the total annual dividend per share should be held at this level
while the business is transformed, cost synergies are delivered and
future financial performance confirms the sustainability of this level of
distribution and provides line of sight to its future growth.
Brexit and other geopolitical uncertainties
This report is being delivered shortly ahead of the UK’s scheduled
departure from the EU. We have two significant angles of interest in
the Brexit outcome. First, in relation to the ability of our own business
to continue seamless service to our clients and customers in any
foreseeable scenario; and second, how the shape of Brexit will impact
markets and the individual underlying stocks and debt instruments in
which we are invested on behalf of the ultimate beneficiaries. We
have accordingly been planning across the full range of scenarios
under which the UK could leave the EU – including the possibility of
leaving without a deal. So far as we are able, we have put in place
measures intended to mitigate the impacts on our customers, clients
and operations. In particular we have structured the activities and
responsibilities of our Dublin and Luxembourg operations to allow us
to continue to serve clients across Europe who require such services
to be delivered from within the EU.
As the UK’s future trading arrangement both with the EU and beyond
are clarified, there may be significant market adjustments. Similarly as
US/China trade relations develop, markets will reflect the assessed
impact of changes to the terms of trade between the world’s two
largest economies and the related impact on global supply chains. As
active asset managers, these geopolitical events, as they impact
markets, provide opportunities to assist clients to seek or protect
value for their underlying beneficiaries. It is in such market conditions,
perhaps more than others, that our distinctive investment style has
the potential to create most value.
Management changes
Recognising the progress made since the merger, with the
encouragement of the Board, the co-CEOs instigated discussions
around the management structure best placed to deliver the strategy
agreed by the Board. The management changes now being
announced are designed to strengthen our client focus, simplify
reporting lines and put in place a structure which will facilitate robust
execution of the next stages of our transition and transformation
programmes.
With effect from 13 March, the Board has unanimously approved the
dissolution of its current co-Chief Executive structure. Keith Skeoch
has been appointed sole Chief Executive Officer. Recognising the
critical importance of his client facing responsibilities, Martin Gilbert
becomes Vice Chairman of Standard Life Aberdeen, Chairman of
Aberdeen Standard Investments and will continue to be an executive
Director of the Board. In this role, Martin will be able to focus solely on
our strategic relationships with key clients, winning new business and
realising the potential from our global network and product
capabilities.
After an outstanding career with the Group of some 34 years, Bill
Rattray will retire from the Board on 31 May 2019. He will be
succeeded by Stephanie Bruce who, subject to satisfying all relevant
regulatory requirements and processes, will take up the position of
Chief Financial Officer (CFO) and executive Director on 1 June 2019.
Stephanie’s appointment will be subject to election by shareholders at
the AGM on 14 May 2019.
Stephanie Bruce is a highly experienced financial services practitioner
with over 25 years sector knowledge of technical, reporting and
commercial practices. She has been a partner in PwC since 2002
and a member of the Assurance Executive since 2016, leading the
Financial Services practice for Assurance in the UK. We are delighted
she is joining us.
Governance
Over the past year, much has been done to reshape the Board, to
ensure we have the right skills and experience to take our
transformed business forward. In addition to the retirement of Sir
Gerry Grimstone, we said goodbye to Kevin Parry OBE and Gerhard
Fusenig, who both also stepped down from the Board at the end of
last year. On behalf of the Board and shareholders I want to thank
them both for their considerable contributions over many years.
As previously reported, Cathi Raffaeli joined the Board in August
2018, bringing broad-based financial industry experience and, in
particular, knowledge of fintech and high tech services companies.
Also as previously announced, Simon Troughton, our Deputy
Chairman, will retire at the forthcoming AGM after a 10 year
combined association with the Company and Aberdeen Asset
Management. His wise counsel has been of great value to the Board
over this period and to me as I took up the position of Chairman.
Richard Mully has also indicated his intention to step down from the
Board at the upcoming AGM, having completed seven years of Board
service, in order to concentrate on his other interests. On behalf of
shareholders I want to express our deep gratitude for their service
and wish them well in their other endeavours.
I am looking forward to our AGM in May for my first opportunity to
meet and talk with shareholders about our company in general, its
ambitions and future direction. I hope to see as many of you as
possible there.
The year ahead will be challenging and there is a very full schedule of
actions that the executive is charged with delivering. There will
undoubtedly also be unforeseen events to which we will need to
respond. Whatever arises, I am confident that we have all the skills
and resources in place within Standard Life Aberdeen to capture the
opportunities that arise and deal with the challenges. In my three
months in role I have been enormously impressed with the talent and
dedication of our employees and it is to them that I pay tribute in
closing, for their efforts and support.
Sir Douglas Flint
Chairman
3
Standard Life Aberdeen 2018StrAtegic report
Co-Chief Executives’ overview
Transforming our business
Defining our culture
As we continue work on our transformation it’s been a priority for
us to focus on our culture. The success of our business is about
our people, so we want to ensure the environment we work in is
innovative, collaborative and inclusive; a place where people can
flourish. This will help us set the foundation for delivering what
our clients and customers need from us – today, tomorrow and
for the longer term.
Keith Skeoch
Q | How has the business performed in 2018?
Adjusted profit before tax from continuing operations of £650m
was 2% lower than 2017 on a Pro forma basis and included the
benefit of our share of Phoenix adjusted profits from 1 September
2018. IFRS profit attributable to equity holders of Standard Life
Aberdeen plc increased by 19% to £830m mainly as a result of
the £1,780m gain on the sale of the UK and European insurance
business, partially offset by an £880m impairment of the
Aberdeen Standard Investments goodwill intangible asset.
Our financial performance undoubtedly reflects challenging
market conditions and the impact of outflows and there is work to
be done to address this. This is set against the backdrop of
fundamental change for Standard Life Aberdeen.
We have transformed the shape of our business through our
integration and the sale of our UK and European insurance
business to Phoenix, a significant undertaking. In India, the IPO of
HDFC AMC completed in August. The shareholding we retain in
the business reflects the potential we see in India’s asset
management sector. On 11 March 2019, we also announced an
offer for sale process in respect of up to 4.93% of the shares of
HDFC Life, our associate life business in India at a floor price of
Rs 357.5 per share. Assuming the offer is fully subscribed at the
floor price, net sale proceeds are expected to be c£380m.
I am proud of what our people have achieved in 2018 while
recognising we have a challenging year ahead to deliver on the
potential of our transformed business.
Q | How do you account for weaker investment
performance?
It's been a disappointing year for our investment performance,
and our long-term investment approach is being tested by the
market environment. More information on markets can be found
on pages 24 to 25 and on our investment approach on page 19.
Investment performance over three years was mixed with 50% of
total assets under management ahead of benchmark. Over the
longer term five year period 62% of total assets under
management were ahead of benchmark. The weaker three year
performance reflects a challenging period with negative returns
within multi-asset absolute return strategies, in particular Global
4
Absolute Return Strategies (GARS), and weakness in most equity
classes other than Asia Pacific. Performance for Fixed income,
Cash/Liquidity and Alternatives remain strong over three and five
years.
A turnaround in performance may take some time but there are
signs of recent improvement in equity investment performance
and stronger short-term momentum in absolute returns. We
discuss our plans to improve investment performance in more
detail on page 20.
Q | Can you explain the benefits from selling the UK
and European insurance business to Phoenix?
The sale of the business for a total consideration of £3.3bn
completed the transformation of Standard Life Aberdeen into a
fee based capital-light investment company.
We received cash proceeds of £2.3bn from the sale (including a
dividend from SLAL of £0.3bn) and generated an IFRS gain on
disposal of £1.8bn. The proceeds enabled us to announce the
substantial return of capital to shareholders of up to £1.75bn. We
returned £1bn to shareholders by way of a ‘B’ share scheme in
November 2018, and have made good progress on our share
buyback programme, with £235m completed by the end of 2018.
In addition to the cash proceeds, we received shares representing
a 19.98% stake in Phoenix which allows us to benefit from their
strong position in the UK pensions market and significant growth
potential. Our share of the Phoenix results for the four months
post transaction contributed £86m to our 2018 adjusted profit.
The transaction also strengthens our existing strategic partnership
with Phoenix. We’ve put in place long-term arrangements that
allow us to collaborate across a number of areas, and under
which we will be Phoenix’s asset manager of choice. The
partnerships we choose are based on shared values and play a
vital role in allowing us to reach clients across different markets.
We believe that the enhanced partnership will continue to
generate financial benefits for both ourselves and Phoenix.
Under the transaction we have also retained our valuable and fast
growing Standard Life branded UK retail platforms Wrap and
Elevate, as well as our financial planning and advice business
1825.
Standard Life Aberdeen 2018
Q | What is the role of asset managers in society?
Finance is indispensable within a modern society. It provides
funds to borrowers like businesses, start-ups and governments,
and provides a way for savers to accumulate wealth and provide
for their future. Asset managers are at the centre of this.
As well as acting in the best interests of our clients, we need to
operate in a way that takes account of our wider responsibilities to
society and to help address the long-standing issue of restoring
trust across our industry. As active managers, we engage with the
companies in which we invest and hold them to account in the
way they operate. As members of civic society we work with
governments and regulators to improve the efficiency and
relevance of capital markets and the sustainability of the returns
they deliver.
Q | Tackling climate change is a growing issue, how
are you addressing the issue?
We have been working to reduce our greenhouse gas emissions
for many years, through tracking our consumption, improvements
in building management, and encouraging our people to
reconsider the need for air travel through technology solutions.
Our greatest impact, however, is through how we invest our
customers’ and clients’ money.
In support of the Taskforce for Climate-related Financial
Disclosures (TCFD) recommendations, we’ve launched two
Climate Change working groups. One group is focused on our
investment approach across asset classes. The second group
focuses on our operations such as our greenhouse gas
emissions, reduction activities and TCFD implementation, and
how we integrate these considerations into our risk processes.
We’ve also made commitments to renewable electricity.
Operationally, we will procure 100% of our electricity in our global
offices from renewable sources by 2020, and the real estate
Aberdeen Standard Investments manages in the UK will be
powered by 100% renewable electricity by 2020.
Q | How do you retain and attract talented people
through change?
The amount of change we have seen as a business can be
unsettling for our people – and they are our greatest asset. So
we’re working hard to create an inclusive culture and environment
that enables them to work together effectively. With this
motivation in mind, we asked our people to have their say in
helping define our values and culture. The values we developed
are central to how we will think and act as a business. They are
outlined on page 9 and reflected throughout this report.
In 2018, we also conducted an all-employee survey – to find out
how our people feel about the significant changes we have been
making and how we can help them be more effective. The
themes drawn from the survey are already informing new
approaches to how we communicate with our colleagues and the
work we are doing to enhance our operations. You can read more
about how we engage our employees on page 28. Our scale and
global ambitions provide opportunities which mean we are an
attractive employer to prospective talent.
Q | What are your priorities for the business over the
next year?
We have three key priorities; improving investment performance,
which I have touched on, growth which Martin discusses over the
page, and transformation. Our transformation includes the merger
integration, embedding our new operating model and separation
activity.
Integration continues to move forward at pace, with delivery of
synergies ahead of the original schedule. On the investment side,
we have made considerable progress with our fund rationalisation
– we have closed 14 funds, 3 umbrella funds and over 100 share
classes in ongoing funds. We have returned over £11m of seed
investment to enable new product launches and are harmonising
features and suppliers across our fund ranges.
We are also making good progress in optimising the benefits from
our new simplified global operating model that embraces modern
working practices, lays the foundations for a common culture and
supports the delivery of our targeted annual efficiency savings of
over £350m.
We previously announced that we expected to incur one-off costs
relating to the separation of the business sold to Phoenix of
approximately £250m, and there has been no change to this
estimate. We agreed a transitional services agreement with
Phoenix to ensure that both businesses can continue to operate
after completion in the same way as they did before. This
arrangement covers functions such as IT, Finance, Risk,
HR/People and Premises. We expect full separation to take up to
three years to complete.
5
Standard Life Aberdeen 2018StrAtegic report
Co-Chief Executives’ overview
Our growth agenda
Global ambitions
We’re focused on building our brand around the world. In 2018,
we launched the first Aberdeen Standard Investments global
marketing campaign, highlighting our investment capabilities
across asset classes. We produced dedicated material and
content in 11 languages to support our local teams. Aberdeen
Standard Investments was also the global partner for the
Ryder Cup in Paris, with an estimated 660 million households
watching the TV coverage of this prestigious event.
Martin Gilbert
Q | It’s been over a year since the merger, how has the
company developed since then?
There is still work to do to reshape our business but we are
making good progress. We’ve co-located over 4,000 employees
across 18 offices worldwide. Our people are central to our
success so I’m pleased that we have retained talented colleagues
through the integration and they understand the journey we are
on.
Q | Can you provide an update on the dispute with
Lloyds Banking Group/Scottish Widows?
On 15 February 2018, we announced that Lloyds Banking Group
(LBG) and Scottish Widows had sent Standard Life Aberdeen
(SLA) a notice on 14 February to terminate the long-term asset
management arrangements between them (IMAs) covering, in
aggregate, around £109bn of AUM at the end of a 12 month
notice period.
At 31 December 2018, the AUM was c£100bn and no assets
have currently been withdrawn. SLA has informed LBG that it
does not agree that, following the merger of Aberdeen Asset
Management PLC and Standard Life plc, SLA was in material
competition in the UK with LBG and that, therefore, SLA does not
consider that LBG, Scottish Widows or their respective affiliates
has the right to terminate the IMAs. The parties have been
engaged in an arbitration process since last year.
Q | Can you explain why the share price fell
significantly in 2018?
2018 has been challenging for asset managers across the world
due to significant geopolitical developments and uncertain market
conditions. These factors have led to significant share price falls
for asset managers generally. For our business, the
announcement that Lloyds Banking Group and Scottish Widows
wished to terminate arrangements for the assets we manage for
them, together with continued net outflows from our flagship
products have also had an impact on our share price.
However, as a result of the merger and through the action we’ve
taken to reshape our business, we believe that the Company is
well placed to benefit from our broader range of capabilities.
The work we have done to combine our investment and
distribution teams ensures they are well placed to manage and
promote our diverse investment solutions, our adviser platforms
and advice businesses. We've increased our global scale and are
seeing the benefits through a more diverse pipeline of new
business across the 27 countries where we operate.
We have seen changes in our major shareholdings. In February
this year, Mitsubishi UFJ Trust and Banking Corporation, which
was one of our major shareholders, sold its stake based on
changes in the business environment, but reaffirmed that we are
an important partner for them in Japan. The ongoing dispute with
Lloyds is covered below.
Q | What has caused the high level of outflows in
2018?
Net flows have been disappointing in a tough market but
redemptions were concentrated in equities and multi-asset. Net
outflows in equities reflected investment sentiment towards
emerging markets and equity markets more generally, and both
multi-asset and equities were also impacted by weaker
investment performance.
Markets are increasingly volatile, and in those conditions active
managers can have the potential to add real value – this is an
opportunity for us. It’s positive that overall gross inflows are up
compared to last year and are well balanced across our asset
classes. In particular, we have seen strong demand continue for
some of our newer propositions, for instance our MyFolio range
and for services offered through the Parmenion platform.
6
Standard Life Aberdeen 2018
Q | What are the primary issues and concerns for
Q | What are your plans for growing the company?
In the UK, we want to keep growing assets through our leading
adviser platforms – Wrap, Elevate and Parmenion, which
continue to benefit from changes in pensions legislation, and our
1825 advice business.
With more than £550bn of assets we have the scale to invest and
innovate and we will continue to build on our strengths in ‘new
active’ through product launches and targeted acquisitions in
areas where we are seeing growing client demands.
We also continue to broaden our capabilities across our global
networks. Our new joint venture with Investcorp will target social
and core infrastructure investment projects in Gulf Cooperation
Countries and our acquisition of Orion Partners will expand our
direct real estate capabilities into Asia.
We are investing to build a modern, dynamic global business
which has the talent, scale and high-performing investment
solutions to compete against the leading asset management
companies across the world.
clients?
Investment performance is, of course, very important. Aside from
this, individual customers need to take increased responsibility for
their financial futures. They want to be confident that their choices
are the right ones for themselves and their families. We are also,
through our decisions and actions, working to restore trust in our
industry, as the after-effects of the 2008 crisis continue to be felt.
Increasingly, clients are interested in how we incorporate
environmental, societal and governance concerns into our
investment process. This includes topics of societal interest like
climate change and equal gender representation, both of which
are also areas that we can help address through our operational
and employee engagement activities.
Q | What are you doing to address these issues?
We look to provide solutions that deliver strong investment
outcomes while also being affordable, inclusive and easy to
understand. On the issue of trust, clients need to see that we are
committed to doing the right thing, being transparent in terms of
fees and levels of risk. Managing investments actively allows us
to navigate volatility, not simply to weather it. To deliver the right
outcomes, we also consider how we engage and remain
connected. Innovation and technology has made a difference to
how we connect our global expertise to support and benefit our
investment processes.
Q | What are ‘new active’ investments and why are
they central to the growth strategy?
‘New active’ strategies typically invest in private markets,
alternatives, active specialities and solutions, and are designed
with a focus on meeting clients’ evolving needs. The main
difference between ‘new active’ and traditional active asset
management is the focus on outcomes instead of benchmarks.
It’s also about looking at where the opportunities are – beyond
‘core’ classes like equities and fixed income and into more
specialist sectors like infrastructure.
The size of this sector has more than doubled in just ten years so
the demand is there. To be successful though, does take
significant expertise and insight. That’s where I believe we have a
competitive advantage and why it’s core to our strategy, because
we have the talent to design and deliver compelling propositions
and the scale to market them effectively around the world.
7
Standard Life Aberdeen 2018StrAtegic report Our business today
Investing for a better future
Our focus is on what we do best – understanding and meeting the
investment needs of our clients and customers, wherever they are in
the world.
Transforming our business…
The sale of our UK and European insurance business to Phoenix in
August 2018 marked the completion of our transformation to a fee
based capital-light investment company. We have made clear
choices, against a backdrop of challenging industry conditions, to get
to this point.
As our business has transformed, our strategy has evolved. Our
strategic objectives set out on the following page reflect the new
shape of our business and our priorities for the future. We have
simplified our operations, helping to optimise and modernise our
business structure for future success. Our business model as set out
on page 11 remains relevant following these changes.
…to drive innovation and efficiencies
We continue to make good progress and remain on track to deliver
our previously announced targeted annual efficiency savings of over
£350m by the end of 2020. This is comprised of the £250m
announced in 2017 at the time of the merger and the additional
£100m announced in 2018 resulting from the sale of our UK and
European insurance business. The pace of delivery in our merger
integration has accelerated across many areas of the business. We
are also making progress on delivering the efficiency savings as we
implement our simplified operating model. Delivering change on this
scale is challenging and will be a key area of focus during 2019
and 2020.
Who we are
Headquartered in Edinburgh, Standard Life Aberdeen has offices in
54 locations employing 6,000 people. We manage and administer
over £550bn of assets worldwide.
Our global scale, expertise and resources enable us to offer a wide
range of investment solutions and services. They are designed to
meet the changing needs of our customers, who come to us through
our direct retail channels or via independent financial advisers, and
the needs of our clients, the organisations who represent the financial
interests of individuals through our wholesale and institutional
channels.
Our company is a combination of global asset management, savings
and advice services in the UK, and strategic investments. We have
two flagship brands, Aberdeen Standard Investments for global asset
management and Standard Life for savings, as well as market-specific
brands in areas including financial advice and wealth management.
Aberdeen Standard Investments products and innovative solutions
are offered across a diverse range of asset classes, either directly to
institutional clients, or to wholesale clients such as private banks and
third party investment platforms. It is a global brand that brings us
close to our clients and the markets in which we invest. As an
investment house, we are truly diversified and committed to active
management. Our wealth business, Aberdeen Standard Capital,
provides discretionary investment management to high net worth
individuals. Further detail on our investment capabilities and asset
management distribution is included on pages 18 to 19.
As part of the sale of our UK and European insurance business,
Standard Life Aberdeen entered into an enhanced strategic
relationship with Phoenix. This relationship is based on the
complementary strengths of each business: Phoenix as an
administrator of insurance and long-term savings books, and
Standard Life Aberdeen as a leading provider of investment
management solutions, adviser platforms and financial advice.
The Standard Life brand is owned by us and licensed to Phoenix.
In addition to providing long-term arrangements in relation to the
assets we already manage for Phoenix, the enhanced strategic
partnership is expected to deliver incremental assets as Phoenix
continues to consolidate life and pensions businesses in the UK and
Europe, and expands into the bulk purchase annuity market. We have
already started to see the benefits from the enhanced partnership with
additional assets secured from Phoenix.
In the UK savings market we have three leading adviser platform
businesses: Wrap and Elevate which are Standard Life branded, and
the Parmenion digital platform. These platforms give us important
access to retail customers. Following the Phoenix transaction, Wrap
and Elevate remain part of our business and we maintain the
relationships with advisers, while certain products on these platforms
are now provided by Phoenix. Parmenion provides integrated
discretionary investment management, platform services and intuitive
technology to financial advisers.
1825, our financial advice business, has continued to build a national
presence across the UK and offers customers a full financial planning
and personal tax advice service. We are also developing a digital
capability to provide planning and advice in areas of the market where
people do not already have easy access to advice.
We have important strategic investments in leading companies in two
of the world’s most dynamic markets: India and China. These
businesses represent substantial potential and provide valuable
insight. In India, our stakes in HDFC Asset Management and HDFC
Life represent a foothold in one of the world’s fastest growing markets.
Our joint venture in China, Heng An Standard Life (HASL), gives us
potential access to one of the biggest pools of financial assets globally
and the possibility of playing a significant role as the pension market
develops.
8
Our purpose – To invest for a better future
We do it to make a difference. To our clients, the lives of our customers,
our people and our shareholders.
Our vision – To build a world-class investment company
A modern, dynamic global business which has the talent, scale and high-performing investment
solutions to compete against the leading asset management companies across the world.
Our values
Create connections
Adapt and excel
Deliver what matters
We bring together our diverse talents,
We don’t stand still. We improve,
We relentlessly focus on delivering
perspectives and insights and use our
challenge, learn and innovate to earn our
outcomes that truly matter to our clients and
collective intelligence to deliver value. We
place in the future. We are ambitious, our
customers. We build trusted relationships.
remain true to our shared purpose, working
sights are set on excellence and our minds
We do the right thing and are empowered to
are open to ideas.
make a difference.
as one team and with all our external
partners to build better futures.
Read more on page 12.
Read more on page 16.
Read more on page 20.
Our strategic objectives
Our primary focus is delivering for our clients and customers – this means working to understand and meet their needs while
Client and customer centricity
building lasting partnerships.
Enhancing our operations
for growth.
working.
Innovating for the future
Valuing our savings ecosystem
Helping our people be more productive, simplifying our ways of working and managing our costs effectively enables us to invest
Investing in leading edge capabilities helps us attract clients and customers, enhance relationships and develop smarter ways of
Optimising the breadth and depth of our investment management, platform and advice ecosystem, along with our geographical
reach enables us to meet the savings needs of clients and customers around the world.
Read more about our strategic objectives which have been
revised to reflect the new shape of our business and our priorities
for the future on pages 26 to 27.
Standard Life Aberdeen 2018
Our business today
Investing for a better future
Our focus is on what we do best – understanding and meeting the
investment needs of our clients and customers, wherever they are in
the world.
Transforming our business…
…to drive innovation and efficiencies
The sale of our UK and European insurance business to Phoenix in
We continue to make good progress and remain on track to deliver
August 2018 marked the completion of our transformation to a fee
our previously announced targeted annual efficiency savings of over
based capital-light investment company. We have made clear
£350m by the end of 2020. This is comprised of the £250m
choices, against a backdrop of challenging industry conditions, to get
announced in 2017 at the time of the merger and the additional
to this point.
As our business has transformed, our strategy has evolved. Our
strategic objectives set out on the following page reflect the new
shape of our business and our priorities for the future. We have
simplified our operations, helping to optimise and modernise our
£100m announced in 2018 resulting from the sale of our UK and
European insurance business. The pace of delivery in our merger
integration has accelerated across many areas of the business. We
are also making progress on delivering the efficiency savings as we
implement our simplified operating model. Delivering change on this
scale is challenging and will be a key area of focus during 2019
business structure for future success. Our business model as set out
on page 11 remains relevant following these changes.
and 2020.
Who we are
Headquartered in Edinburgh, Standard Life Aberdeen has offices in
54 locations employing 6,000 people. We manage and administer
over £550bn of assets worldwide.
Our global scale, expertise and resources enable us to offer a wide
range of investment solutions and services. They are designed to
meet the changing needs of our customers, who come to us through
our direct retail channels or via independent financial advisers, and
the needs of our clients, the organisations who represent the financial
interests of individuals through our wholesale and institutional
channels.
Our company is a combination of global asset management, savings
and advice services in the UK, and strategic investments. We have
two flagship brands, Aberdeen Standard Investments for global asset
management and Standard Life for savings, as well as market-specific
brands in areas including financial advice and wealth management.
Aberdeen Standard Investments products and innovative solutions
are offered across a diverse range of asset classes, either directly to
institutional clients, or to wholesale clients such as private banks and
third party investment platforms. It is a global brand that brings us
close to our clients and the markets in which we invest. As an
investment house, we are truly diversified and committed to active
management. Our wealth business, Aberdeen Standard Capital,
provides discretionary investment management to high net worth
individuals. Further detail on our investment capabilities and asset
management distribution is included on pages 18 to 19.
As part of the sale of our UK and European insurance business,
Standard Life Aberdeen entered into an enhanced strategic
relationship with Phoenix. This relationship is based on the
complementary strengths of each business: Phoenix as an
administrator of insurance and long-term savings books, and
Standard Life Aberdeen as a leading provider of investment
management solutions, adviser platforms and financial advice.
The Standard Life brand is owned by us and licensed to Phoenix.
In addition to providing long-term arrangements in relation to the
assets we already manage for Phoenix, the enhanced strategic
partnership is expected to deliver incremental assets as Phoenix
continues to consolidate life and pensions businesses in the UK and
Europe, and expands into the bulk purchase annuity market. We have
already started to see the benefits from the enhanced partnership with
additional assets secured from Phoenix.
In the UK savings market we have three leading adviser platform
businesses: Wrap and Elevate which are Standard Life branded, and
the Parmenion digital platform. These platforms give us important
access to retail customers. Following the Phoenix transaction, Wrap
and Elevate remain part of our business and we maintain the
relationships with advisers, while certain products on these platforms
are now provided by Phoenix. Parmenion provides integrated
discretionary investment management, platform services and intuitive
technology to financial advisers.
1825, our financial advice business, has continued to build a national
presence across the UK and offers customers a full financial planning
and personal tax advice service. We are also developing a digital
capability to provide planning and advice in areas of the market where
people do not already have easy access to advice.
We have important strategic investments in leading companies in two
of the world’s most dynamic markets: India and China. These
businesses represent substantial potential and provide valuable
insight. In India, our stakes in HDFC Asset Management and HDFC
Life represent a foothold in one of the world’s fastest growing markets.
Our joint venture in China, Heng An Standard Life (HASL), gives us
potential access to one of the biggest pools of financial assets globally
and the possibility of playing a significant role as the pension market
develops.
Our purpose – To invest for a better future
We do it to make a difference. To our clients, the lives of our customers,
our people and our shareholders.
Our vision – To build a world-class investment company
A modern, dynamic global business which has the talent, scale and high-performing investment
solutions to compete against the leading asset management companies across the world.
Our values
Create connections
We bring together our diverse talents,
perspectives and insights and use our
collective intelligence to deliver value. We
remain true to our shared purpose, working
as one team and with all our external
partners to build better futures.
Adapt and excel
We don’t stand still. We improve,
challenge, learn and innovate to earn our
place in the future. We are ambitious, our
sights are set on excellence and our minds
are open to ideas.
Deliver what matters
We relentlessly focus on delivering
outcomes that truly matter to our clients and
customers. We build trusted relationships.
We do the right thing and are empowered to
make a difference.
Read more on page 12.
Read more on page 16.
Read more on page 20.
Our strategic objectives
Client and customer centricity
Our primary focus is delivering for our clients and customers – this means working to understand and meet their needs while
building lasting partnerships.
Enhancing our operations
Helping our people be more productive, simplifying our ways of working and managing our costs effectively enables us to invest
for growth.
Innovating for the future
Investing in leading edge capabilities helps us attract clients and customers, enhance relationships and develop smarter ways of
working.
Valuing our savings ecosystem
Optimising the breadth and depth of our investment management, platform and advice ecosystem, along with our geographical
reach enables us to meet the savings needs of clients and customers around the world.
Read more about our strategic objectives which have been
revised to reflect the new shape of our business and our priorities
for the future on pages 26 to 27.
9
Standard Life Aberdeen 2018StrAtegic report
Our business model
Our consistent model
for creating value
Our resources to create
and preserve value
Our value proposition
Global asset management
UK savings
Our UK savings business includes our Wrap,
Elevate and Parmenion adviser platform
businesses, and our financial advice business
1825.
Strategic investments
We believe that we can generate attractive
returns for shareholders through the
development of deeper relationships and the
growth potential of these businesses.
Client and customer
relationships
Investment
capabilities
We aim to become long-
term trusted partners for
our clients and customers,
through our ability to meet
their needs effectively. We
work to understand what
they want and put that at
the centre of our decision
making. We invest in our
brands which are key to
sustainable value.
We aim to deliver
innovative solutions and
achieve better long-term
investment outcomes for
our clients and customers,
through a combination of
local market knowledge
and global oversight. Our
capabilities span a broad
range of markets, asset
classes and strategies.
Talented
people
Our ability to deliver for
clients relies on having
people with the right skills
and knowledge, drawn
from diverse backgrounds
and experiences, and
encouraging a
collaborative approach to
getting results. As well as
ensuring our people are
engaged and rewarded
appropriately, we offer a
range of personal
development opportunities
to help progress their
skills, knowledge and
careers.
Financial
strength and
heritage
We operate efficiently and
effectively – actively
managing our balance
sheet to ensure we hold
enough capital to allow us
to invest for future
business growth. Through
the actions we’ve taken to
reshape our business,
we’ve created a company
that’s well positioned for
the long term. We will use
our experience to make
sure we continue to do the
right thing for all our
stakeholders.
10
Standard Life Aberdeen 2018
Our simple model for generating returns
Increasing assets
Growing revenue
Lowering unit costs
Driving profit
We aim to grow assets by
offering investment
capabilities, products and
solutions that meet the
needs of new and existing
clients.
Our investment performance
and market movements also
impact our level of assets.
Revenue is primarily
generated from the
management and
administration fees we
charge based on the value of
the assets we look after for
clients and customers.
We aim to reduce our costs
by controlling expenses and
investing strategically to
improve both the scalability
and efficiency of our
business.
As most costs are relatively
fixed and revenue can be
impacted by market volatility,
we aim to control our costs
to be efficient throughout the
business cycle.
Increasing assets, growing
revenue and lowering unit
costs enables us to drive our
profit and cash flow that
allow us to further invest in
growing our business.
Cash generation is closely
aligned with profit.
Optimising the balance sheet
We ensure that we have the appropriate level of capital to support and protect our operations while continuing to focus on growing our
business. We balance investing for business growth with continuing to pay dividends to shareholders.
Delivering for the benefit of our stakeholders
Our simple business model is designed to create value and deliver long–term sustainable benefits to all our stakeholders – including our
clients, our people and also to wider society.
Read more on pages 22 to 23.
Preparing for Brexit
Due to the actions we’ve taken, we don’t anticipate that Brexit, in whatever form it takes, will have a material impact on our business model.
See page 14 for details of our preparations in our EMEA (Europe, the Middle East and Africa) business to ensure that we can continue to
serve the needs of our clients. As an asset manager, our revenue is exposed to any market uncertainty that may arise due to Brexit. Further
details of potential risks to our business relating to Brexit are included in the Risk management section of this report.
11
Standard Life Aberdeen 2018StrAtegic report
Create
connections
We bring together our diverse talents,
perspectives and insights and use our collective
intelligence to deliver value. We remain true to our
shared purpose, working as one team and with all
our external partners to build better futures.
A collaborative culture
Bringing our people together following the
merger has helped to create momentum
behind our purpose. Over 4,000 of our
people are now co-located in our combined
offices. This has helped forge stronger
relationships and broader networks.
We have improved connectivity across our
global team, evolving how our business is
structured to create group-wide functions that
support the four regions in which we operate
– the UK, EMEA, the Americas and Asia
Pacific.
One of our priorities in taking the right actions
for our business is listening to our people’s
views – particularly in light of the changes
that we’ve made to our company since 2017.
We create opportunities for dialogue, both
face to face and through the use of
technology, connecting employees across
the globe, providing input to a range of
strategic and operational initiatives.
Reflecting our markets
Our structure also puts us closer to our
clients and customers. With teams based in
54 locations around the world, we have a
deep understanding of the local markets in
which we operate.
Our clients and customers come from diverse
backgrounds and have different cultural and
societal experiences. In order to meet their
needs, we need to reflect this diversity. That
is why we focus on being an inclusive
workplace – we believe that celebrating the
diversity in our business brings us closer to
our clients and customers and each other.
By encouraging broader and deeper
collaboration across our locations, we share
in a wider range of perspectives, using that
insight to evolve our propositions and to
stimulate new ideas.
Read more about our people and
culture on pages 28 to 29.
12
Standard Life Aberdeen 2018
i
S
t
r
A
t
e
g
c
r
e
p
o
r
t
13
Standard Life Aberdeen 2018
Our transformed business manages assets
for clients and customers in around 80 countries…
…across the globe
We have operations in the world’s financial capitals as well as in
important regional centres. This brings us closer to our clients and
customers, and provides invaluable knowledge and insight to share
with colleagues around the globe.
Office locations
Assets under management and administration by geography
£551.5bn
UK
Key locations
Aberdeen
Basingstoke
Bristol
Edinburgh (HQ)
London
Europe, Middle East and Africa
Key locations
Abu Dhabi
Dublin
Frankfurt
Luxembourg
Milan
Zurich
54
Countries
27
People
6,000+
Asia Pacific
Key locations
Hong Kong
Jakarta
Overview
Shanghai
Singapore
Sydney
Tokyo
Philadelphia
São Paulo
Toronto
Americas
Key locations
Boston
New York
Overview
We offer a diverse range of solutions and our Aberdeen Standard
We saw continued demand for our investment solutions in this region
Investments brand has one of the broadest footprints compared to its
during the year. As a non-domestic brand, this is a positive sign of
competitors across the region.
We expanded our teams in Japan and China, which are two of our
target markets. We promoted our enhanced broader range of skills
across the territories where we operate. In early 2019, we announced
two strategic investments. The first, a minority stake investment in
Singapore Life, the first fully digital life insurer in Singapore and,
second, the acquisition of Orion Partners, a real estate manager with
an enviable track record in three of Asia’s most developed markets.
2018 highlights
• First wholly-owned foreign company to gain an onshore asset
management licence in China
• IPO of HDFC Asset Management in India completed in August
2018. As part of the IPO we reduced our holding from c38% to
c30% for a total net consideration of approximately £180m.
and a Multi-Asset 360 Income fund in Taiwan
Market opportunities
The Asia Pacific market has grown steadily in recent years, to around
$16trn. Our strategy targets growth by increasing our footprint and
global collaboration, developing partnerships across our key markets:
Japan, Australia, India and China, and also carefully managing wider
opportunities.
how well the Aberdeen Standard Investments brand is viewed. As
part of our integration work in the region, teams worked across
functions to increase the levels of co-operation and collaboration,
share best practice and optimise the use of our client management
technology to drive insight and actions.
2018 highlights
• New fund launches and bolt-on acquisitions to meet client needs
and accelerate our US presence in specialist areas, including
private markets, closed-ended funds and exchange-traded funds
• Significant work to reorganise US team to better serve clients
Market opportunities
The Americas market is the largest in the world and predicted to grow
to over $29trn of assets in 2019. We want to capitalise on this
opportunity by differentiating ourselves from the domestic players that
Americas business is focused on three main components: building a
‘new active strategies and solutions’ business, creating scope for
reinvestment, and considering bolt-on inorganic options to accelerate
and extend our US presence.
A key focus for 2018 and early 2019 was on completing
arrangements to ensure continuity of service for our EU clients,
whatever the final outcome of the Brexit process, including
anticipating the potential loss of passporting rights. We addressed this
risk by establishing an EU MiFID firm in Dublin and expanding the
activities of our Luxembourg-based company to provide services to
an increased number of Irish and Luxembourg domiciled funds.
We continued to diversify our business including through new
opportunities resulting from a wider product suite.
2018 highlights
• Secured a regulatory licence in Ireland to operate as an EU MiFID
investment firm responsible for eight branches in Europe – our
team in Dublin is responsible for this activity
• The top three mandate wins by the EMEA sales team during the
year were in Emerging Market Equities, Credit and European Real
Estate, totalling £1.3bn
• Consolidated 18 funds and €50bn into our Luxembourg office
• New fund launches to market, including a domestic China A-Share
currently dominate the market. Our strategy for driving forward the
Market opportunities
EMEA is one of the largest investment markets in the world with
around £14trn of assets. Our strategy focuses on capitalising on this
opportunity by launching innovative products to increase our market
share.
Germany, Italy and Switzerland are some of our key markets in
Continental Europe and we are looking to leverage the global,
diversified nature of our company as a differentiator and source of
competitive advantage.
Overview
Market conditions were challenging and have impacted on net
outflows across our regions, including the UK. However, we have
seen strong inflows into strategies such as diversified growth, buy and
maintain credit, commercial real estate debt, and long-lease property.
We have increased client engagement over the year with some major
new wins, particularly with local government pension schemes. We
also continued to develop our market-leading adviser platforms –
Wrap, Elevate and Parmenion – to address client needs.
2018 highlights
• Our Better Beta OEIC range, with assets of approximately £28bn,
passed its third anniversary and six out of its seven funds achieved
first quartile, positive growth performance over this period
• In direct response to adviser market needs we launched the
Professional Portfolio Manager, which offers greater digital and
automated portfolio management capabilities
• Executed the sale of SLAL to Phoenix, while sustaining momentum
in our platforms and advice businesses – we remain the UK's
largest adviser platform
Market opportunities
The size of the combined retail, wholesale and institutional markets in
the UK is estimated at around £5.1trn. In the retail market, our long-
term strategic partnership provides potential access to the enlarged
Phoenix Group’s c10 million customers. We will invest in our products
and services to meet demand and maximise the potential of such a
large market. We will also focus on offering investors access to low-
cost multi-asset solutions, supported by the launch of our MyFolio
Index range.
14
Overview
Standard Life Aberdeen 2018
Office locations
54
Countries
27
People
6,000+
Assets under management and administration by geography
£551.5bn
UK
Europe, Middle East and Africa
Asia Pacific
Americas
78%
10%
3%
9%
Asia Pacific
Key locations
Hong Kong
Jakarta
Shanghai
Singapore
Sydney
Tokyo
Overview
We offer a diverse range of solutions and our Aberdeen Standard
Investments brand has one of the broadest footprints compared to its
competitors across the region.
We expanded our teams in Japan and China, which are two of our
target markets. We promoted our enhanced broader range of skills
across the territories where we operate. In early 2019, we announced
two strategic investments. The first, a minority stake investment in
Singapore Life, the first fully digital life insurer in Singapore and,
second, the acquisition of Orion Partners, a real estate manager with
an enviable track record in three of Asia’s most developed markets.
2018 highlights
• First wholly-owned foreign company to gain an onshore asset
management licence in China
• IPO of HDFC Asset Management in India completed in August
2018. As part of the IPO we reduced our holding from c38% to
c30% for a total net consideration of approximately £180m.
• New fund launches to market, including a domestic China A-Share
and a Multi-Asset 360 Income fund in Taiwan
Market opportunities
The Asia Pacific market has grown steadily in recent years, to around
$16trn. Our strategy targets growth by increasing our footprint and
global collaboration, developing partnerships across our key markets:
Japan, Australia, India and China, and also carefully managing wider
opportunities.
Americas
Key locations
Boston
New York
Overview
Philadelphia
São Paulo
Toronto
We saw continued demand for our investment solutions in this region
during the year. As a non-domestic brand, this is a positive sign of
how well the Aberdeen Standard Investments brand is viewed. As
part of our integration work in the region, teams worked across
functions to increase the levels of co-operation and collaboration,
share best practice and optimise the use of our client management
technology to drive insight and actions.
2018 highlights
• New fund launches and bolt-on acquisitions to meet client needs
and accelerate our US presence in specialist areas, including
private markets, closed-ended funds and exchange-traded funds
• Significant work to reorganise US team to better serve clients
Market opportunities
The Americas market is the largest in the world and predicted to grow
to over $29trn of assets in 2019. We want to capitalise on this
opportunity by differentiating ourselves from the domestic players that
currently dominate the market. Our strategy for driving forward the
Americas business is focused on three main components: building a
‘new active strategies and solutions’ business, creating scope for
reinvestment, and considering bolt-on inorganic options to accelerate
and extend our US presence.
15
Standard Life Aberdeen 2018StrAtegic report
Adapt and
excel
We don’t stand still. We improve, challenge,
learn and innovate to earn our place in the
future. We are ambitious, our sights are set on
excellence and our minds are open to ideas.
A focus on innovation
We believe that developing innovative ‘new
active’ solutions that focus on outcomes
instead of benchmarks is key to the future
growth of the business.
In 2018, we accelerated the pace of innovation
with the launch of 32 funds (2017: 22 funds). In
addition, we currently have around 20 funds
that are in the later stages of development. For
example, we’re developing two new products
for our ‘Liability Aware’ programme which are
due to launch in 2019. This is a continuous
programme of development between various
asset class and product teams, to provide a
range of options that suit small to medium-
sized pension fund clients.
As we transform our business, we’re working to
identify and understand opportunities and
trends that may help our company and industry
innovate and improve. Our Artificial Intelligence
Global Equity Fund, part of our range of
quantitative investment strategies, uses
powerful machine learning techniques to
quickly analyse evolving financial markets data
to identify and recall data patterns.
In the UK, with changes to pension policy and
provision, many more people are choosing to
remain invested throughout retirement, leading
to a greater demand for financial advice. In
response we’ve launched the next generation
of model portfolio management technology on
the Wrap platform – Professional Portfolio
Manager. This innovative offering has greater
digital and automated capabilities and gives
advisers an efficient, scalable and risk
controlled operating model. In less than six
months since launch, businesses advising on
c£3.5bn of assets have chosen to adopt the
new functionality.
16
Adapting effectively, operating
efficiently
As well as seeking new, diverse investment
opportunities, we aim to make sure that our
business continues to adapt to make the most
of these.
We believe digital advice is key to the future of
retirement planning, especially in the UK,
where the percentage of those reaching age 65
is expected to continue to rise. We are
developing a dedicated digital advice
proposition to develop new, efficient ways to
meet our customers’ retirement planning
needs.
In integrating our businesses and coming
together as one company, we have worked to
evolve our investment and distribution
processes. We have carried out an extensive
programme to integrate and rationalise our
fund ranges. In reviewing and refreshing our
distribution strategies, we’ve aimed to bring
more discipline and consistency to our
relationship and client teams across the world –
with an emphasis on growing our business in
G10 countries.
We also continue to ensure that we are
operating efficiently and controlling our costs.
This includes the delivery of the merger
synergies and the implementation of a
simplified global operating model. While
change on this scale creates opportunities for
our people, cost savings include reductions in
employee numbers. We continue to aim to
manage much of this through natural employee
turnover and to do everything possible to
minimise compulsory redundancies.
Standard Life Aberdeen 2018
Standard Life Aberdeen 2018
17
Strategic report Our transformed business actively seeks out
new and innovative ways…
…to extend our capabilities
Our investment capabilities are truly
global, covering a broad range of markets,
asset classes and strategies. Our aim is to
drive better investment outcomes for
clients and customers.
To achieve this, we draw on our talented
people, deep knowledge of local markets
and coordinated global oversight –
combined with a commitment to
embedding Environmental, Social and
Governance (ESG) factors across each
asset class.
h /l i q u i d i t y Equitie
. 7 b n £116.9
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2.8bn £
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Better
outcomes
for clients
R
is
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r
atives Private mark e t s
n £18.3bn
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e
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£
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3
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I
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c
o
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Diagram shows analysis of total
assets under management at
31 December 2018 including
strategic insurance partners.
AUM at 31 December 2018 (£bn)1
Disciplined, high-conviction, fundamental investment aims to deliver superior outcomes for clients
Equities
• One of world’s largest active asset managers offering wide ranging
equity strategies
• Research and insight are used to exploit market inefficiencies and
identify the best investment opportunities for client portfolios
• Active engagement and effective analysis of ESG issues mitigate risks
and identify companies most likely to outperform over the longer term
> 140
investment professionals
10 countries
Global team presence
Two complementary
investment approaches
n
b
9
2
1
£
.
n
b
0
5
2
£
.
n
b
5
2
2
£
.
n
b
5
2
1
£
.
Developed
markets equities
Emerging
markets equities
Asia Pacific
equities
Global equities
Total
£72.9bn
Fixed income
• One of largest fixed income managers in Europe with a diverse client
Our approach is based on research-driven, team-based active management
base
• Capabilities across developed and emerging markets, public and private
credit, investment-grade and high-yield markets
• Long track record of delivering targeted and local solutions to meet
specific client goals and objectives
> 140
investment professionals
11 countries
Global team presence
Client driven outcomes
Multi-asset
• Scale and experience to provide a multi-asset solution to meet a range
We seek to provide better, more predictable outcomes for investors
> 150
investment professionals
of client needs and priorities
• Developed range of advanced, flexible solutions that target positive
returns while also constraining and controlling risk
• A broad and diverse investment universe through multi-asset investing
can enhance return potential and reduce volatility
Europe, US & Asia
presence
Industry leading risk
management
n
b
1
2
3
£
.
n
b
9
.
1
2
£
n
b
2
5
£
.
n
b
4
9
£
.
Developed
markets credit
Developed
markets rates
Emerging markets
fixed income
Total
£46.7bn
n
b
7
.
1
£
n
b
9
.
3
1
£
n
b
5
.
5
£
n
b
2
.
5
£
n
b
7
.
5
£
Absolute return
Other multi-asset
Diversified
growth/income
MyFolio
Parmenion
Aberdeen
Standard Capital
Total
£53.9bn
Providing excellent capital growth, income generating or risk adjusted outcomes
Private markets
• One of the top 10 largest managers of private markets assets globally
(includes real estate assets)
• Capabilities across private equity, infrastructure, private credit, real
assets and private market solutions
• Long track record of managing private markets portfolios
1 Excludes strategic insurance partners.
18
> 105
investment professionals
10 countries
Global team presence
Top 10 – Global private
markets ranking
n
b
3
2
1
£
.
Private equity
n
b
7
3
£
.
Infrastructure
equity
Total
£16.0bn
Standard Life Aberdeen 2018
Our transformed business actively seeks out
new and innovative ways…
…to extend our capabilities
Our investment capabilities are truly
global, covering a broad range of markets,
asset classes and strategies. Our aim is to
drive better investment outcomes for
clients and customers.
To achieve this, we draw on our talented
people, deep knowledge of local markets
and coordinated global oversight –
combined with a commitment to
embedding Environmental, Social and
Governance (ESG) factors across each
asset class.
Diagram shows analysis of total
assets under management at
31 December 2018 including
strategic insurance partners.
AUM at 31 December 2018 (£bn)1
Disciplined, high-conviction, fundamental investment aims to deliver superior outcomes for clients
Equities
equity strategies
• One of world’s largest active asset managers offering wide ranging
> 140
• Research and insight are used to exploit market inefficiencies and
identify the best investment opportunities for client portfolios
• Active engagement and effective analysis of ESG issues mitigate risks
and identify companies most likely to outperform over the longer term
investment professionals
10 countries
Global team presence
Two complementary
investment approaches
Fixed income
Our approach is based on research-driven, team-based active management
• One of largest fixed income managers in Europe with a diverse client
> 140
base
• Capabilities across developed and emerging markets, public and private
credit, investment-grade and high-yield markets
• Long track record of delivering targeted and local solutions to meet
specific client goals and objectives
investment professionals
11 countries
Global team presence
Client driven outcomes
Multi-asset
We seek to provide better, more predictable outcomes for investors
• Scale and experience to provide a multi-asset solution to meet a range
of client needs and priorities
> 150
investment professionals
• Developed range of advanced, flexible solutions that target positive
returns while also constraining and controlling risk
• A broad and diverse investment universe through multi-asset investing
can enhance return potential and reduce volatility
Europe, US & Asia
presence
Industry leading risk
management
Private markets
Providing excellent capital growth, income generating or risk adjusted outcomes
• One of the top 10 largest managers of private markets assets globally
> 105
(includes real estate assets)
• Capabilities across private equity, infrastructure, private credit, real
assets and private market solutions
• Long track record of managing private markets portfolios
investment professionals
10 countries
Global team presence
Top 10 – Global private
markets ranking
1 Excludes strategic insurance partners.
Our investment approach
We continue to believe that active investment management delivers
superior outcomes for clients over the long term. We believe in a
connected team-based ethos, fundamental research delivering insights to
exploit market inefficiencies, and the embedding of ESG criteria within our
investment approach. We make deliberate, active decisions at each stage
of the investment process and believe that all investment approaches
require active decision making at some level, whether that be
incorporating fundamental discretionary or systematic quantitative
techniques.
We have diverse investment capabilities offering a range of outcomes for
our clients, including some 100 strategies, all united by these beliefs. For
example, within Equities we run a number of strategies under two
differentiated but complementary investment styles: Long Term Quality
and Focus on Change.
Our distribution
Through our global network of offices, the role of our distribution
team is to access potential investors and develop trusted, long-
term relationships founded on high-quality client service. We
have a targeted approach to growth by concentrating on
distributing Aberdeen Standard Investments’ products in the
markets where we have a strong track record. Distribution of our
products is supported by the promotion of the Aberdeen
Standard Investments brand through a co-ordinated series of
local and regional brand awareness initiatives and sponsorship
opportunities.
In the institutional market, we are a chosen investment partner of
pension funds, insurers, sovereign wealth funds, governments
and local authorities, charities and financial institutions, providing
both pooled and segregated investment management.
The market environment for active asset managers was challenging in
2018. As one of the largest active managers in the world, we are inevitably
affected by these headwinds, and that is clearly reflected in our investment
performance. We remain focused on supporting our teams and improving
performance, while remaining true to our investment approach.
In the wholesale investment market, we support wealth
managers, private banks and financial advisers, as well as
making our investment products available directly to private
investors. We also offer investment solutions to private investors
via our wealth management channel.
AUM at 31 December 20181 (£bn)
We create and manage outcome-oriented portfolios of alternative strategies
Alternatives
• Offer a full range of global hedge fund and diversification strategies
across the liquidity spectrum
• Outcome orientated portfolios that use a disciplined and proven
research-driven investment process
• Highly experienced team in alternative investing supported by global
research coverage
> 25
investment professionals
London & New York
Global reach hubs
Award winning – innovative
solutions
Real estate
• Our status as one of the world’s largest real estate managers helps
Our approach to real estate is global, but implemented locally
credibility, deal flow and our ability to provide a one-stop shop for clients
• Global reach allows us to uncover more investment opportunities that
have potential to enhance investors’ returns
• Well established and long-term track record with demonstrated ability of
adapting to ever changing market conditions
> 270
investment professionals
11 countries
Global team presence
Leading global rankings in
real estate sustainability
benchmark
Quantitative
• Experienced team managing assets across a range of strategies:
Experts in proprietary multifactor investing
traditional passive indexation, enhanced indexation, smart beta and
active quant using artificial intelligence
• Provide clients with products and solutions that are customised to their
needs
• Open-innovation approach focuses on collaboration with world-class
partners
> 30
investment professionals
Experienced team
formed in 2005
Multifactor investment
approach to drive improved
returns
Total
£12.3bn
UK real estate
European real
estate
n
b
2
2
1
£
.
n
b
8
0
£
.
n
b
4
1
£
.
Global real estate
Real estate
multi-manager
Total
£29.7bn
n
b
3
2
1
£
.
n
b
3
5
1
£
.
n
b
1
.
2
£
We offer bespoke solutions to meet specific client liquidity and yield objectives
Cash/liquidity
• Manage assets for a broad range of institutional clients
• Enhanced size and scale enable us to deliver better outcomes for
clients
• Offer tailored solutions for capital preservations, daily dealing and
enhanced yield objectives
1 Excludes strategic insurance partners.
n
b
5
6
1
£
.
> 10
investment professionals
Portfolio managers in
Edinburgh, London and
Philadelphia
Key player in the liquidity
market
Total
£2.1bn
Total
£16.5bn
19
Standard Life Aberdeen 2018StrAtegic report
Deliver what
matters
We relentlessly focus on delivering outcomes that
truly matter to our clients and customers. We build
trusted relationships. We do the right thing and are
empowered to make a difference.
We have also focused on maintaining trusted,
long-term relationships with our clients to help
them understand the causes of weak
investment performance and, importantly, what
we are doing to address this. We’ve engaged
with clients in a variety of ways to keep them
informed. This includes white papers, market
analysis, and webinars led by our senior
leaders.
ESG at the heart of everything we do
We believe that positive investment outcomes
can be aligned with positive outcomes for
society and the environment. We integrate,
review and research ESG considerations
throughout the investment process. We see
this as an important way of protecting our
clients’ investments and believe it really adds to
the value we offer to them. It’s about analysing
the key issues for each asset class and using
that analysis to make better-informed
investment decisions for our clients. In 2018,
we announced our involvement as joint lead
partner and founder of The Big Exchange, part
of The Big Issue Group’s social investment
arm. The Exchange is a platform providing
investors with access to funds that meet ethical
investment criteria.
In addition, five of our real estate funds were
awarded ‘five star’ status by the global
sustainability benchmark GRESB for reaching
significant environmental targets, placing us in
the top 20% of our peers. Three of our funds
achieved the highest ESG performance of their
peer group.
Improving investment performance
It’s been a disappointing year for our
investment performance, and our long-term
approach is being tested by the market
environment. Our weaker three year
investment performance reflects negative
returns within multi-asset absolute return
strategies, and weakness in most equity
classes other than Asia Pacific and smaller
companies. Investment performance remains
robust across other asset classes. Investment
process evaluation and enhancement is a
continuous practice within investment teams,
however formal plans have been developed for
absolute return and equities.
Our process enhancement plans aim to
improve performance while remaining true to
our investment style. They focus on idea
generation, capture and implementation.
Actions we have taken include:
• Investment in new talent and enhanced risk
analytics tools
• Creation of a new Performance and
Investment Review Committee to strengthen
review processes
• Establishment of our research platform with
appointed heads of research, and creation of
a research institute to inform our macro and
longer-term thematic house views
• Enhanced Board level focus and oversight of
actions to improve investment performance
We recognise that improving multi-asset
absolute return strategies and equity
performance may take some time and will
depend partly on market conditions, but we are
encouraged by recent performance
improvement seen in emerging market equities.
20
Standard Life Aberdeen 2018
Standard Life Aberdeen 2018
21
Strategic report Working to create value…
…for our stakeholders
Clients and customers
Understanding our clients
and customers
We develop relationships with our
clients and customers based on
mutual trust and our ability to
effectively meet their needs. We
focus on understanding what they
want and put that at the centre of
our decision making.
How we engage
We operate in a way that allows us to stay close to our clients and actively seek feedback to inform
ongoing improvements. We create meaningful partnerships to understand how their requirements evolve.
We have a large global distribution team, and they significantly increased engagement with clients in 2018
across the full sales process.
We build up insight from clients and customers which helps to inform future product development and
innovation. For example, we conducted an online survey in 2018 of our institutional and wholesale clients
with respondents representing £31bn in AUM. Strengths included brand loyalty, however certain clients
were disappointed with the level of investment performance.
We also continue to engage with our adviser platform users and regularly monitor customer satisfaction.
Our Board receives regular updates on both satisfaction and complaints data.
Our people
How we engage
In November 2018, we conducted a company-wide employee survey. 69% of our people responded,
giving us their views on our strategic direction, the impact of transformation, and confidence in our leaders.
The survey results are discussed on page 28.
We ran company-wide workshops in 2018 to ask our people to help shape our culture and values.
Existing employee representative forums have joined together to form a new single employee forum
representing employees in the UK. In Q1 2019, we agreed that one of our non-executive Directors would
take on the role of liaising on employee engagement.
How we engage
We are active investors. During 2018, we engaged regularly with the boards and senior leaders of
companies. We voted at 4,875 shareholder meetings and, in some cases, spoke publicly about areas of
concern.
We actively engage with all material suppliers and take part in regular oversight, monitoring and feedback
with them, up to and including at chief executive level. We aim to ensure all suppliers are paid promptly.
Corporate sustainability is central to our business. We’ve been recognised in high-profile sustainability
indices, including the Dow Jones Sustainability Index, where we were ranked in the top 5% for our sector,
and also the FTSE4Good index where we were listed in the top 1% of companies. We were also awarded
Better Society’s 2018 Financial Services Company of the Year award.
Stakeholder interests at the heart of the SLAL sale and our
strategic partnership with Phoenix
For it to be a success, we knew that the
sale and our partnership would need to
work for all our stakeholders.
In the long term, we considered that the deal would
be good for transferred and retained employees, as
the partnership offered new and exciting
opportunities going forward. However, we recognise
that it has and will create shorter-term uncertainty.
Many of Standard Life’s systems,
processes and people transferred; which,
combined with a licence granted to
Phoenix to use the Standard Life brand,
meant customers would have the same
experience before and after completion of
the sale. They will have continued access
to Aberdeen Standard Investments’
investment capabilities; and the advice
and platforms businesses are retained by
Standard Life Aberdeen.
22
The enhanced partnership with Phoenix and sale of
SLAL facilitated our new operating model and we
expect this to enable significant cost savings. The
sale also enabled the delivery of the significant capital
return to shareholders.
Phoenix now has a significant presence in Edinburgh.
This enhances Scotland’s reputation as a key
financial centre, helping attract talented people to the
capital.
Section 172 (1)
statement
The Directors are fully aware of their
responsibilities to promote the
success of the company in
accordance with s172 of the
Companies Act. The content on
stakeholder engagement on pages
22 to 23 and business practices on
pages 48 to 49 highlight key actions
in this area.
Further details on how the Directors’
duties are discharged and the
oversight of these duties are included
in the Governance section on pages
54 to 62 and 75 to 80.
Understanding our people
Having people who bring a diverse
range of talents and perspectives,
and who feel engaged in their roles,
is fundamental to the long-term
success of our business. It is
crucial that we understand their
values and what motivates them –
and reflect this in the way we
operate.
Wider society
Understanding our role in
wider society
As a global investment company
we have a responsibility in terms of
the influence we can have on our
industry, our supply chain and
wider society. We take these
responsibilities seriously and we
are proud to serve the communities
in which we operate.
Standard Life Aberdeen 2018
…for our shareholders
Our shareholders
Understanding our
shareholders
The support and engagement of
our shareholders is imperative to
the future success of our business.
We have a productive ongoing
dialogue with both large investors
and retail shareholders. Our aim is
to provide best-in-class service and
relevant, timely communications.
We believe that maintaining our
reputation for high standards of
conduct is not just doing the right
thing, but something that builds
value for our shareholders.
How we engage
We are in touch with our shareholders at least three times a year with information about shareholder
meetings, dividend payments, and financial results.
Our annual general meetings alternate between London and Edinburgh to allow more shareholders to
attend and enable us to gather shareholders’ views while giving them the opportunity to hear directly from
our Chairman and Board.
Shareholders can view and manage their holdings using our online share portal, and can also download
the Standard Life Aberdeen investor app for share price information, press releases and regulatory news.
We have a programme of regular meetings with institutional investors and analysts around the world, to
understand their views and address any concerns.
Read more in the Governance section on page 60.
Our investment case
Well positioned to benefit from the trends shaping
the global savings and investment landscape
A broad and compelling client offering
• Strong track record of reacting and adapting to changes in our
• Aberdeen Standard Investments is one of the largest active
markets
• Ability to respond through innovation in key areas of growing
client demand
• Scale to meet expected growth in demand for advice and
platforms in the UK
• We own significant shareholdings in savings and investment
businesses in the growing economies of India and China
Global distribution with close proximity to clients
• Offices in 54 locations around the world
• Clients in around 80 countries
• Partners around the world provide local expertise in some of the
world’s largest economies – including Mitsubishi UFJ and
Sumitomo Mitsui in Japan, Bosera in China, Manulife and John
Hancock in North America, HDFC in India, and Challenger in
Australia
• Enhanced partnership with Phoenix providing potential access
to up to 10 million customers in the UK
asset managers in the world
• Formal plans in place to improve investment performance for
absolute return and equities, with recent improvement seen in
emerging market equities
• Track record of product innovation across a broad range of
asset classes
• Strong pipeline of innovative ideas across region, channel, asset
class and outcome
Fast growing UK adviser platforms and financial
advice capability
• Market-leading UK adviser platform business with over £59bn of
assets under administration
• Scalable through operational leverage, with a clear path to
growing profitability
• Expanding national financial planning and advice business
1825, acquiring two IFA firms in 2018
• Proposed new strategic joint venture with Virgin Money/CYBG
provides potential opportunity to leverage our platform
technology to offer investment solutions to their six million retail
customers
Enhanced operational efficiency
Strong balance sheet and valuable listed
investments
• Targeting annualised cost efficiencies of at least £350m to be
achieved by end of 2020 with £175m already implemented.
2018 results benefited by c£120m with further benefit to come
• Announced a simplified operating model, providing platform for
• £2.6bn of Group cash and liquid resources, providing financial
strength and supporting investment in innovation, technology
and our people
• Track record of reshaping our balance sheet and returning
growth and increased efficiency
capital to shareholders
• Targeting a cost/income ratio of 60% over the longer term
• Combined value of our shareholdings in Phoenix, HDFC Asset
Management and HDFC Life at 11 March 2019 was c£4.5bn
23
Standard Life Aberdeen 2018StrAtegic report
Our market
Responding to challenging markets
2018 proved to be a challenging year for markets, which shared
little resemblance to the year before. A wide variety of political,
economic and financial issues overwhelmed investors across
almost all asset classes and regions. Meanwhile volatility, which
was largely absent in 2017, reappeared to the detriment of global
investors. Most asset classes registered negative returns in 2018.
Rod Paris, Chief Investment Officer
A year of challenging market conditions
Across global markets, some of the positive drivers from 2017
reversed and a number of potential risks we had identified at the start
of last year did become reality. The US equity market outperformed
most other developed markets, assisted by above-trend growth in the
US economy and tax cuts, however December was an exceptionally
poor month. There was rotation within equity markets in terms of
which sectors performed best. Defensive sectors like healthcare and
utilities took the lead, while energy and financials were the hardest hit.
Large technology stocks faced a perfect storm of stretched
valuations, slower subscriber/revenue growth, data breaches and
increased regulatory scrutiny. Credit markets in the US and Europe –
in lower-risk investment grade bonds and higher-risk high yield bonds
– achieved negative annual returns. Despite risk aversion, over the
year as a whole only a few sovereign bond markets, such as
Germany, achieved positive returns.
27.8%
21.8%
6.5%
(0.3%)
(4.4%)
(13.8%)
Global ex-US equity
US equity
2017
2018
Total market return
Global government
bonds
Source: Refinitiv Datastream, Bloomberg, Aberdeen Standard
Investments (as at 31 December 2018)
The strength of the US economy allowed the Federal Reserve to
continue monetary tightening. Japan and Europe continued
quantitative easing and kept rates on hold, while China first tightened
and then relaxed its restrictions on bank lending in response to faster
or slower growth. The US Dollar strengthened against most other
24
major currencies in 2018. Falling unemployment and periodically
higher oil prices gave rise to inflation concerns. Volatility, meanwhile
reappeared, with two particularly sharp episodes in early February
and late December, reaching levels not seen since the financial crisis.
Barriers to market growth
Rising US interest rates and a strong dollar, accompanied by rising oil
prices and geopolitical factors, were significant barriers to emerging
market growth. China, a key global driver in recent years, signalled a
transition in its growth as it embarked on a deleveraging campaign to
reduce debt. This, combined with US tariffs, caused negative
sentiment in Chinese equity markets which spread to other emerging
markets.
Geopolitical risk, which had been relatively subdued coming into
2018, became front of mind for investors. US-China relations,
especially over trade tensions, deteriorated substantially. Populist
gains in Italy, Brazil and parts of Germany, as well as the Democrats’
success in the US mid-term elections, reshaped governments and
played through markets. Brexit loomed large at various points,
translating to increased volatility in UK assets.
Looking ahead
As the effects of tax cuts in the US fade and trade tensions continue,
market participants are focused on economic data signalling further
slowing in 2019. This has made markets more responsive to bad,
relative to good news. Although a number of economic indicators now
suggest slowing growth, it should be emphasised that they are not
currently signalling imminent recession; indeed the response from
governments and central banks makes us more positive on such a
view.
The backdrop to the market remains complex and we believe this will
continue to impact on returns. That said, we believe our continuous
focus on understanding client needs, and on improving and
innovating our investment solutions, will create opportunities to
manage risk and achieve sustainable goals of growth, income and
capital preservation.
Standard Life Aberdeen 2018
Responding to the changing investment
landscape
Despite the challenges we faced in 2018, we are a resilient business,
committed to our purpose. We remain well-positioned to continue
benefiting from the trends that shape the global savings and
investments landscape.
Keith Skeoch, Co-Chief Executive
Innovation, technology and digitalisation
Successful innovation is a key driver of long-term value for clients and
shareholders. The next generation of savers will interact with
investments in different ways, as technology provides new tools that
allow them to manage their own affairs. Machine learning is playing a
growing role in how these tools are developed across our industry. At
the same time, cyber security remains a growing issue. Managing the
risks is critical for large companies and their customers.
Democratisation of financial risk
Changes to the savings landscape have continued to move risk and
responsibility further towards individuals. This trend is driving the need
for simpler products and services to help clients and customers invest
and save effectively. Changes in pension legislation giving more
choice and more responsibility to savers is also increasing demand for
financial advice – and from financial advisers for platforms that help
them to offer the support that their customers expect.
Our response
Our focus on active investment management helps us to meet the
growing demand for outcome-oriented products. Following the
sale of our UK and European insurance business to Phoenix, we
have retained our fast-growing, market-leading adviser platforms,
as well as our wholly-owned financial advice business, 1825, to
meet the growing demand for financial advice from individuals.
These channels will remain important to our retail growth strategy
in the UK. Our shareholding in Phoenix means we also retain a
significant presence in the UK pensions and savings market.
Rebuilding trust in financial services
The global financial crisis damaged trust in financial services
organisations. We believe our industry has a duty to build trust
through transparency on fees, clarity on risks and education on
investment strategy. Asset managers also have a role in developing
trust and driving transparency more broadly by challenging the
companies in which they invest to provide evidence, not only of their
financial returns, but also of their societal and environmental impact.
Our response
As long-term investors we take our stewardship responsibilities
very seriously. We engage with businesses, governments and
regulators to improve the efficiency and relevance of capital
markets and the sustainability of returns they deliver. We
completed a programme of work to meet the requirements of
MiFID II – a 2018 EU directive that aims to improve transparency
in how financial market participants operate. The processes put in
place are now part of our business as usual operations.
We offer investment strategies that aim to provide a social as well
as a capital return, by reflecting society’s concerns about issues
like fair employment, environment, inequality and sustainability. A
practical example of this is our Global Equity Impact Fund, which
invests in companies that aim to generate measurable positive
social and environmental impact alongside financial returns.
Our response
Our ability to innovate is crucial to ensuring that we can continue to
meet customer and client needs. We’ve put in place a Collective
Investment Technology Solutions team to support how we deliver
to retail, wholesale and institutional clients globally. Artificial
intelligence processes are also helping us to identify sources of
potential returns within our investment portfolios, and to develop
our digital advice capabilities in the UK.
Managing cyber security is about more than having the right IT
systems and software in place. As part of our Cyber Awareness
Week, we highlighted to employees their responsibilities and steps
they can take to be more secure, resilient and vigilant in this area.
Slow growth, low inflation, compressed return
environment
Market volatility and uncertainty will be with us for some time, which
will result in changing client demands. Clients are looking for simple
and transparent products with clear outcomes that will meet their
investment needs, and we’re seeing a continued demand for active
investment solutions – particularly ‘new active’ solutions, which focus
on achieving specific outcomes to meet specific client needs.
Our response
‘New active’ is likely to play a major role in building long-term
relationships with clients and meeting their growing demands for
more variety and choice. We are already one of the leading
companies in private markets/alternatives globally and we
continue to make significant investment in designing innovative
outcome focused funds.
2022 market revenue opportunity
c75% ‘new active’
Passives/
Exchange-traded funds
Private markets/
Alternatives
Traditional
active
Solutions
Active
specialities
17%
$65bn
7%
$28bn
12%
$47bn
20%
$73bn
44%
$162bn
Source: BCG, July 2018
‘New active’
25
Standard Life Aberdeen 2018StrAtegic report
Our strategy
Enabling our ambitions
Strategic objective Why it’s important
Progress this year
Client and customer
centricity
Our primary focus is on delivering for our clients
and customers. It means working to understand
their evolving needs, and using that knowledge
to innovate and improve our products and
services. We continually look to develop new
relationships across the globe, to provide trusted
expertise and build lasting partnerships.
Enhancing our
operations
We’re helping our people be more productive, by
simplifying and improving our ways of working
and creating a collaborative, insight-driven
culture to ensure we deliver a world-class
service. Through enhanced technology our
business will be more agile, flexible and scalable.
The systems, processes and external service
providers we use will be efficient and help us
manage costs, allowing us to invest for growth.
Innovating for the
future
Valuing our savings
ecosystem
The ways in which people invest and save
continues to evolve. Clients and customers want
a diverse range of products that meet their needs
and generate positive investment outcomes
through a modern technology-enabled
experience. Investing in innovative, leading edge
capabilities gives us the potential to attract a
wider range of investors, enhance existing
relationships and develop smarter, more
effective ways of engaging with them.
Optimising the breadth and depth of our
investment management, platform and advice
ecosystem, along with our geographical reach,
enables us to meet the savings needs of clients
and customers around the world. We aim to play
a stronger role in helping people save effectively
and understand the investment solutions which
are right for them. We make the most of our
strong brands to deliver enhanced value across
all of the products and services we offer.
• Investment performance was mixed in 2018 – see the Chief
Financial Officer’s overview on page 33 for details
• Enhanced offering to advisers through launch of
Professional Portfolio Manager on the Wrap platform
• Refreshed our distribution strategies, bringing more
consistency and discipline to our relationship and client
teams globally
• Ran our institutional and wholesale client survey in our four
global regions, to understand factors affecting levels of
client satisfaction, engagement, loyalty and advocacy
• Sale of our UK and European insurance business to
Phoenix completed transformation to a fee based, capital-
light business
• Delivered further annualised cost savings bringing total
delivered to £175m with actions including
– Integration completed across our client and consultant
facing investment and distribution teams
– New operating model implemented – simplifying our
structure and establishing clear functional and regional
responsibilities and accountabilities
– Over 4,000 of our people co-located as part of our
estate optimisation
• Accelerated pace of innovation with 32 fund launches in
2018 compared to 22 in 2017 and around 20 funds in the
later stages of development
• Completed IPO of HDFC Asset Management in August
2018, generating approximately £180m from the sale of part
of our stake, supporting further reinvestment in our
business
• Three bolt-on acquisitions accelerated our US capabilities in
private markets, closed-ended funds and exchange-traded
funds
• Launched an innovative financing strategy for private
market funds, developed in collaboration with Phoenix
• Extended and enhanced strategic partnership with Phoenix,
providing further opportunity for future growth
• Joint venture announced with Virgin Money with potential to
offer investment solutions to the combined retail customer
base of Clydesdale Bank, Yorkshire Bank and Virgin Money
• Launched Aberdeen Standard Investments’ first global
marketing campaign, to show the breadth of expertise and
solutions we can offer to high net worth customers
• New advertising campaign for Standard Life in the UK
targeting improved brand sentiment and product
association
26
Standard Life Aberdeen 2018
Our business has transformed in line with our vision. Our strategic
objectives now reflect the new shape of our business and our
priorities for the future.
Performance highlights
Key risks
Focus for 2019
Investment performance1
1 year: 47% (2017: 70%)
3 years2: 50% (2017: 63%)
5 years: 62% (2017: 64%)
2018 Defaqto Gold rating for service
Wrap and Elevate
2018 Defaqto 5 star rating for
discretionary portfolio services
Aberdeen Standard Capital and
Parmenion
Cost/income ratio2,3
68% (2017: 71%)
Adjusted profit before tax2,3
£650m (2017: £660m)
IFRS profit after tax attributable
to equity shareholders
£830m (2017: £699m)
Employee survey – Engagement
56%
4
5
7
1
2
3
4
9
10
11
• Supporting our teams and improving investment performance through
process enhancement plans across all asset classes
• Continue to develop trusted client relationships at a local level, through 23
investment centres worldwide
• In our UK savings business, further invest in our retail platforms to
enhance functionality and adviser experience
• Enhance profile of our flagship brands (Aberdeen Standard Investments
and Standard Life) and our profile as an ESG leader
10
11
12
5
6
7
8
• Maintain progress towards combined merger and simplification efficiencies
of at least £350m including:
– Migration of assets administered by Aberdeen Asset Management to
an integrated global investment platform
– Develop working practices to enhance productivity by reducing
duplication and delayering of processes
– Further systems integration including single HR platform
• Progress implementation of separation plan to reduce transitional services
provided by Phoenix
• Implement actions to improve employee engagement, based on themes
from our company-wide survey
AUMA2,3
£551.5bn (2017: £608.1bn)
Gross inflows2,3
£75.2bn (2017: £72.4bn)
Adjusted profit before tax2,3
£650m (2017: £660m)
2
9
10
11
11
7
• Develop our private markets offering by working with clients, delivering
innovative solutions and generating performance through diversified and
connected capabilities
• Develop our connected, global, proprietary research platform incorporating
insights into macro and micro investment strategies
• Further expand our ‘new active’ capabilities – including our first Active
Macro Systematic fund, applying quantitative principles to multi-asset
investing
• Progress build of digitally-enabled advice offering to serve broader retail
market
AUMA2,3
£551.5bn (2017: £608.1bn)
Gross inflows2,3
£75.2bn (2017: £72.4bn)
Net flows2,3
£40.9bn outflow
(2017: £32.9bn outflow)
11
9
10
12
11
7
• Leverage strategic partnership with Phoenix to grow retail business and
access new customers
• Launch of proposed joint venture with Virgin Money, anticipated Q2 2019
• Pursue our structured programme to seek further opportunities to grow
and diversify our business, including by selective bolt-on acquisitions
• Drive accelerated growth and increase flows through our platform
business through our new Professional Portfolio Manager capability, the
launch of auto-tailoring Individually Managed Accounts and the
competitive repositioning of Elevate
1 Percentage of AUM ahead of benchmark.
2 KPI.
3 From Continuing operations.
Read about key risks
on pages 42 to 47.
27
Standard Life Aberdeen 2018StrAtegic report
Our people and culture
Building the foundations for
success
We want to develop a culture that will enable us to be the best that
we can – where we are inspired by our differences and united behind
a common purpose.
Defining our desired culture
There has been a significant amount of work across the organisation
to identify the best attributes of our existing culture and to understand
what we need our culture to be in order to realise our vision and to
deliver our strategy.
An important aspect of nurturing our culture is articulating our values.
Around 1,800 of our people took the opportunity to co-create and
shape our values using several feedback channels. Their input was
an essential part in defining values that underpin our strategy and
help us deliver great outcomes for clients and customers.
t e c onnectio
n
s
Our
values
a
C r e
D
e
l
i
v
e
r
w
h
a
t
m
atters
A d
l
e
c
x
e
d
n
a pt a
Measuring employee engagement
In 2018 we ran a full engagement survey for all employees, to help us
understand how it currently feels to work for us, how our people would
like this to feel in the future, and what action our company needs to
take. 69% of our employees responded to the survey. The results
reflect that recent company change has been difficult for colleagues –
but provide an important baseline from which to build and improve,
and help us to identify the main areas we need to focus on.
The responses gave us an overall engagement score of 56%. This
represents the average score that employees gave for questions
measuring advocacy, pride, motivation and job satisfaction. The main
themes that emerged from the survey included the need to improve
how we communicate our strategic direction to employees, and how
we minimise the factors that can prevent people from doing their jobs
as effectively as possible. Positive views centred on how our
managers lead through change, colleagues feeling able to be
themselves at work and our continued focus on inclusion.
Over the year ahead we will plan actions based on the themes that
emerged, and continue to measure engagement, mood and culture
across the company.
Demonstrating our values in society
Our culture encourages playing a role in wider society and supports our people to contribute to the communities around us.
We offer three days’ paid leave to each
employee to encourage our people to volunteer
in their local communities – making a difference
and learning new skills. 15,118 hours of
volunteering took place in 2018. As part of our
global volunteering day in 2018, over 400
employees around the world took part in
activities to support initiatives in the
communities we operate in.
In Scotland, we are supporting and funding The
Big Issue Invest ‘Power Up Scotland’
programme to help early stage social
enterprises tackling issues, like homelessness,
food poverty, unemployment and care for the
elderly. A number of our people have been
involved in coaching social enterprises for a
period of three months, providing expertise to
help develop their business models.
In the UK, we also partner with the charity
Career Ready, which connects young people
with the world of work.
28
As part of the programme, mentors support
young people in their last couple of years of
school. To date our people have mentored
113 young people.
During 2018, 12 of our people from the
Americas, Asia and Europe spent five days in
Northern Thailand helping to build a water
sanitisation system with the Karen Hilltribes
Trust. In December 2018, 16 colleagues
travelled to Senegal with buildOn to start
building a school.
In December 2018, our colleagues voted for
our new UK charity partner. We selected a
shortlist of charities that may have impacted
employees or their friends and families at
various stages of their lives. The winner was
Dementia UK. The aim of the partnership is to
fund the first Admiral Nurses in Scotland, and
additional nurses in communities across the
UK.
Amanda Young, Global Head of ESG
Research and Craig Macdonald, Global
Head of Fixed Income join John
Montague, Managing Director at Big Issue
Invest and Ben Macpherson MSP for the
launch of Power Up Scotland.
A strategic approach to improving inclusion
Building a diverse talent pipeline and understanding our people's
needs help us respond to changing client demands, deliver valuable
insights, and fulfil our strategic objectives.
We were one of the first asset managers to publish a co-created
inclusion strategy which aims to create an inclusive culture by
engaging people at all levels of our organisation. The principles that
continue to inform our inclusion strategy are:
• Being transparent
• Promoting our commitment to inclusion
• Bringing value to our business
We have strengthened oversight and governance of our progress
against these areas of focus at a senior level. We are also working to
improve the quality of the demographic-based information we gather
from our employees.
You can read our Inclusion strategy on our website
www.standardlifeaberdeen.com/annualreport
Putting inclusion into action
During 2018, we made good progress in a number of important areas
that contribute to creating a more inclusive workplace.
We delivered our first gender action plan and published our refreshed
plan outlining areas of focus for the next 12-18 months. We have
increased female representation at a senior level by 7% under our
Women in Finance Charter commitments, and are now working on
sustaining progress. We were also included in the Bloomberg Gender
Equality and Equileap Top 200 global indices for the first time.
We were one of the founding signatories of the Race at Work Charter
which commits organisations to tackling barriers that ethnic minority
people face in recruitment and progression. As part of delivering on
our commitments we launched our ethnic diversity action plan, and
continued our work with external organisations that help to provide
employment opportunities to ethnic minority young people. These
include the Taylor Bennett Foundation, The Prince’s Trust, and
Sponsors for Educational Opportunity (SEO) London.
Our focus on social mobility has gained important external
recognition, such as being included as one of the Social Mobility
Foundation’s top 50 employers in its Social Mobility Employer Index.
We partner with a number of charities to open up employment and
internship opportunities for young people from all backgrounds. These
include The Prince’s Trust, Investment 2020 and Career Ready. We
have also signed up to the Social Mobility Pledge, a cross-party
campaign to improve social mobility across the UK.
Over 1,100 people contribute to and are supported by our employee-
led networks. Championing aspects of diversity and inclusion across
our global business, these groups work collaboratively to effect
change and are sponsored by our senior leaders. In 2018 we
launched a new network supporting mental health awareness and
refreshed our LGBT+ network and gender balance network. Through
our support for the Armed Forces, to which our Armed Forces
network makes a big contribution, we achieved a Gold award from the
Ministry of Defence's employer recognition scheme.
For all of our employees, we’ve developed guidelines for agile
working, supporting them to work where, when and how is most
effective for both them and our company. We share case studies
among employees to provide insight and examples of how their
colleagues work in an agile way.
The gender pay gap
Our gender targets
This is the first year we have reported a Standard Life Aberdeen
As part of our commitments to HM Treasury’s Women in Finance
gender pay gap. As at April 2018, our mean gender pay gap was
Charter, we have published the following targets for women in
40% and our mean gender bonus gap was 69%. Last year we
different levels in our organisation:
shared separate data sets for Standard Life and Aberdeen Asset
Management, as these were calculated before the merger.
However, even without being able to compare directly to last year,
there is little material change in our gender pay gap for this year.
Our pay gap is primarily the result of our workforce structure, with a
higher number of men in senior roles – the roles that attract higher
salary and bonus potential – and a higher number of women in
junior, lower paid roles.
We have made progress in improving gender representation two
leadership levels below CEO level, but we have more work to do at
both the Board and Executive Team levels.
Our gender pay gap remains high but we know that improving our
gender balance and reducing our gap will take time and enduring
focus. Through increased transparency and communication since
our publication of Year 1 gender pay and bonus information, we are
building momentum for change across the organisation.
You can read our full gender pay gap disclosure, analysis and
what we are doing to tackle our gender pay gap in our report on
our website www.standardlifeaberdeen.com/annualreport
Target by
Actual
June 2020
31 Dec 2018
Level
Board
Executive1
Entire global
workforce
Entire UK workforce
%
33
33
502
502
Actual
31 Dec 2018
Number
3 of 12
80 of 235
%3
25
34
45 2,801 of 6,192
45 2,119 of 4,727
1 People employed in roles across the two leadership levels below CEO, excluding
admin employees. Our CFO and CIO, who sit on our Board, are included in both
our Board and Executive populations.
2 Target has a tolerance of 3%.
3 Data is prepared in accordance with our reporting methodology and the KPIs are
within KPMG’s limited assurance scope. Both KPMG’s limited assurance report
and our reporting methodology can be found at
www.standardlifeaberdeen.com/annualreport
To demonstrate progress in developing our talent pipeline we will
continue to track the gender balance in our succession pool, for
those ready for our most senior roles within the next three to five
years. At January 2019, women made up 56% of named individuals
on the succession list for these roles.
Standard Life Aberdeen 2018
A strategic approach to improving inclusion
Building a diverse talent pipeline and understanding our people's
needs help us respond to changing client demands, deliver valuable
insights, and fulfil our strategic objectives.
We were one of the first asset managers to publish a co-created
inclusion strategy which aims to create an inclusive culture by
engaging people at all levels of our organisation. The principles that
continue to inform our inclusion strategy are:
• Being transparent
• Promoting our commitment to inclusion
• Bringing value to our business
We have strengthened oversight and governance of our progress
against these areas of focus at a senior level. We are also working to
improve the quality of the demographic-based information we gather
from our employees.
You can read our Inclusion strategy on our website
www.standardlifeaberdeen.com/annualreport
Putting inclusion into action
During 2018, we made good progress in a number of important areas
that contribute to creating a more inclusive workplace.
We delivered our first gender action plan and published our refreshed
plan outlining areas of focus for the next 12-18 months. We have
increased female representation at a senior level by 7% under our
Women in Finance Charter commitments, and are now working on
sustaining progress. We were also included in the Bloomberg Gender
Equality and Equileap Top 200 global indices for the first time.
We were one of the founding signatories of the Race at Work Charter
which commits organisations to tackling barriers that ethnic minority
people face in recruitment and progression. As part of delivering on
our commitments we launched our ethnic diversity action plan, and
continued our work with external organisations that help to provide
employment opportunities to ethnic minority young people. These
include the Taylor Bennett Foundation, The Prince’s Trust, and
Sponsors for Educational Opportunity (SEO) London.
Our focus on social mobility has gained important external
recognition, such as being included as one of the Social Mobility
Foundation’s top 50 employers in its Social Mobility Employer Index.
We partner with a number of charities to open up employment and
internship opportunities for young people from all backgrounds. These
include The Prince’s Trust, Investment 2020 and Career Ready. We
have also signed up to the Social Mobility Pledge, a cross-party
campaign to improve social mobility across the UK.
Over 1,100 people contribute to and are supported by our employee-
led networks. Championing aspects of diversity and inclusion across
our global business, these groups work collaboratively to effect
change and are sponsored by our senior leaders. In 2018 we
launched a new network supporting mental health awareness and
refreshed our LGBT+ network and gender balance network. Through
our support for the Armed Forces, to which our Armed Forces
network makes a big contribution, we achieved a Gold award from the
Ministry of Defence's employer recognition scheme.
For all of our employees, we’ve developed guidelines for agile
working, supporting them to work where, when and how is most
effective for both them and our company. We share case studies
among employees to provide insight and examples of how their
colleagues work in an agile way.
The gender pay gap
This is the first year we have reported a Standard Life Aberdeen
gender pay gap. As at April 2018, our mean gender pay gap was
40% and our mean gender bonus gap was 69%. Last year we
shared separate data sets for Standard Life and Aberdeen Asset
Management, as these were calculated before the merger.
However, even without being able to compare directly to last year,
there is little material change in our gender pay gap for this year.
Our pay gap is primarily the result of our workforce structure, with a
higher number of men in senior roles – the roles that attract higher
salary and bonus potential – and a higher number of women in
junior, lower paid roles.
We have made progress in improving gender representation two
leadership levels below CEO level, but we have more work to do at
both the Board and Executive Team levels.
Our gender pay gap remains high but we know that improving our
gender balance and reducing our gap will take time and enduring
focus. Through increased transparency and communication since
our publication of Year 1 gender pay and bonus information, we are
building momentum for change across the organisation.
You can read our full gender pay gap disclosure, analysis and
what we are doing to tackle our gender pay gap in our report on
our website www.standardlifeaberdeen.com/annualreport
Our gender targets
As part of our commitments to HM Treasury’s Women in Finance
Charter, we have published the following targets for women in
different levels in our organisation:
Target by
June 2020
%
Actual
31 Dec 2018
%3
33
33
25
34
Actual
31 Dec 2018
Number
3 of 12
80 of 235
Level
Board
Executive1
Entire global
workforce
Entire UK workforce
502
502
1 People employed in roles across the two leadership levels below CEO, excluding
admin employees. Our CFO and CIO, who sit on our Board, are included in both
our Board and Executive populations.
45 2,119 of 4,727
45 2,801 of 6,192
2 Target has a tolerance of 3%.
3 Data is prepared in accordance with our reporting methodology and the KPIs are
within KPMG’s limited assurance scope. Both KPMG’s limited assurance report
and our reporting methodology can be found at
www.standardlifeaberdeen.com/annualreport
To demonstrate progress in developing our talent pipeline we will
continue to track the gender balance in our succession pool, for
those ready for our most senior roles within the next three to five
years. At January 2019, women made up 56% of named individuals
on the succession list for these roles.
29
Standard Life Aberdeen 2018StrAtegic report
Chief Financial Officer’s overview
Continued delivery of cost efficiencies in
a difficult market and flows environment
We remain focused on driving operational efficiency and cost
control as we move closer to completing the integration and
the implementation of our simplified global operating model.
We have delivered a resilient performance against a
challenging industry backdrop and weak investor sentiment.
Bill Rattray
Q | What are the main changes you have made to
the reporting of financial performance in this
year’s results?
The discussion of the results on the following pages focuses
mainly on our Continuing operations, excluding the results of
the UK and European insurance business which we sold
during the year. The results for this disposed business are
discussed separately on page 37.
Following the sale of the UK and European insurance
business we have also changed how we report our business
segment performance to align with how the continuing
business is managed and reported internally. The Asset
management and platforms segment comprises our asset
management (including HDFC Asset Management), platforms
and advice businesses. The Insurance associates and joint
ventures segment comprises our associate and joint venture
life businesses – Phoenix, HDFC Life and HASL.
Q | Can you explain your capital position?
Following the sale of our UK and European insurance business to
Phoenix, we are now regulated under the CRD IV regime for
group-level prudential regulatory capital. Previously, the Group was
regulated as an insurance company under Solvency II.
The sale has resulted in a significant reduction in our capital
requirements reflecting the completion of our transformation into a
fee based, capital-light business; however, the change of regulatory
regime meant that our subordinated debt instruments no longer
counted as regulatory capital under CRD IV. We therefore undertook
a tender to retire two instruments with nominal value of £800m and
reached agreement with holders to amend the terms of a $750m
bond to comply with CRD IV requirements. The Group total capital
requirement under CRD IV is £1.1bn at 31 December 2018.
The sale proceeds enabled us to announce the substantial return of
capital to shareholders of up to £1.75bn. We returned £1bn to
shareholders by way of a ‘B’ share scheme in November 2018, and
have made good progress on our share buyback programme, with
£235m completed by the end of 2018.
We remain strongly capitalised with a CRD IV Group regulatory
capital surplus of £0.6bn at 31 December 2018. This surplus
includes a deduction to allow for the proposed final dividend which
will be paid in May 2019, and a deduction for £140m of share
buyback which had been announced in 2018 but which is being
completed in 2019.
Reported and Pro forma results
The merger of Standard Life plc and Aberdeen Asset Management PLC
(Aberdeen) completed on 14 August 2017, with the merger accounted
for as an acquisition of Aberdeen by Standard Life plc on that date. Pro
forma results for the Group are prepared as if Standard Life Group and
Aberdeen had always been merged and are included for comparative
periods to assist in explaining trends in financial performance by
showing a full 12 months performance for the combined Group for all
years. The difference between the Reported results and Pro forma
results is the results of Aberdeen prior to completion of the merger.
Our results for 2018 includes our 19.98% share of the Phoenix results
for the four months ended 31 December 2018. Comparative periods
have not been restated and therefore our share of Phoenix is not
included prior to 31 August 2018 in either Reported or Pro forma
results.
Alternative performance measures
We assess our financial performance using a variety of
measures. Some of these measures are defined under IFRS
such as IFRS profit. Others, such as adjusted profit, are not
defined under IFRS and are therefore termed alternative
performance measures (APMs). APMs are used to help provide a
fuller understanding of the performance of our business.
APMs should be read together with the Group’s IFRS
consolidated income statement, IFRS consolidated statement of
financial position and IFRS consolidated statement of cash flows,
which are presented in the Group financial statements section of
this report. Further details on alternative performance measures
including reconciliations to relevant IFRS metrics are provided in
the Supplementary information in Section 10.
30
Standard Life Aberdeen 2018
2017
Pro forma
basis
2017
Reported
basis
2018
Other financial highlights
2017
Reported
basis
2018
IFRS (loss)/profit before tax1
IFRS profit after tax attributable
to equity holders
Diluted earnings per share2
1 Continuing operations excludes the UK and European insurance business. The
£830m
29.1p
(£787m)
£699m
29.6p
£438m
sale of this business to Phoenix completed on 31 August 2018.
2
In accordance with IAS 33, earnings per share have not been restated following
the share consolidation as there was an overall corresponding change in
resources. As a result of the share consolidation and share buyback earnings per
share from continuing operations for the year ended 31 December 2018 is not
directly comparable with the prior year. Refer to Note 11 of the Group financial
statements for information relating to the calculation of diluted earnings per share.
3 Percentage of AUM above benchmark. Calculated on a Pro forma basis and gross
of fees. A full definition is included in the Glossary on page 253.
We continue to make good progress towards our total targeted
annual cost savings of £350m to be achieved by end 2020, which
reflects both merger synergies and the benefits from simplifying
our operating model following the sale of the UK and European
insurance business. As at 31 December 2018, actions had been
taken to deliver £175m of the annualised costs savings, some of
which will not begin to take effect until 2019. This means that we
have already delivered 88% of our initial estimate of the merger
synergies of £200m, and 70% of the increased target of £250m
that we reported in 2017.
Key performance indicators
Adjusted profit before tax
Continuing operations1
Total
Adjusted diluted earnings
per share2
Continuing operations1
Total
Cost/income ratio1
Assets under management
and administration (AUMA)1
Gross inflows1
Net outflows1
Investment performance –
3 years3
Full year dividend per share
£650m
£860m
£660m
£1,039m
£475m
£854m
17.8p
22.5p
68%
17.2p
28.9p
71%
15.1p
29.9p
70%
£551.5bn £608.1bn
£72.4bn
(£32.9bn)
£75.2bn
(£40.9bn)
50%
21.6p
63%
21.3p
Q | Can you explain your profitability and actions
taken to reduce costs?
Adjusted profit before tax from continuing operations was £650m
(2017: £660m Pro forma basis) with lower revenue reflecting the
impact of net outflows in 2017 and 2018 partially offset by a
reduction in operating costs and the inclusion of our share of
Phoenix adjusted profits from 1 September 2018. Net outflows in
2018 were disappointing and this is a key area of management
focus.
IFRS profit after tax attributable to equity holders of Standard Life
Aberdeen plc increased by 19% to £830m mainly as a result of
the £1,780m gain on sale of the UK and European insurance
business. Partially offsetting the gain on sale is an £880m
impairment of the Aberdeen Standard Investments goodwill,
which reflects an appraisal of the asset based on the prevailing
market conditions at 31 December 2018 and excludes future
merger synergy benefits.
Careful cost control as we continue to implement the merger
synergy benefits resulted in operating costs reducing by 10%.
This, together with the inclusion of our share of Phoenix adjusted
profits, led to the cost/income ratio improving significantly to 68%
(2017: 71% Pro forma basis).
Adjusted profit before tax from continuing operations
and IFRS profit
Cost/income ratio
(Continuing operations)
31
68%68%71%201620182017Comparatives Pro forma basis£694mAdjusted profit from continuing operations (Comparatives Pro forma basis) IFRS profit attributable to equity holders ofStandard Life Aberdeen plc (Comparatives Reported basis)201620182017£368m£660m£699m£650m£830mStandard Life Aberdeen 2018StrAtegic report
Chief Financial Officer’s overview continued
Assets under management and administration (AUMA) and net flows
We have the scale and global reach to offer a broad range of investment capabilities with total AUMA of over £550bn. AUMA
fell 9% in 2018 due to net outflows and adverse market movements.
AUMA1
Institutional
Wholesale
Wealth/Digital
Strategic insurance partners
Total assets under management
Retail – Wrap and Elevate
Eliminations
2018
£bn
166.7
72.5
10.9
255.0
505.1
54.2
(7.8)
2017
£bn
192.5
86.6
11.2
271.8
562.1
54.0
(8.0)
Total AUMA
551.5
608.1
1 Following the sale of the UK and European insurance business, AUMA has been
restated to exclude associates, joint ventures and SL Asia and is only presented
on a continuing operations basis. Comparatives shown on a Pro forma basis.
AUMA decreased by 9% to £551.5bn (2017: £608.1bn) as a result of
asset management net outflows and adverse market movements.
In both institutional and wholesale the AUM reduction was primarily
within equities, which was impacted by outflows reflecting investor
sentiment and investment performance concerns as well as market
movements, and multi-asset where the AUM reduction primarily
related to GARS investment performance. Wholesale AUM was
supplemented by corporate actions of £4.8bn in the year. This related
to three bolt-on acquisitions which accelerated our US capabilities in
private markets, closed ended funds and exchange traded funds.
Wealth/Digital includes our Parmenion platform as well as Aberdeen
Standard Capital, our wealth business which was re-branded in
January 2019. AUM was broadly stable at £10.9bn.
AUM managed for our strategic insurance partners, which includes
Phoenix, decreased by 6% to £255.0bn (2017: £271.8bn) mainly due
to adverse market movements of £11.3bn.
Institutional/Wholesale/Wealth/Digital split by
asset class
Equities
£72.9bn
Alternatives
£12.3bn
Fixed income
£46.7bn
Real estate
£29.7bn
Multi-asset
£53.9bn
Quantitative
£2.1bn
Private markets £16.0bn
Cash/liquidity
£16.5bn
Retail – Wrap and Elevate
Retail comprises our Wrap and Elevate platforms. Assets under
administration remained flat in 2018 at £54.2bn (2017: £54.0bn), with
net inflows of £4.2bn (2017: £7.0bn) largely offset by adverse market
movements of £4.0bn.
These platforms offer customers access to a wide range of
investment capabilities including over 5,000 in-house and third party
mutual funds. Of Wrap and Elevate assets, 14% are managed by
Aberdeen Standard Investments.
Building our advice capability
Assets under advice in 1825 increased to £4.0bn (2017: £3.6bn)
during the year as we continue to build scale and aim for nationwide
coverage in the UK. Following completion of a further two acquisitions
this year, we now have 80 financial planners across 14 locations
providing face-to-face and over the phone advice to in excess of
9,000 clients. Only the proportion of assets under advice that are held
on our platforms are included in Retail assets under administration
above.
Further information on AUMA and net flows are included in
the Supplementary information section of this report.
Movement in AUMA
Quarterly net flows by asset class
(£6.3bn)
(£6.7bn)
(£6.9bn)
(£13.2bn)
(£12.6bn)
Q4 2017
Equities
Fixed income
Multi-asset
32
Q1 2018
Private markets
Alternatives
Real estate
Q2 2018
Q3 2018
Q4 2018
Quantitive
Cash/liquidity
£608.1bn(£40.9bn)(£20.5bn)£4.8bn£551.5bn2018 OpeningAUMANet flowsMarket &othermovementsCorporateactions 2018ClosingAUMAStandard Life Aberdeen 2018
Gross and net flows
Flows
Gross1
Net1
Investment performance
Investment performance (Pro forma basis)
% of AUM ahead of benchmark3
Equities
Fixed income
Multi-asset
Private markets
Alternatives
Real estate
Quantitative
Cash/Liquidity
Institutional/Wholesale2
Strategic insurance
partners
2018
£bn
11.8
6.0
9.3
1.1
0.8
3.8
0.2
7.4
40.4
28.6
2017
£bn
14.2
8.6
13.9
1.1
0.8
3.6
0.2
6.4
48.8
15.6
2018
£bn
2017
£bn
(17.6)
(2.8)
(15.7)
(1.3)
(0.4)
(0.2)
(0.1)
(1.3)
(10.2)
(3.1)
(6.9)
(0.3)
(0.5)
(1.0)
(0.5)
(1.7)
Equities
Fixed income
Multi-asset
Alternatives
Real estate
Quantitative
Cash/Liquidity
Total
1 year
3 years
5 years
2018 2017 2018 2017 2018 2017
40
50
20
77
71
69
81
47
35
85
87
58
71
68
69
70
31
76
35
82
56
59
81
50
21
68
85
86
44
55
63
63
29
64
62
79
61
67
82
62
28
69
88
81
40
75
82
64
(39.4)
(24.2)
(5.5)
(15.2)
3
Investment performance excludes non-discretionary portfolios and funds where no
applicable index is available. Includes strategic insurance partners.
Total asset management
69.0
64.4
(44.9)
(39.4)
Retail – Wrap and Elevate
Eliminations
Total
8.5
(2.3)
10.7
(2.7)
4.2
(0.2)
7.0
(0.5)
75.2
72.4
(40.9)
(32.9)
1 Following the sale of the UK and European insurance business, AUMA has been
restated to exclude associates, joint ventures and SL Asia and is only presented
on a continuing operations basis. Comparatives shown on a Pro forma basis.
2
Includes Wealth/Digital.
Gross inflows remained strong at £75.2bn (2017: £72.4bn) with
decreases in institutional and wholesale being more than offset by
increased gross inflows from strategic insurance partners.
Institutional/Wholesale gross inflows decreased by £8.4bn to £40.4bn
(2017: £48.8bn) but remained robust in all asset classes.
Net outflows were disappointing, increasing to £40.9bn (2017:
£32.9bn) as we saw continued high levels of redemptions. Equities
had net outflows of £17.6bn (2017: £10.2bn), reflecting investor
sentiment towards emerging markets and equity markets more
generally, as well as weaker investment performance. Emerging
markets equities saw net outflows of £9.2bn (2017: £2.8bn) and
global equities net outflows were £4.1bn (2017: £3.5bn).
Multi-asset saw net outflows of £15.7bn (2017: £6.9bn) due to weaker
GARS three year investment performance. GARS dominated with net
outflows of £16.7bn (2017: £10.7bn) reducing AUM to £19.9bn (2017:
£37.4bn). Multi-asset (excluding GARS) generated net inflows of
£1.0bn (2017: £3.8bn) which included continued demand for MyFolio
and Parmenion products which delivered net inflows of £1.2bn (2017:
£2.0bn) and £1.1bn (2017: £1.3bn) respectively.
Our strategic insurance partners gross inflows increased by 83% to
£28.6bn as we benefited from additional assets secured from Phoenix
under our enhanced strategic partnership, including two fixed income
bulk annuity mandates. Strategic insurance partners net outflows
reduced by £9.7bn to £5.5bn (2017: £15.2bn) reflecting redemptions
from maturing insurance business in long-term run-off, partially offset
by the higher gross flows.
Our Wrap and Elevate retail platforms had net inflows of £4.2bn
representing 8% of opening assets, although down on the record net
inflows of £7.0bn in 2017. The benefit from the boost in the pensions
market from individuals looking to take advantage of high defined
benefit transfer values has declined over 2018. However, these
transfers continue to provide a significant source of inflows into our
platform products which provide the flexibility offered by drawdown
and pensions freedom. The need for financial advice continues to
increase as the savings industry becomes more complex and people
take on more responsibility for their life savings.
Investment performance over three years was mixed, with 50%
(2017: 63%) of total assets under management ahead of benchmark
on a gross of fees basis. Over the longer term five year period 62%
(2017: 64%) of total assets under management were ahead of
benchmark. The weaker three year performance reflects a
challenging period with negative returns within multi-asset absolute
return strategies (in particular GARS), and weakness in most equity
classes other than Asia Pacific. Performance for Fixed income,
Cash/Liquidity and Alternatives remain strong over three and five
years. Investment performance over one year stands at 47%
(2017: 70%).
The investment performance calculation covers 81% of total AUM.
Further details about the calculation of investment performance are
included in the Glossary.
The performance results of our investment capabilities and their
underlying investment processes are actively monitored and
independently evaluated by our Investment Governance and
Oversight team.
33
Standard Life Aberdeen 2018StrAtegic report
Chief Financial Officer’s overview continued
Profitability
Adjusted profit before tax from continuing operations of £650m was 2% lower than 2017 on a Pro forma basis and included
the benefit of our share of Phoenix adjusted profits from 1 September 2018. IFRS profit attributable to equity holders of
Standard Life Aberdeen plc increased by 19% to £830m mainly as a result of the £1,780m gain on sale of the UK and European
insurance business, partially offset by an £880m impairment of the Aberdeen Standard Investments goodwill intangible asset.
Adjusted profit before tax from continuing operations
Reported
Analysis of adjusted profit before
basis
tax from continuing operations
2017
£m
Pro forma
basis
2017
£m
2018
£m
Asset management and
platforms
Insurance associates and joint
ventures
Adjusted profit before tax
510
140
650
602
417
58
660
58
475
Asset management and platforms
Adjusted profit before tax in our Asset management and platforms
segment was £510m, a decrease of £92m compared to 2017 on a
Pro forma basis of £602m mainly due to lower fee based revenue
reflecting the impact of net outflows in 2017 and 2018. This was
partially offset by a reduction in expenses.
On a Reported basis, adjusted profit before tax in the Asset
management and platforms segment increased by £93m compared
to 2017 primarily due to the inclusion of a full year’s profit from
Aberdeen in 2018 compared to four months profit in 2017.
Asset management and platforms includes the results of HDFC Asset
Management, our associate asset management business in India.
Our share of adjusted profit increased to £46m (2017: £41m) and the
value of our shareholding in this business at 11 March 2019 was
approximately £1.0bn. Our percentage ownership at 31 December
2018 was 29.96% (2017: 38.24%).
Insurance associates and joint ventures
Ownership at
31 Dec 2018
%
Phoenix
HDFC Life
HASL
Adjusted profit before tax
19.98
29.23
50.00
2018
£m
86
42
12
140
2017
£m
–
48
10
58
Adjusted profit before tax in our Insurance associates and joint
ventures segment increased by 141% to £140m (2017: £58m) mainly
due to the inclusion of our share of Phoenix adjusted profit of £86m
from 1 September 2018. Our share of Phoenix adjusted profit before
tax included a benefit of £42m from actuarial assumption changes,
primarily relating to changes in annuity longevity assumptions.
HDFC Life profits increased in 2018 due to strong premium growth.
However our share of profits fell to £42m (2017: £48m) due to the
reduction in our shareholding following the IPO in November 2017
and adverse movements in exchange rates. On 11 March 2019, we
also announced an offer for sale process in respect of up to 4.93% of
the shares of HDFC Life, our associate life business in India at a floor
price of Rs 357.5 per share. Assuming the offer is fully subscribed at
the floor price, net sale proceeds are expected to be c£380m.
Based on the closing share price at 11 March 2019, the approximate
value of our shareholding in Phoenix was £1.0bn and in HDFC Life
£2.5bn (based on the value of our shareholding prior to
announcement of the offer for sale described above). Combined with
HDFC Asset Management, this gives a total value of our
shareholdings in listed associates of approximately £4.5bn.
Profitability
Fee based revenue
Adjusted operating expenses
Adjusted operating profit
Capital management
Share of associates’ and joint ventures’ profit before tax
Adjusted profit before tax from continuing operations
Adjusted profit before tax from discontinued operations
Adjusted profit before tax
Total adjusting items
Share of associates’ and joint ventures’ tax expense
Profit attributable to non-controlling interests (preference shares and perpetual notes)
Tax expense
Profit for the year attributable to equity holders of Standard Life Aberdeen plc
Pro forma
basis
2017
£m
Reported
basis
2017
£m
2,099
(1,551)
1,447
(1,084)
2018
£m
1,868
(1,395)
548
13
99
660
379
1,039
473
(9)
186
650
210
860
122
(40)
(33)
(79)
830
363
13
99
475
379
854
(40)
(41)
(8)
(66)
699
34
Standard Life Aberdeen 2018
Analysis of adjusted profit before tax
from continuing operations
£660m
(£231m)
£156m
(£22m)
£87m
£650m
2017
adjusted
profit
Fee
based
revenue
Adjusted
operating
expenses
Capital
management
Share of
associates
and JVs
profit
2018
adjusted
profit
The primary movement in fee based revenue and adjusted operating
expenses in 2018 compared to 2017 on a Reported basis is due to
the inclusion of a full year’s results from Aberdeen in 2018. The
analysis of adjusted profit below compares 2018 to 2017 on a Pro
forma basis.
Fee based revenue
Fee based revenue reduced by 11% to £1,868m (2017: £2,099m)
reflecting the impact of net outflows in 2017 and net outflows and
adverse market movements in 2018. In the asset management
business the reduction in revenue was concentrated in the equities
and multi-asset asset classes. Performance fees represent less than
1% of total revenue at £9m (2017: £26m).
The average fee revenue yield (excluding performance fees) for asset
management (excluding strategic insurance partners) decreased to
48.1bps (2017: 51.1bps), reflecting the change in product mix driven
by net outflows from higher margin equity and multi-asset funds.
Within private markets, 2017 revenue included a non-recurring benefit
of £7m from deferred income recognised.
The revenue yield from Strategic insurance partners fell slightly to
13.1bps (2017: 13.7bps).
Revenue from Wrap and Elevate increased by 10% to £142m
(2017: £129m) reflecting the continuing growth in our platforms
offering. Our retail advice and other business revenue of £43m (2017:
£46m) comprises our 1825 advice business revenue of £34m (2017:
£32m) and other business of £9m (2017: £14m). Other business fee
based revenue includes a one-off reduction in 2018 of £5m following
the adoption of the new revenue recognition accounting standard
(IFRS 15).
Adjusted operating expenses
Adjusted operating expenses decreased by 10% to £1,395m (2017:
£1,551m) mainly due to lower staff costs including the benefit from the
ongoing merger integration and reduced variable compensation.
Expenses also benefited from careful cost control as we responded to
lower fee based revenue.
The cost/income ratio, which includes our share of associates’ and
joint ventures’ profit, improved to 68% (2017: 71%) including the
benefit from our share of Phoenix profit in 2018.
We remain on track to achieve our previously announced targeted
annual efficiency savings of over £350m by the end of 2020. The
merger integration continues to progress well with the pace of delivery
accelerating across many areas of the business and we are making
good progress implementing our simplified operating model. As at 31
December 2018, actions have been taken which will deliver £175m of
annualised cost savings, benefiting 2018 adjusted operating
expenses by c£120m with further benefits to come in 2019.
Total implementation costs incurred since the completion of the
merger are £222m and we expect these to remain in line with the
previous estimates of approximately £430m in aggregate to deliver
the £350m annualised cost savings.
Capital management
Capital management resulted in a loss of £9m (2017: profit £13m)
mainly due to the impact of markets on pooled investment fund
holdings. The net interest credit on the UK pension scheme surplus
was £29m (2017: £30m). Interest expense on debt was £45m (2017:
£59m) reflecting the $750m debt issued in October 2017 and the
redemption of a more expensive $500m bond in March 2018.
Revenue analysis
Average AUMA
Fee based revenue
Fee revenue yield
Fee based revenue
2018
£m
2017
£m
2018
bps
2017
bps
Equities
Fixed income
Multi-asset
Private markets
Alternatives
Real estate
Quantitative
Cash/Liquidity
Institutional/Wholesale1
Strategic insurance partners
Retail – Wrap and Elevate
Eliminations
Group fee revenue yield
SL Asia
Retail advice and other2
Performance fees
Group fee based revenue
2018
£bn
86.3
46.9
65.4
15.8
10.5
28.9
2.1
17.3
273.2
265.0
55.6
(7.9)
2017
£bn
98.1
49.0
74.7
16.7
7.1
29.2
2.2
19.1
578
130
350
68
18
154
3
14
666
144
432
84
12
159
3
14
296.1
1,315
1,514
271.1
49.2
(7.2)
347
142
N/A
372
129
N/A
585.9 609.2
1,804
2,015
12
43
9
12
46
26
1,868
2,099
66.9
27.7
53.6
43.1
17.4
53.2
12.2
8.0
48.1
13.1
25.6
N/A
30.8
67.9
29.4
57.7
50.7
16.9
54.4
12.1
7.4
51.1
13.7
26.2
N/A
33.1
Equities
Fixed income
Multi-asset
Private markets
Alternatives
Real estate
Quantitative
Cash/liquidity
Strategic insurance partners
Retail – Wrap and Elevate
SL Asia
2
Retail advice and other
Performance fees
1 Includes Wealth/Digital. 2 Includes 1825, Focus and Threesixty.
35
Standard Life Aberdeen 2018StrAtegic report
Chief Financial Officer’s overview continued
IFRS profit
(2017 on a Reported basis)
IFRS profit attributable to equity holders of Standard Life Aberdeen
plc increased by 19% to £830m mainly as a result of the £1,780m
gain on sale of the UK and European insurance business.
IFRS loss before tax from continuing operations was £787m (2017:
profit £438m) mainly due to a £1,397m loss from adjusting items
(2017: profit £4m). This was partly offset by the inclusion of a full
year’s adjusted profit from Aberdeen in 2018.
IFRS profit
Adjusted profit before tax – continuing
Adjusting items – continuing
Share of associates’ and joint ventures’
tax expense1
(Loss)/profit before tax
Tax expense
(Loss)/profit for the year from
continuing operations
Discontinued operations
Profit attributable to non-controlling
interests
Profit for the year attributable to
equity holders of Standard Life
Aberdeen plc
2018
£m
650
(1,397)
(40)
(787)
(43)
(830)
1,698
2017
£m
475
4
(41)
438
(28)
410
322
(38)
(33)
830
699
1 2018 Includes £3m (2017: £nil) relating to tax on adjusting items.
Adjusting items are shown in the table below.
The profit on disposal of interests in associates of £185m includes
£177m relating to the IPO of HDFC Asset Management which
completed on 6 August 2018. As part of the IPO we reduced our
holding from c38% to c30% for a total net consideration of £180m.
2017 included £302m from the sale of 5.4% of the shares in HDFC
Life as part of its IPO in November 2017.
Analysis of adjusting items
(2017 on a Reported basis)
Profit on disposal of interests in
associates
Restructuring and corporate transaction
expenses
Amortisation and impairment of
intangible assets acquired in business
combinations and through the purchase
of customer contracts
Impairment of associates
Investment return variances and
economic assumption changes
Other
Total adjusting items from
continuing operations
Discontinued operations
Total adjusting items
2018
£m
2017
£m
185
319
(239)
(162)
(1,155)
(228)
(138)
–
54
(14)
(1,397)
1,519
122
–
(15)
4
(44)
(40)
36
Restructuring and corporate transaction expenses were £239m
(2017: £162m), mainly comprised of integration and merger related
costs of £191m (2017: £109m). Further details on restructuring and
corporate transaction expenses are provided in the Supplementary
information section.
The amortisation and impairment of intangible assets acquired in
business combinations and through the purchase of customer
contracts increased to £1,155m (2017: £138m) mainly due to the
£880m impairment of the Aberdeen Standard Investments goodwill
intangible asset. This reflects future cash flows which assume that the
lower market levels seen at 31 December 2018 prevail for the longer
term and which, as required by IAS 36, exclude future merger
synergy benefits. Further details are provided in Note 14. 2018 also
includes a full year’s amortisation charge on the intangible assets
recognised as a result of the merger. 2017 included an impairment
charge of £40m relating to the Lloyds Banking Group customer
relationship intangible asset with no further charge in 2018.
Impairment of associates of £228m relates to our investment in
Phoenix. In accordance with IAS 28 requirements the Phoenix
carrying value is the market value of this investment on 31 December
2018. Under IAS 28, the additional strategic value of our relationship
with Phoenix is not taken into account in the impairment assessment.
The Phoenix share price has recovered strongly since the year end
and we will reverse this impairment to reflect any such improvement
at the end of subsequent accounting periods.
Investment return variances and economic assumption changes of
£54m relates to our share of Phoenix adjusting items. Refer to Note
12 of the Group financial statements.
The gain in adjusting items from discontinued operations of £1,519m
(2017: loss £44m) includes the £1,780m gain on sale. See page 130
for more details.
See pages 119 and 145 for further details on adjusted profit and
reconciliation of adjusted profit to IFRS profit.
Adjusted diluted earnings per share
28.8p
9.5p
19.3p
29.3p
14.3p
15.0p
28.9p
11.7p
17.2p
29.9p
14.8p
15.1p
22.5p
4.7p
17.8p
2016
2017
2018
Comparative on Pro forma basis
Comparative on Reported basis
Continuing
Discontinued
Continuing
Discontinued
Adjusted diluted earnings per share was 22.5p (2017: Pro forma
basis 28.9p, 2017: Reported basis 29.9p).
Standard Life Aberdeen 2018
Adjusted cash generation from continuing operations
(2017 on a Pro forma basis)
This measure provides insight into our ability to generate cash that
supports further investment in the business and the payment of
dividends to our shareholders. Adjusted cash generation decreased
to £453m (2017: £505m), due to the impact of lower asset
management profits, partly offset by a dividend of £33m received from
Phoenix in 2018.
Tax expense from continuing operations
(2017 on a Reported basis)
The total IFRS tax expense attributable to the profit for the year from
continuing operations was £43m (2017: £28m) including a credit of
£52m (2017: credit £49m) relating to adjusting items. The effective tax
rate on total IFRS profit is (5.5%) (2017: 6.4%). The main factors that
have caused there to be a tax expense whilst there is an IFRS loss
before tax are:
Adjusted cash generation from
continuing operations
Asset management and platforms
Insurance associates and joint ventures
Adjusted cash generation
2018
£m
420
33
453
2017
£m
495
10
505
• Impairment losses on intangible assets are not tax deductible
• Loss on impairment of interest in associates is not tax deductible
• Costs which are not deductible for tax purposes
• Deferred tax assets have not been recognised on tax losses in
some jurisdictions in which we operate
Profit from discontinued operations
Discontinued operations relates to the UK and European insurance
business which comprised Spread/risk, Europe, Workplace and non-
platform elements of our Retail business. We successfully concluded
the sale of this business to Phoenix on 31 August 2018 and
recognised a gain on sale of £1,780m. Profitability in 2018 therefore
only includes the result for the 8 months to 31 August 2018.
Discontinued adjusted profit before tax was £210m (2017: £379m)
reflecting the 8 month period in 2018 and the benefit of operating
assumption and actuarial reserving changes of £91m in 2017 (2018:
£nil).
IFRS profit after tax attributable to equity holders from discontinued
operations was £1,665m (2017: £297m). The result benefited from
adjusting items of £1,519m (2017: loss £44m) which primarily related
to the gain on sale of £1,780m. 2018 also benefited from a held for
sale accounting adjustment of £44m relating to the amortisation of
intangible assets (primarily deferred acquisition costs) and
depreciation of tangible assets. Following the classification of the UK
and European insurance business as held for sale on the
announcement of the transaction on 23 February 2018, no further
amortisation or depreciation was recognised. This increase to profit
was classified as an adjusting item. These positive adjusting items
were partially offset by £198m (2017: £nil) relating to the redemption
of our tier 1 subordinated bonds, separation costs of £53m and losses
from investment return variances and economic assumption changes
of £41m (2017: profit £67m), primarily relating to credit spread
widening in 2018 compared to narrowing in 2017.
Further details on adjusting items from discontinued operations are
provided in the Supplementary information section.
Separation costs
We announced in the Sale Circular on 30 May 2018 that we expected
to incur one-off costs relating to the separation of the business sold of
approximately £250m, and there has been no change to this
estimate. The 2018 result for discontinued operations included total
separation costs of £133m. £53m was included within restructuring
and corporate transaction expenses, and £80m was included in the
gain on sale relating to contractual obligations arising from the
transaction.
These factors are partially offset by:
• The gain arising from the IPO of HDFC Asset Management was
subject to tax in India at a rate which is lower than the UK
corporation tax rate
• Profits of some of our Asian subsidiaries are taxed at rates lower
than the UK corporation tax rate
• A revaluation of deferred tax liabilities relating to intangible assets
of the asset management business
• Our share of profit from our associate and joint venture holdings is
already included on a net of tax basis and so no further amount is
included in the tax expense
The tax expense attributable to adjusted profit before tax totalled
£138m (2017: £118m), of which £43m (2017: £41m) represents
equity holders’ share of tax which is borne directly by our associates
and joint ventures. The effective tax rate on adjusted profit is 21.2%
(2017: 24.8%). This reflects costs which are not tax deductible and
the tax on associate and joint ventures being at a higher rate than the
UK Corporation tax rate.
Total tax contribution from continuing operations
Total tax contribution is a measure of all the taxes the Group pays to
and collects on behalf of governments in the territories in which we
operate. Our total tax contribution for continuing business was
£538m. Of the total £218m was borne by Standard Life Aberdeen
Group whilst £320m represents tax collected by us on behalf of the
tax authorities. Taxes borne by the Group mainly consist of
corporation tax, employer’s national insurance contributions and
irrecoverable VAT. The taxes collected figure is mainly comprised of
pay-as-you-earn (PAYE) deductions from employee payroll
payments, employee’s national insurance contributions, VAT
collected and income tax collected on behalf of HMRC on platform
pensions business.
Tax policy
Understanding tax risk, how to manage it, and how it impacts all our
stakeholders are important elements of running our business
responsibly and as a responsible business we recognise the
contribution the taxes we pay and collect make to wider society. The
tax environment is also dynamic and to ensure we meet our
responsibilities we employ an in-house tax team to oversee the tax
affairs of the Group and have a tax risk management policy that is
approved annually by the Board.
You can read our tax strategy on our website
www.standardlifeaberdeen.com/annualreport
37
Standard Life Aberdeen 2018StrAtegic report
Chief Financial Officer’s overview continued
Financial strength and liquidity
CRD IV
Following the sale of the UK and European insurance business, the
Group is classified as an investment group for prudential supervision
and is subject to regulation under CRD IV. Previously, the Group was
regulated as an insurance group subject to Solvency II. This has
resulted in a significant reduction in the Group’s total capital
requirements. The Group’s regulatory resources comprise
shareholders’ equity reduced by a number of deductions (including
deductions for intangible assets, defined benefit pension plan
surpluses and significant investments in associates). Capital
requirements take into account the impact of the ICAAP process. The
Group remains strongly capitalised. At 31 December 2018, the
Group’s regulatory capital position was as follows:
CRD IV Group regulatory
capital position
Common Equity Tier 1 capital resources
Tier 2 capital resources
Total capital resources
Total capital requirements
Surplus regulatory capital
2018
bn
1.1
0.6
1.7
(1.1)
0.6
The above position includes a deduction to allow for the proposed
final 2018 dividend which will be paid in May 2019.
Note 47 of the Group financial statements of this report includes a
reconciliation between IFRS equity and surplus regulatory capital
and also details of our capital management policies.
Shareholder equity
IFRS equity attributable to equity holders of Standard Life Aberdeen
plc decreased to £7.4bn (2017: £8.6bn) mainly due to distributions to
shareholders, including the return of capital. This was partly offset by
profitability in the year which included the gain on sale of the UK and
European insurance business.
Our balance sheet is significantly simplified following the sale to
Phoenix. Total assets reduced to £12.5bn (2017: £198.1bn) and total
liabilities reduced to £5.0bn (2017: £189.1bn).
Intangible assets of £3.4bn (2017: £4.5bn) primarily relate to goodwill,
customer relationships, technology and brands from acquired
businesses. Further details are provided in Note 14.
The principal defined benefit staff pension scheme, which is closed to
future accrual, continues to have a significant surplus of £1.1bn
(2017: £1.1bn). Further details are provided in Note 35.
Subordinated liabilities reduced to £1.1bn (2017: £2.3bn) as we
completed the redemption of our outstanding tier 1 subordinated
bonds on 25 October 2018, primarily funded by cash returned from
the UK and European insurance business prior to sale. In November
2018 we obtained consent from bondholders to convert our $750m
subordinated debt to CRD IV capital resources (Tier 2), as shown in
the section above. Further details are provided in Note 34.
The Group holds £179m (2017: £193m) in newly established
investment vehicles which the Group has seeded. The Group sets
limits for investing in seed capital and regularly monitors the
exposure. Additional detail is provided in the Risk management
Note 39.
On 22 October 2018 in conjunction with the £1bn ‘B’ share scheme
capital return, we undertook a share consolidation of the Company’s
share capital. The Company issued 7 new ordinary shares for each
holding of 8 existing ordinary shares resulting in the number of shares
in issue reducing from 2,942m to 2,574m. Refer to Note 26.
38
Liquidity management
Group cash and liquid resources were £2.6bn as at 31 December
2018 and includes those of the holding company detailed below.
Standard Life Aberdeen plc, the group holding company, holds
substantial cash and liquid resources. At 31 December 2018
Standard Life Aberdeen plc held £1.3bn (2017: £1.2bn) of cash and
liquid resources, comprises £789m (2017: £693m) of cash and short-
term debt securities, £285m (2017: £298m) of bonds and £197m
(2017: £204m) of holdings in pooled investment funds.
Dividends received from subsidiaries/associates consisted of £312m
(2017: £180m) from Standard Life Assurance Limited, £346m (2017:
£285m) from Aberdeen Standard Investments entities, £33m (2017:
£nil) from Phoenix and £7m relating to dividends from HDFC Life
(2017: £367m net remittance following IPO). Capital injections of
£218m include £100m to Aberdeen Asset Management PLC as
funding for acquisitions and £72m to support HASL growth. The
remainder relates to funding for 1825 growth and support for other
subsidiaries. Cash paid for the tender and conversion of subordinated
debt instruments of £1.0bn were offset by £0.8bn of internal loan
repayments by Standard Life Assurance Limited prior to the disposal.
Holding company cash and liquid resources
(2017 on a Reported basis)
Opening 1 January
SLAL sale proceeds
Return of capital
Dividends received
Cash dividends paid to shareholders
Cash investments in subsidiaries, associates
and joint ventures
Debt redemptions/issue
Expenses (including SLAL sale related)
Acquisition of shares by Employee Share Trust
Other
Closing 31 December1
1 Excludes collateral held on cross-currency swap.
2018
£m
1,195
1,971
(1,235)
698
(634)
2017
£m
900
–
–
832
(469)
(218)
(207)
(163)
(75)
(61)
(413)
565
(128)
(79)
(13)
1,271 1,195
Dividends
Proposed dividend
Our progressive dividend policy is to grow the annual dividend per
share at a sustainable rate over the medium term. It is the Board’s
current intention that the total annual dividend will be held at the 2018
level of 21.6p while the business is transformed, cost synergies are
delivered and future financial performance confirms the sustainability
of this level of distribution and provides line of sight to its future
growth.
The Board is recommending a final dividend for 2018 of 14.3p
(2017: 14.3p) per share. Subject to shareholder approval, this will be
paid on 21 May 2019 to shareholders on the register at close of
business on 12 April 2019. The 2018 final dividend and future
dividends will be paid on the lower number of ordinary shares
following the share consolidation and buyback.
The dividend payment is expected to be £345m. At 31 December
2018 Standard Life Aberdeen plc held £1.3bn of cash and liquid
resources and £1.6bn of distributable reserves, which will be used to
support the dividend and remaining share buyback programme.
The final dividend, combined with the 2018 interim dividend of 7.3p,
brings the total dividend for the year to 21.6p – an increase of 1.4%
on the 2017 full year dividend.
Standard Life Aberdeen 2018
How the dividend is funded
External dividends are funded from the cumulative dividend income
that Standard Life Aberdeen plc receives from its subsidiaries and
associates. To provide some protection against fluctuations in these
dividends, Standard Life Aberdeen plc holds a buffer of distributable
cash and liquid resources. This buffer is dynamic and takes into
account expected future subsidiary and associate dividend flows and
the risks to those dividends. Further information on the principal risks
and uncertainties that may affect the business and therefore
dividends is provided in the Risk management section of this
Strategic report.
Return of capital
The general meeting on 25 June 2018 approved a return of capital of
£1bn via a ‘B’ share scheme, and a return of up to £750m by a share
buyback programme. The ‘B’ share scheme return of £1bn was
completed in November 2018 and a further £235m has been returned
Viability statement
to shareholders during 2018 under the share buyback programme.
As at 11 March 2019, we have returned £358m through the share
buyback programme with 132m shares repurchased at an average
price of £2.72 per share.
Dividend per share paid by the Company
21.60p
18.36p
12.34p
19.82p
13.35p
21.30p
14.30p
21.60p
14.30p
6.02p
2015
Interim
6.47p
2016
Final
7.00p
7.30p
2017
2018
In accordance with the UK Corporate Governance Code, the
Directors have carried out a robust assessment of the key risks
facing the Group in considering the Group’s viability and longer-term
prospects. This assessment is based on information known today.
A capital injection of this magnitude would be affordable for
Standard Life Aberdeen without threatening viability. For all other
scenarios the asset management and platforms businesses
maintained sufficient regulatory capital.
Viability: We consider that three years is an appropriate period for
this viability assessment. This is in line with our business planning
horizon and is the period over which strategic actions, such as the
launch of new investment propositions, are typically delivered. It also
reflects the timescale over which changes to major regulations and
the external landscape affecting our business typically take place.
The key processes used by the Board to assess viability are set out
below. We consider that the severe scenarios assessed as part of
our reverse stress testing are appropriate over this three-year
period.
Business plan scenarios: Our business planning process projects
the performance, regulatory capital and liquidity of the Group over a
three-year period, and considers scenarios including a severe
downside. The severe downside scenario assumes a significant
global recession; a sharp fall in global equity markets, with markets
remaining considerably below recent levels throughout the three-
year period, with bond yields falling through 2019 before steadying
and some modest increases in 2020. Our analysis shows that,
whilst capital is eroded under this scenario, the strength and quality
of our capital base and the range of management actions that are
available means that sufficient regulatory capital is maintained.
Stress testing and scenario analysis looks at plausible, adverse
individual and combined stresses that could adversely impact
profits, capital and liquidity. Stresses are calibrated at a 1-in-200
year probability level or worse. We performed a broad range of
stresses during the year which, for the asset management business,
included an exploration of: (i) individual stresses applied to fixed
interest, equity and property market values, business outflows and
expense levels, (ii) sensitivity to combinations of the above, (iii)
combined stress scenarios considering market stagnation, poor
fund performance and fee pressure.
The platforms business explored: (i) individual stresses applied to
fees charged, flows, expenses, persistency and market movements,
(ii) sensitivity to combinations of the above, (iii) the sequential
analysis of the impact of data breaches on the business.
Under the most severe combined scenario impacting markets,
persistency and expenses, the platforms business would have
required a capital injection of £20m in order to maintain a regulatory
capital surplus in the absence of any other actions being taken.
Reverse stress testing gives a quantitative and qualitative
understanding of plausible but severe risk scenarios which could
threaten business model viability. In 2018, reverse stress testing
was carried out by both the asset management and platforms
businesses. This analysis explored the following scenarios: the rise
of populism and protectionism; the breakdown of relationships with
strategic partnerships and clients; the failure of multiple key projects;
the failure of key third party service providers within the platforms
business; and various Brexit scenarios. The reverse stress testing
results highlighted the potential customer and cost impacts for the
platforms business in the event of the complete failure of its key third
party outsourced service provider. Although this would represent a
significant stress for the platforms business it would not threaten the
viability of Standard Life Aberdeen. The businesses were resilient
under all other reverse stress tests.
Assessment of viability: The Directors confirm that they have a
reasonable expectation that Standard Life Aberdeen will be able to
continue in operation and meet its liabilities as they fall due over the
next three years.
Longer-term prospects: The Group’s prospects are primarily
assessed through the strategic and business planning process
which considers our business model and how this is designed to be
sustainable and resilient in the long term as described on pages 9,
10, 11 and 25 of this report. The Directors’ assessment of prospects
also takes into account: (i) the Group’s current capital and liquidity
position, as set out on page 38, which shows a regulatory capital
surplus of £0.6bn, (ii) the substantial cash and liquid resources held
by Standard Life Aberdeen plc, (iii) the Group’s holdings in strategic
investments.
Assessment of prospects: Based on the above, the Directors
consider the Group’s current transformation plans will preserve the
strengths of the existing business, create a compelling offering in
response to changing client demands and enable the business
model to deliver the vision of strong and sustainable growth.
Furthermore, the Group’s financial position and business model are
considered to support the assumption in the business plan
scenarios that the Group’s dividend policy can be maintained over
the planning horizon. The Board would expect to reassess the
suitability of this assumption should future conditions be more
adverse than those analysed.
39
Standard Life Aberdeen 2018StrAtegic report
Risk management
Strong risk management underpins
our approach to strategic delivery
The ERM framework ensures that risk is assessed, monitored,
controlled and appropriately governed based on a common taxonomy
and methodology. The major components of the ERM framework can
be grouped into four areas related to how we govern, assess, monitor
and control risks. Most risks arise in the business (first line), that is
where they should be managed. The second line oversees business
risk assessments and provides advice and challenge where
necessary.
• Risk governance: Our governance drives how we make decisions
on current and future risks drawing on our assessment, monitoring
and control processes. We seek to ensure that risk decisions are
taken at the right level. Most risk decisions are taken in our
business units but certain decisions will be taken in senior executive
committees or at Board level.
• Risk assessment: All three lines of defence have their own
processes for assessing risk thoroughly in line with their respective
roles. There are well developed processes for coordinating
viewpoints, challenging specific assessments and escalating points
of difference that might warrant action.
• Risk monitoring: The ongoing monitoring of risks and the
performance of key controls is a critical activity to allow us to keep
track of developments, drive action and ensure appropriate capital
allocation
• Risk control: We operate processes so that risk is mitigated using
controls with clearly identified control-owners. The effectiveness of
controls is reviewed on a regular basis.
Internal Capital Adequacy Assessment Process
(ICAAP)
The Group supervisory regime has changed from Solvency II to that
of the Capital Requirements Directive. As required under the Capital
Requirements Directive, the ERM framework is structured to support a
comprehensive ICAAP which covers:
• Awareness and understanding of the current and potential risks to
the business including both financial and non-financial risks and
their potential to affect both long and short-term value
• Accountability for the management of risks
• The appetite to accept these risks and how we manage them
• The assessment of capital requirements with respect to the risks
• A forward-looking assessment of the risk and capital strength of
Standard Life Aberdeen over a multi-year time horizon in light of
business plans, considering a range of stress scenarios
Our approach to risk management
Effective risk management is an essential part of delivering our
corporate strategy. Our approach is predicated on strong risk
awareness and risk accountability across all lines of defence in our
business. We believe that this delivers long-term value for our clients,
customers and shareholders, and protects their interests.
We aim to ensure that:
• Our decision-making is attentive to both risk and reward in pursuit of
our business plan objectives and strong client outcomes
• Our responsibilities to clients and customers are prioritised
• Capital is appropriately rewarded for the risks that are taken
Three lines of defence
We operate ‘three lines of defence’ in the management of risk so that
there are clearly defined roles and responsibilities within our
Enterprise Risk Management (ERM) framework:
• First line: Day-to-day risk management, including identification and
mitigation of risks and maintaining appropriate controls, is delegated
from the Board to the Co-Chief Executives and, through a system of
delegated authorities and limits, to business managers
• Second line: Risk oversight is provided by the Chief Risk Officer.
The Risk and Compliance function is organised so that there is a
consistent view across all of our principal risks, especially conduct,
regulatory and strategic risks working closely with the first and third
lines of defence.
• Third line: Independent verification of the adequacy and
effectiveness of the internal risk and control management systems
is provided by our internal audit function. This is independent from
all other operational functions. It operates subject to supervision
and challenge by the Audit Committee.
Enterprise Risk Management framework
As part of our corporate transformation, we have taken the opportunity
to refresh our ERM framework. This also ensures that we continue to
raise standards in risk management as we build a world-class
investment company. Specifically, we have made changes across all
the key building blocks of our framework so that they better support
the management of risk in our transformed business.
Govern
Control
Group
Policies
Risk
Governance
& Reporting
Risk Control
Self Assessments
(RCSA)
Key Controls
& Testing
Risk &
Compliance
Culture
Risk Appetite
Risk
Taxonomy
Strategic &
Emerging
Risks
Issues, Events
& Action
Tracking
Reasonable
Steps
(SMCR)
Metrics and
Indicators
Risk Capital
Assessment
Modelling
Assess
Monitor
40
Standard Life Aberdeen 2018 Business risk environment
The delivery of good investment performance and our ability to
innovate to respond to changing clients’ needs is fundamental to the
Group’s ongoing success as is our ability to effectively distribute our
investment solutions. Following the sale of the UK and European
insurance business, and the diversification of revenues it previously
provided, these key aspects of asset management delivery become
even more fundamental to the success of the Group. We recognise
that investment performance remains mixed with challenges across
key funds and asset classes such as absolute return and equities.
This weakened performance has impacted on overall net flows but
gross inflows have been encouraging and are spread across a diverse
range of capabilities.
The sale of the UK and European insurance business to Phoenix has
significantly simplified the risk profile of the Group (though we still
have indirect exposure to insurance risks through the 19.98% holding
of Phoenix). As well as our core investment business, the financial
success of the Group is materially influenced by holdings in our
insurance and asset management associates and joint ventures in the
UK, India and China which we oversee through a dedicated function
to ensure we maximise value for shareholders.
As with any transformational corporate event, there are new risks
introduced following the sale of the UK and European insurance
business. There are increased dependencies on Phoenix for the
efficient and effective operation of the Group through Transitional
Services Arrangements and failures of these services could result in
detriment to customer and client outcomes and subsequently to the
Group’s reputation and future financial performance. The Group has
dedicated significant time and resource to structuring the Transitional
Services Agreements and their ongoing oversight to mitigate such
risks. Additionally, the Group is exposed to the dividend declared by
Phoenix through our 19.98% holding and hence unexpected earnings
volatility at Phoenix could impact on the Group’s profitability. Our
Investment Management Agreements and Ancillary Service
Agreements with entities within the Phoenix Group are designed to
ensure that service standards are maintained for both clients and
customers. We follow our Group policy on material outsourcing
arrangements which are subject to oversight by Risk and Compliance.
Operational stretch continues to exist within the business as work is
underway to integrate and transform the Group in line with its new
focus. This brings with it operational risks including the retention of
talent and the engagement of our people. We have undertaken careful
resource planning with executive ownership and accountability for
delivery of our integration and transformation programmes alongside
delivery of our business as usual activities for the benefit of our
customers, clients and ultimately our shareholders.
The delivery of good investment performance and our ability to
innovate to respond to changing clients’ needs is fundamental to the
Group’s ongoing success as is our ability to effectively distribute our
investment solutions. Following the sale of the UK and European
insurance business, and the diversification of revenues it previously
provided, these key aspects of asset management delivery become
even more fundamental to the success of the Group. We recognise
that investment performance remains mixed with challenges across
key funds and asset classes such as absolute return and equities.
This weakened performance has impacted on overall net flows but
gross inflows have been encouraging and are spread across a diverse
range of capabilities.
In view of the corporate transformation over the last two years, the
business remains well positioned to benefit from the trends which are
shaping the investment landscape. However, there remains
unavoidable uncertainty due to Brexit, and in particular, a no-deal
Brexit. The Group has well established plans for an orderly Brexit
however there are impacts of a no-deal Brexit that are difficult to plan
for and which could be disruptive. The degree of market disruption,
and hence volatility, as a result of a no-deal Brexit is difficult to predict
but our teams have processes in place to support the smooth and
orderly governance of our funds should there be a disruption to pricing
or liquidity of underlying assets.
Apart from the potential for increased market volatility impacting
clients’ investments, we have also had to consider (i) how to maintain
the Group’s portfolio management and distribution capabilities for
European clients and (ii) the risk that key suppliers to the Group might
suffer disruption.
In light of the multilateral memorandum of understandings which the
European Securities and Markets Authority has co-ordinated on
behalf of EU-27 securities regulators to allow supervisory cooperation
with the UK FCA, we have analysed and planned for the residual risk
that delegation arrangements between our Luxembourg and Irish
subsidiaries and our UK offices may not be permitted. A no-deal Brexit
could also threaten the Group’s operations, as they could for many
other industries and companies. Our Brexit preparations cover all
areas of business including ensuring that our staff can continue to
perform roles, maintaining continuity of personal data flows and
addressing areas of concern with key suppliers. Our platform
businesses are also preparing for the consequences of market
disruption which could see markets, and hence platform funds,
become illiquid and also high trade volumes as our customers and
clients react to the evolving market conditions.
Cyber security has continued to be a major issue facing all large
corporates and we are no exception especially given our global
footprint and renewed focus on digital transformation. Dedicated
teams of internal experts, augmented by external expert input, help to
ensure we actively manage this continually evolving risk.
We have a strong proactive relationship with our regulators and seek
opportunities to engage both directly and indirectly through trade
associations to contribute to the regulatory agenda and ensure that
our knowledge and experience are considered in the decisions taken.
The regulatory agenda continues to evolve with increasing focus from
UK and EU regulators on value for money and competition and the
FCA Asset Management Market Study and Investment Platforms
Market Study have continued to remain important areas of our work.
Our ambition is to be an industry leader in conduct governance and
the delivery of fair client and customer outcomes. This will be
achieved through a strong conduct risk culture and we have made
significant strides in this area to benchmark and strengthen our
conduct risk framework.
Our principal risks and uncertainties
The specific risks we face as a business are driven by what we
choose to do and how we do it, as well as the wider environment in
which we operate. We group these under 12 principal risks which form
the basis of our detailed risk taxonomy. This risk taxonomy sets the
framework for assessing, monitoring, controlling and governing the
risks of the business. Our principal risks were subject to robust
assessment by the Board and are described in the following pages.
41
Standard Life Aberdeen 2018StrAtegic report
Risk management continued
Operational risk
1 Process Execution and Trade Errors
▲
Risk appetite statement:
The Company maintains a number of significant business and operational processes. We have no appetite for significant process, operations and trade
errors that are detrimental to our clients or customers or compromise our financial strength or our reputation. We will maintain a strong and well
established risk management framework as a foundation for the effective management of process risk across the business.
The risks to our business and how they have evolved in 2018
Our approach to managing these risks
Link to strategy
Failing to execute operational processes may result in poor
client and customer outcomes, operational losses, reputational
damage and potentially increase the amount of capital we have
to hold.
Our increase in operational activity resulting from our merger
which created the Standard Life Aberdeen Group, the sale of
our UK and European insurance business and the
implementation of our transformation has resulted in some
additional strain to the normal operating environment. We
recognise that these additional challenges require additional
oversight and support to ensure we deliver against our strategy.
We employ robust risk control processes to ensure that there is
effective management and oversight of any process execution
or trade error issues.
• Clearly defined three lines of defence risk management
model where accountability and awareness are central to
managing risks in the first line
• Risk and control self-assessment process redesigned to fit
the capital-light business proposition
• Effective deployment of our Operational Risk team to
effectively oversee and challenge process controls
• Launch of a new risk management system to facilitate use
of management intelligence and effective reporting
• Evolution of our ERM framework to reflect our changing
business will ensure that these risks are managed
effectively across our business
• Continued investment in our system capabilities as part of
our transformation project will identify synergies and
simplify our operating environment
Enhancing our
operations
2 People
▲
Risk appetite statement:
Our people are crucial to the success of the Company and efforts will focus on maintaining a skilled and highly motivated workforce. We will accept a level
of staff turnover provided that resource gaps are not detrimental to achieving strategic objectives. We seek to uphold our corporate values and we will take
necessary action to eliminate individual and institutional discrimination and to make equality, diversity and inclusion core issues in the development and
implementation of policies and initiatives and in the way we manage our staff. We accept that our international footprint and profile presents new
challenges and we operate in some countries that maintain different values to our own. We will respect local laws, we will not knowingly expose our people
to personal risk, and we will use our influence to contribute to development in our local operating context and maximise our positive impact as we operate
around the world.
The risks to our business and how they have evolved in 2018
Our approach to managing these risks
Link to strategy
Our people drive the success of our business. We must retain,
attract and develop a skilled and diverse workforce with the right
experience to meet our strategic goals.
• We listen to our people and seek to understand their views
through active leadership and ongoing staff engagement,
including periodic surveys
With the creation of the Standard Life Aberdeen Group and sale
of our UK and European insurance business our people are
more clearly aligned to achieving our strategic objectives.
Increased challenges in an uncertain business and political
environment have the potential to impact our ability to attract
and retain staff globally. In addition, our complex corporate
change activity has been challenging for our people.
• We regularly benchmark our terms and conditions against
the market
• We are committed to driving inclusion and diversity
• Employee networks are used to support our people
ensuring their voices are heard. These include: Carers’
Network, Mind Matters (mental health), Young Persons
Development Network, Balance (gender), Unity (BAME),
Armed Forces, Lighthouse (LGBT+)
• We are committed to the Women in Finance Charter and
meeting the targets by 2020
• We operate a global business where our people are able to
work across borders and help us achieve our strategic
goals
Enhancing our
operations
Innovating for the
future
Trends
▲Increase
◄ ►Stable
Decrease
42
Link to strategic priorities
Client centricity
Enhancing our
operations
Innovating for
the future
Valuing our savings
ecosystem
Standard Life Aberdeen 2018 Operational risk continued
3 Technology
▲
Risk appetite statement:
The Company operates in an ever increasing technology driven environment, which brings complex challenges around data governance and cyber
security. We have no appetite for substantial flaws in our technology infrastructure that could expose our systems to reoccurring or prolonged failure,
unauthorised access, compromise by third parties, or breach of data protection regulation. We will maintain the confidentiality and integrity of our data,
technology infrastructure and systems by implementing credible risk-prioritised controls to protect against known and emerging threats, focusing protection
around our risk-sensitive assets and protect customer and staff data from unauthorised or accidental access, misuse or disclosure.
The risks to our business and how they have evolved in 2018
Our approach to managing these risks
Link to strategy
Our business is built upon our ability to advance alongside the
technology available to us. We rely upon a wide range of IT
systems and require greater use of online functionality to better
serve our clients and our people. Effective management of
technology can improve efficiency and cost savings.
The risk of operational disruption and data loss is increasing as
seen by the rise in phishing and malware attacks. Our
exposures extend beyond our Group as we have a number of
key suppliers who can be exposed to cyber risks resulting in
impacts to our supply chain. This risk applies to our outsourcing
of some IT services to Phoenix.
• We utilise layered controls and engagement in both
change and business as usual activities
• We undertake regular penetration testing and crisis
management exercises
• Our business invests in enhancing and developing controls
in IT infrastructure
• Continued engagement with our clients and with our
regulators concerning technology risks
• Security is considered as part of our ICAAP report and
considers data security as well as virus and malware
attacks
• Delivery plans exist to ensure mitigating actions are in
place covering our change risks. Embracing more agile
working practices allows us to deliver multi-speed change
for our business.
Enhancing our
operations
4 Business Resilience and Continuity
◄ ►
Risk appetite statement:
We are committed to identifying the threats, interruptions and potential impacts to the Company, and building the resilience and capability required to
provide an effective response. We have no appetite for reoccurring or prolonged interruption to our critical business operations and systems, including
those undertaken by our outsourced partners, that could result in significant operational loss, material reputational damage or that impacts on client or
customer service. Business resiliency planning and execution must be proactive, consistent and aligned with strategic objectives.
The risks to our business and how they have evolved in 2018
Our approach to managing these risks
Link to strategy
Identification and management of impacts of potential threats to
our business requires resilience. Our processes are the
safeguards that put the needs of our stakeholders at the heart of
our continuity planning.
A failure of business continuity could damage our ability to
maintain day-to-day activity and serve our clients and customers
and cause significant reputational and operational damage.
We are exposed to external and uncontrollable events, such as
extreme weather, which have an ability to impact our business
operations. These events require resilience and continuity
processes in order to manage potential impacts. We are well
placed to maintain service and view this risk as stable.
• We maintain appropriate business continuity and
contingency plans. We have achieved ISO 22301 in
relation to fund management activities.
• Our business supports remote access working to manage
at times when some of our offices are unable to be
accessed
• We hold work area recovery locations as alternatives for
our key office locations with capacity for key functions to
continue servicing our clients and customers
• We ensure our people are informed of any scenarios
whereby physical or remote access is challenged. This
communication system is tested regularly.
• We are engaged with our key third party suppliers to
ensure we have resilient operations. This is achieved
through assurance activities and ongoing supplier
management.
Client centricity
Enhancing our
operations
43
Standard Life Aberdeen 2018StrAtegic report Risk management continued
Operational risk continued
5 Fraud and Financial Crime
◄ ►
Risk appetite statement:
The Company acknowledges that financial crime could arise from either internal or external parties who attempt to defraud the Company or our clients by
circumventing our processes or controls, including those operated by our outsourced partners. We have no appetite for knowingly exposing our systems
and processes to misuse, or conducting business with clients, suppliers or other third parties intent on misusing our products or services for the purpose of
committing financial crime. We will take measures to detect, deter and report such behaviour and activity.
The risks to our business and how they have evolved in 2018
Our approach to managing these risks
Link to strategy
We are vigilant to potential instances of fraud, both internal and
external, financial crime or bribery and actively work to deter and
prevent such behaviour. We have a number of supplier
partnerships which increase our risk and we have controls in
place to manage them.
Risk detection methods are used to ensure we are able to
protect clients and customers and our business.
• We operate a number of controls covering anti-money
laundering, anti-bribery, fraud and other areas of financial
crime and monitor them closely
• Our Global Code of Conduct and Policy Framework
provide our people with minimum standards and drive our
culture
• Our mandatory learning module on anti-financial crime
provides our people the necessary information to identify
and escalate potential issues
• Our integrated Risk and Compliance function ensures that
our controls are effective in combating financial crime and
fraud
Client centricity
Enhancing our
operations
6 Change Management
◄ ►
Risk appetite statement:
The Company is undergoing a significant transformation programme that requires our staff and processes to adapt quickly. We will not undertake change
initiatives that do not meet the criteria for delivering these strategic objectives and/or regulatory requirements to the Company. We have no appetite for
material wastage in time, scope, cost or quality of deliverables. Our change portfolio will be governed to predict and overcome change barriers in
preparation for change implementation.
The risks to our business and how they have evolved in 2018
Our approach to managing these risks
Link to strategy
Implementing change activities supports our strategy and
business plan. Our complex portfolio of internal change projects
coupled with regulatory and political changes mean we face
significant delivery challenges where there are competing
demands for resources.
• Our major change projects are centrally managed with
clear governance processes and consolidation of our
change workload
• As part of our stress and scenario testing we have
considered change management
Completing projects on time and on budget are risks in this
space along with failure to meet the objectives of the change.
Regulatory pressures continue along with political planning for
Brexit. These challenge our deployment of technology, people
and capital.
We have actively planned for Brexit and other regulatory
projects and view our change management trend as stable.
• Our second line Risk and Compliance function engages
with change activities to ensure appropriate governance is
in place
Enhancing our
operations
Trends
▲Increase
◄ ►Stable
Decrease
44
Link to strategic priorities
Client centricity
Enhancing our
operations
Innovating for
the future
Valuing our savings
ecosystem
Standard Life Aberdeen 2018 Operational risk continued
7 Supplier Risk
▲
Risk appetite statement:
The Company recognises that to achieve certain objectives and improve efficiency the use of suppliers is required and we have a number of outsourced
supplier relationships as part of our business model, particularly in relation to fund administration, custody and transfer agency services, and retail
platforms. We recognise that some suppliers may fail, but we have no appetite for our critical suppliers to fail to fulfil their obligations or provide inadequate
service. Our supplier relationships will be governed and overseen, on a risk based approach, against the standards set within our procurement and
supplier risk framework.
The risks to our business and how they have evolved in 2018
Our approach to managing these risks
Link to strategy
We have a number of supplier relationships in operation to
allow us to deliver our strategy such as, BNP Paribas and
Citigroup for our asset management business, FNZ for our
platform business and Phoenix for some of our IT services.
The failure of any of our outsourcing providers could instigate
a resilience and business continuity event disrupting our
operations.
Adding new outsourcers increases our exposure to our risk
culture, framework and business performance.
• Our outsourcing and third party management policy includes
the standards to which we hold our suppliers in relation to
both new and existing arrangements
• We have oversight and policies over our third parties as their
changing business models affect our risk profile
• Our stress and scenario testing programme considers
supplier risk
• We are committed to maintaining strong relationships with our
external providers to ensure we understand arising risks and
that early management can take place
Client centricity
Enhancing our
operations
8 Financial Management Process
◄ ►
Risk appetite statement:
We are committed to operating a robust financial planning and control process to enable strategic and business decisions to be based on robust financial
information. We have no appetite for accounting irregularities or making material financial mis-statements.
The risks to our business and how they have evolved in 2018
Our approach to managing these risks
Link to strategy
Standard Life Aberdeen has established financial
management processes and controls. Our business decision
making is based on accurate and timely financial information.
• Application of robust governance and challenge ensures that
where business decisions are made, there is appropriate
oversight
Provision of inaccurate or incomplete information could result
in poor strategic decision making and negatively impact our
business planning processes.
• Our Audit Committee challenges our reporting as part of
financial planning and control processes
• Our Risk function provides second line challenge of our
business plan to support decision making
• Our financial reporting is aligned to external reporting
standards and industry best practices
Enhancing our
operations
Conduct risk
9 Conduct Risk
Risk appetite statement:
The Company has no appetite for unfair customer outcomes or poor market conduct, whether through deliberate or negligent actions.
Consistent with our values, where unfair outcomes arise, the Company will put it right in a fair and prompt manner.
The risks to our business and how they have evolved in 2018
Our approach to managing these risks
Link to strategy
Our business relies on our ability to ensure fair client and
customer outcomes. Failure to achieve these outcomes poses
significant reputational damage and likely financial losses for
our business.
We are fully supportive of our regulators driving better
customer outcomes and mindful that in a changing landscape
we need to remain agile to change. Our ambition remains to
become an industry leader in conduct governance and the
delivery of fair client and customer outcomes.
• Seeking good customer and client outcomes is an essential
aspect of our corporate values and our franchise
• Our Global Code of Conduct contains the standards required
of our people. Along with our mandatory training modules we
embed a strong conduct aware culture across our business.
• The second line actively oversees the operation of the
Conduct Risk Framework including the governance of
conduct risks, the quality of risk assessment and action. We
openly engage with our regulators around the world.
Client centricity
◄ ►
45
Standard Life Aberdeen 2018StrAtegic report Risk management continued
Regulatory and legal risk
10 Regulatory and Legal Risk
▲
Risk appetite statement:
Standard Life Aberdeen has no appetite for any breach of laws, regulations or prescribed codes that apply to its business. We have no appetite for wilfully
breaching contractual obligations where this could give rise to a materially adverse financial or reputational impact on the Group. Financial materiality will
be assessed against the materiality threshold used for the Group’s consolidated financial statements in any given reporting period. Where laws require
interpretation or where regulations or codes are ambiguous or untested, we will take reasonable steps to determine their applicability, including seeking
legal advice where necessary. When determining the appropriate course of action, we will have due regard to fair outcomes for our customers, clients,
shareholders and other relevant stakeholders. Where breaches are identified, we will ensure that these are resolved in a timely manner taking into account
(where relevant) the interests of customers, clients, shareholders and other stakeholders including, if appropriate, by informing the relevant authorities.
The risks to our business and how they have evolved in 2018
Our approach to managing these risks
Link to strategy
As part of a highly regulated industry globally, we are
exposed to a number of different regulators and legal
systems.
Regulatory or legal change can drive opportunities and
threats to our business activities. With current focus on
platform activities and asset management fee pressure we
are exposed to some risks in this area.
An increase in regulatory change and information demands
can require a significant diversion of people resource and
impact growth opportunities due to climbing compliance
costs.
• We are open with our regulators in order to maintain strong
relationships and high levels of trust. This allows us to have
timely and meaningful discussions on supervisory matters and
any areas of potential regulatory change.
• We conduct horizon scanning to plan any upcoming regulatory
changes and establish programmes to manage them
• The Policy Framework sets out the compliance standards for
our business
• Our internal legal team supports our senior management on
relevant areas across our business
Enhancing our
operations
Strategic risk
11 Strategic Risk
▲
Risk appetite statement:
The Company has an appetite for strategic risk that arises as a consequence of pursuing its chosen business model. We will proactively identify and
understand the strategic risks that it is exposed to, the options available to manage them and ensure that these inform strategy formation and business
planning. We have a limited appetite for failing to deliver our business plan objectives as a result of underperformance that is within our direct control.
Ongoing performance against the business plan will be closely monitored and prompt action taken to address any material adverse divergence.
The risks to our business and how they have evolved in 2018
Our approach to managing these risks
Link to strategy
Our vision to build a world-class investment company
requires us to generate sustainable long-term value for our
clients and customers. We utilise active investment
management to achieve this outcome. With variable
investment performance across our products we are
focused on managing our investment performance risks.
Managing our strategic goals in line with completing our
strategic transition to a capital-light business has created
some potential distraction risks.
Geopolitical unrest and associated risks can affect the
markets in which we operate and impact our reputation
Ensuring we have captured the demands and needs of
clients and customers and adapting to preference changes
can impact our business significantly.
• Ongoing engagement with clients and customers on service
and performance
• Our first and second line investment risk teams provide multiple
levels of oversight and challenge to our investment function
• Our Board and executives are responsible for our strategy and
its execution, with our Co-CEOs responsible for the
development and promotion of our strategy and overall
monitoring of its operational performance
• We proactively manage our relationships with our strategic
partners allowing us to expand our existing investment
capabilities and diversify our business capabilities
Impacts all areas
of strategy
Trends
▲Increase
◄ ►Stable
Decrease
46
Link to strategic priorities
Client centricity
Enhancing our
operations
Innovating for
the future
Valuing our savings
ecosystem
Standard Life Aberdeen 2018 Financial risk
12 Financial Risk
◄ ►
Risk appetite statement:
The Company has no appetite to fail to maintain sufficient resources to meet its contractual, business and regulatory obligations. We will ensure it can do
so under both normal conditions and an appropriate range of company and market stressed scenarios. The Company has an appetite for market and
credit risk exposures where these are required in pursuit of its business objectives. Exposures must be controlled to manage capital and liquidity
requirements, concentration risk and the risk of financial loss.
The risks to our business and how they have evolved in 2018
Our approach to managing these risks
Link to strategy
Our transition to a fee based model has increased the
exposure of our revenue streams to volatility in financial
markets given the impact this has on the value of assets on
our platforms and under management.
The value of our shareholder assets are also exposed to
volatility in financial markets. Liquidity risk may impact our
business if we were unable to maintain enough liquid
capital to cover liabilities as they fall due.
Our counterparty exposures have reduced as a result of the
sale of our UK and European insurance business. We have
effective processes in place to manage our counterparty
exposures.
• We maintain a strong capital position to ensure any increased
capital costs are covered
• Through our ICAAP we allocate appropriate capital against our
risks and review these risks on an ongoing basis
• Our stress and scenario testing programme cover our financial
risks in particular: market, liquidity and counterparty risks
• Counterparty exposures are proactively monitored with
mitigation action taken where necessary
• We ensure we have appropriate capital to support and optimise
our balance sheet
• We monitor our current and projected liquidity position to
identify where any management actions may be required
• We maintain a revolving credit facility as part of our contingent
funding plans
Enhancing our
operations
Valuing our savings
ecosystem
47
Standard Life Aberdeen 2018StrAtegic report
Our business practices
A responsible approach
We hold ourselves to the same high standards that we expect of companies that we invest in.
Sustainability at Board level
An update on internal and external environmental, social and
governance issues as well as our performance on non-financial
measures are provided regularly at Board meetings.
Code of conduct
Our Global Code of Conduct, which details the standards of behaviour
we expect across the Group, is reviewed and updated annually. All
our employees are required to read, agree and adhere to the
principles of the code which focuses on doing the right thing and
putting our customers and clients at the heart of our business. At the
end of February 2019, 95% of employees have confirmed they
understand and will comply with the code. Reminders are sent to
individuals who have not completed the confirmation and these are
escalated through line management. A six-monthly report is presented
to the Conduct and Conflicts Committee. If employees have any
concerns relating to issues covered by the code such as bribery,
environmental or human rights issues, we encourage them to speak
to their manager in the first instance; if they feel they cannot raise their
concern using their normal reporting line, or wish to raise it
anonymously, we provide an independent and confidential Speak Up
hotline. Fifteen incidents were reported with investigations carried out
in 2018.
Modern slavery statement
As a global investment company, we want to do all we can to help
tackle human trafficking, forced labour, bonded labour and child
slavery. We focus on raising awareness of modern slavery issues,
and encouraging good practices among our suppliers and the
companies we invest in. We have published our 2018 statement and
outcomes on our website, reinforcing our commitment to this
important issue.
Human rights policy
Our policy summarises our approach to identifying and upholding the
human rights of our people, customers and clients, community and
those impacted by our suppliers, partners and the companies we
invest in. As an investor we consider ESG factors, including human
rights, when evaluating companies. We assess the management of
human rights impacts and engage when appropriate to highlight
issues and promote good practice. We publish the outcomes of our
ESG engagements with investee companies in a quarterly summary
available on our website.
Greenhouse gas emissions
Financial crime prevention
We have a zero tolerance approach to financial crime, bribery and
corruption. We have policies, frameworks and controls in place to help
ensure that we only receive or pay money to or from clients, third
parties, partners and suppliers that we’ve identified as suitable to do
business with. We run mandatory annual training for our employees
which requires passing a test that confirms their understanding of both
our policies and the part our people play. We also maintain a register
for gifts and entertainment we receive or provide. We have processes
for reporting and reviewing breaches of our policies. In 2018 we had
no breaches.
Managing our environmental impact
Our greatest environmental impact is through the investments we
hold. You can read more about our approach to integrating
environmental considerations into our investment activity on our
website.
Our operational environmental impact is mostly comprised of the
energy we use in our buildings and air travel. To reduce our impact in
these areas we track our consumption, pursue ongoing improvements
in building management, and encourage our people to reconsider the
need for air travel by offering technology solutions. This year we have
pledged to procure 100% renewable electricity for our globally
operated offices by 2020. We have also had a significant focus on
supporting biodiversity, and have pledged to remove all single-use
plastics in our globally operated offices where practical by 2020. Our
2018 greenhouse gas emissions (GHG) data is our new baseline year
and we will be developing GHG reduction targets in 2019.
Climate change is an investment risk we consider across all asset
classes, so we have been actively supporting efforts to promote more
transparency on the climate risks that companies may be facing and
how they are tackling them. We have publicly declared our support for
the G20’s Task Force on Climate-related Financial Disclosures. To
enable us to meet the recommendations, we initiated two working
groups on climate change in 2018 – one focused on our investment
approach, and the other looking at our operations and stakeholder
interactions.
You can read more on these topics and also find our Corporate
sustainability report 2018 on our website
www.standardlifeaberdeen.com/annualreport
2018
(Location-based)
2017
(Location-based)
2018
(Market-based)2
Greenhouse gas emissions (tonnes CO2e) continuing
business
Tonnes CO2e/FTE ratio
Greenhouse gas emissions (tonnes CO2e) including
discontinuing business
Scope 1
Scope 2
Scope 3
Total
Scope 1
Scope 2
Scope 3
Total
2,667
7,069
22,482
32,2181
5.21
3,469
10,847
22,756
37,0721
3.89
3,518
14,717
17,543
35,7781
2.89
2,667
4,376
22,106
29,149
4.71
3,469
4,782
22,231
30,482
3.20
Tonnes CO2e/FTE ratio
1 Data prepared in accordance with our reporting methodology and the KPI is within KPMG’s limited assurance scope. Both KPMG’s limited assurance report and our reporting
methodology can be found at www.standardlifeaberdeen.com/annualreport
2 Emissions have been calculated using renewable energy contracts, residual mix emissions factors for European sites, and grid mix emissions factors for all other sites.
Note: Emissions associated with real estate investment assets owned by Standard Life Assurance Limited for the 8 months prior to the sale on 31 August 2018 are 6,480 tonnes
CO2e.
48
48 Standard Life Aberdeen 2018
Standard Life Aberdeen 2018
I
S
T
R
A
T
E
G
C
R
E
P
O
R
T
Non-financial information statement
Standard Life Aberdeen aims to comply with the Non-Financial Reporting requirements contained in sections 414CA and 414CB of the
Companies Act 2006.This information is intended to help stakeholders better understand how we address key non-financial matters. This
aligns with the work we already do in support of Carbon Disclosure Project, UN Global Compact and UN Sustainable Development Goals.
Further details of the activities we undertake in supporting these frameworks is available in our Corporate sustainability report. Details of our
principal risks and how we manage those risks are included in the Risk management section.
Reporting requirement Relevant policies and publications
Where to find more information
Environment
Employees
Human rights
Social matters
Other matters
Environmental policy1
Single-use plastics policy1
Global code of conduct1
Diversity strategy1
Anti-bribery and corruption policy2
Human rights policy1
Modern slavery statement1
Young people and money report
Corporate sustainability report
Supplier code of conduct1
Business model
Non-financial KPIs
Our business practices (page 48)
www.standardlifeaberdeen.com/annualreport
Our business practices (page 48)
Our people and culture (pages 28 to 29)
Our business practices (page 48)
Our business practices (page 48)
Our business practices (page 48)
www.standardlifeaberdeen.com/annualreport
www.standardlifeaberdeen.com/annualreport
www.standardlifeaberdeen.com/annualreport
Our business model (pages 10 to 11)
Our strategy (page 27),
Our business practices (page 48)
1 Group policies are published on our website at www.standardlifeaberdeen.com/annualreport
2 Certain Group policies are not published externally.
Basis of preparation
Overview
Our Strategic report for the year to 31 December 2018 has been
prepared in accordance with the Companies Act 2006 and the
Disclosure and Transparency Rules (DTR) issued by the FCA. Under
section 414 of the Companies Act 2006, DTR 4.1.8 and DTR 4.1.9,
the Group is required to provide a fair, balanced and understandable
review of the business and a description of the principal risks and
uncertainties facing the Group. Principal risks and uncertainties are
detailed in the Risk management section of this Strategic report and
Note 39 in the Group financial statements section. To provide clear
and helpful information, we have also considered the revised
voluntary best practice principles of the Guidance on the Strategic
report issued by the Financial Reporting Council in July 2018. We
have also considered the European Securities and Markets Authority
(ESMA) guidelines on alternative performance measures issued in
October 2015.
The Group’s International Financial Reporting Standards (IFRS)
consolidated financial statements have been prepared in accordance
with IFRS, as endorsed by the European Union (EU). However, our
Board believes that alternative performance measures (APMs), which
have been used in the Strategic report, are also useful for both
management and investors.
All APMs should be read together with the Group’s IFRS consolidated
income statement, IFRS consolidated statement of financial position
and IFRS consolidated statement of cash flows, which are presented
in the Group Financial statements section of this report.
Going concern
The Group’s business activities, together with the factors likely to
affect its future development, performance and position, are set out in
this Strategic report. This includes details on our liquidity and capital
management and our viability statement in the Chief Financial
Officer’s overview section and our principal risks in the Risk
management section. In addition, the Group financial statements
section includes notes on the Group’s subordinated liabilities (Note
34), management of its risks including market, credit and liquidity risk
(Note 39), its contingent liabilities and commitments (Notes 43 and
44), and its capital structure and position (Note 47).
The Group continues to meet group and individual entity capital
requirements and day-to-day liquidity needs. The Company has a
revolving credit facility of £400m as part of our contingency funding
plans and this is due to mature in 2022. The Group has considerable
financial resources together with a diversified business model, with a
spread of business and geographical reach. As a consequence, the
Directors believe that the Group is well placed to manage its business
risks successfully.
After making enquiries and having assessed the principal risks, the
Directors are satisfied that the Group has and will maintain sufficient
resources to enable it to continue operating for at least 12 months
from the date of approval of the financial statements and therefore
consider it appropriate to adopt the going concern basis of accounting
in preparing the financial statements. In addition, the Directors have
assessed the Group’s viability over a period of three years.
Forward-looking statements
Details of forward-looking statements are included in the Glossary on
page 253.
Kenneth A Gilmour
Company Secretary,
Standard Life Aberdeen plc (SC286832)
13 March 2019
Standard Life Aberdeen 2018
49
49
Standard Life Aberdeen 2018StrAtegic report
Governance
50
Standard Life Aberdeen 2018
Contents
2. Board of Directors
3. Corporate governance statement
4. Directors’ report
5. Directors’ remuneration report
6. Statement of Directors’ responsibilities
52
54
75
81
103
51
GovernanceStandard Life Aberdeen 2018
2. Board of Directors
Our business is overseen by our Board of Directors. Biographical details (and shareholdings) of the Directors as at
12 March 2019 are listed below.
1
5
9
2
6
3
7
4
8
10
11
12
Key to Board committees
A Audit committee
NG
Nomination and
governance committee
R
Remuneration
committee
RC
Risk and capital
committee
Chair
1 Sir Douglas Flint CBE – Chairman
NG
3 Keith Skeoch – Co-Chief Executive
Appointed to the Board: November 2018
Appointed to the Board: May 2006
Nationality: British
Age: 63
Shares: 50,374
Sir Douglas was appointed Chairman on 1 January 2019, having been a
Director since 1 November 2018. He is also chairman of IP Group plc,
non-executive director of the Centre for Policy Studies and member of the
Global Advisory Council of Motive Partners. Additionally, he is chairman of
the Just Finance Foundation, the Corporate board of Cancer Research
UK and trustee of the Royal Marsden Cancer Charity. In December 2017
he was appointed by the Chancellor of the Exchequer as special envoy to
China’s Belt and Road Initiative. Previously, he served as chairman of
HSBC Holdings plc from 2010 to 2017. For 15 years prior to this he was
HSBC’s group finance director, joining from KPMG where he was a
partner. Between 2005 and 2011 he also served as a non-executive
director of BP plc.
Age: 62
Nationality: British
Shares: 2,472,605*
Keith was appointed Co-Chief Executive on 14 August 2017. He was
formerly Chief Executive of Standard Life plc, having been a Director
since 2006 and Chief Executive of Standard Life Investments since 2004.
He joined Standard Life Investments Limited in 1999 as Chief Investment
Officer after nearly 20 years’ investment experience at James Capel in a
number of roles, including chief economist and managing director
international equities. He is also a non-executive director of the Financial
Reporting Council and a member of the Asset Management Taskforce led
by HM Treasury.
As announced, from 13 March Keith will be the sole Chief Executive.
2
Simon Troughton – Deputy Chairman and Senior
Independent Director
NG
4 Martin Gilbert – Co-Chief Executive
Appointed to the Board: August 2017
Appointed to the Board: August 2017
Nationality: British
Age: 65
Shares: 64,054
Simon was appointed Senior Independent Director on 1 January 2019,
and has been Deputy Chairman since August 2017. Previously, he was a
non-executive director of Aberdeen Asset Management PLC from July
2009 and chairman from October 2016. Simon is also chairman of
Redburn (Europe) Limited. Previously, he was a partner at Cazenove and
Company Limited before moving to Fauchier Partners in 2003 where he
became chief operating officer.
As announced, Simon intends to retire from the Board at the conclusion of
the 2019 AGM.
Nationality: British
Shares: 1,354,623*
Martin was appointed Director and Co-Chief Executive on 14 August
Age: 63
2017. He is co-founder (and former chief executive) of Aberdeen Asset
Management PLC, having been a director since 1983. He is a non-
executive director of Glencore plc, chairman of the Prudential Regulation
Authority’s Practitioner Panel and a board member of the Institute of
International Finance, as well as a member of the International Advisory
Panel of the Monetary Authority of Singapore and the International
Advisory Board of British American Business.
As announced, from 13 March Martin will be Vice Chairman of Standard
Life Aberdeen and Chairman of Aberdeen Standard Investments.
52
Standard Life Aberdeen 2018
5 Bill Rattray – Chief Financial Officer
9 Jutta af Rosenborg – Non-executive Director
A
R
Appointed to the Board: August 2017
Appointed to the Board: August 2017
Nationality: British
Age: 60
Shares: 1,851,706*
Nationality: Danish
Age: 60
Shares: 8,750
Bill was appointed Director and Chief Financial Officer on 14 August 2017,
having been finance director of Aberdeen Asset Management PLC since
January 1991. He is also a non-executive director of Curtis Banks Group
PLC. Prior to joining the Aberdeen Group, Bill trained as a chartered
accountant with Ernst & Whinney, qualifying in 1982.
As announced, Bill intends to retire from the Board on 31 May 2019.
Jutta was appointed Director on 14 August 2017, having been a non-
executive director of Aberdeen Asset Management PLC since January
2013. She is also a non-executive director of JPMorgan European
Investment Trust plc, NKT A/S, Nilfisk Holding A/S and BBGI SICAV S.A.
Previously, she was the executive vice president, chief financial officer of
ALK-Abellό A/S.
6 Rod Paris – Chief Investment Officer
10 Martin Pike – Non-executive Director
RC
A
Appointed to the Board: August 2017
Appointed to the Board: September 2013
Nationality: British
Age: 59
Shares: 671,881
Nationality: British
Age: 57
Shares: 69,476
Appointed Director on 14 August 2017, Rod joined Standard Life
Investments in 2002 as Head of Global Fixed Income and was appointed
as Head of Investments in 2007 and latterly as Chief Investment Officer in
2013. Previously, he was a managing director at Merrill Lynch Investment
Managers, and before that a director at Mercury Asset Management which
he joined in 1984.
Martin was appointed Director on 27 September 2013. He is also chairman
and non-executive director of Faraday Underwriting Limited. He joined R
Watson & Sons in 1983, and progressed his career with the firm to partner
level. His senior roles included head of European insurance and financial
services practice, Watson Wyatt from 2006 to 2009, vice-president and
global practice director, insurance and financial services, Watson Wyatt
during 2009 and, latterly, managing director, risk consulting & software,
EMEA, Towers Watson from 2010 to 2013.
7 Cathleen Raffaeli – Non-executive Director
R
RC
11 Melanie Gee – Non-executive Director
A
RC NG
Appointed to the Board: August 2018
Appointed to the Board: November 2015
Nationality: American Age: 62
Shares: Nil
Nationality: British
Age: 57
Shares: 67,500
Cathleen was appointed Director on 1 August 2018. She is also a non-
executive director of Federal Home Loan Bank of New York and
managing partner of Hamilton White Group, LLC and Soho Venture
Partners Inc. Previously, Cathleen was lead director of E*Trade Financial
Corporation, non-executive director of Kapitall Holdings, LLC and
president and chief executive officer of ProAct Technologies Corporation.
Appointed Director on 1 November 2015, Melanie is also a senior adviser
at Lazard and Co. Limited, having been a managing director between 2008
and 2012. Previously, she held various roles with UBS, and was appointed
a managing director in 1999. Melanie was a non-executive director of The
Weir Group PLC between 2011 and 2017 and the Drax Group plc between
2013 and 2016. She is also chairman of Ridgeway Partners Holdings
Limited.
8 John Devine – Non-executive Director
A
R
RC
12 Richard Mully – Non-executive Director
R
NG
Appointed to the Board: July 2016
Appointed to the Board: August 2017
Nationality: British
Age: 60
Shares: 28,399
Nationality: British
Age: 57
Shares: 90,116
Appointed Director on 4 July 2016, John is also a non-executive director of
Credit Suisse International, Credit Suisse Securities (Europe) Limited,
Citco Custody Limited and Citco Custody (UK) Limited. From 2008-2010,
John was chief operating officer of Threadneedle Asset Management
Limited. Prior to joining Threadneedle, John held a number of senior
positions at Merrill Lynch in London and New York.
Richard was appointed Director on 14 August 2017, having been a non-
executive director of Aberdeen Asset Management PLC since April 2012.
Richard is also deputy chairman of alstria office REIT-AG, chairman of
Great Portland Estates plc, senior adviser to TPG Real Estate (Europe)
and director of Starr Street Limited. Previously, Richard spent much of his
career in financial services as an investment banker and was the co-
founder and managing partner of Grove International Partners LLP.
As announced, Richard intends to retire from the Board at the conclusion
of the 2019 AGM.
* Shares include qualifying awards as described on page 94 of the Directors’ remuneration report 2018.
53
GovernanceStandard Life Aberdeen 2018
3. Corporate governance statement
Your Board continues to emphasise the importance of robust
governance arrangements in carrying through its responsibilities and I
look forward to updating you on the work of the Committee in future
reports.
3.1 Nomination and Governance Committee report
The Nomination and Governance Committee oversees the
governance framework so the report on its activities is presented both
in summary here and integrated in more detail into the relevant parts
of the corporate governance statement.
Dear Shareholder
One of my core responsibilities is to ensure effective corporate
governance throughout the Group and so I am pleased to introduce
the 2018 Corporate governance statement and Nomination and
Governance Committee report. Recognising that I only took up my role
as Chair of the Group and the Committee on 1 January 2019, I want,
up front, to recognise the strength of the extant governance framework
overseen by my predecessor, Sir Gerry, and confirm my commitment
to continuing his robust work in this area.
During 2018, the two main points of focus of the Committee were to
ensure that the leadership and governance processes remained
strong and effective, both in the run up to completion of the sale of
Standard Life’s UK and European insurance business to the Phoenix
Group (the Sale) and thereafter, and to conclude the Chair succession
process successfully. Throughout the year in conducting these
significant transitions, the members of your Board continued to adhere
to the highest standards of corporate governance and ethical
behaviour in directing the Group’s affairs, reflecting their accountability
to you as shareholders. Fulfilling this accountability responsibly is
recognised by all your Directors as key to understanding and
managing our business effectively, providing engaged leadership, and
delivering shareholder value over the longer term. Your Board takes
the quality of its own performance seriously and strives to improve
performance through annual reviews and continuing self-assessment,
as well as learning from and implementing feedback from external
reviews. The key governance activities during the year included:
Sir Douglas Flint
Chair, Nomination and Governance Committee
Membership
The members of the Committee are the Chair and a number of the
independent non-executive Directors. On 1 January 2019, Sir Douglas
Flint succeeded Sir Gerry Grimstone as Chair of the Committee. The
table below reflects the composition of the Committee and the
members’ attendance during 2018:
Member
Sir Gerry Grimstone, Chair until 31/12/2018
Melanie Gee
Richard Mully
Simon Troughton
Former member
Lynne Peacock
Julie Chakraverty
Kevin Parry
Attendance
5/5
5/5
5/5
5/5
2/3
2/3
5/5
Keith Skeoch and Martin Gilbert, in their Co-Chief Executive roles,
were invited to Committee meetings to discuss relevant topics, such
as the role and membership of key executive management
committees, talent development and management succession.
The Committee supports the composition and effectiveness of the
Board, and oversees the Group’s activities to strengthen its talent
pipeline at all levels. It also oversees the development and
implementation of the Group’s governance framework.
In this statement you can read about the Committee’s role, both in the
context of business as usual activities including integration, separation
and transformation, and in the Sale discussions, in relation to:
Identifying and recommending Directors to be appointed to the
Board
Maintaining high quality membership of the Board and its
Committees, including appropriate diversity
Reviewing the governance content of the Sale Circular
Reviewing the executive governance structures, including the
balance between the individual roles and responsibilities of the Co-
Chief Executives and the duties of the key management committees
Reviewing and conducting oversight of the new operating models
Reviewing and commenting on the new operating model
Reviewing and assisting in the implementation of the Company’s
culture, diversity and inclusion activities, including recommending
that a designated non-executive director should be responsible for
representing the views of the workforce to the Board
Reviewing Board diversity, skills and experience
Considering employee feedback on the purpose, values and culture
within the Group
of the Group
Oversight of our transition and transformation programmes,
including assessment of the evolution of the firm’s culture to align
with our purpose, values and strategy
Reviewing employee feedback on our purpose, values and culture
and executive management’s response thereto
Supporting the externally facilitated Board effectiveness review and
ensuring feedback was fully considered
Leading the Chair succession process
Supporting the review of the Board’s effectiveness
Overseeing succession planning, leadership and talent
development and diversity levels throughout the Group
Ultimate responsibility for these important topics rests with the Board
and the Committee reports regularly to the Board so that all Directors
can be involved as appropriate.
54
Standard Life Aberdeen 2018 The Committee’s work in 2018
An indicative breakdown as to how the Committee spent its time is
shown below:
Reviewed compliance with the Corporate
Jan-Mar
Governance Code
Reviewed the corporate governance statement
Reviewed the Board Committees’ terms of
reference
Appointment of subsidiary Board members
Apr-Jun
Oct-Dec
Board and Committee composition
Review of the target operating model for the Group
Diversity and Inclusion review
Review of the Corporate Culture
Appointment of subsidiary Board members
Supporting the externally facilitated Board
Effectiveness Review
Reviewing Chair succession arrangements (via the
Appointments Committee)
Appointment of subsidiary Board members
Considered the Diversity and Inclusion action plan
Discussed the revised UK Corporate Governance
Code
Reviewed Chair transition arrangements
The Committee’s work in 2018
An indicative breakdown as to how the Committee spent its time is
shown below:
Governance and organisational design framework
Board and committee composition
Culture, diversity and inclusion
Succession planning
Committee effectiveness
The Committee reviews its remit and effectiveness each year. The
2018 review was carried out via an external review and Independent
Board Evaluation (IBE) was appointed as the external facilitator. The
review concluded that the Committee members had debated issues
well and had dealt with several complex matters appropriately. While
the Committee’s main activities during 2018 related to Board non-
executive membership, going forward, the Committee should find time
to discuss fully senior succession planning, talent management, and
gender, diversity and inclusion activities as well as the skills and
experience needed by the Board in the future to support its strategy.
The Committee’s workplan for 2019 increases its coverage of these
matters. The Committee will also report fully to the Board on the
progress of its discussions.
Roles and responsibilities
The roles and responsibilities of the Board, Chair and Co-Chief
Executives are outlined below. The role of the Deputy Chair is to stand
in for the Chair in his absence.
The Board
The Board’s role is to organise and direct the affairs of the Company
and the Group in accordance with the Company’s constitution, all
relevant laws, regulations, corporate governance and stewardship
standards. The Board’s role and responsibilities, collectively and for
individual Directors, are set out in the Board Charter. The Board
Charter also identifies matters that are specifically reserved for
decision by the Board. These include approving, overseeing and
challenging:
The development and implementation of strategy, objectives and
business plans
Capital and management structures including capital allocation
strategy and how it supports the Group’s long-term sustainable
growth
Oversight of culture, our standards and ethical behaviours
Dividend policy
Appointment of the External auditor
Financial reporting which, during 2018 included the impact of the
Sale and the agreement of the level of provision in respect of past
annuity sales practices
How risks are managed, including the Enterprise Risk Management
(ERM) framework, risk strategy, risk appetite limits and internal
controls
Significant corporate and other transactions during 2018 which, as
well as the Sale, included the initial public offering (IPO) process for
our Indian asset management associate HDFC Asset Management
Company Limited, preparation for the sale of our Hong Kong
subsidiary, Standard Life (Asia) Limited to our Chinese joint venture
business, Heng An Standard Life Insurance Company Limited and
the proposed joint venture with Virgin Money
Remuneration policy
Succession planning
The sustainability of the Group’s business and our own sustainability
responsibilities to stakeholders, including wider society and the
environment
Significant external communications
Terms of reference of Board Committees
Appointments to the Board and to Board Committees
Matters escalated from subsidiary boards to the Board for approval
The Board regularly reviews reports from the Co-Chief Executives and
from the Chief Financial Officer on progress against approved
strategies, plans and budgets, as well as updates on stock market and
global economic conditions. There are also regular presentations from
key business functional leaders and regional heads including from the
Chief Risk Officer. The Chair reports at each Board meeting on the
activities he has undertaken on behalf of the Board and the Group
since the previous meeting.
The Chair
Leads the Board and ensures that its principles and processes are
maintained
Promotes high standards of corporate governance
Together with the Co-Chief Executives and the Company Secretary,
sets agendas for meetings of the Board
55
GovernanceStandard Life Aberdeen 2018
3. Corporate governance statement continued
Ensures Board members receive accurate, timely and clear
information on the Group and its activities
Encourages open debate and constructive discussion and decision
Governance framework
The Group’s governance framework is approved by the Board and
documented in the Board Charter.
making
Leads the performance assessments and identification of training
needs for the Board and individual Directors
Speaks on behalf of the Board and represents the Board to
shareholders and other stakeholders
The Co-Chief Executives
During 2018, the Co-Chief Executives, within authorities delegated by
the Board:
Develop strategic plans and structures for presentation to the Board
Make and implement operational decisions
Lead the other executive Directors and the executive team in the
day-to-day running of the Group
Report to the Board with relevant and timely information
Develop appropriate capital, corporate, management and
succession structures to support the Group’s objectives
Together with the Chair, represent the Group to external
stakeholders, including shareholders, customers, suppliers,
regulatory and governmental authorities, and the local and wider
communities
Keith Skeoch has individual accountability for the day-to-day
running of the fabric of the business including responsibility for
Investments, the Indian associates and the China Insurance Joint
Venture, Operations, Finance, HR, Risk and Regulatory Culture, as
well as the Legal and Secretariat functions
Martin Gilbert has individual accountability for external matters
including responsibility for International Activities, Distribution
including client engagement and business development, Marketing
and Corporate Development
As announced, from 13 March 2019, Keith Skeoch will be sole Chief
Executive and Martin Gilbert will be Vice Chairman of Standard Life
Aberdeen and Chairman of Aberdeen Standard Investments. In this
role, Martin will focus on managing relationships with clients, winning
new business and realising the potential from our global network and
product capabilities. Both Martin and Keith will continue to report
directly to the Chairman.
Code compliance
As well as covering the formal disclosure requirements of the UK
Corporate Governance Code (the Code) issued by the Financial
Reporting Council (FRC), this statement describes how the Board
meets its governance responsibilities.
Throughout 2018, the Company complied with all of the provisions set
out in the Code issued by the FRC in April 2016 other than the
following:
Provision B.3.3. states that ‘The Board should not agree to a full time
executive director taking on more than one non-executive directorship
in a FTSE100 company, nor the chairmanship of such a company’.
For the period 1 January to 16 May 2018 Martin Gilbert held non-
executive directorships with Sky plc and Glencore plc.
The Code is available at www.frc.org.uk
Together with the Directors’ remuneration report, this statement
explains how our governance framework supports the way we apply
the Code’s principles of good governance.
During 2018, the Committee has closely followed the development of
the revised Code to ensure that the Group is well placed to implement
and comply with its requirements for 2019.
56
You can read the Board Charter on our website at
www.standardlifeaberdeen.com/annualreport
The Group’s Code of Conduct guides our people to do the right thing
and complements the Board Charter. It sets out our standards of
conduct and culture, and shows the governing principles for
operational excellence, compliance responsibilities, customer service,
and how we should treat our people, and other stakeholders.
The Board expects the Group to be a leader in corporate governance
activities through its own actions and through its stewardship activities.
The Nomination and Governance Committee regularly reviews the
Group’s corporate governance framework against relevant directors’
duties, generally accepted standards, guidance and best practice,
and, as appropriate, recommends to the Board changes to the Board
Charter.
The Committee previously oversaw the implementation of the
governance map and processes to support the Senior Insurance
Managers Regime (SIMR). During 2018, we began the process to
implement the Senior Managers and Certification Regime (SMCR)
across the relevant parts of the business, which will conclude in late
2019 when SMCR comes into force for all UK financial services firms.
The governance framework sets out the Board’s relationship with the
boards of the principal subsidiaries in the Group. In particular, it
specifies the matters which these subsidiaries are required to refer to
the Board or to a Committee of the Board for approval. It also ensures
that all decisions which require or would benefit from it, receive the
independent input of the non-executive Directors.
The roles of the Chair and the Co-Chief Executives are separate.
Each has clearly defined responsibilities, which are described in the
Board Charter.
The heads of each business function and each region manage their
teams within authorities set out in the Board Charter and within an
approved scheme of delegation. This includes reporting to the Co-
Chief Executives on how they are complying with Group policies and
performing against approved plans and budgets.
The Company Secretary is responsible for advising the Board on
governance matters.
Board composition, balance and diversity
The Board’s policy is to appoint and retain non-executive Directors
who bring relevant expertise as well as a wide perspective to the
Group and its decision-making framework. The Directors believe that
at least half of the Board should be made up of independent non-
executive Directors. As at 13 March 2019, the Board comprises the
Chair, 7 independent non-executive Directors and 4 executive
Directors. The Board is made up of 9 men (75%) and 3 women (25%)
(2017: men 75%, women 25%). The Board continues to support its
Board Diversity statement which states that the Board:
Believes in equal opportunities and supports the principle that due
regard should be had for the benefits of diversity, including gender,
ethnicity, age, and educational and professional background when
undertaking a search for candidates, both executive and non-
executive
Recognises that diversity can bring insights and behaviours that
may make a valuable contribution to its effectiveness
Believes that it should have a blend of skills, experience,
independence, knowledge, ethnicity and gender amongst its
individual members that is appropriate to its needs
Standard Life Aberdeen 2018
Believes that it should be able to demonstrate with conviction that
any new appointee can make a meaningful contribution to its
deliberations
Directors and prepared a report for the Chair to discuss with the
Board. The Board is not aware of any other connection between the
Group and IBE.
Is committed to maintaining its diverse composition
Supports the Co-Chief Executives’ commitment to achieve and
maintain a diverse workforce and an inclusive workplace, both
throughout the Group, and within the executive team
Has a zero tolerance approach to unfair treatment or discrimination
of any kind, both throughout the Group and in relation to clients,
customers and individuals associated with the Group
You can read more about our Directors in their biographies in
Section 2.
The Nomination and Governance Committee supports the Group’s
commitment to diversity and inclusion in the broadest sense and
receives updates on progress towards achieving and maintaining
diversity targets throughout the Group. This includes reviewing
statistics on gender representation and approving gender diversity
targets and oversees progress against these on a regular basis. The
Group also promotes initiatives and programmes to raise awareness
of why diversity and inclusion matter. You can read more about our
diversity activities and current targets in the People and Culture
section of the Strategic report and in our stand alone Corporate
sustainability report. We are committed to working to make the Group
as inclusive a place to work as possible. Our activities and targets are
in pursuit of ‘our vision for an inclusive future’ which is published on
our website www.standardlifeaberdeen.com. You can find our
gender pay gap disclosure statement on page 29. The Committee
continues to follow the development of, and the Group’s participation
in, significant diversity reviews, including the Hampton Alexander
review, and we are one of the initial signatories to the Women in
Finance Charter. In October 2018 we became one of the founding
members of the UK Government Race at Work Charter. The
Committee supports our commitments under these charters and
continues to oversee our progress against these, which we report
publically on an annual basis. The Committee also supports the goal
of strong engagement with the wider workforce, and Melanie Gee has
taken the role as the designated non-executive director responsible
for representing the views of the workforce at the Board.
Board changes during the period
Appointments
There were no executive Director appointments over the year.
Cathleen Raffaeli was appointed as non-executive Director on 1
August 2018, and Sir Douglas Flint was appointed as a non-executive
Director on 1 November 2018. Sir Douglas was subsequently
appointed Chair on 1 January 2019. Heidrick and Struggles were
engaged to support the appointment of Cathleen Raffaeli. Heidrick
and Struggles have no other commercial relationships with the Group.
MWM were engaged to support the Chair’s appointment. The Group
has additionally used the services of MWM to support a recent senior
management search for the Chief People Officer role.
Retirements
Julie Chakraverty, Akira Suzuki and Lynne Peacock retired from the
Board on 29 May 2018. Gerhard Fusenig, Kevin Parry and Sir Gerry
Grimstone retired from the Board on 31 December 2018. It is intended
that Simon Troughton and Richard Mully will retire from the Board at
the conclusion of the 2019 AGM and Bill Rattray will retire from the
Board on 31 May 2019.
Board appointment process, terms of service and role
During 2018, the Board composition was reviewed. In order to assist
with determining the right balance of skills, diversity, knowledge and
expertise for the Board going forward, IBE were engaged to support
and facilitate this. IBE conducted individual interviews with each of the
When seeking to make appointments from outside the Group, and
having already identified the capabilities needed for Board roles and
the succession timeframe, the Committee considers the related role
profile submitted to external search consultants along with the request
to prepare a list of suitable candidates. The Committee then considers
the potential suitable candidates and agrees a shortlist. Following
interviews with potential candidates, the Committee then makes
recommendations to the Board on any proposed appointment, subject
always to the satisfactory completion of all background checks and
regulatory notifications or approvals. The other Board members are
also offered the opportunity to meet the recommended candidates.
The Committee considers the external commitments of candidates to
assess their ability to meet the necessary time commitment and
whether there are any conflict of interest matters to address. This
process was followed for the appointment of Cathleen Raffaeli.
Each non-executive Director is appointed for a three-year fixed term
and shareholders vote on whether to elect/re-elect him or her at every
AGM. Once a three-year term has ended, a non-executive Director
can continue for further terms if the Board is satisfied with the non-
executive Director’s performance, independence and ongoing time
commitment. There is no specified limit to the number of terms that a
non-executive Director can serve. The Board recognises the Code
provisions regarding length of service when considering whether or
not Directors’ appointments should be continued. Taking account of
their appointment dates to the predecessor boards, the current
average length of service of the non-executive Directors (excluding
the Chair) is five years. The Nomination and Governance Committee
oversees the process to recommend continued appointments, but
members of the Committee do not take part in discussions when their
own performance – or continued appointment – is being considered.
The role of our non-executive Directors is to participate fully in the
Board’s decision-making work – advising, supporting and challenging
management as appropriate.
The letter of appointment confirms that the amount of time we expect
each non-executive Director to commit to each year which, once they
have met all of the approval and induction requirements, is around 35
days. The service agreements/letters of appointment for Directors are
available to shareholders to view on request from the Company
Secretary at the Company’s registered address (which can be found
in the Shareholder information section) and at the 2019 AGM. Non-
executive Directors are required to confirm that they can allocate
sufficient time to carry out their duties and responsibilities effectively.
You can read more about the induction and development programme
later in this section.
Director election and re-election
One of the Committee’s duties is to make recommendations regarding
the election or re-election by members of any Director. In making its
recommendations, the Committee reviews, as applicable, the
appropriateness of continued service beyond a term of six years.
Therefore, at the 2019 AGM, all of the current Directors will retire. Sir
Douglas Flint and Cathleen Raffaeli, having been appointed since the
previous AGM, will retire and stand for election. All the others with the
exception of Simon Troughton will stand for re-election.
You can read more background information about the Directors,
including the reasons why the Chair believes you should support their
election or re-election, in our AGM guide 2019, which will be published
online at www.standardlifeaberdeen.com in advance of this year’s
AGM, and in Section 2.
57
GovernanceStandard Life Aberdeen 2018
3. Corporate governance statement continued
Director independence, external activities and conflicts of
interest
The Board carries out a formal review of the independence of non-
executive Directors annually. The review considers relevant issues
including the number and nature of their other appointments, any
other positions they hold within the Group, any potential conflicts of
interest they have identified and their length of service. Their individual
circumstances are also assessed against independence criteria,
including those in the Code. Following this review, the Board has
concluded that all the current non-executive Directors are independent
and consequently, the Board continues to comprise a majority of
independent non-executive Directors. The Board recognised that
Simon Troughton’s cumulative term of service as a Director on the
Standard Life Aberdeen and Aberdeen Asset Management Boards
reached nine years in July 2018 and after consideration, agreed that
this did not compromise his independence. Before his retiral on 29
May 2018, the Board determined that Akira Suzuki, as a
representative of a shareholder, was not independent.
Sir Gerry Grimstone was Chair of the Board throughout 2018. He
retained his non-executive positions with Barclays PLC. He also
retained his non-executive positions with Deloitte North West Europe
and the UK Government’s Ministry of Defence where he is the lead
non-executive. He is also an adviser to the board of the Abu Dhabi
Commercial Bank.
Kevin Parry was Senior Independent Director (SID) throughout 2018.
In this role, Kevin supported the Chair, and often met with him one-to-
one. He was also available to talk with our shareholders about any
concerns that they may not have been able to resolve through the
channels of Chair, the Co-Chief Executives or Chief Financial Officer,
or where a shareholder considered these channels as inappropriate.
Following Kevin’s retirement from the Board, Simon Troughton took
on the additional responsibilities of the SID on 1 January 2019. It is
intended that Simon will serve as SID until the close of the 2019
Annual General Meeting when he will retire from the Board.
The Directors continued to review and authorise Board members’
actual and potential conflicts of interest on a regular and ad hoc basis
in line with the authority granted to them in the Company’s Articles. As
part of the process to approve the appointment of a new Director, the
Board considers and, where appropriate, authorises his or her
potential or actual conflicts. The Board also considers whether any
new outside appointment of any current Director creates a potential or
actual conflict before, where appropriate, authorising it. All
appointments are approved in accordance with the Group’s Outside
Appointments and Conflicts of Interest policies.
In January 2019, the Board reviewed all previously authorised
potential and actual conflicts of interest of the Directors and their
connected persons, and concluded that the authorisations should
remain in place until January 2020. Under the terms of the approval,
conflicted Directors can be excluded from receiving information, taking
part in discussions and making decisions that relate to the potential or
actual conflict. The Board and relevant Committees follow this process
when appropriate.
The Board’s policy encourages executive Directors to take up one
external non-executive director role. Keith Skeoch continued as a non-
executive director of the Financial Reporting Council. Martin Gilbert is
a non-executive director at Glencore plc, a position from which he
took a leave of absence during the period from 16 May to 9 October.
He was previously a non-executive director at Sky plc having resigned
on 9 October 2018. Bill Rattray is a non-executive director at Curtis
Banks Group PLC.
You can read more about the Directors’ outside appointments in
their biographies in Section 2.
Advice
Directors may sometimes need external professional advice to carry
out their responsibilities. The Board’s policy is to allow them to seek
this where appropriate and at the Group’s expense. Directors also
have access to the advice and services of the Company Secretary,
whose appointment and removal is a matter for the Board. No
Directors sought external advice in 2018.
Board effectiveness
Review process
The Board has, with the help of the Nomination and Governance
Committee, developed a formal review process to assess how well
the Board, its Committees, the Chair and the Directors are performing
collectively and individually and how performance could be improved.
In accordance with the Code, the Board commissions externally
facilitated reviews regularly. As announced in the 2017 ARA, the
externally facilitated review which was due in 2017 was rescheduled
to 2018 to allow some time for the post merger Board to come
together. Also as announced at that time, IBE was appointed as the
external facilitator and carried out the 2018 review. IBE does not have
any other connection with the Group.
To carry out the review, senior representatives of IBE were in
attendance and observed a Board meeting and a meeting of each
Board Committee. They also had access to the papers for each of
these meetings. In addition to this observation and analysis, they held
individual meetings with each Board member and the key members of
the Board and Committee support team. Following this, IBE prepared
a draft report for review and discussion. The Board then met
specifically to review and discuss the report, and representatives of
IBE attended to present the report and recommendations.
Outcome
Overall the report recognised that this has been a time of significant
change and challenge for the Board. The necessary focus on the
major structural transactions in the past two years has minimised the
opportunities for consolidation and relationship-forming and has not
yet allowed the Board members as much time as they would like,
ideally, to focus on other key matters. As a consequence, the Board’s
most valuable contribution over the short to medium term would be to
support the executive team in:
Identifying and delivering priorities
Attracting and retaining key talent
Establishing the appropriate culture for the transformed business
Continuing to develop strategy
The key conclusions and recommendations from the review included:
Strategy: create more space in the Board calendar to define and
understand the strategic direction by using the Board Committees
as efficiently as possible
People: refresh the Board’s own line-up over time and oversee
senior leadership, succession, diversity and inclusion and talent and
development programmes
Tone from the top: make sure the Board embodies the behaviours it
wishes to see throughout the organisation and is visible enough to
set such an example
Board Information: continue to challenge the quality and context of
Board and Committee papers so that they fully support effective
decision-making
58
Standard Life Aberdeen 2018
Progress to implement the recommendations is monitored by the
Company Secretary and reported to the Nomination and Governance
Committee.
Chair
The review of Sir Gerry’s performance as Chair was led by the
previous SID, Kevin Parry and supported by IBE. It was based on
feedback given in individual interviews between the external facilitator
and each Director as well as regular discussions between the SID and
other NEDs.
The feedback was summarised into a report which was reviewed by
the SID and distributed to all Board members, except Sir Gerry. The
Directors, led by Kevin Parry and without Sir Gerry being present, met
to consider the report. They concluded that during 2018, Sir Gerry had
performed his role effectively, shown strong leadership of the Board,
continued to devote significant time to the Group and continued to
have sufficient time to carry out his duties. Kevin Parry met with Sir
Gerry to pass feedback from the review directly to him.
Directors
As part of their review, IBE prepared an individual evaluation of the
performance of the members of the Board. The purpose was two-fold:
to support the Chair’s annual round of feedback to Directors and to
assist the Nomination and Governance Committee in its ongoing
succession planning activities. Sir Gerry discussed the individual
results with each Director. These discussions also considered
individual training, development and engagement opportunities.
Director induction and development
The Chair, supported by the Company Secretary, is responsible for
arranging a comprehensive preparation and induction programme for
all new Directors. The programme is tailored to their individual
requirements and takes their background knowledge and experience
into account. All Directors are required to complete the FCA’s
approval process and, if relevant, the PRA’s and FCA’s SMCR
notification or approval process before they are appointed and to self-
certify annually that they remain competent to carry out this aspect of
their role. These processes continue to adapt to meet evolving best
practice in respect of SMCR.
The formal preparation and induction programme includes:
Meetings with the executive Directors, key members of senior
management, the heads of the operating businesses and our
corporate centre functions
Focused technical meetings with internal and external experts on
specific areas including investments, CRD IV, conduct risk, risk and
capital management, and financial reporting
Visits to business areas to meet our people and gain a better insight
into the operation of the business and its culture
Meetings with the External auditors and the FCA/PRA supervisory
teams
Meetings with the Company Secretary on the Group’s corporate
governance framework and the role of the Board and its
Committees, and with the Chief Risk Officer on the risk
management framework as well as meetings on their individual
responsibilities both as Directors and as holders of a Controlled
Function/Senior Management Function role
Background information is also provided including:
Key Board materials and information, shareholder communications
and financial reports
The induction programme provides the background knowledge new
Directors need to perform to a high level as soon as possible after
joining the Board and to support them as they build their knowledge
and strengthen their performance further.
When a non-executive Director is appointed to one of the Board’s
Committees, they receive relevant induction training on the
Committee’s role and duties.
When Directors are appointed to the Board, they make a commitment
to broaden their understanding of the Group’s business. Our corporate
centre monitors relevant external governance and financial and
regulatory developments and keeps the ongoing Board training and
information programme up to date. During 2018, while the Board
spent a significant amount of its time discussing the Sale and
integration and transformation activities, specific Board awareness
sessions took place on cyber risks and security, the UK withdrawal
from the EU, the Group’s strategy regarding joint venture operations,
staff interaction surveys and corporate culture. Similarly, the relevant
Board Committees received updates on developments in financial
reporting, remuneration and corporate governance. Non-executive
Directors are actively invited to all parts of the Group’s business in
order to familiarise themselves with how our business is conducted
and to meet with our people.
Succession and talent management activities
The Nomination and Governance Committee regularly reviews the
results of succession planning activities, including key person and
retention risk, and talent development programmes at all levels across
the Group.
At its meetings, the Committee discussed the future leadership and
talent needs of the Group and how the current programmes would be
revised to take account of the skills and expertise required by the
Board and senior management. The programmes recognise the
changing shape of the Group, and also identify both the talent
available within the Group and the need for external recruitment. The
programmes are led by the Chief People Officer, with input from the
Co-Chief Executives and supported by the Group Talent and
Organisation Development team.
Also during 2018, the non-executive Directors held specific
discussions on Board and executive succession, the results of which
fed into the overall plan.
The Board members are keen to interact with the members of the
development schemes and have met with, and had presentations
from, key talent across the Group.
Chair’s Succession
As disclosed in the ARA 2017, Sir Gerry Grimstone indicated his
intention to step down from his role by the end of 2019. In February
2018, the Nomination and Governance Committee considered and
agreed the appropriate arrangements to oversee the governance of
the succession process. As a result an Appointments Committee was
established, chaired jointly by Simon Troughton and Melanie Gee and
comprising all of the non-executive Directors other than those who
indicated they wished to be considered as internal candidates. Sir
Gerry was not a member. The key tasks of the Appointments
Committee were:
To agree the candidate and role profile for the Chair
To receive presentations from potential external search consultants,
and following these presentations, to appoint MWM to support the
search
The Group’s organisational structure, strategy, business activities
To review the long-list of potential candidates against the agreed
and operational plans
criteria
The Group’s key performance indicators, financial and operational
measures and industry terminology
To work with MWM to revise the long-list
To assess the revised list against agreed criteria
59
GovernanceStandard Life Aberdeen 2018
3. Corporate governance statement continued
To meet with the candidates on the revised list
To reach agreement on candidates to recommend to the Board
To discuss the potential Chair’s fee with the Remuneration
Committee
Following the completion of the process, the Board accepted the
Appointments Committee’s recommendation that Sir Douglas Flint
should be appointed as a NED and Chair designate on 1 November
2018, and should then succeed Sir Gerry as Chair on 1 January 2019.
MWM’s other services provided to the Group in 2018 were to support
the senior management search for the Chief People Officer role.
Annual review of internal control
The Directors have overall responsibility for the governance structures
and systems of the Group, which includes the Enterprise Risk
Management (ERM) framework and system of internal control, and for
the ongoing review of their effectiveness. The framework is designed
to manage, rather than eliminate, risk and can only provide
reasonable, not absolute, assurance against material misstatement or
loss. The framework covers all of the risks as set out in the risk
management section of the Strategic report.
In line with the requirements of the Code, the Board has reviewed the
effectiveness of the system of internal control. The system was in
place throughout the year and up to the date of approval of the Annual
report and accounts 2018.
To support the review, the Risk and Compliance function undertook
an assessment of the effectiveness of risk management and internal
controls in line with the FRC’s guidance on the requirements of the
annual review. In carrying out the review, the Risk and Compliance
function considered reports presented to the Board, the Group Audit
Committee and Risk and Capital Committee during the period. The
review also assessed the top control issues escalated to the Board
during the period.
Following this review the Board concluded that the system of internal
control was effective, and that there had been no significant failings or
weaknesses during the period.
With regard to regular financial reporting and preparing consolidated
accounts, the Finance function participates in the risk and control self-
assessment and policy compliance elements of the ERM framework.
The Finance function sets formal requirements for financial reporting,
defines the process and detailed controls for the IFRS consolidation,
reviews and challenges submissions and receives formal sign-off on
financial reporting from business unit finance heads. In addition, the
Finance function runs the Technical Review Committee and the
Financial Reporting Executive Review Group which review external
technical developments and detailed reporting disclosure and
accounting policy issues.
Communicating with investors
The Company continues to maintain and further develop a dialogue
with its shareholders. As part of this, our investor relations and Group
secretariat teams support communication with investors. During 2018,
the Group continued its programme of domestic and international
presentations and meetings between Directors and institutional
investors, fund managers and analysts. As well as the Sale, the wide
range of relevant issues discussed, in compliance with regulations, at
investor presentations and meetings, included integration, separation
and transformation, business strategy, financial performance,
operational activities and corporate governance. The Chair has his
own investor contact programme and brings relevant issues to the
attention of the Board. The Remuneration Committee also consulted
with major institutional investors regarding executive remuneration
plans during the year. More information on this consultation can be
found in the Directors’ remuneration report.
60
The Board is equally committed to the interests of the Company’s
1.1 million individual shareholders who hold approximately one third of
the Company’s issued shares. Given this large shareholder base, it is
impractical to communicate with all shareholders using the same
direct engagement model we follow for our institutional investors. The
Company has continued to gather and respond to shareholders’ views
on the services and means of communication available to them,
mainly through shareholders contacting the shareholder helpline.
Around 430,000 shareholders receive all communications
electronically helping to reduce our environmental impact. We
encourage shareholders to use our share portal to access information
relating to their personal shareholding over 400,000 have signed up to
this service. Share portal participants can also change their personal
details online and view and download their tax documents and
statements. Most of our shareholders hold their shares in the
Standard Life Aberdeen Share Account where shares are held
electronically. 90% of individual shareholders hold their shares in this
way.
To give all shareholders access to the Company’s announcements, all
material information reported via the London Stock Exchange’s
regulatory news service is published on the Company’s website. We
have continued to host formal presentations to support the release of
both the full year and half year financial results. These results-related
events are also made available live on the Group’s website and have
a permanent replay facility. We also undertook a comprehensive
programme of investor engagement following the announcement of
the Sale including investor presentations and meetings.
We publish Company profiles to provide a high level introduction to
the Group and its divisions. We also distribute a quarterly newsletter
featuring articles designed to give investors deeper insight into
particular areas of our business including our sustainability strategy.
Copies of our Company profiles and newsletters are available on the
Investors section of the Group’s website.
The Chair’s statement and the Strategic report in the Annual report
and accounts aim to provide a balanced overall assessment of the
Group’s activities, performance and prospects. This information will be
supported by a presentation at the 2019 AGM. Shareholders will be
invited to ask questions during the meeting and have an opportunity to
talk with the Directors after the formal part of the meeting. The voting
results will be published on our website at
www.standardlifeaberdeen.com after the meeting. These will
include the number of votes withheld.
The 2018 AGM was held in London on 29 May 2018 when Directors
were available to answer shareholders’ questions. In accordance with
best practice, all resolutions were considered on a poll which was
conducted by our registrars and monitored by independent
scrutineers. The results, including proxy votes lodged prior to the
meeting, were made available on our website the same day. 40% of
the shares in issue were voted and all resolutions were passed.
In addition, a General Meeting was held on 25 June 2018 at which
shareholders were asked to consider the resolutions recommended
by the Board, to approve the Sale, the issue and allotment of new
shares and an amended remuneration policy 50% of the shares in
issue were voted and the resolutions were passed.
Our 2019 AGM will be held in Edinburgh in line with our plan to hold
the AGM in Edinburgh and London in alternate years in order to give
more shareholders the opportunity to attend.
Our role as an institutional investor
Standard Life Investments and Aberdeen Asset Management
(together Aberdeen Standard Investments) are signatories to and
supporters of 23 stewardship codes around the globe including the
UK Stewardship Code and the United Nations Principles for
Responsible Investment. Both companies promote the importance of
Standard Life Aberdeen 2018
good governance and stewardship including the management of
broader aspects of risk relating to the environment, society and
governance (ESG).
In addition to holding to account the boards of the companies in which
we invest, through our ongoing engagement and voting at general
meetings, we will work to encourage the high levels of governance
and management of environmental and societal risks in the markets
around the world in which we invest on behalf of our clients. We
believe that it is important for us to transparently report on our
activities so that our clients can, in turn, hold us to account for the
delivery of the very highest standards.
Aberdeen Standard Investments’ role, as an institutional investor that
invests its clients’ savings in a responsible manner, is key to Standard
Life Aberdeen behaving as a responsible business. Its influence over
the companies in which it invests, provides the Group with the ability
to encourage others to act similarly.
When assessing the Company’s compliance with the principles and
provisions of the Code, the Nomination and Governance Committee
also reviewed the Company’s compliance with the Standard Life
Investments ESG investment principles and policy guidelines, and
with the Aberdeen Asset Management holistic risk and assessment
criteria. The Committee concluded that the Company complied with
the guidelines and fulfilled the criteria during the year.
You can read more about this at
www.aberdeenstandard.com/annualreport
Other information
You can find details of the following, as required by Disclosure and
Transparency Rule 7.2.6, in the Directors’ report and in the Directors’
remuneration report:
Share capital
Significant direct or indirect holdings of the Company’s securities
Confirmation that there are no securities carrying special rights with
regard to control of the Company
Confirmation that there are no restrictions on voting rights in normal
circumstances
How the Articles can be amended
The powers of the Directors, including when they can issue or buy
back shares
Directors
How the Company appoints and replaces Directors
Directors’ interests in shares
Board meetings and meeting attendance
The Board and its Committees meet regularly, operating to an agreed
timetable. Meetings are usually held in Edinburgh or London and, on
occasion, at the offices of one of our international businesses. In
September 2018, the Board held its meeting in New York. As well as
meeting with clients in New York, this allowed the Board to spend time
with colleagues in New York, Boston and Philadelphia. During the
year, the Board held specific sessions to consider the Group’s
strategy and business planning. The Chair and the non-executive
Directors also met during the year, formally and informally, without the
executive Directors present. At these meetings, matters including
executive performance and succession and Board effectiveness were
discussed. During 2018 these meetings also covered discussions in
relation to the Sale.
Directors are required to attend all meetings of the Board and the
Committees they serve on, and to devote enough time to the
Company to perform their duties. Board and Committee papers are
distributed before meetings other than, by exception, urgent papers
which may need to be tabled at the meeting. The Board sometimes
needs to call or rearrange meetings at short notice and it may be
difficult for all Directors to attend these meetings. If Directors are not
able to attend a meeting because of conflicts in their schedules, they
receive all the relevant papers and have the opportunity to submit their
comments in advance to the Chair or to the Company Secretary. If
necessary, they can follow up with the Chair of the meeting. The
Board has established the Standing Committee as a formal procedure
for holding unscheduled meetings. The Standing Committee meets
when, exceptionally, decisions on matters specifically reserved for the
Board need to be taken urgently. All Directors are invited to attend
Standing Committee meetings. The Standing Committee did not meet
during 2018.
The Chair is not a member of the Audit, Risk and Capital, or
Remuneration Committees. He may, however, attend meetings of all
Committees, by invitation, in order to keep abreast of their
discussions. The table below reflects the composition of the Board
during 2018 and the members’ attendance. The Board met 10 times
during the year.
Number of meetings
Chair
Sir Douglas Flint (attended as Non-executive Director)
Sir Gerry Grimstone (Chair until 31/12/2018)
Executive Directors
Keith Skeoch
Martin Gilbert
Bill Rattray
Rod Paris
Non-executive Directors
John Devine
Melanie Gee
Richard Mully
Martin Pike
Cathleen Raffaeli
Jutta af Rosenborg
Simon Troughton
Former members
Julie Chakraverty
Gerhard Fusenig
Kevin Parry
Lynne Peacock
Akira Suzuki
Board
1/1
10/10
10/10
10/10
10/10
10/10
10/10
10/10
10/10
10/10
4/4
10/10
9/10
3/5
10/10
10/10
5/5
4/5
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GovernanceStandard Life Aberdeen 2018
3. Corporate governance statement continued
Board Committees
Standard Life Aberdeen plc Board
Audit
Committee
Remuneration
Committee
Nomination
and
Governance
Committee
Risk and
Capital
Committee
The Board has established Committees that oversee, consider and
make recommendations to the Board on important issues of policy
and governance. At each Board meeting, the Committee Chairs
provide reports of the key issues considered at recent Committee
meetings, and minutes of Committee meetings are circulated to the
appropriate Board members. The Committees operate within specific
terms of reference approved by the Board and kept under review by
the Nomination and Governance Committee.
These terms of reference are published within the Board Charter
on our website at
www.standardlifeaberdeen.com/annualreport
All Board Committees are authorised to engage the services of
external advisers at the Company’s expense, whenever they consider
this necessary.
The Chair of each Committee and of the Nomination and Governance
Committee review Committee membership at regular intervals. The
Nomination and Governance Committee considers all proposed
appointments before they are recommended to the Board.
Investment Performance Committee
In October 2017, following the Merger and further consideration of its
oversight responsibilities at that time, the Board established the
Investment Performance Committee. This Committee provided insight
into investment performance results by asset class, the market and
economic environment influencing investment results, supported the
review and oversight of performance issues and supported the
ongoing innovation and evolution of the investment process and
capabilities of the Group.
Following on from the Sale, during the latter part of 2018, the Board
revisited what it should be considering collectively and what it should
be delegating to Board Committees. This discussion recognised the
revised shape of the business after the Sale and its ongoing
transformation into an investment management company.
As a result of this review it was determined that the duties of the
Investment Performance Committee should more properly be
performed by the full Board, so the Committee was discontinued and
its reporting information was built into the Board’s programme. During
2018, the IPC met five times and its members were Gerhard Fusenig
(Chair), Melanie Gee, Richard Mully and Kevin Parry. At its meetings,
it received and discussed reports on:
Quarterly investment performance
Asset class deep-dives
Market context
Investment governance and oversight
Investment process enhancements
Committee reports
This statement includes reports from the Chairs of the Audit
Committee and the Risk and Capital Committee. The report on the
responsibilities and activities of the Remuneration Committee can be
found in the Directors’ remuneration report following this statement.
The Committee Chairmen are happy to engage with you on their
reports. Please contact them via
questions@standardlifeaberdeenshares.com
62
Standard Life Aberdeen 2018
3.2.1 Governance
Membership
All members of the Audit Committee are independent non-executive
Directors. The table below reflects the composition of the Committee
and the members’ attendance:
Member
John Devine, Chair
Melanie Gee
Martin Pike
Jutta af Rosenborg
Former member
Julie Chakraverty
Attendance
10/10
10/10
9/10
9/10
1/5
The Board believes members have the necessary range of financial,
risk, control and commercial expertise required to provide effective
challenge to management. John Devine is a member of the Chartered
Institute of Public Finance and Accountancy. For the business of the
Committee, he is considered by the Board to have competence in
accounting and auditing as well as recent and relevant financial
experience.
The Committee schedules six meetings per annum, four of which are
co-ordinated with external reporting timetables. In 2018, there were
four additional meetings, which were focused on the Sale and related
financial reporting matters.
Invitations to attend Committee meetings are extended on a regular
basis to the Chair, the Co-Chief Executives, the Chief Financial
Officer, the Group Financial Controller, the Chief Internal Auditor and
the Group Chief Risk Officer.
The Committee meets privately for part of its meetings and also has
regular private meetings separately with the External auditors, Chief
Internal Auditor and Chief Financial Officer. These meetings address
the level of co-operation and information exchange and provide an
opportunity for participants to raise any concerns directly with the
Committee.
Key responsibilities
The Committee’s responsibilities are to oversee and report to the
Board on:
The appropriateness of the Group’s accounting and accounting
policies, including the going concern presumption and viability
The findings of its reviews of the financial information in the Group’s
annual and half year financial reports
The clarity of the disclosures relating to accounting judgements and
estimates
Its view of the ‘fair, balanced and understandable’ reporting
obligation
The findings of its review of key Group prudential returns and
disclosures
Internal controls over financial reporting and procedures to prevent
money laundering, financial crime, bribery and corruption
Outcomes of investigations resulting from whistleblowing
The appointment or dismissal of the Chief Internal Auditor, the
approved internal audit work programme, key audit findings and the
quality of internal audit work
The independence of the External auditors, the appropriateness of
the skills of the audit team, the approved audit plan, the quality of
the firm’s execution of the audit, and the agreed audit and non-audit
fees
63
3.2 Audit Committee report
The Audit Committee assists the Board in discharging its
responsibilities for financial reporting, internal control and the
relationship with the External auditors.
Dear Shareholder
I am pleased to present my report as Audit Committee Chair.
A major role of the Audit Committee in 2018 related to the Sale. In
advance of this, the Audit Committee’s specific focus was on the work
to support the relevant financial disclosures in the Sale Circular. Post
Sale, this focus switched to the impact on the group financial reporting
of the Sale including the carrying value of the group’s strategic holding
in the Phoenix Group, along with the treatment of separation costs.
During the year the Committee also:
Considered the carrying value of intangible assets, in particular
customer relationship intangibles relating to the Aberdeen merger
and goodwill
Oversaw the succession process for the Chief Internal Auditor
Reviewed the Solvency and financial condition report as part of the
Company’s annual Solvency II reporting, and then reviewed CRD
IV reporting following the change in the prudential supervision of the
Group
Received reports on compliance with the FCA Client Assets
Sourcebook (CASS) rules in the Group’s CASS permissioned
regulated legal entities
The Committee continued to focus on the quality of financial reporting.
In November 2018 we received a letter from the FRC informing us
that they had carried out a review of our Annual report and accounts
2017. I am pleased to report that the FRC letter noted that there were
no questions or queries they wished to raise with us at this stage, and
did not require a substantive response to their letter. The FRC asked
us to make clear the inherent limitations of their review, which we
have set out in the financial reporting section of this report.
Our report to you is structured in four parts:
1. Governance
2. Report on the year
3. Internal audit
4. External audit
I look forward to engaging with you on the work of the Committee.
John Devine
Chair, Audit Committee
GovernanceStandard Life Aberdeen 2018
3. Corporate governance statement continued
In carrying out its duties, the Committee is authorised by the Board to
obtain any information it needs from any Director or employee of the
Group. It is also authorised to seek, at the expense of the Group,
appropriate external professional advice whenever it considers this
necessary. The Committee did not need to take any independent
advice during the year.
In accordance with the Senior Insurance Manager’s Regime, and its
replacement the Senior Managers and Certification Regime which
came into effect for insurance firms on 10 December 2018, the Audit
Committee Chair is responsible for the oversight of the independence,
autonomy and effectiveness of our policies and procedures on
whistleblowing including the procedures for the protection of staff that
raise concerns from detrimental treatment. Throughout the year the
Audit Committee Chair met regularly with the Chief Internal Auditor
and the Head of Financial Crime to discuss their work, findings and
current developments.
Committee effectiveness
The Committee reviews its remit and effectiveness annually. The
2018 review was carried out by external consultants IBE. The key
points arising from the review were:
Meetings of the Committee were characterised by good debate and
mature discussion
While the Committee’s work has been very thorough, it may now
benefit from a better sense of proportionality, with more being
delegated to the management team, in the interests of allowing the
Committee to reflect for longer on the key issues
The Committee’s agenda has been dominated by the merger, the
Sale, and year end complexity, and it would be of benefit to now
focus more on the ongoing retained business as it completes the
transformation. Going forward, the intention is also to spend more
time on core control areas so that the Committee covers as much
ground as possible in future.
The Board’s review similarly confirmed its satisfaction with the
performance of the Committee.
3.2.2 Report on the year
Audit agenda
The Audit Committee has a rolling agenda comprising recurring
business, seasonal business and other business.
As recurring business, at every meeting the Committee reviews and
discusses:
Updates from the Group Finance function on significant financial
accounting, reporting and disclosure matters
Findings from Internal audit reports and how high priority findings
are being followed up by management
Regular refreshes and updates to the Internal audit plan
Results of the monitoring of financial crime, fraud risk assessments
and whistleblowing including calls to our dedicated Speak Up
helpline
Reports from the chairs of the subsidiary audit committees
Updates on work completed by the External auditors
Details of non-audit services requested of the External auditors by
business units
Other agenda items
64
Other agenda items were aligned to the annual financial cycle as set
out below.
Jan-Mar
Apr-Jun
Jul-Sep
Oct-Dec
Annual report and accounts 2017
Strategic report and financial highlights 2017
Financial reporting judgements
External auditors’ review of full year results
Integration cost and synergies update
Liaison with the Remuneration Committee on
targets and measures
Circular relating to the Sale, including working
capital and Financial Position and Prospects
Procedures reporting
Solvency II Solvency and financial condition report
Two special meetings on the Sale Circular
Half year results 2018
External auditors’ review of half year results
Impact on reporting of the Sale
CASS update
Initial findings from the 2018 year end work
The Internal audit plan
Effectiveness of the External auditors
Group non-audit services provided by External
auditors
The indicative proportion of time spent on the business of the
Committee is illustrated below:
Financial Reporting
External Audit
Internal Audit
Other controls (including CASS controls)
Regulatory Reporting
Standard Life Aberdeen 2018
Detail of work
The focus of work in respect of 2018 is described below.
Financial reporting
Our accounts are prepared in accordance with International Financial
Reporting Standards (IFRS). The Committee believes that some
Alternative Performance Measures (APMs) which are also called non-
GAAP measures can add insight to the IFRS reporting and help to
give shareholders a fuller understanding of the performance of the
business. The Committee considered the presentation of APMs and
related guidance as discussed further in the ‘Fair, balanced and
understandable’ section below.
The Committee reviewed the Group accounting policies and
confirmed they were appropriate to be used for the 2018 Group
financial statements. The Committee noted, in particular, that there
was no significant impact on the timing of revenue recognition from
the adoption of IFRS 15 Revenue from Contracts with Customers.
This new standard did, however, introduce a number of new
disclosure requirements.
The Committee also considered future changes to accounting
standards (in particular IFRS 9 Financial Instruments and IFRS 16
Leases) and ensured that the impact of these future changes was
appropriately disclosed in the financial statements. The Committee
noted that the Group was eligible to defer IFRS 9 until 2020, and had
opted to defer the adoption for the Group in 2018 and intends to adopt
this new financial instruments standard in 2019.
The Committee reviewed the basis of accounting and in particular the
appropriateness of adopting the going concern basis of preparation of
the financial statements. In doing so, it considered the Group’s cash
flows resulting from its business activities and factors likely to affect its
future development, performance and position together with related
risks, as set out in more detail in the Strategic report. The Committee
recommended the going concern statement to the Board.
In addition, the Committee considered the form of the viability
statement and in particular whether the three-year period remained
appropriate and concluded that it did. This reflects both our internal
planning cycle and the timescale over which changes to major
regulations and the external landscape affecting our business typically
take place. In formulating the statement, the Committee used the
same information it uses when considering the risks that are taken
into account to determine regulatory capital. The Committee
recommended the viability statement to the Board.
The Committee reviewed the Annual report and accounts 2017 and
the Half year results 2018. For the half year it received written and/or
oral reports from the Chief Financial Officer, subsidiary audit
committee chairs or boards, the Company Secretary, the Chief
Internal Auditor and the External auditors. In addition, for the 2017
year end it received a report from the Head of Group Actuarial. The
Committee used these reports to aid its understanding of the
composition of the financial statements, to confirm verification and
compliance with reporting standards and to justify accounting
judgements and estimates. Following its reviews, the Committee was
able to recommend the approval of each of the reports to the Board,
being satisfied that the annual and half year financial statements
complied with laws and regulations and had been appropriately
compiled.
We received a letter from the FRC in November 2018 informing us
that they had carried out a review of our Annual report and accounts
2017 and that there were no questions or queries they wished to raise
with us at this stage. The FRC asked us to note that their letter
provides no assurance that our report and accounts are correct in all
material respects, and that the FRC’s role is not to verify the
information provided but to consider compliance with reporting
requirements. The FRC noted that their review is based on our report
and accounts and does not benefit from detailed knowledge of our
business or an understanding of the underlying transactions entered
into.
Accounting estimates and judgements
The Audit Committee considered all estimates and judgements that
Directors understood could be material to the 2018 financial
statements. The Committee also focused on disclosure of these key
accounting estimates and judgements.
In compiling a set of Group financial statements, it is necessary to
make judgements and estimates about outcomes that are typically
dependent on future events. This is particularly relevant to the defined
benefit pension plan surplus which is inherently dependent on how
long people live and future economic outcomes. Estimates also
impact the value of contingent consideration (indemnities) and our
assessment of the carrying value of intangible assets as discussed
further below.
We considered key assumptions determining the pension fund
surplus: inflation (including the gap between the retail price index and
the consumer price index), mortality and the discount rate. The
assumptions were compared with market data and expert opinions.
Further details are set out in Note 35 of the Group financial
statements.
The Aberdeen merger in 2017 was accounted for under IFRS as an
acquisition by Standard Life plc of Aberdeen Asset Management PLC.
This resulted in the recognition of significant intangible assets. The
year end impairment review of the Aberdeen Standard Investments
goodwill resulted in the recognition of an impairment of £880m. The
Committee spent time at two meetings reviewing and challenging
assumptions relating to future cash flow projections, the discount rate
and long term growth rates. The Committee agreed it was appropriate
to base the cash flow projections on the lower market levels at 31
December 2018. The Committee considered, in particular, the margin
for forecasting risk in the discount rate and concluded that this was
appropriate. See Note 14 for further details. The Committee also
considered the Aberdeen customer relationship intangibles and
concluded that for one of these intangibles an impairment of £35m
was appropriate.
The Committee spent significant time discussing financial reporting
issues arising from the Sale. Estimation was required in relation to the
valuation of certain indemnities relating to the sale. This particularly
included indemnities relating to the SLAL review of past sales
practices of annuities, where the main financial risks (both positive
and negative) continue to be with the Group. The Committee
considered key assumptions and sensitivities to these assumptions
and was satisfied that the fair value of the indemnity was appropriate
at this time. Further details are disclosed in Note 41.
Also in relation to the Sale, the Group considered accounting for the
19.98% stake acquired in Phoenix. The Committee concluded that
Phoenix should be considered an associate and be subject to equity
accounting, notwithstanding that the holding was less than 20%. See
Note 16. Acquisition accounting for this stake in Phoenix requires
significant judgement and was an area of focus for the Committee in
the second half of 2018. The key judgements related to the
recognition and valuation of intangibles, in particular the Acquired
Value of In-force business (AVIF). The Committee reviewed and
challenged the assumptions, including useful lives, and concluded that
these assumptions were reasonable. See Note 16. Further, the
carrying value of the investment in Phoenix at 31 December 2018 was
higher than the market value. Accordingly, the Committee considered
whether an impairment in the investment should be recognised and
concluded that, in accordance with International Accounting Standard
IAS 28, this investment should be stated at its market value at
65
GovernanceStandard Life Aberdeen 2018
3. Corporate governance statement continued
31 December 2018. The Committee noted that under IAS 28 the
additional strategic value of our relationship with Phoenix is not taken
into account in the impairment assessment. See Note 16.
The Sale will result in the Group incurring separation costs of c£200m
in future periods. The Committee considered whether it was
appropriate to provide for these costs under IAS 37 and concluded
that management’s judgement that a provision should only be
recognised for costs for which the Group will not derive ongoing
benefits, such as those relating to de-coupling and decommissioning
of systems and data, was appropriate. See Note 38 for further details.
Principal risks are disclosed in the Strategic report and recommended
to the Board by the Risk and Capital Committee. The Committee was
satisfied that the estimates and quantified risk disclosures in the
financial statements were consistent with the Strategic report. The
Committee concluded that appropriate judgements had been applied
in determining the estimates and that sufficient disclosure had been
made to allow readers to understand the uncertainties surrounding
outcomes.
Fair, balanced and understandable
The Committee supported the financial reporting team’s continued
review of the Annual report and accounts. A focus in 2018 was
ensuring that the Strategic report appropriately explained financial
performance and the implications of the Sale.
Standard Life Aberdeen’s principles
To create clarity around what Standard Life Aberdeen means when it
talks of being fair, balanced and understandable, a set of principles
were developed, which can also act as an organisational definition for
each aspect:
Fair
‘We are being open and
honest in the way we
present our discussions
and analysis, and are
providing what we believe
to be an accurate
assessment of business
and economic realities’
The narrative contained in the report is
honest and accurate
The key messages in the narrative in the
'front half' of the report reflect the
financial reporting contained in the
financial statements
The Key Performance Indicators (KPIs)
results for the period are consistent with
the key messages outlined in the
Strategic report
Balanced
‘We are fully disclosing our
successes, the challenges
we have faced in the
period, and the challenges
and opportunities we
anticipate in the future – all
with equal importance and
at a level of detail that’s
appropriate for our
stakeholders’
The report presents the 'whole' story
where both successes and challenges
experienced during the year and
expected in the future are covered
The level of prominence we give to
successes in the year versus
challenges faced is appropriate
The narrative and analysis contained in
the report effectively balances the
information needs and interests of each
of our key stakeholder groups
66
Understandable
‘The language we use and
the way we structure our
report is helping us
present our business and
its performance clearly – in
a way that someone with a
reasonably informed
knowledge of financial
statements and our
industry would understand’
There is a clear and easy to understand
framework to the report which is
effective in addressing Standard Life
Aberdeen’s objectives, vision, mission
and values
The layout is clear and consistent and
the language used is simple and easy to
understand (industry specific terms are
defined where appropriate)
There is a consistent tone across and
good linkage between all sections in a
manner that reflects a complete story
and clear signposting to where
additional information can be found
Prepare, Review and Challenge
The above principles and supporting statements are considered in
each stage of the Annual report and accounts production process.
Prepare
Review
Challenge
Activities
An Internal Review Group (IRG) is in place which reviews the
Annual report and accounts specifically from a fair, balanced and
understandable perspective and provides feedback to our financial
reporting team on whether it conforms to our standards. The
members of the IRG are independent of the financial reporting
team.
We provided fair, balanced and understandable guidance to all key
stakeholders involved in the Annual report and accounts production
process
We, as an Audit Committee, reviewed the messaging in the Annual
report and accounts, taking into account material received and
Board discussions during the year
Three drafts of the Annual report and accounts 2018 were reviewed
by the Audit Committee at three meetings. The Committee
complemented its knowledge with that of executive management
and the Internal and External auditors. An interactive process
allowed each draft to embrace contributions.
Our Annual report and accounts goes through an extensive internal
verification process of all content to verify accuracy
The Committee also reviewed the use and presentation of APMs
which complement the statutory IFRS results in order to give a more
complete view of the performance of the business. This review
considered guidelines issued by the European Securities and Markets
Authority in 2016 and the thematic reviews by the FRC during 2017
and 2018. A Supplementary information section is included in the
Annual report and accounts to explain why we use these metrics and
to provide reconciliations of these metrics to IFRS measures where
relevant. This section also provides increased transparency over the
calculation of reported financial ratios.
Adjusted profit before tax is a key profit APM. The Committee
considered whether the allocation of items to adjusted profit was in
line with the defined accounting policies, was consistent with previous
practice and was appropriately disclosed. Where there were
judgemental areas, such as in relation to the merger of Aberdeen and
Standard Life Aberdeen 2018
Standard Life Investments variable remuneration schemes, the
Committee specifically reviewed the proposed treatments and
ensured that the Supplementary Information section provided
appropriate disclosures.
We agreed to recommend to the Board that the Annual report and
accounts 2018, taken as a whole, is fair, balanced and can be
understood by someone with a reasonably informed knowledge of
financial statements and our industry.
We are interested in feedback from stakeholders and will carefully
consider any feedback received.
Prudential reporting
During 2018 the Group published its second Solvency and financial
condition report (for the year ended 31 December 2017) in April, and
submitted full annual Solvency II reporting to the PRA. The Committee
continued to adopt a compliance approach to Solvency II reporting,
drawing on work undertaken by management, Group Risk, Internal
audit and the External auditors. The procedures are designed to give
the Audit Committee a high degree of comfort that returns have been
properly prepared. The Committee also reviewed a final draft of the
Solvency and financial condition report, and following due
consideration agreed to recommend the Solvency and financial
condition report to the Board for approval.
In relation to actuarial assumptions used for year end 2017 Solvency
II reporting, including mortality, persistency and expenses
assumptions, the Committee received a report from the Chair of the
Standard Life Assurance Limited (SLAL) Audit Committee which
noted the consideration of these assumptions by the SLAL Audit
Committee and External auditors. After due consideration of this
reporting the Committee was satisfied that these assumptions were
appropriate for year end Solvency II reporting.
Following the Sale, the Group is classified as an investment group for
prudential supervision and is subject to CRD IV and the Capital
Requirements Regulation. The Committee considered the results of
CRD IV group reporting at a number of meetings and reviewed
disclosures relating to CRD IV results included in the Strategic report
section of the Annual report and accounts 2018, together with related
assurance over these disclosures.
Internal controls
As noted earlier, the Directors have overall responsibility for the
Group’s internal controls and for ensuring their ongoing effectiveness.
Together with the Risk and Capital Committee, the Committee
provides comfort to the Board of their ongoing effectiveness.
Internal audit regularly reviews the effectiveness of internal controls
and reports to the Committee and the Risk and Capital Committee.
The Group Finance function sets formal requirements for financial
reporting which apply to the Group as a whole, defines the processes
and detailed controls for the consolidation process and reviews and
challenges reporting segment submissions. Further, the Group
Finance function runs a technical review committee and is responsible
for monitoring external technical developments.
The control environment around financial reporting will continue to be
monitored closely.
Financial crime and whistleblowing
Staff are trained to detect the signs of possible fraudulent or improper
activity and how to report concerns either directly or via our
independent whistleblowing hotline. The Committee receives regular
updates from the Head of Financial Crime who reports on compliance
with the Group’s Anti-Financial Crime and Anti-Bribery policy, and any
other activities associated with financial crime, including fraud risk.
The Committee Chair is the designated whistleblower’s champion and
the Committee receives regular updates on the operation of the
whistleblowing procedures from the Global Head of Conduct and
Compliance. The anonymised reports include a summary of the
incidents raised as whistleblowing, and information on developments
of the arrangements in place, to ensure concerns can be raised in
confidence about possible malpractice, wrongdoing and other matters.
The Committee oversees the findings of investigations and required
follow-up action. If there is any allegation against the Risk or Internal
audit functions, the Committee directs the investigation. The
Committee is satisfied that the Group’s procedures are currently
operating effectively.
3.2.3 Internal audit
The Group has an Internal audit function comprising of approximately
60 people, spread across Standard Life Aberdeen’s global footprint,
supported by PwC as primary co-source provider. The Chief Internal
Auditor reports to the Committee Chair. During the year, regular
dialogue takes place, at least monthly, between the Committee Chair
and the Chief Internal Auditor.
Internal audit operates in accordance with a publicly available global
charter which is reviewed by the Committee every year. The overall
remit of the function is to protect Standard Life Aberdeen and
influence positive change by delivering independent strategic insight
and confidence. Their workplan covers all areas of the Group, and is
informed by risk based discussions with management, regulators, the
External auditors and the Committee, as well as data analytics and
testing of business processes and controls.
The Committee approves the scope and content of the annual Internal
audit plan, which is updated on a rolling basis to allow Internal audit to
address any emerging issues and reflect changes in the Group’s
activity.
The Committee receives regular reports from the Chief Internal
Auditor on:
The implementation of the approved plan and proposed changes
to it
Key findings from completed reviews, including the impact on
financial reporting processes and related applications
The status of management’s implementation of agreed
improvement actions
The assessment of the internal control environment across
functions and regions, where SLA Internal Audit has responsibility.
The internal control environment of material Joint Ventures and
associates is not within the scope of this work.
During 2018, approximately 100 internal audit engagements were
completed. The Committee considered the following reports to be
particularly insightful and contributed to the strengthening of Standard
Life Aberdeen’s control environment:
Key regulatory change projects such as the Markets in Financial
Instruments Directive II (MiFID II), the General Data Protection
Regulation (GDPR) and the Senior Manager and Certification
Regime (SMCR)
Separation audit work in relation to the Sale, specifically around
data segregation
On-boarding and integration of acquisitions in the Americas
CASS
The Committee considers the effectiveness of Internal audit as a
function annually, monitoring its independence, objectivity and
resourcing in the context of the Chartered Institute of Internal Auditors’
professional standards. During the year, Internal audit carried out its
own internal effectiveness review as well as a comprehensive quality
67
GovernanceStandard Life Aberdeen 2018
3. Corporate governance statement continued
assurance programme that included an element of independent
external challenge. These processes reported satisfactory results
back to the Committee. Based on its annual effectiveness review, the
Committee concluded that the function continued to be highly
effective.
During the year, a managed transition was completed where the
incumbent Chief Internal Auditor took on a new role within the Group.
An internal candidate was appointed as Chief Internal Auditor,
ensuring continuity.
In accordance with the relevant independence standards, the External
auditors do not place reliance on the work of Internal audit.
3.2.4 External auditors
The appointment
The Committee has responsibility for making recommendations to the
Board on the reappointment of the External auditors, determining their
independence from the Group and its management and agreeing the
scope and fee for the audit. Following its review of KPMG’s
performance, the Committee concluded that there should be a
resolution to shareholders to recommend the reappointment of KPMG
at the 2019 AGM.
The Committee complies with the UK Corporate Governance Code,
the FRC Guidance on Audit Committees with regard to the external
audit tendering timetable, the provisions of the EU Regulation on Audit
Reform and the Competition and Markets Authority Statutory Audit
Services Order with regard to mandatory auditor rotation and
tendering. The Committee will continue to follow the annual
appointment process but does not currently anticipate re-tendering the
audit before 2026.
Auditor independence
The Board has an established policy (the Policy) setting out what non-
audit services can be purchased from the firm appointed as External
auditors. The Committee monitors the implementation of the Policy on
behalf of the Board. The aim of the Policy, which is reviewed annually,
is to support and safeguard the objectivity and independence of the
External auditors and to comply with the FRC Ethical standards for
auditors (Ethical Standards). It does this by prohibiting the auditors
from carrying out certain types of non-audit services to ensure that the
audit services provided are not impaired. It also ensures that where
fees for approved non-audit services are significant, they are subject
to the Committee’s prior approval. KPMG has implemented its own
policy preventing the provision by KPMG of non-audit services to
FTSE 350 companies which are audit clients.
The services prohibited by the Policy are in line with the Ethical
Standards and include:
Tax services, other than in exceptional circumstances and subject
to specific Audit Committee approval in line with ethical standards
Services that involve playing any part in the management of
decision-making of the audited entity
Book-keeping and preparing accounting records and financial
statements
Payroll services
Designing and implementing internal control or risk management
procedures related to the preparation and/or control of financial
information or designing and implementing financial information
technology systems
Valuation services, including valuations performed in connection
with actuarial services or litigation support services
The majority of legal services
Services related to the audited entity's Internal audit function
68
Services linked to the financing, capital structure and allocation and
investment strategy of the audited entity, except providing
assurance services in relation to the financial statements, such as
the issuing of comfort letters in connection with prospectuses
Promoting, dealing in, or underwriting shares in the audited entity
The majority of human resources services
The Policy permits non-audit services to be purchased, following
approval, when they are closely aligned to the external audit function
and when the external audit firm’s skills and experience make it the
most suitable supplier.
These include:
Audit related services, such as regulatory reporting
Accounting consultations and audits in connection with proposed
transactions
Investment circular reporting accountant engagements
Due diligence related to mergers and acquisitions
Employee benefit plan audits
Attesting to services not required by statute or regulation (e.g.
controls reports)
Consultations concerning financial accounting and reporting
standards not relating to the audit of the Group’s financial
statements
Other reports required by a regulator or assurance services relating
to regulatory developments
Sustainability audits/reviews
Auditing IT security where this does not extend to designing and
implementing internal control or risk management procedures
KPMG has reviewed its own independence in line with these criteria
and its own ethical guideline standards. KPMG has confirmed to the
Committee that following its review it is satisfied that it has acted in
accordance with relevant regulatory and professional requirements
and that its objectivity is not impaired.
Having considered compliance with our policy and the fees paid to
KPMG, the Committee is satisfied that KPMG has remained
independent.
Audit and non-audit fees
The Group audit fee payable to KPMG in respect of 2018 was £4.7m
(2017: KPMG £5.7m), with the reduction reflecting the impact of the
Sale. In addition £1.7m (2017: £1.9m) was incurred on audit related
assurance services. Fees for audit related assurance services are
primarily in respect of client money reporting and the half year review.
The Committee is satisfied that the audit fee is commensurate with
permitting KPMG to provide a quality audit and monitors regularly the
level of audit and non-audit fees. Non-audit work can only be
undertaken if the fees have been approved in advance in accordance
with the Policy for non-audit fees. Unless fees are clearly small (which
we have defined as less than £75,000), the approval of the whole
Committee is now required.
Non-audit fees amounted to £1.8m (2017: £0.4m) of which £1.6m
(2017: £0.3m) related to other assurance services. Other assurance
services in 2018 primarily relate to control assurance reports (£0.7m),
in particular those provided to Aberdeen Standard Investments’
clients, which are closely associated with audit work, reporting
accountant fees relating to the Sale (£0.5m), and assurance reporting
relating to fund mergers where KPMG are the auditors of the relevant
funds (£0.3m). The External auditors were considered the most
suitable supplier for these services taking into account the alignment
of these services to the work undertaken by external audit and the
firm’s skill sets. The Committee also monitors audit and non-audit
Standard Life Aberdeen 2018
services provided to non-consolidated funds and were satisfied fees
for those services did not impact auditor independence.
Further details of the fees paid to the External auditors for audit and
non-audit work carried out during the year are set out in Note 7 of the
Group financial statements.
The ratio of non-audit fees to audit and audit related assurance fees is
28% (2017: 5%). The total of audit related assurance fees (£1.7m)
and non-audit fees (£1.8m) is £3.5m, and the ratio of these audit
related assurance fees and non-audit fees to audit fees is 75% (2017:
40%). As noted above the audit related assurance fees are primarily
fees in relation to required regulatory reporting, where it is normal
practice for the work to be performed by the external auditor.
The Committee is satisfied that the non-audit fees do not impair
KPMG’s independence.
Audit quality and materiality
The Committee places great importance on the quality and
effectiveness of the External audit. The Senior Statutory Auditor is
Jonathan Mills, who is our lead audit partner. The Committee looks to
the audit team’s objectivity, professional scepticism, continuing
professional education and its relationship with management, all in the
context of regulatory requirements and professional standards.
Specifically:
We have discussed the accuracy of financial reporting (known as
materiality) with KPMG both as regards accounting errors that will be
brought to the Committee’s attention and as regards amounts that
would need to be adjusted so that the financial statements give a true
and fair view. Differences can arise for many reasons ranging from
deliberate errors (fraud etc.) to good estimates that were made at a
point in time that, with the benefit of more time, could have been more
accurately measured. Overall audit materiality has been set at £32m
(2017: £38m). This equates to approximately 4.8% of normalised
profit before tax. This is within the range in which audit opinions are
conventionally thought to be reliable. To manage the risk that
aggregate uncorrected differences become material, we supported
that audit testing would be performed to a lower materiality threshold
for individual reporting units. Further, KPMG agreed to draw the
Committee’s attention to all identified uncorrected misstatements
greater than £1.6 million (2017: £2m). The aggregated net
uncorrected misstatements were approximately £20m which was less
than audit materiality. The gross differences were attributable to
various individual components of the consolidated income statement
and balance sheet. No audit difference was material to any line item in
either the income statement or the balance sheet. Accordingly, the
Committee did not require any adjustment to be made to the financial
statements as a result of the audit differences reported by the External
auditors.
The Committee discussed the scope of the audit prior to its
commencement
KPMG has confirmed to us that the audit complies with their
independent review procedures.
The Committee reviewed the annual findings of the Audit Quality
Review (AQR) team of the FRC in respect of KPMG’s audits. We
requested a formal report from KPMG of the applicability of the
findings to Standard Life Aberdeen both in respect of generally
identified failings and failings specific to individual audits. The Chair
of KPMG presented to the Committee in person. The AQR team
also provided a report following its inspection of KPMG’s audit of
Standard Life Aberdeen for the year ended 31 December 2017.
The Committee Chair discussed the specific findings of the AQR
team with KPMG. We were satisfied that the KPMG audit was
effective overall and that any identified areas for further
improvement had been addressed or had appropriate action plans
in place.
The Committee approved a formal engagement with the auditor
and agreed its audit fee
The Committee Chair had at least monthly meetings with our lead
audit partner to discuss Group developments
The Committee received an update of KPMG’s work, compliance
with independence and its findings at nearly every meeting
There was a detailed interview by the Committee Chair with our
lead audit partner on the subject of the work undertaken to support
their opinion on the financial statements and the consistency of the
remainder of the Annual report and accounts with their work
The Committee reviewed and discussed the audit findings including
audit differences prior to the approval of the financial statements.
See the discussion on materiality in the paragraph below for more
detail
Additional work was again undertaken on Solvency II reporting and
the Committee also reviewed separate papers from KPMG covering
this specific work
69
GovernanceStandard Life Aberdeen 2018
3. Corporate governance statement continued
3.3 Risk and Capital Committee report
The Risk and Capital Committee supports the Board in providing
effective oversight and challenge of risk management and the use of
capital across the Group.
Dear Shareholder
I am pleased to present my report as Chair of the Risk and Capital
Committee.
Activities related to the Sale formed a significant part of the
Committee’s work this year. In overall terms, this transaction has
significantly reduced the risk profile and therefore the capital
requirements of the Group, but the transaction itself was also risky in
terms of the amount of work required to separate the business and the
transitional arrangements. The Committee therefore assessed the
transaction from a risk and capital perspective to advise the Board on
the impact of the transaction. This involved the Committee providing
regular review and challenge of the key risks and capital implications
associated with the transaction and included reviewing assessments:
In advance of announcing externally the intention to sell the UK and
European insurance business
To support disclosure of the Risk Factors in the Circular
On the anticipated operational readiness of the business on ‘Day
One’ following completion of the transaction
During 2018 the overall risk environment for the Group has been at an
elevated level given the combination of the integration activity
following the 2017 merger of Standard Life plc and Aberdeen Asset
Management PLC, and the additional risks arising from the Sale,
together with the ongoing level of regulatory change. The Committee
kept a close eye on the most significant risks and ensured that these
were given good visibility at the Board.
In addition to this, the Committee has continued to provide oversight
and challenge in respect of the principal risks faced by the business
during 2018. This included:
The risks involved in the delivery of significant regulatory change in
response to the second Markets in Financial Instruments Directive
(MiFID II) and the General Data Protection Regulation (GDPR)
The management of operational pressures arising from the delivery
of integration and strategic change following the 2017 merger of
Standard Life plc and Aberdeen Asset Management PLC
The documentation of the first Internal Capital Adequacy
Assessment Process (ICAAP) for the combined asset management
business which operates under the brand Aberdeen Standard
Investments
The political change risk arising from uncertainty regarding the
nature and form of the UK’s exit from the European Union
70
Process execution risks within the asset management business
given the potential for periods of heightened market volatility to
result in operational errors
Further details on these and other activities carried out by the
Committee during the year can be found in the report that follows.
Martin Pike
Chair, Risk and Capital Committee
Membership
All members of the Risk and Capital Committee are independent non-
executive Directors. The table below reflects the composition of the
Committee and the members’ attendance both pre and post the
merger:
Member
Martin Pike, Chair
John Devine
Melanie Gee
Former member
Julie Chakraverty
Gerhard Fusenig
Attendance
10/10
8/10
10/10
3/5
9/10
Cathleen Raffaeli was appointed to the Committee on 1 January
2019. The Committee meetings are attended by the Chief Risk
Officer. Others invited to attend on a regular basis include the Chair,
the Co-Chief Executives, the Chief Financial Officer, the Chief
Investment Officer and the Chief Internal Auditor as well as the
External auditors.
Regular private meetings of the Committee’s members have been
held during the year providing an opportunity to raise any issues or
concerns with the Chair of the Committee. The Committee’s members
have also held regular private meetings with the Chief Risk Officer
and the Chief Internal Auditor and have been given additional access
to management and subject matter experts outside of the Committee
meetings in order to support them in gaining an in-depth
understanding of specific topics.
Key responsibilities
Our vision to build a world-class investment company results in
exposure to a range of risks and uncertainties. Understanding and
actively managing the sources and scale of these risks and
uncertainties are key to fulfilling this vision.
The Risk and Capital Committee helps support this by advising the
Board and providing oversight and challenge on:
The Group’s risk appetite, material risk exposures and the impact of
these on the levels and allocation of capital
The structure and implementation of the Group’s Enterprise Risk
Management (ERM) framework and its suitability to react to
forward-looking issues and the changing nature of risks
Changes to the risk appetite framework and quantitative risk limits
Risk aspects of major investments, major product developments
and other corporate transactions
Regulatory compliance across the Group
Further detail on the work performed in each of these areas is set out
in the report below.
In carrying out its duties, the Committee is authorised by the Board to
obtain any information it needs from any Director or employee of the
Standard Life Aberdeen 2018
Group. It is also authorised to seek, at the expense of the Group,
appropriate external professional advice whenever it considers this
necessary. The Committee did not need to take any independent
advice during the year.
In addition to reviewing these recurring items and undertaking work in
connection with the Sale, the Committee provided oversight of a broad
range of topics in 2018. This included consideration of:
The Committee’s work in 2018
An indicative breakdown as to how the Committee spent its time is
shown below:
Jan-Mar
Status of compliance with MiFID II
Plans to deliver GDPR compliance
Advice to be provided to the Remuneration Committee
regarding the delivery of performance in 2017 relative to
risk appetites
Findings included in the 2017 Internal Controls Report
issued for Standard Life Investments Limited and
Aberdeen Asset Management PLC
Plans for testing, assurance reviews, business risk
reviews and validation activity to be performed in 2018
Financial risks
Operational risks
Conduct risks
Sale of UK and European insurance business
Other
The Committee operates a rolling agenda and uses each meeting to
consider a range of recurring items as well as other items that are
more ad hoc and/or more forward-looking in nature.
One of the recurring items that is reviewed and discussed at each
meeting is the Views on Risk report which provides a holistic
assessment from the Chief Risk Officer of the key risks and
uncertainties faced by the Group’s businesses and the actions being
taken to manage these. In 2018 this report provided the Committee
with a comprehensive view of the key risks and uncertainties and
allowed the Committee to review and challenge risks including those
relating to flows and performance, the delivery of change, liquidity and
capital, operational risk, conduct risk and regulatory compliance.
The Committee’s agenda also includes the regular review of minutes
from the Standard Life Aberdeen plc Enterprise Risk Management
Committee and minutes from those risk committees comprising non-
executives that operate in Standard Life Aberdeen plc’s directly-held
subsidiaries.
During 2018 the risk committee minutes reviewed by the Committee
included minutes from meetings of the Aberdeen Asset Management
Life and Pensions Limited risk committee and the Standard Life (Asia)
Limited risk committee. Prior to the Sale in August the Committee
reviewed the minutes of the SLAL risk and capital committee. On
completion of the sale, Standard Life Savings Limited became a
directly held subsidiary of Standard Life Aberdeen plc and, since then,
the Committee has reviewed the minutes from the Standard Life
Savings Limited and Elevate Portfolio Services Limited risk
committees.
Regular reporting was also presented to the Committee during the
year regarding the Group’s internal risk and capital assessment. This
covered the ICAAP performed in connection with the requirements of
the Capital Requirements Directive following the Sale and, prior to
this, the Group’s Own Risk and Solvency Assessment (ORSA)
performed in connection with Solvency II requirements. This
supported the Committee in understanding changes to the Group’s
risk profile and capital position over the course of the year and allowed
the Committee to challenge management’s assessment of risks and
to oversee key actions being taken to manage these risks.
The due diligence and key risks associated with the
Apr-Jun
planned acquisition of ETF Securities (US) LLC and its
US affiliates
The risk profile of suppliers and the approach adopted in
managing supplier risk
The state of compliance on implementation of GDPR
The semi-annual update on cyber risk and security
Currency risks and the strategy followed in managing and
monitoring these risks
The operation of activities related to the investment
process and performance
Planned enhancements to the framework for escalating
risk items to the Remuneration Committee
Actions taken to enhance the conduct risk framework
Risk assessment of the Sale, the Transitional Services
Agreement and the proposed ongoing relationship with
Phoenix
Resources to support the management of supplier risk
Ongoing activity to support GDPR compliance
The remit and resources of the cyber risk management
function
Proposals to ensure effective regulatory compliance for
the Advice and Platforms business following sale of the
UK and European insurance business
Plans for the transformation of risk and compliance
processes
Jul-Sep
Oct-Dec
The Group’s current and projected capital position
following the transition to reporting under Capital
Requirements Directive IV (CRD IV)
The Aberdeen Standard Investments ICAAP report
Results from the 2018 stress and scenario testing
programme
The remit and resources of the investment risk oversight
function
The potential impacts of a disorderly Brexit and plans to
mitigate the risks arising from this
Progress in the management of IT obsolescence risk
The management of conflicts of interest in Aberdeen
Standard Investments
The semi-annual update on cyber risk and security
An update on data privacy and the management of this in
2018
Actions taken to enhance the conduct risk framework
Proposed changes to the risk appetite framework
Risks associated with the 2019 – 2021 business plan
71
GovernanceStandard Life Aberdeen 2018
3. Corporate governance statement continued
After each meeting, the Committee Chair reports to the Board,
summarising the key points from the Committee’s discussions and
any specific recommendations.
Risk appetites, exposures and capital
The risk appetite framework provides a common framework to enable
stakeholders to communicate, understand and control the types and
levels of risk that the Board is willing to accept in pursuing its strategy
and business plan objectives and the capital that is required in this
regard.
The Committee has continued to support the Board through
monitoring exposures against tolerances and appetites throughout the
year. This included, prior to announcing the decision to sell the UK
and European insurance business, reviewing the likely impact on the
Group’s risk profile and capital requirements of the proposed
transaction.
In May the Committee reviewed proposals from management to
revise the tolerance for operational risk in light of the increased level of
change being undertaken by the business in view of the ongoing
integration of the asset management business and taking into account
the preparation for the Sale. Following completion of the transaction,
proposals to rescale this tolerance in line with the refocused business
model were presented by management for consideration by the
Committee. In both cases the Committee supported management’s
proposals and advised the Board accordingly.
At its December meeting the Committee reviewed and challenged
proposals presented as part of the annual review of the risk appetite
framework. This included reviewing proposed updates to ensure that
the Group’s risk appetites and risk limits appropriately reflected
changes to the risk profile in view of the ongoing transformation of the
business. The Committee recommended and the Board subsequently
approved the changes that were presented.
The Committee has continued to receive regular reporting through the
Views on Risk report on financial exposures, conduct and operational
risks, and the Group’s capital position. Through reviewing the relevant
dashboards, commentaries and associated management information,
the Committee has monitored risks relative to applicable quantitative
and qualitative appetites and views on the resilience of the capital
position under current and stressed conditions.
The Views on Risk report also includes dashboards covering financial
crime and regulatory risk. These provide the Committee with status
updates on the financial crime framework, addressing risks related to
money laundering, terrorist financing, market abuse, fraud and bribery
and corruption, and the regulatory outlook. Environmental, social and
governance risks are actively managed within the business and
updates on this are also included within the report. Using this material,
the Committee is able to oversee, challenge and advise the Board on
the Group’s risk appetite, material risk exposures and the impact of
these on the levels and allocation of capital.
Key items that the Committee discussed during the year in this
context included:
The Sale and the change in the Group’s capital requirements
moving from the Solvency II to CRD IV regime
Risks associated with outflows and investment performance
Risks relating to the status of the Group’s Brexit preparations and
the possibility of a disorderly exit from the EU
The ICAAP report produced for the combined ASI business
Enhancements to the Risk and Compliance function through the
transformation programme
As highlighted in the table on page 71, we received a number of one-
off reports during the year which directly supported the Committee in
our oversight of risk appetites, exposures and capital.
72
Stress testing and scenario analysis performed in 2018 also
supported the Committee in understanding, monitoring and managing
the risk and capital profile of the business under stressed conditions.
This provided a forward-looking assessment of resilience to potentially
significant adverse events affecting key risk exposures and
comprised:
Univariate stresses – looking at stresses to financial and
demographic risks in isolation
Combined stresses – looking at simultaneous stresses to a
combination of financial and demographic risks
Reverse stress testing – considering circumstances or severe
events, including as a result of operational, conduct or reputational
risks, that have the potential to cause the business to become
unviable
Tail risk analysis – exploring the possible sequential development of
a low likelihood but high impact scenario
The Committee reviewed the results of the stress testing and scenario
analysis that was performed. This included reviewing the results of
three scenarios which were explored as part of the reverse stress
testing exercise: the breakdown of strategic partnerships and client
relationships; the failure of multiple key projects; and the rise of
populism and protectionism. The latter scenario was globally focused
but included consideration of both a ‘hard’ Brexit and a ‘no-deal’
Brexit. At the time of the exercise, although a ‘no-deal’ Brexit was
considered an unlikely outcome, the work performed prompted an
increased focus on understanding the risks to the business of such a
scenario and the options available to mitigate these risks.
The Committee also reviewed the results of the tail risk analysis
performed for two scenarios. The scenarios considered were a
successful cyber-attack on a critical third party supplier and the failure
of IT software which meant the business was unable to operate within
normal timeframes and resulted in reputational damage as the
business was unable to provide the usual functions expected by
clients and customers.
Based on the results of the stress testing and scenario analysis, the
Committee concluded there was no requirement for the business to
reduce its risk exposures and that the business was resilient to
extreme events as a result of the robust controls, monitoring and
triggers in place to identify events quickly and the range of
management actions available to help mitigate their effects.
The Committee also provided oversight of risk exposures and
projected capital requirements in the context of the business planning
and reforecasting process. This included reviewing reporting produced
as part of the mid-year reforecasting exercise and reporting produced
in December as part of the annual business planning process.
Enterprise Risk Management (ERM) framework
During the year the business took the opportunity to refresh the ERM
framework used to identify, assess, control and manage the Group’s
risks. Details of the proposed changes were presented to the
Committee to allow the Committee to consider the structure of the
framework and its suitability for identifying, assessing and managing
current and new risk types and for reacting to forward-looking risk
issues and the changing nature of risks. The Committee supported
the proposed changes and considered they would help drive greater
risk awareness and accountability across the business.
The changes that were introduced aligned risk and compliance
practices to the broader corporate transformation being undertaken,
including the introduction of the new operating model, and reflected
the impact of the Group moving to the CRD IV capital regime and
regulatory developments regarding senior management
accountability.
Standard Life Aberdeen 2018
The Committee has continued to obtain assurance regarding the
operation of the ERM framework through its review of regular content
within the Views on Risk report. In particular we have used our review
of the various risk and capital dashboards, including the consolidated
dashboard on key conduct risk indicators, to understand the Group’s
risk profile and the effectiveness of the framework in supporting the
management of these risks.
Following the refresh of the ERM framework the Committee now
receives reporting from the Risk and Compliance function on the
results of the quarterly risk management survey of regional and
functional executives which is used to identify the key risks facing the
business. The completion of this survey along with subsequent
discussion of the results at ERMC meetings is noted as helping to
drive greater risk awareness and accountability. Furthermore, through
reviewing the results of the survey, the Committee has been able to
ensure there is appropriate focus on these key risks facing the
business.
The Committee specifically monitors risk control processes through
reviewing the results of quarterly policy compliance reporting and
updates regarding action plans raised in response to risk events which
are included within the Views on Risk report.
Exceptions-based reporting is provided to the Committee through the
Views on Risk report setting out any matters of significance in respect
of the results of quarterly policy compliance reporting and actions
being taken in response to risk events. These two items also support
the Committee in performing its oversight of the ERM framework.
The Committee also receives regular reporting from the Chief Internal
Auditor which provides an independent assessment of the internal
control environment relating to the operation of the framework.
Regulatory compliance and reporting
The Committee reviews and assesses regulatory compliance plans
detailing the planned schedule of monitoring activities to be performed
by the Risk and Compliance function to ensure there is appropriate
coverage. Regular updates on key findings from regulatory
compliance activity and progress against the plan were reported to the
Committee through the Views on Risk report.
The business has once again faced a busy regulatory agenda in 2018
which included responding to the introduction of new regulations as a
result of MiFID II and GDPR. In light of the significance of these
regulations, the Committee received regular updates on the state of
business readiness in advance of these regulations being
implemented.
As a Committee we have closely monitored regulatory developments
to understand and anticipate potential implications for the Group and
the wider financial services sector. This included monitoring regulatory
developments regarding statements from the European Securities
and Markets Authority, the FCA and other European regulators in
advance of Brexit. In particular the Committee paid close attention to
statements regarding plans for the FCA and European regulators to
put in place Memorandums of Understanding that would mitigate the
risk of the Group’s EU subsidiaries being unable to delegate asset
management services to the UK in the event of a ‘no-deal’ Brexit.
The Committee’s monitoring of regulatory developments also included
monitoring the FCA’s announcements in connection with their Asset
Management Market Study, in particular the potential impacts this
could have on fund charging across the industry.
Corporate and strategic risk reporting
The Committee has continued to support the Board in considering the
risk aspects of proposed material corporate transactions.
In 2018 the Committee’s activities included reviewing risk
assessments produced in advance of the announcement of the Sale.
Based on the assessments presented, the Committee was satisfied
that the degree of risk presented by the proposed transaction was
acceptable and that the transaction was expected to result in de-
risking the Group. As part of the advice provided to the Board, the
Committee highlighted the key risks associated with the transaction
and the possible impacts of Brexit on the transaction.
The Committee subsequently considered the proposed content to be
included in the Risk Factors that were disclosed in the Circular
produced to support the Sale and related reporting provided to the
PRA on risks arising from the transformation programme.
Prior to the final decision being taken to conclude the Sale, the
Committee considered the anticipated operational readiness of the
business for ‘Day One’ following completion of the transaction. The
Committee noted the risks associated with operational readiness and
the associated mitigants that were in place. Key items discussed by
the Committee in this context included data segregation, cyber risk,
conduct risk and regulatory matters. Based on these discussions and
the material presented the Committee was able to confirm its support
for the proposed deal completion date.
During the year the Committee also reviewed assessments relating to
the proposed acquisition of ETF Securities (US) LLC and its US
affiliates. This included considering the due diligence that had been
performed and the key risks associated with the transaction.
The Committee also received reports (previously called Business Risk
Reviews) on other aspects of corporate and strategic risk. These
reports provided the Committee with an independent assessment
from the Risk and Compliance function of aspects of the business that
could have a material impact on long-term profitability or delivery of
strategy, or that could introduce a material new risk. One such report
presented to the Committee in 2018 concerned the product
development process in the asset management business, recognising
the importance of this process in delivering long-term value for clients.
In particular this supported the Committee in understanding the
process around prioritising activity, the management of seed capital
and resourcing in the context of the implementation of strategic
innovation.
Governance arrangements
The Committee has continued to rely on the work of those risk
committees comprising non-executives operating in subsidiary
companies to provide oversight and challenge of risks within those
subsidiaries. The Committee receives updates and minutes from
these committees in order to maintain awareness and oversight of
risks across the Group. The Committee also reviews the terms of
reference for these committees in order to ensure their remit is
suitably aligned.
As previously noted in this report, prior to the Sale in August the
Committee received minutes from the SLAL risk and capital
committee. On completion of the Sale, Standard Life Savings Limited
became a directly held subsidiary of Standard Life Aberdeen plc and,
since then, the Committee has received minutes from the Standard
Life Savings Limited and Elevate Portfolio Services Limited risk
committees.
The Committee has also received reporting during the year from the
risk committees in place for Aberdeen Asset Management Life and
Pensions Limited and Standard Life (Asia) Limited, the latter
committee having been established in 2018.
73
GovernanceStandard Life Aberdeen 2018
3. Corporate governance statement continued
In addition to the Committee reviewing reporting from the subsidiary
risk committees, arrangements also exist for the Committee’s Chair to
attend those subsidiary risk committees.
During the year the Committee once again provided advice to the
Remuneration Committee regarding the delivery of performance in the
context of incentive packages. In particular, the Committee considered
whether performance had been delivered in a manner that was
consistent with the Group’s strategy, risk appetite and tolerances, and
capital position. The provision of this advice helps ensure the Group’s
overall remuneration practices are aligned to the business strategy,
objectives, culture, values and long-term interests of the Group and
that individual remuneration is consistent with and promotes effective
risk management.
Committee effectiveness
The Committee reviews its remit and effectiveness annually. In 2018
this was carried out by external consultants IBE who produced an
independent report on the operation and effectiveness of the
Committee.
The report on the operation and effectiveness noted the role of the
Committee in supporting the Board and recognised that risk was high
on the agenda. The review confirmed that the Committee’s agenda
and composition was fit for purpose, highlighting the need for this to
be kept under review as business transformation progressed following
the Sale.
For 2019, the review highlighted an expectation that to continue to
operate effectively the Committee would need to remain focused on
key items including MiFID and GDPR compliance as well as cyber
and data risk. Plans are already underway to enhance the
Committee’s coverage of these items in 2019.
74
Standard Life Aberdeen 2018
4. Directors’ report
The Directors present their annual report on the affairs of the Standard
Life Aberdeen group of companies (the Group), together with the
audited International Financial Reporting Standards (IFRS)
consolidated financial statements for the Group, financial information
for the Group and financial statements for Standard Life Aberdeen plc
(the Company) for the year ended 31 December 2018.
ordinary shares of 12 2/9 pence held at 5pm on 19 October 2018. The
total number of shares in issue at 6pm on Friday 19 October 2018 was
2,941,738,848 ordinary shares of 12 2/9 pence each. The total
number of shares in issue at the opening of markets on Monday 22
October 2018 was 2,574,021,492 (new) ordinary shares of 13 61/63
pence each.
Reporting for the year ended 31 December 2018
The Company is the holding company of the Group. You can find out
about the relevant activities of the Company’s principal subsidiary
undertakings and their overseas branches in the Strategic report.
During 2018, the Company’s principal undertakings operated
branches in Europe, together with Hong Kong and India.
The main trends and factors likely to affect the future development,
performance and position of the Group are outlined in the Co-Chief
Executives’ overview section of the Strategic report. Reviews of the
operating and financial performance of the Group for the year ended
31 December 2018 are given in the Strategic report.
The Chairman’s statement, the Directors’ responsibility statement and
the Corporate governance statement form part of the Directors’ report.
The Corporate governance statement is submitted by the Board.
Using the IFRS basis, the results of the Group are presented in the
Group financial statements. A detailed description of the basis of
preparation of the IFRS results (including adjusted profit) is set out in
the Group financial statements section. More information about the
Group’s use of derivative financial instruments and related financial
risk management matters can be found in Note 21 and Note 39 to the
Group financial statements.
This report was prepared by the executive team together with the
Board and forms part of the management report.
Dividends
The Board recommends paying a final dividend for 2018 of 14.30p per
ordinary share. This will be paid on 21 May 2019 to shareholders
whose names are on the Register of members (the Register) at the
close of business on 12 April 2019.
The total payment is estimated at £345m for the final dividend and
together with the interim dividend of 7.30p per share totalling £214m
paid on 25 September 2018, the total dividend for 2018 will be 21.60p
per share (2017: 21.30p) totalling £559m (2017: £627m).
Share capital
You can find full details of the Company’s share capital, including
movements in the Company’s issued ordinary share capital during the
year, in Note 26 to the Group financial statements. You can also find
an analysis of registered shareholdings by size, as at 31 December
2018, in the Shareholder information section.
In May 2018 a Circular was published, giving details of the proposed
sale of Standard Life Assurance Limited to Phoenix Group. The
Circular also gave details of a proposed return of capital to
shareholders via a B Share Scheme, and a share buyback
programme. Following completion, approval was given to return up to
£1.75 billion in aggregate to shareholders, with the first £1.0 billion to
be returned by way of the B Share Scheme and the remaining up to
£750 million to be returned by way of the share buyback programme.
Authority for the Company to purchase its own shares had previously
been granted at the Annual General Meeting (AGM) but was
superseded by the authority granted at the general meeting.
On 25 June 2018, shareholders voted at a general meeting to approve
a return of capital of 33.99 pence per share via a B Share Scheme,
along with an associated share capital consolidation. Shareholders
received 7 new ordinary shares of 13 61/63 pence for every 8 existing
As a result, 2,941,738,848 B shares of 33.99 pence each were allotted
and issued on 22 October 2018. No application was made to the UK
Listing Authority or to the London Stock Exchange respectively, for any
of the B Shares to be admitted to the Official List or to trading on the
London Stock Exchange’s main market for listed securities, nor were
the B Shares listed or admitted to trading on any other recognised
investment exchange. The B Shares were redeemed on 24 October
2018 for 33.99 pence per B Share. All B Shares were redeemed and
cancelled.
On 9 August 2018 the Company announced the commencement of an
initial share repurchase programme of the Company’s ordinary shares
up to a maximum aggregate consideration of £175m. This was
followed by an announcement on 20 November 2018 of a further
share repurchase programme up to a maximum aggregate
consideration of £200m. The purpose of this programme is to reduce
the share capital of the Company. All shares purchased have been
cancelled.
As at 31 December 2018, there were 2,529,412,224 ordinary shares in
issue held by 101,181 registered members. The Standard Life
Aberdeen Share Account (the Company-sponsored nominee) held
648,081,141 of those shares on behalf of 1,022,001 participants. No
person has any special rights of control over the Company’s share
capital and all issued shares are fully paid.
During the year, and until the date this report was signed, the
Company received the following notifications in respect of major
shareholdings and major proportions of voting rights in accordance
with the Disclosure Guidance and Transparency Rules of the Financial
Conduct Authority (FCA). The companies detailed below notified their
positions.
Shareholder
Date of
transaction
Type of
transaction
Lloyds
Banking
Group plc
8 June 2018
(pre share
consolidation)Disposal
Percentage
of voting
rights
following
the
transaction
Number of
voting rights
following the
transaction
–
Below 3%
Mitsubishi
UFJ Trust
and Banking
Corporation
8 February
2019
15 February
2019
Decrease of
common shares
outstanding by
the issuer
150,500,406 6.002%
Disposal
–
Below 3%
In accordance with the terms of the Standard Life Employee Trust
Deed, the trustees waived all entitlements to current or future dividend
payments for shares they hold.
Similarly, in accordance with the terms of The Aberdeen Asset
Management Employee Benefit Trust 2003, the trustees waived all
entitlements to current or future dividend payments for shares they
hold other than dividends payable on any shares held by the trustee
as nominee for any other person.
The trustees of the Standard Life Aberdeen (Employee) Share Plan
voted the appropriate shares in accordance with any instructions
received from participants in the plan.
75
GovernanceStandard Life Aberdeen 2018
4. Directors’ report continued
Restrictions on the transfer of shares and securities
Except where listed below, there are no specific restrictions on the size
of a holding or on the transfer of shares. Both are governed by the
general provisions of the Company’s articles of association (the
Articles) and current legislation and regulation.
You can also obtain a copy from Companies House or by writing to the
Company Secretary at our registered address (details of which can be
found in the Contact us section). The Articles may only be amended
by a special resolution passed by the shareholders.
You can read the Articles on our website
www.standardlifeaberdeen.com/annualreport
The Board may decline to register the transfer of:
A share that is not fully paid
A certificated share, unless the instrument of transfer is duly
stamped or duly certified and accompanied by the relevant share
certificate or other evidence of the right to transfer, is in respect of
only one class of share and is in favour of a sole transferee or no
more than four joint transferees
An uncertificated share, in the circumstances set out in the
uncertificated securities rules (as defined in the Articles) and, in the
case of a transfer to joint holders, where the number of joint holders
to whom the share is to be transferred does not exceed four
A certificated share by a person with a 0.25 per cent interest (as
defined in the Articles) in the Company, if that person has been
served with a restriction notice under the Articles, after failing to
provide the Company with information about interests in those
shares as set out in the Companies Act 2006 (unless the transfer is
shown to the Board to be pursuant to an arm’s length sale under the
Articles)
These restrictions are in line with the standards set out in the FCA’s
Listing Rules and are considered to be standard for a listed company.
The Directors are not aware of any other agreements between holders
of the Company’s shares that may result in restrictions on the transfer
of securities or on voting rights.
Rights attached to shares
Subject to applicable statutes, any resolution passed by the Company
under the Companies Act 2006 and other shareholders’ rights, shares
may be issued with such rights and restrictions as the Company may
decide by ordinary resolution, or (if there is no such resolution or if it
does not make specific provision) as the Board may decide. Subject to
the Articles, the Companies Act 2006 and other shareholders’ rights,
unissued shares are at the disposal of the Board.
Every member and duly appointed proxy present at a general meeting
or class meeting has one vote on a show of hands, provided that
where a proxy is appointed by more than one shareholder entitled to
vote on a resolution and is instructed by one shareholder to vote ‘for’
the resolution and by another shareholder to vote ‘against’ the
resolution, then the proxy will be allowed two votes on a show of
hands – one vote ‘for’ and one vote ‘against’. On a poll, every member
present in person or by proxy has one vote for every share they hold.
For joint shareholders, the vote of the senior joint shareholder who
tenders a vote, in person or by proxy, will be accepted and will exclude
the votes of the other joint shareholders. For this purpose, seniority is
determined by the order that the names appear on the Register for
joint shareholders.
A member will not be entitled to vote at any general meeting or class
meeting in respect of any share they hold if any call or other sum then
76
payable by them for that share remains unpaid or if they have been
served with a restriction notice (as defined in the Articles) after failing
to provide the Company with information about interests in those
shares required to be provided under the Companies Act 2006.
The Company may, by ordinary resolution, declare dividends up to the
amount recommended by the Board. Subject to the Companies Act
2006, the Board may also pay an interim dividend, and any fixed rate
dividend, whenever the financial position of the Company, in the
opinion of the Board, justifies its payment. If the Board acts in good
faith, it is not liable to holders of shares with preferred or ‘pari passu’
rights for losses that arise from paying interim or fixed dividends on
other shares.
The Board may withhold payment of all or part of any dividends or
other monies payable in respect of the Company’s shares from a
person with a 0.25 per cent interest (as defined in the Articles) if that
person has been served with a restriction notice (as defined in the
Articles) after failure to provide the Company with information about
interests in those shares, which is required under the Companies Act
2006.
Subject to the Companies Act 2006, rights attached to any class of
shares may be varied with the written consent of the holders of not
less than three-quarters in nominal value of the issued shares of that
class (excluding any shares held as treasury shares). These rights can
also be varied with the sanction of a special resolution passed at a
separate general meeting of the holders of those shares. At every
separate general meeting (except an adjourned meeting) the quorum
shall be two persons holding, or representing by proxy, not less than
one-third in nominal value of the issued shares of the class (calculated
excluding any shares held as treasury shares).
A shareholder’s rights will not change if additional shares ranking ‘pari
passu’ with their shares are created or issued – unless this is
expressly provided in the rights attaching to their shares.
Power to purchase the Company’s own shares
At the 2018 Annual General Meeting (AGM), shareholders granted the
Directors limited powers to:
Allot ordinary shares in the Company up to a maximum aggregate
amount of £121,370,072
Disapply, up to a maximum total nominal amount of £18,205,510 of
its issued ordinary share capital, shareholders’ pre-emption rights in
respect of new ordinary shares issued for cash
Make market purchases of the Company’s ordinary shares up to a
maximum of 297,908,360 of its issued ordinary shares
As noted earlier in this share capital section, this authority was
subsequently superseded by the authority granted at the general
meeting held on 25 June 2018. Under the buyback programme, the
Company purchased 37,983,529 of its ordinary shares of 12 2/9 pence
each, paying an aggregate amount of £119,860,054. As at the time of
the share capital consolidation in October, the percentage of share
capital represented by the purchased shares was approximately
1.29%. Following the share consolidation, the Company purchased
44,609,556 of its ordinary shares of 13 61/63 pence, paying an
aggregate amount of £115,040,275. As at 31 December 2018, the
percentage of share capital represented by the purchased shares was
approximately 1.8%.
Standard Life Aberdeen 2018
Significant agreements
Certain significant agreements to which the Company, or one of its
subsidiaries, is party entitle the counterparties to exercise termination
or other rights in the event of a change of control of the Company.
These agreements are noted in the paragraphs below.
Credit Facility – under a £400m revolving credit facility between the
Company and the banks and financial institutions named therein as
lenders (Lender) dated 22 May 2015 (the Facility), in the event that (i)
any persons or group of persons acting in concert, gain control of the
Company, then any Lender may elect within a prescribed time frame
to cancel its outstanding commitment under the Facility and declare its
participation in all outstanding loans, together with accrued interest
and all amounts accrued immediately due and payable, whereupon
the commitment of that Lender under the Facility will be cancelled and
all such outstanding amounts will become immediately due and
payable.
China – under a joint venture agreement dated 12 October 2009 (as
amended) between the Company and Tianjin TEDA International
Holding (Group) Co. Limited (TEDA), pursuant to which the Company
holds its interest in Heng An Standard Life Insurance Company
Limited (Heng An Standard Life), upon a change of control of the
Company, TEDA has the right to terminate the venture and to
purchase, or nominate a third party to purchase, the Company’s
shares in Heng An Standard Life for a price determined in accordance
with the agreement.
A number of other agreements contain provisions that entitle the
counterparties to exercise termination or other rights in the event of a
change of control of the Company. However, these agreements are
not considered to be significant in terms of their likely impact on the
business of the Group as a whole.
The Directors are not aware of any agreements with any employee
that would provide compensation for loss of office or employment
resulting from a takeover. The Company also has no agreement with
any Director to provide compensation for loss of office or employment
resulting from a takeover.
Appointment and retirement of Directors
The appointment and retirement of Directors is governed by the
Articles, the Companies Act 2006, the UK Corporate Governance
Code and related legislation.
The UK Corporate Governance Code recommends that directors of
FTSE 350 companies should stand for election every year. During the
year, Julie Chakraverty, Akira Suzuki and Lynne Peacock retired as
Directors on 29 May 2018, and on 31 December 2018 Gerhard
Fusenig and Kevin Parry resigned as Directors and Sir Gerry
Grimstone resigned as Chairman and Director. Simon Troughton and
Richard Mully will stand down as Directors at the conclusion of the
2019 AGM and Bill Rattray will stand down on 31 May 2019.
Cathleen Raffaeli was appointed to the Board on 1 August 2018. Sir
Douglas Flint was appointed to the Board on 1 November 2018 and
was appointed Chairman with effect from 1 January 2019. Having
been appointed since the last AGM, Cathleen Raffaeli and Sir Douglas
will stand for election at the 2019 AGM. It is intended that Stephanie
Bruce will succeed Bill Rattray as CFO on 1 June 2019. Whilst
Stephanie would not take up her role until then, the Board felt it was
important that shareholders were given the opportunity to vote on her
election at this year’s AGM.
All remaining Directors as at the date of the AGM will retire at the 2019
AGM and, if they wish to continue in office, will stand for re-election.
The powers of the Directors can also be found in the Articles.
Directors and their interests
The Directors who served during the year were:
Gerhard Fusenig2
Melanie Gee
Richard Mully
Lynne Peacock3
Martin Pike
Cathleen Raffaeli4
Jutta af Rosenborg
Akira Suzuki3
Simon Troughton
Sir Douglas Flint1 (Chairman)
Sir Gerry Grimstone2
Keith Skeoch
Martin Gilbert
Bill Rattray
Rod Paris
Kevin Parry2
Julie Chakraverty3
John Devine
1 Appointed 1 November 2018.
2 Resigned 31 December 2018.
3 Retired 29 May 2018.
4 Appointed 1 August 2018.
Biographies of the current Directors can be found on pages 52 to
53.
Details of the Directors’ interests in the Company’s ordinary shares,
the Standard Life (Employee) Share Plan, the Standard Life
Sharesave Plan and the share-based discretionary plans are set out in
the Directors’ remuneration report together with details of the
executive Directors’ service contracts and non-executive Directors’
appointment letters.
No Director has any interest in the Company’s listed debt securities or
in any shares, debentures or loan stock of the Company’s
subsidiaries. No Director has any material interest in any contract with
the Company or a subsidiary undertaking which was significant in
relation to the Company’s business, except for the following:
The benefit of a continuing third party indemnity provided by the
Company (in accordance with company law and the Articles)
Service contracts between each executive Director and subsidiary
undertakings (Standard Life Employee Services Limited and
Aberdeen Asset Management PLC)
Copies of the following documents can be viewed at the Company’s
registered office (details of which can be found in the Contact us
section) during normal business hours (9am to 5pm Monday to Friday)
and will be available for inspection at the Company’s AGM:
The Directors’ service contracts or letters of appointment
The Directors’ deeds of indemnity, entered into in connection with
the indemnification of Directors provisions in the Articles
The rules of the Standard Life plc Executive Long-Term Incentive
Plan
The rules of the Standard Life Aberdeen plc Deferred Share Plan
The Company’s Articles
Directors’ liability insurance
During 2018, the Company maintained directors’ and officers’ liability
insurance on behalf of its directors and officers to provide cover should
any legal action be brought against them. The Company also
maintained pension trustee liability indemnity policies (which includes
third party indemnity) for the boards of trustees of the UK and Irish
staff pension schemes where required to do so.
77
GovernanceStandard Life Aberdeen 2018
4. Directors’ report continued
Our people
Our people have always been central to delivering our strategy, and
we remain focused on bringing out the best in them.
You can read more on our people strategy, including diversity
and inclusion, in the Strategic report section of this report.
Diversity and Inclusion
At Standard Life Aberdeen our Vision for an Inclusive Future aims to
create a workplace where everyone feels they can be themselves and
are valued for what they bring. We believe that inclusion is core to
delivering our company values and developing an environment which
enables everyone to perform and progress. By building and sustaining
a diverse talent pipeline and enabling people to reach their potential,
we will provide our global customers with the diversity of thought and
creativity required to bring long-term value.
We have a published inclusion strategy, which was co-created with our
people, and which defines our priorities over the next three to five
years. Progress against this is reviewed by the Nomination and
Governance Committee at every meeting. The strategy aims to embed
inclusion in everything we do, and this year we have worked with our
Executive team to make sure there are actions in place relevant to
their business areas, which build more inclusive workplaces. Our
strategy is also about improving transparency in how we talk about
and report on diversity in our business. Our transparency was
recognised this year by Equileap who ranked us in their Top 200
Global companies for gender equality and also by Bloomberg who
included us for the first time in their Gender Equality Index.
We empower people to take an active and collective approach as we
all have a role to play in creating an inclusive environment. For
example our seven employee network groups support members of the
diverse groups and communities they represent, and raise awareness
of issues that affect them. With over 1,200 members, our networks
continue to expand their global reach, and focus on gender, LGBT+,
ethnicity, mental health, young people, carers and armed forces.
We consider diversity in the broadest sense – in our backgrounds,
experiences, strengths and thinking. To begin extending our areas of
focus, we have recently run focus groups to understand how we can
better support our ageing workforce and disabled employees. We treat
those with disabilities fairly in relation to job applications, training,
promotion and career development. Reasonable adjustments are
made to train and enable employees who become disabled while
working at Standard Life Aberdeen to allow them to continue and
progress in their career.
Achieving a better gender balance at all levels is a priority for us. Last
year we published our year one gender pay gap figures, refreshed our
Women in Finance Charter targets following the merger, and
published our first gender action plan. Following this, our Co-Chief
Executives undertook a series of conversations to better understand
the experiences of our people across all levels, locations and divisions
of our business. This included focus groups on gender diversity to
partner on creating our refreshed gender action plan, which was
published in October.
We know we have more to do to improve representation of women at
our Board and Executive levels. At Board level, we remain committed
to our 33% target by June 2020, in line with our pledge to the 30%
Club. We welcome the progress reported against our targets, with an
improvement at our CEO-1 and CEO-2 levels from 27% at the same
point last year to 34% as at 31 December 2018. The actions we have
in place to improve representation of women at all levels in our
organisation are stretching, benchmarked and sponsored by our Co-
Chief Executives. Increasing women in our senior roles will also
improve our gender pay gap, which is heavily influenced by the
significant number of men in senior and most highly remunerated
roles, and by the larger number of women in more junior roles. Our
actions are making a difference and our strong gender pool balanced
pipeline continues to grow, particularly at CEO-2 level; however we
know that we have more to do at Board and Executive team level.
This year we were delighted to be one of the inaugural signatories to
the Race at Work Charter launched by Business in the Community in
partnership with the government. This commits organisations to
tackling barriers that ethnic minority people face in recruitment and
progression. As part of delivering on our commitments, we published
our first ethnicity action plan and provided diverse employment
opportunities to ethnic minority and socially mobile young people
through the Taylor Bennett Foundation, The Prince’s Trust and our
inclusive employment strategy.
You can read our gender pay gap report and our gender and ethnicity
action plans on our website
www.standardlifeaberdeen.com/annualreport
Talent
Attracting, retaining and developing talent is a key strategic objective
for the organisation. We remain committed to investing in the
recruitment and development of early careers talent. Over the past
12 months, we have hired a total of 146 individuals on to early careers
programmes across Standard Life Aberdeen. This consists of our
Graduate, Intern programme, and Edinburgh Guarantee populations
across the UK, Europe, Asia and America.
We continued our strategic partnership with Career Ready throughout
2018, aligning 34 students with internal mentors as well as providing a
four week internship in Edinburgh, London or Aberdeen, paid at the
Living Wage. Standard Life Aberdeen is also one of six Scottish-based
Financial Services firms piloting an approach to increase school
students’ awareness, and understanding, of the diversity of careers in
our industry.
We are proud to be recognised for our commitment to early career
talent. Feedback from our 2018 intern cohort saw us feature in the Top
100 Undergraduate Employers for 2018. (Our 2019 ranking will be
confirmed in Q1.) In May, our early careers and employer brand team
won Bronze at the Employer Brand Management Awards for Best
Employer Brand Management Programme following a merger or
acquisition.
We are committed to talent progressing at every career stage. We
promote a philosophy of individual-driven development linked to
business need: learning in real-life and real-time backed by a range of
open-access learning opportunities available to all colleagues. Our
Board and Executive Committee are highly engaged in our talent and
succession agenda and in mentoring future talent. Succession Bench-
strength Reviews, including Talent Reviews and profiling of individual
talent, are executed regularly within the organisation to ensure that a
strong pipeline of ‘expertise talent’ as well as leadership talent is being
developed both to fuel our growth agenda and to assure our clients of
seamless transitions in the event of natural individual movement.
Where gaps in our pipeline are identified, we are proactive in
identifying external talent who are additive to our organisation and
culture.
Engagement
In our mood and sentiment survey carried out post-merger in 2017,
our employee insights partner Karian and Box believed our results
showed a high level of positivity towards the merger in comparison to
others in a merger/acquisition situation. In Q4 2018 we ran a global
deep dive engagement survey ‘Viewpoints’ based on a number of key
organisational themes. This has given us further organisational insight
78
Standard Life Aberdeen 2018
and has created a baseline to build on. In addition, there are employee
representation arrangements across the organisation aimed at
providing ongoing insights from our people to help the Company
understand the employee perspective.
The main themes that emerged from the most recent survey included
the need to build, through better communication with our employees, a
clearer and more consistent understanding of our strategic direction,
and how we can speed elimination of factors that can prevent people
from doing their jobs as effectively as possible. Positive feedback
centred on how our managers lead through change, colleagues feeling
able to be themselves at work and our continued focus on all aspects
of inclusion.
Over the year ahead we plan actions based on the themes that
emerged, and we will continue to measure engagement, mood and
culture across the Group.
Results:
Participation: 69% (4,274 colleagues)
Engagement score: 56%
Workforce Engagement
Recognising the 2018 Corporate Governance Code provision on
workforce engagement, the Nomination and Governance Committee
discussed the three possible options and agreed that it would be
appropriate to propose a designated non-executive director to support
this. After discussion with the Committee, Melanie Gee has accepted
this proposal and the following parameters have been identified for her
engagement role:
Meet regularly with the employee representative forums
Meet collectively with the representatives of the employee networks
Meet with the Regional Heads to discuss local initiatives on
employee engagement in the regions
Meet with the Transformation team to discuss how workforce
engagement is built into the various work streams
Meet with the Talent and Leadership team to discuss how they are
taking forward employee engagement matters, including those
arising from the Viewpoint survey
Consider how “employee engagement” can be built into the regular
Board reporting templates
Attend an innovation Panel meeting
Attend several senior talent NED engagement dinners
Report back to the Board on a regular basis on the output from her
workforce engagement activities
Prepare a report for the 2019 Annual Report and Accounts on the
impact of her workforce engagement activities
Information about stakeholder engagement, together with the section
172 (1) statement, is on pages 22 to 23 of the Strategic report.
Developing our People
Throughout 2018 we have continued to strengthen our approach to
supporting the development of our people.
Recognising the vital contribution that our people managers make, we
recently launched the People Management Academy, an exciting new
global framework and learning curriculum designed to enhance the
skills and capabilities of line managers. Over 300 line managers
enrolled within days for in-person development sessions and the
offering will continue to develop throughout 2019, with the addition of
new digital and workshop solutions.
Our drive to be effective is reflected in the launch of a range of
personal effectiveness and business skills courses, to support
personal career growth. We make full use of digital learning channels
to promote regular and ongoing learning and development in the
workplace to all employees. During our recent digital learning
campaign, The Leading Edge Challenge Series, over 50,000 learning
resources were accessed by employees and the campaign has been
shortlisted for two industry awards.
As outlined above, developing world-class early careers talent is a
priority. Our new Graduate Development framework enables
graduates to develop key skills and capabilities that we have identified
as critical to their personal and professional development, ranging
from resilience to commercial awareness.
In 2018, 59 students participated in our Intern Development
Programme supporting their transition into the workplace. In addition to
developing a range of skills, the programme also showcased our
support for social causes, raising money in aid of a high profile charity
(Chest, Heart and Stroke Scotland).
We are enthusiastic in deploying a broader range of Apprenticeships
to support individuals to combine work and study. This year, we
enrolled our first graduate apprentices in study for in-demand industry
skills such as cyber security and software development, as well as
continuing the focus on working towards qualifications in subjects
including Providing Financial Services and Management.
In 2018 we have ensured that employees have been able to continue
using intranet services throughout the period of organisational change.
As part of the separation programme we created an additional version
of the intranet in order that both Standard Life Aberdeen employees,
and employees transferring to Phoenix group, were able to access the
intranet without disruption. Additionally, we have created a new global
communications hub to support Standard Life Aberdeen employees
through the transition period. Work is now underway to initiate a digital
workplace programme which will see delivery of a new global internet
for our transformed Group.
Reward
We believe that when our employees own shares in the Company
they understand better the interests of the Company’s shareholders.
The Company invited over 99% of UK and Ireland based employees
to participate in the Standard Life Aberdeen Sharesave plan in 2018
and 1,799 employees accepted the invitation. These employees will
have the opportunity to acquire Standard Life Aberdeen plc shares for
£2.571 (UK) and €2.857 (Ireland) with their accumulated savings when
their savings contracts end in three or five years’ time. At 31
December 2018, 2,522 UK employees in UK and Ireland were saving
towards the purchase of Standard Life Aberdeen plc shares through
this plan.
As at 31 December 2018, 2,197 of the Group's employees were
shareholders through participation in the Standard Life Aberdeen
(Employee) Share Plan (the Plan). As part of the integration
programme in 2019 participation in this Plan will be extended so that
over 99% of employees in the UK and Ireland will be eligible to
participate. Participation allows employees to buy ordinary shares in
the Company directly from their earnings up to a market value of £150
per month (UK) or €175 (Ireland) per month. The Company matches
the shares purchased by the employees, matching up to £50 per
month in the UK and €70 per month in Ireland.
Sustainability
The commercial aims of our business are linked to our environmental,
social and governance responsibilities. You can find out more about
how we run our business sustainably throughout the Strategic report.
Our non-financial information statement on page 49 summarises
where you can find key information on our approach. For details of our
greenhouse gas emissions, please see page 48.
79
GovernanceStandard Life Aberdeen 2018
4. Directors’ report continued
Political donations
We have a long-standing policy of not making political donations. The
Company has limited authorisation from shareholders to make political
donations and incur political expenditure (Resolution 10, 2018 AGM).
We request this as a precaution against any inadvertent breach of
political donations legislation. While Standard Life Aberdeen has
regular interaction with government and elected politicians in the UK
and other jurisdictions in which we operate, we are strictly apolitical.
Auditors
The Audit Committee is responsible for considering the Group’s
external audit arrangements. Resolutions proposing the re-
appointment of KPMG LLP as auditors of the Company and giving
authority to the Audit Committee to determine their remuneration will
be submitted at the 2019 AGM.
Disclosure of information to the auditors
Each Director confirms that he or she has taken all reasonable steps
necessary, in his or her role as a Director, to be made aware of any
relevant audit information and to establish that KPMG LLP is made
aware of that information.
As far as each Director is aware, there is no relevant audit information
that KPMG LLP is not aware of as at the date this report was
approved.
Annual General Meeting
Details of the meeting content can be found in our AGM guide 2019. Currently, AGMs are held in Edinburgh and London in alternate years. The
AGM will be held in Edinburgh in 2019. The AGM guide and other materials will be published online at www.standardlifeaberdeen.com in
advance of this year’s AGM.
Post balance sheet events
On 11 March 2019, Standard Life (Mauritius Holdings) 2006 Limited informed the National Stock Exchange of India Limited and BSE Limited that
it intends to Offer for Sale (‘OFS’) up to 70,000,000 shares in HDFC Life, with an option to additionally sell up to 29,500,000 shares through the
OFS, at a floor price of Rs 357.5 per share. Collectively this represents 4.93% of the total paid up equity share capital of HDFC Life.
Should the full 4.93% be sold through the OFS and at the floor price, it is estimated that the Group would receive a total consideration net of
taxes and expenses of approximately Rs.35.3bn (c£380m). Assuming full subscription in the OFS at the floor price, the gain on sale is estimated
to be approximately £325m after tax.
Following the sale (assuming full subscription), HDFC Life would remain an associate of the Group and the Group’s shareholding subsequent to
the OFS would be 490,126,265 equity shares or 24.30% of the issued share capital of HDFC Life.
Other information
Under Listing Rule 9.8.4.CR, a listed company must include all information required by LR 9.8.4R in a single identifiable location or cross-
reference table. For the purposes of LR 9.8.4CR, the information required to be disclosed can be found in the following locations. All the relevant
information cross-referenced below is hereby incorporated by reference into this Directors’ report.
Topic
Interest capitalised
Publication of unaudited financial information in a class 1 circular or in a
prospectus, other than in accordance with Annexes 1 and 2 of the FCA’s
Prospectus Rules
Details of long-term incentive schemes
Waiver of emoluments by a director
Waiver of future emoluments by a director
Non pre-emptive issues of equity for cash
Non pre-emptive issues of equity for cash in relation to major subsidiary
undertakings
Parent participation in a placing by a listed subsidiary
Contracts of significance
Provision of services by a controlling shareholder
Shareholder waivers of dividends
Shareholder waivers of future dividends
Agreements with controlling shareholders
The Directors’ report was approved by the Board and signed on its behalf by
Location
Directors’ report
Directors’
remuneration report
None/
Not applicable
x
x
x
x
x
x
x
x
x
x
x
x
x
Kenneth A Gilmour
Company Secretary
13 March 2019
80
Standard Life Aberdeen 2018
5. Directors’ remuneration report
Richard Mully
Chairman, Remuneration Committee
5.1 Remuneration Committee Chairman’s statement
This report sets out what the Directors of Standard Life Aberdeen plc
were paid in 2018 and how we will pay them in 2019, together with an
explanation of what the Remuneration Committee considered in
reaching its recommendations. Where tables and charts in this report
have been audited by KPMG LLP we have marked them as ‘audited’
for clarity.
The report is structured in the following sections:
The annual statement from the Chairman of the Remuneration
Committee
Summary, which sets out an overview of the remuneration policy,
how it will be implemented in 2019 and key reward decisions in
respect of 2018
The annual remuneration report, which sets out in detail how the
remuneration policy was implemented in 2018
Approval
The Directors’ remuneration report was approved by the Board and
signed on its behalf by
Richard Mully
Chairman, Remuneration Committee
13 March 2019
Dear Shareholder
2018 Events
On behalf of the Board I am pleased to present the Remuneration
Committee’s report on Directors’ remuneration for the year ended 31
December 2018.
We welcomed Cathleen Raffaeli to the Committee this year. Cathleen
brings substantial experience to the Committee from her international
roles and we look forward to working with her. I also extend my
thanks to Gerhard Fusenig and Kevin Parry, both of whom stepped
down from the Board at end of the year and have offered invaluable
advice during their time on the Committee.
2018 was a year of change for Standard Life Aberdeen. There has
been a significant amount of work behind the scenes and I would like
to thank the People team who, under Kerry Christie’s leadership,
have helped deliver on critical projects. From an executive
remuneration perspective, the new Directors’ Remuneration Policy
was submitted at the 2018 AGM and approved by shareholders with
98% of the vote. I would like to thank shareholders for the strong level
of support given to the policy and their continued dialogue on
remuneration matters. The policy was designed to clearly align the
remuneration for executive Directors with company performance,
taking into account an assessment of financial, non-financial and
personal performance and supports our objective of having a simple
and transparent structure for executive remuneration with a focus on
sustainable long-term performance.
Business context and remuneration outcomes
As set out in the Chairman’s statement, it is clear that 2018 has been
a challenging year for our business with investment performance
having fallen below historic levels, particularly within our absolute
return strategies and weaknesses within a number of other equity
classes. Significant outflows have materialised as a result of both
investment performance in those areas and general investor
sentiment in challenging market conditions. Conversely, performance
for Fixed Income, Cash/Liquidity and Alternatives remains strong over
3 and 5 years, and we have maintained capital strength which has
enabled us to sustain strong dividend payments.
We have continued to set and execute our long term strategic agenda
with the sale of our UK and European insurance business to Phoenix
in August 2018 marking a significant milestone in our transformation
to a fee based, capital-light investment company. There has been
substantial progress made on transformational and operational
integration projects as a result of the merger. We remain on track to
deliver the targeted annual efficiency savings of over £350m by 2020.
While the strategy remains well supported by shareholders and the
execution of the strategy has been good, it is clear that the challenges
associated with the prevailing economic and geopolitical environment
have impacted our financial performance, as a result of which our
share price has not been what we would want over the past year.
Executive Incentive Plan (‘EIP’) outcomes
The financial performance indicated above has rightly impacted
executive reward with the outcome of the Executive Incentive Plan
(‘EIP’) scorecard being heavily weighted (80%) towards financial
outcomes. However, the Committee did acknowledge that
achievements from the perspective of strategic and personal
performance also need to be taken into account when determining
overall remuneration outcomes for our executive Directors.
81
GovernanceStandard Life Aberdeen 2018 employee consultation. Implementation is expected to be in the
second half of 2019.
The Committee has approved the proposed changes and is
monitoring progress in line with its duty to periodically review trends in
the wider remuneration landscape and to oversee relevant changes
for our employees. Where appropriate, and where this is in line with
the approved Directors’ Remuneration Policy, the new set of terms
and conditions will be extended to executive Directors.
Corporate Governance Code
Alongside the above work, the Committee noted the publication of the
2018 Corporate Governance Code in July 2018. I am pleased to
confirm that Standard Life Aberdeen had already introduced a
number of the measures proposed, such as a shareholding
requirement post-cessation, which was adopted as part of the
Directors’ Remuneration Policy at the 2018 AGM, and the publication
of the CEO pay ratio.
Another recommendation of the review was that executive Director
pension arrangements should be aligned with those operating across
the wider workforce. At the current time there is not a single set of
terms and conditions in operation across the Group, although pension
arrangements will be aligned as part of the terms and conditions
harmonisation programme set out above. However, pension
arrangements for existing executive Directors were aligned to
colleagues within the legacy Aberdeen Asset Management heritage
(which is a significant proportion of employees) as part of Directors’
Remuneration Policy. It is not intended at this stage to make any
further changes for current executive Directors in this regard.
However, once the harmonisation programme has been
implemented, pension arrangements for any executive Directors
appointed after that date will be aligned with those operating across
the wider workforce.
The Committee also took steps to strengthen the terms under which
malus and clawback operate, clarifying additional scenarios under
which the Committee could apply either as appropriate. The
enhanced circumstances include material corporate failure, and
where the grant or vesting of award is based on an error in
information, assumptions or erroneous or misleading data.
Restatement of in-flight performance targets
As a result of the sale of our UK and European insurance business
to Phoenix in August 2018, and other corporate events, the
Remuneration Committee carefully assessed the impact on in-flight
performance targets. In relation to executive Directors, this impacted
EIP targets and in-flight LTIP arrangements. Where targets have
been restated this has been done on a formulaic basis, taking into
account the direct impact of the transaction on the relevant targets.
The Committee approved these adjustments on the fundamental
principle that targets should be no more or less difficult to achieve
than the original targets. Restated targets are set out on page 88 for
the EIP and page 93 for the LTIP.
5. Directors’ remuneration report continued
To consider whether the awards generated by the scorecard were fair
in the broader performance context the Committee considered the
following factors:
The outcome from the perspective of overall company performance
The shareholder experience during 2018
The context of the incentive funding position across our workforce
As a result, taking a holistic view of these factors, the Committee
decided to apply a discretionary reduction to the EIP outcome for the
co-CEOs in recognition of the disappointing outturn in 2018, reducing
the awards to 50% of the calculated outcome. In addition, the
Committee decided that the awards should be deferred in full, with
vesting determined by performance against underpins which link the
awards to future performance (details of which can be found on page
91).
In the Committee’s view, the outcomes for the co-CEOs set out above
best balance disappointing financial results and shareholder
outcomes with appropriate recognition for the contribution made by
the co-CEOs to manage the Company’s performance in a challenging
marketplace and to continue to move forward on the Company’s
strategic agenda as articulated to, and strongly supported by, our
shareholders.
The overall outcome of the scorecard and the discretionary
adjustment for the co-CEOs is set out in the table below.
Formulaic
assessment
(% of
maximum)
Final
outcome
(% of
maximum)1
Final
outcome
(% of
salary)
Final
outcome
(£000s)
20.4%
20.4%
10.2%
10.2%
61%
61%
367
367
co-CEOs
Martin Gilbert
Keith Skeoch
1 After discretionary adjustment applied.
Further details on EIP outcomes for all executive Directors can be
found on pages 88-91.
Vesting of the 2016 Executive LTIP and Standard Life
Investments Long Term Incentive Plan (‘SLI LTIP’)
Keith Skeoch participated in the 2016 Executive LTIP, the outcome of
which was dependent on the achievement of stretching performance
conditions by reference to adjusted profit and net flows targets. On
assessment of performance against these conditions, it was
determined that the award did not meet the required thresholds
against either of these measures and the award lapsed in full.
Rod Paris participated in the 2016 SLI LTIP which was dependant on
the achievement of adjusted profit targets and subject to underpins
relating to investment performance. After the performance conditions
were assessed, it was determined that 6.35% of the target award
vested (3.175% of maximum).
Further details of the LTIP performance assessment, including how
these performance conditions were restated to reflect various
transactions during the year, can be found on page 91.
Alignment of remuneration across our workforce
As a result of the merger, a diverse range of terms and conditions are
currently in operation across the Group. In 2018, work started on a
project to harmonise terms and conditions for all UK based
colleagues, with other activities underway or planned to achieve
similar harmonisation objectives in our other locations. The
harmonisation programme includes alignment of pension
contributions, variable pay structures and other benefits. This
provides an opportunity to improve alignment of remuneration with the
Group’s culture and to further enhance our ‘one company’ vision.
Proposals have been communicated to staff and are now subject to
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Standard Life Aberdeen 2018 How we will implement the policy in 2019
Base Salary
The Committee has determined that no increases to salaries would
be made for any of the executive Directors. Salaries will therefore
remain in line with 2018 (see page 85).
EIP
The Committee remains comfortable that the overall EIP mechanism
remains fit for purpose and, as shown in the 2018 outcomes,
appropriately aligns executive remuneration with the interests of the
Group and its shareholders. It also allows the Committee an
appropriate level of flexibility to apply discretion to ensure that
remuneration outcomes are reflective of a holistic view of overall
performance.
The Committee did, however, review the individual metrics which
make up the financial element of the scorecard. In particular the
Committee decided to make the following minor adjustments to
metrics for 2019:
Replace Adjusted Profit (20%) with Adjusted Diluted EPS (20%). In
line with the conversations with major shareholders in 2018, the
adjusted profit metric will be replaced with an EPS metric to further
align the management team with the shareholder experience. EPS
was not introduced in 2018 given the intended corporate activity in
2018. In line with the current adjusted profit metric, EPS will
continue to be based on a look back period increasing to three
years over the life of the policy. The 2018 base year EPS has
therefore been taken from the same operating plan as the original
adjusted profit target to maintain the integrity of the plan.
Update the approach to measurement of net new flows. Given the
volatility in setting net flows targets, and the relative size of fund
flow, the Committee has revised the approach to determining the
net flows target range to be based on the differential between gross
inflows and gross redemptions. The revised approach is
considered to provide a more robust assessment of performance.
Details of the proposed targets for 2019 can be found on page 86.
For a full overview of our remuneration policy please see the
Annual report and accounts 2017 on our website
www.standardlifeaberdeen.com/annualreport
Board succession
A number of changes to the Board were announced on 13 March
2019. A summary of these changes, and the implications for
associated remuneration arrangements, are set out below.
With effect from 13 March 2019, Keith Skeoch will become the sole
CEO of Standard Life Aberdeen and Martin Gilbert becomes Vice
Chairman of Standard Life Aberdeen and Chairman of Aberdeen
Standard Investments from that date. Martin will continue to be an
executive Director of the Board and both he and Keith will continue to
report into the Chairman. In this role, Martin will be able to focus
solely on our strategic relationships with key clients, winning new
business and realising the potential from our global network and
product capabilities.
Martin’s base salary will remain as £600,000 and he will continue to
participate in the EIP, although his maximum bonus opportunity will
reduce from the current level of 600% to 350% of base salary with
effect from the date of his appointment to his new role. There will be
no changes to Keith’s remuneration as a result of this change.
Stephanie Bruce will succeed Bill Rattray as CFO (subject to
shareholder approval) on 1 June 2019.
Stephanie will be appointed on a base salary of £525,000 and she will
receive a cash allowance in lieu of pension of 20% of salary in line
with the executive remuneration policy. She will be eligible to
participate in the EIP on the same basis as other executive Directors
with a maximum opportunity of 350% of salary. As set out in the
shareholder announcement, to reflect the change in the profile of her
remuneration arrangements on leaving PwC, where partners have
relatively stable earnings expectations with the full payment made in
cash through the year, to joining Standard Life Aberdeen where there
is significantly greater variability in out-turns and a significant
proportion of awards are deferred for the longer-term, the
Remuneration Committee has agreed to grant Stephanie a one-off
award over Standard Life Aberdeen plc shares in connection with her
appointment as CFO. The award, with a face value of £750,000 at the
date of grant, will be over Standard Life Aberdeen shares and will
vest in equal tranches in June 2020, June 2021 and June 2022.
Bill Rattray will retire from the Board on 31 May 2019 and will be
given notice of cessation of his employment (12 months) at that date.
It is intended that Bill will remain employed, to support transition to
Stephanie, until 31 December 2019 during which time he will receive
salary, benefits and will continue to accrue an award under the EIP.
Following that date, in line with his contractual entitlements, Bill will
receive salary and benefits for the remainder of his notice period.
As you wilI be aware from the announcement of 13 March, I have
decided to retire from the Board at the 2019 AGM. It has been a
pleasure to serve on the Board and I have much appreciated the
open and constructive dialogue on remuneration matters that I have
been able to enjoy with shareholders during my time as Chair of the
Remuneration Committee. Although my successor has yet to be
confirmed, I wish them every success and that they are able to enjoy
the strong levels of support and engagement that you have afforded
me.
I hope you find this report a clear account of how the Committee has
implemented our policy during 2018 and are able to support the
decisions we have made. I welcome comments from shareholders
and look forward to hearing your feedback at the AGM.
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GovernanceStandard Life Aberdeen 2018
5. Directors’ remuneration report continued
5.2 Summary
What are the principles that underpin our remuneration framework?
The Remuneration Committee developed three key principles designed to support our strategy, culture and values which guided the design of
the remuneration framework going forward, as follows:
Underlying principles
How this is achieved with the proposed framework
The approach to
remuneration within the
Group should be simple
and transparent
1
The approach should
encourage a long-term
focus on strategy
and culture
2
Our remuneration framework and the basis for awards is simple, transparent and fair
for both participants and shareholders alike
The remuneration framework rewards the achievement of long-term sustained
business results which support our strategy, culture and values
Conduct and how performance has been achieved will form a key part of how
remuneration levels are determined
The remuneration design encourages significant long-term share ownership to ensure
wealth and not just income is at risk
An appropriate level of fixed remuneration is provided to balance risk and reward
Alignment with
stakeholders
3
Our remuneration design aligns the interests of executives, shareholders and
importantly our clients
How does the remuneration structure support delivery of strategy?
The remuneration structure for executive Directors has consciously been designed to support the delivery of the Group’s key strategic
priorities as illustrated below:
Our strategy
What this means for us
How our remuneration structure delivers our strategy
Client
centricity
Our primary focus is
delivering for our customers
and clients – this means
working to understand and
meet their needs while
building lasting partnerships
A balance of non-financial measures forms part of our scorecard for
reward which includes a customer and client metric as well as
measures on risk, compliance and conduct
These will be assessed in determining reward outcomes to ensure that
our culture and values have been adhered to in achieving results
delivered
Enhancing
our
operations
Innovating
for the future
Valuing our
savings
ecosystem
Helping people be more
productive, simplifying our
ways of working and
managing our costs
effectively, enabling us to
invest for growth
Investing in leading edge
capabilities, helping us attract
clients and customers,
enhance relationships and
develop smarter ways of
working over the long term
Optimising the breadth and
depth of our investment
management, platform and
advice ecosystem, along with
our geographical reach
enables us to meet the
savings needs of clients and
customers around the world
Cost/income ratio is included in performance measures for reward
outcomes and also forms part of underpin measures post-award for a
further three years
Remuneration structure which improves transparency between
performance and reward
A variable pay award based on a pre-determined balanced scorecard
of measures that will reward achievement of key financial milestones
across our global business over the long term (up to six years). This
includes flows.
Non-financial scorecard includes customer and client as well as
strategic measures
Investment performance and flows are included in performance
measures for reward outcomes, with performance measured over an
extended time period
Investment performance is measured over three and five years and
flows over three years. Both metrics also form part of the underpin
measures post-award for a further three years.
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Standard Life Aberdeen 2018
Overview of the policy and how it will be implemented in 2019
Element
Overview of remuneration policy
Base salary
Provides a core reward for undertaking the role.
Salaries are normally reviewed annually.
Implementation in 2019
With effect from 1 January 2019
base salaries are as follows
Co-Chief Executive officers1
(Co-CEOs)
Chief Investment Officer (CIO)
Chief Financial Officer (CFO)
Salary
Salary
increase
£600k
£450k
£450k
0%
0%
0%
n/a
Chief Financial Officer (designate) £525k
Benefits and
Pension
Provides market competitive and cost effective benefits.
Benefits in line with approved policy.
Competitive, flexible retirement benefit delivered in a way that
does not create an unacceptable level of financial risk or cost to
the Group.
Pension allowance for each executive Director set
at 20% of base salary.
1 Martin Gilbert’s salary will remain at £600k when he takes up
his new role from 13 March 2019.
Maximum opportunities for 2019:
Co-CEOs: 600% of salary
CIO: 600% of salary
CFO: 350% of salary
80% of the award will be based on financial
metrics, with the remainder based on non-
financial (10%) and personal (10%) performance.
Underpin metrics for deferred variable pay
awards are solely financial in nature.
The performance metrics used to determine
awards are set out in the following section.
Martin Gilbert’s maximum bonus opportunity will
reduce to 350% of base salary with effect from 13
March 2019 when he takes up his new role.
Executive Directors are required to build up
interests in the Group as follows:
Co-CEOs: 500% of salary
CIO and CFO: 300% of salary
Martin Gilbert’s shareholding requirement will
remain at 500% of salary until 13 March 2020 and
will then revert to 300% of salary, in line with
other executive Directors.
Details on non-executive Director fees in respect
of 2019 can be found on page 98.
Executive
Incentive Plan
(EIP)
Single incentive plan designed to reward the delivery of the
Group’s business plan in a range of financial and non-financial
areas.
Maximum award opportunity set at 700% of salary.
Performance assessed against a range of key financial, non-
financial and personal performance measures.
Performance is measured both on annual, and where
appropriate, trailing performance of up to three years.
Awards are delivered as follows:
25% in the form of cash
75% in the form of a deferred award
Deferred awards are subject to underpin conditions which are
measured over the three financial years from award.
Subject to performance against the underpins, deferred awards
vest in equal tranches on the third, fourth and fifth anniversaries
of the grant date. Vested awards are subject to a holding period
until the fifth anniversary of the grant date.
Cash and deferred awards are subject to malus and clawback.
Share
Ownership
Executive Directors are required to build up substantial interests
in the Group.
Shares to the value of the share ownership guidelines must be
held for 12 months following departure from the Group.
Non-executive
Directors
Fees for the Chairman and non-executive Directors are set at an
appropriate level to reflect the time commitment, responsibility
and duties of the position and the contribution that is expected.
The Board annually sets the fees for the non-executive Directors,
other than the fee for the Chairman of the Company which is set
by the Remuneration Committee.
Fees for non-executive Directors are made up of a base fee and
additional fees to reflect additional responsibilities (e.g. the
Senior Independent Director / members / Chair of a Board
Committee). The Chairman receives an all-inclusive fee.
Additional fees or benefits may be provided at the discretion of
the Remuneration Committee.
Standard Life Aberdeen 2018
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GovernanceStandard Life Aberdeen 2018
5. Directors’ remuneration report continued
Time horizon of our remuneration structure for executive Directors
Base salary,
benefits and
pension
Executive Incentive
Plan 2019:
Cash award (25%)
Deferred award
(75%)
2018
2019
Paid during
year
Performance measured over
annual and trailing
performance, building up to
three years by 2020
2020
2021
2022
2023
2024
Paid during
year
Subject to performance underpins
33% vests
(2 year hold)
33% vests
(1 year hold)
33% vests
Scorecard for the 2019 EIP
The following table sets out the performance scorecard to be used to determine 2019 EIP awards:
Performance metrics
Measurement period Weighting
Threshold
(0% of maximum)
Target
(50% of maximum)
Stretch
(100% of maximum)
Long-term financial
Adjusted diluted earnings per share1
Gross new business flows (all channels)1, 2
Net new business flows (excl. Strategic
Insurance Partners)1, 2, 3
Investment performance
Short-term financial
Cost/income ratio
Non-financial
Strategic
Customer and client
People
Risk, compliance, conduct
Personal
2018 and 2019
2018 and 2019
2018 and 2019
Three and five
years
Annual
Annual
Annual
Annual
Annual
Annual
20% Due to commercial sensitivity this measure will only be
disclosed at the end of the performance period
10%
10%
20%
20%
2.5%
2.5%
2.5%
2.5%
10%
£137.7bn
(£11.2bn)
£153.0bn
£2.9bn
£168.2bn
£17.2bn
50.0%
60.0%
70.0%
70.2%
68.2%
66.2%
Remuneration Committee assessment at year end
Remuneration Committee assessment at year end
Remuneration Committee assessment at year end
Remuneration Committee assessment at year end
Remuneration Committee assessment at year end
Includes eight months of discontinued business.
1
2 Flows exclude investments in cash and liquidity funds.
3 Definition aligns to the previous terminology of ‘growth’ flows.
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Standard Life Aberdeen 2018
How our executives were remunerated in 2018
What was earned during 2018
The remuneration outcomes for executive Directors have been determined by the Remuneration Committee as illustrated below:
Martin Gilbert
Actual
Maximum
Keith Skeoch
Actual
Maximum
Rod Paris
Actual
Maximum
£722
£367
£722
£900
£2,700
£722
£367
£722
£900
£2,700
£2,396
£151
£542
£454
£41
£542
£675
£2,025
£1,281
Bill Rattray
£77
Actual
Maximum
£541
£229
£541
£394
£1,181
All figures in £000s
Total: £1,089
Total: £4,322
Total: £1,089
Total: £6,718
Total: £1,188
Total: £4,523
Total: £847
Total: £2,116
Salary, pension, benefits and other payments
EIP paid in cash
EIP deferred
Long-term incentive plan: Legacy long-term incentives
Our performance
EIP scorecard outcomes for 2018
The table below shows the outcome of the executive Directors’ participation in the EIP plan for the period 1 January 2018 to 31 December 2018.
Adjustments made to the performance targets as a result of the sale of Standard Life Aberdeen’s UK and European insurance business together
with further details on how outcomes have been determined can be found on pages 88-91.
As set out in further detail in the Chairman’s statement, the Committee exercised its discretion to reduce the pay-out to the co-CEOs by 50% to
reflect the overall performance of the Group over the 2018 performance period. In addition, for the co-CEOs, the full award (rather than 75%) will
be delivered in the form of deferred shares. Deferred share awards vest over a five-year deferral period (tranche vesting between years three
and five, with a holding period such that no shares are capable of being sold until the fifth anniversary of grant) and are subject to underpin
performance conditions measured over three years. Details of the underpin conditions for 2018 deferred awards are set out on page 91.
% based on
financial
performance
(maximum 80%)
% based on non-
financial
performance
(maximum 10%)
% based on
personal
performance
(maximum 10%)
Scorecard
outcome
(% of maximum)
Final outcome
after discretion
applied
(% of maximum)1
9.4%
9.4%
9.4%
9.4%
5%
5%
5%
5%
6%
6%
8%
5%
20.4%
20.4%
22.4%
19.4%
10.2%
10.2%
22.4%
19.4%
Pay-out
(£000s)
367
367
605
306
Martin Gilbert
Keith Skeoch
Rod Paris
Bill Rattray
1 After application of the discretionary reduction of 50% to the EIP scorecard outcome, which was applied to the co-CEOs. No discretionary adjustment was applied to the CIO or
the CFO.
Long-term incentive plan awards
The table below shows the outcome of the executive Directors’ participation in legacy LTIP awards, during the three-year performance period
ending on 31 December 2018. Further details on the adjustments made to the performance targets as a result of the sale of Standard Life
Aberdeen’s UK and European insurance business and additional commentary on performance from the Remuneration Committee can be found
on pages 90-91.
2016 Executive LTIP1
Cumulative Group adjusted profit before tax
Cumulative Group net flows
2016 Standard Life Investments2
Cumulative adjusted profit performance
Threshold (0% of
maximum)
Target (50% of
maximum)
Stretch (100% of
maximum)
Actual
Vesting (% of
maximum)
£2,395m
£30.8bn
£2,600m
£38.9bn
£2,910m
£51.0bn
£2,305m
(£53.7bn)
0%
0%
Threshold (0% of
maximum)
Target (50% of
maximum)
Maximum (100%
of maximum)
Actual
Vesting (% of
maximum)
70% of target
100% of target
130% of target
72% of target
3.175%
1 Of the executive Directors, only Keith Skeoch participated in this plan in 2016.
2 Of the executive Directors, only Rod Paris participated in this plan in 2016.
Standard Life Aberdeen 2018
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5. Directors’ remuneration report continued
5.3 Annual remuneration report – what we did in 2018 for executive Directors
Single total figure of remuneration – executive Directors (audited)
The following table sets out the single total figure of remuneration for each of the executive Directors who served as a Director at any time during
the financial year ending 31 December 2018:
Basic
salary
for year
£000s
Taxable
benefits in
year
£000s1
EIP paid
in cash2
£000s
EIP deferred
£000s3,4
Long-term
incentives with
performance
period ending
during the year
£000s5,6
Other
payments
£000s7
Pension
allowance
paid
in year
£000s
Total remuneration
for the year
£000s
600
199
600
700
450
170
450
139
2
1
1
–
1
–
1
1
–
279
–
588
151
311
77
58
367
838
367
413
454
224
229
173
–
–
–
978
41
70
–
–
–
–
1
1
1
–
–
–
120
–
120
175
90
43
90
25
1,089
1,317
1,089
2,855
1,188
818
847
396
Executive
Directors
Martin Gilbert8 2018
2017
Keith Skeoch
2018
Rod Paris8
Bill Rattray8
2017
2018
2017
2018
2017
1 This includes the taxable value of all benefits paid in respect of the year ended 31 December 2018. Included for Keith Skeoch and Rod Paris is private health cover at a cost to
the Group of £518 per annum per employee and medical insurance for Martin Gilbert (£1,717) and Bill Rattray (£1,408).
2 For prior years this figure shows the annual cash bonus paid in respect of the year
3 As set out in the Chairman’s statement, the Remuneration Committee decided that, for the co-CEOs, the full amount of the EIP award should be deferred in shares vesting
over years 3, 4 and 5 and will be subject to the underpin mechanism detailed on page 91. For the CIO and the CFO, 75% of the EIP award is deferred under the same
mechanism in line with the Directors’ Remuneration Policy. In the event that all, or part, of the award fails to satisfy the underpin and subsequently lapses, the single figure
outcome will be restated in the following Annual report and accounts.
4 For prior years this figure shows the annual deferred bonus awarded in respect of the year
5 The values reported for 2018 are the market values of the Executive LTIP awards and the Standard Life Investments LTIP awards granted in 2016 that will vest based on the
three-year performance measurement period ending on 31 December 2018 – Executive LTIP (0%); and Standard Life Investments LTIP (3.175% of maximum). As the share
price at the date of vesting is not known at the date of publication of this report the number of Standard Life Aberdeen plc shares that will vest (including additional Standard Life
Aberdeen plc shares received in respect of accrued dividends from grant through to 31 December 2018) has been multiplied by the average share price over the quarter
ending 31 December 2018 (264.15pence). This amount will be restated in the following Annual report and accounts once the share price at vesting is known.
6 The values reported for 2017 have been restated to reflect the value of the shares vesting in respect of the three-year performance measurement period ending on 31
December 2017. Where the awards vested in 2018 the price has been restated using the share price on the vesting date (355.80p). For the Executive LTIP awards which are
subject to a further two year holding period until 2020, the restatement is based on the share price on the first trading day following the third anniversary of grant (355.80p).
7 Keith Skeoch, Martin Gilbert and Rod Paris, participate in the Standard Life Sharesave Plan. Keith Skeoch and Rod Paris participate in the Standard Life (Employee) Share
Plan – the maximum annual award of matching shares in 2018 was £600.
8 Martin Gilbert, Rod Paris and Bill Rattray were appointed to the Board on 14 August 2017. All reported figures for 2017 are in respect of the period 14 August 2017 to 31
December 2017.
Base salary (audited)
No salary changes were made in 2018.
Pension (audited)
All executive Directors received a cash allowance in lieu of pension contributions of 20%.
Executive Incentive Plan
The following section sets out performance against each of the elements of the EIP for 2018.
Performance target adjustments
As set out in the Chairman’s statement, following the sale of Standard Life Aberdeen’s UK and European insurance business to Phoenix and
other corporate transactions, the following adjustments were made to the EIP performance targets:
Following its sale to Phoenix, removal of targets related to Standard Life Aberdeen’s UK and European insurance business from 31 August
2018
Addition of Phoenix profit share from 1 September 2018
Removal of targets as a result of the change in share of HDFC AMC following the IPO and inclusion of interest on the sales proceeds
Removal of flows relating to India & China life and HDFC AMC (as set out in the Strategic report, this information is no longer available)
The underlying principle to the adjustments made was that the adjusted targets should not be easier / more challenging than the original targets
set when the award was made.
The table on the following page contains the original and adjusted targets and shows the outcome of the executive Directors’ participation in the
EIP plan for the period 1 January 2018 to 31 December 2018 against each of the elements of the EIP scorecard.
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Standard Life Aberdeen 2018
Financial performance metrics
Long-term financial
Adjusted profit before tax (excluding spread/risk
margin)1
Gross new business flows (all channels)2
Net new business flows (excl. Strategic
Insurance Partners)2,3
Investment performance
Short-term financial
Threshold
(0% of
maximum)
Target
(50% of
maximum)
Stretch
(100% of
maximum)
Weighting
Actual
Result
(% of max)
original target
adjusted target
original target
£874m
£941m £1,010m
20%
£815m
£76.8bn
£877m
£85.3bn
£942m
£93.8bn
£801m
adjusted target
10% £72.2bn
£80.2bn
£88.2bn
£70.5bn
0%
0%
original target
adjusted target
original target
£1bn
£3.3bn
£6.0bn
10%
£0.0bn
50.0%
£0.8bn
60.0%
£1.8bn
70.0%
(£33.9bn)
0%
(no adjustment)
20%
50.0%
60.0%
70.0%
55.9%
5.90%
Cost/income ratio (excluding spread/risk margin)
original target
(no adjustment)
20%
68.0%
68.0%
66.0%
64.0%
66.0%
64.0%
67.3%
3.50%
1
2
Impacted by all adjustments except flow adjustments.
Impacted by adjustments for the removal of targets related to Standard Life Aberdeen’s UK and European insurance business following its sale on 31 August 2018 and the
removal of flows relating to India & China and HDFC AMC. Flows exclude cash and liquidity flows.
3 Definition is aligned to the previous terminology of ‘growth’ flows. Vesting outcomes of (£33.9bn) = net flows (see page 31) of (£40.9bn) excluding strategic insurance partners
outflows of (£5.5bn) and excluding cash and liquidity outflows of (£1.3bn), plus discontinued inflows to end August 2018 of £0.2bn.
Non-financial
performance
metrics
Weighting
Strategic
2.5%
Customer
and client
2.5%
People
2.5%
2.5%
Risk,
compliance,
conduct
Highlights
Strong progress being made to becoming a world-class investment company with the execution of
the sale of the UK and European insurance business to Phoenix
SLA Transformation Portfolio progressing well – on track to deliver the targeted annual efficiency
savings of over £350m by 2020
Accelerated pace of innovation with circa 30 fund launches in 2018 and initiatives completed to
diversify geographic footprint across Asia, EMEA and the Americas
Sustained customer benchmark rating over 2018 however, slight fall in respondents rating SLA
good or excellent over the year
Underlying customer confidence remains strong in ASI franchise but is below expected levels
Stable client perceptions across key markets: UK, Germany and USA
Achieved Women in Finance executive target, up 6% from 2017
A full talent and succession review of Executive pipelines and other critical roles
Baseline employee engagement survey completed with 69% response rate, but with a score
below industry average. However, responses have highlighted key areas for focus and action
plans have been developed.
Voluntary turnover within the group remains ahead of the benchmark
Global Code of Conduct refreshed in the year with a 99.5% attestation rate across all employees
Enterprise Risk Management Framework established in 2018
Enterprise Risk Management Framework rated as strong in four out of five components following
annual credit rating reviews from external bodies
Group impact risk events were in line with expectations
Regular engagement sessions with Executives on risk matters
Roll out of single compliance system for ASI colleagues
Result
(% of max)
50%
38%
38%
75%
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GovernanceStandard Life Aberdeen 2018
5. Directors’ remuneration report continued
Personal
Performance
metrics
Weighting
Highlights
Martin Gilbert 10%
Strategic review for Asia and Americas with significant restructuring and centralisation as part of
Keith Skeoch 10%
transformation programme. Ensured strong focus on responsibilities and cost control.
Implemented system for consistent tracking of customer metrics showing customer service and
satisfaction across 16 key investment drivers. 13 of 16 metrics trending positively.
Client retention strategies implemented and plans rolled out for all clients and improvements in the
global sales process
Distribution and marketing agenda on target, with 26 product campaigns and over 10m social
media engagements. Refocused sponsorship activity post-merger in line with plan.
Leadership role in the evolving regulatory environment via role with Financial Reporting Council,
HM Treasury taskforce and Asset Management CEO meetings. Strong focus on promoting good
conduct internally and incorporating effective control structures.
Complaint rate below target of less than 1 per 1,000 policies, with no material impact felt as a
result of the sale of the UK and European insurance business. Transactional Net Promoter Score
above target.
Introduced innovation panel and idea sharing platforms to embed an innovative culture across the
Group. Review of working practices is underway to support transformation objectives.
Rod Paris
10%
Integration of the investment teams and the creation of a unified leadership group, bringing
Bill Rattray
10%
together investment capabilities and their associated processes
Led the creation of a single global research platform across asset classes
Introduced Process Enhancement Plans for underperforming asset classes
Promoted our ESG programme and ensured integration into investment processes
Helped deliver a record number of new funds for clients
Oversight of the move from Solvency II to the CRD IV regulatory regime that created a capital light
company
The associated restructuring of the balance sheet to maintain capital strength
Oversight and management of the capital return through both a share buy-back and the B share
scheme
Continued engagement with the institutional investor and analyst communities
Result
(% of max)
6%
6%
8%
5%
Before approving the level of performance in 2018, the Remuneration Committee sought the views of the Group Audit Committee on material
accounting issues that it considered during the year and the Group Chief Risk Officer and the Risk and Capital Committee on the management
of risk within the business. The Remuneration Committee determined there should be no adjustments made to the EIP scores as a result of the
feedback from the Group Audit Committee, and the Group Risk and Capital Committee.
As set out in the Chairman’s letter, to consider whether the awards generated by the scorecard were fair in the broader performance context the
Committee considered the following factors:
The outcome from the perspective of overall company performance
The shareholder experience during 2018
The context of the incentive funding position across our workforce
Taking everything into account, the Committee decided to apply discretion to the EIP outcome for the co-CEO’s to reduce the awards to 50% of
the calculated outcome. In addition, the Committee decided that this amount would be deferred in full, with vesting determined by performance
against underpins which links the award to future performance.
In the Committee’s view, this outcome best balances disappointing financial results and shareholder outcomes with appropriate recognition for
the contribution made by the executive Directors to manage the Company’s performance in a challenging marketplace and to continue to move
forward on the Company’s strategic agenda as articulated to, and strongly supported by, our shareholders. The overall outcome of the scorecard
and the discretionary adjustment is set out on page 91.
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Standard Life Aberdeen 2018
As a result of the approved ratings, the EIP outcome for 2018 is as set out in the table below:
Formulaic outcome
(% of maximum)
Final outcome after
discretion applied
(% of maximum)
Total payable
(% of salary)
Total payable
(£000s)
EIP cash
(£000s)
EIP deferred1
(£000s)
Martin Gilbert
Maximum
Actual
Keith Skeoch
Maximum
Actual
Rod Paris
Maximum
Actual
Bill Rattray
Maximum
Actual
100%
20.4%
100%
20.4%
100%
22.4%
100%
19.4%
n/a
10.2%
n/a
10.2%
n/a
22.4%
n/a
19.4%
600%
61.2%
600%
61.2%
600%
134.4%
350%
67.9%
3,600
367
3,600
367
2,700
605
1,575
306
900
–
900
–
675
151
394
77
2,700
367
2,700
367
2,025
454
1,181
229
1 EIP deferred awards are subject to performance underpins measured over three years as set out in the following section.
EIP deferred awards to be granted in 2019
EIP deferred awards will be made in 2019, in the form of nil-cost options, under the Deferred Bonus Plan rules. Awards will be subject to
performance underpins, measured over a three-year period. Subject to performance against the underpins, awards will vest pro-rata over years
three, four and five following grant. Awards will not be released to participants until the fifth anniversary of grant.
The following table sets out each of the performance underpins:
Performance
measure
Weighting Underpin level
Investment
performance
25%
The outcome is calculated at the end of each financial year in the three-year underpin period (2019-2021),
with the average of the three years’ results to be at or above 55% of AUM by value to be outperforming
benchmark
Flows1
25%
Return on adjusted
equity
25%
Cost/income ratio 25%
Gross new business flows underpin2 (12.5%) approved target of £251.5bn is based on 2019 budget for the
three year period 2019 – 2021 reduced by the % midpoint of the range between Threshold and Target
applied in the 2019 EIP.
Net new business flows underpin3 (12.5%) approved target of £40.6bn is based on the 2019 budget sum of
the differential between gross inflows and gross redemptions for the three year period 2019-2021 reduced
by the mid-point between Threshold and Target applied to 2019 in the EIP.
The underpin requires return on adjusted equity, calculated as the average rate over the three-year underpin
period (2019-2021), to be 17% or higher
The underpin approved target of 66.0% is based on averaging the three annual cost-income ratios for the
three year period 2019-2021 from the 2019 budget increased by the % midpoint of the range between
Threshold and Target applied in the 2019 EIP.
1 Flows exclude investments in cash and liquidity funds.
2
3 Excluding strategic insurance partners.
All channels excluding Lloyds.
Long-term incentives
In line with the arrangements in place prior to the merger of Standard Life plc and Aberdeen Asset Management PLC, Keith Skeoch and Rod
Paris have outstanding awards under the Standard Life Executive LTIP and Rod Paris also has outstanding awards under the Standard Life
Investments LTIP. The following section sets out the level of vesting of outstanding awards due to vest based on performance to the end of
2018.
2016 Executive LTIP award vesting in respect of performance ending in 2018 (audited)
The awards granted in 2016 under the Executive LTIP have two performance conditions. The outcome is based 70% on cumulative Group
adjusted profit before tax and 30% on cumulative Group net flows.
The awards are also subject to two underpins when assessing the Group performance. The first requires the Risk and Capital Committee to be
satisfied that performance obtained has been achieved within acceptable defined risk parameters. The second requires the Remuneration
Committee to be satisfied that performance against the plan metrics appropriately reflects overall Group performance.
Keith Skeoch received an award in March 2016 of 400% of salary with the performance period ending in 2018. Rod Paris does not have an
award under the Standard Life Executive LTIP with performance ending in 2018 as he was not an executive Director at the time of grant in
March 2016.
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GovernanceStandard Life Aberdeen 2018
5. Directors’ remuneration report continued
The following adjustments were made to the performance targets for the 2016 awards:
Following its sale to Phoenix, removal of targets linked to the Standard Life Aberdeen’s UK and European insurance business from 31 August
2018
Addition of Phoenix profit share post 31 August 2018
Removal of targets related to the change in share of HDFC AMC following the IPO and inclusion of interest on the sales proceeds
The underlying principle to the adjustments made was that the adjusted targets should not be easier / more challenging than the original targets.
The table below shows the original and adjusted performance targets together with actual outcomes for the 2016 LTIP award:
Cumulative Group adjusted profit before tax1 for Standard Life
Aberdeen Group for the three years ended 31 December 2018
Original performance conditions1
Adjusted performance conditions
Vesting outcome (70% weighting)
Cumulative Group net flows for the Standard Life Aberdeen
Group for three years ended 31 December 2018
Original performance condition1
Adjusted performance condition
Vesting outcome (30% weighting)
Threshold
Target
Maximum
Actual
performance
Level of
vesting
£2,490m
£2,395m
£2,705m
£2,600m
£3,030m
£2,910m
£2,305m
£30.8bn
£30.8bn
£38.9bn
£38.9bn
£51.0bn
£51.0bn
(£53.7bn)
0%
0%
1 These performance conditions were adjusted in 2017 in light of the merger, full details can be found in the Annual report and accounts 2017. No change was made to the net
flows condition from those originally set in 2016.
In line with the above results, it was determined the performance conditions were not met and the award lapsed in full.
2016 Standard Life Investments LTIP award vesting in respect of performance ending in 2018 (audited)
Under the Standard Life Investments LTIP, awards are only capable of vesting if Aberdeen Standard Investments’ investment performance
(three-year money-weighted average) is above the lower quartile of the money-weighted average of all assets under management (both captive
and third party assets) compared to other asset managers.
When awarded, the vesting outcome was subject to a consolidated cumulative three-year third party EBITDA performance and this measure
was used to capture vesting outcomes up to the end of 2017. As a consequence of the merger the awards became based on an adjusted profit
before tax performance target for Aberdeen Standard Investments for the 2018 performance year. The actual profit targets are not disclosed as
Aberdeen Standard Investments is a subsidiary business of Standard Life Aberdeen plc and the Board deems that this is commercially sensitive
information which, if disclosed, could seriously prejudice the Group’s business.
Before an award can vest, the Risk and Capital Committee is required to verify to the Remuneration Committee that the level of vesting was not
as a result of behaviour that has exposed the Group to undue risk. The Remuneration Committee took the view of the Risk and Capital
Committee into account when determining the level of vesting.
Rod Paris, who was not a Director at the time of grant in March 2016, received an award with a maximum value of 500% of salary with the
performance period ending in 2018.
The following table sets out performance against targets for the 2016 award:
Performance level
Below threshold
Threshold
Target
Maximum
Adjusted profit before tax performance target
<70% of target 70% of target
100% of target
130% of target
Actual performance
Vesting outcome
72.4% of target
6.35% of target
As performance was above the lower quartile of the money-weighted average of all assets under management (both captive and third party
assets) compared to other asset managers, and having considered the risk underpin, the Remuneration Committee determined that 6.35% of
the target award (3.175% of the maximum award) granted in 2016 would vest in 2019.
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Standard Life Aberdeen 2018
Awards granted in 2018
Summary table of scheme interests awarded during the year
The table below shows the key details of scheme interests granted in 2018:
Type of award
Basis of award
Face value at
grant
Number of
shares
awarded
% payable for
threshold
performance
Plan
Executive LTIP1 Keith Skeoch
Participant
Nil-cost option
400% of salary
£2,800,000
761,531
Rod Paris
Nil-cost option
400% of salary
£1,800,000
489,556
0%
0%
Details on
performance
conditions
See below
See below
Deferred Bonus
Awards2
Variable Pay
Awards3
Keith Skeoch
Nil-cost option Deferred Bonus
£413,000
Rod Paris
Nil-cost option Deferred Bonus
£224,483
97,541
53,017
Not applicable Not applicable
Not applicable Not applicable
Martin Gilbert
Nil-cost option Deferred Bonus
£3,076,827
742,908
Not applicable Not applicable
Bill Rattray
Nil-cost option Deferred Bonus
£636,943
153,786
Not applicable Not applicable
1 Executive LTIP share price used was 367.68 p.
2 Under the 2017 Group annual bonus plan and Standard Life Investments bonus plan, 50% of bonuses in excess of 25% of salary were deferred for three years into Standard
Life Aberdeen plc shares. This resulted in the above awards being granted on 28 March 2018 based on the average share price for December 2017 as per plan rules of
423.41p.
3 Under the Aberdeen variable pay plans, deferred bonus awards in the form of nil-cost options were granted to Martin Gilbert and Bill Rattray. As disclosed in the Annual report
and accounts 2017, of the above awards £837,827 (Martin Gilbert); £172,943 (Bill Rattray) relate to the period post completion of the merger (i.e. 14 August 2017 to 31
December 2017). These awards will vest in equal tranches between 5 March 2019 to 5 March 2023 (share price on award 368.88 pence which was the average Standard Life
Aberdeen plc share price for the 5 days prior to the 5 March grant). The balancing figures £2,239,000 (Martin Gilbert); £464,000 (Bill Rattray) relate to the period prior to the
completion of the merger (i.e. 1 October 2016 to 13 August 2017). These awards will vest in equal tranches between 14 August 2018 to 14 August 2022 (share price on award
328.08 pence, being the average Aberdeen Asset Management share price for the five days prior to grant, i.e. 14 August 2017).
Performance conditions for Executive LTIP awards granted 2018 and 2017
The awards granted in 2018 under the Executive LTIP have two performance conditions. The outcome is based 80% on cumulative Group
adjusted profit before tax and 20% on cumulative Group net flows. In addition to business performance criteria, all of the awards are subject to an
additional personal performance underpin whereby, if an executive Director performs at an unsatisfactory level in any year during the three-year
performance period, their original award would be reduced by one-third, unless the Co-Chief Executive Officers, or the Remuneration Committee
in the case of Keith Skeoch, recommends otherwise. Keith Skeoch and Rod Paris were granted awards under the Executive LTIP in 2018 and
2017.
As set out in the Remuneration Committee Chairman’s statement, the performance targets for the 2018 and 2017 awards under the Executive
LTIP Plan have been adjusted as follows:
Following its sale to Phoenix, removal of targets linked to the Standard Life Aberdeen’s UK and European insurance business from 31 August
2018
Addition of Phoenix profit share post 31 August 2018
Removal of targets as a result of the change in share of HDFC AMC following the IPO and inclusion of interest on the sales proceeds
The underlying principle to the adjustments made was that the adjusted targets should not be easier/ more challenging than the original targets.
The table below sets out the adjusted performance targets for Executive LTIP awards granted in 2018:
Performance condition
Performance
measurement
period
Original/adjusted
target
Cumulative Group adjusted profit before tax (excluding
spread/risk margin)
Cumulative Group growth net flows (excluding strategic
insurance partners)
1 January 2018 -
31 December
2020
original
adjusted
original
adjusted
Threshold
Maximum
£2,675m
£2,295m
£45.1bn
£36.5bn
£3,615m
£3,105m
£83.7bn
£67.9bn
The table below sets out the adjusted performance targets for Executive LTIP awards granted in 2017:
Performance condition
Cumulative Group adjusted profit before tax
Cumulative Group net flows
Performance
measurement
period
Original1/adjusted
target
1 January 2017 -
31 December
2019
original
adjusted
original
No adjustment
Threshold
Maximum
£3,000m
£2,665m
£27.7bn
£27.7bn
£3,650m
£3,245m
£45.9bn
£45.9bn
1 These are the performance targets after the adjustments in 2017 in light of the merger, full details can be found in the Annual report and accounts 2017. No change was made
to the net flows condition in 2017 from those originally set at grant.
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GovernanceStandard Life Aberdeen 2018
5. Directors’ remuneration report continued
Directors’ interests in shares (audited)
A shareholding requirement was implemented in 2014 and amended in 2018. We continue to require executive Directors and senior
management to maintain a material long-term investment in Standard Life Aberdeen plc shares. The Remuneration Committee reviews progress
against the requirement annually and retains discretion to require executive Directors to purchase shares to meet the requirement. Personal
investment strategies (such as hedging arrangements) are not permitted. For the purpose of the shareholding requirement, awards qualifying
include 50% of the value of deferred awards held by the executive Directors that have vested but not been exercised and 50% of the value of
long-term incentive awards that are no longer subject to a performance condition but have not been exercised. As illustrated in the tables below,
all executive Directors have complied with the current requirement as at 31 December 2018.
The following table shows the total number of Standard Life Aberdeen plc shares held by the executive Directors and their connected persons:
Total number
of shares
owned at
1 January 2018
Shares acquired
during the
period 1 January
2018 to 19
October 2018
Total number of
shares owned at
19 October 2018
Total number of
shares owned at
22 October
2018
Shares acquired
during the period
22 October 2018 to
31
December 2018
Total number of
shares owned at
31 December
2018
Shares
acquired
between 31
December 2018
and 8 March
2019
Pre share consolidation on 22 October 2018
Post share consolidation
(shares were consolidated on a seven for eight basis)
Martin Gilbert
139,185
Keith Skeoch
2,347,467
Rod Paris
Bill Rattray
602,257
1,743,549
125,000
150,623
165,160
264,185
231,161
2,498,090
2,185,828
767,417
671,489
–
1,743,549
1,525,603
200,000
200,203
233
–
431,161
2,386,031
671,722
1,525,603
–
139
159
–
The following table shows the number of qualifying awards included in assessing achievement towards the shareholding requirement, as at 31
December 2018:
Qualifying awards
Number of shares
available as
unrestricted vested
deferred awards
Number of shares under
option under long-term
incentive plans which
are no longer subject to
performance conditions
Total qualifying
holding (shares held
from table above)
and 50% of
qualifying awards
Value1 of
holding
Shareholding
requirement
Total of the value of
shares (from table
above) and 50% of the
value of qualifying
awards at 31 December
2018 as a % of salary
Martin Gilbert
Keith Skeoch
Rod Paris
Bill Rattray
1,846,924
–
–
652,206
–
1,354,623
£3,477,994
172,871
2,472,466
£6,348,056
–
–
671,722
£1,724,646
1,851,706
£4,754,255
500%
500%
300%
300%
580%
1058%
383%
1057%
1 The closing price at 31 December 2018 used to determine value was 256.75 pence.
Executive Directors will be required to retain shares held in respect of the post cessation requirement (500% of salary for the co-CEOs and 300%
of salary for other executive Directors) for a period of one year following their departure from the Group.
All former Directors held or continue to hold the shares required under their post-employment holding requirement. Luke Savage is required to
hold 15,940 shares until 28 February 2019 and met this requirement. Paul Matthews met his requirement to hold 157,934 shares until 1 March
2018. Colin Clark retained in excess of his requirement at the point of the share consolidation on 22 October 2018. As no subsequent disposal of
shares has been made he therefore has retained the necessary holding at 31 December 2018.
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Standard Life Aberdeen 2018
This table shows, in relation to each executive Director, the total number of share options with and without performance conditions held at
31 December 2018:
Unvested options with
performance
measures1
Unvested options without
performance measures2
Vested but
unexercised
options at 31
December3
Exercised during the
year4
Aggregate gains
made on awards
exercised during the
year
Martin Gilbert
Keith Skeoch
Rod Paris
Bill Rattray
–
2,307,052
1,400,967
–
1,286,106
1,846,924
387,762
55,763
258,585
–
–
652,206
–
282,866
273,244
–
–
£994,274
£1,003,898
–
1 This comprises Executive LTIP awards made in 2016, 2017 and 2018, awards under the Standard Life Investments LTIP made in 2016 and 2017 excluding, in each case,
shares to be awarded in lieu of dividend equivalents.
2 This comprises awards under the Executive LTIP granted in 2014 and 2015 and deferred bonus awards (including unvested awards under the Aberdeen Variable Pay plans).
It does not include shares to be awarded in lieu of dividend equivalents. Also included are options granted under the Standard Life Sharesave Plan.
3 This comprises awards made under the Aberdeen Variable Pay plans which are now exercisable.
4 This comprises, for both Keith Skeoch and Rod Paris, awards made under the 2015 Standard Life Investments LTIPs. Additionally it includes for Keith Skeoch the deferred
share award granted in 2016 in respect of the 2015 Group bonus plan, and for Rod Paris a Restricted Stock Plan award granted in 2015, before he became a Director. It
includes shares awarded in lieu of dividend equivalents.
The closing market price of Standard Life Aberdeen plc shares at 31 December 2018 was 256.75 pence and the range for the year was 224.85
pence to 442.60 pence.
Executive Directors’ external appointments
Subject to the Board’s approval, executive Directors are able to accept a limited number of external appointments to the boards of other
organisations and can retain any fees paid for these services. Significant executive Director appointments held during the year are shown below:
Executive Director
Role and organisation
Martin Gilbert
Non-executive Director Glencore plc
Non-executive Director Sky plc1
Chairman of the Practitioner Panel – Prudential Regulation Authority
Keith Skeoch
Bill Rattray
Non-executive Director of the Financial Reporting Council
Non-executive Director – Curtis Banks Group PLC
1 Stepped down from this position with effect 10 October 2018.
2018 Fees
$157,000
£117,508
£nil
£nil
£50,000
Payments to past Directors/Loss of office payments (audited)
No payments were made to former Directors that have not been previously reported elsewhere. Payments made to former Directors that have
not been previously reported elsewhere will be reported if they are in excess of £20,000.
Sir Gerry Grimstone is entitled to a six month notice period under the terms of his letter of appointment and will receive fees of £190,000 and an
allowance of £10,000 in the period to 30 June 2019 (being the pro-rated value of his annual fee and allowances respectively). Sir Gerry will
remain in an advisory position with the Company for this period. During this time, he will be available to advise the new Chairman and the Co-
Chief Executives and serve as the Company's representative on the boards of Heng An Standard Life Insurance Company Limited and HDFC
Life Insurance Company Limited.
Percentage change in remuneration of the Director in the position of Chief Executive Officer
The table below shows the percentage year-on-year change in salary, benefits and annual bonus earned between the year ended 31 December
2017 and the year ended 31 December 2018 for Martin Gilbert and Keith Skeoch as Co-Chief Executive Officers compared to the average UK-
based Group employee. The Remuneration Committee considers these appropriate comparators as the Co-Chief Executive Officers are UK-
based and the largest number of Group employees are based in the UK.
Martin Gilbert
Keith Skeoch
UK-based employees
% change in base salary % change in EIP outcome/bonus
% change in benefits1
15%
(14%)
3%
(67%)
(63%)
(45%)
6%
23%
23%
1 The change in benefits figure is based on the change in medical premium paid by the Group on behalf of employees. It does not reflect a change to the benefit received by
individuals.
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GovernanceStandard Life Aberdeen 2018
5. Directors’ remuneration report continued
Pay Ratio
The table below sets out the ratio of both CEO’s pay to the median, 25th and 75th percentile total remuneration of full-time equivalent UK
employees in accordance with the legislation published by the Government in 2018. We have identified the relevant employees for comparison
using our gender pay gap data set and updated the figures for remuneration received in respect of the 2018 performance year (methodology B).
While the requirement to disclose the ratio under this methodology does not come into effect until next year, the Remuneration Committee
welcomes the opportunity to illustrate its approach to remuneration across the Group.
Martin Gilbert/ Keith Skeoch
25th percentile
30
50th percentile
19
75th percentile
12
Pay compared to performance
The graph shows the difference in the total
shareholder return at 31 December 2018 if,
on 1 January 2009 £100 had been invested
in Standard Life Aberdeen plc and in the
FTSE 100 respectively. It is assumed
dividends are reinvested in both. The FTSE
100 has been chosen as Standard Life
Aberdeen plc is a member of this FTSE
grouping.
Total shareholder return of Standard Life Aberdeen plc compared to the
FTSE 100 index
350
300
250
200
150
100
)
£
(
e
u
a
V
l
Dec-2008 Dec-2009 Dec-2010 Dec-2011 Dec-2012 Dec-2013 Dec-2014 Dec-2015 Dec-2016 Dec-2017 Dec-2018
Standard Life Aberdeen plc FTSE 100
Source: Datastream
The following table shows the single figure of total remuneration for the Directors in the role of Chief Executive Officer for the same ten financial
years as shown in the graph above. Also shown are the annual incentive awards and LTIP awards which vested based on performance in those
years:
Year
ended 31
December Chief Executive Officer
Chief Executive Officer single
figure of total remuneration
(£000s)
EIP outcome / Annual incentive
rates against maximum
opportunity (%)
Long-term incentive plan vesting
rates against maximum
opportunity (%)
2018
2018
2017
2017
2016
2015
2015
2014
2013
2012
2011
2010
2009
Martin Gilbert
Keith Skeoch
Martin Gilbert
Keith Skeoch
Keith Skeoch
Keith Skeoch
David Nish
David Nish
David Nish
David Nish
David Nish
David Nish
Sir Sandy Crombie
1,089
1,089
1,317
3,028
2,746
1,411
2,143
6,083
4,206
5,564
2,601
1,971
2,175
10.2
10.2
56
82
81
87
90
95
75
88
77
83
67
–
–
–
70
31.02
40.77
40.77
100
64
100
63.5
–
49.67
Relative importance of spend on pay
The following table compares what the Group spent on employee remuneration to what is paid in the form of dividends to the Company’s
shareholders. Also shown is the Group’s adjusted profit before tax which is provided for context as it is one of our key performance measures:
Remuneration payable to all Group employees (£m)1
Dividends paid in respect of financial year (£m)
2018
772
559
% change
(1%)
(11%)
2017
781
626
Share buybacks and return on capital (£m)
Adjusted profit before tax (£m)1
1 Shown on a Reported basis and includes discontinued operations. The 2017 figure includes remuneration paid to Aberdeen employees from 14 August 2017 and adjusted
1,235
n/a
1%
860
854
–
profit includes Aberdeen from 14 August 2017.
96
Standard Life Aberdeen 2018
5.4 Annual remuneration report – non-executive Directors
Single total figure of remuneration – non-executive Directors (audited)
The following table sets out the single total figure of remuneration for each of the non-executive Directors who served as a Director at any time
during the financial year ending 31 December 2018. Non-executive Directors do not participate in bonus or long-term incentive plans and do not
receive pension funding:
Non–executive Directors
Sir Gerry Grimstone
Sir Douglas Flint2
Simon Troughton
Julie Chakraverty3
John Devine
Gerhard Fusenig
Melanie Gee
Richard Mully
Kevin Parry
Lynne Peacock3
Martin Pike
Cathleen Raffaeli4
Jutta af Rosenborg
Akira Suzuki3,5
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
Fees for year ended
31 December £000s
Taxable benefits in year
ended
31 December £000s1
Total remuneration for the
year ended
31 December £000s
380
380
14
–
200
77
43
40
124
92
124
36
114
104
124
43
171
118
66
153
114
107
35
–
94
36
–
–
20
15
–
–
13
–
–
–
3
4
–
–
4
4
8
–
14
7
–
3
5
4
–
–
1
–
–
–
400
395
14
–
213
77
43
40
127
96
124
36
118
108
132
43
185
125
66
156
119
111
35
–
95
36
–
–
1 Sir Gerry Grimstone received an allowance of £20,000 towards his business related accommodation costs in Edinburgh in addition to his Chairman’s fees. Other amounts
reported relate to expenses such as travel and accommodation expenditure incurred on Group business. While these payments are the reimbursement of expenses and not
benefits, they are included as being a payment which is subject to tax.
2 Appointed to the Board with effect from 1 November 2018. Appointed Chairman with effect from 1 January 2019.
3 Stepped down from the Board with effect from 29 May 2018.
4 Appointed to the Board with effect from 1 August 2018.
5 No fee is paid to a non-executive Director who represents a corporate shareholder.
The non-executive Directors, including the Chairman, have letters of appointment that set out their duties and responsibilities. The key terms are
set out in the Remuneration Policy, which can be found in the Annual report and accounts 2017.
The service agreements/letters of appointment for Directors are available to shareholders to view on request from the Company Secretary at the
Company’s registered address (details of which can be found in Section 12) and at the 2019 AGM.
97
GovernanceStandard Life Aberdeen 2018
5. Directors’ remuneration report continued
Details of the date of appointment to the Board and date of election by shareholders are set out below:
Chairman/Non executive Director
Initial appointment to the Board1
Initial election by shareholders
Chairman
Sir Gerry Grimstone1
Deputy Chairman
Simon Troughton2
Senior Independent Director
29 May 2007
AGM 2007
14 August 2017
AGM 2018
Kevin Parry
27 October 2014
AGM 2015
Non-executive Directors
John Devine
Sir Douglas Flint3
Gerhard Fusenig
Melanie Gee
Richard Mully
Martin Pike
Cathleen Raffaeli
Jutta af Rosenborg
1 Appointment as Chairman.
2 Appointment as Deputy Chairman.
3 Appointed Chairman with effect from 1 January 2019.
4 July 2016
1 November 2018
14 August 2017
1 November 2015
14 August 2017
27 September 2013
1 August 2018
14 August 2017
AGM 2017
AGM 2018
AGM 2016
AGM 2018
AGM 2014
AGM 2018
Implementation of policy for non-executive Directors in 2019
The following table sets out non-executive Director fees to be paid in 2019. No changes were made to the level of fees from 2018.
With regards to the Chairman’s fee, as set out on page 59, Sir Douglas was appointed following an extensive international search led by the Co-
Chairs of the Appointment Committee (Simon Troughton and Melanie Gee). Sir Douglas has joined the Company in a period of significant
organisational change, following the merger of Standard Life and Aberdeen Asset Management and the sale of Standard Life Aberdeen’s UK
and European Insurance business. In addition, the wider asset management sector is going through a period of consolidation and market
conditions remain challenging as macroeconomic and political uncertainties continue to affect investor sentiment.
Given the calibre of the candidate and taking into account market data on Chairman fees for other large international financial services
companies, the Remuneration Committee approved an all-inclusive fee of £475k per annum for Sir Douglas. Whilst the Remuneration
Committee acknowledges the fee represents an increase on the base fee for the current incumbent, it was considered appropriate to ensure that
the right candidate was appointed to lead the Company through a period of significant change.
Role
Chairman’s fees2, 3
Deputy Chairman’s Fees2
Non-executive Director fee4
Additional fees:
Senior Independent Director
Chairman of the Audit Committee
Chairman of the Risk and Capital Committee
Chairman of the Remuneration Committee
Committee membership (Audit, Risk and Capital, Remuneration and Nomination Committees)
2019 fees1
£475,000
£200,000
£73,500
£25,000
£30,000
£30,000
£30,000
£10,000
2018 fees
£380,000
£200,000
£73,500
£25,000
£30,000
£30,000
£30,000
£10,000
1 The core fee of £73,500 paid to each non-executive Director (including the Chairman and Deputy Chairman) is expected to total £588k for 2019 (2018: £775k). This is within
the maximum £1,000,000 permitted under Article 87 of Standard Life Aberdeen plc’s articles of association. Total fees including additional duties are expected to amount to
£1,131k for 2019 (2018: £1,599k).
2 The Chairman’s and Deputy Chairman’s fees are inclusive of the non-executive Directors’ core fee and no additional fees are paid to the Chairman or Deputy Chairman where
they chair, or are members of, other committees/boards.
3 The Committee has agreed to provide life insurance benefits to the Chairman with effect from April 2019 to reflect his personal circumstances and business travel
requirements.
4 For non-executive Directors, individual fees are constructed by taking a base fee and adding extra fees for being the senior independent Director or, the chairman of, or
member of, committees and subsidiaries’ boards where a greater responsibility and time commitment is required.
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Standard Life Aberdeen 2018
Non-executive Directors’ interests in shares (audited)
The following table shows the total number of Standard Life Aberdeen plc shares held by each of the non-executive Directors and their
connected persons:
Total number of
shares owned at
1 January 2018
or date of
appointment if
later
Shares acquired
during the
period 1 January
2018 to 19
October 2018
Total number of
shares owned at
19 October 2018
or date of
cessation if
earlier
Total number of
shares owned at
22 October 2018
or date of
appointment if
later
Shares acquired
during the period 22
October 2018 to 31
December 2018
Total number
of shares
owned at 31
December
2018
Shares
acquired
between 31
December 2018
and 8 March
2019
Pre share consolidation on 22 October 2018
Post share consolidation
(shares were consolidated on a seven for eight basis)
Sir Gerry
Grimstone3
Sir Douglas
Flint1
Simon
Troughton
Julie
Chakraverty2
John
Devine
Gerhard
Fusenig3
Melanie
Gee
Richard
Mully
Kevin
Parry3
Lynne
Peacock2
Martin
Pike
Cathleen
Raffaeli4
Jutta af
Rosenborg
206,626
–
206,626
180,797
–
180,797
52,990
20,215
73,205
64,054
–
64,054
10,375
40,000
50,375
2,302
–
2,302
1,321
31,135
32,456
28,399
26,495
40,000
66,495
58,183
–
–
28,399
58,183
20,000
–
20,000
17,500
50,000
67,500
52,990
50,000
102,990
90,116
60,754
39,246
100,000
87,499
–
–
90,116
87,499
12,554
32,727
–
–
–
–
–
12,554
32,727
28,636
40,840
69,476
–
–
10,000
10,000
8,750
–
–
–
8,750
–
–
–
–
–
–
–
–
–
–
–
Akira
Suzuki2
1 Appointed to the Board with effect from 1 November 2018.
2 Stepped down from the Board with effect from 29 May 2018.
3 Stepped down from the Board with effect from 31 December 2018.
4 Appointed to the Board with effect from 1 August 2018.
–
–
–
Sir Gerry Grimstone, as Chairman, was subject to a shareholder guideline holding of 100% of the value of his annual fee in Standard Life
Aberdeen plc shares to be reached within four years of appointment. Sir Gerry Grimstone fully met this requirement in 2018 with the value of his
shares at the end of the year being 122% of his fees.
Sir Douglas Flint will be subject to an equivalent requirement.
99
GovernanceStandard Life Aberdeen 2018
5. Directors’ remuneration report continued
5.5 The Remuneration Committee
Membership
During 2018 the Remuneration Committee was made up of independent non-executive Directors: Richard Mully, John Devine, Gerhard Fusenig,
Kevin Parry, Cathleen Raffaeli (from 1 August 2018), and Jutta af Rosenberg. A number of meetings during the year were called at short notice
which resulted in some members being unable to attend due to prior commitments. All members had the opportunity to review papers and pass
comments to the Chairman in advance of the meeting.
Member
Richard Mully (Chairman)
John Devine
Gerhard Fusenig
Kevin Parry
Cathleen Raffaeli
Jutta af Rosenborg
Attendance
12/12
12/12
9/12
12/12
4/4
11/12
The role of the Committee
To consider and make recommendations to the Board in respect of the total remuneration policy across the Group, including:
Rewards for the executive Directors, senior employees and the Chairman
The design and targets for any employee share plan
The design and targets for annual cash bonus plans throughout the Group
Changes to employee benefit structures (including pensions) throughout the Group
The terms of reference are published within the Board Charter on our website at
www.standardlifeaberdeen.com/annualreport
Committee effectiveness
The Committee reviews its remit and effectiveness annually. In 2018 an independent externally facilitated review was conducted by IBE. This
included observation of a meeting, review of papers and interviews with Committee members. The key points arising from the review were:
The Committee had worked hard to bring together the remuneration structures of the two heritage companies
Principally through its Chair, the Committee had engaged well with investors throughout the consultation period and responded to their views
to gain consensus
Committee papers continued to be clear and well articulated
Going forward, the Chair should continue to update the Board on the key matters debated during the Committee’s discussions
External advisers
During the year, the Committee took advice from Deloitte LLP (a member of the Remuneration Consultants Group) who were appointed by the
Committee in 2017. The Committee is satisfied that the advice given is objective and independent.
A representative from Deloitte LLP attends, by invitation, all Committee meetings to provide information and updates on external developments
affecting remuneration as well as specific matters raised by the Committee. Outside of the meetings, the Committee’s Chairman seeks advice on
remuneration matters on an ongoing basis. As well as advising the Committee, Deloitte LLP also provided tax, risk, data, consultancy and
transaction related services to the Group during the year. Deloitte Total Rewards and Benefits is an investment adviser to the trustees of the
Standard Life Staff Pension Scheme. In addition, Standard Life Aberdeen is the current appointed provider for the Defined Contribution Master
Plan that Deloitte LLP provides for its employees and Deloitte LLP is one of the employee benefit consultants through which Standard Life
Aberdeen has been appointed to provide defined contribution arrangements for Deloitte’s clients through competitive tender.
Fees paid to Deloitte LLP during 2018 for professional advice to the Committee were £181,550. Additional fees of £220,450 were paid to Deloitte
LLP in respect of professional advice in relation to regulatory disclosures under relevant regulations, the administration of the Discretionary Share
Plan and remuneration matters related to the sale of Standard Life Aberdeen’s UK and European insurance business to Phoenix.
Where appropriate, the Committee receives input from the Chairman, Co-Chief Executive Officers, Chief Financial Officer, Chief People Officer,
Group Director of Reward, Group Chief Risk Officer, and the Head of Stewardship and ESG Investments. This input never relates to their own
remuneration. The Committee also receives input from the Risk and Capital Committee and Audit Committee.
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Standard Life Aberdeen 2018
The Committee’s work in 2018
An indicative breakdown as to how the Committee spent its time is shown below:
2017 remuneration outcomes and 2018 remuneration planning
Activities in relation to the 2018 General Meeting
External regulation
Finalising 2018 remuneration policy
Other
Jan-Mar
Apr-Jun
Jul-Sep
Oct-Dec
2017 Directors’ Remuneration Report
2017 bonus payments and 2015 LTIP outcomes
Set 2018 EIP scorecard targets
Finalise Directors’ Remuneration Policy
Material Risk Takers and related 2018 disclosures
Group Remuneration Policy review
Executive Committee remuneration
Harmonisation of Terms and Conditions across the Group
Impact of the sale of Standard Life Aberdeen’s UK and European insurance business on remuneration matters
Mid-year review of performance against target for annual bonus and LTIP awards
Remuneration outcomes as a result of the sale of Standard Life Aberdeen’s UK and European insurance business
Review of senior individual appointments and termination agreements
Update on the regulatory position of Standard Life Aberdeen
Review CEO pay ratio data
Update on the external environment
Promoting all-employee share ownership
The Group believes that share ownership by employees helps them to understand the interests of the Company’s shareholders. The
Group promotes employee share ownership with a range of initiatives:
The Standard Life (Employee) Share Plan which allows eligible employees to buy Standard Life Aberdeen plc shares directly from their
earnings. A similar tax-approved plan is used in Ireland. At 31 December 2018, 1,954 employees in the UK and Ireland were making a
monthly average contribution of £65. On 31 December 2018, 2,555 of our employees were Standard Life Aberdeen plc shareholders through
participation in the Standard Life (Employee) Share Plan.
The Sharesave Plan, offered in 2018 to eligible employees in the UK. This plan allows UK tax resident employees to save towards the
exercise of options over Standard Life Aberdeen plc shares with the option price set at the beginning of the savings period at a discount of up
to 20% of the market price. At 31 December 2018, 2,534 employees in the UK were saving to buy Standard Life Aberdeen plc shares.
The Sharesave Plan in Ireland launched in August 2012, with invitations made annually thereafter. As at 31 December 2018, 5 employees
were saving towards one or more of the Sharesave Ireland offers.
101
GovernanceStandard Life Aberdeen 2018
5. Directors’ remuneration report continued
Share dilution limits
All share plans operated by the Company which permit awards to be satisfied by issuing new shares contain dilution limits that comply with the
guidelines produced by The Investment Association (IA). On 31 December 2018, therefore, the Company’s standing against these dilution limits
was:
1.56% where the guideline is no more than 5% in any ten years under all discretionary share plans in which the executive Directors participate
1.97% where the guideline is no more than 10% in any ten years under all share plans
As is normal practice, there are employee trusts that operate in conjunction with the Executive LTIP, Standard Life Investments LTIP, the
Restricted Stock Plan, the deferred elements of the Standard Life annual bonus plan and the Aberdeen Asset Management deferred plans. On
31 December 2018 the trusts held 51,917,150 shares acquired to satisfy these awards. Of these shares 9,836,865 are committed to satisfying
vested but unexercised awards. The percentage of share capital held by the employee trusts is 2.05% – well within the 5% best practice limit
endorsed by the IA.
Shareholder voting
We remain committed to ongoing shareholder dialogue and take an active interest in voting outcomes. Where there are substantial votes against
resolutions in relation to Directors’ remuneration, the Committee seek to understand the reasons for any such vote, and will detail here any
actions in response to it.
The remuneration policy was subject to a vote at the 2018 AGM on 29 May 2018 and the following table sets out the outcome of the vote.
Policy
(% of total votes)
(No. of votes cast)
For
Against
Withheld
97.91%
1,412,472,135
2.09%
30,105,977
15,014,089
The Directors’ remuneration report was subject to a vote at the 2018 AGM on 29 May 2018 and the following table sets out the outcome.
2017 Directors’ Remuneration Report
(% of total votes)
(No. of votes cast)
For
97.36%
Against
2.64%
Withheld
1,416,364,330
38,430,826
2,795,153
102
102 Standard Life Aberdeen 2018
Standard Life Aberdeen 2018
6. Statement of Directors’ responsibilities in respect
of the Annual report and the financial statements
The Directors are responsible for preparing the Annual report and
accounts and the Group and Company financial statements in
accordance with applicable law and regulations.
Responsibility statement of the Directors in respect of the
annual financial report
We confirm that to the best of our knowledge:
The financial statements, prepared in accordance with the
applicable set of accounting standards, give a true and fair view of
the assets, liabilities, financial position and profit or loss of the
Company and the undertakings included in the consolidation taken
as a whole
The Directors’ report and Strategic report include a fair review of the
development and performance of the business and the position of
the Company and the undertakings included in the consolidation
taken as a whole, together with a description of the principal risks
and uncertainties that they face
We consider the Annual report and accounts, taken as a whole, is fair,
balanced and understandable and provides the information necessary
for shareholders to assess the Group’s position and performance,
business model and strategy.
By order of the Board
Sir Douglas Flint
Chairman
13 March 2019
Bill Rattray
Chief Financial Officer
13 March 2019
Company law requires the Directors to prepare Group and Company
financial statements for each financial year. Under that law they are
required to prepare the Group financial statements in accordance with
International Financial Reporting Standards as adopted by the
European Union (IFRS as adopted by the EU) and applicable law and
have elected to prepare the parent company financial statements in
accordance with UK accounting standards, including FRS 101
Reduced Disclosure Framework.
Under company law the Directors must not approve the financial
statements unless they are satisfied that they give a true and fair view
of the state of affairs of the Group and parent company and of their
profit or loss for that period. In preparing each of the Group and parent
company financial statements, the Directors are required to:
Select suitable accounting policies and then apply them consistently
Make judgements and estimates that are reasonable, relevant,
reliable and prudent
For the Group financial statements, state whether they have been
prepared in accordance with IFRSs as adopted by the EU
Assess the Group’s and Company’s ability to continue as a going
concern, disclosing, as applicable, matters related to going concern
Use the going concern basis of accounting unless they either intend
to liquidate the Group or the Company or to cease operations, or
have no realistic alternative but to do so
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the parent company’s
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and enable them to ensure that its
financial statements comply with the Companies Act 2006. They are
responsible for such internal control as they determine is necessary to
enable the preparation of financial statements that are free from
material misstatement, whether due to fraud or error, and have
general responsibility for taking such steps as are reasonably open to
them to safeguard the assets of the Group and to prevent and detect
fraud and other irregularities.
Under applicable law and regulations, the Directors are also
responsible for preparing a Strategic report, Directors’ report,
Directors’ remuneration report and Corporate governance statement
that comply with that law and those regulations.
The Directors are responsible for the maintenance and integrity of the
corporate and financial information included on the Company’s
website. Legislation in the UK governing the preparation and
dissemination of financial statements may differ from legislation in
other jurisdictions.
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GovernanceStandard Life Aberdeen 2018
Financial information
How to navigate our Group financial statements
The Group’s significant accounting policies are included at the
beginning of the relevant notes to the Group financial statements
with this background colour. Critical judgements in applying
accounting policies are summarised in the Presentation of
consolidated financial statements section which follows the primary
financial statements. Accounting policies that are relevant to the
financial statements as a whole are also set out in that section.
The Group’s critical accounting estimates and assumptions are
summarised in the Presentation of consolidated financial statements
section which follows the primary financial statements. Further detail
on these critical accounting estimates and assumptions is provided
in the relevant note with this background colour.
104
Standard Life Aberdeen 2018
Contents
7.
Independent auditors’ report
8. Group financial statements
9. Company financial statements
10. Supplementary information
Group financial statements
Group primary statements
Presentation of consolidated financial statements
Note 1. Group structure
Note 2. Segmental analysis
Note 3. Investment return
Note 4. Revenue from contracts with customers
Note 5. Other administrative expenses
Note 6. Staff costs and other employee-related costs
Note 7. Auditors’ remuneration
Note 8. Restructuring and corporate transaction
expenses
Note 9. Taxation
Note 10. Discontinued operations
Note 11. Earnings per share
Note 12. Adjusted profit and adjusting items
Note 13. Dividends on ordinary shares
Note 14. Intangible assets
Note 15. Deferred acquisition costs
Note 16. Investments in associates and joint ventures
Note 17. Investment property
Note 18. Property, plant and equipment
Note 19. Financial investments
Note 20. Loans
Note 21. Derivative financial instruments
Note 22. Receivables and other financial assets
Note 23. Other assets
Note 24. Assets and liabilities held for sale
106
117
225
237
117
124
129
131
135
135
137
137
138
138
139
142
144
145
146
146
151
152
156
157
158
159
160
162
162
163
Note 25. Cash and cash equivalents
Note 26. Issued share capital and share premium
Note 27. Shares held by trusts
Note 28. Retained earnings
Note 29. Movements in other reserves
Note 30. Non-controlling interests
Note 31. Insurance contracts, investment contracts
and reinsurance contracts
Note 32. Non-participating investment contracts
Note 33. Financial liabilities
Note 34. Subordinated liabilities
Note 35. Pension and other post-retirement benefit
provisions
Note 36. Deferred income
Note 37. Other financial liabilities
Note 38. Provisions and other liabilities
Note 39. Risk management
Note 40. Structured entities
Note 41. Fair value of assets and liabilities
Note 42. Statement of cash flows
Note 43. Contingent liabilities and contingent assets
Note 44. Commitments
Note 45. Employee share-based payments and
deferred fund awards
Note 46. Related party transactions
Note 47. Capital management
Note 48. Events after the reporting date
Note 49. Related undertakings
164
164
165
166
166
169
171
176
176
177
178
184
185
185
186
199
200
207
209
210
211
215
215
216
217
105
Standard Life Aberdeen 2018FINANCIAL INFORMATION
7. Independent auditors’ report to the members of
Standard Life Aberdeen plc
1. Our opinion is unmodified
We have audited the financial statements of Standard Life Aberdeen
plc (‘the Company’) for the year ended 31 December 2018 which
comprise the Consolidated income statement; Consolidated
statement of comprehensive income; Consolidated statement of
financial position; Consolidated statement of changes in equity;
Consolidated statement of cash flows; Company statement of
financial position; Company statement of changes in equity and the
related notes, including the reconciliation of consolidated adjusted
profit before tax to IFRS profit for the year and the accounting policies
in Note 1.
In our opinion:
• The financial statements give a true and fair view of the state of the
Group's and of the parent Company's affairs as at 31 December
2018 and of the Group's profit for the year then ended
• The Group financial statements have been properly prepared in
accordance with International Financial Reporting Standards as
adopted by the European Union
• The parent Company financial statements have been properly
prepared in accordance with UK accounting standards, including
FRS 101 Reduced Disclosure Framework
• The financial statements have been prepared in accordance with
the requirements of the Companies Act 2006 and, as regards the
Group financial statements, Article 4 of the IAS Regulation
Basis for opinion
We conducted our audit in accordance with International Standards
on Auditing (UK) (‘ISAs (UK)’) and applicable law. Our responsibilities
are described below.
We believe that the audit evidence we have obtained is a sufficient
and appropriate basis for our opinion. Our audit opinion is consistent
with our report to the group audit committee.
We were first appointed as auditor by the shareholders on 16 May
2017. The period of total uninterrupted engagement is for the two
financial years ended 31 December 2018. We have fulfilled our ethical
responsibilities under, and we remain independent of the Group in
accordance with, UK ethical requirements including the FRC Ethical
Standard as applied to listed public interest entities. No non-audit
services prohibited by that standard were provided.
Overview
Materiality:
group
financial
statements as
a whole
Coverage
Key audit
matters
£32m (2017: £38m)
4.8% (2017: 4.5%) of normalised profit
before tax
78% (2017:72%) of profits and losses that made
up Group profit before tax
vs
2017
Event Driven New: The impact of uncertainties due to
the UK exiting the European Union on our
audit
Recurring
Risk
Recoverability of group goodwill and of
parent’s investment in subsidiaries
Event Driven New: Accounting for the obligations
arising out of the disposal of Standard Life
Assurance Limited (‘SLAL’)
and investment In Phoenix
Event Driven New: Carrying value of investment
Recurring
risk
Recurring
risk
in Phoenix
Valuation of Intangible Assets
Valuation of defined benefit pension
scheme obligation
◄►
◄►
106
Standard Life Aberdeen 2018
2. Key audit matters: including our assessment
risks
Key audit matters are those matters that, in our professional judgment, were of most significance in the audit of the financial statements and
include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by us, including those which had the
greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. We
summarise below the key audit matters, in arriving at our audit opinion above, together with our key audit procedures to address those matters
and, as required for public interest entities, our results from those procedures. These matters were addressed, and our results are based on
procedures undertaken, in the context of, and solely for the purpose of, our audit of the financial statements as a whole, and in forming our
opinion thereon, and consequently are incidental to that opinion, and we do not provide a separate opinion on these matters.
misstatement
material
of
of
The risk
Our response
The impact of uncertainties due to the
UK exiting the European Union on our
audit
Refer to page 42 to 47 (principal risks),
page 39 (viability statement) and page 63
Audit Committee Report),
Unprecedented level of uncertainty:
All audits assess and challenge the
reasonableness of estimates, in particular as
described in the recoverability of group goodwill
and the parent’s investment in subsidiaries, the
valuation of the defined benefit pension scheme
obligation and the carrying value of the investment
in Phoenix below, and related disclosures and the
appropriateness of the going concern basis of
preparation of the financial statements (see
below). All of these depend on assessments of the
future economic environment and the group’s
future prospects and performance.
In addition, we are required to consider the other
information presented in the Annual Report
including the principal risks disclosure and the
viability statement and to consider the directors’
statement that the annual report and financial
statements taken as a whole is fair, balanced and
understandable and provides the information
necessary for shareholders to assess the Group’s
position and performance, business model and
strategy.
Brexit is one of the most significant economic
events for the UK and at the date of this report its
effects are subject to unprecedented levels of
uncertainty of outcomes, with the full range of
possible effects unknown.
We developed a standardised firm-wide
approach to the consideration of the
uncertainties arising from Brexit in planning
and performing our audits. Our procedures
included:
Our Brexit knowledge – We considered the
directors’ assessment of Brexit-related
sources of risk for the group’s business and
financial resources compared with our own
understanding of the risks. We considered the
directors’ plans to take action to mitigate the
risks.
Sensitivity analysis – When addressing
recoverability of group goodwill, the parent’s
investment in subsidiaries and the valuation of
the defined benefit pension scheme obligation
and other areas that depend on forecasts, we
compared the directors’ analysis to our
assessment of the full range of reasonably
possible scenarios resulting from Brexit
uncertainty and, where forecast cash flows are
required to be discounted, considered
adjustments to discount rates for the level of
remaining uncertainty.
Assessing transparency – As well as
assessing individual disclosures as part of our
procedures on recoverability of group
goodwill, the parent’s investment in
subsidiaries, the valuation of the defined
benefit pension scheme obligation and the
carrying value of the investment in Phoenix
below, we considered all of the Brexit related
disclosures together, including those in the
strategic report, comparing the overall picture
against our understanding of the risks.
Our results:
As reported under the recoverability of group
goodwill, the parent’s investment in
subsidiaries, the valuation of the defined
benefit pension scheme obligation and the
carrying value of the investment in Phoenix
below, we found the resulting estimates and
related disclosures and disclosures in relation
to going concern to be acceptable. However,
no audit should be expected to predict the
unknowable factors or all possible future
implications for a company and this is
particularly the case in relation to Brexit.
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FINANCIAL INFORMATIONStandard Life Aberdeen 2018
7. Independent auditors’ report to the members of Standard Life Aberdeen plc continued
Recoverability of group goodwill and of
parent’s investment in subsidiaries
(Group Goodwill: £2,532m; 2017: £3,427m;
Goodwill impairment losses recognised:
£891m (2017: £5m)
(Company: Investments in subsidiaries,
Impairment of subsidiaries: £589m (2017:
20 m))
Refer to page 63 (Audit Committee
Report), page 146 (accounting policy) and
page 147 (financial disclosures).
The risk
Subjective estimate:
Our response
Our procedures included:
Goodwill in the group and the carrying amount of
certain of the parent company’s investments in
subsidiaries are significant and at risk of
irrecoverability due to reductions in assets under
management. The estimated recoverable amount
of these balances is subjective due to the inherent
uncertainty involved in forecasting and discounting
future cash flows. In the current year, goodwill in
the group was impaired by £891m and the parent
company’s investments in subsidiaries was
impaired by £589m.
The effect of these matters is that, as part of our
risk assessment, we determined that the value in
use of goodwill and the recoverable amount of
certain investments in subsidiaries has a high
degree of estimation uncertainty, with a potential
range of reasonable outcomes greater than our
materiality for the financial statements as a whole.
Our valuation and sector expertise: We
used our own valuation specialists to assist us
in assessing the appropriateness the Group's
valuation model. This included comparing the
Group discount rate assumptions with our own
estimate of a range of reasonable discount
rates, based on comparable company
information. We also used our sector
experience to evaluate the appropriateness of
assumptions applied in key inputs such as
revenue from customers, operating costs and
discount rates.
Sensitivity analysis: We performed our own
sensitivity analysis which included assessing
the effect of reasonably possible reductions in
growth rates and forecast cash flows to
evaluate the impact on current headroom
and/or investment in subsidiaries valuation.
Assessing transparency: We assessed
whether the group’s disclosures about the
sensitivity of the outcome of the impairment
assessment to changes in key assumptions
reflected the risks inherent in the valuation of
goodwill and the recoverability of investment in
subsidiaries.
Our results:
We found the group’s assessment of the
carrying value of goodwill in the group and the
parent company’s investment in subsidiaries
to be acceptable (2017: acceptable).
108
Standard Life Aberdeen 2018
Accounting for the obligations arising
out of disposal of SLAL and
investment in Phoenix
(Investment in associates £1,023m;
2017: Not applicable)
Refer to page 63 (Audit Committee
Report), page 152 (accounting policy)
and pages 130 and 153 (financial
disclosures).
The risk
Our response
Accounting application
Our procedures included:
As SLA's investment in Phoenix is 19.98%, there
is judgement as to whether Phoenix should be
accounted for as an associate given significant
influence is only presumed to exist per IAS 28
when 20% of equity is held. The risk is that the
investment in Phoenix has been inappropriately
accounted for as an associate, rather than as an
equity investment.
Subjective valuation – initial investment in
Phoenix
On investment, SLA's share of the fair value of
the identifiable assets and liabilities of Phoenix
was assessed and compared to the cost of the
investment. In doing this, the principle area of risk
relates to the valuation of the acquired value of
in-force business (‘AVIF’), the valuation of
insurance contract liabilities and the valuation of
level 3 assets. This assessment of fair value was
made by the Directors of SLA and involves
complex and significant judgements over a
number of subjective assumptions.
The effect of these matters is that, as part of our
risk assessment, we determined that the
accounting for the investment in Phoenix has a
high degree of estimation uncertainty, with a
potential range of reasonable outcomes greater
than our materiality for the financial statements
as a whole, and possibly many times that
amount. The financial statements (Note 16)
disclose the key judgements estimated by the
Group.
Assessing principles: We assessed the
nature of the relationship with Phoenix by
reviewing the terms in the sale and purchase
agreement (SPA) and evaluated these against
the criteria in IAS 28 to re-perform the
significant influence assessment.
Control design and operation: We tested
the design of key controls including over
management’s process for modelling
insurance contract liabilities, for setting and
updating actuarial assumptions and in respect
of the valuation of complex and illiquid
financial investments.
Benchmarking assumptions and industry
experience: For key inputs we compared and
benchmarked the assumptions used, such as
the cost of capital, to externally derived data.
We also used our knowledge of industry
practice to challenge the Group’s assumptions
in these areas.
Our actuarial experience: We used our own
actuarial specialists to review and challenge
the rationale for key assumptions adopted.
Assessing transparency: We assessed
whether the group’s disclosure of the valuation
of the investment in Phoenix adequately
disclose the key judgements and potential
estimation uncertainty in deriving the opening
investment valuation.
Our Results
We found the initial valuation of the
investment in Phoenix to be acceptable.
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FINANCIAL INFORMATIONStandard Life Aberdeen 2018
7. Independent auditors’ report to the members of Standard Life Aberdeen plc continued
The risk
Our response
Subjective estimate – indemnities
Our procedures included:
Accounting for the obligations arising
out of the disposal of SLAL and
investment in Phoenix (continued)
(Contingent consideration – Indemnities;
2017: Not applicable)
Refer to page 63 (Audit Committee
Report), page 127, (accounting policy)
and page 130 and 202 (financial
disclosures).
A number of indemnities were included in the SPA
with Phoenix. The fair value of these have been
estimated by management and recognised as
contingent consideration. A number of these
involved significant judgement as they relate to
uncertain future events. The most significant of
which relates to a potential future outflow relating to
any loss suffered by SLAL above that already
provided for in respect of the ongoing review of non-
advised annuity sales. This is an area that involves
significant judgement over the redress payable to
customers.
(Separation costs provision £80m; 2017:
Not applicable)
Refer to page 63 (Audit Committee
Report), page 126 (accounting policy)
and page 138 (financial disclosures).
Subjective estimate – Provision for separation
costs
The calculation of the provision for separation costs
arising out of the disposal of SLAL requires the
Directors to determine a number of key inputs. The
determination of these is judgemental and requires
the Directors to consider a range of information
connected to the Separation Plan. The most
significant input of which is the costs that are
estimated to relate to separating the business and
which do not relate to costs related to SLA's
ongoing business, including development of new
systems. The risk is that the provision is misstated
and includes future costs from which the group will
derive ongoing benefit.
The effect of these matters is that, as part of our risk
assessment, we determined that the provision for
separation costs has a high degree of estimation
uncertainty, with a potential range of reasonable
outcomes greater than our materiality for the
financial statements as a whole, and possibly many
times that amount. The financial statements (note
38) disclose the range estimated by the Group.
110
Test of details: For a sample of
indemnities, we reviewed the legal
documents to assess the obligations arising
out of the indemnity. We obtained evidence
to support the valuation calculations made
by management.
Test of details: We assessed the
judgements made in determining key
assumptions such as eligibility rates, failure
rates and average redress used to
calculate the annuity sales provision and
hence the contingent consideration.
Our actuarial and tax experience: We
used our own actuarial and tax specialists
to review and challenge the approach taken
to estimate certain indemnities.
Assessing transparency: We considered
whether the Group’s disclosures in relation
to the assumptions used in the calculation
of the contingent consideration
appropriately represent the sensitivity of the
provision to the use of alternative
assumptions.
Our Results
We found the carrying amount of the
contingent consideration for indemnities to be
acceptable.
Our procedures included:
Test of details: We assessed the terms in
the SPA and other documents to confirm that
SLA has a legal obligation to pay for
separation costs.
Test of details: We sampled costs included
in the Separation Plan and obtained evidence
and explanations to validate whether they
were appropriately provided for.
Assessing transparency: We assessed
whether the group’s disclosures detailing
separation costs to be incurred adequately
disclose the potential expense for the Group,
including the range of costs and potential
estimation uncertainty.
Our Results
We found the estimate of the separation cost
provision to be acceptable.
Standard Life Aberdeen 2018
Carrying value of investment in
Phoenix
(£812 million; 2017: Not applicable:
Impairment £228m; 2017: Not applicable)
Refer to page 63 (Audit Committee
Report), page 152 (accounting policy)
and page 153 (financial disclosures).
The risk
Subjective valuation
Our response
Our procedures included:
At 31 December 2018, the market value of the
investment in Phoenix was significantly below
the carrying value. We consider this to be
objective evidence of impairment per IAS 28.
An impairment review was performed by
management using a value in use approach.
The key judgement was in selecting the
appropriate approach for estimating the
recoverable amount of the investment in
Phoenix. After consideration of alternatives,
management determined that the market value
of Phoenix represented the best estimate of
future dividends and therefore was used to
calculate the value in use. An impairment
charge of £228m was recognised.
Assessing principles: We critically assessed
management’s approach to estimating the
recoverable amount against other estimation
methods permitted by IAS 28 and 36.
Comparing valuations: We assessed reasons
for the differences in value under use under the
different methods.
Our Results
We found the valuation of the investment in
Phoenix to be acceptable.
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FINANCIAL INFORMATIONStandard Life Aberdeen 2018
7. Independent auditors’ report to the members of Standard Life Aberdeen plc continued
Valuation of Intangible Assets
Subjective Estimate
The risk
Our response
Our procedures included:
(Customer relationships and investment
management contracts: £633m, 2017:
£774m)
Refer to page 63 (Audit Committee
Report), page 146 (accounting policy)
and page 147 (financial disclosures).
The Group’s intangible assets include customer
relationships and investment management
contracts. There is a risk of impairment to the
carrying value of these intangible assets.
Customer relationship and investment
management contracts acquired through
business combinations comprise £633 million of
the intangible asset balance.
The valuation of these intangible assets is
subjective and requires the use of assumptions
relating to future cash flows and the use of
valuation models. In addition, management
need to make subjective judgements when
assessing whether there are any indicators of
impairment to these intangible assets.
The effect of these matters is that, as part of our
risk assessment, we determined that the value
in use of these assets has a high degree of
estimation uncertainty, with a potential range of
reasonable outcomes greater than our
materiality for the financial statements as a
whole and possibly many times that amount.
The financial statements (Note 14) disclose the
sensitivity estimated by the Group.
Our valuation expertise: We evaluated whether
there are indicators of impairment that would
trigger an impairment review. This included a
critical assessment of the business performance,
such as outflows of assets under management
relating to each intangible asset.
Where indicators were identified, we used our own
valuation specialists to assist us in assessing the
appropriateness the Group's valuation model. This
included comparing the Group discount rate
assumptions with our own estimate of a range of
reasonable discount rates, based on comparable
company information.
Our sector experience: Where there was an
indicator of impairment, we evaluated the
appropriateness of assumptions applied in key
inputs such as revenue from contracts with
customers, operating costs and discount rates.
Sensitivity analysis: Where there is an indicator
of impairment, we performed our own sensitivity
analysis which included assessing the effect of
reasonably possible reductions in growth rates and
forecast cash flows to evaluate the impact on
current headroom.
Assessing transparency: We considered
whether the Group’s disclosures in relation to the
assumptions used in the valuation of management
contract and customer relationship intangible
assets appropriately represent the sensitivities of
the asset valuations to the use of alternative
assumptions.
Our results
We found the valuation of intangible assets to be
acceptable (2017: acceptable).
112
Standard Life Aberdeen 2018
Valuation of the UK defined benefit
pension scheme present value of
funded obligation
(£2,542m, 2017: £2,839m)
Refer to page 63 (Audit Committee
Report), page 178 (accounting policy) and
page 180 (financial disclosures).
The risk
Our response
Subjective Valuation:
Our procedures included:
The present value of the Group’s funded
obligation for the UK defined benefit pension
scheme is an area that involves significant
judgement over the uncertain future
settlement value. The Group is required to
use judgment in the selection of key
assumptions covering both operating
assumptions and economic assumptions.
The key operating assumptions are base
mortality and mortality improvement.
The key economic assumptions are the
discount rate and inflation. The risk is that
inappropriate assumptions are used in
determining the present value of the funded
obligation.
The effect of these matters is that, as part of
our risk assessment, we determined that the
valuation of the pension scheme obligation
has a high degree of estimation uncertainty,
with a potential range of reasonable
outcomes greater than our materiality for the
financial statements as a whole and possibly
many times that amount. The financial
statements (Note 35) disclose the range
estimated by the Group.
Our actuarial experience: We used our own
actuarial specialists to perform procedures in this
area.
Test of detail and our sector experience: We
considered the appropriateness of the base
mortality assumption by reference to scheme and
industry data on historical mortality experience.
We considered the appropriateness of the
mortality improvement assumptions by reference
to industry based expectations of future mortality
improvements. We considered the
appropriateness of the discount rate and inflation
assumptions by reference to industry practice.
Benchmarking assumptions and our sector
experience: We utilised the results of KPMG
benchmarking of base mortality, mortality
improvement, discount rate and inflation
assumptions and our knowledge of industry
practice to inform our challenge of the Group’s
assumptions in these areas.
Assessing transparency: We considered
whether the Group’s disclosures in relation to the
assumptions used in the calculation of present
value of the funded obligation appropriately
represent the sensitivities of the obligation to the
use of alternative assumptions.
Our results
We found the valuation of the UK defined benefit
pension scheme obligation to be acceptable
(2017: acceptable).
We continue to perform procedures over the valuation of internally generated software assets not yet available for use and the valuation
of level 3 financial instruments and investment property. However, following the groups disposal of its UK and Europe insurance
business, SLAL, in the period, we have not assessed either of these areas as one of the most significant risks in our current year audit
and, therefore, they are not separately identified in our report.
In respect of level 3 financial instruments we note that the disposal of the group’s UK and Europe insurance business has led to a
significant reduction of £1.1bn in the Group’s investment portfolio. The risk of material misstatement within the financial statements in
respect of valuation of the remaining assets (£62m) is reduced. £311m of the internally generated software assets were within SLAL and
following the disposal, the remaining assets balance is not considered to create the same risk of material misstatement.
Non-Participating insurance contract liabilities and the provision for annuity sales practice were both balances within the SLAL entity. The
disposal has resulted in these being transferred to Phoenix and therefore neither are identified as individual key audit matters within our
report this year. They are however both identified areas of significant risk within the accounting for the obligations arising out of the
disposal of SLAL and investment in Phoenix.
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FINANCIAL INFORMATIONStandard Life Aberdeen 2018
7. Independent auditors’ report to the members of Standard Life Aberdeen plc continued
3. Our application of materiality and an overview of the
scope of our audit
Materiality for the group financial statements as a whole was set at
£32m (2017: £38m), determined with reference to a benchmark of
group profit before tax normalised to exclude impairment, to exclude
restructuring costs, to exclude the profit on disposal of associates and
the profit on disposal of the UK and Europe insurance business as
disclosed in Note 14, Note 8, Note 16, and Note 10 respectively.
Materiality represents 4.8% of normalised profit before tax.
Materiality for the parent company financial statements as a whole
was set at £19m (2017:£17m), determined with reference to a
benchmark of normalised profit before tax, of which it represents 3.6%
(2017:4.9%).
We agreed to report to the Audit Committee any corrected or
uncorrected identified misstatements exceeding £1.6m, in addition to
other identified misstatements that warranted reporting on qualitative
grounds.
Of the group’s 75 (2017: 227, of which 160 were consolidated funds)
continuing reporting components, we subjected 6 (2017: 19) to full
scope audits for group purposes and 3 (2017: 13) to specified risk-
focused audit procedures. The latter were not individually financially
significant enough to require a full scope audit for group purposes, but
did present specific individual risks that needed to be addressed. We
conducted a review of financial information for one non-significant
component (2017:1).
The components within the scope of our work accounted for the
percentages illustrated opposite.
The remaining 16% of total group revenue, 22% of group profit before
tax and 10% of total group assets is represented by 246 reporting
components, none of which individually represented more than 5% of
any of total group revenue, or total group assets. For these residual
components, we performed analysis at an aggregated group level to
re-examine our assessment that there were no significant risks of
material misstatement within these.
The Group team instructed component auditors as to the significant
areas to be covered, including the relevant risks detailed above and
the information to be reported back. The Group team approved the
component materialities, which ranged from £2.0m to £20.8m, having
regard to the mix of size and risk profile of the Group across the
components.
The work on 8 of the 9 continuing components (2017: 32 of the 33
components) was performed by component auditors and the rest,
including the audit of the parent company, was performed by the
Group team. The group team performed procedures on the items
excluded from normalised group profit before tax.
Normalised group profit
before tax £666m (2017: £853m)
Group materiality
£32m (2017: £38m)
£32m
Whole financial
statements materiality
(2017: £38m)
£20.8m
Range of materiality at 10
components £2m-£20.8m
(2017: £11m-£34m)
£1.6m
Misstatements reported to
the audit committee
(2017: £2m)
Normalised Profit before tax
Group materiality
Group revenue
84%
(2017: 79%)
Total profits and losses
that made up group profit
before tax
Group total assets
78%
(2017: 72%)
90%
(2017: 92%)
Full scope for group audit purposes 2018
Specific risk-focused audit procedures 2018
Discontinued operations
Residual components
114
Standard Life Aberdeen 2018
4. We have nothing to report on going concern
The Directors have prepared the financial statements on the going
concern basis as they do not intend to liquidate the Company or the
Group or to cease their operations and as they have concluded that
the Company’s and the Group’s financial position means that this is
realistic. They have also concluded that there are no material
uncertainties that could have cast significant doubt over their ability to
continue as a going concern for at least a year from the date of
approval of the financial statements (‘the going concern period’).
Our responsibility is to conclude on the appropriateness of the
Directors’ conclusions and, had there been a material uncertainty
related to going concern, to make reference to that in this audit report.
However, as we cannot predict all future events or conditions and as
subsequent events may result in outcomes that are inconsistent with
judgements that were reasonable at the time they were made, the
absence of reference to a material uncertainty in this auditor's report is
not a guarantee that the Group and the Company will continue in
operation.
In our evaluation of the Directors’ conclusions, we considered the
inherent risks to the Group’s and Company’s business model and
analysed how those risks might affect the Group’s and Company’s
financial resources or ability to continue operations over the going
concern period. The risks that we considered most likely to adversely
affect the Group’s and Company’s available financial resources over
this period were:
• Movements in investment markets and assets under management
• The impact of Brexit on the Group’s revenues
As these were risks that could potentially cast significant doubt on the
Group’s and the Company's ability to continue as a going concern, we
considered sensitivities over the level of available financial resources
indicated by the Group’s financial forecasts taking account of
reasonably possible (but not unrealistic) adverse effects that could
arise from these risks individually and collectively and evaluated the
achievability of the actions the Directors consider they would take to
improve the position should the risks materialise. We also considered
less predictable but realistic second order impacts, such as the impact
of Brexit, which could result in a rapid reduction of available financial
resources.
Based on this work, we are required to report to you if:
• We have anything material to add or draw attention to in relation to
the directors’ statement in Note 1 to the financial statements on the
use of the going concern basis of accounting with no material
uncertainties that may cast significant doubt over the Group and
Company’s use of that basis for a period of at least 12 months from
the date of approval of the financial statements
• The related statement under the Listing Rules set out on page 49 is
materially inconsistent with our audit knowledge
We have nothing to report in these respects, and we did not identify
going concern as a key audit matter.
5. We have nothing to report on the other information
in the Annual Report
The directors are responsible for the other information presented in
the Annual Report together with the financial statements. Our opinion
on the financial statements does not cover the other information and,
accordingly, we do not express an audit opinion or, except as explicitly
stated below, any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so,
consider whether, based on our financial statements audit work, the
information therein is materially misstated or inconsistent with the
financial statements or our audit knowledge.
Based solely on that work we have not identified material
misstatements in the other information.
Strategic report and directors’ report
Based solely on our work on the other information
• We have not identified material misstatements in the strategic report
and the directors’ report
• In our opinion the information given in those reports for the financial
year is consistent with the financial statements
• In our opinion those reports have been prepared in accordance with
the Companies Act 2006
Directors’ remuneration report
In our opinion the part of the Directors’ Remuneration Report to be
audited has been properly prepared in accordance with the
Companies Act 2006.
Disclosures of principal risks and longer-term viability
Based on the knowledge we acquired during our financial statements
audit, we have nothing material to add or draw attention to in relation
to:
• The directors’ confirmation within the viability statement page 39
that they have carried out a robust assessment of the principal risks
facing the Group, including those that would threaten its business
model, future performance, solvency and liquidity
• The Principal Risks disclosures describing these risks and
explaining how they are being managed and mitigated
• The directors’ explanation in the Viability Statement of how they
have assessed the prospects of the Group, over what period they
have done so and why they considered that period to be
appropriate, and their statement as to whether they have a
reasonable expectation that the Group will be able to continue in
operation and meet its liabilities as they fall due over the period of
their assessment, including any related disclosures drawing
attention to any necessary qualifications or assumptions
Under the Listing Rules we are required to review the Viability
Statement. We have nothing to report in this respect.
Our work is limited to assessing these matters in the context of only
the knowledge acquired during our financial statements audit. As we
cannot predict all future events or conditions and as subsequent
events may result in outcomes that are inconsistent with judgments
that were reasonable at the time they were made, the absence of
anything to report on these statements is not a guarantee as to the
Group's and Company’s longer-term viability.
Corporate governance disclosures
We are required to report to you if:
• We have identified material inconsistencies between the knowledge
we acquired during our financial statements audit and the directors'
statement that they consider that the annual report and financial
statements taken as a whole is fair, balanced and understandable
and provides the information necessary for shareholders to assess
the Group's position and performance, business model and strategy
• The section of the annual report describing the work of the Audit
Committee does not appropriately address matters communicated
by us to the Audit Committee
We are required to report to you if the Corporate Governance
Statement does not properly disclose a departure from the eleven
provisions of the UK Corporate Governance Code specified by the
Listing Rules for our review.
We have nothing to report in these respects.
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FINANCIAL INFORMATIONStandard Life Aberdeen 2018
7. Independent auditors’ report to the members of Standard Life Aberdeen plc continued
6. We have nothing to report on the other matters on
which we are required to report by exception
Under the Companies Act 2006, we are required to report to you if, in
our opinion:
• Adequate accounting records have not been kept by the parent
company, or returns adequate for our audit have not been received
from branches not visited by us
• The parent company financial statements and the part of the
Directors' Remuneration Report to be audited are not in agreement
with the accounting records and returns
• Certain disclosures of directors' remuneration specified by law are
not made
• We have not received all the information and explanations we
require for our audit
We have nothing to report in these respects.
7. Respective responsibilities
Directors' responsibilities
As explained more fully in their statement set out on page 103, the
directors are responsible for: the preparation of the financial
statements including being satisfied that they give a true and fair view;
such internal control as they determine is necessary to enable the
preparation of financial statements that are free from material
misstatement, whether due to fraud or error; assessing the Group and
parent company's ability to continue as a going concern, disclosing, as
applicable, matters related to going concern; and using the going
concern basis of accounting unless they either intend to liquidate the
Group or the parent company or to cease operations, or have no
realistic alternative but to do so.
Auditor's responsibilities
Our objectives are to obtain reasonable assurance about whether the
financial statements as a whole are free from material misstatement,
whether due to fraud or other irregularities (see below), or error, and to
issue our opinion in an auditor's report. Reasonable assurance is a
high level of assurance, but does not guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists.
Misstatements can arise from fraud, other irregularities or error and
are considered material if, individually or in aggregate, they could
reasonably be expected to influence the economic decisions of users
taken on the basis of the financial statements.
A fuller description of our responsibilities is provided on the FRC's
website at: www.frc.org.uk/auditorsresponsibilities
Irregularities – ability to detect
We identified areas of laws and regulations that could reasonably
be expected to have a material effect on the financial statements
from our general commercial and sector experience and through
discussion with the directors and other management (as required
by auditing standards), and from inspection of the group’s
regulatory and legal correspondence and discussed with the
directors and other management the policies and procedures
regarding compliance with laws and regulations. We
communicated identified laws and regulations throughout our team
and remained alert to any indications of non-compliance
throughout the audit.
The potential effect of these laws and regulations on the financial
statements varies considerably.
Firstly, the Group is subject to laws and regulations that directly
affect the financial statements including financial reporting
legislation (including related companies legislation), distributable
116
profits legislation, taxation legislation and pension’s regulations
and we assessed the extent of compliance with these laws and
regulations as part of our procedures on the related financial
statement items.
Secondly, the Group is subject to many other laws and regulations
where the consequences of non-compliance could have a material
effect on amounts or disclosures in the financial statements, for
instance through the imposition of fines or litigation. We identified
the following areas as those most likely to have such an effect:
specific areas of regulatory capital and liquidity, conduct including
client assets, money laundering, market abuse regulations and
certain aspects of company legislation recognising the financial
and regulated nature of the group’s activities. Auditing standards
limit the required audit procedures to identify non-compliance with
these laws and regulations to enquiry of the directors and other
management and inspection of regulatory and legal
correspondence, if any. These limited procedures did not identify
actual or suspected non-compliance.
Owing to the inherent limitations of an audit, there is an
unavoidable risk that we may not have detected some material
misstatements in the financial statements, even though we have
properly planned and performed our audit in accordance with
auditing standards. For example, the further rem oved non-
compliance with laws and regulations (irregularities) is from the
events and transactions reflected in the financial statements, the
less likely the inherently limited procedures required by auditing
standards would identify it. In addition, as with any audit, there
remained a higher risk of non-detection of irregularities, as these
may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal controls. We are not
responsible for preventing non-compliance and cannot be
expected to detect non-compliance with all laws and regulations.
8. The purpose of our audit work and to whom we owe
our responsibilities
This report is made solely to the Company’s members, as a body,
in accordance with Chapter 3 of Part 16 of the Companies Act
2006. Our audit work has been undertaken so that we might state
to the Company’s members those matters we are required to state
to them in an auditor’s report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company and the
Company’s members, as a body, for our audit work, for this report,
or for the opinions we have formed.
Jonathan Mills (Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
Saltire Court
20 Castle Terrace Edinburgh
EH1 2EG
13 March 2019
Standard Life Aberdeen 2018
8. Group financial statements
Consolidated income statement
For the year ended 31 December 2018
Income
Investment return
Revenue from contracts with customers
Insurance contract premium income
Profit on disposal of interests in associates
Other income
Total income from continuing operations
Expenses
Insurance contract claims and change in liabilities
Change in non-participating investment contract liabilities
Administrative expenses
Restructuring and corporate transaction expenses
Impairment of goodwill – Aberdeen Standard Investments
Other administrative expenses
Total administrative expenses
Change in liability for third party interest in consolidated funds
Finance costs
Total expenses from continuing operations
Share of profit from associates and joint ventures
Loss on impairment of interest in associates
(Loss)/profit before tax from continuing operations
Tax expense attributable to continuing operations
(Loss)/profit for the year from continuing operations
Profit for the year from discontinued operations
Profit for the year
Attributable to:
Equity holders of Standard Life Aberdeen plc
From continuing operations
From discontinued operations
Equity holders of Standard Life Aberdeen plc
Non-controlling interests
From continuing operations – preference shares and perpetual notes
From discontinued operations – ordinary shares
From discontinued operations – perpetual notes
Earnings per share from continuing operations
Basic (pence per share)
Diluted (pence per share)
Earnings per share
Basic (pence per share)
Diluted (pence per share)
Notes
3
4
31
1
31
32
8
14
5
16
16
9
10
30
30
30
11
11
11
11
2018
£m
(116)
1,955
73
185
34
2,131
1
(78)
231
880
1,746
2,857
(5)
45
2,820
130
(228)
(787)
43
(830)
1,698
868
(835)
1,665
830
5
5
28
868
(29.3)
(29.3)
29.1
29.1
1 Comparatives for 2017 have been restated to reflect the classification of the UK and European insurance business as discontinued operations. Refer Note 1.
The Notes on pages 124 to 224 are an integral part of these consolidated financial statements.
2017
restated1
£m
238
1,486
89
319
33
2,165
201
74
162
–
1,295
1,457
6
34
1,772
45
–
438
28
410
322
732
402
297
699
8
25
–
732
17.1
17.0
29.8
29.6
117
FINANCIAL INFORMATIONStandard Life Aberdeen 2018
8. Group financial statements continued
Consolidated statement of comprehensive income
For the year ended 31 December 2018
Notes
35
28
9
29
29
29
28
21
1
9
10
Profit for the year
Less: profit from discontinued operations
(Loss)/profit from continuing operations
Items that will not be reclassified subsequently to profit or loss:
Remeasurement losses on defined benefit pension plans
Share of other comprehensive income of associates and joint ventures
Equity holder tax effect of items that will not be reclassified subsequently to profit or loss
Total items that will not be reclassified subsequently to profit or loss
Items that may be reclassified subsequently to profit or loss:
Fair value gains/(losses) on cash flow hedges
Fair value losses on available-for-sale financial assets
Exchange differences on translating foreign operations
Share of other comprehensive income of associates and joint ventures
Items transferred to the consolidated income statement
Fair value (gains)/losses on cash flow hedges
Realised foreign exchange gains
Equity holder tax effect of items that may be reclassified subsequently to profit or loss
Total items that may be reclassified subsequently to profit or loss
Other comprehensive income for the year from continuing operations
Total comprehensive income for the year from continuing operations
Profit from discontinued operations
Other comprehensive income from discontinued operations
Total comprehensive income for the year from discontinued operations
Total comprehensive income for the year
Attributable to:
Equity holders of Standard Life Aberdeen plc
From continuing operations
From discontinued operations
Non-controlling interests
From continuing operations – preference shares and perpetual notes
From discontinued operations – ordinary shares
From discontinued operations – perpetual notes
2018
£m
868
(1,698)
(830)
(29)
(15)
–
(44)
54
(9)
14
–
(41)
(2)
(1)
15
(29)
(859)
1,698
(43)
1,655
796
(864)
1,622
5
5
28
796
2017
restated1
£m
732
(322)
410
(18)
–
(10)
(28)
(33)
–
(31)
4
13
(2)
3
(46)
(74)
336
322
12
334
670
328
309
8
25
–
670
1 Comparatives for 2017 have been restated to reflect the classification of the UK and European insurance business as discontinued operations. Refer Note 1.
The Notes on pages 124 to 224 are an integral part of these consolidated financial statements.
118
Standard Life Aberdeen 2018
Reconciliation of consolidated adjusted profit before tax to IFRS profit for the year
For the year ended 31 December 2018
Adjusted profit before tax
Asset management and platforms
Insurance associates and joint ventures
UK and European insurance
Adjusted profit before tax
Adjusted for the following items
Restructuring and corporate transaction expenses
Amortisation and impairment of intangible assets
acquired in business combinations and through the
purchase of customer contracts
Provision for annuity sales practices
Profit on disposal of subsidiaries
Profit on disposal of interests in associates
Impairment of associates
Investment return variances and economic
assumption changes
Other2
Total adjusting items
Share of associates’ and joint ventures’ tax expense
Profit attributable to non-controlling interests – ordinary
shares
(Loss)/profit before tax expense3
Tax (expense)/credit attributable to
Adjusted profit
Adjusting items
Total tax expense
(Loss)/profit for the year
2
8
2
38
1
1
16
12
2
2
2
2
2
2018
Continuing
operations
£m
Discontinued
operations
£m
Notes
510
140
–
650
–
–
210
210
2017 restated1
Discontinued
operations
£m
Continuing
operations
£m
417
58
–
475
–
–
379
379
Total
£m
510
140
210
860
Total
£m
417
58
379
854
(239)
(264)
(503)
(162)
(11)
(173)
(1,155)
–
–
185
(228)
54
(14)
(1,397)
(40)
–
(787)
(95)
52
(43)
(830)
–
–
1,780
–
–
(41)
44
1,519
–
5
1,734
(77)
41
(36)
1,698
(1,155)
–
1,780
185
(228)
13
30
122
(40)
5
947
(172)
93
(79)
868
(138)
–
–
319
–
–
(15)
4
(41)
–
438
(77)
49
(28)
410
–
(100)
–
–
–
67
–
(44)
–
25
360
(31)
(7)
(38)
322
(138)
(100)
–
319
–
67
(15)
(40)
(41)
25
798
(108)
42
(66)
732
1 Comparatives for 2017 have been restated to reflect changes in the reportable segments. Refer Note 2.
2 The Other adjusting item in 2018 relating to discontinued operations is a held for sale accounting adjustment relating to the amortisation of intangible assets (primarily deferred
acquisition costs) and depreciation of tangible assets of £44m. Following the classification of the UK and European insurance business as held for sale, no amortisation or
depreciation was recognised in accordance with applicable financial reporting standards.
3 For discontinued operations profit before tax expense attributable to equity holders consists of profit before tax of £1,780m (2017: £526m) less tax expense attributable to
policyholders’ returns of £46m (2017: £166m).
The Group’s key alternative performance measure is adjusted profit before tax. Refer Note 12 for further details.
The Notes on pages 124 to 224 are an integral part of these consolidated financial statements.
119
FINANCIAL INFORMATIONStandard Life Aberdeen 2018
8. Group financial statements continued
Consolidated statement of financial position
As at 31 December 2018
Assets
Intangible assets
Deferred acquisition costs
Investments in associates and joint ventures accounted for using the equity method
Investment property
Property, plant and equipment
Pension and other post-retirement benefit assets
Deferred tax assets
Reinsurance assets
Loans
Derivative financial assets
Equity securities and interests in pooled investment funds
Debt securities
Receivables and other financial assets
Current tax recoverable
Other assets
Assets held for sale
Cash and cash equivalents
Total assets
Equity
Share capital
Shares held by trusts
Share premium reserve
Retained earnings
Other reserves
Equity attributable to equity holders of Standard Life Aberdeen plc
Non-controlling interests
Ordinary shares
Preference shares
Total equity
Liabilities
Non-participating insurance contract liabilities
Non-participating investment contract liabilities
Participating contract liabilities
Deposits received from reinsurers
Third party interest in consolidated funds
Subordinated liabilities
Pension and other post-retirement benefit provisions
Deferred income
Deferred tax liabilities
Current tax liabilities
Derivative financial liabilities
Other financial liabilities
Provisions
Other liabilities
Liabilities of operations held for sale
Total liabilities
Total equity and liabilities
Notes
14
15
16
17
18
35
9
31
19
19
19
19
19
9
23
24
19
26
27
26
28
29
30
30
31
32
31
33
33
33
35
36
9
9
21
33
38
38
24
2018
£m
3,404
6
1,444
–
61
1,111
61
–
–
21
2,030
1,723
708
6
40
762
1,140
12,517
353
(115)
640
2,778
3,782
7,438
2
99
7,539
3
1,468
–
–
254
1,081
38
75
100
23
6
1,162
105
6
657
4,978
12,517
2017
£m
4,514
612
503
9,749
146
1,099
65
4,811
91
3,053
99,020
61,565
1,242
192
185
1,038
10,226
198,111
364
(61)
639
3,162
4,500
8,604
289
99
8,992
22,740
105,769
30,647
4,633
16,457
2,253
78
157
367
166
813
3,896
316
121
706
189,119
198,111
The Notes on pages 124 to 224 are an integral part of these consolidated financial statements.
The consolidated financial statements on pages 117 to 224 were approved by the Board and signed on its behalf by the following Directors:
Sir Douglas Flint
Chairman, 13 March 2019
Bill Rattray
Chief Financial Officer, 13 March 2019
120
Standard Life Aberdeen 2018
Consolidated statement of changes in equity
For the year ended 31 December 2018
Share
capital
£m
Shares
held by
trusts
£m
Share
premium
reserve
£m
Retained
earnings
£m
Other
reserves
£m
Notes
Non-controlling
interests
Total equity
attributable
to equity
holders of
Standard Life
Aberdeen plc
£m
Preference
shares and
perpetual
debt
instruments
£m
Total
equity
£m
Ordinary
shares
£m
364
(61)
639
3,162
4,500
8,604
289
99 8,992
(835)
1,665
–
–
(835)
1,665
2018
1 January
(Loss)/profit for the year from
continuing operations
Profit for the year from discontinued
operations
Other comprehensive income for the
year from continuing operations
Other comprehensive income for the
year from discontinued operations
Total comprehensive income for the
year
Issue of share capital
Issue of B shares
Reclassification of perpetual debt
instruments to equity
Repurchase of perpetual debt
instruments
Redemption of perpetual debt
instruments
Dividends paid on ordinary shares
Dividends paid on preference shares
Coupons paid on perpetual debt
instruments
Redemption of B shares
Shares bought back on-market and
cancelled
Other movements in non-controlling
interests in the year
Reserves credit for employee share-
based payments
Transfer to retained earnings for
vested employee share-based
payments
Transfer between reserves on
disposal of subsidiaries
Transfer between reserves on
impairment of subsidiaries
Shares acquired by employee trusts
Shares distributed by employee and
other trusts and related dividend
equivalents
Aggregate tax effect of items
recognised directly in equity
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
28, 29
26
26,29
–
–
1,000
30
30
30
13
26, 28
26,
28,29
29
28, 29
1
28
9
–
–
–
–
–
–
(1,000)
–
17
(11)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(100)
29
–
–
–
–
–
–
1
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(44)
15
–
(43)
786
–
–
(28)
–
(1,000)
–
–
–
(634)
–
–
–
–
–
–
–
(1,002)
–
1,000
(238)
–
–
68
99
570
–
(33)
–
11
–
36
(68)
(99)
(570)
–
–
–
31 December
353
(115)
640
2,778
3,782
7,438
–
5
–
–
5
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2
(29)
(43)
758
1
–
–
–
–
(634)
–
–
(985)
(238)
36
–
–
–
(100)
(4)
–
–
(292)
5
(830)
28 1,698
–
–
33
–
–
(29)
(43)
796
1
–
1,005 1,005
(970)
(970)
(44)
–
(5)
(44)
(634)
(5)
(25)
–
(25)
(985)
–
–
–
–
–
–
–
–
(238)
(292)
36
–
–
–
(100)
(4)
6
6
99 7,539
121
FINANCIAL INFORMATIONStandard Life Aberdeen 2018
8. Group financial statements continued
8
–
–
(13)
670
4,001
(469)
(13)
501
501
(399)
(380)
Total
equity
£m
4,644
410
322
(74)
12
(33)
96
32
(61)
(3)
4
3
8,992
–
8
–
–
–
–
–
–
–
–
–
2
Share
capital
£m
Shares
held by
trusts
£m
Share
premium
reserve
£m
Retained
earnings
£m
Other
reserves
£m
Notes
Non-controlling
interests
Total equity
attributable
to equity
holders of
Standard Life
Aberdeen plc
£m
Preference
shares and
perpetual
notes
£m
Ordinary
shares
£m
2017
1 January
Profit for the year from continuing
operations
Profit for the year from discontinued
operations
Other comprehensive income for the
year from continuing operations
Other comprehensive income for the
year from discontinued operations
Total comprehensive income for
the year
Issue of share capital
Dividends paid on ordinary shares
Coupons paid on perpetual notes
Non-controlling interests acquired
through business combinations
Reclassification of perpetual notes to
liability
Other movements in non-controlling
interests in the year
Reserves credit for employee share-
based payments
Transfer to retained earnings for
vested employee share-based
payments
Shares acquired by employee trusts
Shares distributed by employee and
other trusts and related dividend
equivalents
Sale of shares held by trusts
Aggregate tax effect of items
recognised directly in equity
242
(2)
634
2,855
618
4,347
297
–
–
–
–
–
122
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(3)
–
–
–
–
–
–
–
(61)
5
–
–
28, 29
26, 27, 29
13
30
29
28, 29
28
9
–
–
–
–
–
5
–
–
–
–
–
–
–
–
–
–
–
402
297
–
–
(24)
(50)
–
12
675
–
(469)
–
(38)
3,877
–
–
–
19
–
–
86
–
(8)
4
–
–
–
–
96
(54)
–
–
–
1
402
297
(74)
12
637
4,001
(469)
–
–
19
–
25
–
–
25
–
–
–
–
–
–
(33)
96
32
(61)
(3)
4
1
–
–
–
–
–
–
31 December
364
(61)
639
3,162
4,500
8,604
289
99
The Notes on pages 124 to 224 are an integral part of these consolidated financial statements.
122
Standard Life Aberdeen 2018
Consolidated statement of cash flows
For the year ended 31 December 2018
Cash flows from operating activities
(Loss)/profit before tax from continuing operations
Profit before tax from discontinued operations
Change in operating assets
Change in operating liabilities
Adjustment for non-cash movements in investment income
Change in unallocated divisible surplus
Other non-cash and non-operating items
Taxation paid
Net cash flows from operating activities
Cash flows from investing activities
Purchase of property, plant and equipment
Proceeds from sale of property, plant and equipment
(Acquisition)/ disposal of seeding investments
Acquisition of subsidiaries and unincorporated businesses net of cash acquired
Disposal of subsidiaries net of cash disposed of
Acquisition of investments in associates and joint ventures
Disposal of investments in associates and joint ventures
Purchase of intangible assets
Net cash flows from investing activities
Cash flows from financing activities
Repayment of other borrowings
Proceeds from issue of subordinated liabilities
Repayment of subordinated liabilities and perpetual notes
Capital flows to third party interest in consolidated funds and non-controlling
interests – ordinary shares
Distributions paid to third party interest in consolidated funds and non-controlling
interests – ordinary shares
Shares acquired by trusts
Sale of shares held by trusts
Proceeds from issue of shares
Interest paid
Return of cash to shareholders under B share scheme
Shares bought back on-market and cancelled
Preference dividends paid
Ordinary dividends paid
Net cash flows from financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Effects of exchange rate changes on cash and cash equivalents
Cash and cash equivalents at the end of the year
Supplemental disclosures on cash flows from operating activities
Interest paid
Interest received
Dividends received
Rental income received on investment property
Notes
10
42
42
31
42
18
42
16
1
26
26
26
13
25
The Notes on pages 124 to 224 are an integral part of these consolidated financial statements.
2018
£m
(787)
1,780
993
3,317
(2,551)
(80)
(48)
(581)
(224)
826
(28)
1
(4)
(33)
(5,501)
(72)
180
(128)
(5,585)
(2)
–
(1,377)
2017
£m
438
526
964
1,351
(84)
40
140
3
(220)
2,194
(37)
–
19
495
–
–
359
(69)
767
(1)
565
–
(507)
(1,011)
(69)
(100)
–
1
(117)
(983)
(238)
(5)
(634)
(4,031)
(8,790)
9,715
32
957
6
1,118
1,545
329
(109)
(61)
4
5
(97)
–
–
–
(469)
(1,174)
1,787
7,900
28
9,715
4
1,710
2,086
503
123
FINANCIAL INFORMATIONStandard Life Aberdeen 2018
8. Group financial statements continued
Presentation of consolidated financial statements
The Group’s significant accounting policies are included at the beginning of the relevant notes to the consolidated financial statements. This
section sets out the basis of preparation, a summary of the Group’s critical accounting estimates and judgements in applying accounting
policies, and other significant accounting policies which have been applied to the financial statements as a whole.
(a) Basis of preparation
These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) issued by
the International Accounting Standards Board (IASB) as endorsed by the European Union (EU), with interpretations issued by the IFRS
Interpretations Committee (IFRICs), and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS. The
consolidated financial statements have been prepared on a going concern basis and under the historical cost convention, as modified by the
revaluation of investment property, owner occupied property, available-for-sale financial assets, and financial assets and financial liabilities
(including derivative instruments) at fair value through profit or loss (FVTPL).
The principal accounting policies set out in these consolidated financial statements have been consistently applied to all financial reporting
periods presented.
(a)(i) New standards, interpretations and amendments to existing standards that have been adopted by the Group
The Group has adopted the following new International Financial Reporting Standards (IFRSs), International Accounting Standards (IASs),
interpretations and amendments to existing standards, which are effective by EU endorsement for annual periods beginning on or after 1
January 2018:
IFRS 15 Revenue from Contracts with Customers
IFRS 15 replaces IAS 18 Revenue and provides a new five-step revenue recognition model for determining recognition and measurement of
revenue from contracts with customers. The Group’s revenue generated from the following contracts is exempt from this standard:
Lease contracts within the scope of IAS 17 Leases
Insurance contracts within the scope of IFRS 4 Insurance Contracts
Financial instruments within the scope of IAS 39 Financial Instruments: Recognition and Measurement or IFRS 9 Financial Instruments
The adoption of this standard has had no significant impact on the timing of revenue recognition of the Group and therefore no restatement of
prior periods was required. The Group did not use any of the practical expedients permitted under IFRS 15.
The Group’s accounting policy for revenue within the scope of IFRS 15 has been updated to state that revenue is recognised as performance
obligations are satisfied.
The standard introduces a number of new disclosure requirements which are provided in Note 4 of these financial statements. These include
disclosures around:
The nature of the performance obligations within contracts with customers
Disaggregated revenue and its relationship with revenue reported for each reportable segment
Contract asset and liabilities
There are no judgements that significantly affect the determination of the amount and timing of revenue from contracts with customers.
Revenue from contracts with customers from continuing operations for the year ended 31 December 2017 consists of £1,479m which was
previously presented as fee income, and £7m that was previously presented as other income on the face of the consolidated income statement.
The standard requires the incremental cost of obtaining contracts with customers to be recognised as an asset where it is expected that these
costs will be recovered. These costs have been included as an intangible asset and are shown in Note 14.
Amendments to IFRS 4 Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts
The amendments address the consequences of the different effective dates of IFRS 9 and the new insurance contracts standard, IFRS 17.
Insurers are permitted to defer implementation of IFRS 9 until periods beginning on or after 1 January 2021 (which is expected to be amended to
1 January 2022) if they satisfy criteria regarding the predominance of their insurance activities, or to apply an overlay approach to remove
incremental volatility from the income statement. At 31 December 2015 the Group’s liabilities arising from contracts within the scope of IFRS 4
and liabilities connected with insurance as a percentage of total liabilities were 32% and in excess of 96% respectively:
Non-participating insurance contract liabilities
Non-participating investment contract liabilities
Participating contract liabilities
Deposits received from reinsurers
Third party interest in consolidated funds
Other liabilities
Total liabilities
124
31/12/2015
£m
21,206
92,894
29,654
5,134
17,196
6,289
172,373
Liabilities in
scope of IFRS 4
£m
21,206
–
29,654
5,134
–
–
Liabilities connected
to insurance
£m
21,206
92,894
29,654
5,134
17,196
–
55,994
32%
166,084
96%
Standard Life Aberdeen 2018
Therefore the Group was eligible to defer the implementation of IFRS 9. Following the merger with Aberdeen Asset Management PLC, the
predominance of insurances activities was reassessed as at 31 December 2017. The Group remained eligible to defer and has opted to defer
implementation of IFRS 9 in these consolidated financial statements. Further disclosures required as a result of this deferral are set out in Note
16 and Note 19.
Interpretations and amendments to other standards
IFRIC 22 Foreign Currency Transactions and Advanced Consideration
Amendments to IFRS 2 Share-based payment: Classification and Measurement of Share-based payment transactions
Amendments to IAS 40 Investment Property: Transfers of Investment Property
Annual Improvements 2014-2016 cycle
The Group’s accounting policies have been updated to reflect these. Management considers the implementation of the above interpretations and
amendments to existing standards has had no significant impact on the Group’s financial statements.
(a)(ii) Standards, interpretations and amendments to existing standards that are not yet effective and have not been early adopted by
the Group
Certain new standards, interpretations and amendments to existing standards have been published that are mandatory for the Group’s annual
accounting periods beginning after 1 January 2018. The Group has not early adopted the standards, amendments and interpretations described
below:
IFRS 16 Leases (effective for annual periods beginning on or after 1 January 2019)
IFRS 16 replaces IAS 17 Leases and introduces a new single accounting approach for lessees for all leases (with limited exceptions). As a result
there is no longer a distinction between operating leases and finance leases, and lessees will recognise a liability to make lease payments and
an asset representing the right to use the underlying asset during the lease term. The accounting for leases by lessors remains largely
unchanged.
The Group has adopted IFRS 16 on 1 January 2019, and will use the cumulative catch up approach. The Group intends to use the ‘practical
expedients’ available to apply the new standard solely to leases previously identified in accordance with IAS 17 and IFRIC 4 Determining
whether an Arrangement Contains a Lease, to not recognise leases with a low value or whose term ends within 12 months of the date of initial
application (1 January 2019), to apply a single discount rate to leases with similar characteristics and the use of IAS 37 Provisions, Contingent
Liabilities and Contingent Assets relating to onerous leases.
As a result of IFRS 16, assets leased by the Group will be brought onto the statement of financial position at inception of a lease. The right of use
asset will be depreciated over the life of the lease and the interest expense on the lease liability recognised in the income statement. The present
value of the lease liability takes into account prepayments and incentives and will be measured using the incremental borrowing rate.
The main impact on the Group of the standard will be for property that the Group leases for use as office space which is currently classified as
operating leases. The Group estimates that for this property portfolio it will recognise additional right of use assets of approximately £194m and
additional lease liabilities of approximately £223m as at 1 January 2019. The cumulative effect of adopting IFRS 16 will be recognised as an
adjustment to the opening balance of retained earnings at 1 January 2019, with no restatement of comparative information. No significant profit
impact is expected.
IFRS 9 Financial Instruments (effective for annual periods beginning on or after 1 January 2019 for the Group)
IFRS 9 replaces IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 allows two measurement categories for financial assets in
the statement of financial position: amortised cost and fair value. All equity instruments and derivative instruments are measured at fair value. A
debt instrument is measured at amortised cost only if it is held to collect contractual cash flows and the cash flows are solely payments of
principal and interest, otherwise it is classified at fair value through other comprehensive income (FVOCI) or fair value through profit or loss
(FVTPL) depending on the business model it is held within or whether the option to adopt FVTPL has been applied. Changes in value of all
equity instruments and derivative instruments are recognised in profit or loss unless an OCI presentation election is made at initial recognition for
an equity instrument or a derivative instrument is designated as a hedging instrument in a cash flow hedge. IFRS 9 also introduces a new
impairment model, an expected credit loss model which will replace the current incurred loss model in IAS 39. An impairment loss will now be
recognised prior to a loss event occurring. Accounting for financial liabilities remains the same as under IAS 39 except that for financial liabilities
designated as at FVTPL, changes in the fair value due to changes in the liability’s credit risk are recognised in OCI.
Additionally IFRS 9 amends the current requirements for assessing hedge effectiveness in IAS 39 and also amends what qualifies as a hedged
item and some of the restrictions on what qualifies as a hedging instrument. The accounting and presentation requirements for designated
hedging relationships remain largely unchanged. IFRS 9 contains an election to continue to apply the hedge accounting requirements of IAS 39.
As well as presentation and measurement changes, IFRS 9 also introduces additional disclosure requirements.
As noted in (a)(i) above, the Group was eligible to defer and has opted to defer implementation of IFRS 9 in these consolidated financial
statements. On 31 August 2018, the Group disposed of the UK and European insurance business (refer Note 1 for further details). Following the
sale, the Group no longer has significant liabilities within the scope of IFRS 4 and is required to adopt IFRS 9 on or before 1 January 2020. The
Group has adopted IFRS 9 on 1 January 2019. The Group has elected to continue applying the hedge accounting requirements of IAS 39.
At 31 December 2018, the Group has available-for-sale debt securities with a fair value of £862m with a corresponding available-for-sale
financial assets reserve balance of £7m and deferred tax liability of £1m. On adoption of IFRS 9, these debt securities will be recognised at 1
January 2019 at their amortised cost (less expected credit losses) of £854m. The available-for-sale financial assets reserve balance and the
related deferred tax liability will no longer be recognised. The expected credit losses at 1 January 2019 are less than £1m.
125
FINANCIAL INFORMATIONStandard Life Aberdeen 2018
8. Group financial statements continued
At 31 December 2018, the Group also had subordinated liabilities of £1,081m. Under IFRS 9, where the terms of a financial liability are modified
and the modification does not result in the derecognition of the liability, the liability is adjusted to the net present value of the future cash flows
less transaction costs with a modification gain or loss recognised in the income statement. During the year ended 31 December 2018, the terms
of the 4.25% US Dollar fixed rate subordinated notes were modified (refer Note 34). Consequently, on adoption of IFRS 9, these subordinated
liabilities will be recognised at 1 January 2019 at a revised amortised cost of £1,086m. The impact on retained earnings will be £5m.
The adoption of IFRS 9 will not significantly impact the other financial assets and liabilities which are currently measured at FVTPL or amortised
cost in accordance with IAS 39, and will have no significant impact on profit.
The Company and a number of subsidiaries adopted IFRS 9 at 1 January 2018 for their separate financial statements. The Company’s financial
statements can be found in Section 9. The financial statements of UK subsidiaries which have adopted IFRS 9 including Standard Life
Investments Limited, Aberdeen Asset Management PLC and Standard Life Savings Limited will be available from Companies House.
IFRS 17 Insurance Contracts (effective for annual periods beginning on or after 1 January 2021), expected to be amended to 1 January
2022
IFRS 17 was issued in May 2017 and will replace IFRS 4 Insurance Contracts. IFRS 4 is an interim standard which permits the continued
application of accounting policies, for insurance contracts and contracts with discretionary participation features, which were being used at
transition to IFRS except where a change satisfies criteria set out in IFRS 4. IFRS 17 introduces new required measurement and presentation
accounting policies for such contracts which reflect the view that these contracts combine features of a financial instrument and a service
contract.
IFRS 17’s measurement model, which applies to groups of contracts, combines a risk-adjusted present value of future cash flows and an amount
representing unearned profit. On transition retrospective application is required unless impracticable, in which case either a modified
retrospective approach or a fair value approach is required. IFRS 17 introduces a new approach to presentation in the income statement and
statement of comprehensive income.
Following the sale of the UK and European insurance business, the Group has limited direct exposure to insurance contracts and contracts with
discretionary participating features which will be impacted by the adoption of IFRS 17. However, the results of the Group’s insurance associates,
Phoenix and HDFC Life, are expected to be significantly impacted by IFRS 17. The standard has not yet been endorsed by the EU.
Other
IFRIC 23: Uncertainty over Income Tax Treatments (effective for annual periods beginning on or after 1 January 2019)
IFRIC 23 clarifies how to apply the recognition and measurement requirements in IAS 12 Income Taxes. The Interpretation addresses issues
relating to uncertain tax treatments. An uncertain tax treatment is a tax treatment for which there is uncertainty over whether the relevant tax
authority will accept the tax treatment under tax law. A tax treatment is the treatment used or planned to be used in an entities income tax filings.
The Group adopted IFRIC 23 on 1 January 2019. The clarifications set out in IFRIC 23 have not had a material impact on the Group’s financial
statements.
There are no other new standards, interpretations and amendments to existing standards that have been published that are expected to have a
significant impact on the consolidated financial statements of the Group.
(a)(iii) Critical accounting estimates and judgements in applying accounting policies
The preparation of financial statements requires management to exercise judgements in applying accounting policies and make estimates and
assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue
and expenses arising during the year. Judgements and sources of estimation uncertainty are continually evaluated and based on historical
experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.
The areas where judgements have the most significant effect on the amounts recognised in the consolidated financial statements are as follows:
Critical judgements in applying accounting policies
Assessment of whether the Group has an unconditional right to a refund of the
surplus
Treatment of tax relating to the surplus
Determining whether the investment in Phoenix should be classified as an
associate
Identification, valuation and determination of useful lives for equity accounting
purposes, of the Group’s share of its associate’s intangible assets at the date of
acquisition of an investment in the associate
Identification and valuation of intangible assets arising from business
combinations
Determining the group of cash-generating units to which goodwill acquired in a
business combination should be allocated
Determining whether a provision is required for separation costs
Related note
Note 35
Note 16
Note 14
Note 38
Financial statement area
Defined benefit pension plans
Investments in associates
Intangible assets
Provisions
126
Standard Life Aberdeen 2018
During the year to 31 December 2018 the following changes have been made to critical judgements in applying accounting policies:
We have identified critical judgements in applying accounting policies for investments in associates, for determining the cash-generating units
to which goodwill acquired in a business combination should be allocated and for determining whether a provision should be recognised for
separation costs
As a result of the disposal of the UK and European insurance business the judgements in applying the accounting policies for the classification
of insurance, reinsurance and investment contracts and for the assessment of control or significant influence of structured entities are no
longer considered to be critical judgements as these judgements only impact the presentation of amounts within discontinued operations. The
assessment of whether the group has a contingent liability in relation to conduct matters is no longer considered to be a critical judgement.
There are no other changes to critical judgements from the prior year.
The areas where assumptions and other sources of estimation uncertainty at the end of the reporting period have a significant risk of resulting in
a material adjustment to the carrying amounts of assets and liabilities within the next financial year are as follows:
Financial statement area
Financial instruments at fair value through
profit or loss
Critical accounting estimates and assumptions
Determination of the fair value of contingent consideration assets and
liabilities
Related note
Notes 19, 37 and
41
Defined benefit pension plans
Determination of principal UK pension plan assumptions for mortality,
discount rate and inflation
Note 35
Intangible assets
Investments in associates
Determination of useful lives
Determination of the recoverable amount in relation to impairment
assessment of goodwill, customer relationships and investment
management contract intangibles
Determination of the recoverable amount in relation to the impairment
assessment of investments in associates
Note 14
Note 16
The following changes have been made to critical accounting estimates and assumptions as a result of the disposal of the UK and European
insurance business and the acquisition of an interest in Phoenix:
We have identified estimates used in relation to the recoverable amount of investments in associates accounted for using the equity method
as a critical area of estimation uncertainty
We have also identified the valuation of contingent consideration assets and liabilities relating to the disposal as a critical area of estimation
uncertainty
We have removed the critical estimates and assumptions related to the valuation of participating contracts, non-participating contracts and
reinsurance contracts, investment property, level 3 private equity investments and debt securities, and the measurement of the provision for
annuity sales practices. These assumptions and estimates have been removed as they primarily related to the UK and European insurance
business.
All other critical accounting estimates and assumptions are the same as the prior year.
Further detail on critical accounting estimates and assumptions is provided in the relevant note.
127
FINANCIAL INFORMATIONStandard Life Aberdeen 2018
8. Group financial statements continued
(a)(iv) Foreign currency translation
The consolidated financial statements are presented in million pounds Sterling.
The statements of financial position of Group entities, including associates and joint ventures accounted for using the equity method, that
have a different functional currency than the Group’s presentation currency are translated into the presentation currency at the year end
exchange rate and their income statements and cash flows are translated at average exchange rates for the year. All resulting exchange
differences arising are recognised in other comprehensive income and the foreign currency translation reserve in equity. On disposal of a
Group entity the cumulative amount of any such exchange differences recognised in other comprehensive income is reclassified to profit or
loss.
Foreign currency transactions are translated into the functional currency at the exchange rate prevailing at the date of the transaction. Gains
and losses arising from such transactions and from the translation at year end exchange rates of monetary assets and liabilities denominated
in foreign currencies are recognised in the relevant line in the consolidated income statement.
Translation differences on non-monetary items, such as equity securities held at fair value through profit or loss, are reported as part of the
fair value gain or loss within net investment return in the consolidated income statement. Translation differences on financial assets and
liabilities held at amortised cost are included in the relevant line in the consolidated income statement.
The income statements and cash flows, and statements of financial position of Group entities that have a different functional currency from the
Group’s presentation currency have been translated using the following principal exchange rates:
2018
2017
Income statement and
cash flows (average rate)
Statement of financial
position (closing rate)
Income statement and cash
flows (average rate)
Statement of financial
position (closing rate)
1.129
1.333
90.711
8.818
10.444
1.795
1.114
1.274
88.913
8.744
9.971
1.736
1.145
1.297
84.474
8.753
10.104
1.787
1.126
1.353
86.341
8.809
10.575
1.808
Euro
US Dollar
Indian Rupee
Chinese Renminbi
Hong Kong Dollar
Singapore Dollar
(b) Basis of consolidation
The Group’s financial statements consolidate the financial statements of the Company and its subsidiaries.
Subsidiaries are all entities (including investment vehicles) over which the Group has control. Control arises when the Group is exposed, or
has rights, to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity.
For operating entities this generally accompanies a shareholding of 50% or more in the entity. For investment vehicles, including structured
entities, the control assessment also considers the removal rights of other investors and whether the Group acts as principal or agent in
assessing the link between power and variable returns. In determining whether the Group acts as principal, and therefore controls the entity,
the removal rights of other investors and the magnitude of the variability associated with the returns are also taken into account. As a result,
the Group often is considered to control investment vehicles in which its shareholding is less than 50%.
Where the Group is considered to control an investment vehicle, such as an open-ended investment company, a unit trust or a limited
partnership, and it is therefore consolidated, the interests of parties other than the Group are assessed to determine whether they should be
classified as liabilities or as non-controlling interests. The liabilities are recognised in the third party interest in consolidated funds line in the
consolidated statement of financial position and any movements are recognised in the consolidated income statement. The financial liability is
designated at fair value through profit or loss (FVTPL) as it is implicitly managed on a fair value basis as its value is directly linked to the
market value of the underlying portfolio of assets. The interests of parties other than the Group in all other types of entities are recorded as
non-controlling interests.
All intra-group transactions, balances, income and expenses are eliminated in full.
The Group uses the acquisition method to account for acquisitions of businesses. At the acquisition date the assets and liabilities of the
business acquired and any non-controlling interests are identified and initially measured at fair value on the consolidated statement of
financial position.
When the Group acquires or disposes of a subsidiary, the profits and losses of the subsidiary are included from the date on which control was
transferred to the Group until the date on which it ceases, with consistent accounting policies applied across all entities throughout.
When the Group sells a subsidiary to an associate, the gain on sale of the subsidiary is recognised in full, with no elimination being made for
the continuing interest in the subsidiary.
128
Standard Life Aberdeen 2018
Notes to the Group financial statements
1. Group structure
(a) Composition
The following diagram is an extract of the Group structure at 31 December 2018 and gives an overview of the composition of the Group.
Standard Life Aberdeen plc
Standard Life
Investments
(Holdings) Limited
Aberdeen Asset
Management PLC
Standard Life
(Mauritius Holdings)
2006 Limited
Standard Life
Oversea Holdings
Limited
Standard Life
Savings Limited
Standard Life
Employee Services
Limited
Standard Life
Investments
Limited
Aberdeen Standard
Capital Limited
Ignis Asset
Management
Limited
Aberdeen Standard
Investments
(Asia) Limited
Aberdeen Asset
Managers Limited
HDFC Life Insurance
Company Limited
(India Associate - 29.23%)
Standard Life
(Asia) Limited
Standard Life Client
Management
Limited
Focus Solutions
Group Limited
HDFC Asset
Management
Company Limited
(India Associate - 29.96%)
Ignis Investment
Services Limited
Aberdeen Standard
Investments
(Hong Kong) Limited
Aberdeen Standard
Fund Managers
Limited
Aberdeen Standard
Investments
Luxembourg SA
Aberdeen Asset
Management Life
and Pensions Limited
Aberdeen Standard
Investments Inc
Aberdeen Asset
Investment Group
Limited
Standard Life
Investments
(Mutual Funds)
Limited
Standard Life
Investments
(Corporate Funds)
Limited
Standard Life
Investments
(Private Capital)
Limited
SLTM
Limited
1825 Financial
Planning Limited
Heng An
Standard Life Insurance
Company Limited
(China JV - 50%)
Phoenix Group
Holdings plc
(19.98%)
A full list of the Company’s subsidiaries is provided in Note 49.
(b) Acquisitions
(b)(i) Subsidiaries
On 27 April 2018, Aberdeen Asset Management Inc. purchased the US business of specialist commodity exchange traded product provider ETF
Securities by purchasing the entire members’ interests of ETF Securities USA LLC, ETF Securities (US) LLC and ETF Securities Advisers LLC.
The acquisition broadens Aberdeen Standard Investments’ suite of investment capabilities with the addition of a range of commodity-based
Exchange Traded Funds. It also provides the platform and expertise to enable Aberdeen Standard Investments to grow its existing Smart Beta
capability by launching strategies within an Exchange Traded Fund vehicle structure.
At the acquisition date the consideration, net assets acquired and resulting goodwill from the ETF Securities acquisition were as follows:
27 April 2018
Cash
Fair value of earn-out payment
Consideration
Fair value of net assets acquired
Customer-related intangible assets
Receivables and other financial assets
Cash and cash equivalents
Total assets
Other financial liabilities
Total liabilities
Goodwill
£m1
27
8
35
28
1
1
30
2
2
7
1 The fair value of the earn-out payment of £8m has been calculated by reference to revenue retention and increases in assets under management and could range from £nil to
£10m.
Customer-related intangible assets relate to the existing customer relationships in place at the acquisition date. The full amount of the goodwill is
expected to be deductible for tax purposes.
The amounts of revenue from contracts with customers and profit contributed to the Group’s consolidated income statement for the year ended
31 December 2018 from the acquired ETF Securities business were £5m and £nil respectively. The profit contributed excludes amortisation of
intangible assets acquired through business combinations. If the acquisition had occurred on 1 January 2018, the Group’s total revenue from
contracts with customers for the period would have increased by £3m to £1,958m and the profit would have remained unchanged.
During the year, the Group’s UK wide financial advice business, 1825, completed the purchase of the entire share capital of Fraser Heath
Financial Management Ltd and Cumberland Place Financial Management Ltd on 1 March 2018 and 6 April 2018 respectively. The combined
assets under advice totalled £750m at the respective acquisition dates.
129
FINANCIAL INFORMATIONStandard Life Aberdeen 2018
8. Group financial statements continued
(b)(ii) Prior year acquisition
On 6 March 2017, the boards of Standard Life plc and Aberdeen Asset Management PLC (Aberdeen) announced that they had reached
agreement on the terms of a recommended merger of Standard Life and Aberdeen, through the acquisition by Standard Life of the entire issued
ordinary share capital of Aberdeen, to be effected by means of a court-sanctioned scheme of arrangement between Aberdeen and Aberdeen
shareholders under Part 26 of the Companies Act 2006. The merger completed on 14 August 2017 and Standard Life plc was renamed
Standard Life Aberdeen plc.
(c) Disposals
(c)(i) Subsidiaries
UK and European insurance business
On 23 February 2018, the Group announced the proposed sale of the UK and European insurance business to Phoenix (the Sale), conditional
on shareholder and relevant regulatory approvals. The Sale was completed on 31 August 2018 and was implemented by the sale to Phoenix of
the entire issued share capital of Standard Life Assurance Limited (SLAL).
Under the transaction the following businesses were retained by the Group:
UK retail platforms, including Wrap and Elevate
1825, our financial advice business
In addition, the assets and liabilities of both the UK and Ireland Standard Life staff defined benefit pension plans were retained by the Group.
Total consideration received comprised cash of £2.0bn, a dividend received from SLAL of £312m in March 2018 and new shares issued at
completion representing approximately 19.98% of the then issued share capital of Phoenix. The shareholding in Phoenix is subject to a lock-up
of 12 months from completion. Following the announcement on 23 February 2018 the UK and European insurance business was classified as
held for sale and measured at its carrying amount. The results of the UK and European insurance business to 31 August 2018 have been
classified as discontinued operations. Refer Note 10. The Group recognised a gain on disposal in respect of the Sale which is included in profit
from discontinued operations in the consolidated income statement for the year ended 31 December 2018.
The gain on sale was calculated as follows:
Total assets of operations disposed of
Total liabilities of operations disposed of
Net assets of operations disposed of
Cash consideration less transaction and separation costs
Non-cash consideration – Phoenix shares
Contingent consideration
Deferred income
Release of foreign currency translation reserve
Gain on sale
£m
(180,444)
179,374
(1,070)
1,854
1,023
8
(78)
43
1,780
A breakdown of the assets and liabilities disposed of is provided in Note 42(d). Refer to Note 4(b) relating to deferred income and Note 38
relating to separation costs.
The gain on sale was exempt from tax under UK tax legislation.
The following additional reserve releases were made as a result of the sale. These releases were taken directly to retained earnings.
Reserve arising on Group reconstruction
Merger reserve
Revaluation of owner occupied property reserve
£m
(1,194)
1,290
3
99
(c)(ii) Associates
HDFC Asset Management Company Limited (HDFC AMC)
Profit on disposal of interests in associates for the year ended 31 December 2018 of £185m includes £177m in relation to the HDFC AMC initial
public offering (IPO).
HDFC AMC, the Group’s associate Indian asset management business announced in November 2017 that its board of directors had approved
initiation of an IPO with the Group offering up a portion of the paid up capital of HDFC AMC. On 6 August 2018, HDFC AMC listed on the
National Stock Exchange of India Limited and the Bombay Stock Exchange Limited following completion of the IPO. Through the IPO, the Group
sold 16,864,585 equity shares in HDFC AMC for a total net consideration of Rs.16,212m (£180m). The Group’s shareholding in HDFC AMC at
31 December 2018 is 63,650,615 equity shares or 29.96% of the issued share capital of HDFC AMC. The gain on sale from the IPO of £177m
(£156m after tax) was calculated using the weighted-average cost method. On disposal £2m was recycled from the translation reserve and was
included in determining the gain on sale.
130
Standard Life Aberdeen 2018
(c)(iii) Prior year disposal
HDFC Life Insurance Company Limited (HDFC Life)
Profit on disposal of interests in associates for the year ended 31 December 2017 of £319m includes £302m in relation to the HDFC Life IPO.
On 17 November 2017, HDFC Life listed on the National Stock Exchange of India Limited and the Bombay Stock Exchange Limited following
completion of an IPO. Through the IPO, the Group sold 108,581,768 equity shares in HDFC Life for a total consideration of Rs 31,489m
(£359m). The Group’s shareholding in HDFC Life at 31 December 2018 is 589,626,265 equity shares or 29.23% of the issued share capital of
HDFC Life. The gain on sale of £302m was calculated using the weighted-average cost method. On disposal £2m was recycled from the
translation reserve and was included in determining the gain on sale.
2. Segmental analysis
The Group’s reportable segments have been identified in accordance with the way in which the Group is structured and managed. IFRS 8
Operating Segments requires that the information presented in the financial statements is based on information provided to the ‘Chief
Operating Decision Maker’. The Chief Operating Decision Maker for the Group is the executive committee.
(a) Basis of segmentation
The Group’s reportable segments are as follows:
Continuing operations:
Asset management and platforms
This segment primarily relates to our asset management and platform businesses. Aberdeen Standard Investments and its asset management
associate in India, HDFC AMC, provide a range of investment products and services for individuals and institutional customers through a number
of different investment vehicles. The segment includes the Group’s three UK adviser platform businesses; Wrap and Elevate which are Standard
Life branded, and the Parmenion digital platform; which provide administration services to advisers. The segment also includes other wholly
owned activities of the Group including the 1825 financial planning and advice business, corporate centre and related activities and the UK and
Ireland Standard Life staff defined benefit pension plans.
Insurance associates and joint ventures
This segment comprises our life insurance associates and joint ventures in India (HDFC life), the UK (Phoenix) and China (HASL). These
businesses offer a range of pension, insurance and savings products to the Indian, UK, European and Chinese markets. Phoenix is also the
largest life and pensions consolidator in Europe.
Discontinued operations:
UK and European insurance
On 23 February 2018, the Group announced the proposed sale of the UK and European insurance business. Refer to Note 1 for further details.
As a consequence, the results of this business have been presented as discontinued operations. The UK and European insurance business
provided a broad range of long-term savings and investment products to individual and corporate customers in the UK, Germany, Austria and
Ireland.
Changes to reporting segments
As noted above, the segments are based on information provided to the executive committee. Previously management information was provided
separately for our asset management business and our pensions and savings business. Following the completion of the sale of the UK and
European insurance business, the Group is being managed as a single company and this is reflected in our new combined Asset management
and platforms segment. HDFC Life and HASL, which were previously reported in the India and China life segment, are included in the Insurance
associates and joint ventures segment together with Phoenix.
Comparative amounts for the 12 months ended 31 December 2017 have been prepared on the same basis as 31 December 2018 to allow more
meaningful comparison.
131
FINANCIAL INFORMATIONStandard Life Aberdeen 2018
8. Group financial statements continued
(b) Reportable segments – Group adjusted profit before tax and revenue information
(b)(i) Analysis of Group adjusted profit before tax
Adjusted profit before tax is the key alternative performance measure utilised by the Group’s management in their evaluation of segmental
performance and is therefore also presented by reportable segment.
31 December 2018
Fee based revenue
Spread/risk margin
Total adjusted operating income
Total adjusted operating expenses
Adjusted operating profit
Capital management
Share of associates’ and joint ventures’
profit before tax1
Adjusted profit before tax
Tax on adjusted profit
Share of associates’ and joint ventures' tax
expense
Adjusted profit after tax
Adjusted for the following items
Restructuring and corporate transaction
expenses
Amortisation and impairment of
intangible assets acquired in business
combinations and through the purchase
of customer contracts2
Profit on disposal of subsidiaries
Profit on disposal of interests in
associates
Impairment of associates
Investment return variances and
economic assumption changes
Other
Total adjusting items
Tax on adjusting items
Share of associates’ and joint ventures’ tax
expense on adjusting items
Profit attributable to non-controlling
interests (preference shares and perpetual
notes)
(Loss)/profit for the year attributable to
equity holders of Standard Life
Aberdeen plc
Profit attributable to non-controlling
interests
Ordinary shares
Preference shares and perpetual notes
(Loss)/profit for the year
Notes
Asset
management
and platforms
£m
1,868
–
1,868
(1,395)
473
(9)
Insurance
associates and
joint ventures
£m
–
–
–
–
–
–
Total
continuing
operations
£m
1,868
–
1,868
(1,395)
473
(9)
Discontinued
operations
£m
532
59
591
(376)
215
(5)
Eliminations
£m
(94)
–
(94)
94
–
–
Total
£m
2,306
59
2,365
(1,677)
688
(14)
9
8
1
1
12
46
510
(95)
(17)
398
140
140
–
(26)
114
186
650
(95)
(43)
512
–
210
(77)
–
133
(231)
(8)
(239)
(264)
(1,117)
–
183
–
–
4
(1,161)
52
2
(5)
(38)
–
2
(228)
54
(18)
(236)
–
1
–
(1,155)
–
185
(228)
54
(14)
(1,397)
52
3
(5)
–
1,780
–
–
(41)
44
1,519
41
–
(28)
(714)
(121)
(835)
1,665
–
5
5
28
(830)
1,698
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
186
860
(172)
(43)
645
(503)
(1,155)
1,780
185
(228)
13
30
122
93
3
(33)
830
5
33
868
1 Share of associates’ and joint ventures’ profit before tax comprises the Group’s share of results of HDFC Life, HDFC AMC, Phoenix and Heng An Standard Life Insurance
Company Limited.
2 Amortisation and impairment of intangible assets acquired in business combinations and through the purchase of customer contracts includes £1,117m included in
administrative expenses and set out in Note 14, and £38m relating to intangibles recognised on the part acquisition of associates and included in Share of profit from
associates and joint ventures in the consolidated income statement.
Each reportable segment reports total adjusted operating income as its measure of revenue in its analysis of adjusted profit before tax. Fee
based revenue consists of income generated primarily from asset management charges, premium based charges and transactional charges.
Spread/risk margin reflects the margin earned on spread/risk business and includes net earned premiums, claims and benefits paid, net
investment return using long-term assumptions and actuarial reserving changes.
132
Standard Life Aberdeen 2018
Adjusted operating income relates to revenues generated from external customers with the exception of £94m (2017: £136m) included within the
Asset management and platforms segment which relates to investment management fees arising from intra-group transactions with the UK and
European insurance segment classified as discontinued operations. At a Group level an elimination adjustment is required to remove intra-group
impacts.
There are no customers whose revenue represents greater than 10% of fee based revenue.
31 December 2017
Fee based revenue
Spread/risk margin
Total adjusted operating income
Total adjusted operating expenses
Adjusted operating profit
Capital management
Share of associates’ and joint ventures’
profit before tax1
Adjusted profit before tax
Tax on adjusted profit
Share of associates’ and joint ventures'
tax expense
Adjusted profit after tax
Adjusted for the following items
Restructuring and corporate
transaction expenses
Amortisation and impairment of
intangible assets acquired in business
combinations2
Provision for annuity sales practices
Profit on disposal of interests in
associates
Investment return variances and
economic assumption changes
Other
Total adjusting items
Tax on adjusting items
Profit attributable to non-controlling
interests (preference shares and
perpetual notes)
Profit for the year attributable to
equity holders of Standard Life
Aberdeen plc
Profit attributable to non-controlling
interests
Ordinary shares
Preference shares and perpetual notes
Profit for the year
Notes
Asset
management
and platforms
£m
1,447
–
1,447
(1,084)
363
13
Insurance
associates and
joint ventures
£m
–
–
–
–
–
–
Total
continuing
operations
£m
1,447
–
1,447
(1,084)
363
13
Discontinued
operations
£m
800
165
965
(579)
386
(7)
Eliminations
£m
(136)
–
(136)
136
–
–
Total
£m
2,111
165
2,276
(1,527)
749
6
9
8
38
1
12
41
417
(77)
(29)
311
58
58
–
(12)
46
99
475
(77)
(41)
357
–
379
(31)
–
348
(162)
–
(162)
(11)
(125)
–
14
–
(15)
(288)
49
(8)
64
(13)
–
305
–
–
292
–
(138)
–
319
–
(15)
4
49
–
(100)
–
67
–
(44)
(7)
–
(8)
–
338
402
297
–
8
410
25
–
322
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
99
854
(108)
(41)
705
(173)
(138)
(100)
319
67
(15)
(40)
42
(8)
699
25
8
732
1 Share of associates’ and joint ventures’ profit before tax comprises the Group’s share of results HDFC Life, HDFC AMC and Heng An Standard Life Insurance Company
Limited.
2 Amortisation and impairment of intangible assets acquired in business combinations includes £125m included in Other administrative expenses and set out in Note 14, and
£13m relating to intangibles recognised on the part acquisition of associates and included in Share of profit from associates and joint ventures in the consolidated income
statement.
133
FINANCIAL INFORMATIONStandard Life Aberdeen 2018
8. Group financial statements continued
(b)(ii) Total income and expenses
The following table provides a reconciliation of total adjusted operating income and total adjusted operating expenses, as presented in the
analysis of Group adjusted profit by segment, to total revenue and total expenses respectively, as presented in the IFRS consolidated income
statement:
Total adjusted operating income and adjusted operating expenses as
presented in the analysis of Group adjusted profit by segment from
continuing operations
Insurance and participating investment contract claims and change in
liabilities
Change in non-participating investment contract liabilities
Change in liability for third party interest in consolidated funds
Other presentation differences
Adjusting items included in revenue and expenses
Capital management
Total income and expenses as presented in the IFRS consolidated
income statement from continuing operations
2018
2017
Income
£m
Expenses
£m
Income
£m
Expenses
£m
1,868
(1,395)
1,447
(1,084)
1
(78)
(5)
152
202
(9)
(1)
78
5
(152)
(1,355)
–
201
74
6
79
345
13
(201)
(74)
(6)
(79)
(328)
–
2,131
(2,820)
2,165
(1,772)
This reconciliation includes a number of reconciling items which arise due to presentation differences between IFRS reporting requirements and
the determination of adjusted operating income and adjusted operating expenses. Adjusted operating income and expenses exclude items
which have an equal and opposite effect on IFRS revenue and IFRS expenses in the consolidated income statement, such as investment
returns which are for the account of policyholders. Other presentation differences generally relate to items included in administrative expenses
which are borne by policyholders, for example investment property management expenses, or are directly related to fee income. Other
presentation differences also include Aberdeen Standard Investments commission expenses which are presented in expenses in the
consolidated income statement but are netted against adjusted operating income in the analysis of Group adjusted profit by segment.
(c) Total income from continuing operations by geographical location
Total income from continuing operations as presented in the consolidated income statement split by geographical location is as follows:
UK
Europe, Middle East and Africa
Asia Pacific
Americas
Total
2018
£m
1,291
201
464
175
2,131
2017
£m
1,140
214
693
118
2,165
The income of the operating businesses is allocated based on where the income is earned. The return on investment funds is allocated based
on where funds are registered.
(d) Non-current non-financial assets by geographical location
UK
Europe, Middle East and Africa
Asia Pacific
Americas
Total
2018
£m
3,417
2
6
40
3,465
2017
£m
13,632
771
3
3
14,409
Non-current non-financial assets for this purpose consist of investment property, property, plant and equipment and intangible assets (excluding
deferred acquisition costs).
134
Standard Life Aberdeen 2018
3.
Investment return
Gains and losses resulting from changes in both market value and foreign exchange on investments classified at fair value through profit or
loss are recognised in the consolidated income statement in the period in which they occur. The gains and losses include investment income
received such as interest payments but exclude dividend income. Dividend income is separately recognised in the consolidated income
statement when the right to receive payment is established.
Interest income on financial instruments classified as available-for-sale or loans and receivables is separately recognised in the consolidated
income statement using the effective interest rate method. The effective interest rate method allocates interest and other finance costs at a
constant rate over the expected life of the financial instrument, or where appropriate a shorter period, by using as the interest rate the rate that
exactly discounts the future cash receipts over the expected life to the net carrying value of the instrument.
Rental income from investment property is recognised in the consolidated income statement on a straight-line basis over the term of the
lease. Lease incentives granted such as rent free periods are recognised as an integral part of the total rental income and are spread over
the term of the lease.
Interest and similar income
Cash and cash equivalents
Available-for-sale debt securities
Dividend income
Gains/(losses) on financial instruments at fair value through profit or loss
Equity securities and interests in pooled investment funds (other than dividend income)
Debt securities
Derivative financial instruments
Foreign exchange gains/(losses) on financial instruments other than those at fair value through profit
or loss
Investment return from continuing operations
2018
£m
18
11
29
49
(193)
2
(8)
(199)
5
(116)
2017
restated1
£m
4
10
14
16
225
–
(9)
216
(8)
238
1 Comparatives for 2017 have been restated to reflect the classification of the UK and European insurance business as discontinued operations. Refer Note 1.
4. Revenue from contracts with customers
Revenue from contracts with customers is recognised as services are provided and it is almost certain that the revenue will be received.
Where revenue is received in advance (front-end fees), this income is deferred and recognised as a deferred income liability until the services
have been provided (see Note 36).
Revenue from contracts with customers excludes premium written and earned on insurance and participating investment contracts (Refer
Note 31).
(a) Revenue from contracts with customers
The following table provides a breakdown of total revenue from contracts with customers:
Asset management
Management fee income – Strategic insurance partners
Management fee income – Other clients
Performance fees
Revenue from contracts with customers for asset management
Fund platforms
Fee income
Other revenue from contracts with customers
Total revenue from contracts with customers from continuing operations
2018
£m
370
1,372
9
1,751
173
31
1,955
2017
£m
274
1,023
20
1,317
137
32
1,486
135
FINANCIAL INFORMATIONStandard Life Aberdeen 2018
8. Group financial statements continued
Asset management
Through a number of its subsidiaries, the Group provides asset management to its customers. This performance obligation is performed over
time with the revenue recognised as the obligation is performed. The Group generally receives asset management fees based on the
percentage of the assets under management. The percentage varies depending on the level and nature of assets under management. Asset
management fees are either deducted from assets or invoiced. Deducted fees are generally calculated, recognised and collected on a daily
basis. Other asset management fees are invoiced to the customer either monthly or quarterly with receivables recognised for unpaid invoices.
The payment terms for invoiced revenue vary but are typically 30 days from receipt of invoice. Accrued income is recognised to account for
income earned but not yet invoiced. There is also limited use of performance fees. Performance fees are only recognised once it is highly
probable that the revenue will be received.
Fund platforms
Through a number of its subsidiaries, the Group offers customers access to fund platforms. The platforms give customers the ongoing
functionality to manage and administer their investments. This performance obligation is performed over time with the revenue recognised as the
obligation is performed. Customers pay a platform charge which is generally calculated as a percentage of their assets. The percentage varies
depending on the level of assets on the specific platform. The main platform charges are calculated either daily or monthly and are collected and
recognised monthly. The charges are collected directly from assets on the platform. There are no significant payment terms.
The revenue from the contracts with customers is reported within the Asset management and platforms segment. The following table provides a
reconciliation of Revenue from contracts with customers as presented in the consolidated income statement to fee based revenue, as presented
in the analysis of adjusted profit before tax for the Asset management and platforms segment.
Revenue from contracts with customers from continuing operations as presented in the
consolidated income statement
Presentation differences
Commission expenses
Other differences
Fee based revenue from continuing operations as presented in the Asset management and
platforms segment
2018
£m
2017
£m
1,955
1,486
(105)
18
(45)
6
1,868
1,447
Commission expenses are netted against fee based revenue in the segment reporting but are included within expenses in the consolidated
income statement. Other presentation differences relates to amounts presented in a different income line item of the consolidated income
statement and intra-group revenue which is eliminated in the consolidated income statement but grossed up for the purposes of segmental
reporting.
(b) Contract receivables, assets and liabilities
The Group has recognised the following receivables, assets and liabilities in relation to contracts with customers.
Amount receivable from contracts with customers
Accrued income from contracts with customers
Cost of obtaining customer contracts
Deferred acquisitions costs
Total contract receivables and assets
Deferred Income
Accruals
Total contract liabilities
Notes
22
22
14
15
Notes
36
37
31 December
2018
£m
31 December
2017
£m
1 January
2017
£m
112
214
80
6
412
104
249
11
356
720
68
67
–
389
524
31 December
2018
£m
31 December
2017
£m
1 January
2017
£m
75
5
80
157
6
163
198
–
198
The deferred income at 31 December 2018 relates to future services to be provided to Phoenix relating to certain client propositions.
The movement in the Cost of obtaining customer contracts is primarily due to investment management contracts obtained via a number of asset
purchases in the year.
136
Standard Life Aberdeen 2018
5. Other administrative expenses
Interest expense
Commission expenses
Staff costs and other employee-related costs
Operating lease rentals
Auditors’ remuneration
Depreciation of property, plant and equipment
Amortisation of intangible assets
Impairment losses on intangible assets2
Impairment losses on disposal group classified as held for sale
Other
Acquisition costs deferred during the year
Amortisation of deferred acquisition costs
Total other administrative expenses from continuing operations
Notes
18
14
14
24
15
15
2018
£m
5
105
673
50
8
16
207
46
2
634
1,746
(2)
2
1,746
2017
restated1
£m
–
49
616
31
5
6
87
46
24
432
1,296
(4)
3
1,295
1 Comparatives for 2017 have been restated to reflect the classification of the UK and European insurance business as discontinued operations. Refer Note 1.
2
Impairment losses on intangible assets excludes a goodwill impairment charge of £880m (2017: £nil) recognised separately as an individual item on the consolidated income
statement. Refer note 14.
In addition to interest expense of £5m (2017: £nil), interest expense of £45m (2017: £34m) was incurred in respect of subordinated liabilities.
6. Staff costs and other employee-related costs
The following table shows the staff costs and other employee-related costs aggregated for both continuing and discontinued operations.
The aggregate remuneration payable in respect of employees:
Wages and salaries
Social security costs
Pension costs
Defined benefit plans
Defined contribution plans
Employee share-based payments and deferred fund awards
45
Total staff costs and other employee-related costs
Notes
The average number of staff employed by the Group during the year:
Asset management and platforms
UK and European insurance (classified as discontinued operations)1
Total average number of staff employed
1
Includes all staff employed by the UK and European insurance business until 31 August 2018.
Information in respect of Directors’ remuneration is provided in the Directors’ remuneration report on pages 81 to 102.
2018
£m
655
68
(36)
71
14
772
2018
6,360
1,959
8,319
2017
£m
633
75
(22)
57
38
781
2017
5,112
2,656
7,768
137
FINANCIAL INFORMATIONStandard Life Aberdeen 2018
8. Group financial statements continued
7. Auditors’ remuneration
The following table shows the auditors’ remuneration aggregated for both continuing and discontinued operations.
Fees payable to the Company’s auditors for the audit of the Company’s individual and consolidated
financial statements
Fees payable to the Company’s auditors for other services
The audit of the Company’s consolidated subsidiaries pursuant to legislation
Audit related assurance services
Total audit and audit related assurance fees
Other assurance services
Other non-audit fee services
Total non-audit fees
Total auditors’ remuneration
2018
£m
2017
£m
1.1
3.6
1.7
6.4
1.6
0.2
1.8
8.2
0.9
4.8
1.9
7.6
0.3
0.1
0.4
8.0
Auditors’ remuneration disclosed above excludes audit and non-audit fees payable to the Group’s principal auditor by Group managed funds
which are not controlled by the Group, and therefore not consolidated in the Group’s financial statements.
During the year ended 31 December 2018 no audit fees were payable in respect of defined benefit plans to the Group’s principal auditor (2017:
£nil).
For more information on non-audit services, refer to the Audit Committee report in Section 3 – Corporate governance statement.
8. Restructuring and corporate transaction expenses
Total restructuring and corporate transaction expenses incurred from continuing operations during the year were £231m (2017: £162m). The
2018 expenses mainly relate to integration and merger related costs of £191m (2017: £109m) and a number of other business unit restructuring
programmes. Deal costs relating to acquisitions included in restructuring and corporate transaction expenses for the year ended 31 December
2018 were £1m (2017: £38m). In 2017 £4m was also recognised directly in the merger reserve in equity in relation to the Aberdeen merger.
For the purposes of determining adjusted profit from continuing operations, an additional £8m was recognised in 2018 relating to our share of
insurance associate restructuring and corporate transaction expenses (2017: £nil).
Restructuring and corporate transaction expenses of £264m (2017: £11m) are used to determine adjusted profit before tax from discontinued
operations. In 2018 these expenses mainly relate to the sale of the UK and European insurance business discussed in Note 1. This includes
separation costs of £53m (2017: £nil) and £198m (2017: £nil) in relation to the redemption of Tier 1 subordinated bonds. A further £80m of
separation costs have been included in the gain on sale relating to contractual obligations arising from the transaction. In 2017, an additional
£3m of restructuring and corporate transaction expenses were incurred by the Heritage With Profits Fund.
138
Standard Life Aberdeen 2018
9. Taxation
The Group’s tax expense comprises both current tax and deferred tax expense.
Current tax is the expected tax payable on taxable profit for the year.
A deferred tax asset represents a tax deduction that is expected to arise in a future period. It is only recognised to the extent that there is
expected to be future taxable profit or investment return to offset the tax deduction. A deferred tax liability represents taxes which will become
payable in a future period as a result of a current or prior year transaction. Where local tax law allows, deferred tax assets and liabilities are
netted off on the statement of financial position. The tax rates used to determine deferred tax are those enacted or substantively enacted at
the reporting date.
Deferred tax is recognised on temporary differences arising from investments in subsidiaries and associates unless the timing of the reversal
is in our control and it is expected that the temporary difference will not reverse in the foreseeable future.
Current tax and deferred tax is recognised in the consolidated income statement except when it relates to items recognised in other
comprehensive income or directly in equity, in which case it is credited or charged to other comprehensive income or directly to equity
respectively.
(a) Tax charge in the consolidated income statement
(a)(i) Current year tax expense
Current tax:
UK
Double tax relief
Overseas
Adjustment to tax expense in respect of prior years
Total current tax attributable to continuing operations
Deferred tax:
Deferred tax (credit)/expense arising from the current year
Adjustment to deferred tax in respect of prior years
Total deferred tax attributable to continuing operations
Total tax expense attributable to continuing operations
2018
£m
2017
restated1
£m
20
–
44
3
67
(12)
(12)
(24)
43
12
(2)
19
(1)
28
(12)
12
–
28
1 Comparatives for 2017 have been restated to reflect the classification of the UK and European insurance business as discontinued operations. Refer Note 1.
The share of associates’ and joint ventures’ tax expense is £40m (2017: £41m) and is included in profit before tax in the consolidated income
statement in ‘Share of profit from associates and joint ventures’.
In 2018 unrecognised tax losses from previous years were used to reduce the current tax expense by £4m (2017: £3m). Unrecognised tax
losses and timing differences were used to reduce the deferred tax expense by £nil (2017: £3m).
Current tax recoverable and current tax liabilities at 31 December 2018 were £6m (2017: £192m) and £23m (2017: £166m) respectively. Current
tax assets and liabilities at 31 December 2018 and 31 December 2017 are expected to be recoverable or payable in less than 12 months.
(a)(ii) Reconciliation of tax expense
(Loss)/Profit before tax from continuing operations
Tax at 19% (2017: 19.25%)
Permanent differences
Tax effect of accounting for share of profit from associates and joint ventures
Impairment losses on intangible assets
Impairment of investment in associate
Different tax rates
Adjustment to current tax expense in respect of prior years
Recognition of previously unrecognised tax credit
Deferred tax not recognised
Adjustment to deferred tax expense in respect of prior years
Write down of deferred tax asset
Non-taxable (profit)/loss on sale of subsidiaries and associates
Total tax expense from continuing operations for the year
2018
£m
(787)
(150)
21
(25)
171
43
(16)
3
(4)
10
(12)
4
(2)
43
1 Comparatives for 2017 have been restated to reflect the classification of the UK and European insurance business as discontinued operations. Refer Note 1.
2017
restated1
£m
438
84
(55)
(8)
1
–
(4)
(1)
(6)
6
12
(1)
–
28
139
FINANCIAL INFORMATIONStandard Life Aberdeen 2018
8. Group financial statements continued
The standard UK corporation tax rate for the accounting period is 19%. The UK corporation tax rate will reduce to 17% from 1 April 2020. This
change has been taken into account in the calculation of the UK deferred tax balance at 31 December 2018.
The accounting for certain items in the consolidated income statement results in certain reconciling items in the table above, the values of which
vary from year to year depending upon the underlying accounting values:
Details of significant reconciling items are as follows:
Permanent differences in 2018 include expenses and accounting losses which are not tax deductible for tax purposes. It also includes the
difference between the tax basis and accounting value for employee share-based awards and non-deductible contributions to the Irish pension
scheme. In 2017, there were a number of non-recurring items including non-taxable gains arising from the IPO of HDFC Life, a tax deductible
donation made to Standard Life Foundation offset by expenses relating to the acquisition of Aberdeen which were not tax deductible.
The share of profit from associates and joint ventures is presented net of tax in the consolidated income statement and therefore gives rise to
a reconciling item
The impairment of the goodwill intangible asset is not tax deductible
Impairment of investment in associates is not tax deductible
Different tax rates will vary according to the level of profit subject to tax at rates different from the UK corporation tax rate (such as in our Asian
business) and in 2018 mainly comprises a non-recurring reconciling item from the gain on sale made on the IPO of HDFC AMC. This arose as
the Indian rate of tax on capital gains is less than the UK corporate tax rate.
The ability to value tax losses and other tax assets also affects the tax charge. There is a non-recurring tax credit of £12m attributable to the
deferred tax liability relating to intangible assets recognised from the Aberdeen merger in 2017. We have also not recognised a deferred tax
asset of £10m on tax losses arising in the year due to uncertainty as to when these losses will be utilised.
The Group operates in a large number of territories and during the normal course of business will be subject to audit or enquiry by local tax
authorities. At any point in time the Group will also be engaged in commercial transactions the tax outcome of which may be uncertain due to
their complexity or uncertain application of tax law. Tax provisions, therefore, are subject to a level of estimation and judgement and may result in
the Group recognising provisions for uncertain tax positions. Management will provide for uncertain tax positions where they judge that it is
probable there will be a future outflow of economic benefits from the Group to settle the obligation. In assessing uncertain tax positions
management considers each issue on its own merits using their judgement as to the estimate of the most likely outcome. Where the final
outcome differs from the amount provided this difference will impact the tax charge in future periods. Management re-assesses provisions at
each reporting date based upon latest available information.
(b) Tax relating to components of other comprehensive income
Tax relating to components of other comprehensive income is as follows:
Tax relating to defined benefit pension plan deficits
Equity holder tax effect relating to items that will not be reclassified subsequently to
profit or loss
Deferred tax on net change in financial assets designated as available-for-sale
Tax relating to fair value losses recognised on cash flow hedges
Tax relating to cash flow hedge losses transferred to consolidated income statement
Equity holder tax effect relating to items that may be reclassified subsequently to
profit or loss
Tax relating to other comprehensive income from continuing operations
2018
£m
–
–
(1)
9
(7)
1
1
1 Comparatives for 2017 have been restated to reflect the classification of the UK and European insurance business as discontinued operations. Refer Note 1.
All of the amounts presented above are in respect of equity holders of Standard Life Aberdeen plc.
(c) Tax relating to items taken directly to equity
Tax credit on reserves for employee share-based payments
Tax credit relating to coupons payable on perpetual notes classified as equity
Tax relating to items taken directly to equity
Notes
29
2018
£m
–
(6)
(6)
2017
restated1
£m
10
10
–
(5)
2
(3)
7
2017
£m
(1)
(2)
(3)
140
Standard Life Aberdeen 2018
(d) Deferred tax assets and liabilities
(d)(i) Movements in net deferred tax liabilities
At 1 January
Reclassified as held for sale during the year
Acquired through business combinations
Amounts credited/(charged) to the consolidated income statement
Amounts credited directly to equity in respect of employee share-based payments
Tax on defined benefit pension plan deficits
Tax on available-for-sale assets
Tax on cash flow hedge
Foreign exchange adjustment
Other
Net deferred tax liability at 31 December
(d)(ii) Analysis of recognised deferred tax
Deferred tax assets comprise:
Actuarial liabilities
Losses carried forward
Depreciable assets
Deferred income
Employee benefits
Provisions and other temporary timing differences
Insurance related items
Other
Gross deferred tax assets
Less: Offset against deferred tax liabilities
Deferred tax assets
Deferred tax liabilities comprise:
Insurance related items
Unrealised gains on investments
Deferred acquisition costs
Employee benefits
Temporary timing differences
Deferred tax on intangible assets acquired through business combinations
Other
Gross deferred tax liabilities
Less: Offset against deferred tax assets
Deferred tax liabilities
Net deferred tax liability at 31 December
2018
£m
(302)
224
(1)
44
(2)
–
1
(2)
–
(1)
(39)
2018
£m
–
27
9
–
24
2
–
–
62
(1)
61
–
3
–
2
1
92
3
101
(1)
100
(39)
2017
£m
(217)
–
(89)
11
1
(10)
–
3
(1)
–
(302)
2017
£m
5
11
12
8
37
2
5
4
84
(19)
65
4
196
53
–
–
130
3
386
(19)
367
(302)
A deferred tax asset of £27m (2017: £11m) for the Group has been recognised in respect of losses of various subsidiaries. Deferred tax assets
are recognised to the extent that it is probable that the losses will be capable of being offset against taxable profits and gains in future periods.
The value attributed to them takes into account the certainty or otherwise of their recoverability. Their recoverability is measured against the
reversal of deferred tax liabilities and anticipated taxable profits and gains based on business plans.
Deferred tax assets and liabilities are expected to be recovered or settled after more than 12 months.
(e) Unrecognised deferred tax
Due to uncertainty regarding recoverability, deferred tax assets have not been recognised in respect of the following:
Cumulative losses carried forward of £74m in the UK and £268m overseas (2017: £90m, £293m respectively)
Tax reserves of the German branch of SLAL of £nil (2017: £102m)
Loss relating to Irish pension scheme deficit £nil (2017: £42m)
Of these unrecognised deferred tax assets, certain losses have expiry dates as follows:
US losses of £169m with expiry dates between 2027-2037
Other overseas losses of £11m with expiry dates before 2023
Other overseas losses of £3m with expiry dates between 2024 and 2028
141
FINANCIAL INFORMATIONStandard Life Aberdeen 2018
8. Group financial statements continued
10. Discontinued operations
The Group classifies as discontinued operations areas of business which have been disposed of or are classified as held for sale at the year
end and which either, represent a separate major line of business or geographical area, or are part of a plan to dispose of one. The results of
discontinued operations are shown separately on the face of the consolidated income statement from the results of the remaining (continuing)
parts of the Group’s business.
Discontinued operations relate solely to the UK and European insurance business. The sale completed on 31 August 2018 (refer Note 1). The
consolidated income statement, other comprehensive income and cash flows from discontinued operations are shown below:
Consolidated income statement
Notes
Income
Investment return
Revenue from contracts with customers
Insurance and participating investment contract premium income
Profit on disposal of subsidiaries
Other income
Total income from discontinued operations
Expenses
Insurance and participating investment contract claims and change in liabilities
Change in non-participating investment contract liabilities
Administrative expenses
8
Restructuring and corporate transaction expenses
Other administrative expenses
Total administrative expenses
Provision for annuity sales practices
Change in liability for third party interest in consolidated funds
Finance costs
Total expenses from discontinued operations
Profit before tax from discontinued operations
Tax expense attributable to policyholders’ returns
Profit before tax expense attributable to equity holders
Total tax expense
Less: Tax attributable to policyholders’ returns
Tax expense attributable to equity holders
Profit for the period from discontinued operations
2018
£m
2,350
117
1,256
1,780
10
5,513
1,657
1,470
264
339
603
–
(32)
35
3,733
1,780
46
1,734
82
(46)
36
1,698
2017
£m
12,536
185
2,054
–
18
14,793
3,427
8,889
14
665
679
100
1,118
54
14,267
526
166
360
204
(166)
38
322
Intercompany income and expenses that will continue post completion are eliminated in discontinued operations, those that will not continue post
completion are eliminated in continuing operations. Revenue from contracts with customers is shown net of elimination of intra-group revenue
which will continue post completion.
The Group provides additional disclosure in relation to the total tax expense for discontinued operations. Certain products are subject to tax on
policyholders’ investment returns. This tax, ‘policyholder tax’, is accounted for as an element of income tax. To make the tax expense disclosure
more meaningful, we disclose policyholder tax and tax payable on equity holders’ profits separately. The policyholder tax expense is the amount
payable in the period plus the movement of amounts expected to be payable in future periods by policyholders on their investment return. The
remainder of the tax expense is attributed to equity holders as tax payable on equity holders’ profit.
142
Standard Life Aberdeen 2018
Other comprehensive income
Items that will not be reclassified subsequently to profit or loss:
Revaluation of owner occupied property
Total items that will not be reclassified subsequently to profit or loss
Items that may be reclassified subsequently to profit or loss:
Exchange differences on translating foreign operations
Change in unallocated divisible surplus
Total items that may be reclassified subsequently to profit or loss
Items that were transferred to profit or loss on disposal of subsidiaries:
Release of foreign currency translation reserve
Total items that were transferred to profit or loss on disposal of subsidiaries
Other comprehensive income for the period from discontinued operations
Cash flows
Net cash flows from operating activities
Net cash flows from financing activities
Net cash flows from investing activities
Total net cash flows
2018
£m
2
2
3
(5)
(2)
(43)
(43)
(43)
2018
£m
155
(710)
(7,537)
(8,092)
2017
£m
1
1
(1)
12
11
–
–
12
2017
£m
2,247
(1,309)
(38)
900
The net cash flows from investing activities for the year ended 31 December 2018 do not include cash consideration received from the disposal
of the UK and European insurance business of £1,971m but includes the cash and cash equivalents of £7,472m at the date of disposal.
143
FINANCIAL INFORMATIONStandard Life Aberdeen 2018
8. Group financial statements continued
11. Earnings per share
Basic earnings per share is calculated by dividing profit attributable to ordinary equity holders by the weighted average number of ordinary
shares in issue during the year excluding shares owned by the employee trusts that have not vested unconditionally to employees.
Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares in issue during the year to assume the
conversion of all dilutive potential ordinary shares, such as share options granted to employees.
Adjusted earnings per share is calculated on adjusted profit after tax attributable to ordinary equity holders of the Company i.e. adjusted profit
net of dividends paid on preference shares.
Basic earnings per share was 29.1p (2017: 29.8p) and diluted earnings per share was 29.1p (2017: 29.6p) for the year ended 31 December
2018. The following table shows details of basic, diluted and adjusted earnings per share.
Adjusted profit before tax
Tax on adjusted profit
Share of associates’ and joint ventures’ tax
expense
Adjusted profit after tax
Dividend paid on preference shares
Adjusted profit after tax attributable to
equity holders of the Company
Adjusting items
Tax on adjusting items
Share of associates’ and joint ventures’ tax
expense on adjusting items
Adjustment for perpetual debt instruments
classified as equity net of tax
Profit attributable to equity holders of the
Company
Weighted average number of ordinary
shares outstanding
Dilutive effect of share options and awards
Weighted average number of diluted
ordinary shares outstanding
2018
Continuing
operations
£m
Discontinued
operations
£m
650
(95)
(43)
512
(5)
507
(1,397)
52
3
–
210
(77)
–
133
–
133
1,519
41
–
(28)
(835)
1,665
Continuing
operations
£m
2017
Discontinued
operations
£m
475
(77)
(41)
357
–
357
4
49
–
(8)
379
(31)
–
348
–
348
(44)
(7)
–
–
Total
£m
854
(108)
(41)
705
–
705
(40)
42
–
(8)
402
297
699
Millions
2,343
17
2,360
Total
£m
860
(172)
(43)
645
(5)
640
122
93
3
(28)
830
Millions
2,848
29
2,877
Basic earnings per share
Diluted earnings per share
Adjusted earnings per share
Adjusted diluted earnings per share
Pence
(29.3)
(29.3)
17.8
17.8
Pence
Pence
Pence
Pence
Pence
58.4
58.4
4.7
4.7
29.1
29.1
22.5
22.5
17.1
17.0
15.2
15.1
12.7
12.6
14.9
14.8
29.8
29.6
30.1
29.9
Details of share options and awards which may be treated as dilutive are provided in Note 45. In accordance with IAS 33, no share options and
awards were treated as dilutive for the year ended 31 December 2018 due to the loss attributable to equity holders of the Company from
continuing operations in the year. This results in the adjusted diluted earnings per share from continuing operations and the total diluted earnings
per share including discontinued operations being calculated using a weighted average number of ordinary shares of 2,848 million.
As discussed in Note 26 the Company undertook a share consolidation during the year followed by a return of capital to shareholders. In
accordance with IAS 33, earnings per share have not been restated following the share consolidation as there was an overall corresponding
change in resources due to the redemption of the B shares. As a result of the share consolidation and share buyback, earnings per share from
continuing operations for the year ended 31 December 2018 is not directly comparable with the prior year.
144
Standard Life Aberdeen 2018
12. Adjusted profit and adjusting items
Adjusted profit before tax is the Group’s key alternative performance measure. Adjusted profit excludes the impact of the following items:
Restructuring costs and corporate transaction expenses. Restructuring includes the impact of major regulatory change.
Amortisation and impairment of intangible assets acquired in business combinations and through the purchase of customer contracts
Profit or loss arising on the disposal of a subsidiary, joint venture or associate
Fair value movements in contingent consideration
Items which are one-off and, due to their size or nature, are not indicative of the long-term operating performance of the Group
Adjusted profit also excludes impacts arising from investment return variances (formerly called short-term fluctuations in investment return)
and economic assumption changes in the Group’s insurance entities. It is calculated based on expected returns on investments backing
equity holder funds, with consistent allowance for the corresponding expected movements in equity holder liabilities. Impacts arising from the
difference between the expected return and actual return on investments, and the corresponding impact on equity holder liabilities except
where they are directly related to a significant management action, are excluded from adjusted profit and are presented within profit before
tax. The impact of certain changes in economic assumptions is also excluded from adjusted profit and is presented within profit before tax.
Coupons payable on perpetual notes classified as non-controlling interests for which interest is accrued are included in adjusted profit before
tax. For IFRS purposes, these are recognised directly in equity. This gave rise to an adjusting item in 2017, prior to the reclassification of such
instruments to subordinated liabilities on 18 December 2017. Dividends payable on preference shares classified as non-controlling interests
are excluded from adjusted profit in line with the treatment of ordinary shares. Similarly to preference shares, our share of interest payable on
Tier 1 debt instruments held by associates, for which interest is only accounted for when paid, is excluded from adjusted profit.
(a)
Investment return variances and economic assumptions changes – insurance entities
Wholly owned insurance entities
The Group’s UK and European insurance business was sold during the year and is classified as discontinued operations. The Group’s other
wholly owned insurance business, SL Asia, is classified as held for sale (see Note 24).
The components of IFRS profit attributable to market movements and interest rate changes which give rise to variances between actual and
expected returns on investments backing equity holder funds, with consistent allowance for the corresponding expected movement in equity
holder liabilities, as well as the impact of changes in economic assumptions on equity holder liabilities, are excluded from adjusted profit for the
Group’s wholly owned insurance entities. Investments backing equity holder funds include investments backing annuities and subordinated debt,
and investments from surplus capital in insurance companies.
For annuities this means that all fluctuations in liabilities and the assets backing those liabilities due to market interest rate (including credit risk)
movements over the year are excluded from adjusted profit.
The expected rates of return for debt securities and equity securities are determined separately. The expected rates of return for equity securities
are determined based on the gilt spot rates of an appropriate duration plus an equity risk premium of 3% (2017: 3%). Investments in pooled
investment funds which target equity returns over the longer term, including absolute return funds, also use an expected rate of return
determined based on the gilt spot rates of an appropriate duration plus a risk premium of 3% (2017: 3%).
In respect of debt securities at fair value through profit or loss, the expected rate of return is determined based on the average prospective yields
for the debt securities actually held.
The expected rates of return used for both the assets backing subordinated liabilities and the subordinated liabilities themselves include a
discount for expected credit defaults. This means that the interest expense included in adjusted profit for subordinated liabilities is after deducting
a margin for own credit risk. Additionally, the effect of the accounting mismatch, where subordinated liabilities are measured at amortised cost
and certain assets backing the liabilities are measured at fair value, is also excluded from adjusted profit.
There have been no actual defaults or impairments of assets backing subordinated liabilities during the year ended 31 December 2018 or
31 December 2017. If these were to arise they would be excluded from adjusted profit.
Gains and losses on foreign exchange are deemed to represent investment return variances and economic assumption changes and thus are
excluded from adjusted profit.
Investment return variances and economic assumption changes for the year ended 31 December 2018 and 31 December 2017 relate principally
to the impact of interest rate changes on UK annuity liabilities and the assets backing those liabilities.
145
FINANCIAL INFORMATIONStandard Life Aberdeen 2018
8. Group financial statements continued
Associates and joint ventures insurance entities
Where associates and joint ventures have a policy for determining investment return variances and economic assumption changes, the Group
uses the policy of the associate or joint venture for including their results in the Group’s adjusted profit. This currently applies only to the Group’s
investment in Phoenix. The Phoenix policy is similar to that used by the wholly owned insurance entities as described above. The main
differences are as follows:
Phoenix investment return variances, including those relating to owners’ funds, include gains and losses on derivatives held to hedge life
company Solvency II surplus positions. Such hedging positions were not previously held outside with profit funds by wholly owned insurance
entities.
Phoenix recognise charges on unit linked business based on expected investment returns, whereas wholly owned insurance entities use
actual investment returns.
Phoenix include the impact of strategic asset allocation activities, such as investment in higher yielding illiquid assets, as investment variances.
Wholly owned subsidiaries treat these within adjusted profit where they are directly related to a significant management action.
(b) Other
In the reconciliation of consolidated adjusted profit before tax to profit for the period the Other adjusting item sub-total includes (£2m) (2017:
(£24m)) in relation to the impairment of a disposal group classified as held for sale and £3m (2017: (£1m)) net fair value movements in
contingent consideration.
The Other adjusting item in 2018 relating to discontinued operations includes a held for sale accounting adjustment relating to the amortisation of
intangible assets (primarily deferred acquisition costs) and depreciation of tangible assets of £44m. Following the classification of the UK and
European insurance business as held for sale on the announcement of the proposed transaction on 23 February 2018, no amortisation or
depreciation was recognised. This increase to profit has been recognised as an adjusting item.
13. Dividends on ordinary shares
Dividends are distributions of profit to holders of Standard Life Aberdeen plc’s share capital and as a result are recognised as a deduction in
equity. Final dividends are announced with the Annual report and accounts and are recognised when they have been approved by
shareholders. Interim dividends are announced with the Half year results and are recognised when they are paid.
Prior year’s final dividend paid
Interim dividend paid
Total dividends paid on ordinary shares
Current year final recommended dividend
1 Estimated for current year final recommended dividend.
2018
Pence per share
14.30
7.30
14.30
£m1
420
214
634
345
2017
Pence per share
13.35
7.00
14.30
£m
263
206
469
421
The final recommended dividend will be paid on 21 May 2019 to shareholders on the Company’s register as at 12 April 2019, subject to approval
at the 2019 Annual General Meeting. After the current year final recommended dividend, the total dividend in respect of the year ended 31
December 2018 is 21.60p (2017: 21.30p).
In addition to the dividend distribution on ordinary shares, the Group returned 33.99 pence per ordinary share (£1,000m) to shareholders through
a B share scheme as discussed in Note 26.
14.
Intangible assets
Goodwill is created when the Group acquires a business and the consideration exceeds the fair value of the net assets acquired. In
determining the net assets acquired in business combinations, intangible assets are recognised where they are separable or arise from
contractual or legal rights. Intangible assets acquired by the Group through business combinations consist mainly of customer relationships,
technology and brands. Any remaining value that cannot be identified as a separate intangible asset on acquisition forms part of goodwill.
In addition to intangibles acquired through business combinations, the Group recognises as intangible assets software which has been
developed internally and other purchased technology which is used in managing and executing our business. Costs to develop software
internally are capitalised after the research phase and when it has been established that the project is technically feasible and the Group has
both the intention and ability to use the completed asset.
Intangible assets are recognised at cost and amortisation is charged to the income statement over the length of time the Group expects to
derive benefits from the asset. The allocation of the income statement charge to each reporting period is dependent on the expected pattern
over which future benefits are expected to be derived. Where this pattern cannot be determined reliably the charge is allocated on a straight-
line basis.
Goodwill is not charged to the income statement unless it becomes impaired.
The Group also recognises the cost of obtaining customer contracts (see Note 4) as an intangible asset. For the cost of obtaining customer
contracts, the intangible asset is amortised on the same basis as the transfer to the customer of the services to which the intangible asset
relates.
146
Standard Life Aberdeen 2018
Acquired through business combinations
Customer
relationships
and investment
management
Notes
Goodwill
£m
Brand
£m
contracts Technology
£m
£m
Internally
developed
software1
£m
Purchased
software
and other
£m
Cost of
obtaining
customer
contracts
£m
Gross amount
At 1 January 2017
Additions
Disposals and adjustments
Other
At 31 December 2017
Reclassified as held for sale
during the year
Additions
Disposals and adjustments
Other
At 31 December 2018
Accumulated amortisation and
impairment
At 1 January 2017
Amortisation charge for the year
Impairment losses recognised
Disposals and adjustments
Other
At 31 December 2017
Reclassified as held for sale
during the year
Amortisation charge for the year
Impairment losses recognised2
Disposals and adjustments
5
5
Other
At 31 December 2018
Carrying amount
At 1 January 2017
At 31 December 2017
At 31 December 2018
233
3,209
–
–
3,442
(18)
14
–
–
3,438
(10)
–
(5)
–
–
(15)
–
–
(891)
–
–
–
93
–
–
93
–
–
–
–
93
–
(7)
–
–
–
(7)
–
(19)
–
–
–
254
728
–
–
982
–
37
–
–
1,019
(100)
(68)
(40)
–
–
(208)
–
(143)
(35)
–
–
30
44
–
–
74
(6)
–
(1)
–
67
(29)
(5)
–
–
–
(34)
6
(13)
–
–
–
Total
£m
928
4,143
(1)
1
5,071
(402)
163
–
6
4,838
(356)
(124)
(77)
1
(1)
(557)
256
(207)
(926)
–
–
–
11
–
–
11
–
79
–
6
96
–
–
–
–
–
–
–
(16)
–
–
–
345
58
(1)
1
403
66
–
–
–
66
(311)
(67)
29
–
–
121
(178)
(37)
(32)
1
(1)
4
1
–
4
(39)
(7)
–
–
–
(247)
(46)
204
(16)
–
–
–
46
–
–
–
–
–
27
20
4
(906)
(26)
(386)
(41)
(59)
223
3,427
2,532
–
86
67
154
774
633
1
40
26
167
156
62
(16)
(1,434)
–
11
80
572
4,514
3,404
1
2
Included in the internally developed software of £62m (2017: £156m) is £13m (2017: £53m) relating to intangible assets not yet ready for use.
Included in goodwill impairment losses recognised of £891m (2017: £5m) is an impairment of £880m (2017: £nil) recognised on the goodwill primarily arising from the
acquisition of Aberdeen and £11m (2017: £5m) included in other administrative expenses in Note 5.
The Group’s goodwill has been acquired through a series of business combinations, most recently through the acquisitions discussed in Note 1.
Of the Group’s goodwill of £2,532m (2017: £3,427m) at 31 December 2018, £2,483m (2017: £3,354m) is attributed to the Aberdeen Standard
Investments group of cash-generating units, which comprises the Group’s asset management business excluding HDFC AMC, in the Asset
management and platforms segment. The remaining goodwill of £49m (2017: £73m) is attributable to a number of smaller cash-generating units
in the Asset management and platforms segment.
Acquisition of Aberdeen in 2017
The additions to goodwill and intangible assets acquired through business combinations during the year to 31 December 2017 related solely to
the acquisition of Aberdeen. Refer Note 1. On the acquisition of Aberdeen, we identified intangible assets in relation to customer relationships,
brand and technology as being separable from goodwill. Identification and valuation of intangible assets acquired in business combinations is a
key judgement.
Goodwill
Goodwill of £3,209m was attributed to the Aberdeen Standard Investments group of cash-generating units in relation to the acquisition of
Aberdeen. In attributing the goodwill relating to the acquisition of Aberdeen to a group of cash-generating units we considered the existing cash-
generating units which are expected to benefit from the synergies from the combination. As the benefit is expected to arise across Aberdeen
Standard Investments (a combination of Aberdeen and Standard Life Investments now managed and reported together within the Asset
management and platforms segment) we judged it was appropriate to allocate goodwill to this group of cash-generating units. This is the lowest
level at which goodwill is monitored for internal management purposes.
The goodwill arising on acquisition of Aberdeen was mainly attributable to expected cash flows from new customers and significant synergies
which are expected to be realised. Synergies expected to be available to all market participants which impact the cash flows relating to existing
Aberdeen customer relationships were included in the valuation of the customer relationships discussed below, with additional synergies forming
part of goodwill.
147
FINANCIAL INFORMATIONStandard Life Aberdeen 2018
8. Group financial statements continued
Customer relationships
The customer relationships acquired through Aberdeen were grouped where the customer groups have similar economic characteristics and
similar useful economic lives. This gave rise to three separate intangible assets which we have termed Lloyds Banking Group, open ended
funds, and segregated and similar.
In relation to the open ended funds we considered that it was most appropriate to recognise an intangible asset relating to customer relationships
between Aberdeen and open ended fund customers, rather than an intangible asset relating to investment management agreements between
Aberdeen and Aberdeen’s open ended funds. Our judgement was that the value associated with the open ended fund assets under
management was predominantly derived from the underlying customer relationships, taking into account that a significant proportion of these
assets under management are from institutional clients.
The description of the three separate intangible assets including their estimated useful life at the acquisition date was as follows:
Customer relationship
intangible asset
Description
Useful life at
acquisition date
Lloyds Banking Group Customer relationship with Lloyds Banking Group, including
4 years
Scottish Widows Group.
Fair value on
acquisition date
£m
78
Open ended funds
Separate vehicle group – open ended investment vehicles.
Segregated and similar All other vehicle groups dominated by segregated mandates
which represent 75% of this group.
11 years
12 years
223
427
Carrying
value
£m
4
138
338
Measuring the fair value of intangible assets acquired in business combinations required further assumptions and judgements. Customer
relationships were valued using discounted cash flow projections. The key assumptions in measuring the fair value of the customer relationships
at the acquisition date were as follows:
Net attrition – net attrition represents the expected rate of outflows of assets under management net of inflows from existing customers. This
assumption is primarily based on recent experience.
Market growth – a market growth adjustment has been applied based on the asset class
Operating margin – this assumption is consistent with forecast margins and includes the impact of synergies that would be expected by any
market participant and impact the Aberdeen customer relationship cash flows
Discount rate – this assumption is based on the internal rate of return (IRR) of the transaction and is consistent with a market participant
discount rate
The above assumptions, and in particular the net attrition assumption, were also used to determine the useful economic life at the acquisition
date of each asset used for amortisation. The reducing balance method of amortisation is considered appropriate for these intangibles,
consistent with the attrition pattern on customer relationships which means that the economic benefits delivered from the existing customer base
will reduce disproportionately over time.
148
Standard Life Aberdeen 2018
Estimates and assumptions
The key estimates and assumptions in relation to intangible assets are:
Determination of the recoverable amount of goodwill and customer intangibles
Determination of useful lives
Determination of the recoverable amount of goodwill and customer intangibles
Goodwill is assessed for impairment at least annually by comparing the recoverable amount of each cash-generating-unit to which goodwill
has been allocated with its carrying value. For all intangible assets, an assessment is made at each reporting date as to whether there is an
indication that the goodwill or intangible asset has become impaired. If any indication of impairment exists and the carrying value exceeds the
recoverable amount then the carrying value is written down to the recoverable amount.
The recoverable amounts are defined as the higher of fair value less costs to sell and the value in use where the value in use is based on the
present value of future cashflows.
In assessing value in use, expected future cash flows are discounted to their present value using a pre-tax discount rate. Judgement is
required in assessing both the expected cash flows and an appropriate discount rate which is based on current market assessments of the
time value of money and the risks associated with the asset.
Goodwill
The impairment of goodwill in 2018 includes £880m (2017: £nil) relating to an impairment of the Aberdeen Standard Investments group of
cash-generating-units which is in the Asset management and platforms segment. The impairment resulted from the impact of markets and
flows on future earnings expectations.
The recoverable amount of this group of cash-generating-units, which is based on value in use, at 31 December 2018 is £4,111m. This was
calculated using a terminal growth rate of 2.2% based on global GDP and a pre-tax discount rate of 11.1% based on the group cost of equity
adjusted for forecasting risk. Cash flow projections for three years to end 2021 were based on management approved forecasts adjusted to
market conditions at 31 December 2018. The impairment has been included within administrative expenses in the consolidated income
statement. The recoverable amount in the prior year was based on fair value less costs of disposal.
The following table shows the consequence of downside sensitivities of key assumptions on the carrying amount of the goodwill balance at 31
December 2018.
Reduction in growth rate of 0.2%
Discount rate increased by 0.5%
Forecast cash flows reduced by 5%
Goodwill
£m
(93)
(231)
(206)
Customer intangibles
The recoverable amount for customer intangible assets is value in use. In assessing value in use, expected future cash flows are discounted
to their present value using a pre-tax discount rate. Judgement is required in assessing both the expected cash flows and an appropriate
discount rate which is based on current market assessments of the time value of money and the risks associated with the asset.
The 2018 impairment of £35m relates to the open-ended funds customer relationship intangible asset which is in the Asset management and
platforms segment and which was recognised on the acquisition of Aberdeen. The impairment resulted from the impact of markets and flows
on future earnings expectations. The recoverable amount of this asset which is its value in use is £138m and was calculated using a pre-tax
discount rate of 13.1%. The remaining useful life as at 31 December 2018 is 9.7 years.
149
FINANCIAL INFORMATIONStandard Life Aberdeen 2018
8. Group financial statements continued
In relation to customer relationships acquired in business combinations, the most significant judgements relate to assumptions for the open-
ended intangible assets acquired through the acquisition of Aberdeen. The following table shows the consequence of downside sensitivities of
key assumptions to the carrying amounts at 31 December 2018:
20% increase in net attrition
10% one-off decrease in AUM at 1 January 2019
Operating margin percentage decreased by 2.5%
Discount rate percentage increased by 2%
Open-ended
£m
(16)
(14)
(19)
(8)
The carrying value of the life company customer relationships/contracts acquired through Ignis at 31 December 2018 is £42m (2017: £50m).
The remaining amortisation period of the life contracts is 9.5 years. As at 31 December 2018, increasing the discount rate by 2%, decreasing
the operating margin by 2.5% or decreasing the AUM by 10% would not result in an impairment loss and therefore would have no impact on
carrying value.
In February 2018 Lloyds Banking Group (LBG) and Scottish Widows informed the Group that Scottish Widows and LBG's Wealth business
intended to review their long term asset management arrangements including those services that are currently undertaken by certain legacy
Aberdeen entities. The impairment of customer relationship and investment management contracts intangible assets in 2017 of £40m related to
this announcement and was an impairment of the Lloyds Banking Group customer relationship intangible asset in the Asset management and
platforms segment. The recoverable amount of this asset, which is its value in use, at 31 December 2017 was £26m and was calculated using
a pre-tax discount rate of 13%. The remaining useful live was 1.1 years. The other key assumptions used to measure the value in use
calculation as at 31 December 2017 were consistent with those used in the acquisition date valuation set out on page 148.
Determination of useful lives
The determination of useful lives requires judgement in respect of the length of time that the Group expects to derive benefits from the asset
and considers for example expected duration of customer relationships and when technology is expected to become obsolete for technology
based assets. The amortisation period and method for each of the Group’s intangible asset categories is as follows:
Customer relationships acquired through business combinations – generally between 7 and 12 years, generally reducing balance method
Investment management contracts acquired through business combinations – between 10 and 17 years, straight-line
Brand acquired through business combinations – 5 years, straight-line
Technology acquired through business combinations – between 3 and 6 years, straight line
Internally developed software – between 2 and 6 years. Amortisation is on a straight-line basis and commences once the asset is available
for use
Purchased software – between 2 and 6 years, straight-line
Costs of obtaining customer contracts - between 3 and 9 years, generally reducing balance method
Internally developed software
The determination of amounts to be recognised as internally developed software requires judgement and assumptions in respect of whether
assets are capable of being separated and the extent to which development costs form part of the separable asset. Additionally judgement is
required to determine which costs have been incurred in relation to the research phase, which are not capitalised, and which have been
incurred in relation to the development phase of a project, which are capitalised. We consider that costs are directly attributable to the software
asset and can therefore be capitalised, where they would not have been incurred if the software development had not taken place.
The impairment of internally generated software recognised during the year to 31 December 2017 included £31m relating to discontinuation of
part of an IT transformation project in the UK and European insurance segment classified as discontinued.
150
Standard Life Aberdeen 2018
15. Deferred acquisition costs
The Group incurs costs to obtain and process new business. These are accounted for as follows:
Insurance and participating investment contracts
Acquisition costs incurred in issuing insurance or participating investment contracts are not deferred where such costs are borne by a with
profits fund that was subject to the Prudential Regulation Authority (PRA) realistic capital regime. For other participating investment contracts,
incremental costs directly attributable to the issue of the contracts are deferred. For other insurance contracts both incremental acquisition
costs and other indirect costs of acquiring and processing new business are deferred.
Deferred acquisition costs are amortised in proportion to projected margins over the period the relevant contracts are expected to remain in-
force. After initial recognition, deferred acquisition costs are reviewed by category of business and written off to the extent that they are no
longer considered to be recoverable.
Non-participating investment contracts
Incremental costs directly attributable to securing rights to receive fees from non-participating investment contracts are deferred. Where such
costs are borne by a with profits fund that was subject to the PRA’s realistic capital regime, deferral is limited to the level of any related
deferred income.
Deferred acquisition costs are amortised over the life of the contracts as the related revenue is recognised. After initial recognition, deferred
acquisition costs are reviewed by category of business and are written off to the extent that they are no longer considered to be recoverable.
Trail or renewal commission on non-participating investment contracts where the Group does not have an unconditional legal right to avoid
payment is deferred at inception of the contract and an offsetting liability for contingent commission is established.
At 1 January
Reclassified as held for sale during the year
Additions during the year
Amortisation charge
Foreign exchange adjustment
At 31 December
2018
£m
612
(606)
2
(2)
–
6
2017
£m
651
(22)
49
(79)
13
612
The amount of deferred acquisition costs expected to be recovered after more than 12 months is £6m (2017: £536m).
Included in deferred acquisition costs above are costs deferred on investment contracts (deferred origination costs) amounting to £6m (2017:
£356m) which relates to contracts with customers (see Note 4(b)). The amortisation charge for deferred origination costs relating to contracts
with customers from continuing operations for the year was £2m (2017: £2m).
151
FINANCIAL INFORMATIONStandard Life Aberdeen 2018
8. Group financial statements continued
16.
Investments in associates and joint ventures
Associates are entities where the Group can significantly influence decisions made relating to the financial and operating policies of the entity
but does not control the entity. For entities where voting rights exist, significant influence is presumed where the Group holds between 20%
and 50% of the voting rights.
Joint ventures are strategic investments where the Group has agreed to share control of an entity’s financial and operating policies through a
shareholders’ agreement and decisions can only be taken with unanimous consent.
Associates, other than those accounted for at fair value through profit or loss, and joint ventures are accounted for using the equity method
from the date that significant influence or shared control, respectively, commences until the date this ceases with consistent accounting
policies applied throughout.
Under the equity method, direct investments in associates and joint ventures are initially recognised at cost. When an interest is acquired at
fair value from a third party, the value of the Group’s share of the investee’s identifiable assets and liabilities is determined applying the same
valuation criteria as for a business combination at the acquisition date. This is compared to the cost of the investment in the investee. Where
cost is higher the difference is identified as goodwill and the investee is initially recognised at cost which includes this component of goodwill.
Where cost is lower a bargain purchase has arisen and the investee is initially recognised at the Group’s share of the investee’s identifiable
assets and liabilities unless the recoverable amount for the purpose of assessing impairment is lower, in which case the investee is initially
recognised at the recoverable amount.
Subsequently the carrying value is adjusted for the Group’s share of post-acquisition profit or loss and other comprehensive income of the
associate or joint venture, which are recognised in the consolidated income statement and other comprehensive income respectively. The
Group’s share of post-acquisition profit or loss includes amortisation charges based on the valuation exercise at acquisition. The carrying
value is also adjusted for any impairment losses.
Where the Group has an investment in an associate, a portion of which is held by, or is held indirectly through, a mutual fund, unit trust or
similar entity, including investment-linked insurance funds, that portion of the investment is measured at FVTPL.
During the year ended 31 December 2017 we changed our judgement in determining when the Group has significant influence over
investment vehicles managed by the Group. In general, investment vehicles which are not subsidiaries are now considered to be associates
where the Group holds more than 20% of the voting rights. Previously our judgement was that the Group had significant influence over all
investment vehicles where, through its role as investment manager, it had power over the investment decisions of the vehicle. As a result
previously the Group classified all Group managed investment vehicles which were not subsidiaries and in which the Group held an
investment as associates. The reason for the change in accounting policy was to make the financial statements more relevant to users as it is
more consistent with peers. This change in accounting policy only impacted the breakdown of ‘Equities and investments in pooled investment
vehicles’, between amounts relating to investments in associates at FVTPL and other interests in pooled investment vehicles. This
breakdown is disclosed in Note 40.
A full list of the Group’s associates and joint ventures is included in Note 49.
The level of future dividend payments and other transfers of funds to the Group from associates and joint ventures accounted for using the equity
method could be restricted by the regulatory solvency and capital requirements of the associate or joint venture, and certain local foreign
currency transaction restrictions.
(a)
Investments in associates and joint ventures accounted for using the equity method
2018
Joint
ventures
£m
Associates
£m
Total Associates
£m
£m
2017
Joint
ventures
£m
404
8
(15)
1,023
–
121
(16)
7
(228)
(44)
1,260
99
–
3
72
–
9
1
–
–
–
184
503
8
(12)
1,095
–
130
(15)
7
(228)
(44)
1,444
484
(33)
(19)
–
(58)
35
–
17
–
(22)
404
88
–
(3)
–
–
10
4
–
–
–
99
Total
£m
572
(33)
(22)
–
(58)
45
4
17
–
(22)
503
At 1 January
Reclassified from/(to) held for sale
Exchange translation adjustments
Additions
Disposals
Profit after tax
Other comprehensive income
Dilution gains
Impairment
Distributions of profit
At 31 December
152
Standard Life Aberdeen 2018
The following associates are considered to be material to the Group as at 31 December 2018.
Name of associate
Phoenix Group Holdings plc (Phoenix)
HDFC Life Insurance Company Limited
(HDFC Life)
HDFC Asset Management Company Limited
(HDFC AMC)
Nature of
relationship
Associate
Principal place
of business
United
Kingdom
Measurement
Method
Equity Accounted
Interest held by
the Group
19.98%
Fair value of interest
held by the Group at
31 December 2018
812
Associate
India Equity Accounted
29.23%
Associate
India Equity Accounted
29.96%
2,567
1,077
These associates are all listed. The country of incorporation or registration is the same as their principal place of business. The interest held by
the Group is the same as the proportion of voting rights held. None of the Group’s joint ventures are considered to be material to the Group as at
31 December 2018.
Investments in associates accounted for using the equity method
(b)
The tables below provide summarised financial information for those associates which are considered to be material to the Group. The
summarised financial information reflects the amounts presented in the financial statements or management accounts of the relevant associates
amended to reflect adjustments made when using the equity method, including fair value adjustments on acquisition and not the Group’s share
of those amounts.
Phoenix
2018
£m
2017
£m
HDFC Life
2018
£m
2017
£m
HDFC AMC
2018
£m
2017
£m
Summarised financial information of
associate:
Revenue1
Profit after tax2
Other comprehensive income
Total assets2,3
Total liabilities3
Net assets2
Attributable to NCI
Attributable to investee’s shareholder
Interest held
Share of net assets2
1,409
366
(76)
230,111
224,042
6,069
788
5,281
19.98%
1,055
2,236
80
–
12,238
11,589
649
–
649
3,072
118
–
13,349
12,598
751
–
751
193
–
73
–
–
–
471
–
221
–
250
–
–
–
250
–
– 29.23% 29.35% 29.96% 38.24%
96
–
207
83
–
336
23
313
–
313
220
190
94
Phoenix
2018
£m
2017
£m
HDFC Life
2018
£m
2017
£m
HDFC AMC
2018
£m
2017
£m
Other
Total
2018
£m
2017
£m
2018
£m
2017
£m
812
–
Associates accounted for using the
equity method
Associates classified as held for sale
Total amount recognised in
consolidated statement of financial
position
Dividends received4
1 2017 revenue for HDFC Life has been restated to exclude investment income.
2 2017 profit after tax, total assets, net assets and share of net assets for HDFC Life have been restated to include intangible assets identified at the acquisition date of additional
1,260
47
1,260
–
812
33
437
22
329
–
110
14
123
12
304
10
329
–
110
–
304
–
404
33
10
–
10
–
90
33
9
–
9
–
–
–
–
–
investments in HDFC Life acquired at fair value rather than book value and the related amortisation.
3 As a liquidity presentation is used by insurance companies when presenting their statement of financial position, an analysis of total assets and total liabilities between current
and non-current has not been provided for Phoenix and HDFC Life. The majority of HDFC AMC’s assets and liabilities are current.
4 2018 dividend received from HDFC AMC includes £3m on interest that was classified as held for sale.
Phoenix
Phoenix is the largest life and pensions consolidator in Europe. Our investment in Phoenix supports our strategic partnership.
On 23 February 2018, the Group announced the proposed sale of the UK and European insurance business to Phoenix (the Sale), implemented
by selling the entire issued share capital of Standard Life Assurance Limited (SLAL). Refer Note 1 for further details. Following the completion of
the Sale in August 2018, as part of the total consideration, the Group was issued with new Phoenix shares representing 19.98% of the issued
share capital of Phoenix. Our judgement was that taking into account our representation on Phoenix’s board and the significant transactions
between the Group and Phoenix, Phoenix should be classified as an associate.
153
FINANCIAL INFORMATIONStandard Life Aberdeen 2018
8. Group financial statements continued
At acquisition the value of the Group’s share of Phoenix’s identifiable assets and liabilities was determined. This value was determined using the
same valuation bases as required for a business combination under which most of the identifiable assets and liabilities of the enlarged Phoenix
group (including SLAL) were measured at fair value. The most significant assets that were not measured at fair value were Phoenix’s defined
benefit pension schemes which were measured at their IAS 19 value.
A key judgement was the identification, valuation and determination of useful lives, of the Group’s share of Phoenix’s intangible assets at the
date of acquisition. The main intangible assets identified were the acquired present value of in-force business (AVIF) for both SLAL and other
Phoenix entities. AVIF comprises the difference between the fair value and IFRS carrying value of insurance contracts together with the fair
value of future profits expected to arise on investment contracts. The valuation of the AVIF has been determined using the application of present
value techniques to the best estimate cash flows expected to arise from policies that were in-force at the acquisition date, adjusted to reflect the
price of bearing the uncertainty inherent in those cash flows. This approach incorporates a number of judgements and assumptions which have
impacted on the resultant valuation, the most significant of which are mortality rates, expected policy lapses, the expenses associated with
servicing the policies, future investment returns, the discount rate and the risk adjustment for uncertainty, determined using a cost of capital
approach. The Group’s share of profit after acquisition under the equity method reflects the amortisation of these intangible assets. This differs
from the amortisation recognised in Phoenix’s own IFRS financial statements due to the revaluation of the existing Phoenix intangible assets at
August 2018 for equity method purposes. The amortisation method reflects the expected emergence of economic benefits which results in
higher amortisation in earlier periods.
Intangible asset:
SLAL AVIF
Existing Phoenix AVIF
Useful life at
acquisition date
Years
Fair value at
acquisition date
£m
Group’s share at
acquisition date
£m
24
15
2,931
1,503
586
300
The cost of the Group’s investment in Phoenix was equal to the fair value of its 19.98% interest at the date of acquisition, being £1,023m. The
Group’s share of the value of the identifiable net assets of the enlarged Phoenix group exceeded the cost of the Group’s investment in Phoenix
resulting in a bargain purchase gain of £15m which was offset by an impairment loss as described below.
Estimates and assumptions
At 31 December 2018 the market value of the Group’s interest in Phoenix was £812m which was significantly below the carrying value. We
considered this to be an indicator of impairment and therefore an impairment review was performed. A key area of estimation was
determining the recoverable amount of Phoenix on a value in use basis for the purpose of assessing impairment. Given that the fair value was
significantly below the carrying value, we considered that under IAS 28 the market value of Phoenix represented the best estimate of the
present value of future dividends and therefore this market value of £812m was used as the value in use. As the value in use was based on
the market value, a discount rate was not determined. An impairment loss of £243m has been recognised of which £15m arose at acquisition
and has been offset against the bargain purchase gain. This has resulted in a difference between the Group’s share of net assets of Phoenix
and the carrying value at 31 December 2018.
Phoenix has taken advantage of the temporary exemption granted to insurers in IFRS 4 Insurance Contracts from applying IFRS 9 as a result of
meeting the exemption criteria as at 31 December 2015. As at that date Phoenix’s activities were considered to be predominantly connected with
insurance as the percentage of the carrying amount of its liabilities in relation to insurance relative to the total carrying amounts of all its liabilities
was greater than 90%.
The table below separately identifies financial assets with contractual cash flows that are solely payments of principal and interest (excluding
those held for trading or managed on a fair value basis) and all other financial assets, measured at fair value through profit and loss.
Financial assets with contractual cash flows that are solely payments of principal and interest (SPPI)
excluding those held for trading or managed on a fair value basis1
Financial assets other than those above2
Total
Fair value as at
31 December 2018
£m
423
204,154
204,577
1 Financial assets that are SPPI are all short term deposits with highly rated external institutions.
2 The change in fair value, for four months ended 31 December 2018, of all other financial assets that are fair value through profit or loss, is a loss of £11,509m.
HDFC Life
HDFC Life is one of India’s leading life insurance companies.
On 17 November 2017, HDFC Life listed on the National Stock Exchange of India Limited and the Bombay Stock Exchange Limited following
completion of an IPO in which the Group reduced its interest to 29.3%. Refer Note 1 for further details.
The difference between the carrying value of this associate and the Group’s current share of net assets is due primarily to goodwill of £104m
arising from additional investments being made at fair value rather than book value. (2017: £107m.)
The year end date for HDFC Life is 31 March which is different from the Group’s year end date of 31 December. For the purposes of the
preparation of the Group’s consolidated financial statements, financial information as at and for the 12 months ended 31 December is used for
HDFC Life.
154
Standard Life Aberdeen 2018
At 31 March 2016 HDFC Life had significant insurance liabilities and its liabilities arising from contracts within the scope of IFRS 4 and liabilities
connected with insurance were 97% of its total liabilities. Therefore HDFC Life was eligible to defer the implementation of IFRS 9 for equity
accounting purposes.
The fair value of HDFC Life’s financial assets at 31 December 2018 that remain under IAS 39 for equity accounting purposes and the change in
fair value during the year ended 31 December 2018 are as follows:
Financial assets with contractual cash flows that are solely payments of principal and interest (SPPI)
excluding those held for trading or managed on a fair value basis1
Financial assets other than those above2
Total
Fair value as at 31 December
2018
£m
5,662
7,596
13,258
1 Financial assets that are SPPI (excluding those held for trading or managed on a fair value basis) are predominantly AAA debt instruments including central and state
government securities. Their carrying value at 31 December 2018 is £5,642m. Securities with fair value and carrying value of £10m are rated below BBB.
2 The change in fair value in the year to 31 December 2018 for financial assets that are SPPI (excluding those held for trading or managed on a fair value basis) is a gain of
£385m. The change in fair value for all other financial assets is a gain of £116m.
HDFC AMC
HDFC AMC manages a range of mutual funds and provides portfolio management and advisory services.
On 6 August 2018, HDFC AMC listed on the National Stock Exchange of India Limited and the Bombay Stock Exchange Limited following
completion of an IPO. Refer Note 1 for further details. As a result of the planned IPO, a portion of the equity share capital of the associate was
classified as held for sale as at 31 December 2017. Refer Note 24 for further details.
The difference between the carrying value of this associate and the Group’s share of net assets is due primarily to goodwill arising on the
buyback of shares by HDFC AMC from employees.
The year end date for HDFC AMC is 31 March which is different from the Group’s year end date of 31 December. For the purposes of the
preparation of the Group’s consolidated financial statements, financial information as at and for the 12 months ended 30 September is used for
HDFC AMC.
Investments in joint ventures
(c)
The Group has a number of joint ventures, none of which are considered material to the Group. The largest joint venture is Heng An Standard
Life Insurance Company Limited (HASL). The table below provides summarised financial information for HASL. The summarised financial
information reflects the amounts presented in the management accounts amended to reflect adjustments made when using the equity method.
Summarised financial information of joint venture:
Revenue1
Profit after tax
Other comprehensive income
Total assets
Total liabilities
Net assets
Interest held
Current share of net assets
Carrying value of joint venture
Dividends received
1 2017 revenue for HASL has been restated to exclude investment income.
2018
£m
361
17
1
1,714
1,347
367
50%
184
184
–
2017
£m
293
20
7
1,358
1,160
198
50%
99
99
–
On 25 September 2018, the Group made a US$95m (£72m) capital contribution to HASL. The Group’s interest remains at 50%.
Investments in associates measured at FVTPL
(d)
The aggregate fair value of associates accounted for at FVTPL included in equity securities and interests in pooled investment funds at 31
December 2018 is £34m (2017: £5,936m) none of which are considered individually material to the Group. These associates have no significant
contingent liabilities to which the Group is exposed and there are no restrictions that would prevent the transfer of funds to the Group (2017:
none).
155
FINANCIAL INFORMATIONStandard Life Aberdeen 2018
8. Group financial statements continued
17.
Investment property
Property held for long-term rental yields or investment gain that is not occupied by the Group and property being constructed or developed for
future use as investment property are classified as investment property. Investment property is initially recognised at cost and subsequently
measured at fair value. Gains or losses arising from changes in fair value are recognised in the consolidated income statement.
Rental income from investment property is recognised in the consolidated income statement on a straight-line basis over the term of the
lease. Lease incentives granted such as rent free periods are recognised as an integral part of the total rental income and are spread over
the term of the lease.
At 1 January
Reclassified as held for sale during the year
Other reclassifications1
Additions – acquisitions
Additions – subsequent expenditure
Net fair value gains/(losses)
Disposals
Transferred to owner occupied property
Foreign exchange adjustment
Other
At 31 December
The fair value of investment property can be analysed as:
Freehold
Long leasehold
Notes
18
2018
£m
9,749
(9,749)
–
–
–
–
–
–
–
–
–
–
–
–
2017
£m
9,929
(225)
(319)
270
143
485
(525)
(17)
11
(3)
9,749
7,297
2,452
9,749
1 During 2017 income strips measured at £319m were reclassified as debt securities. Refer Note 41 for further details.
There was no rental income arising from investment property or direct operating expenses (included within other administrative expenses) arising
in respect of such rented property in relation to continuing operations in either year. All such income and expenses relates to discontinued
operations (see Note 10).
Valuations are provided by independent qualified professional valuers at 31 December or as at a date that is not more than three months before
31 December. Where valuations have been undertaken at dates prior to the end of the reporting period, adjustments are made where
appropriate to reflect the impact of changes in market conditions between the date of these valuations and the end of the reporting period.
Future minimum lease rental receivables in respect of non-cancellable operating leases on investment properties were as follows:
Not later than one year
Later than one year and no later than five years
Later than five years
Total operating lease receivables
2018
£m
–
–
–
–
2017
£m
470
1,488
3,392
5,350
156
Standard Life Aberdeen 2018
18. Property, plant and equipment
Property, plant and equipment consists primarily of property owned and occupied by the Group and the computer equipment used to carry
out the Group’s business and is initially recognised at cost.
Owner occupied property is revalued to fair value at each reporting date. Depreciation, being the difference between the carrying amount and
the residual value of each significant part of a building, is charged to the consolidated income statement over its useful life. The useful life of
each significant part of a building is estimated as being between 30 and 50 years. A revaluation surplus is recognised in other comprehensive
income unless it reverses a revaluation deficit which has been recognised in the consolidated income statement.
Equipment is subsequently measured at cost less depreciation. Depreciation is charged to the income statement over 2 to 15 years
depending on the length of time the Group expects to derive benefit from the asset.
Cost or valuation
At 1 January 2017
Additions
Acquired through business combinations
Transferred from investment property
Reclassified as held for sale during the year
Disposals and adjustments1
Revaluations
Impairment losses reversed
Foreign exchange adjustment
At 31 December 2017
Reclassified as held for sale during the year
Additions
Disposals and adjustments1
Foreign exchange adjustment
At 31 December 2018
Accumulated depreciation
At 1 January 2017
Depreciation charge for the year
Disposals and adjustments1
At 31 December 2017
Reclassified as held for sale during the year
Depreciation charge for the year
Disposals and adjustments1
Foreign exchange adjustment
At 31 December 2018
Carrying amount
At 1 January 2017
At 31 December 2017
At 31 December 2018
Owner occupied
property
£m
Equipment
£m
Notes
17
5
58
3
2
17
(4)
–
1
4
–
81
(79)
–
–
–
2
–
–
–
–
–
–
–
–
–
58
81
2
138
34
16
–
(2)
(3)
–
–
(1)
182
(108)
28
(4)
3
101
(107)
(15)
5
(117)
91
(16)
2
(2)
(42)
31
65
59
Total
£m
196
37
18
17
(6)
(3)
1
4
(1)
263
(187)
28
(4)
3
103
(107)
(15)
5
(117)
91
(16)
2
(2)
(42)
89
146
61
1 For the year ended 31 December 2018 £nil (2017: £1m) of disposals and adjustments relates to equipment with net book value of £nil which is no longer in use.
If owner occupied property was measured using the cost model, the historical cost before impairment would be £2m (2017: £112m). As the
expected residual value of owner occupied property is in line with the current fair value, no depreciation is currently charged.
157
FINANCIAL INFORMATIONStandard Life Aberdeen 2018
8. Group financial statements continued
19. Financial investments
Management determines the classification of financial investments at initial recognition. Financial investments which are not derivatives and
are not designated at fair value through profit or loss (FVTPL) are classified as either available-for-sale (AFS) or loans and receivables. The
classification of derivatives is set out in Note 21.
The majority of the Group’s debt securities and all equity securities and interests in pooled investment funds are designated at FVTPL as they
are part of groups of assets which are managed and whose performance is evaluated on a fair value basis. These investments are
recognised at fair value with changes in fair value recognised in investment return in the consolidated income statement. Commercial real
estate loans are included within debt securities designated at fair value.
All other debt securities are classified as AFS and are recognised at fair value with changes in fair value recognised in other comprehensive
income. Interest is credited to the consolidated income statement using the effective interest rate method. On disposal of an AFS security any
gains or losses previously recognised in other comprehensive income are recognised in the consolidated income statement (recycling).
The accounting policies for other financial investments are detailed in the separate related notes indicated below.
2018
Derivative financial assets
Equity securities and interests in
pooled investment funds
Debt securities
Receivables and other financial assets
Cash and cash equivalents
Notes
21
39
39
22
25
Total
Designated as at
fair value through
profit or loss
£m
–
Held for
trading
£m
8
Cash flow
hedge
£m
13
Available-
for-sale
£m
–
Loans and
receivables
£m
–
2,030
861
8
–
2,899
–
–
–
–
8
–
–
–
–
13
–
862
–
–
862
–
–
700
1,140
1,840
2017
Loans
Derivative financial assets
Equity securities and interests in pooled
investment funds
Debt securities
Receivables and other financial assets
Cash and cash equivalents
Notes
20
21
39
39
22
25
Designated as
at fair value
through profit or
loss
£m
–
–
Held for
trading
£m
–
3,053
Cash flow
hedge
£m
–
–
Available-
for-sale
£m
–
–
Loans and
receivables
£m
91
–
99,020
60,709
6
–
–
–
–
–
–
–
–
–
–
–
856
–
–
856
–
–
1,236
10,226
11,553
Total
159,735
3,053
The amount of debt securities expected to be recovered or settled after more than 12 months is £423m (2017: £50,619m). Due to the nature of
equity securities and interests in pooled investment funds, there is no fixed term associated with these securities.
Following application of the temporary exemption granted in IFRS 4 Insurance Contracts from applying IFRS 9 Financial Instruments, the table
below separately identifies financial assets with contractual cash flows that are solely payments of principal and interest (excluding those held for
trading or managed on a fair value basis) and all other financial assets.
Fair value as at
31 December 2018
£m
Change in Fair Value
during 2018
£m
2,702
2,920
5,622
2
(150)
(148)
Financial assets with contractual cash flows that are solely payments of principal
and interest (SPPI) excluding those held for trading or managed on a fair value
basis
Financial assets other than those above
Total
158
Total
£m
21
2,030
1,723
708
1,140
5,622
Total
£m
91
3,053
99,020
61,565
1,242
10,226
175,197
Standard Life Aberdeen 2018
The credit exposure for the financial assets with contractual terms that give rise on specified dates to cash flows that are solely payments of
principal and interest above is as follows:
2018
Low Credit Risk Assets
AAA
AA
A
BBB
Internally rated/ not rated
Total
1 Carrying amount applying IAS 39.
Receivables and other
financial assets
Carrying amount
£m
Debt securities
Carrying amount
£m
Cash and cash equivalents
Carrying amount
£m
Total
Carrying amount1
£m
–
–
–
–
700
700
23
92
619
112
–
846
181
570
358
20
8
1,137
204
662
977
132
708
2,683
In addition, debt securities and cash and cash equivalents with fair value and carrying amount of £16m and £3m respectively at 31 December
2018 are rated below BBB.
Estimates and assumptions
Determination of the fair value of contingent consideration assets included in receivables and other financial assets is a key estimate. The
methods and assumptions used to determine fair value of these assets are discussed in Note 41.
20. Loans
Loans are initially measured at fair value and subsequently measured at amortised cost, using the effective interest method, less any
impairment losses.
Loans secured by mortgages
Loans and advances to banks with greater than three months to maturity from
acquisition date
Loans secured on policies
Loans
Notes
41(e)
39
2018
£m
–
–
–
–
2017
£m
57
32
2
91
Loans with variable rates and fixed interest rates at 31 December 2017 were £38m and £53m respectively. Loans that were expected to be
recovered after more than 12 months were £60m.
159
FINANCIAL INFORMATIONStandard Life Aberdeen 2018
8. Group financial statements continued
21. Derivative financial instruments
A derivative is a financial instrument that is typically used to manage risk and whose value moves in response to an underlying variable such
as interest or foreign exchange rates. The Group uses derivative financial instruments in order to match contractual liabilities, to reduce the
risk from potential movements in foreign exchange rates, equity indices, property indices and interest rates, to reduce credit risk or to achieve
efficient portfolio management. Certain consolidated investment vehicles also use derivatives to take and alter market exposure, with the
objective of enhancing performance and controlling risk.
Management determines the classification of derivatives at initial recognition. All derivative instruments are classified as held for trading
except those designated as part of a hedging relationship. Held for trading derivatives are measured at fair value with changes in fair value
recognised in the consolidated income statement.
Using derivatives to manage a particular exposure is referred to as hedging. For a derivative to be considered as part of a hedging
relationship its purpose must be formally documented at inception. In addition, the effectiveness of the hedge must be initially high and be
able to be reliably measured on a regular basis. Derivatives used to hedge variability in future cash flows such as coupons payable on
subordinated liabilities or revenue receivable in a foreign currency are designated as cash flow hedges, while derivatives used to hedge
currency risk on investments in foreign operations are designated as net investment hedges.
Where a derivative qualifies as a cash flow or net investment hedge, hedge accounting is applied. The effective part of any gain or loss
resulting from the change in fair value is recognised in other comprehensive income, and in the cash flow or net investment hedge reserve in
equity, while any ineffective part is recognised immediately in the consolidated income statement. If a derivative ceases to meet the relevant
hedging criteria, hedge accounting is discontinued.
For cash flow hedges, the amount recognised in the cash flow hedge reserve is transferred to the consolidated income statement (recycled)
in the same period or periods during which the hedged item affects profit or loss and is transferred immediately if the cash flow is no longer
expected to occur. For net investment hedges, the amount recognised in the net investment hedge reserve is transferred to the consolidated
income statement on disposal of the investment.
Cash flow hedges
Net investment hedges
Held for trading
Derivative financial instruments
Notes
19,33
19,33
39
Contract
amount
£m
589
6
625
1,220
2018
Fair value
assets
£m
Fair value
liabilities
£m
13
–
8
21
–
–
6
6
Contract
amount
£m
562
6
160,838
161,406
2017
Fair value
assets
£m
–
–
3,053
3,053
Fair value
liabilities
£m
33
–
780
813
Derivative assets of £13m (2017: £1,957m) are expected to be recovered after more than 12 months. Derivative liabilities of £nil (2017: £318m)
are expected to be settled after more than 12 months.
(a) Cash flow hedges
On 18 October 2017, the Group issued subordinated notes with a principal amount of US$750m. In order to manage the foreign exchange risk
relating to the principal and coupons payable on these notes the Group entered into a cross-currency swap which is designated as a cash flow
hedge. The cross-currency swap has a fair value asset position of £13m (2017: £33m liability). During the year ended 31 December 2018 fair
value gains of £54m (2017: £33m losses) were recognised in other comprehensive income in relation to the cross-currency swap. Gains of
£35m (2017: £13m losses) and £6m (2017: gains of less than £1m) were transferred from other comprehensive income to Investment return and
Finance costs respectively in the consolidated income statement in relation to the cross-currency swap during the year.
In addition, at 31 December 2017, foreign exchange contracts with an aggregate notional principal amount of £8m and a net fair value liability
position of less than £1m were also designated as hedges of future cash flows arising from revenue receivable in foreign currency. There were
no foreign exchange contracts designated as hedges of future cash flows arising from revenue receivable in foreign currency at 31 December
2018. The cash flows from these instruments are expected to be reported in the consolidated income statement for the following year. In 2018
and 2017, the ineffectiveness recognised in the consolidated income statement arising from cash flow hedges was less than £1m.
(b) Net investment hedges
Forward foreign exchange contracts with a notional principal amount of £6m (2017: £6m) and a net fair value liability position of less than £1m
(2017: net fair value asset position of less than £1m) were designated as net investment hedges and gave rise to losses for the year of less than
£1m (2017: gains of less than £1m), which have been deferred in the net investment hedge translation reserve. The effectiveness of hedges of
net investments in foreign operations is measured with reference to changes in the spot exchange rates. Any ineffectiveness, together with any
difference in value attributable to forward points, is recognised in the consolidated income statement. In 2018, the losses recognised in the
consolidated income statement were less than £1m (2017: less than £1m).
160
Standard Life Aberdeen 2018
(c) Held for trading
Derivative financial instruments classified as held for trading include those that the Group holds as economic hedges of financial instruments that
are measured at fair value. Held for trading derivative financial instruments are also held by the Group to match contractual liabilities that are
measured at fair value or to achieve efficient portfolio management in respect of instruments measured at fair value.
Contract
amount
£m
2018
Fair value
assets
£m
Fair value
liabilities
£m
Contract
amount
£m
2017
Fair value
assets
£m
Fair value
liabilities
£m
Equity derivatives:
Futures
Variance swaps
Options
Total return swaps
Bond derivatives:
Futures
Interest rate derivatives:
Swaps
Floors
Futures
Swaptions
Foreign exchange derivatives:
Forwards
Other derivatives:
Inflation rate swaps
Credit default swaps
Derivative financial instruments held for
trading
58
4
–
–
–
37
–
15
–
475
5
31
625
1
4
–
–
–
–
–
–
–
2
–
1
8
–
–
–
–
–
–
–
–
–
6
–
–
6
13,244
13
7,390
714
25,104
65,346
40
–
6,521
35,849
5,464
1,153
155
44
760
4
116
686
6
–
835
345
39
63
160,838
3,053
(d) Maturity profile
The maturity profile of the contractual undiscounted cash flows in relation to derivative financial instruments is as follows:
2018
Cash inflows
Derivative financial assets
Derivative financial liabilities
Total
Cash outflows
Derivative financial assets
Derivative financial liabilities
Total
Within 1
year
£m
2-5
years
£m
34
5
39
(18)
(10)
(28)
88
–
88
(64)
–
(64)
6-10
years
£m
714
–
714
(660)
–
(660)
Net derivative financial instruments cash
inflows
11
24
54
11-15
years
£m
16-20
years
£m
Greater than
20 years
£m
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
112
50
37
16
50
215
–
–
6
234
49
11
780
Total
£m
836
5
841
(742)
(10)
(752)
89
161
FINANCIAL INFORMATIONStandard Life Aberdeen 2018
8. Group financial statements continued
Included in the above maturity profile are the following cash flows in relation to cash flow hedge liabilities:
2018
Cash inflows
Cash outflows
Net cash flow hedge cash inflows
Within 1
year
£m
25
(18)
7
2-5
years
£m
88
(64)
24
6-10
years
£m
714
(660)
54
11-15
years
£m
–
–
–
16-20
years
£m
–
–
–
Greater than
20 years
£m
–
–
–
Cash inflows and outflows are presented on a net basis where the Group is required to settle cash flows net.
2017
Cash inflows
Derivative financial assets
Derivative financial liabilities
Total
Cash outflows
Derivative financial assets
Derivative financial liabilities
Total
Within 1
year
£m
19,733
11,095
30,828
2-5
years
£m
419
98
517
6-10
years
£m
312
118
430
11-15
years
£m
147
566
713
(18,731)
(11,539)
(30,270)
(27)
(224)
(251)
(21)
(161)
(182)
(15)
(642)
(657)
204
3
207
–
(45)
(45)
16-20
years
£m
Greater than
20 years
£m
Total
£m
827
(742)
85
Total
£m
21,320
11,880
33,200
505
–
505
–
(48)
(48)
(18,794)
(12,659)
(31,453)
Net derivative financial instruments cash
inflows
558
266
248
56
162
457
1,747
Included in the above maturity profile are the following cash flows in relation to cash flow hedge liabilities:
2017
Cash inflows
Cash outflows
Within 1
year
£m
36
(30)
Net cash flow hedge cash inflows/(outflows)
6
22. Receivables and other financial assets
Amounts receivable on direct insurance business
Amounts receivable on reinsurance contracts
Amounts receivable from contracts with customers
Outstanding sales of investment securities
Accrued income
Cancellations of units awaiting settlement
Collateral pledged in respect of derivative contracts
Property related assets
Contingent consideration asset
Other
Receivables and other financial assets
2-5
years
£m
94
(73)
21
6-10
years
£m
118
(91)
27
Notes
4(b)
39
41
11-15
years
£m
566
(578)
(12)
16-20
years
£m
–
–
–
Greater than
20 years
£m
–
–
–
2018
£m
–
–
112
1
220
191
8
–
8
168
708
The carrying amounts disclosed above reasonably approximate the fair values as at the year end.
The amount of receivables and other financial assets expected to be recovered after more than 12 months is £10m (2017: £85m).
Accrued income includes £214m (2017: £249m) of accrued income from contracts with customers (see Note 4(b)).
23. Other assets
Prepayments
Other
Other assets
2018
£m
38
2
40
Total
£m
814
(772)
42
2017
£m
71
2
104
125
388
219
46
154
6
127
1,242
2017
£m
72
113
185
The amount of other assets expected to be recovered after more than 12 months is £3m (2017: £7m).
162
Standard Life Aberdeen 2018
24. Assets and liabilities held for sale
Assets and liabilities held for sale are presented separately in the consolidated statement of financial position and consist of operations and
individual non-current assets whose carrying amount will be recovered principally through a sale transaction (expected within one year) and
not through continuing use.
Operations held for sale, being disposal groups, and investments in associates accounted for using the equity method are measured at the
lower of their carrying amount and their fair value less disposal costs. No depreciation or amortisation is charged on assets in a disposal
group once it has been classified as held for sale.
Operations held for sale include newly established investment vehicles which the Group has seeded but is actively seeking to divest from. For
these investment funds, which do not have significant liabilities or non-financial assets, financial assets continue to be measured based on
the accounting policies that applied before they were classified as held for sale. The Group classifies seeded operations as held for sale
where the intention is to dispose of the investment vehicle in a single transaction. Where disposal of a seeded investment vehicle will be in
more than one tranche the operations are not classified as held for sale in the consolidated statement of financial position.
Certain amounts seeded into funds are classified as investments in associates at FVTPL. Investment property and owner occupied property
held for sale relates to property for which contracts have been exchanged but the sale had not completed during the current financial year.
Investments in associates at FVTPL and investment property held for sale continue to be measured based on the accounting policies that
applied before they were classified as held for sale.
Assets of operations held for sale
Standard Life (Asia) Limited
Investment vehicles
Investments in associates accounted for using the equity method
Investment and owner occupied property1
Assets held for sale
Liabilities of operations held for sale
Standard Life (Asia) Limited
Investment vehicles
Liabilities of operations held for sale
2018
£m
667
95
–
–
762
643
14
657
2017
£m
703
91
33
211
1,038
678
28
706
1 The 2017 balance consisted of £199m of investment property and £12m of owner occupied property.
(a) Standard Life (Asia) Limited
On 29 March 2017, the Group announced the proposed sale of its wholly owned Hong Kong insurance business, Standard Life (Asia) Limited to
the Group’s Chinese joint venture business, Heng An Standard Life Insurance Company Limited. Standard Life (Asia) Limited is reported in the
Asset management and platforms segment and Heng An Standard Life Insurance Company Limited is reported within the Insurance associates
and joint ventures segment.
At 31 December 2018, this disposal group was measured at fair value less cost to sell and comprised the following assets and liabilities:
Assets of operations held for sale
Equity securities and interests in pooled investment funds
Cash and cash equivalents
Other assets
Total assets of operations held for sale
Liabilities of operations held for sale
Non-participating insurance contract liabilities
Non-participating investment contract liabilities
Other liabilities
Total liabilities of operations held for sale
Net assets of operations held for sale
2018
£m
604
33
30
667
574
52
17
643
24
2017
£m
638
31
34
703
603
62
13
678
25
Following the remeasurement of the disposal group to the lower of its carrying amount and its fair value less costs to sell, an impairment loss of
£2m (2017: £24m) is included in Other administrative expenses in the consolidated income statement. Fair value has been determined by
reference to the expected sale price.
Net assets of operations held for sale are net of intercompany balances between Standard Life (Asia) Limited and the rest of the Group. The net
assets of Standard Life (Asia) Limited on a gross basis as at 31 December 2018 are £18m (2017: £17m).
163
FINANCIAL INFORMATIONStandard Life Aberdeen 2018
8. Group financial statements continued
(b) HDFC AMC
On 30 November 2017, HDFC AMC, which is reported within the Asset management and platforms segment, announced that its board of
directors had approved initiation of the process of an initial public offering (IPO) subject to receipt of necessary approvals. As a result a portion of
the paid-up equity share capital of HDFC AMC was classified as held for sale at 31 December 2017. The IPO completed in August 2018. Refer
Note 1 for further details.
25. Cash and cash equivalents
Cash and cash equivalents include cash at bank, money at call and short notice with banks, and any highly liquid investments (including
reverse repurchase agreements) with less than three months to maturity from the date of acquisition, and are measured at amortised cost.
For the purposes of the consolidated statement of cash flows, cash and cash equivalents also include bank overdrafts which are included in
other financial liabilities on the consolidated statement of financial position.
Where the Group has a legally enforceable right of set off and intention to settle on a net basis, cash and overdrafts are offset in the
consolidated statement of financial position.
Cash at bank and in hand
Money at call, term deposits and debt instruments with less than three months to maturity from
acquisition
Cash and cash equivalents
Cash and cash equivalents
Cash and cash equivalents classified as held for sale
Bank overdrafts
Total cash and cash equivalents for consolidated statement of cash flows
Notes
24
37
2018
£m
669
471
1,140
2018
£m
1,140
33
(216)
957
2017
£m
1,559
8,667
10,226
2017
£m
10,226
31
(542)
9,715
Cash at bank, money at call and short notice and deposits are subject to variable interest rates.
Included in cash and cash equivalents and bank overdrafts are £566m (2017: £661m) and £216m (2017: £533m) relating to balances within a
cash pooling facility in support of which cross guarantees are provided by certain subsidiary undertakings and interest is paid or received on the
net balance. Included in cash and cash equivalents is an offsetting overdraft of £343m (2017: £118m) where the Group has a legally enforceable
right to offset the recognised amounts, and there is an intention to settle on a net basis.
Cash and cash equivalents in respect of unit linked funds (including third party interests in consolidated funds) are held in separate bank
accounts and are not available for general use by the Group. A breakdown of cash and cash equivalents by risk segment is provided in Note 39.
26.
Issued share capital and share premium
Shares are classified as equity instruments when there is no contractual obligation to deliver cash or other assets to another entity on terms
that may be unfavourable. The Company’s share capital consists of the number of ordinary shares in issue multiplied by their nominal value.
The difference between the proceeds received on issue of the shares and the nominal value of the shares issued is recorded in share
premium.
Issued share capital
(a)
The movement in the issued ordinary share capital of the Company was:
Issued shares fully paid
At 1 January
Shares issued in respect of business combinations
Shares issued in respect of share incentive plans
Shares issued in respect of share options
New shares issued immediately prior to share
consolidation
Share consolidation
Shares bought back on-market and cancelled
At 31 December
12 2/9p each
2,978,936,877
–
435,340
350,156
2018
13 61/63p each
–
–
288
–
4
–
(2,941,738,848) 2,574,021,492
(44,609,556)
2,529,412,224
(37,983,529)
–
2017
£m
364
–
–
–
12 2/9p each
1,978,884,437
997,661,231
496,817
1,894,392
–
–
(11)
353
–
–
–
2,978,936,877
£m
242
122
–
–
–
–
–
364
All ordinary shares in issue in the Company rank pari passu and carry the same voting rights and entitlement to receive dividends and other
distributions declared or paid by the Company.
164
Standard Life Aberdeen 2018
On 22 October 2018, the Company undertook a share consolidation of the Company’s share capital. 7 new ordinary shares of 13 61/63 pence
each were issued for each holding of 8 existing ordinary shares of 12 2/9 pence each. As a result, the number of shares in issue reduced from
2,941,738,848 to 2,574,021,492.
On 25 June 2018, a share buyback of up to £750m through on-market purchases was approved by shareholders. As at 31 December 2018, the
Company has bought back and cancelled 82,593,085 shares for a consideration (including transaction costs) of £238m. This consideration has
resulted in a reduction in retained earnings of £238m. An amount of £11m has been credited to the capital redemption reserve relating to the
nominal value of the shares cancelled.
Shares issued in respect of business combinations during 2017 related solely to the Aberdeen merger as discussed in Note 1.
The Company can issue shares to satisfy awards granted under employee incentive plans which have been approved by shareholders. Details
of the Group’s employee plans are provided in Note 45.
(b) Return of capital
2,941,738,848 B shares were issued for nil consideration with a nominal value of 33.99 pence each on 22 October 2018, resulting in a total of
£1,000m being credited to the B share capital account. At the same time £1,000m was deducted from the merger reserve. On 24 October 2018
the B shares were redeemed at 33.99 pence each. An amount of £1,000m was deducted from the B share capital account and £1,000m was
transferred from retained earnings to the capital redemption reserve. The costs of the B share scheme of £2m were recognised directly in equity.
(c) Share premium
1 January
Shares issued in respect of share options
31 December
27. Shares held by trusts
2018
£m
639
1
640
2017
£m
634
5
639
Shares held by trusts relates to shares in Standard Life Aberdeen plc that are held by the Employee Share Trust (EST), the Aberdeen Asset
Management Employee Benefit Trust 2003 (EBT) and the Unclaimed Asset Trust (UAT).
The EST and EBT purchase shares in the Company for delivery to employees under employee incentive plans. Purchased shares are
recognised as a deduction from equity at the price paid for them. Where new shares are issued to the EST or EBT the price paid is the
nominal value of the shares. When shares are distributed from the trust their corresponding value is released to retained earnings.
In July 2006 Standard Life Group demutualised and former members of the mutual company were allocated shares in the new listed
Company. Some former members were yet to claim their shares and the UAT held these on their behalf. There was an off-setting obligation
to deliver these shares which was also recognised in the shares held by trust reserve. The shares and the off-setting obligation were both
measured at £nil. The claim entitlement period for the UAT expired on 9 July 2016. Shares remaining in the UAT after 9 July 2016 continue to
be measured at £nil.
The number of shares held by trusts at 31 December 2018 was as follows:
Number of shares held by trusts
Employee Share Trust
Aberdeen Asset Management Employee Benefit Trust 2003
Unclaimed Asset Trust
2018
2017
31,589,855
20,327,295
153,020
16,031,679
23,704,305
180,766
On completion of the merger on 14 August 2017, 31,483,948 Aberdeen Asset Management PLC shares held by the EBT were exchanged for
23,833,349 Standard Life Aberdeen plc shares at a total nominal value of £3m.
On expiry of the claim period on 9 July 2016, the entitlement to the unclaimed shares remaining in the UAT transferred to the Company. During
the year ended 31 December 2017, 11,719,073 shares were transferred from the UAT to the EST for £nil consideration. An amount equivalent to
the fair value of the shares as at the date of transfer was donated by the Company to the Standard Life Foundation.
165
FINANCIAL INFORMATIONStandard Life Aberdeen 2018
8. Group financial statements continued
28. Retained earnings
The following table shows movements in retained earnings during the year. The movements are aggregated for both continuing and
discontinued operations.
At 1 January
Recognised in comprehensive income
Recognised in profit for the year attributable to equity holders
Recognised in other comprehensive income
Remeasurement (losses)/gains on defined benefit pension plans
Share of other comprehensive income of associates and joint ventures
Aggregate tax items recognised in other comprehensive income
Total items recognised in comprehensive income
Recognised directly in equity
Dividends paid on ordinary shares
Redemption of B shares
Shares bought back on-market and cancelled
Transfer from other reserves on disposal of subsidiaries
Transfer between reserves on impairment of subsidiaries
Transfer for vested employee share-based payments
Sale of shares held by trusts
Reclassification of perpetual debt instruments to liability
Shares distributed by employee and other trusts
Total items recognised directly in equity
At 31 December
Notes
35
26
26
1
29
2018
£m
3,162
830
(29)
(15)
–
786
(634)
(1,002)
(238)
99
570
68
–
–
(33)
(1,170)
2,778
2017
£m
2,855
699
(18)
4
(10)
675
(469)
–
–
–
–
86
4
19
(8)
(368)
3,162
The 2017 transfer for vested employee share-based payments included £32m in relation to replacement awards granted to employees of
Aberdeen which vested before the acquisition date and were recognised directly in retained earnings on acquisition.
29. Movements in other reserves
In July 2006 Standard Life Group demutualised and during this process the merger reserve, the reserve arising on Group reconstruction and
the special reserve were created.
Merger reserve: the merger reserve consists of two components. Firstly at demutualisation in July 2006 the Company issued shares to
former members of the mutual company. The difference between the nominal value of these shares and their issue value was recognised in
the merger reserve. The reserve includes components attaching to each subsidiary that was transferred to the Company at demutualisation
based on their fair value at that date. Secondly following the completion of the merger of Standard Life plc and Aberdeen Asset Management
PLC on 14 August 2017, an additional amount was recognised in the merger reserve representing the difference between the nominal value
of shares issued to shareholders of Aberdeen Asset Management PLC and their fair value at that date. On disposal or impairment of a
subsidiary any related component of the merger reserve is released to retained earnings.
Reserve arising on Group reconstruction: The value of the shares issued at demutualisation was equal to the fair value of the business at
that date. The business’s assets and liabilities were recognised at their book value at the time of demutualisation. The difference between the
book value of the business’s net assets and its fair value was recognised in the reserve arising on Group reconstruction. The reserve
comprises components attaching to each subsidiary that was transferred to the Company at demutualisation. On disposal of such a
subsidiary any related component of the reserve arising on Group reconstruction is released to retained earnings.
Special reserve: Immediately following demutualisation and the related initial public offering, the Company reduced its share premium
reserve by court order giving rise to the special reserve. Dividends can be paid out of this reserve.
Capital redemption reserve: In August 2018, as part of the return of capital and share buyback (refer Note 26) the capital redemption
reserve was created.
166
Standard Life Aberdeen 2018
The following tables show the movements in other reserves during the year. The movements are aggregated for both continuing and
discontinued operations.
Revaluation
of owner
occupied
property
£m
Cash
flow
hedges
£m
Foreign
currency
translation
£m
Available-
for-sale
financial
assets
£m
Notes
Merger
reserve
£m
Equity
compensation
reserve
£m
Special
reserve
£m
Reserve
arising on
Group
reconstruction
£m
Capital
redemption
reserve Total
£m
£m
1
(17)
82
15
5,957
100
241
(1,879)
– 4,500
2018
At 1 January
Recognised in other
comprehensive income
Fair value losses on available-
for-sale financial assets
Fair value gains on cash flow
hedges
Revaluation of owner occupied
property
18
Exchange differences on
translating foreign operations
With profits funds: Associated
UDS movement recognised in
other comprehensive income
Items transferred to profit or
loss from continuing
operations
Items transferred to profit or
loss on disposal of a
subsidiary
Aggregate tax effect of items
recognised in other
comprehensive income
Total items recognised in
other comprehensive
income
Recognised directly in
equity
Issue of B shares
Redemption of B shares
Shares bought back on-market
and cancelled
Reserves credit for employee
share-based payments
Transfer to retained earnings
for vested employee share-
based payments
21
1
26
26
26
Transfer between reserves on
disposal of subsidiaries
1
Transfer between reserves on
impairment of subsidiaries
Total items recognised
directly within equity
At 31 December
–
–
2
–
–
–
54
–
–
–
–
–
–
17
(5)
–
(41)
(2)
–
–
–
(43)
(2)
–
(9)
–
–
–
–
–
–
1
2
11
(33)
(8)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(3)
–
(3)
–
–
–
–
–
–
–
–
–
(6)
–
–
–
–
–
–
–
–
49
–
–
–
–
–
–
–
–
7
(1,000)
–
–
–
–
(1,290)
(570)
(2,860)
3,097
–
–
–
–
–
–
–
–
–
–
–
–
36
(68)
–
–
(32)
68
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
241
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,194
–
1,194
(685)
–
–
–
–
–
–
–
–
–
(9)
54
2
17
(5)
(43)
(43)
(1)
(28)
– (1,000)
1,000 1,000
11
–
–
–
–
11
36
(68)
(99)
(570)
1,011
(690)
1,011 3,782
The merger reserve includes £3,084m (2017: £4,650m) in relation to the Group’s asset management businesses. This includes £2,601m (2017:
£3,877m) relating to the merger with Aberdeen. Following the impairment of the Company’s investments in its asset management entities (refer
Section 9), £570m (2017: £nil) was transferred from the merger reserve to retained earnings to mitigate the impact on distributable reserves.
£996m (2017: £nil) of the merger reserve relating to the asset management businesses was also utilised during the year for the issue of the B
shares (refer note 26).
167
FINANCIAL INFORMATIONStandard Life Aberdeen 2018
8. Group financial statements continued
Revaluation
of owner
occupied
property
£m
Cash
flow
hedges
£m
Foreign
currency
translation
£m
Available-
for-sale
financial
assets
£m
Notes
Merger
reserve
£m
Equity
compensation
reserve
£m
Special
reserve
£m
Reserve
arising on
Group
reconstruction Total
£m
£m
2017
At 1 January
Recognised in other comprehensive
income
Fair value losses on cash flow hedges
Revaluation of owner occupied property
18
31
21
Exchange differences on translating
foreign operations
With profits funds: Associated UDS
movement recognised in other
comprehensive income
Items transferred to the consolidated
income statement
Aggregate tax effect of items recognised
in other comprehensive income
Total items recognised in other
comprehensive income
Recognised directly in equity
Shares issued in respect of business
combinations
Reserves credit for employee share-
based payments
Transfer to retained earnings for vested
employee share-based payments
Aggregate tax effect of items recognised
directly in equity
Total items recognised directly within
equity
At 31 December
–
–
1
–
–
–
–
1
–
–
–
–
–
1
–
104
15
2,080
57
241
(1,879)
618
(33)
–
–
–
13
3
–
–
(32)
12
(2)
–
(17)
(22)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(17)
82
15
–
–
–
–
–
–
–
3,877
–
–
–
3,877
5,957
–
–
–
–
–
–
–
–
96
(54)
1
43
100
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(33)
1
(32)
12
11
3
(38)
3,877
96
(54)
1
3,920
241
(1,879) 4,500
The 2017 reserves credit for employee share-based payments included £57m in relation to replacement awards granted to employees of
Aberdeen which were unvested at the acquisition date.
168
Standard Life Aberdeen 2018
30. Non-controlling interests
Non-controlling interests include preference shares. In addition, the perpetual notes issued by Standard Life Aberdeen plc and Aberdeen
Asset Management PLC were classified as equity whilst no contractual obligation to deliver cash existed.
(a) Non-controlling interests – ordinary shares
Non-controlling interests – ordinary shares of £2m were held at 31 December 2018 (2017: £289m). A reconciliation of movements during the
year is provided in Note 42.
Included in non-controlling interests – ordinary shares of £289m at 31 December 2017 was non-controlling interests of Standard Life Private
Equity Trust plc (SLPET) of £269m which was, prior to the sale of the UK and European insurance business, considered material to the Group.
Non-controlling interests owned 44% of the voting rights of SLPET at 31 December 2017. SLPET ceased to be a subsidiary on the completion of
the sale of the UK and European insurance business on 31 August 2018. The profit allocated to non-controlling interests of SLPET for the year
ended 31 December 2018 is £5m (2017: £24m). Dividends paid to non-controlling interests of SLPET during the year ended 31 December 2018
were £8m (2017: £7m). The 2018 profit allocation and dividends relate to the period from 1 January 2018 to 31 August 2018 and were not
material to the Group.
Summarised financial information for SLPET prior to intercompany eliminations for the year ended 31 December 2017 is provided in the
following table. The summarised financial information is for the year ended 30 September 2017 which was SLPET’s 2017 financial reporting date
and was considered indicative of the interest that non-controlling interests of SLPET had in the Group’s activities and cash flows. The financial
statements of SLPET for the year ended 30 September 2017 were adjusted for market movements and any other significant events or
transactions for the three months to 31 December 2017 for the purposes of consolidation into the Group’s consolidated financial statements for
the year ended 31 December 2017.
SLPET 30 September
Statement of financial position:
Total assets
Total liabilities
Income statement:
Revenue
Profit after tax
Total comprehensive income
Cash flows:
Cash flows from operating activities
Cash flows from investing activities
Cash flows from financing activities
Net (decrease)/increase in cash equivalents
2017
£m
600
1
89
81
81
2
1
(15)
(12)
There were no protective rights of non-controlling interests which significantly restrict the Group’s ability to access or use the assets and settle
the liabilities of the Group.
(b) Non-controlling interests – preference shares and perpetual instruments
5% 2015 Non-voting perpetual non-cumulative redeemable preference shares
2018
£m
99
2017
£m
99
On the acquisition of Aberdeen, the Group recognised preference shares and perpetual capital notes issued by Aberdeen Asset Management
PLC as non-controlling interests. The profit attributable to non-controlling interests from continuing operations for the year ended 31 December
2018 totalled £5m (2017: £8m) being £5m (2017: £nil) in respect of the preference shares and £nil (2017: £8m) in respect of perpetual debt
instruments. The profit attributable to non-controlling interests from discontinued operations for the year ended 31 December 2018 totalled £33m
(2017: £25m) being £5m (2017: £25m) in respect of ordinary shares and £28m (2017: £nil) in respect of perpetual debt instruments.
(b)(i) Preference shares
The preference shares have no fixed redemption date, except at the sole discretion of the issuer after the fifth anniversary from issue. Preference
share dividends are discretionary and where declared, are paid in arrears in two tranches at a rate of 5% per annum and are non-cumulative. No
interest accrues on any cancelled or unpaid dividends. During the year ended 31 December 2018 preference share dividends of £5m (2017: £nil)
were paid.
The preference shares can be converted irrevocably into a fixed number of ordinary shares of Aberdeen Asset Management PLC in the event of
the conversion trigger. The conversion trigger occurs if Aberdeen Asset Management PLC’s Common Equity Tier 1 (‘CET1’) capital ratio falls
below 5.125%. The CET1 ratio (unaudited) at 31 December 2018 was 34.4% (2017: 36.2%).
169
FINANCIAL INFORMATIONStandard Life Aberdeen 2018
8. Group financial statements continued
(b)(ii) Perpetual debt instruments
6.75% Sterling fixed rate perpetual subordinated guaranteed bonds and 6.546% Sterling fixed rate perpetual Mutual Assurance
Capital Securities
From the date of the repayment of a £100 internal subordinated loan note issued by Standard Life Assurance Limited (SLAL) to the
Company on 30 August 2018, the perpetual subordinated guaranteed bonds and Mutual Assurance Capital Securities (MACS) issued
by the Company were reclassified to equity from subordinated liabilities (see Note 34). The perpetual subordinated guaranteed bonds
and MACS were recognised in equity at their fair value of the subordinated debt liabilities at 30 August 2018 of £672m and £334m
respectively. The Group recognised a fair value loss of £198m on the reclassification which is included in Restructuring and corporate
transaction expenses from discontinued operations (see Note 8).
The prior classification as liabilities was determined by the interaction of these perpetual debt instruments with the £100 internal subordinated
loan note. There was no fixed redemption date for the internal loan note, but interest payments could not be deferred and had to be paid on the
date they became due and payable. Under the terms for the guaranteed bonds and MACS any interest deferred on these instruments would
have become immediately due and payable on the date of an interest payment in respect of the internal loan note. The existence of the internal
loan note therefore removed the discretionary nature of the interest payments on the subordinated guaranteed bonds and MACS, and resulted in
their classification as liabilities.
Following a tender and mandatory redemption process which completed on 25 October 2018, the Company repurchased/redeemed the
guaranteed bonds and MACS for £703m and £336m respectively (including accrued interest and fees). The difference between the
carrying value of the guaranteed bonds and MACS and the cost of the repurchase and mandatory redemption of £21m (net of tax) was
recognised directly as profit attributable to non-controlling interests.
The guaranteed bonds bore interest on their principal amount at 6.75% per annum payable annually in arrears on 12 July. The MACS
bore interest on their principal amount at 6.546% per annum payable annually in arrears on 4 November. The coupons payable on the
guaranteed bonds and MACS were tax deductible. During the year ended 31 December 2018 £7m (net of tax) (2017: £nil) was
recognised directly in equity as profit attributable to non-controlling interests in relation to the coupons payable on the guaranteed bonds
and MACS.
7.0% US Dollar fixed rate perpetual capital notes
Until 18 December 2017, the perpetual capital notes were classified as equity. On this date Aberdeen Asset Management PLC notified the
trustees of the perpetual capital notes of its irrevocable intention to redeem the notes on the first call date, 1 March 2018. Following notification to
the trustees the perpetual capital notes were reclassified as subordinated liabilities as an obligation to deliver cash was created. The liabilities
were recognised at fair value of £380m on 18 December 2017 with fair value movements since acquisition of £17m being transferred to retained
earnings at this date. On reclassification £2m in relation to tax allocated to non-controlling interests was also transferred to retained earnings.
The perpetual capital notes were redeemed on 1 March 2018. Refer Note 34.
The perpetual capital notes bore interest on their principal amount at 7.0% per annum, the discretionary coupons were payable quarterly in
arrears on 1 March, 1 June, 1 September and 1 December in each year. Interest accrued on any deferred payments. The coupons payable on
perpetual notes were tax deductible. During the year ended 31 December 2018 £nil (2017: £8m (net of tax)) was recognised directly in equity as
profit contributable to non-controlling interests in relation to the coupons payable on the perpetual capital notes.
170
Standard Life Aberdeen 2018 31.
Insurance contracts, investment contracts and reinsurance contracts
(i) Classification of insurance and investment contracts
The measurement basis of assets and liabilities arising from life and pensions business contracts is dependent upon the classification of
those contracts as either insurance or investment contracts.
Insurance contracts
A contract is classified as an insurance contract only if it transfers significant insurance risk. Insurance risk is significant if an insured event
could cause an insurer to pay significant additional benefits to those payable if no insured event occurred, excluding scenarios that lack
commercial substance. Our judgement is that where death benefits exceed maturity benefits by 10% or more a contract is classified as an
insurance contract, by 5% or less it is not an insurance contract. There are no material contracts within the 5% to 10% range. A contract that
is classified as an insurance contract remains an insurance contract until all rights and obligations are extinguished or expire.
Investment contracts
Life and pensions business contracts that are not classified as insurance contracts are classified as investment contracts.
Participating contracts
The Group has written insurance and investment contracts which contain discretionary participating features (e.g. with profits business).
These contracts provide a contractual right to receive additional benefits as a supplement to guaranteed benefits. These additional benefits
are based on the performance of with profits funds and their amount and timing is at the discretion of the Group. These contracts are referred
to as participating insurance contracts if they contain a feature that transfers significant insurance risk and otherwise as participating
investment contracts.
Hybrid contracts
Generally, life and pensions business product classes are sufficiently homogeneous to permit a single classification at the level of the product
class. However, in some cases, a product class may contain individual contracts that fall across multiple classifications (hybrid contracts). For
certain significant hybrid contracts our judgement is that it is appropriate to separate the product class into the insurance element, a non-
participating investment element and a participating investment element, so that each element is accounted for separately.
Embedded derivatives
Where a contract contains a feature that meets the definition of both an insurance contract and a derivative, the contract is classified in its
entirety as an insurance contract.
Income statement presentation – insurance and participating investment contracts
(ii)
For insurance contracts and participating investment contracts, IFRS 4 Insurance Contracts permits the continued application, for income
statement presentation purposes, of accounting policies that were being used at the date of transition to IFRS, except where a change is
deemed to make the financial statements more relevant to the economic decision-making needs of users and no less reliable, or more
reliable, and no less relevant to those needs. Therefore the Group applies accounting policies based on the Association of British Insurers
Statement of Recommended Practice issued in 2005 (ABI SORP) as described below.
Premiums received on insurance contracts and participating investment contracts are recognised as revenue in the consolidated income
statement when due for payment, except for unit linked premiums which are accounted for when the corresponding liabilities are recognised.
For single premium business, this is the date from which the policy is effective. For regular (and recurring) premium contracts, receivables are
established at the date when payments are due.
Claims paid on insurance contracts and participating investment contracts are recognised as expenses in the consolidated income statement.
Maturity claims and annuities are accounted for when due for payment. Surrenders are accounted for when paid or, if earlier, on the date
when the policy ceases to be included within the calculation of the insurance liability. Death claims and all other claims are accounted for
when notified.
When a policyholder exercises an option within an investment contract to utilise withdrawal proceeds from the investment contract to secure
future benefits which contain significant insurance risk, the related investment contract liability is derecognised and an insurance contract
liability is recognised. The withdrawal proceeds which are used to secure the insurance contract are recognised as premium income.
Claims payable include the direct costs of settlement. Reinsurance recoveries are accounted for in the same period as the related claim.
The change in insurance and participating investment contract liabilities, comprising the full movement in the corresponding liabilities during
the period, is recognised in the consolidated income statement. This also includes the movement in unallocated divisible surplus (UDS) in the
period. However, where movements in assets and liabilities which are attributable to participating policyholders are recognised in other
comprehensive income, the change in UDS arising from these movements is not recognised in the consolidated income statement as it is
also recognised in other comprehensive income.
(iii) Measurement – insurance and participating investment contract liabilities
For insurance contracts and participating investment contracts, IFRS 4 Insurance Contracts permits the continued application, for
measurement purposes, of accounting policies that were being used at the date of transition to IFRS, except where a change is deemed to
make the financial statements more relevant to the economic decision-making needs of users and no less reliable, or more reliable, and no
less relevant to those needs. Therefore the Group applies accounting policies based on the ABI SORP as described below. As was permitted
under the ABI SORP, the Group adopts local regulatory valuation methods, adjusted for consistency with asset measurement policies, for the
measurement of liabilities under insurance contracts and participating investment contracts issued by overseas subsidiaries and associates.
171
FINANCIAL INFORMATIONStandard Life Aberdeen 2018
8. Group financial statements continued
(iv) Measurement – participating contract liabilities
Participating contract liabilities are analysed into the following components:
Participating insurance contract liabilities
Participating investment contract liabilities
Present value of future profits on non-participating contracts, which is treated as a deduction from gross participating contract liabilities
Unallocated divisible surplus
The policy for measuring each component is noted below.
Participating insurance and investment contract liabilities
Participating contract liabilities arising under contracts issued by with profits funds which were within the scope of the Prudential Regulation
Authority (PRA) realistic capital regime prior to the introduction of Solvency II are measured on the PRA realistic basis that was used in the
PRA realistic capital regime. Under this approach, the value of participating insurance and participating investment contract liabilities in each
with profits fund is calculated as:
With profits benefits reserves (WPBR) for the fund as determined under the PRA realistic basis, plus
Future policy related liabilities (FPRL) for the fund as determined under the PRA realistic basis, less
Any amounts due to equity holders included in FPRL, less
The portion of future profits on non-participating contracts included in FPRL not due to equity holders, where this portion can be separately
identified
The WPBR is primarily based on the retrospective calculation of accumulated asset shares. The aggregate value of individual policy asset
shares reflects the actual premium, expense and charge history of each policy. The net investment return credited to the asset shares is
consistent with the return achieved on the assets notionally backing participating business. Any mortality deductions are based on published
mortality tables adjusted where necessary for experience variations. For those asset shares on an expense basis, the allowance for
expenses attributed to the asset share is, as far as practical, the appropriate share of the actual expenses incurred or charged to the fund.
For those on a charges basis, the allowance is consistent with the charges for an equivalent unit linked policy. The FPRL comprises other
components such as a market consistent stochastic valuation of the cost of options and guarantees.
Prior to the sale of Standard Life Assurance Limited (SLAL) to Phoenix Group Holdings Plc (Phoenix), the Group’s principal with profits fund
was the Heritage With Profits Fund (HWPF). The application to the HWPF of the Group’s accounting policy for participating insurance and
investment contract liabilities is described below. This policy for the HWPF now applies, for equity accounting purposes, to the Group’s
associate Phoenix.
The participating contracts held in the HWPF were issued by a with profits fund that fell within the scope of the PRA realistic capital regime.
Under the Scheme of Demutualisation (the Scheme), the residual estate of the HWPF exists to meet amounts which may be charged to the
HWPF under the Scheme. However, to the extent that SLAL’s board is satisfied that there is an excess residual estate, it shall be distributed
over time as an enhancement to final bonuses payable on the remaining eligible policies invested in the HWPF. This planned enhancement
to the benefits under with profits contracts held in the HWPF is included in the FPRL under the PRA realistic basis, resulting in a realistic
surplus of nil. Applying the policy noted above, this planned enhancement is therefore included within the measurement of participating
contract liabilities.
The Scheme provides that certain defined cash flows (recourse cash flows) arising in the HWPF on specified blocks of UK and Ireland
business, both participating and non-participating, may be transferred out of that fund when they emerge, being transferred to the
Shareholder Fund (SHF) or the Proprietary Business Fund (PBF) of SLAL, and thus accrue to the ultimate benefit of equity holders of the
company. Under the Scheme, such transfers are subject to certain constraints in order to protect policyholders. The Scheme also provides for
additional expenses to be charged by the PBF to the HWPF in respect of Germany branch business in SLAL.
Under the PRA realistic basis, the discounted value of expected future cash flows on participating contracts not reflected in the WPBR is
included in FPRL (as a reduction in FPRL where future cash flows were expected to be positive). The discounted value of expected future
cash flows on non-participating contracts not reflected in the measure on non-participating liabilities is recognised as a separate asset (where
future cash flows are expected to be positive). The Scheme requirement to transfer future recourse cash flows out of the HWPF is recognised
as an addition to FPRL. The discounted value of expected future cash flows on non-participating contracts can be apportioned between those
included in the recourse cash flows and those retained in the HWPF for the benefit of policyholders.
Applying the policy noted above:
The value of participating insurance and participating investment contract liabilities on the consolidated statement of financial position is
reduced by future expected (net positive) cash flows arising on participating contracts
Future expected cash flows on non-participating contracts are not recognised as an asset of the HWPF on the consolidated statement of
financial position. However, future expected cash flows on non-participating contracts that are not recourse cash flows under the Scheme
are used to adjust the value of participating insurance and participating investment contract liabilities on the consolidated statement of
financial position.
Some participating contract liabilities arise under contracts issued by a non-participating fund with a with profits investment element then
transferred to a with profits fund within SLAL that fell within the scope of the PRA’s realistic capital regime. The with profits investment
element of such contracts was measured as described above. Any liability for insurance features retained in the non-participating fund was
measured using the gross premium method applicable to non-participating contracts (see Section (v)).
172
Standard Life Aberdeen 2018 Present value of future profits (PVFP) on non-participating contracts held in a with profits fund
An amount is recognised for the PVFP on non-participating contracts held in the HWPF since the determination of the realistic value of
liabilities for with profits contracts in the HWPF takes account of this value. The amount is recognised as a deduction from liabilities. As this
amount can be apportioned between an amount recognised in the realistic value of with profits contract liabilities and an amount recognised
in UDS, the apportioned amounts are reflected in the measurement of participating contract liabilities and UDS respectively.
Unallocated divisible surplus (UDS)
The UDS comprises the difference between the assets and all other recognised liabilities in with profits funds. This amount is recognised as a
liability when it is not considered to be allocated to shareholders due to uncertainty regarding transfers from these funds to equity holders.
In relation to the HWPF, amounts are considered to be allocated to equity holders when they emerge as recourse cash flows within the
HWPF.
As a result of the policies for measuring the HWPF’s assets and all its other recognised liabilities:
The UDS of the HWPF comprises the value of future recourse cash flows on participating contracts (but not the value of future recourse
cash flows on non-participating contracts), the value of future additional expenses to be charged on Germany branch business and the
effect of any measurement differences between the Realistic Balance Sheet value and IFRS accounting policy value of all assets and all
liabilities other than participating contract liabilities recognised in the HWPF
The recourse cash flows are recognised as they emerge as an addition to equity holders’ profits if positive or as a deduction if negative. As
the additional expenses are charged in respect of the Germany branch business, they are recognised as an addition to equity holders’
profits.
(v) Measurement – non-participating insurance contract liabilities
Measurement for UK business is based on a best estimate with a margin for prudence.
UK and European insurance business
The liability for annuity in payment contracts was measured by discounting the expected future annuity payments together with an
appropriate estimate of future expenses at an assumed rate of interest derived from yields on the underlying assets.
Other non-participating insurance contracts are measured using the gross premium method. In general terms, a gross premium valuation
basis is one in which the premiums brought into account are the full amounts receivable under the contract. The method includes explicit
estimates of premiums, expected claims and costs of maintaining contracts. Cash flows are discounted at the valuation rate of interest
determined to reflect conditions at the reporting date in accordance with Prudential Regulation Authority (PRA) requirements that existed at
31 December 2015.
UK Associates – Phoenix
Non-participating insurance contract liabilities are measured, for equity accounting purposes, at best estimate with an explicit margin for
prudence with the process used to determine assumptions based on Solvency II data. The valuation interest rate is a risk free rate (swap
curve plus 10 bps) with an explicit adjustment for illiquidity in respect of assets backing illiquid liabilities. Demographic assumptions are based
on a best estimate with an explicit margin for demographic risks.
Standard Life (Asia) Limited
The Group’s policy for measuring liabilities for non-participating insurance contracts issued by overseas subsidiaries is to apply the valuation
technique used in the issuing entity’s local statutory or regulatory reporting.
(vi) Measurement – liability adequacy test
The Group applies a liability adequacy test at each reporting date to ensure that the insurance and participating contract liabilities (less
related deferred acquisition costs) are adequate in the light of the estimated future cash flows. This test is performed by comparing the
carrying value of the liability and the discounted projections of future cash flows.
If a deficiency is found in the liability (i.e. the carrying value amount of its insurance liabilities is less than the future expected cash flows), that
deficiency is provided for in full. The deficiency is recognised in the consolidated income statement.
(vii) Reinsurance contracts
Contracts with reinsurers are assessed to determine whether they contain significant insurance risk. Contracts that did not give rise to a
significant transfer of insurance risk to the reinsurer are considered financial reinsurance and are accounted for in a manner consistent with
financial instruments.
Contracts that gave rise to a significant transfer of insurance risk to the reinsurer are assessed to determine whether they contained an
element that did not transfer significant insurance risk and which could be measured separately from the insurance component. Where such
elements are present, they are accounted for separately with any deposit element being accounted for in a manner consistent with financial
instruments. The remaining elements, or where no such separate elements are identified, the entire contracts, are classified as reinsurance
contracts.
Reinsurance contracts are measured using valuation techniques and assumptions that are consistent with the valuation techniques and
assumptions used in measuring the underlying policy benefits and taking into account the terms of the reinsurance contract.
Reinsurance recoveries due from reinsurers and reinsurance premiums due to reinsurers under reinsurance contracts that are contractually
due at the reporting date are separately recognised in receivables and other financial assets and other financial liabilities respectively unless
a right of offset exists, in which case the net amount is reported on the consolidated statement of financial position.
Expenses, including interest, arising under elements of contracts with reinsurers that do not transfer significant insurance risk are recognised
on an accruals basis in the consolidated income statement as expenses under arrangements with reinsurers.
173
FINANCIAL INFORMATIONStandard Life Aberdeen 2018
8. Group financial statements continued
(a)
Insurance contract premium income
Gross earned premium
Premium ceded to reinsurers
Insurance contract premium income from continuing operations
2018
£m
75
(2)
73
1 Comparatives for 2017 have been restated to reflect the classification of the UK and European insurance business as discontinued operations. Refer Note 1.
(b)
Insurance contract claims and change in liabilities
Claims and benefits paid
Claim recoveries from reinsurers
Net insurance claims
Change in reinsurance assets and liabilities
Change in insurance contract liabilities
Insurance contract claims and change in liabilities from continuing operations
Notes
31(d)
31(d)
2018
£m
62
(4)
58
5
(62)
1
1 Comparatives for 2017 have been restated to reflect the classification of the UK and European insurance business as discontinued operations. Refer Note 1.
(c)
Insurance and participating investment contract liabilities
Non-participating insurance contract liabilities
Participating contract liabilities:
Participating insurance contract liabilities
Participating investment contract liabilities
Unallocated divisible surplus
Participating contract liabilities
2018
£m
3
–
–
–
–
2017
restated1
£m
91
(2)
89
2017
restated1
£m
53
(1)
52
(7)
156
201
2017
£m
22,740
14,659
15,313
675
30,647
Non-participating insurance contract liabilities includes UK immediate annuities of £nil (2017: £12,667m) and UK deferred annuities of £nil (2017:
£1,289m).
(d) Change in liabilities and reinsurance contracts
The movement in insurance contract liabilities, participating investment contract liabilities and reinsurance contracts during the year was as
follows:
2018
At 1 January
Reclassified as held for sale during the year
Change in contract liabilities recognised in the
consolidated income statement1
At 31 December
Participating
insurance
contract
liabilities
£m
Non-
participating
insurance
contract
liabilities
£m
Participating
investment
contract
liabilities
£m
Total
insurance and
participating
contract
liabilities
£m
Reinsurance
contracts
£m
Net
£m
14,659
(14,659)
22,740
(22,736)
15,313
(15,313)
52,712
(52,708)
(4,811)
4,811
47,901
(47,897)
–
–
(1)
3
–
–
(1)
3
–
–
(1)
3
1 Total change in contract liabilities recognised in the consolidated income statement in the table above excludes (£61m) (2017: (£100m)) and £5m (2017: £7m) of insurance
and participating contract liabilities and reinsurance contracts respectively relating to assets and liabilities held for sale.
174
Standard Life Aberdeen 2018
2017
At 1 January
Reclassified as held for sale during the year
Change in contract liabilities recognised in the
consolidated income statement
Expected change
Methodology/modelling changes
Effect of changes in
Economic assumptions
Non-economic assumptions
Effect of
Economic experience
Non-economic experience
New business
Total change in contract liabilities recognised
in the consolidated income statement1
Foreign exchange adjustment
Participating
insurance
contract
liabilities
£m
Non-
participating
insurance
contract
liabilities
£m
Participating
investment
contract
liabilities
£m
Total
insurance and
participating
contract
liabilities
£m
Reinsurance
contracts
£m
15,151
–
23,422
(550)
15,537
–
54,110
(550)
(5,386)
7
(896)
(58)
(37)
(66)
126
15
–
(916)
424
(898)
10
(81)
(235)
532
(381)
878
(175)
43
(1,034)
51
(2,828)
3
79
6
573
39
33
(253)
29
(39)
(295)
1,231
(327)
911
(1,344)
496
52,712
397
–
8
154
3
6
–
568
–
(4,811)
Net
£m
48,724
(543)
(2,431)
3
(31)
(141)
1,234
(321)
911
(776)
496
47,901
At 31 December
14,659
22,740
15,313
1 Total change in contract liabilities recognised in the consolidated income statement in the table above excludes (£100m) and £7m of insurance and participating contract
liabilities and reinsurance contracts respectively relating to assets and liabilities held for sale.
(e) Movement in components of unallocated divisible surplus (UDS)
The movement in UDS was as follows:
At 1 January
Reclassified as held for sale during the year
Change in UDS recognised in the consolidated income statement
Change in UDS recognised in other comprehensive income
Foreign exchange adjustment
At 31 December
2018
£m
675
(675)
–
–
–
–
2017
£m
585
–
140
(12)
(38)
675
(f) Expected settlement and recovery
An indication of the term to contracted maturity/repricing date for insurance and investment contract liabilities is given in Note 39. Reinsurance
contracts are generally structured to match liabilities on a class of business basis. This has a mixture of terms. The reinsurance assets are
therefore broadly expected to be realised in line with the settlement of liabilities (as per the terms of the particular treaty) within a reinsured class
of business.
175
FINANCIAL INFORMATIONStandard Life Aberdeen 2018
8. Group financial statements continued
32. Non-participating investment contracts
Unit linked non-participating investment contracts are separated into two components being an investment management services component
and a financial liability. All fees and related administrative expenses are deemed to be associated with the investment management services
component (refer Note 4, Note 15 and Note 36). The financial liability component is designated at FVTPL as it is implicitly managed on a fair
value basis as its value is directly linked to the market value of the underlying portfolio of assets.
Contributions received on non-participating investment contracts are treated as policyholder deposits and not reported as revenue in the
consolidated income statement.
Withdrawals paid out to policyholders on non-participating investment contracts are treated as a reduction to policyholder deposits and not
recognised as expenses in the consolidated income statement.
Investment return and related benefits credited in respect of non-participating investment contracts are recognised in the consolidated income
statement as changes in investment contract liabilities.
The change in non-participating investment contract liabilities was as follows:
Notes
At 1 January
Reclassified as held for sale during the year
Acquired through business combinations
Contributions
Account balances paid on surrender and other terminations in the year
Change in non-participating investment contract liabilities recognised in the
consolidated income statement1
Recurring management charges
Foreign exchange adjustment
At 31 December
33
2018
£m
105,769
(104,174)
–
183
(235)
(72)
(3)
–
1,468
2017
£m
102,063
(68)
1,411
9,579
(15,903)
8,954
(490)
223
105,769
1 Change in non-participating investment contract liabilities recognised in the consolidated income statement in the table above excludes (£6m) (2017: £9m) in relation to non-
participating investment contract liabilities classified as held for sale.
33. Financial liabilities
Management determines the classification of financial liabilities at initial recognition. Financial liabilities are designated as at FVTPL when
they are managed and their performance evaluated on a fair value basis. The methods and assumptions used to determine fair value of
financial liabilities designated at FVTPL are discussed in Note 41. Financial liabilities which are not derivatives and not FVTPL are measured
at amortised cost.
Designated as at
fair value through
profit or loss
£m
1,468
254
–
–
29
1,751
Designated as at
fair value through
profit or loss
£m
105,765
–
16,457
–
–
25
122,247
Held for
trading
£m
–
–
–
6
–
6
Held for
trading
£m
–
–
–
–
780
–
780
Financial
liabilities
measured at
amortised cost
£m
–
–
1,081
–
1,133
Cash flow
hedge
£m
–
–
–
–
–
–
2,214
Total
£m
1,468
254
1,081
6
1,162
3,971
Financial
liabilities
measured at
amortised cost
£m
4
4,633
–
2,253
–
3,871
Cash flow
hedge
£m
–
–
–
–
33
–
33
10,761
Total
£m
105,769
4,633
16,457
2,253
813
3,896
133,821
2018
Non-participating investment contract liabilities
Third party interest in consolidated funds
Subordinated liabilities
Derivative financial liabilities
Other financial liabilities
Notes
39
39
34
21
37
Total
2017
Non-participating investment contract liabilities
Deposits received from reinsurers
Third party interest in consolidated funds
Subordinated liabilities
Derivative financial liabilities
Other financial liabilities
Notes
39
39
39
34
21
37
Total
176
Standard Life Aberdeen 2018
34. Subordinated liabilities
Subordinated liabilities are debt instruments issued by the Company which rank below its other obligations in the event of liquidation but
above the share capital. Subordinated liabilities are initially recognised at the value of proceeds received after deduction of issue expenses.
Subsequent measurement is at amortised cost using the effective interest rate method.
Capital notes
7.0% US Dollar fixed rate perpetual
Subordinated notes
4.25% US Dollar fixed rate due 30 June 2028
5.5% Sterling fixed rate due 4 December 2042
Subordinated guaranteed bonds
6.75% Sterling fixed rate perpetual
Mutual Assurance Capital Securities
6.546% Sterling fixed rate perpetual
Total subordinated liabilities
2018
2017
Notes
Principal
amount
Carrying
value
Principal
amount
Carrying
value
–
–
$500m
£377m
$750m
£500m
£581m
£500m
$750m
£500m
£556m
£500m
–
–
–
£500m
£502m
–
£1,081m
£300m
£318m
£2,253m
39
A description of the key features of the Group’s subordinated liabilities as at 31 December 2018 is as follows:
Principal amount
Issue date
Maturity date
Callable at par at option of
the Company from
If not called by the
Company interest will
reset to
4.25% US Dollar fixed rate1,2
(from 15 November 2018)
$750,000,000
18 October 2017
30 June 2028
Not applicable
Not applicable
4.25% US Dollar fixed rate1,2
(until 15 November 2018)
$750,000,000
18 October 2017
30 June 2048
30 June 2028 and on every interest
payment date (semi-annually)
thereafter
2.915% over the five-year Treasury
rate (and at each fifth anniversary)
5.5% Sterling fixed rate
£500,000,000
4 December 2012
4 December 2042
4 December 2022 and on every
interest payment date (semi-
annually) thereafter
4.85% over the five-year gilt rate
(and at each fifth anniversary)
1 The cash flows arising from the US dollar subordinated notes give rise to foreign exchange exposure which the Group manages with a cross-currency swap designated as a
cash flow hedge. Refer Note 21 for further details.
2 During the year to 31 December 2018, the terms of the 4.25% US Dollar fixed rate subordinated notes were renegotiated to allow the notes to qualify as regulatory capital
under CRD IV (see Note 47).
The difference between the fair value and carrying value of the subordinated liabilities is presented in Note 41. A reconciliation of movements in
subordinated liabilities in the year is provided in Note 42.
The principal amount of all the subordinated liabilities is expected to be settled after more than 12 months. The accrued interest on the
subordinated liabilities of £2m (2017: £44m) is expected to be settled within 12 months.
During the year to 31 December 2018, the Group redeemed/repurchased subordinated liabilities with the following key features
Principal amount
Issue date
Maturity date
Callable at par at option of
the Company from
If not called by the
Company interest will
reset to
7% US Dollar fixed rate
$500,000,000
1 March 2013
Perpetual
1 March 2018 and on any interest
payment date thereafter
Not applicable
6.75% Sterling fixed rate
£500,000,000
12 July 2002
Perpetual
12 July 2027 and on every fifth
anniversary thereafter
2.85% over the gross redemption
yield on the appropriate five-year
benchmark gilt rate
6.546% Sterling fixed rate
£300,000,000
4 November 2004
Perpetual
6 January 2020 and on every
anniversary thereafter
2.7% over the gross redemption yield
on the appropriate one-year
benchmark gilt rate
The 7% US Dollar fixed rate perpetual capital notes with a principal amount of $500m were redeemed on 1 March 2018. The capital notes had
been reclassified from equity during the year ended 31 December 2017. Refer Note 30 for further details.
The 6.75% Sterling fixed rate subordinated guaranteed bonds and 6.546% Sterling fixed rate Mutual Assurance Capital Securities with principal
amounts of £500m and £300m respectively were redeemed on 25 October 2018. These debt instruments were classified as equity for the period
from 30 August 2018 to their redemption/repurchase on 25 October 2018. Refer Note 30 for further details.
177
FINANCIAL INFORMATIONStandard Life Aberdeen 2018
8. Group financial statements continued
35. Pension and other post-retirement benefit provisions
The Group operates two types of pension plans:
Defined benefit plans which provide pension payments upon retirement to members as defined by the plan rules. All of the Group’s defined
benefit plans, with the exception of a small plan in Ireland, are closed to future service accrual.
Defined contribution plans where the Group makes contributions to a member’s pension plan but has no further payment obligations once
the contributions have been paid
The Group’s liabilities in relation to its defined benefit plans are valued by at least annual actuarial calculations. The Group has funded these
liabilities in relation to its UK and Ireland defined benefit plans by ring-fencing assets in trustee-administered funds. The Group has further
smaller defined benefit plans some of which are unfunded.
The statement of financial position reflects a net asset or net liability for each defined benefit pension plan. The liability recognised is the
present value of the defined benefit obligation (estimated future cash flows are discounted using the yields on high quality corporate bonds)
less the fair value of plan assets, if any. If the fair value of the plan assets exceeds the defined benefit obligation, a pension surplus is only
recognised if the Group considers that it has an unconditional right to a refund of the surplus from the plan. The amount of surplus recognised
will be limited by tax and expenses. Our judgement is that, in the UK, an authorised surplus tax charge is not an income tax. Consequently,
the surplus is recognised net of this tax charge rather than the tax charge being included within deferred taxation.
For the principal defined benefit plan (UK Standard Life Group plan), the Group considers that it has an unconditional right to a refund of a
surplus, assuming the gradual settlement of the plan liabilities over time until all members have left the plan. The plan trustees can purchase
annuities to insure member benefits and can, for the majority of benefits, transfer these annuities to members. The trustees cannot
unconditionally wind up the plan or use the surplus to enhance member benefits without employer consent. Our judgement is that these
trustee rights do not prevent us from recognising an unconditional right to a refund and therefore a surplus.
Net interest income (if a plan is in surplus) or interest expense (if a plan is in deficit) is calculated using yields on high quality corporate bonds
and recognised in the consolidated income statement. A current service cost is also recognised which represents the expected present value
of the defined benefit pension entitlement earned by members in the period. A past service cost is also recognised which represents the
change in the present value of the defined benefit obligation for service in prior periods, resulting from an amendment or curtailment to a plan.
Remeasurements, which include gains and losses as a result of changes in actuarial assumptions, the effect of the limit on the plan surplus
and returns on plan assets (other than amounts included in net interest) are recognised in other comprehensive income in the period in which
they occur. Remeasurements are not reclassified to profit or loss in subsequent periods.
For defined contribution plans, the Group pays contributions to separately administered pension plans. The Group has no further payment
obligations once the contributions have been paid. The contributions are recognised in current service cost in the consolidated income
statement as staff costs and other employee-related costs when they are due.
178
Standard Life Aberdeen 2018
Defined contribution plans
The defined contribution plans comprise a mixture of arrangements depending on the employing entity and other factors. Some of these
plans are located within the same legal vehicles as defined benefit plans. The Group contributes a percentage of pensionable salary to
each employee’s plan. The contribution levels vary by employing entity and other factors.
Defined benefit plans
UK plans
These plans are governed by trustee boards, which comprise employer and employee nominated trustees and an independent trustee.
The plans are subject to the statutory funding objective requirements of the Pensions Act 2004, which require that plans be funded to at
least the level of their technical provisions (an actuarial estimate of the assets needed to provide for benefits already built-up under the
plan). The trustees perform regular valuations to check that the plans meet the statutory funding objective.
While the IAS 19 valuation reflects a best estimate of the financial position of the plan, the funding valuation reflects a prudent estimate.
There is no material difference in how assets are measured. The funding measure of liabilities (‘technical provisions’) and the IAS 19
measure are materially different. The key differences are the discount rate and inflation assumptions. While IAS 19 requires that the
discount rate reflect corporate bond yields, the funding measure discount rate reflects a prudent estimate of future investment returns
based on the actual investment strategy. The funding valuation adopts a market consistent measure of inflation without any adjustment.
The IAS 19 assumption incorporates an adjustment to remove the inflation risk premium believed to exist within market prices.
The trustees set the plan investment strategy to protect the ratio of plan assets to the trustees’ measure of technical provisions. This
investment strategy does not aim to protect the IAS 19 surplus or the ratio of plan assets to the IAS 19 measure of liabilities.
After consulting the relevant employers, the trustees prepare statements of funding and investment principles and set a schedule of
contributions. If necessary, this schedule includes a recovery plan that aims to restore the funding level to the level of the technical
provisions.
UK Standard
Life Group
plan
(principal
plan)
This is the Group’s principal defined benefit plan. The plan closed to new membership in 2004 and changed from a final
salary basis to a revalued career average salary basis in 2008. Accrual ceased in April 2016.
The transfer of employees to Phoenix, in connection with the sale of our UK and European insurance business, caused a
curtailment in this plan that reduced plan liabilities by £42m. However, a plan amendment was agreed that reduced this
fall in liabilities to £18m. These movements are recognised within past service cost, together with the associated
movement in the asset ceiling.
Following a High Court ruling against a third party’s pension scheme, that requires that scheme to address the inequalities
in the statutory benefits paid to men and women, an allowance for assumed equalisation has been introduced for our
principal defined benefit plan at 31 December 2018. The estimated impact is recognised as a past service cost, though is
not material.
The funding of the plan depends on the statutory valuation performed by the trustees, and the relevant employers, with
the assistance of the scheme actuary – i.e. not the IAS 19 valuation. The funding valuation was last completed as at 31
December 2016, and measured plan assets and liabilities to be £4.9bn and £4.2bn respectively. This corresponds to a
surplus of £0.7bn and funding level of 117%. As there is currently no deficit, no recovery plan is required.
The Group also operates two UK defined benefit plans as a result of the merger with Aberdeen. These plans are final
salary based, with benefits depending on members’ length of service and salary prior to retirement. At the last statutory
valuation date, these plans were in deficit and the Group agreed funding plans which aimed to eliminate the deficits, with
the plans’ trustees. At 31 December 2018, one of the two schemes is now in surplus on an IAS 19 basis.
Other UK
plans
Other plans
Ireland
Standard Life
plan
In December 2009 this plan closed to new membership and changed from a final salary basis to a career average
revalued earnings (CARE) basis. Following the sale of the UK and European insurance business, there remains less than
10 employees that continue to accrue benefits under this plan.
The transfer of employees to Phoenix, in connection with the sale of our UK and European insurance business, caused a
curtailment in this plan that reduced plan liabilities by £4m. This movement is recognised in past service cost.
At the last trustee valuation, effective 1 January 2016, the plan was 70% funded on an ongoing basis.
Other
The Group operates smaller funded and unfunded defined benefit plans in other countries.
Plan regulations
The plans are administered according to local laws and regulations in each country. Responsibility for the governance of the plans rests with the
relevant trustee boards (or equivalent).
179
FINANCIAL INFORMATIONStandard Life Aberdeen 2018
8. Group financial statements continued
(a) Analysis of amounts recognised in the consolidated income statement
The amounts recognised in the consolidated income statement for defined contribution and defined benefit plans are as follows:
Current service cost
Past service cost
Net interest income
Administrative expenses
Expense from continuing operations recognised in the
consolidated income statement
2018
£m
67
(15)
(27)
2
27
2017
restated1
£m
46
–
(28)
3
21
1 Comparatives for 2017 have been restated to reflect the classification of the UK and European insurance business as discontinued operations. Refer Note 1.
Contributions made to defined contribution plans are included within current service cost, with the balance attributed to the Group’s defined
benefit plans.
Contributions to defined benefit plans in the year ended 31 December 2018 were £37m (2017: £12m). Expected contributions to defined benefit
plans in 2019 are £18m and are not expected to materially change over the next three to five years. These include £33m in 2018 and £15m
contributions expected in 2019 to Aberdeen UK plans and the Ireland Standard Life plan in respect of deficit funding agreed with the trustees.
The current deficit on these plans is £35m.
(b) Analysis of amounts recognised in the consolidated statement of financial position
Present value of funded obligation
Present value of unfunded obligation
Fair value of plan assets
Effect of limit on plan surplus
Net asset/(liability)
Principal
plan
£m
(2,542)
–
4,251
(598)
1,111
2018
2017
Other
£m
(311)
(3)
276
–
(38)
Total
£m
(2,853)
(3)
4,527
(598)
1,073
Principal
plan
£m
(2,839)
–
4,530
(592)
1,099
Other
£m
(345)
(9)
276
–
(78)
Total
£m
(3,184)
(9)
4,806
(592)
1,021
The principal plan surplus is considered to be recoverable as a right to a refund exists. The surplus has been reduced to reflect an authorised
surplus payments charge that would arise on a refund.
(c) Movement in the net defined benefit asset
2018
At 1 January
Reclassified as held for sale during the year
Total expense
Current service cost
Past service cost
Interest (expense)/income
Administrative expenses
Total (expense)/income recognised in consolidated
income statement
Remeasurements
Return on plan assets, excluding amounts included in
interest income
Loss from change in financial assumptions
Experience gains
Change in effect of limit on plan surplus
Remeasurement (losses)/gains recognised in other
comprehensive income
Exchange differences
Employer contributions
Benefit payments
Present value
of obligation
£m
Fair value of
plan assets
£m
(3,193)
8
(5)
21
(80)
(3)
(67)
–
224
(13)
–
211
(1)
–
186
4,806
–
–
–
122
–
122
(253)
–
–
–
(253)
1
37
(186)
Total
£m
1,613
8
(5)
21
42
(3)
55
(253)
224
(13)
–
(42)
–
37
–
Effect of limit on
plan surpluses
£m
(592)
–
1
(6)
(15)
1
(19)
–
–
–
13
13
–
–
–
At 31 December
(2,856)
4,527
1,671
(598)
Total
£m
1,021
8
(4)
15
27
(2)
36
(253)
224
(13)
13
(29)
–
37
–
1,073
180
Standard Life Aberdeen 2018
2017
At 1 January
Acquired through business combinations
Total expense
Current service cost
Interest (expense)/income
Administrative expenses
Total (expense)/income recognised in consolidated
income statement
Remeasurements
Return on plan assets, excluding amounts included in
interest income
Loss from change in demographic assumptions
Loss from change in financial assumptions
Experience gains
Change in effect of limit on plan surplus
Remeasurement (losses)/gains recognised in other
comprehensive income
Exchange differences
Employer contributions
Benefit payments
Present value
of obligation
£m
Fair value of
plan assets
£m
(3,334)
(221)
4,999
191
(3)
(84)
(3)
(90)
–
(111)
(37)
10
–
(138)
(5)
–
595
–
128
–
128
69
–
–
–
–
69
2
12
(595)
Total
£m
1,665
(30)
(3)
44
(3)
38
69
(111)
(37)
10
–
(69)
(3)
12
–
Effect of limit on
plan surpluses
£m
(627)
–
–
(16)
–
(16)
–
–
–
–
51
51
–
–
–
At 31 December
(3,193)
4,806
1,613
(592)
Total
£m
1,038
(30)
(3)
28
(3)
22
69
(111)
(37)
10
51
(18)
(3)
12
–
1,021
181
FINANCIAL INFORMATIONStandard Life Aberdeen 2018
8. Group financial statements continued
(d) Defined benefit plan assets
Investment strategy is directed by the trustee boards (where relevant) who pursue different strategies according to the characteristics and
maturity profile of each plan’s liabilities. Assets and liabilities are managed holistically to create a portfolio with the dual objectives of return
generation and liability management. In the principal plan this is achieved through a diversified multi-asset absolute return strategy seeking
consistent positive returns, and hedging techniques which protect liabilities against movements arising from changes in interest rates and
inflation expectations. Derivative financial instruments support both of these objectives and may lead to increased or decreased exposures to the
physical asset categories disclosed below.
To provide more information on the approach used to determine and measure the fair value of the plan assets, the fair value hierarchy has been
used as defined in Note 41. Those assets which cannot be classified as level 1 have been presented together as level 2 or 3.
The distribution of the fair value of the assets of the Group’s funded defined benefit plans is as follows:
Assets measured at fair value based on level 1 inputs
Derivatives
Equity securities
Interests in pooled investment funds
Debt
Equity
Property
Absolute return
Cash
Debt securities
Total assets measured at fair value based on level 1 inputs
Assets measured at fair value based on level 2 or 3 inputs
Derivatives
Equity securities
Interests in pooled investment funds
Debt
Debt securities
Qualifying insurance policies
Total assets measured at fair value based on level 2 or 3 inputs
Cash and cash equivalents
Liability in respect of collateral held
Other
Principal plan
2018
£m
2017
£m
Other
2018
£m
2017
£m
Total
2018
£m
9
81
308
–
115
60
297
2,494
3,364
289
102
249
163
5
808
381
(300)
(2)
33
–
372
–
62
64
339
2,841
3,711
334
197
100
76
5
712
446
(339)
–
1
–
–
26
9
109
36
31
212
(6)
–
–
–
64
58
6
–
–
1
–
–
29
20
102
–
32
184
–
–
–
–
75
75
17
–
–
10
81
308
26
124
169
333
2,525
3,576
283
102
249
163
69
866
387
(300)
(2)
2017
£m
34
–
372
29
82
166
339
2,873
3,895
334
197
100
76
80
787
463
(339)
–
Total
4,251
4,530
276
276
4,527
4,806
Further information on risks is provided in Section (g) of this note. The £2,688m (2017: £2,949m) of debt securities includes £2,622m (2017:
£2,858m) government bonds (including conventional and index-linked). Of the remaining £66m (2017: £91m) debt securities, £42m (2017:
£75m) are investment grade corporate bonds or certificates of deposit.
In 2015, the trustees of one of the Aberdeen UK plans purchased an insurance policy to protect the plan against future investment and actuarial
risks. The £64m (2017: £75m) qualifying insurance asset has been calculated by valuing the estimated benefits that will be paid by the insurer
using the reporting date IAS 19 assumptions and the same approach used to value the year end liabilities. The other Aberdeen UK plan has a
contract in place to hedge longevity risk for pensioners. The fair value of this derivative is £nil at 31 December 2018 (2017: £nil).
182
Standard Life Aberdeen 2018
(e) Estimates and assumptions
Determination of the valuation of principal plan liabilities is a key estimate as a result of the assumptions made relating to both economic and
non-economic factors.
The key economic assumptions for the principal plan, which are based in part on current market conditions, are shown below:
Discount rate
Rates of inflation
Consumer Price Index (CPI)
Retail Price Index (RPI)
2018
%
2.85
2.20
3.20
2017
%
2.60
2.20
3.20
The changes in economic assumptions over the period reflect changes in both corporate bond prices and market implied inflation.
The most significant non-economic assumption for the principal plan is post-retirement longevity which is inherently uncertain. The
assumptions (along with sample expectations of life) are illustrated below:
2018
Table
Plan specific basis
(calibrated by Club Vita)
reflecting membership
demographics
Improvements
Advanced parameterisation of CMI 2013
mortality improvements model – adjusted to
assume that improvements continue to
increase in the short term before declining
toward an ultimate long-term rate of 1.375%
2017
Table
Plan specific basis
(calibrated by Club Vita)
reflecting membership
demographics
Improvements
Advanced parameterisation of CMI 2013
mortality improvements model – adjusted to
assume that improvements continue to
increase in the short term before declining
toward an ultimate long-term rate of 1.375%
Expectation of life from NRA
Normal Retirement
Age (NRA)
60
Male age today
NRA
30
40
32
Female age today
40
34
NRA
32
Expectation of life from NRA
Normal Retirement
Age (NRA)
60
Male age today
NRA
30
40
32
Female age today
40
34
NRA
31
These assumptions reflect a cautious allowance for the recently observed slowdown in longevity improvements.
(f) Duration of defined benefit obligation
The graph below provides an illustration of the undiscounted expected benefit payments included in the valuation of the principal plan
obligations.
140
120
100
80
60
40
20
0
Undiscounted benefit payments (£m)
Non-current pensioner
Current pensioner
2019
2028
2038
2048
2058
2068
2078
2088
2098
2108
2118
Weighted average duration
Current pensioner
Non-current pensioner
2018
years
14
28
2017
years
15
29
183
FINANCIAL INFORMATIONStandard Life Aberdeen 2018
8. Group financial statements continued
(g) Risk
(g)(i) Risks and mitigating actions
The Group’s consolidated statement of financial position is exposed to movements in the defined benefit plans’ net asset. In particular, the
consolidated statement of financial position could be materially sensitive to reasonably likely movements in the principal assumptions for the
principal plan. By offering post-retirement defined benefit pension plans the Group is exposed to a number of risks. An explanation of the key
risks and mitigating actions in place for the principal plan is given below.
Asset volatility
Investment strategy risks include underperformance of the absolute return strategy and underperformance of the liability hedging strategy. As the
trustees set investment strategy to protect their own view of plan strength (not the IAS 19 position), changes in the IAS 19 liabilities (e.g. due to
movements in corporate bond prices) may not always result in a similar movement in plan assets.
Failure of the asset strategy to keep pace with changes in plan liabilities would expose the plan to the risk of a deficit developing, which could
increase funding requirements for the Group.
Yields/discount rate
Falls in yields would in isolation be expected to increase the defined benefit plan liabilities.
The principal plan uses both bonds and derivatives to hedge out yield risks on the plan’s funding basis, rather than the IAS 19 basis, which is
expected to minimise the plan’s need to rely on support from the Group.
Inflation
Increases in inflation expectations would in isolation be expected to increase the defined benefit plan liabilities.
The principal plan uses both bonds and derivatives to hedge out inflation risks on the plan’s funding basis, rather than the IAS 19 basis, which is
expected to minimise the plan’s need to rely on support from the Group.
In the principal plan pensions in payment are generally linked to CPI, however inflationary risks are hedged using RPI instruments due to lack of
availability of CPI linked instruments. Therefore, the plan is exposed to movements in the actual and expected long-term gap between RPI and
CPI.
Life expectancy
Increases in life expectancy beyond those currently assumed will lead to an increase in plan liabilities. Regular reviews of longevity assumptions
are performed to ensure assumptions remain appropriate.
(g)(ii) Sensitivity to key assumptions
The sensitivity of the principal plan’s obligation and assets to the key assumptions is disclosed below.
Change in assumption
Yield/discount rate Decrease by 1% (e.g. from
2.85% to 1.85%)
Increase by 1%
Rates of inflation Decrease by 1%
Increase by 1%
Life expectancy Decrease by 1 year
Increase by 1 year
2018
20171
(Increase)/decrease
in present value of
obligation
£m
Increase/(decrease)
in fair value of plan
assets
£m
(Increase)/decrease
in present value of
obligation
£m
Increase/(decrease)
in fair value of plan
assets
£m
(729)
524
479
(683)
73
(68)
1,534
(1,080)
(942)
1,323
–
–
(861)
611
539
(772)
56
(52)
1,634
(1,144)
(987)
1,395
–
–
1 Comparatives for 2017 sensitivities have been restated to be comparable with refined 2018 methodology.
36. Deferred income
Where the Group receives fees in advance (front-end fees) for services it is providing, including investment management services, these fees
are initially recognised as a deferred income liability and released to the consolidated income statement over the period services are
provided.
At 1 January
Reclassified as held for sale during the year
Additions during the year
Released to the consolidated income statement as fee income
Foreign exchange adjustment
At 31 December
The amount of deferred income expected to be settled after more than 12 months is £67m (2017: £115m).
184
2018
£m
157
(157)
78
(3)
–
75
2017
£m
198
(2)
11
(52)
2
157
Standard Life Aberdeen 2018
37. Other financial liabilities
Amounts payable on direct insurance business
Amounts payable on reinsurance contracts
Outstanding purchases of investment securities
Accruals
Creation of units awaiting settlement
Cash collateral held in respect of derivative contracts
Bank overdrafts
Property related liabilities
Contingent consideration liabilities
Other
Other financial liabilities
Notes
39
25
41
2018
£m
–
–
2
492
168
21
216
–
29
234
1,162
2017
£m
318
5
194
576
205
1,501
542
198
25
332
3,896
The amount of other financial liabilities expected to be settled after more than 12 months is £15m (2017: £141m).
Accruals includes £5m (2017: £6m) relating to contracts with customers (see note 4(b)).
38. Provisions and other liabilities
Provisions are obligations of the Group which are of uncertain timing or amount. They are recognised when the Group has a present
obligation as a result of a past event, it is probable that a loss will be incurred in settling the obligation and a reliable estimate of the amount
can be made.
(a) Provisions
The movement in provisions during the year is as follows:
2018
At 1 January
Reclassified as held for sale during the year
Charged/(credited) to the consolidated income statement
Additional provisions
Release of unused provision
Used during the year
At 31 December
2017
At 1 January
Charged/(credited) to the consolidated income statement
Additional provisions
Release of unused provision
Used during the year
At 31 December
Provision for
annuity sales
practices
£m
248
(248)
–
–
–
–
Provision for
annuity sales
practices
£m
175
100
–
(27)
248
Legal
provisions
£m
Other
provisions
£m
Total
provisions
£m
–
–
–
–
–
–
68
(33)
87
(9)
(8)
105
Legal
provisions
£m
16
Other
provisions
£m
36
–
–
(16)
–
58
(5)
(21)
68
316
(281)
87
(9)
(8)
105
Total
provisions
£m
227
158
(5)
(64)
316
Included in other provisions is a provision of £80m (2017: £nil) for separation costs expected to be incurred following the sale of the UK and
European insurance business to Phoenix (the Sale). Refer Note 1 and Note 8 for further details. We announced in the Sale Circular on 30 May
2018 that we expected to incur one-off costs relating to the separation of the business sold of approximately £250m, and there has been no
change to this estimate. Costs of £53m were incurred in the period to 31 December 2018. Our judgement is that a provision should be
recognised for costs for which the Group will not derive ongoing benefits such as those relating to the de-coupling and decommissioning of
systems and data but that a provision should not be recognised for costs related to the development of replacement systems and services as
these will give future benefits. The costs covered by the provision are expected to be incurred in the three years to 2021.
The amount of provisions expected to be settled after more than 12 months is £72m (2017: £102m).
The provision for annuity sales practices related to the UK and European insurance business sold during 2018. See Note 41 for disclosures
relating to the valuation of the related contingent consideration.
(b) Other liabilities
The amount of other liabilities expected to be settled after more than 12 months is £2m (2017: £nil).
185
FINANCIAL INFORMATIONStandard Life Aberdeen 2018
8. Group financial statements continued
39. Risk management
(a) Overview
(a)(i) Application of the Enterprise Risk Management (ERM) framework
Effective risk management is an essential part of delivering our corporate strategy. Our approach is predicated on strong risk awareness and risk
accountability across all lines of defence in our business. We believe that this delivers long-term value for our clients, customers and
shareholders and protects their interests.
We aim to ensure that:
Our decision making is attentive to both risk and reward in pursuit of our business plan objectives and strong client outcomes
Our responsibilities to clients and customers are prioritised
Capital is appropriately rewarded for the risks that are taken
The ERM framework ensures that risk is assessed, monitored, controlled and appropriately governed based on a common taxonomy and
methodology. The major components of the ERM framework can be grouped into four areas related to how we govern, assess, monitor and
control risks. Most risks arise in the business (first line) and that is where they should be managed. The second line oversees business risk
assessments and provides advice and challenge where necessary.
For the purposes of managing risks to the Group’s financial assets and financial liabilities, the Group considers the following categories:
Risk
Market
Credit
Liquidity
Operational
Conduct
Regulatory &
legal
Strategic
Definition
The risk of financial loss as a result of adverse financial market movements.
The risk of financial loss as a result of the failure of a counterparty, issuer or borrower to meet their obligations or
perform them in a timely manner.
The risk that the Group is unable to settle its financial obligations when they fall due, as a result of having insufficient
liquid resources or being unable to realise investments and other assets other than at excessive costs.
The risk that people, processes, systems, or external events impede the Group’s ability to meet its strategic
objectives. This risk is a function of internal controls, process efficiency, employee conduct, third party oversight,
physical security, integrity of data and business resiliency. Operational risk also includes the breakdown of
processes to comply with laws, regulations or directives.
The risk that through our behaviours, strategies, decisions and actions the Group delivers unfair outcomes to our
customers/clients and/or poor market conduct.
The risk of regulatory or legal sanction, reputational damage or financial consequences as a result of a failure to
comply with, or adequately allow for changes in, all applicable laws and legislation, contractual requirements or
regulations in any of the countries in which the Group operates.
Risks which threaten the achievement of the strategy through poor strategic decision-making, implementation or
response to changing circumstances.
There are a range of sources of risk affecting these risk categories and the principal risks and uncertainties that affect the business model are set
out in detail in the Risk management section of the Strategic report.
Risk segments
The assets and liabilities on the Group’s consolidated statement of financial position can be split into three categories (risk segments) which give
the shareholder different exposures to the risks listed previously. These categories are:
Shareholder business
Shareholder business refers to the assets and liabilities to which the shareholder is directly exposed. For the purposes of this note, the
shareholder refers to the equity holders of the Company and the preference shareholders.
Unit linked funds
Unit linked funds refers to the assets and liabilities of the unit linked funds of the life operations of the Group. It does not include the cash flows
(such as asset management charges or investment expenses) arising from the unit linked fund contracts. Such cash flows are included in
shareholder business.
Third party interest in consolidated funds and non-controlling interests
Third party interest in consolidated funds and non-controlling interests refers to the assets and liabilities recorded on the Group’s consolidated
statement of financial position which belong to third parties. The Group controls the entities which own the assets and liabilities but the Group
does not own 100% of the equity or units of the relevant entities.
Prior to the sale of the UK and European insurance business the Group also had a participating business risk segment. Participating business
referred to the assets and liabilities of the participating funds of SLAL.
186
Standard Life Aberdeen 2018
The following table sets out the link between the reportable segments set out in Note 2 and the risk segments.
Reportable segment
Asset
management and
platforms
Insurance
associates and
joint ventures
UK and European
insurance
(discontinued
operations)
Shareholder business
Standard Life Investments (Holdings) Ltd and
all its subsidiaries
Aberdeen Asset Management PLC and all
its subsidiaries (excluding Aberdeen Asset
Management Life and Pensions Ltd)
Standard Life Aberdeen Plc
Standard Life Savings Limited (including
Elevate)
1825 Financial Planning Ltd
Standard Life Client Management Ltd
Focus Solutions Group Ltd
Standard Life (Asia) Limited (excluding unit
linked funds)
Interests in Indian and Chinese associates and
joint ventures
Interest in Phoenix
Risk segment
Participating business
n/a
Unit linked funds1
Aberdeen Asset Management Life and
Pensions Ltd
Standard Life (Asia) Limited unit linked
funds
n/a
n/a
SLAL – SHF
SLAL – PBF (excluding unit linked funds)
Vebnet Group
SL Intl (excluding unit linked funds)
SLAL – HWPF
SLAL – GWPF
SLAL – GSMWPF
SLAL – UKSMWPF
SLAL – PBF unit linked funds
SL Intl unit linked funds
SLAL = Standard Life Assurance Limited
SHF = Shareholder Fund
PBF = Proprietary Business Fund
HWPF = Heritage With Profits Fund
GWPF = German With Profits Fund
GSMWPF = German Smoothed Managed With Profits Fund
SL Intl = Standard Life International Designated Activity Company
UKSMWPF = UK Smoothed Managed With Profits Fund
1 Unit linked funds does not include cash flows arising from unit linked fund contracts or the liabilities for insurance features or financial guarantees contained within the unit
linked fund contracts. Such cash flows and liabilities are included in shareholder business.
187
FINANCIAL INFORMATIONStandard Life Aberdeen 2018
8. Group financial statements continued
The table below sets out how the shareholder is exposed to market, credit, and liquidity risk at the reporting date, arising from the assets and
liabilities of the three risk segments:
Risk
Market
Shareholder business
The shareholder is directly exposed
to the impact of movements in
equity and property prices, interest
rates and foreign exchange rates on
the value of assets held by the
shareholder business.
Credit
The shareholder is directly exposed
to credit risk from holding cash, debt
securities, loans and derivative
financial instruments.
Liquidity
The shareholder is directly exposed
to the liquidity risk from the
shareholder business if it is unable
to realise investments and other
assets in order to settle its financial
obligations when they fall due, or
can do so only at excessive cost.
Unit linked funds
Assets are managed in accordance with
the mandates of the particular funds and
the financial risks associated with the
assets are borne by the policyholder. The
shareholder’s exposure arises from the
changes in the value of future fee based
revenue earned on unit linked funds due
to market movements.
Assets are managed in accordance with
the mandates of the particular funds and
the financial risks associated with the
assets are expected to be borne by the
policyholder. The shareholder’s exposure
is limited to changes in the value of future
fee based revenue earned on unit linked
funds due to market movements.
Unit linked funds are normally expected to
meet their obligations through liquidating
the underlying assets in which they are
invested. If a unit linked fund cannot meet
its obligations in this way, the shareholder
may be required to meet the obligations to
the policyholder.
Third party interests in consolidated funds
and non-controlling interests (TPICF & NCI)
The shareholder is not exposed to the
market risk from assets in respect of
TPICF & NCI since the financial risks of
the assets are borne by third parties.
The shareholder is not exposed to the
credit risk from assets in respect of
TPICF & NCI since the financial risks of
the assets are borne by third parties.
The shareholder is not exposed to the
liquidity risk from these liabilities, since
the financial risks of the obligations are
borne by third parties.
Prior to the sale of the UK and European insurance business, the Group had significant direct exposure to demographic risks, in particular
persistency risk and longevity risk. Following the sale, the Group’s exposure to demographic risk is largely limited to its defined benefit pension
plans and is no longer considered a key risk. The risks relating to the Group’s defined benefit pension plans are explained in Note 35.
The shareholder is exposed to operational, conduct, regulatory and legal, and strategic risks arising across the three risk segments and any
losses incurred are typically borne by the shareholder.
(a)(ii) Consolidated financial position by risk segment
The table that follows provides an analysis of the consolidated statement of financial position showing the Group’s assets and liabilities by risk
segment. This categorisation has been used to present the information in this note.
Following the sale of the UK and European insurance business the Group no longer has a participating business risk segment and the financial
instrument exposures in the shareholder business, unit linked funds, and third party interest in consolidated funds and non-controlling interests
risk segments have significantly reduced.
188
Standard Life Aberdeen 2018
Intangible assets
Deferred acquisition costs
Investments in associates and joint
ventures accounted for using the
equity method
Investment property
Property, plant and equipment
Pension and other post-retirement
benefit assets
Deferred tax assets
Reinsurance assets
Loans
Derivative financial assets
Equity securities and interests in
pooled investment funds at FVTPL
Debt securities
At FVTPL
At available-for-sale
Receivables and other financial
assets
Current tax recoverable
Other assets
Assets held for sale
Cash and cash equivalents
Shareholder
business
2018
£m
2017
£m
3,404
6
4,514
581
1,444
–
61
503
–
67
1,111
1,099
61
–
–
18
65
44
–
21
501
331
708
862
695
6
40
158
1,110
7,781
856
697
36
103
180
2,433
Total assets
10,185
19,311
Non-participating insurance contract
liabilities
Non-participating investment contract
liabilities
Participating insurance contract
liabilities
Participating investment contract
liabilities
Unallocated divisible surplus
Deposits received from reinsurers
Third party interest in consolidated
funds
3
–
–
–
–
–
–
6,068
4
–
–
–
12
–
Subordinated liabilities
1,081
2,253
Pension and other post-retirement
benefit provisions
Deferred income
Deferred tax liabilities
Current tax liabilities
Derivative financial liabilities
Other financial liabilities
Provisions
Other liabilities
Liabilities of operations held for sale
Total liabilities
Net inter-segment assets/(liabilities)
Net assets2
38
75
100
22
4
1,160
105
6
51
78
124
221
77
46
1,588
295
58
59
2,645
10,883
(3)
275
7,537
8,703
Participating
business
2018
£m
2017
£m
Unit linked funds
2017
£m
2018
£m
TPICF & NCI1
2018
£m
2017
£m
–
31
–
1,480
30
–
–
4,767
80
1,565
–
–
–
–
–
–
–
–
–
2
–
–
–
5,721
49
–
–
–
11
1,164
–
–
–
–
–
–
–
–
–
1
–
–
–
2,548
–
–
–
–
–
303
Total
2018
£m
3,404
6
1,444
–
61
1,111
61
–
–
21
2017
£m
4,514
612
503
9,749
146
1,099
65
4,811
91
3,053
10,327
1,353
80,099
176
8,263
2,030
99,020
26,107
–
70
12
11
174
1,581
80
–
11
–
–
604
26
22,191
–
366
135
68
648
5,037
73
–
2
–
–
–
4
4,630
–
109
9
3
36
1,175
861
862
708
6
40
762
1,140
60,709
856
1,242
192
185
1,038
10,226
46,235
2,076
115,489
256
17,076
12,517
198,111
8,878
–
7,794
–
1,468
105,765
14,659
15,313
675
4,621
–
–
–
33
59
(3)
64
1,631
21
10
–
–
–
–
–
–
–
–
–
–
1
1
1
–
–
606
–
–
–
–
–
–
–
–
87
83
556
527
–
41
641
–
–
–
–
–
–
–
–
–
–
–
–
254
16,457
–
–
–
–
–
1
1
–
–
–
–
–
–
–
9
147
150
–
12
6
3
22,740
1,468
105,769
–
–
–
–
254
1,081
38
75
100
23
6
14,659
15,313
675
4,633
16,457
2,253
78
157
367
166
813
1,162
3,896
105
6
657
316
121
706
45,961
2,077
115,494
256
16,781
4,978
189,119
(274)
–
1
–
5
–
2
2
(6)
289
–
–
7,539
8,992
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1 Third party interest in consolidated funds and non-controlling interests.
2 Net assets of the shareholder business comprises equity attributable to equity holders of Standard Life Aberdeen plc of £7,438m (2017: £8,604m) and equity attributable to
preference shareholders of £99m (2017: £99m).
189
FINANCIAL INFORMATIONStandard Life Aberdeen 2018
8. Group financial statements continued
(b) Market risk
As described in the table on page 188, the shareholder is exposed to market risk and as a result the following quantitative market risk disclosures
are provided in respect of the financial assets of the shareholder business.
Quantitative market risk disclosures are not provided in respect of the assets of the unit linked funds since the shareholder is not directly exposed
to market risks from these assets. The shareholder’s exposure to market risk on these assets is limited to variations in the value of future fee
based revenue earned on the contracts as fees are based on a percentage of the fund value. The shareholder is also not exposed to the market
risk from the assets held by third party interest in consolidated funds and non-controlling interests and therefore they have been excluded from
the following quantitative disclosures.
The Group manages market risks through the use of a number of controls and techniques which are discussed in the following section.
Shareholder business
Market risk exposures in the Asset management and platforms segment primarily arise as a result of holdings in newly established investment
vehicles which the Group has seeded. Seed capital is classified as held for sale when it is the intention to dispose of the vehicle in a single
transaction and within one year. The shareholder balance sheet includes the following amounts in respect of seed capital.
Seed capital
Equity securities and interests in pooled investment funds at FVTPL
Debt securities
Assets held for sale
Notes
24
Total
2018
£m
76
22
81
179
2017
£m
96
34
63
193
Seed capital is typically invested in quoted funds. The Group sets limits for investing in seed capital and co-investment activity and regularly
monitors exposures arising from these investments. The Group will consider hedging its exposure to market and currency risk in respect of seed
capital investments where it is appropriate and efficient to do so. The Group will also consider hedging its exposure to currency risk in respect of
co-investments where it is appropriate and efficient to do so. Other market risks associated with co-investments are not hedged given the need
for the Group’s economic interests to be aligned with those of the co-investors.
Market risk exposure also arises to the extent that the market value of assets held to back debt issued does not move in line with the market
value of the liabilities being backed. This risk is controlled through having robust processes in place to limit the use of proceeds from debt
issuance and includes the use of investment constraints and portfolio limits.
(b)(i) Elements of market risk
The main elements of market risk to which the Group is exposed are equity risk, interest rate risk and foreign currency risk, which are discussed
on the following pages.
Information on the methods used to determine fair values for each major category of financial instrument measured at fair value is presented in
Note 41.
(b)(i)(i) Group exposure to equity risk
The Group is exposed to the risk of adverse equity market movements which could result in losses. This applies to daily changes in the market
values and returns on the holdings in its equity securities portfolio. The Group’s shareholders are exposed to the following sources of equity risk:
Direct equity shareholdings in the shareholder business and the Group’s defined benefit pension plans
The indirect impact from changes in the value of equities held in funds from which management charges are taken
Exposures to equity securities are primarily controlled through the limits imposed on the amount of seed capital and co-investment activity that
may be undertaken.
190
Standard Life Aberdeen 2018
The table below shows the direct shareholder businesses’ exposure to equity markets. Equity securities are analysed by country based on the
ultimate parent country of risk.
UK
Belgium
Denmark
Finland
France
Germany
Ireland
Italy
Japan
Malaysia
Netherlands
Russia
Spain
Sweden
Switzerland
Taiwan
US
Other
Total
Shareholder business
2018
£m
24
–
–
–
–
–
–
–
–
3
–
–
–
–
–
7
–
3
37
2017
£m
50
1
2
1
8
7
1
5
1
2
4
1
6
2
4
2
11
19
127
In addition to the equity securities analysed above, the shareholder business has interests in pooled investment funds of £464m (2017: £204m).
The shareholder exposure to interests in pooled investment funds primarily relates to:
Co-investment holdings in property and infrastructure funds of £37m (2017: £56m)
Investments in certain Aberdeen managed funds to hedge against liabilities from variable pay awards that are deferred and settled in cash by
reference to the share price of those funds of £53m (2017: £57m)
Seed capital in funds which are not consolidated of £57m (2017: £73m)
Holdings in cash funds which are not consolidated of £30m (2017: £5m)
Corporate funds held in absolute return funds which are not consolidated of £252m (2017: £nil)
(b)(i)(ii) Group exposure to interest rate risk
Interest rate risk is the risk that arises from exposures to changes in the shape and level of yield curves which could result in losses due to the
value of financial assets and liabilities, or the cash flows relating to these, fluctuating by different amounts.
The main financial assets held by the Group which give rise to interest rate risk are debt securities and cash and cash equivalents. The main
financial liabilities giving rise to interest rate risk principally comprise subordinated liabilities. Derivative financial instruments held by the Group
also give rise to interest rate risk.
Shareholder business
Under the Group’s ERM framework, Group companies are required to manage their interest rate exposures in line with the Group’s Board’s risk
appetite. Group companies typically use a combination of cash flow and duration matching techniques to manage their interest rate risk at an
entity level.
The sensitivity of profit after tax to changes in interest rates for the shareholder business is included in the profit after tax sensitivity to market risk
table, shown in Section (b)(ii).
(b)(i)(iii) Group exposure to foreign currency risk
The Group’s financial assets are generally held in the local currency of its operational geographic locations, principally to assist with the matching
of liabilities. However, foreign currency risk arises where adverse movements in currency exchange rates impact the value of revenues received
from, and the value of assets and liabilities held in, currencies other than the local currency. The Group manages this risk through the use of
limits on the amount of foreign currency risk that is permitted.
The table below summarise the shareholder businesses’ exposure to foreign currency risks in Sterling. The table exclude inter-segment assets
and liabilities.
191
FINANCIAL INFORMATIONStandard Life Aberdeen 2018
8. Group financial statements continued
Shareholder business
UK
Sterling
Euro
Canadian
Dollar
Hong Kong
Dollar
US
Dollar
2018
£m
2017 2018 2017 2018 2017 2018
£m
£m
£m
£m
£m
£m
2017 2018
£m
£m
2017
£m
Indian
Rupee
2018 2017
£m
£m
Singapore
Dollar
Other
currencies
2017 2018 2017
£m
£m
£m
2018
£m
Total
2018
£m
2017
£m
Total assets
8,520 16,353
218 1,175
Total liabilities
(1,825) (9,186)
(40)
(547)
74
(38)
(41)
(677) (1,007)
74
407
722
438
396
120
154 398
429 10,185 19,311
Net investment
hedges
6
6
–
–
–
8
(589)
(567)
Cash flow
hedges
Non
designated
derivatives
8
–
–
–
10
–
–
–
–
10
(6)
(6)
–
–
–
–
589
559
–
–
–
–
–
–
–
18
414
(31)
(19)
(34)
(83) (2,645) (10,883)
–
–
–
89
–
–
–
–
–
–
(3)
(14)
1
–
–
–
–
–
–
132 350
347 7,540
8,428
108
255
(26)
(146)
6,220 6,861
152
490
(5)
3
–
30
(1)
(68)
(119)
26
251
155
438
Other currencies include assets of £13m (2017: £5m) and liabilities of £3m (2017: £36m) in relation to the fair value of derivatives used to
manage currency risk.
The principal source of foreign currency risk for shareholders arises from the Group's investments in overseas subsidiaries, joint ventures and
associates accounted for using the equity method. On 18 October 2017, the Group issued US dollar subordinated notes with a principal amount
of US$750m. The related cash flows expose the Group to foreign currency risk on the principal and coupons payable. The Group manages the
foreign exchange risk with a cross-currency swap which is designated as a cash flow hedge.
Non designated derivatives relate to foreign exchange forward contracts that are not designated as cash flow hedges or net investment hedges.
During 2018 the Group reaffirmed its strategy for hedging foreign currency risks, providing a consistent approach to managing these risks. The
Group generally does not hedge the currency exposure relating to revenue and expenditure, nor does it hedge translation of overseas profits in
the income statement. Where appropriate, the Group may use derivative contracts to reduce or eliminate currency risk arising from individual
transactions or seed capital and co-investment activity.
(b)(ii) Sensitivity of financial instruments to market risk analysis
The Group’s profit after tax and equity are sensitive to variations in respect of the Group’s market risk exposures and a sensitivity analysis is
presented below. The analysis has been performed by calculating the sensitivity of profit after tax and equity to changes in equity security prices
(price risk) and to changes in interest rates (interest rate risk) as at the reporting date applied to assets and liabilities other than those classified
as held for sale. There is no impact in 2018 on profit after tax to changes in property prices.
Unit linked funds
Changes in equity security and property prices and/or fluctuations in interest rates will affect unit linked liabilities and the associated assets by the
same amount. Therefore, the change in unit linked liabilities and the corresponding asset movement has not been presented.
Limitations
The sensitivity of the Group’s profit after tax and equity is non-linear and larger or smaller impacts should not be derived from these results.
The sensitivity analysis represents the impact on profit at year end that the changes in market conditions can have. The sensitivity will vary with
time, both due to changes in market conditions and changes in the actual asset mix, and this mix is being actively managed. The results of the
sensitivity analysis may also have been different from those illustrated had the sensitivity factors been applied at a date other than the reporting
date.
For each sensitivity ‘test’, the impact of a reasonably possible change in a single sensitivity factor is presented, while the other sensitivity factors
remain unchanged. Correlations between the different risks and/or other factors may mean that experience would differ from that expected if
more than one risk event occurred simultaneously.
These sensitivities concern only the impact on financial instruments and exclude indirect impacts of the variable on fee income and certain costs
which may be affected by the changes in market conditions.
Profit after tax and equity sensitivity to price risk.
The impact of the following price risk assumptions on profit and equity, net of tax, are as follows:
Change in equity security prices
+10%
-10%
+20%
-20%
Impact on profit after tax1 and on equity
2017
£m
2018
£m
16
(16)
32
(32)
13
(13)
26
(26)
1 A positive number for impact on profit after tax represents a credit to the consolidated income statement.
The sensitivity of the Group’s total equity to variations in equity securities prices is the same as the sensitivity of the Group’s profit after tax.
192
Standard Life Aberdeen 2018
Profit after tax and equity sensitivity to interest rate risk.
The impact of the following interest rate assumptions on profit and equity, net of tax, are as follows:
Impact on profit after tax1
Impact on equity
Change in interest rates
+1%2
-1%2
1 A positive number for impact on profit after tax represents a credit to the consolidated income statement.
2 The interest rate sensitivity is a parallel shift subject to a floor of -30bps.
(7)
7
2018
£m
2017
£m
(24)
28
2018
£m
(4)
4
2017
£m
(31)
33
The impact of interest rate changes on profit after tax in 2018 primarily relates to cash and cash equivalents, while the impact in 2017 primarily
relates to assets and insurance contract liabilities of the UK and European insurance business.
The Group’s financial instruments include certain debt securities classified as available-for-sale. These debt securities are measured at fair value.
Interest is calculated using the effective interest method and recognised in the consolidated income statement. Other changes in fair value and
the related tax are recognised in other comprehensive income. As a result, the sensitivity of the Group's equity to variations in interest rate risk
exposures differs from the sensitivity of the Group's profit after tax to variations in interest rate risk exposures.
(c) Credit risk
As described in the table on page 188, the shareholder is exposed to credit risk and as a result the following quantitative credit risk disclosures
are provided in respect of the financial assets held.
Quantitative credit risk disclosures are not provided in respect of the assets of the unit linked funds since the shareholder is not directly exposed
to credit risk from these assets.
The shareholder is also not exposed to the credit risk from the assets held by third party interest in consolidated funds and non-controlling
interests and therefore these have been excluded from the following quantitative disclosures.
The Group’s credit risk exposure mainly arises from its holdings in financial instruments. Exposures to credit risk and concentrations of credit risk
are managed by setting exposure limits for different types of financial instruments and counterparties. The limits are established using the
following controls:
Financial instrument with credit risk
exposure
Cash and cash equivalents
Derivative financial instruments
Debt securities
Other financial instruments
Control
Maximum counterparty exposure limits are set with reference to internal credit assessments.
Maximum counterparty exposure limits, net of collateral, are set with reference to internal credit
assessments. The forms of collateral that may be accepted are also specified and minimum
transfer amounts in respect of collateral transfers are documented. Refer to Section (c)(ii) for
further details on collateral.
The Group’s policy is to set exposure limits by name of issuer, sector and credit rating.
Appropriate limits are set for other financial instruments to which the Group may have exposure
at certain times, for example commission terms paid to intermediaries.
Individual business units are responsible for implementing processes to ensure that credit exposures are managed within any limits that have
been established. Group Treasury perform central monitoring of exposures against limits and are responsible for the escalation of any limit
breaches to the Chief Risk Officer.
The tables that follow provide an analysis of the quality of financial assets that are neither past due nor impaired at the reporting date and are
exposed to credit risk. For those financial assets with credit ratings assigned by external rating agencies, classification is within the range of AAA
to BBB. AAA is the highest possible rating and rated financial assets that fall outside the range of AAA to BBB have been classified as below
BBB with rules followed for determining the credit rating to be disclosed when different credit ratings are assigned by different external rating
agencies. For those financial assets that do not have credit ratings assigned by external rating agencies but where the Group has assigned
internal ratings for use in managing and monitoring credit risk, the assets have been classified in the analysis that follows as ‘internally rated’. If a
financial asset is neither rated by an external agency nor ‘internally rated’, it is classified as ‘not rated’. The total amounts presented represent the
Group’s maximum exposure to credit risk at the reporting date without taking into account any collateral held. The analysis also provides
information on the concentration of credit risk.
(c)(i) Credit exposure
Assets are deemed to be past due when a counterparty has failed to make a payment when contractually due.
The objective evidence that is taken into account in determining whether any impairment of debt securities has occurred includes:
A default against the terms of the instrument has occurred
The issuer is subject to bankruptcy proceedings or is seeking protection from creditors through bankruptcy, individual voluntary arrangements
or similar process
The following tables show the shareholder businesses’ exposure to credit risk from financial assets analysed by credit rating and country.
193
FINANCIAL INFORMATIONStandard Life Aberdeen 2018
8. Group financial statements continued
Shareholder business
An analysis of financial and reinsurance assets by credit rating is as follows:
Reinsurance
assets
Loans
financial assets Debt securities
Derivative
Receivables and
other financial
assets
Cash and cash
equivalents
Total
2018
2017
2018
2017
2018
2017
£m
£m
£m
£m
£m
£m
2018
£m
2017
£m
2018
£m
2017
£m
2018
2017
£m
£m
2018
£m
2017
£m
Neither past due
nor impaired:
AAA
AA
A
BBB
Below BBB
Not rated
Internally rated
Past due
Impaired
Total
–
–
–
–
–
–
–
–
–
–
–
30
14
–
–
–
–
–
–
44
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
12
–
–
6
–
–
–
18
–
–
10
1
–
10
–
–
–
21
36
262
1,121
113
16
22
–
–
–
1,570
475
1,719
3,782
1,271
155
51
1,184
–
–
8,637
–
–
–
–
–
669
–
26
–
695
–
–
–
–
–
673
–
24
–
697
162
567
350
20
3
8
–
–
–
612
947
849
22
1
2
–
–
–
1,110 2,433
19
133
198
829
1,483
1,087
2,696
4,655
1,294
156
736
1,184
24
–
3,393 11,832
705
26
–
–
At 31 December 2018, receivables and other financial assets of £21m (2017: £19m) were past due by less than three months and £1m (2017:
£2m) were past due by three to six months and £4m (2017: £3m) were past due by six to twelve months.
An analysis of debt securities by country based on the ultimate parent country of risk is as follows:
Government,
provincial and
municipal1
2018
£m
2017
£m
13
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
13
495
–
29
3
–
–
192
11
–
–
–
3
22
–
3
–
–
–
25
66
849
Banks
2018
£m
13
10
–
–
25
45
459
115
–
–
50
–
337
–
–
25
63
–
50
115
1,307
2017
£m
429
126
–
1
151
103
507
67
–
29
90
–
294
–
–
176
121
78
182
275
2,629
Other financial
institutions
2018
£m
2017
£m
Other
corporate
2018
£m
2017
£m
Other2
2018
£m
2017
£m
35
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
15
–
50
1,206
17
–
–
–
–
4
1
–
–
–
–
–
–
–
–
1
–
102
114
1,445
93
–
–
–
–
–
17
19
–
–
–
6
–
–
–
2
–
–
10
8
155
1,791
14
–
43
–
17
272
312
6
86
25
105
107
42
–
71
8
1
440
151
3,491
14
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
31
45
10
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
213
223
Total
2018
£m
168
10
–
–
25
45
476
134
–
–
50
6
337
–
–
27
63
–
75
154
1,570
2017
£m
3,931
157
29
47
151
120
975
391
6
115
115
108
423
42
3
247
130
79
749
819
8,637
UK
Australia
Austria
Belgium
Canada
Denmark
France
Germany
Ireland
Italy
Japan
Mexico
Netherlands
Norway
Russia
Spain
Sweden
Switzerland
US
Other
Total
1 Government, provincial and municipal includes debt securities which are issued by or explicitly guaranteed by the national government.
2 This balance primarily consists of securities held in supranationals.
194
Standard Life Aberdeen 2018
(c)(ii) Collateral accepted and pledged in respect of financial instruments
Collateral in respect of bilateral over-the-counter (OTC) derivative financial instruments and bilateral repurchase agreements is accepted from
and provided to certain market counterparties to mitigate counterparty risk in the event of default. The use of collateral in respect of these
instruments is governed by formal bilateral agreements between the parties. For OTC derivatives the amount of collateral required by either party
is determined by the daily bilateral OTC exposure calculations in accordance with these agreements and collateral is moved on a daily basis to
ensure there is full collateralisation. Under the terms of these agreements, collateral is posted with the ownership captured under title transfer of
the contract. With regard to either collateral pledged or accepted, the Group may request the return of, or be required to return, collateral to the
extent it differs from that required under the daily bilateral OTC exposure calculations.
Where there is an event of default under the terms of the agreements, any collateral balances will be included in the close-out calculation of
net counterparty exposure. At 31 December 2018, the Group had pledged £8m (2017: £46m) of cash and £nil (2017: £103m) of securities
as collateral for derivative financial liabilities. At 31 December 2018, the Group had accepted £21m (2017: £1,501m) of cash and £50m
(2017: £947m) of securities as collateral for derivatives financial assets and reverse repurchase agreements. None of the securities were sold or
repledged at the year end.
(c)(iii) Offsetting financial assets and liabilities
Financial assets and liabilities are offset and the net amount reported on the consolidated statement of financial position only when there is a
legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the asset and settle
the liability simultaneously.
Other than cash and cash equivalents disclosed in Note 25, the Group does not offset financial assets and liabilities on the consolidated
statement of financial position, as there are no unconditional rights to set off. Consequently, the gross amount of other financial instruments
presented on the consolidated statement of financial position is the net amount. The Group’s bilateral OTC derivatives are all subject to an
International Swaps and Derivative Association (ISDA) master agreement. ISDA master agreements and reverse repurchase agreements
entered into by the Group are considered master netting agreements as they provide a right of set off that is enforceable only in the event of
default, insolvency, or bankruptcy.
The Group does not hold any other financial instruments which are subject to master netting agreements or similar arrangements.
The following table presents the effect of master netting agreements and similar arrangements.
Related amounts not offset on the consolidated
statement of financial position
Gross amounts of financial
instruments as presented on
the consolidated statement
of financial position
£m
Financial instruments
£m
Financial collateral
pledged/(received)
£m
Net position
£m
20
50
70
(5)
(5)
(1)
–
(1)
1
1
(14)
(50)
(64)
3
3
5
–
5
(1)
(1)
Related amounts not offset on the consolidated
statement of financial position
Gross amounts of financial
instruments as presented on
the consolidated statement
of financial position
£m
Financial instruments
£m
Financial collateral
pledged/(received)
£m
Net position
£m
2,043
900
2,943
(647)
(647)
(465)
–
(465)
465
465
(1,508)
(899)
(2,407)
95
95
1 Only OTC derivatives subject to master netting agreements have been included above.
As at 31 December 2018
Financial assets
Derivatives1
Reverse repurchase
agreements
Total financial assets
Financial liabilities
Derivatives1
Total financial liabilities
As at 31 December 2017
Financial assets
Derivatives1
Reverse repurchase
agreements
Total financial assets
Financial liabilities
Derivatives1
Total financial liabilities
70
1
71
(87)
(87)
195
FINANCIAL INFORMATIONStandard Life Aberdeen 2018
8. Group financial statements continued
(c)(iv) Credit risk on financial liabilities designated as at fair value through profit or loss
The Group has designated unit linked non-participating investment contract liabilities as at FVTPL. As the fair value of the liability is based on the
value of the underlying portfolio of assets, the movement, during the period and cumulatively, in the fair value of the unit linked non-participating
investment contract liabilities, is only attributable to market risk.
(d) Liquidity risk
As described in the table on page 188, the shareholder is exposed to liquidity risk from shareholder business and unit linked funds and, as a
result, the following quantitative liquidity risk disclosures are provided in respect of the financial liabilities of these categories.
The shareholder is not exposed to the liquidity risk from the assets held by third party interests in consolidated funds and non-controlling interests
and therefore these have been excluded from the following quantitative disclosures.
Business units employ risk management techniques relevant to their product types with the objective of mitigating exposures to liquidity risk. For
the unit linked business, liquidity risk is primarily managed by holding a range of diversified instruments which are assessed against estimated
cash flow and funding requirements.
For non-participating unit linked contracts, a core portfolio of assets is maintained and invested in accordance with the mandates of the relevant
unit linked funds. Policyholder behaviour and the trading position of asset classes are actively monitored. The unit price and value of any
associated contracts would reflect the proceeds of any sales of assets. If considered necessary, deferral terms within the policy conditions
applying to the majority of the Group’s contracts are invoked.
Periodic investigations are undertaken into liquidity requirements, which include consideration of cash flows in normal conditions, as well as
investigation of scenarios where cash flows differ markedly from those expected.
All business units are required to monitor, assess, manage and control liquidity risk in accordance with the relevant principles within the Group’s
policy framework. Oversight is provided both at a Group level and within the business unit. In addition, all business units benefit from
membership of a Group to the extent that, centrally, the Group:
Coordinates strategic planning and funding requirements
Monitors and manages risk, capital requirements and available capital on a group-wide basis
Maintains a portfolio of committed bank facilities
The Group’s committed bank facilities are currently undrawn.
Liquidity risk is managed by each business unit in consultation with the Group Treasury function and each business unit is responsible for the
definition and management of its contingency funding plan.
As a result of the policies and processes established to manage risk, the Group expects to be able to manage liquidity risk on an ongoing basis.
We recognise there are a number of scenarios that can impact the liquid resources of a business as discussed in the Risk management section
of the Strategic report.
(d)(i) Maturity analysis
The analysis that follows presents the undiscounted cash flows payable by remaining contractual maturity at the reporting date for all financial
liabilities, including non-participating investment contract liabilities. Given that unit linked policyholders can usually choose to surrender, in part or
in full, their unit linked contracts at any time, the non-participating investment contract unit linked liabilities presented in the table below have been
designated as payable within one year. Such surrenders would be matched in practice, if necessary, by sales of underlying assets. The Group
can delay settling liabilities to unit linked policyholders to ensure fairness between those remaining in the fund and those leaving the fund. The
length of any such delay is dependent on the underlying financial assets. In this analysis, the maturity within one year includes liabilities that are
repayable on demand. Comparatives exclude financial liabilities of the participating business.
Within
1 year
2-5
years
6-10
years
11-15
years
16-20
years
2018
£m
2017
£m
2018
£m
2017
£m
2018
£m
2017
£m
2018
£m
2017
£m
2018
£m
2017
£m
Shareholder business
Non-participating
investment contract
liabilities
Subordinated liabilities
–
53
4
486
Other financial liabilities
1,141
1,822
–
210
2
–
390
16
–
845
–
–
461
–
–
144
–
–
422
–
–
144
–
–
422
–
Greater than
20 years
2018
£m
2017 2018
£m
£m
Total
–
–
–
615 1,493 2,011
– 1,143
–
2017
£m
4
3,674
1,838
1,194
2,312
212
406
845
461
144
422
144
422
615 1,493 3,154
5,516
Total unit linked funds
1,469 106,147
1,468 105,765
382
1
–
–
–
–
9
9
–
–
–
–
8
8
–
–
–
–
8
8
–
–
–
–
8
8
Total
2,663 108,459
212
415
845
469
144
430
144
430
196
–
–
–
– 1,468 105,765
533
118
1
118 1,469 106,298
615 1,611 4,623 111,814
Total shareholder
business
Unit linked funds
Non-participating
investment contract
liabilities
Other financial liabilities
Standard Life Aberdeen 2018
The principal amounts of financial liabilities where the counterparty has no right to repayment are excluded from the above analysis along with
interest payments on such instruments after 20 years.
Refer Note 21 for the maturity profile of undiscounted cash flows of derivative financial instruments.
The Group also had unrecognised commitments in respect of financial instruments as at 31 December 2018 with a contractual maturity of within
one year and between one and five years of £9m and £28m respectively (2017: £411m and £36m).
(e) Operational risk
The Group defines operational risk as the risk that people, processes, systems, or external events impede the Group’s ability to meet its strategic
objectives.
The Group conduct and operational risk policy framework is used to support the management of operational risks. Business units adopt the
relevant minimum standards contained within these policies and are required to manage risk in accordance with the policies, taking mitigating
action as appropriate to operate within appetites.
The types of operational risk to which the Group is exposed are identified using the following operational risk categories:
Process execution and trade errors
People
Technology
Business resilience and continuity
Fraud and financial crime
Change management
Supplier risk
Financial management process
Activities undertaken to ensure the practical operation of controls over financial risks, that is, market, credit and liquidity, are treated as an
operational risk.
Operational risk exposures are controlled using one or a combination of the following: modifying operations to mitigate the exposure to the risk;
accepting exposure to the risk; or accepting exposure to the risk and controlling the exposure by risk transfer or risk treatment. The factors on
which the level of control and nature of the controls implemented are based include:
The potential cause and impact of the risk
The likelihood of the risk being realised in the absence of any controls
The ease with which the risk could be insured against
The cost of implementing controls to reduce the likelihood of the risk being realised
Operational risk appetite
Risk Control Self Assessment (RCSA) is a monitoring activity where business managers assess the operation of the controls for which they are
responsible and the adequacy of these controls to manage key operational risks and associated business processes. The assessment
completed by business managers is validated and challenged on a risk basis by the Risk and Compliance function in its role of ‘second line of
defence’. Independent assurance as to the effectiveness of the RCSA process is provided by Group Internal Audit in its role of ‘third line of
defence’. The results of RCSA are reported through the risk governance structure.
The assessment of operational risk exposures is performed on a qualitative basis using a combination of impact and likelihood, and on a
quantitative basis using objective and verifiable measures. The maximum amount of operational risk the Group is willing to tolerate is defined
using risk appetite statements and Board approved tolerances.
The operational risks faced by each business unit and its exposure to these risks forms its operational risk profile. Each business unit is required
to understand and review its profile based on a combination of the estimated impact and likelihood of risk events occurring in the future, the
results of RCSA and a review of risk exposures relative to approved limits.
The impact of a new product, a significant change, or any one-off transaction on the operational risk profile of each business unit is assessed and
managed in accordance with established guidelines or standards.
197
FINANCIAL INFORMATIONStandard Life Aberdeen 2018
8. Group financial statements continued
(f) Conduct risk
The Group defines conduct risk as the risk that through our behaviours, strategies, decisions and actions the Group delivers unfair outcomes to
our customers/clients and/or poor market conduct. Conduct risk can occur across multiple areas and from multiple sources, including the
crystallisation of an operational risk.
The Group has a single conduct and operational risk framework that utilises the tools, such as RCSAs, outlined under operational risk (e) to
ensure the appropriate identification and management of conduct risk. Business units adopt the relevant minimum standards contained within
the conduct risk policy and are required to manage risk in accordance with this and other policies that have an impact on the overall conduct risk,
taking mitigating action as appropriate to operate within appetites.
The following conduct risk policy standards have defined outcomes against which conduct risk is assessed within the Group:
Culture
Proposition design
Communication and information
Advice and distribution
Service
Barriers
Proposition performance
Market integrity
(g) Regulatory and legal risk
The Group defines regulatory and legal risk as the risk of regulatory or legal sanction, reputational damage or financial consequences as a result
of a failure to comply with, or adequately allow for changes in, all applicable laws and legislation, contractual requirements or regulations in any
of the countries in which the Group operates.
Business units must have in place procedures to identify, report and analyse all regulatory compliance breaches to the relevant business unit
compliance function. Additionally, business units are required to have procedures in place to identify, assess and monitor the impact of changes
to laws, regulations and rules, prescribed practices and external regulatory events in jurisdictions where they choose to carry on regulated
financial services activity.
(h) Strategic risk
The Group defines strategic risk as those risks which threaten the achievement of the strategy through poor strategic decision-making,
implementation or response to changing circumstances. Strategic risks are considered across the Group through the business planning process.
The strategic risks to which the Group is exposed are reviewed on a regular basis.
198
Standard Life Aberdeen 2018
40. Structured entities
A structured entity is an entity that is structured in such a way that voting or similar rights are not the dominant factor in deciding who controls
the entity. The Group has interests in structured entities through investments in a range of investment vehicles including:
Pooled investment funds managed internally and externally, including OEICs, SICAVs, unit trusts and limited partnerships
Debt securitisation vehicles which issue asset-backed securities
The Group consolidates structured entities which it controls. Where the Group has an investment in, but not control over these types of
entities, the investment is classified as an investment in associate when the Group has significant influence.
The Group also has interests in structured entities through asset management fees and other fees received from these entities.
(a) Consolidated structured entities
As at 31 December 2018 and 31 December 2017, the Group has not provided any non-contractual financial or other support to any consolidated
structured entity and there are no current intentions to do so.
(b) Unconsolidated structured entities
As at 31 December 2018 and 31 December 2017, the Group has not provided any non-contractual financial or other support to any
unconsolidated structured entities and there are no current intentions to do so.
(b)(i) Investments in unconsolidated structured entities
The following table shows the carrying value of the Group’s investments in unconsolidated structured entities by line item in the consolidated
statement of financial position and by risk segment as defined in Note 39.
Equity securities and interests in
pooled investment funds
Debt securities
Total
Shareholder
business
Participating
business
Unit linked funds
2018
£m
451
13
464
2017
£m
202
682
884
2018
£m
–
–
–
2017
£m
806
1,468
2,274
2018
£m
138
–
138
2017
£m
32,229
945
33,174
TPICF & NCI1
2018
£m
2017
£m
86
–
86
3,484
138
3,622
Total
2018
£m
675
13
688
2017
£m
36,721
3,233
39,954
1 Third party interest in consolidated funds and non-controlling interests.
Equity securities and interests in pooled investment funds includes £610m (2017: £11,146m) of unconsolidated structured entities which are
managed by the Group and in which the Group has a direct investment of which £34m (2017: £5,936m) relates to investments in associates
measured at FVTPL. The asset value of these unconsolidated structured entities, net of cross holdings, is £21,020m (2017: £62,741m) of which
£20m (2017: £19,219m) relates to investments in associates measured at FVTPL. The total fees recognised in respect of these assets under
management during the year to 31 December 2018 were £44m (2017: £254m) of which £nil (2017: £31m) relates to structured entities where the
Group’s holding is classified as an investment in an associate measured at FVTPL.
The total issuance balance relating to unconsolidated structured debt securitisation vehicles in which the Group has an investment is £1,000m
(2017: £59,169m).
The Group’s maximum exposure to loss in respect of its investments in unconsolidated structured entities is the carrying value of the Group’s
investment and, where the structured entity is managed by the Group, loss of future fees. As noted in Note 39, the shareholder is not exposed to
market or credit risk in respect of investments held in the unit linked funds, and third party interest in consolidated funds and non-controlling
interests risk segments.
Additional information on how the Group manages its exposure to risk can be found in Note 39.
(b)(ii) Other interests in unconsolidated structured entities
For those structured entities which the Group receives asset management or other fees from but has no direct investment, the maximum
exposure to loss is loss of future fees.
Total assets under management of structured entities in which the Group has no direct investments but has other interests in are £136,047m at
31 December 2018 (2017: £80,454m). The fees recognised in respect of these assets under management during the year to 31 December 2018
were £813m (2017: £305m).
199
FINANCIAL INFORMATIONStandard Life Aberdeen 2018
8. Group financial statements continued
41. Fair value of assets and liabilities
The Group uses fair value to measure many of its assets and liabilities. Fair value is the amount for which an asset could be exchanged, or a
liability settled, between knowledgeable willing parties in an arm’s length transaction.
Estimates and assumptions
Determination of the fair value of contingent consideration assets and liabilities is a key estimate. Further details on the methods and
assumptions used to value these assets and liabilities, and sensitivities to those assumptions, are set out in Section (d) below.
(a) Determination of fair value hierarchy
To provide further information on the approach used to determine and measure the fair value of certain assets and liabilities, the following fair
value hierarchy categorisation has been used:
Level 1: Fair values measured using quoted prices (unadjusted) in active markets for identical assets or liabilities. An active market exists
where transactions take place with sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2: Fair values measured using inputs other than quoted prices included within level 1 that are observable for the asset or liability, either
directly (i.e. as prices) or indirectly (i.e. derived from prices)
Level 3: Fair values measured using inputs that are not based on observable market data (unobservable inputs)
(b) Financial investments and financial liabilities
An analysis of the Group’s financial investments and financial liabilities in accordance with the categories of financial instrument set out in IAS 39
Financial Instruments: Recognition and Measurement is presented in Notes 19 and 33 and includes those financial assets and liabilities held at
fair value.
(c) Non-financial investments
An analysis of the Group’s investment property and owner occupied property within property, plant and equipment in accordance with IAS 40
Investment property and IAS 16 Property, plant and equipment is presented in Notes 17 and 18 respectively and includes those assets held at
fair value.
(d) Methods and assumptions used to determine fair value of assets and liabilities including those held for sale
Information on the methods and assumptions used to determine fair values for each major category of instrument measured at fair value is given
below. These methods and assumptions include those used to fair value assets and liabilities held for sale, including the individual assets and
liabilities of operations held for sale.
Investments in associates at FVTPL, equity securities and interests in pooled investment funds and amounts seeded into funds
classified as held for sale
Investments in associates at FVTPL are valued in the same manner as the Group’s equity securities and interests in pooled investment funds.
Equity instruments listed on a recognised exchange are valued using prices sourced from the primary exchange on which they are listed. These
instruments are generally considered to be quoted in an active market and are therefore categorised as level 1 instruments within the fair value
hierarchy.
Unlisted equities are valued using an adjusted net asset value. The Group’s exposure to unlisted equity securities primarily relates to private
equity investments, real estate funds and infrastructure funds. The majority of the Group’s private equity investments are carried out through
European fund of funds structures, where the Group receives valuations from the investment managers of the underlying funds.
The valuations received from investment managers of the underlying funds are reviewed and where appropriate adjustments are made to reflect
the impact of changes in market conditions between the date of the valuation and the end of the reporting period. The fair value of infrastructure
funds is based on the phase of individual projects forming the overall investment and discounted cash flow techniques based on project
earnings. The fair value of real estate funds is based on valuations provided by independent professional valuers. The valuation of these
securities is therefore largely based on inputs that are not based on observable market data, and accordingly these instruments are categorised
as level 3 instruments within the fair value hierarchy. Where appropriate, reference is made to observable market data.
Where pooled investment funds have been seeded and the investment in the funds have been classified as held for sale, the costs to sell are
assumed to be negligible. The fair value of pooled investment funds including those held for sale is calculated as equal to the observable unit
price.
Investment property and owner occupied property
The fair value of investment property and all owner occupied property is based on valuations provided by external property valuation experts.
The fair value of investment property is measured based on each property’s highest and best use from a market participant’s perspective and
considers the potential uses of the property that are physically possible, legally permissible and financially feasible. No adjustment has been
made for vacant possession for the Group’s owner occupied property.
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Standard Life Aberdeen 2018
In the UK and Europe, valuations are completed in accordance with the Royal Institution of Chartered Surveyors (RICS) valuation standards.
These are predominantly produced using an income capitalisation approach. The income capitalisation approach is based on capitalising an
annual net income stream using an appropriate yield. The annual net income is based on both current and estimated future net income. The
yield and future net income used is determined by considering recent transactions involving property with similar characteristics to the property
being valued. Where it is not possible to use an income capitalisation approach, for example on property with no rental income, a market
comparison approach is used by considering recent transactions involving property with similar characteristics to the property being valued. In
both approaches where appropriate, adjustments will be made by the valuer to reflect differences between the characteristics of the property
being valued and the recent market transactions considered.
As income capitalisation and market comparison valuations generally include significant unobservable inputs including unobservable
adjustments to recent market transactions, these assets are categorised as level 3 within the fair value hierarchy.
Derivative financial assets and derivative financial liabilities
The majority of the Group’s derivatives are over-the-counter derivatives which are measured at fair value using a range of valuation models
including discounting future cash flows and option valuation techniques. The inputs are observable market data and over-the-counter derivatives
are therefore categorised as level 2 in the fair value hierarchy.
Exchange traded derivatives are valued using prices sourced from the relevant exchange. They are considered to be instruments quoted in an
active market and are therefore categorised as level 1 instruments within the fair value hierarchy.
Non-performance risk arising from the credit risk of each counterparty has been considered on a net exposure basis in line with the Group’s risk
management policies. At 31 December 2018 and 31 December 2017, the residual credit risk is considered immaterial and no credit risk
adjustment has been made.
Debt securities
For debt securities, the Group has determined a hierarchy of pricing sources. The hierarchy consists of reputable external pricing providers who
generally use observable market data. If prices are not available from these providers or are considered to be stale, the Group has established
procedures to arrive at an internal assessment of the fair value. These procedures are based largely on inputs that are not based on observable
market data. A further analysis by category of debt security is as follows:
Government, including provincial and municipal, and supranational institution bonds
These instruments are valued using prices received from external pricing providers who generally base the price on quotes received from a
number of market participants. They are categorised as level 1 or level 2 instruments within the fair value hierarchy depending upon the nature
of the underlying pricing information used for valuation purposes.
Corporate bonds listed or quoted in an established over-the-counter market including asset-backed securities
These instruments are generally valued using prices received from external pricing providers who generally consolidate quotes received from
a panel of banks into a composite price. As the market becomes less active the quotes provided by some banks may be based on modelled
prices rather than on actual transactions. These sources are based largely on observable market data, and therefore these instruments are
categorised as level 2 instruments within the fair value hierarchy. When prices received from external pricing providers are based on a single
broker indicative quote, the instruments are categorised as level 3 instruments.
For instruments for which prices are either not available from external pricing providers or the prices provided are considered to be stale, the
Group performs its own assessment of the fair value of these instruments. This assessment is largely based on inputs that are not based on
observable market data, principally single broker indicative quotes, and accordingly these instruments are categorised as level 3 instruments
within the fair value hierarchy.
Other corporate bonds including unquoted bonds, commercial paper and certificates of deposit
These instruments are valued using models. For unquoted bonds the model uses inputs from comparable bonds and includes credit spreads
which are obtained from brokers or estimated internally. Commercial paper and certificates of deposit are valued using standard valuation
formulas. The categorisation of these instruments within the fair value hierarchy will be either level 2 or 3 depending upon the nature of the
underlying pricing information used for valuation purposes.
Commercial mortgages
These instruments are valued using models. The models use a discount rate adjustment technique which is an income approach. The key
inputs for the valuation models are contractual future cash flows, which are discounted using a discount rate that is determined by adding a
spread to the current base rate. The spread is derived from a pricing matrix which incorporates data on current spreads for similar assets and
which may include an internal underwriting rating. These inputs are generally observable with the exception of the spread adjustment arising
from the internal underwriting rating. The classification of these instruments within the fair value hierarchy will be either level 2 or 3 depending
on whether the spread is adjusted by an internal underwriting rating.
Income strips
Income strips are transactions where an owner-occupier of a property has sold a freehold or long leasehold interest to the Group, and has
signed a long lease (typically 30-45 years) or a ground lease (typically 45-175 years) and retains the right to repurchase the property at the
end of the lease for a nominal sum (usually £1).
The valuation technique used by the Group to value these instruments is an income capitalisation approach, where the annual rental income is
capitalised using an appropriate yield. The yield is determined by considering recent transactions involving similar income strips. Unlike,
investment properties which typically are leased on shorter lease terms, the estimated rental value is not a significant unobservable input. This
is due to the length of the lease together with the nature of the rent reviews where the annual rental increases over the term of the lease in line
with inflation or fixed increases. As the income capitalisation valuations generally include significant unobservable inputs including
unobservable adjustments to the yield observed in other income strip transactions, these assets are categorised as level 3 in the fair value
hierarchy.
201
FINANCIAL INFORMATIONStandard Life Aberdeen 2018
8. Group financial statements continued
Contingent consideration assets and contingent consideration liabilities
Contingent consideration assets and liabilities have been recognised in respect of acquisitions and disposals. Generally valuations are based on
unobservable assumptions regarding the probability weighted cash flows and, where relevant, discount rate and therefore the assets and
liabilities are classified as level 3 in the fair value hierarchy. Significant contingent consideration arises under the terms of the sale of SLAL to
Phoenix in August 2018. The terms include a number of indemnities that give rise to contingent consideration. The indemnities that have the
most significant impact on the fair value of this contingent consideration are as follows:
Annuity sales practices: The annuity sales practices indemnity primarily relates to enhanced annuities. At the request of the FCA, SLAL is
conducting a review of non-advised annuity sales (with a purchase price above a minimum threshold) to customers eligible to receive an
enhanced annuity from 1 July 2008 until 31 May 2016. The purpose of this review is to identify whether these customers received sufficient
information about enhanced annuities to make the right decisions about their purchase, and, where appropriate, provide redress to customers
who have suffered loss as a result of not having received sufficient information. SLAL continues to work with the FCA regarding the process for
conducting this past business review.
Under the indemnity if SLAL suffers a loss in excess of the provision it recognised at 31 December 2017 of £248m in relation to annuity sales
practices, the Group will pay the excess to Phoenix subject to a £120m cap. If that provision is not fully utilised Phoenix will pay the Group the
unutilised amount. In addition SLAL shall pay to the Group any recovery received under the related insurance policies. SLAL had sought for up
to £100m of the financial impact to be mitigated by insurance and an update is provided on this insurance recovery on page 205. If SLAL is
subject to an FCA-levied financial penalty relating to the review, the Group shall pay an equivalent amount to Phoenix, subject to a £35m cap.
The technique used to value this element of the contingent consideration is to assess the likelihood of an over or under utilisation of the 31
December 2017 provision. The likelihood of a receipt of recoveries from the related insurance policies is also considered. Finally the likelihood of
a payment related to any financial penalty has been considered. (Refer 41(d)(iv) for further details.)
Persistency: If SLAL suffers adverse lapse experience relating to certain UK unit linked products (but excluding unit linked products written in a
with profits fund) prior to 31 December 2019, the Group shall make a payment to Phoenix, based on the difference between expected and actual
lapse experience, subject to a £75m cap.
The technique used to value this element of the contingent consideration is based on a statistical model used for the Group’s Solvency II
reporting at 31 December 2017, with each possible outcome weighted by the likelihood of that outcome.
Brexit recapitalisation: The Group shall pay to Phoenix an amount related to any additional capital, in excess of an agreed amount, that is
required to be contributed to Standard Life International Designated Activity Company (SLIDAC) in respect of the transfer of certain German and
Irish branch businesses of SLAL to SLIDAC pursuant to Brexit-related transfers. This payment is subject to a cap of £50m.
The technique used to value this element of the contingent consideration determines the range of potential payments under the indemnity with
possible outcomes weighted by the likelihood of the outcome.
Non-participating investment contract liabilities
The fair value of the non-participating investment contract liabilities is calculated equal to the fair value of the underlying assets and liabilities in
the funds. Thus, the value of these liabilities is dependent on the methods and assumptions set out above in relation to the underlying assets and
liabilities in which these funds are invested. The underlying assets and liabilities are predominately categorised as level 1 or 2 and as such, the
inputs into the valuation of the liabilities are observable. Therefore, the liabilities are categorised within level 2 of the fair value hierarchy.
Liabilities in respect of third party interest in consolidated funds
The fair value of liabilities in respect of third party interest in consolidated funds is calculated equal to the fair value of the underlying assets and
liabilities in the funds. Thus, the value of these liabilities is dependent on the methods and assumptions set out above in relation to the underlying
assets in which these funds are invested. When the underlying assets and liabilities are valued using readily available market information the
liabilities in respect of third party interest in consolidated funds are treated as level 2. Where the underlying assets and liabilities are not valued
using readily available market information the liabilities in respect of third party interest in consolidated funds are treated as level 3.
(d)(i) Fair value hierarchy for assets measured at fair value in the statement of financial position
The table below presents the Group's assets measured at fair value by level of the fair value hierarchy.
Fair value hierarchy
As recognised in
the consolidated
statement of
financial position
line item
2018
£m
2017
£m
–
2
9,749
81
21
3,053
2,030 99,020
1,723 61,565
6
8
3,784 173,474
Investment property
Owner occupied property
Derivative financial assets
Equity securities and interests in
pooled investment vehicles
Debt securities
Contingent consideration asset
Total assets at fair value
Classified as
held for sale
2018
£m
2017
£m
200
11
–
763
14
–
–
–
–
699
13
–
712
Total
Level 1
Level 2
Level 3
2018
£m
2017
£m
2018
£m
2017
£m
2018
£m
2018
£m
–
2
21
2017
£m
9,949
92
3,053
–
–
1
–
–
–
–
–
–
990
20
2,063
2,729
1,736
8
99,783
61,579
6
2,510
178
–
98,750
25,230
–
160
36
1,557 34,905
–
–
988
4,496 174,462
2,689 124,970
1,737 37,004
70 12,488
2017
£m
9,949
92
–
997
1,444
6
–
2
–
59
1
8
There were no significant transfers between levels 1 and 2 during the year (2017: none). Refer Note 41(d)(iii) for details of movements in level 3.
202
Standard Life Aberdeen 2018
(d)(ii) Fair value hierarchy for liabilities measured at fair value in the statement of financial position
The table below presents the Group's liabilities measured at fair value by level of the fair value hierarchy.
Fair value hierarchy
As recognised in
the consolidated
statement of
financial position
line item
2018
£m
2017
£m
Classified as
held for sale
Total
Level 1
Level 2
Level 3
2018
£m
2017
£m
2018
£m
2017
£m
2018
£m
2017
£m
2018
£m
2017
£m
2018
£m
2017
£m
Non-participating investment
contract liabilities
Liabilities in respect of third
party interest in
consolidated funds
Derivative financial liabilities
Contingent consideration
liabilities
Total liabilities at fair
value
1,468 105,765
52
62
1,520 105,827
254
6
16,457
813
29
25
1,757 123,060
14
–
–
66
28
–
–
268
6
29
16,485
813
25
90
1,823 123,150
–
–
1
–
1
–
1,520 105,827
–
161
268
5
15,187
652
–
–
–
–
1,298
–
–
–
–
29
25
161
1,793 121,666
29
1,323
There were no significant transfers between levels 1 and 2 during the year (2017: none). Refer Note 41(d)(iii) for details of movements in level 3.
(d)(iii) Reconciliation of movements in level 3 instruments
The movements during the year of level 3 assets and liabilities held at fair value, excluding assets and liabilities held for sale, are analysed
below.
Investment
property
2018
£m
2017
£m
Owner occupied
property
2018
£m
2017
£m
9,749
(9,749)
9,929
(225)
81
(79)
58
(4)
–
–
–
–
–
–
–
–
–
–
–
–
–
(319)
–
485
413
–
(525)
–
–
(17)
11
–
(3)
9,749
–
–
–
–
–
–
–
–
–
–
–
–
2
–
2
4
3
–
–
–
–
17
–
1
–
81
Equity securities
and interests in
pooled investment
funds
Debt securities
2018
£m
994
(921)
–
–
5
18
–
(37)
–
–
–
–
–
–
59
2017
£m
958
–
–
100
72
191
–
(317)
8
(7)
–
(13)
–
2
994
2018
£m
1,444
(1,443)
–
–
–
–
–
–
–
–
–
–
–
–
1
2017
£m
868
–
319
–
35
362
–
(125)
27
(42)
–
–
–
–
1,444
Liabilities in
respect of third
party interest in
consolidated
funds
2018
£m
2017
£m
(1,298)
1,298
(1,228)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(57)
(88)
75
–
–
–
–
–
–
–
(1,298)
At 1 January
Reclassified to held for sale during the year
Reclassification between investment
property and debt securities1
Acquired through business combinations
Total gains/(losses) recognised in the
consolidated income statement
Purchases
Settlement
Sales
Transfers in to level 32
Transfers out of level 32
Transfers between investment property and
owner occupied property
Foreign exchange adjustment
Total gains recognised on revaluation of
owner occupied property within other
comprehensive income
Other
At 31 December
1 During 2017 income strips measured at £319m which were previously included within investment property were reclassified as debt securities to reflect the underlying nature of
these instruments.
2 Transfers are deemed to have occurred at the end of the calendar quarter in which they arose.
203
FINANCIAL INFORMATIONStandard Life Aberdeen 2018
8. Group financial statements continued
At start of period
Acquired through business combinations
Total amounts recognised in the income statement
Additions
Settlements
At end of period
1 Restated.
Contingent
consideration asset
Contingent
consideration liabilities
2018
£m
6
–
(6)
8
–
8
2017
£m
10
–
(4)
–
–
6
2018
£m
(25)
(19)
9
–
6
(29)
2017
£m
(15)
(39)
3
–
261
(25)
For the year ended 31 December 2018, gains of £6m from continuing operations (2017: gains of £3m) were recognised in the IFRS consolidated
income statement in respect of assets and liabilities held at fair value classified as level 3 at the period end, excluding assets and liabilities held
for sale. These amounts are recognised in investment return.
Transfers of equity securities and interests in pooled investment funds and debt securities into level 3 generally arise when external pricing
providers stop providing a price or where the price provided is considered stale. Transfers of equity securities and interests in pooled investment
funds and debt securities out of level 3 arise when acceptable prices become available from external pricing providers.
(d)(iv) Significant unobservable inputs in level 3 instrument valuations
The table below identifies the significant unobservable inputs used in determining the fair value of level 3 instruments at 31 December 2018:
2018
Equity securities and interests in
pooled investment funds
Fair value
£m
59
Contingent consideration assets
and liabilities
(21)
Unobservable input
This comprises holdings in approximately 80 separate funds,
predominantly by value being interests in real estate,
infrastructure and private equity funds. Given the numerous
unobservable inputs pertaining to the valuation of the
underlying assets in the funds no individual unobservable
inputs are considered significant.
Input used
N/A
Unobservable inputs relate to probability weighted cash flows
and, where relevant, discount rates. The most significant
unobservable inputs relate to assumptions used to value the
contingent consideration related to the sale of SLAL to Phoenix,
in particular those related to:
SLAL’s annuity sales practices provision
(including the likelihood and value of annuity
sales practices insurance recoveries and any
FCA-levied penalty)
Future lapse rates on relevant UK unit linked
products of SLAL
See below
Statistical distribution used
in the Group’s Solvency II
internal model at 31
December 2017
204
Standard Life Aberdeen 2018
Estimates and assumptions
The contingent consideration related to the annuity sales practices indemnity is considered to be an item for which assumptions and other
sources of estimation uncertainty within the valuation technique at the end of the reporting period have a significant risk of resulting in a
material adjustment to the carrying amounts of assets and liabilities within the next financial year.
The valuation of the contingent consideration in relation to this indemnity takes into account our view of the need for any changes in the
provision held by SLAL. At 31 December 2018 SLAL has not increased or released any element of the provision that it recognised at 31
December 2017. This reflects the view that the overall level of the provision at 31 December 2017 remains appropriate and therefore that the
fair value of this component of the contingent consideration, before considering insurance recoveries and potential FCA-levied penalties, is
not material. The valuation technique and underpinning assumptions are as follows:
The key assumptions underlying the provision for annuity sales practices relating to enhanced annuities are:
The number of customers entitled to redress
The amount of redress payable per customer
The costs of conducting the review
The number of customers entitled to redress has been estimated based on:
The number of customers in the review population
The estimated percentage of these customers eligible for an enhanced annuity
The estimated percentage of these eligible customers that did not receive sufficient information from SLAL about enhanced annuities
The FCA thematic review noted that between 39% and 48% of customers who bought a standard annuity may potentially have been eligible
for an enhanced annuity. The provision assumes 40% of customers were eligible for an enhanced annuity based on observed experience
from SLAL’s review.
The FCA thematic review noted, for the industry as a whole, a plausible range of lost income for customers who were entitled to enhanced
annuities but purchased standard annuities to be between £120 and £240 per annum for an average annuity purchase price of £25,000.
The lost income for customers who were entitled to enhanced annuities, for an average purchase price of £25,000, is assumed to be £300
per annum. This assumption is based on expected experience from SLAL’s review utilising the redress calculator provided by the FCA in
early 2018. This assumption is unchanged from that used at end 2017.
Assumptions relating to future annuity payments are consistent with SLAL’s other annuity reserving assumptions.
The costs of conducting the review relate to administrative expenses per case and wider project costs. The costs are based on SLAL’s project
planning.
Sensitivities are provided in the table below.
Assumption
Percentage of customers eligible for an
enhanced annuity
Percentage of eligible customers that did
not receive sufficient information from SLAL
about enhanced annuities
Lost income per annum for an average
annuity purchase of £25,000
Costs per case of conducting the review
Change in assumption
Percentage changed by +/-5 (e.g. 40%
increased to 45%)
Consequential change in contingent
consideration valuation
+/- £18m
Percentage changed by +/-5
+/- £9m
+/- £50
+/- 20% of the cost per case
+/- £28m
+/- £5m
In addition, the fair value of the contingent consideration has taken into account that substantially all of the £100m being sought by SLAL
under insurance policies to mitigate the financial impact was received by the Group in January 2019 and has been based on an assessment
of the likelihood of a financial penalty and the FCA’s methodology for calculating such penalties.
205
FINANCIAL INFORMATIONStandard Life Aberdeen 2018
8. Group financial statements continued
The table below identifies the significant unobservable inputs used in determining the fair value of level 3 instruments at 31 December 2017 and
quantifies the range of these inputs used in the valuation at that reporting date:
2017
Investment property and owner occupied
property
Investment property
(hotels)
Investment property and owner occupied
property
Equity securities and interests in pooled
investment funds
Debt securities
(commercial mortgages)
Debt securities
(income strips)
Debt securities
(unquoted corporate bonds)
Debt securities
(infrastructure loans)
Unobservable input Range (weighted average)
3.3% to 9.0% (5.2%)
£32 to £1,716 (£326)
Fair value
£m
9,571
402
68
Valuation technique
Income capitalisation
Income capitalisation
Equivalent yield
Estimated rental value
per square metre per
annum
Equivalent yield
Estimated rental value per
room per annum
Market comparison Estimated value per square
metre
Adjustment to net asset
value1
Credit spread
997 Adjusted net asset value
379
Discounted cash flow
3.8% to 6.6% (5.1%)
£995 to £10,000 (£5,841)
£2 to £10,932 (£3,451)
N/A
1.9% to 2.6% (2.2%)
520
Income capitalisation
Equivalent yield
4.1% to 6.5% (5.1%)
506
Discounted cash flow
Credit spread
0.7% to 2.1% (1.6%)
39
Discounted cash flow
Credit spread
1.9% to 2.6% (2.3%)
1 An adjustment is made to the valuations of private equity investments received from the investment managers of the underlying funds to estimate the effect of changes in
market conditions between the date of their valuations and the end of the reporting period using market indices. The adjustment made at 31 December 2018 was £nil (2017:
£nil).
(d)(v) Sensitivity of the fair value of level 3 instruments to changes in key assumptions
At 31 December 2018 the shareholder is directly exposed to movements in the value of all level 3 instruments since none are held in the Group’s
unit linked funds or in consolidated structured entities. Estimates, assumptions and sensitivities relating to contingent consideration assets and
liabilities are discussed in Section (d)(iv). Changing unobservable inputs in the measurement of the fair value of other level 3 financial assets and
financial liabilities to reasonably possible alternative assumptions would not have a significant impact on profit attributable to equity holders or on
total assets.
Prior to the disposal of SLAL the shareholder was directly exposed to movements in the value of level 3 instruments held by the shareholder
business (to the extent they were offset by opposite movements in investment and insurance contract liabilities). Movements in level 3
instruments held by the participating business and unit linked funds risk segments were offset by an opposite movement in investment and
insurance contract liabilities and therefore the shareholder was not directly exposed to such movements unless they were sufficiently severe to
cause the assets of the participating business to be insufficient to meet the obligations to policyholders. Movements in level 3 instruments held in
the TPICF and NCI risk segment were offset by opposite movements in the liabilities in respect of third party interest in consolidated funds and in
equity attributable to non-controlling interest and therefore the shareholder was not directly exposed to such movements.
(e) Assets and liabilities not carried at fair value
The table below presents estimated fair values by level of the fair value hierarchy of assets and liabilities whose carrying value does not
approximate fair value. Fair values of assets and liabilities are based on observable market inputs where available, or are estimated using other
valuation techniques.
As recognised in
the consolidated
statement of
financial position
line item
2018
£m
2017
£m
Notes
Fair value
2018
£m
2017
£m
Level 1
Level 2
Level 3
2018
£m
2017
£m
2018
£m
2017
£m
2018
£m
2017
£m
Assets
Loans secured by mortgages
Liabilities
Non-participating investment contract
liabilities
Capital notes
Subordinated notes
Subordinated guaranteed bonds
Mutual Assurance Capital Securities
20
33
34
34
34
34
–
57
–
64
–
–
1,081
–
–
4
377
1,056
502
318
–
–
1,088
–
–
4
377
1,128
650
349
–
–
–
–
–
–
–
–
64
–
–
–
–
377
–
– 1,088 1,128
650
–
–
349
–
–
–
–
–
–
–
–
–
4
–
–
–
–
The estimated fair values for subordinated liabilities are based on the quoted market offer price. The estimated fair values of the other
instruments detailed above are calculated by discounting the expected future cash flows at current market rates.
The carrying value of all other financial assets and liabilities measured at amortised cost approximates their fair value.
206
Standard Life Aberdeen 2018
42. Statement of cash flows
The tables below provide further analysis of the balances in the statement of cash flows.
(a) Change in operating assets
Investment property
Equity securities and interests in pooled investment funds
Debt securities
Derivative financial instruments
Reinsurance assets
Investments in associates and joint ventures accounted for using the equity method
Receivables and other financial assets and other assets
Deferred acquisition costs
Loans
Assets held for sale
Change in operating assets
(b) Change in operating liabilities
Other financial liabilities, provisions and other liabilities
Deposits received from reinsurers
Pension and other post-retirement benefit provisions
Deferred income
Insurance contract liabilities
Investment contract liabilities
Change in liability for third party interest in consolidated funds
Liabilities held for sale
Change in operating liabilities
(c) Other non-cash and non-operating items
Gain on sale of subsidiaries
Profit on disposal of associates
Loss on disposal of property, plant and equipment
Depreciation of property, plant and equipment
Amortisation of intangible assets
Impairment losses on intangible assets
Impairment of associates
Impairment losses (reversed)/recognised on property, plant and equipment
Impairment losses on disposal group held for sale
Equity settled share-based payments
Other interest cost
Finance costs
Share of profit from associates and joint ventures accounted for using the equity method
Other non-cash and non-operating items
2018
£m
(303)
1,369
3,142
269
328
44
(1,796)
(13)
27
250
3,317
2018
£m
1,260
(397)
(7)
57
(586)
(2,756)
(46)
(76)
(2,551)
2018
£m
(1,780)
(185)
1
20
224
926
228
–
2
36
2
80
(135)
(581)
2017
£m
(373)
(6,958)
7,279
305
568
21
211
30
206
62
1,351
2017
£m
(897)
(460)
(33)
(41)
(1,090)
1,853
480
104
(84)
2017
£m
–
(319)
1
15
124
77
–
(4)
24
39
3
88
(45)
3
207
FINANCIAL INFORMATIONStandard Life Aberdeen 2018
8. Group financial statements continued
(d) Disposal of subsidiaries
Deferred acquisition costs
Investment property
Reinsurance assets
Derivative financial assets
Equity securities and interests in pooled investment funds
Debt securities
Receivables and other financial assets
Other assets of operations disposed of excluding cash and cash equivalents
Non-participating insurance contract liabilities
Non-participating investment contract liabilities
Participating contract liabilities
Deposits received from reinsurers
Derivative financial liabilities
Third party interest in consolidated funds
Other financial liabilities
Other liabilities of operations disposed of
Non-controlling interests – ordinary shares
Net assets disposed of
Items transferred to profit or loss on disposal of subsidiaries
Gain on sale
Transaction and separation costs
Deferred income recognised
Non-cash consideration – Phoenix shares
Contingent consideration asset recognised
Total cash consideration
Cash and cash equivalents disposed of
Cash outflow from disposal of subsidiary
Notes
1
1
1
1
2018
£m
622
10,068
4,474
2,969
96,351
56,712
1,162
8,086
(22,207)
(102,216)
(30,244)
(4,236)
(957)
(15,581)
(2,861)
(790)
(282)
1,070
(43)
1,780
117
78
(1,023)
(8)
1,971
(7,472)
(5,501)
There were no operations disposed of in the year ended 31 December 2017.
(e) Movement in non-controlling interests – ordinary shares and third party interest in consolidated funds arising from
financing activities
The following table reconciles the movement in non-controlling interests and third party interests in consolidated funds in the year, split between
cash and non-cash items.
Non-
controlling
interests –
ordinary
shares
£m
2018
Third party
interest in
consolidated
funds
£m
2017
Non-
controlling
interests –
ordinary
shares
£m
Third party
interest in
consolidated
funds
£m
Total
£m
Total
£m
289
16,457
16,746
297
16,835
17,132
–
(9)
(9)
–
5
–
(507)
(60)
(567)
(507)
(69)
(576)
28
–
28
5
(37)
(37)
(281)
(2)
2
(15,474)
(153)
254
(15,755)
(155)
256
(5)
(7)
(12)
–
25
–
(1)
(20)
289
(1,006)
(102)
(1,108)
(1,011)
(109)
(1,120)
(54)
–
(54)
25
1,124
1,124
(157)
(183)
16,457
(158)
(203)
16,746
At 1 January
Cash flows from financing activities
Net settlements of units by third parties
Cash distributions
Cash flows from financing activities
Non-cash items
Foreign exchange differences on translating foreign
operations
Profit in the year attributable to non-controlling interests
– ordinary shares
Change in liability for third party interest in consolidated
funds
Movements arising from changes in control of
subsidiaries and other non-cash movements
Non-cash distributions
At 31 December
208
Standard Life Aberdeen 2018
(f) Movement in subordinated liabilities
The following table reconciles the movement in subordinated liabilities in the year, split between cash and non-cash items.
At 1 January
Cash flows from financing activities
Repayment of subordinated liabilities
Proceeds of issue of subordinated liabilities
Interest paid
Cash flows from financing activities
Non-cash items
Amounts reclassified from equity
Amounts reclassified to equity
Interest expense
Amortisation
Foreign exchange adjustment
At 31 December
2018
£m
2,253
(363)
(4)
(117)
(484)
–
(803)
91
1
23
1,081
2017
£m
1,319
–
565
(81)
484
380
–
88
1
(19)
2,253
In addition to the interest paid on subordinated liabilities of £117m (2017: £81m), interest paid in the consolidated statement of cash flows
includes £nil (2017: £13m) in relation to interest paid on perpetual debt instruments classified as equity. In addition to the repayment of
subordinated liabilities of £363m (2017: £nil), an additional £1,014m (2017 £nil) was redeemed from equity.
43. Contingent liabilities and contingent assets
Contingent liabilities are possible obligations of the Group of which timing and amount are subject to significant uncertainty. Contingent
liabilities are not recognised on the consolidated statement of financial position but are disclosed, unless they are considered remote. If such
an obligation becomes probable and the amount can be measured reliably it is no longer considered contingent and is recognised as a
liability.
Conversely, contingent assets are possible benefits to the Group. Contingent assets are only disclosed if it is probable that the Group will
receive the benefit. If such a benefit becomes virtually certain it is no longer considered contingent and is recognised as an asset.
Legal proceedings, complaints and regulations
The Group is subject to regulation in all of the territories in which it operates insurance and investment businesses. In the UK, where the Group
primarily operates, the FCA has broad powers, including powers to investigate marketing and sales practices.
The Group, like other financial organisations, is subject to legal proceedings, complaints and regulatory discussions, reviews and challenges in
the normal course of its business. All such material matters are periodically reassessed, with the assistance of external professional advisers
where appropriate, to determine the likelihood of the Group incurring a liability. Where it is concluded that it is more likely than not that a material
outflow will be made a provision is established based on management’s best estimate of the amount that will be payable. In some cases it will
not be possible to form a view, for example because the facts are unclear or because further time is needed to properly investigate, and no
provisions are held for such matters. It is not possible to predict with certainty the extent and timing of the financial impact of legal proceedings,
complaints and related regulatory matters.
209
FINANCIAL INFORMATIONStandard Life Aberdeen 2018
8. Group financial statements continued
44. Commitments
The Group has contractual commitments in respect of expenditure on investment property, funding arrangements and leases which will be
payable in future periods. These commitments are not recognised on the Group’s statement of financial position at the year end but are
disclosed to give an indication of the Group’s future committed cash flows.
All Group leases are operating leases, being leases where the lessor retains substantially all the risks and rewards of the ownership of the
leased asset.
(a) Capital commitments
The Group’s investment property was sold in the year so there are no capital commitments in respect of investment property as at 31 December
2018. As at 31 December 2017, capital expenditure that was authorised and contracted for, but not provided and incurred was £167m in respect
of investment property and income strips (discussed in Note 41). Of this amount, £147m related to the contractual obligations to purchase,
construct, or develop property and £20m related to repair, maintain or enhance property respectively.
(b) Unrecognised financial instruments
The Group has committed £37m (2017: £447m) in respect of unrecognised financial instruments to customers and third parties. Of this amount
£nil (2017: £360m) is committed by consolidated private equity funds. These commitments will be funded through contractually agreed additional
investments both by the Group, through its controlling interests, and the funds’ non-controlling interests. The level of funding provided by each
will not necessarily be in line with the current ownership profile of the funds.
(c) Operating lease commitments
The Group has entered into commercial non-cancellable leases on certain property, plant and equipment where it is not in the best interest of the
Group to purchase these assets. Such leases have varying terms, escalation clauses and renewal rights.
The future aggregate minimum lease payments under non-cancellable operating leases are as follows:
Not later than one year
Later than one year and no later than five years
Later than five years
Total operating lease commitments
2018
£m
39
109
102
250
2017
restated1
£m
37
90
61
188
1 Comparatives for 2017 have been restated to reflect the classification of the UK and European insurance business as discontinued operations. Refer Note 1.
(d) Customer contracts
At 31 December 2017 the Group had contractual commitments in place to acquire Customer contracts for £74m. These acquisitions were
completed in 2018.
210
Standard Life Aberdeen 2018
45. Employee share-based payments and deferred fund awards
The Group operates share incentive plans for its employees. These generally take the form of an award of options or shares in Standard Life
Aberdeen plc (equity-settled share-based payments) but can also take the form of a cash award based on the share price of Standard Life
Aberdeen plc (cash-settled share-based payments). Aberdeen Asset Management PLC and its subsidiaries also incentivise certain
employees through the award of units in Group managed funds (deferred fund awards) which are cash-settled. All the Group’s incentive
plans have conditions attached before the employee becomes entitled to the award. These can be performance and/or service conditions
(vesting conditions) or the requirement of employees to save in the save-as-you-earn scheme (non-vesting condition). The period over which
all vesting conditions are satisfied is the vesting period and the awards vest at the end of this period.
For all share-based payments services received for the incentive granted are measured at fair value.
For cash-settled share-based payment and deferred fund awards transactions, services received are measured at the fair value of the
liability. The fair value of the liability is remeasured at each reporting date and any changes in fair value are recognised in the consolidated
income statement.
For equity-settled share-based payment transactions, the fair value of services received is measured by reference to the fair value of the
equity instruments at the grant date. The fair value of the number of instruments expected to vest is charged to the income statement over the
vesting period with a corresponding credit to the equity compensation reserve in equity.
At each period end the Group reassesses the number of equity instruments expected to vest and recognises any difference between the
revised and original estimate in the consolidated income statement with a corresponding adjustment to the equity compensation reserve.
Replacement share-based payment awards granted in a business combination are included in determining the consideration transferred. The
amount included is calculated by reference to the pre-combination service and the market-measure of the replaced awards.
At the time the equity instruments vest, the amount recognised in the equity compensation reserve in respect of those equity instruments is
transferred to retained earnings.
Share options
(i)
The Group operates the following long-term incentive plans.
Long-term incentive plans
Plan
Standard Life Long-term incentive
plan (Standard Life LTIP)
Standard Life Investments Long-Term
Incentive Plan (Standard Life
Investments LTIP)
Standard Life Restricted stock plan
(Standard Life RSP)
Recipients
Executives and senior management
Executives and senior management
Conditions which must be met prior to vesting
Service and performance conditions as set
out in the Directors’ remuneration report
Service and performance conditions as set
out in the Directors’ remuneration report
Executives (other than executive Directors) and
senior management
Service, or service and performance
conditions. These are tailored to the
individual award
All of the awards are equity-settled other than awards made under the Standard Life Investments LTIP in respect of employees in the US,
France and Asia which are cash-settled.
211
FINANCIAL INFORMATIONStandard Life Aberdeen 2018
8. Group financial statements continued
(ii) Annual bonus deferred share options
The Group operates the following deferred bonus plans which award share options.
Plan
Short-term incentive plan (Standard
Life Group STIP)
Recipients
Executives and senior management
Aberdeen Asset Management
Deferred Share Plan 2009 (Aberdeen
Asset Management DSP 2009)
Executives and senior management
Conditions which must be met prior to vesting
Service and performance conditions as set
out in the Directors’ remuneration report.
There are no outstanding performance
conditions.
Service conditions of one, two and three
years after the date of the award (one to five
years for executive management). There are
no outstanding performance conditions.
(iii) Sharesave (Save-as-you-earn)
The Group operates Save-as-you-earn (SAYE) plans, which allow eligible employees in the UK and Ireland the opportunity to save a monthly
amount from their salaries, over either a three or five year period, which can be used to purchase shares in the Company. The shares can be
purchased at the end of the savings period at a predetermined price. Employees are granted a predetermined number of options based on the
monthly savings amount and duration of their contract. The conditions attached to the options are that the employee remains in employment for
three years after the grant date of the options and that the employee satisfies the monthly savings requirement. Settlement is made in the form of
shares.
Other share plans
(i)
The Group operates the following deferred bonus plan which awards conditional shares.
Annual bonus deferred share awards
Plan
Aberdeen Asset Management USA
Deferred Share Award Plan
(Aberdeen Asset Management USA
DSAP)
Recipients
US based executives and senior management Service conditions of one, two and three
Conditions which must be met prior to vesting
years after the date of the award (one to five
years for executive management). There are
no outstanding performance conditions.
Unlike share options under the Aberdeen Asset Management DSP 2009 which have an exercise period, conditional shares awarded under the
Aberdeen Asset Management USA DSAP have no exercise period and the employee receives the shares at the end of the award’s vesting
period.
(ii) Share incentive plan
The Group operates a share incentive plan, allowing employees the opportunity to buy shares from their salary each month. The maximum
purchase that an employee can make in any year is £1,800. The Group offers to match the number of shares bought up to a value of £50 each
month. The matching shares awarded under the share incentive plan are granted at the end of each month. The matching shares are generally
subject to a three year service period.
Employees may forfeit some or all of share options or awards made under any of the above share-based payment schemes if they leave the
Group prior to the end of the awards’ vesting periods.
Replacement awards
On the acquisition of Aberdeen on 14 August 2017, the outstanding options and awards for Aberdeen Asset Management PLC shares under the
Aberdeen Asset Management DSP 2009 and Aberdeen Asset Management USA DSAP were replaced with equivalent options and awards for
Standard Life Aberdeen plc shares. Aberdeen also operated a long-term incentive plan which was fully vested prior to acquisition and replaced
awards were also issued for the remaining unexercised options. At the same date, options and awards for Standard Life Aberdeen plc shares
were made to relevant Aberdeen employees by the plan in respect of pre-acquisition bonus.
212
Standard Life Aberdeen 2018
(a) Options granted
The number, weighted average exercise price and weighted average remaining contractual life for options outstanding during the year are as
follows:
Long-term
incentive
plans
(excluding
RSP)
2018
Annual
bonus
deferred
share
RSP
options Sharesave
Weighted
average
exercise
price for
Sharesave
Long-term
incentive
plans
(excluding
RSP)
2017
Annual
bonus
deferred
share
RSP
options Sharesave
Outstanding at 1 January
52,005,776
7,104,089 28,216,634
9,004,370
20,476,434
1,460,199 3,434,492
3,712,915
316p
257p
39,735,747
3,826,208
553,038
7,575,279
23,088,821
4,909,639
4,320,815
3,701,031
Granted
Replaced
Forfeited
Exercised
Expired
Cancelled
Outstanding at
31 December
Exercisable at
31 December
Remaining contractual life
of options outstanding
(years)
1
1 Weighted average.
–
–
–
–
–
615,761
–
29,081,898
–
(10,979,340)
(437,714)
(312,312)
(807,186)
(5,800,093)
(1,564,388) (5,118,094)
(680,119)
–
–
–
–
–
–
–
309p
287p
–
(7,653,616)
(123,520)
(80,319)
(220,088)
(3,778,506)
(1,464,118)
(5,621,989)
(1,898,442)
(2,431)
–
–
(22,259)
(1,969,591)
328p
–
(44,120)
(36,809)
(131,151)
55,702,777
6,562,186 26,220,720
9,260,389
292p
52,005,776
7,104,089
28,216,634
9,004,370
316p
–
20,152 9,816,708
2,292,876
313p
585,889
59,611
8,447,606
291,259
288p
1.96
1.38
7.10
2.65
2.06
1.63
10.36
2.84
Weighted
average
exercise
price for
Sharesave
290p
345p
–
302p
274p
233p
298p
The exercise price for options granted under all long-term and deferred bonus schemes is nil. The fair value of options granted under the Group’s
incentive schemes is determined using a relevant valuation technique, such as the Black Scholes option pricing model.
The following table shows the weighted average assumptions that were considered in determining the fair value of options granted during the
year and the share price at exercise of options exercised during the year.
Long-term incentive plans
(excluding RSP)
RSP
Annual bonus deferred share
options
Sharesave
Options granted
during the year
Grant date
Share price at grant
date1
Fair value at grant date1
Exercise price
Dividends
Option term (years)1
Options exercised
during the year
Share price at time of
exercise1
1 Weighted average.
28 March 2018
Throughout
5 March 2018 and 29 March
2018
23 October 2018
362p
362p
Nil
335p
335p
Nil
The plans include the
entitlement to the receipt
of dividends in respect of
awards that ultimately
vest between the date of
grant and the vesting date
3.44
The plans include the
entitlement to the receipt
of dividends in respect of
awards that ultimately
vest between the date of
grant and the vesting date
2.34
359p
359p
Nil
The plan includes the entitlement
to the receipt of dividends in
respect of awards that ultimately
vest between the date of grant
and the vesting date for the
Standard Life Group STIP and
the exercise date for the
Aberdeen Asset Management
DSP 2009
3.11
261p
14p
256p-257p
No dividend entitlement
3.49
354p
352p
310p
338p
The options granted on deferred bonus plans also included 1,026,174 options which related to prior year awards which could only be granted in
February 2018 due to market restrictions. The fair value of the awards was determined based on the share price at the date that the awards
would have been made if the market restrictions had not been in place rather than the share price at the date the awards were granted. The
weighted average fair value of these options was 404p with an option term of 3.75 years.
No departures from share option schemes are expected at grant date, with any leavers being accounted for on departure. In determining the fair
value of options granted under the Sharesave scheme the historic volatility of the share price over a period of up to five years and a risk free rate
determined by reference to swap rates was also considered.
213
FINANCIAL INFORMATIONStandard Life Aberdeen 2018
8. Group financial statements continued
The following table shows the range of exercise prices of options outstanding at 31 December 2018. All options are exercisable for a period of
six months after the vesting date except for the options under the Aberdeen Asset Management DSP 2009 which are exercisable up to 10 years
after the grant date.
Long-term incentive plans
£nil
172p
Annual bonus deferred share options
£nil
Sharesave
200p-327p
328p-402p
Outstanding at 31 December
(b) Other share plans
2018
Annual bonus
deferred share
awards
2018
Number of options
outstanding
2017
Number of options
outstanding
62,264,963
–
58,567,339
542,526
26,220,720
28,216,634
6,102,619
3,157,770
97,746,072
3,949,902
5,054,468
96,330,869
2017
Annual bonus
deferred share
awards
Share
incentive
plan1
562,261
–
336p
336p
Share
incentive
plan1
529,277
–
396p
396p
Number of share awards granted
Number of share awards replaced
Share price at date of grant2
Fair value per granted instrument at grant date2
1
2 Weighted average.
3 The fair value of share awards replaced under the Annual bonus deferred share awards in 2017 was calculated by reference to the share price on acquisition of Aberdeen
Included in the number of instruments granted are 5,898 (2017: 9,048) rights to shares granted to eligible employees in Germany and Austria.
955,823
573,099
411p3
411p
285,500
–
364p
364p
adjusted for pre-combination service. The fair value of instruments granted is calculated by reference to the share price at grant date.
At the grant date all awards are expected to vest. No departures are expected at the grant date, with leavers being accounted for on departure.
The plans include the entitlement to the receipt of dividends in respect of awards that ultimately vest between the date of grant and the vesting
date.
(c) Employee share-based payment expense and deferred fund awards
The amounts recognised as an expense for equity-settled share-based payment transactions and deferred fund awards with employees are as
follows:
Share options granted under long-term incentive plans
Share options granted under Sharesave
Share options and share awards granted under deferred bonus plans
Matching shares granted under share incentive plans
Equity-settled share-based payments
Cash-settled share-based payments
Cash-settled deferred fund awards
Total expense
2018
£m
–
2
33
1
36
–
9
45
2017
£m
19
1
18
1
39
1
10
50
Included in the expense above is £31m (2017: £12m) of share-based payment expenses which are included in restructuring and corporate
transaction expenses in the consolidated income statement.
The liability for cash-settled share-based payments outstanding at 31 December 2018 is £2m (2017: £3m).
Deferred fund awards
At 31 December 2018, the liability recognised for cash-settled deferred awards was £48m (2017: £52m). The total intrinsic value of unvested
awards at 31 December 2018 was £31m (2017: £31m).
214
Standard Life Aberdeen 2018
46. Related party transactions
(a) Transactions and balances with related parties
In the normal course of business, the Group enters into transactions with related parties that relate to insurance and investment management
business.
During the year, the Group recognised management fees from Group managed non-consolidated investment vehicles. These fees are disclosed
in Note 40. It also recognised management fees of £4m (2017: £4m) from the Group’s defined benefit pension plans.
In the year ended 31 December 2018, for associates accounted for using the equity method, the Group recognised sales primarily in relation to
management fees of £89m (2017: £nil) and purchases in relation to services received of £28m (2017: £nil).
There were no sales to or purchases from joint ventures during the year ended 31 December 2018 (2017: none).
In addition to these transactions between the Group and related parties during the year, in the normal course of business the Group made a
number of investments into/divestments from investment vehicles managed by the Group including investment vehicles which are classified as
investments in associates measured at FVTPL. Group entities paid amounts for the issue of shares or units and received amounts for the
cancellation of shares or units.
The Group had balances due from associates accounted for using the equity method of £63m (2017: £nil), balances due to associates
accounted for using the equity method of £19m (2017: £nil) and no balances due to or from joint ventures as at 31 December 2018 (2017: none).
The Group’s defined benefit pension plans have assets of £1,132m (2017: £1,210m) invested in investment vehicles managed by the Group.
(b) Compensation of key management personnel
In 2018 key management personnel includes Directors of Standard Life Aberdeen plc (since appointment) and the Chief Executive Officer
Pensions and Savings for the period from 1 January 2018 until 31 August 2018 and from 1 September 2018 includes Directors of Standard Life
Aberdeen plc and the members of the executive committee (since appointment). In 2017 key management personnel included Directors of
Standard Life Aberdeen plc (since appointment) and the Chief Executive Officer Pensions and Savings. Detailed disclosures of Directors’
remuneration for the year and transactions in which the Directors are interested are contained within the audited section of the Directors’
remuneration report.
The summary of compensation of key management personnel is as follows:
Salaries and other short-term employee benefits
Post-employment benefits
Share-based payments
Termination benefits
Total compensation of key management personnel
2018
£m
6
–
6
–
12
2017
£m
9
–
3
1
13
(c) Transactions with key management personnel and their close family members
Certain members of key management personnel hold investments in investments products which are managed by the Group. None of the
amounts concerned are material in the context of funds managed by the Group. All transactions between key management and their close family
members and the Group during the year are on terms which are equivalent to those available to all employees of the Group.
47. Capital management
(a) Capital and risk management policies and objectives
Managing capital is the ongoing process of determining and maintaining the quantity and quality of capital appropriate for the Group and
ensuring capital is deployed in a manner consistent with the expectations of our stakeholders. For these purposes, the Board considers our key
stakeholders to be our clients, the providers of capital (our equity holders and holders of our subordinated liabilities) and the Financial Conduct
Authority (FCA) as the lead prudential supervisor for the Group.
There are two primary objectives of capital management within the Group. The first objective is to ensure that capital is, and will continue to be,
adequate to maintain the required level of financial stability of the Group and hence to provide an appropriate degree of security to our
stakeholders. The second objective is to create equity holder value by driving profit attributable to equity holders.
The liquidity and capital management policy forms one element of the Group’s overall management framework. Most notably, it operates
alongside and complements the strategic investment policy and the Group risk policies. Integrating policies in this way enables the Group to
have a capital management framework that robustly links the process of capital allocation, value creation and risk management.
Capital requirements are forecast on a periodic basis and assessed against the forecast available capital resources. In addition, internal rates of
return achieved on capital invested are assessed against hurdle rates, which are intended to represent the minimum acceptable return given the
risks associated with each investment. The capital planning process is the responsibility of the Chief Financial Officer. Capital plans are ultimately
subject to approval by the Board.
The formal procedures for identifying and assessing risks that could affect the capital position of the Group are described in the risk management
policies set out in Note 39.
215
FINANCIAL INFORMATIONStandard Life Aberdeen 2018
8. Group financial statements continued
(b) Regulatory capital
(b)(i) Regulatory capital framework
From 31 August 2018, following the sale of the UK and European insurance business to Phoenix, the Group is supervised under the CRD IV
regulatory regime for group prudential supervisory purposes and therefore measures and monitors its capital on that basis. Previously, the Group
was subject to the Solvency II (SII) regulatory regime. The Group’s regulatory capital position under CRD IV is determined by consolidating the
eligible capital and reserves of the Group (subject to a number of deductions) to derive regulatory capital resources, and comparing this to the
Group’s regulatory capital requirements.
Stress testing is completed to determine the appropriate level of regulatory capital and liquidity that the Group must hold, with results shared with
the FCA at least annually. In addition, the Group monitors a range of capital and liquidity statistics on a daily, monthly or less frequent basis as
required. Surplus capital levels are forecast, taking account of projected dividends and investment requirements, to ensure that appropriate
levels of capital resources are maintained.
The Group is required to hold capital resources to cover both Pillar 1 and Pillar 2 capital requirements, described below.
Pillar 1 – minimum requirement for capital
Pillar 1 focuses on fixed overhead requirements and the Group’s exposure to credit and market risks in respect of risk-weighted assets, and sets
a minimum requirement for capital based on these measures. At 31 December 2018, the Group’s draft Pillar 1 minimum requirement for capital
was £0.3bn.
Pillar 2 – ICAAP and supervisory review and evaluation process
Pillar 2 supplements the Pillar 1 minimum requirement via the ICAAP, which is the means by which the Group assesses the level of capital that
adequately supports all of the relevant current and future risks in its business. The ICAAP focuses on the principal risks to the consolidated
financial position and examines each risk category to identify exposures that could put the Group’s capital at risk. The results of the Group’s
ICAAP process will be subject to periodic review by the FCA under the Supervisory Review and Evaluation Process (SREP).
(b)(ii) Regulatory capital position (unaudited)
IFRS equity attributable to equity holders of Standard Life Aberdeen plc
Deductions for intangibles and defined benefit pension assets, net of related deferred tax liabilities
Deductions for significant investments in financial sector entities
Other deductions and adjustments, including provision for foreseeable dividend
Common Equity Tier 1 capital resources
Tier 2 capital resources
Total regulatory capital resources
Total regulatory capital requirements
Surplus regulatory capital
1 Based on 2018 draft regulatory returns.
20181
£bn
7.4
(4.5)
(1.3)
(0.5)
1.1
0.6
1.7
(1.1)
0.6
The Group has complied with all externally imposed capital requirements during the year. The Group’s Pillar 3 disclosures will be published on
the Group’s website at www.standardlifeaberdeen.com/annualreport before 31 December 2019.
48. Events after the reporting date
On 11 March 2019, Standard Life (Mauritius Holdings) 2006 Limited informed the National Stock Exchange of India Limited and BSE Limited that
it intends to Offer for Sale (‘OFS’) up to 70,000,000 shares in HDFC Life, with an option to additionally sell up to 29,500,000 shares through the
OFS, at a floor price of Rs 357.5 per share. Collectively this represents 4.93% of the total paid up equity share capital of HDFC Life.
Should the full 4.93% be sold through the OFS and at the floor price, it is estimated that the Group would receive a total consideration net of
taxes and expenses of approximately Rs.35.3bn (c£380m). Assuming full subscription in the OFS at the floor price, the gain on sale is estimated
to be approximately £325m after tax.
Following the sale (assuming full subscription), HDFC Life would remain an associate of the Group and the Group’s shareholding subsequent to
the OFS would be 490,126,265 equity shares or 24.30% of the issued share capital of HDFC Life.
216
Standard Life Aberdeen 2018
49. Related undertakings
The Companies Act 2006 requires disclosure of certain information about the Group’s related undertakings which is set out in this note.
Related undertakings are subsidiaries, joint ventures, associates and other significant holdings. In this context significant means either a
shareholding greater than or equal to 20% of the nominal value of any class of shares, or a book value greater than 20% of the Group’s
assets.
The particulars of the Company’s related undertakings at 31 December 2018 are listed below. For details of the Group’s consolidation policy
refer to (b) Basis of consolidation in the Presentation of consolidated financial statements section.
The ability of subsidiaries to transfer cash or other assets within the Group for example through payment of cash dividends is generally restricted
only by local laws and regulations, and solvency requirements. Included in equity attributable to equity holders of Standard Life Aberdeen plc at
31 December 2018 is £81m (2017: £85m) related to the Standard Life Foundation, a subsidiary undertaking of the Group. During the year to 31
December 2017 the Company made a donation to the Standard Life Foundation related to the unclaimed shares and unclaimed cash that were
transferred to the Company on expiry of the Unclaimed Asset Trust claim period in 2016. These assets are now restricted to be used for
charitable purposes. Additionally dividends payable on Aberdeen’s preference shares rank ahead of any dividends paid on Aberdeen’s ordinary
shares. These are not considered significant restrictions on the Group’s ability to access or use the assets and settle the liabilities of the Group.
The registered head office of all related undertakings is 1 George St, Edinburgh, EH2 2LL unless otherwise stated.
(a) Direct subsidiaries
Name of related undertaking
1825 Financial Planning Limited2
30 STMA 1 Limited2
30 STMA 2 Limited2
30 STMA 3 Limited2
30 STMA 4 Limited2
30 STMA 5 Limited2
Aberdeen Asset Management PLC3
Focus Solutions Group Limited5
Standard Life Aberdeen Trustee Company Limited
Standard Life (Asia Pacific Holdings) Private Limited7
Standard Life Charity Fund
Standard Life Client Management Limited
Standard Life Employee Services Limited
Standard Life Finance Limited
Standard Life Foundation
Standard Life Investments (Holdings) Limited
Standard Life (London) Limited2
Standard Life (Mauritius Holdings) 2006 Limited8
Standard Life Oversea Holdings Limited
Standard Life Savings Limited
The Standard Life Assurance Company 2006
Threesixty Services LLP9
Threesixty Support LLP9
(b) Other subsidiaries, joint ventures, associates and other significant holdings
Name of related undertaking
21 Aberdeen Standard Investments Limited4
6 SAS 1 Limited
6 SAS 2 Limited
Aberdeen ACP LLP3
Aberdeen Alternatives (Holdings) Limited3
Aberdeen Asia IV (General Partner) S.a.r.l.10
Aberdeen Asset Investment Group Limited4
Aberdeen Asset Investments Limited4
Aberdeen Asset Management Cayman Limited11
Aberdeen Asset Management Denmark A/S12
Aberdeen Asset Management Finland Oy13
Aberdeen Standard Investments Inc.14
Aberdeen Asset Management Life and Pensions Limited4
Aberdeen Asset Management Norway AS15
Aberdeen Asset Management Norway Holding AS15
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
N/A
Ordinary shares
Ordinary shares
Ordinary shares
N/A
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
N/A
Limited Liability Partnership
Limited Liability Partnership
Share class1 % interest held
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Ordinary shares
Ordinary shares
Ordinary shares
Limited Liability Partnership
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Share class1 % interest held
50%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
217
FINANCIAL INFORMATIONStandard Life Aberdeen 2018
8. Group financial statements continued
Name of related undertaking
Aberdeen Asset Management Operations AS15
Aberdeen Asset Management Sweden AB16
Aberdeen Asset Management US GP Control LLC17
Aberdeen Asset Managers (Luxembourg) S.a.r.l. 18
Aberdeen Asset Managers Limited3
Aberdeen Asset Middle East Limited19
Aberdeen Capital Management LLC20
Aberdeen Capital Managers GP LLC21
Aberdeen Claims Administration, Inc. 14
Aberdeen Direct Property (Holding) Limited4
Aberdeen Diversified Growth Fund4
Aberdeen Diversified-Core Adventurous Fund4
Aberdeen Diversified-Core Cautious Fund4
Aberdeen Diversified-Core Conservative Fund4
Aberdeen do Brasil Gestao de Recursos Ltda22
Aberdeen Emerging Capital Limited23
Aberdeen European Infrastructure Carry GP Limited3
Aberdeen European Infrastructure Carry Limited3
Aberdeen European Infrastructure GP Limited4
Aberdeen European Infrastructure GP II Limited4
Aberdeen European Infrastructure GP III Limited4
Aberdeen France S.A. 24
Aberdeen Fund Distributors LLC17
Aberdeen Fund Management Ireland Limited25
Aberdeen Fund Management Norway AS15
Aberdeen Fund Management Oy13
Aberdeen Fund Management II Oy13
Aberdeen General Partner 1 Limited3
Aberdeen General Partner 2 Limited3
Aberdeen General Partner CAPELP Limited11
Aberdeen General Partner CGPLP Limited11
Aberdeen General Partner CMENAPELP Limited11
Aberdeen General Partner CPELP Limited11
Aberdeen General Partner CPELP II Limited11
Aberdeen Global - Asian Credit Bond Fund26
Aberdeen Global - Emerging Markets Local Currency Corporate Bond Fund26
Aberdeen Global - European Equity (ex-UK) Fund26
Aberdeen Global - German Equity Fund26
Aberdeen Global ex-Japan GP Limited11
Aberdeen Global Infrastructure Carry GP Limited3
Aberdeen Global Infrastructure GP Limited27
Aberdeen Global Infrastructure GP II Limited27
Aberdeen GP 1 LLP3
Aberdeen GP 2 LLP3
Aberdeen GP 3 LLP3
Aberdeen Infrastructure Feeder GP Limited3
Aberdeen Infrastructure Finance GP Limited27
Aberdeen Infrastructure GP II Limited4
Aberdeen Investment Company Limited3
Aberdeen Investment Solutions Limited3
Aberdeen Investments Euro Limited4
Aberdeen Investments Jersey Limited28
Aberdeen Investments Limited4
Aberdeen Investments USD Limited4
Aberdeen Islamic Asia Pacific ex-Japan Equity Fund29
Aberdeen Liquidity Fund (Lux)
Seabury Sterling Liquidity 1 Fund26
Aberdeen Pension Trustees Limited3
218
Ordinary shares
Ordinary shares
Limited Liability Company
Ordinary shares
Ordinary shares
Ordinary shares
Limited Liability Company
Limited Liability Company
Ordinary shares
Ordinary shares
Unit trust
Unit trust
Unit trust
Unit trust
Limited Liability Company
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Limited Liability Company
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
SICAV
SICAV
SICAV
SICAV
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Limited Liability Partnership
Limited Liability Partnership
Limited Liability Partnership
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Unit trust
Share class1 % interest held
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
56%
49%
62%
66%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
41%
84%
33%
93%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
41%
OEIC
Ordinary shares
100%
100%
Standard Life Aberdeen 2018
Name of related undertaking
Aberdeen Pooling II GP AB16
Aberdeen Private Wealth Management Limited28
Aberdeen Property Fund Limited Partner Oy13
Aberdeen Property Fund Management (Jersey) Limited30
Aberdeen Property Fund Management AB16
Aberdeen Property Fund Management Estonia Ou31
Aberdeen Property Investors (General Partner) S.a.r.l.32
Aberdeen Property Investors Estonia Ou31
Aberdeen Property Investors France SAS24
Aberdeen Property Investors Limited Partner Oy13
Aberdeen Property Investors Sweden AB16
Aberdeen Property Investors The Netherlands BV33
Aberdeen Real Estate Investors Operations (UK) Limited23
Aberdeen Real Estate Operations Limited3
Aberdeen Residential JV Feeder Limited Partner Oy13
Aberdeen Secondaries II GP S.a.r.l.26
Aberdeen SP 2013 A/S12
Aberdeen Standard Asset Management (Shanghai) Co., Ltd.34
Aberdeen Standard Asset Management (Thailand) Limited35
Aberdeen Standard Asset Management Limited
Aberdeen Standard Capital (CI) Limited36
Aberdeen Standard Capital International Limited36
Aberdeen Standard Capital Limited
Aberdeen Standard Fund Managers Limited4
Aberdeen Standard Greater China Value Fund37
Aberdeen Standard Group Limited
Aberdeen Standard Indonesia Balanced Growth Fund38
Aberdeen Standard Indonesia Government Bond fund38
Aberdeen Standard Indonesia Money Market Fund38
Aberdeen Standard Investment Management Limited
Aberdeen Standard Investments (Asia) Limited39
Aberdeen Standard Investments (Canada) Limited40
Aberdeen Standard Investments (Holdings) Limited
Aberdeen Standard Investments (Hong Kong) Limited41
Aberdeen Standard Investments (Japan) Limited42
Aberdeen Standard Investments (Malaysia) Sdn. Bhd43
Aberdeen Standard Investments (Switzerland) AG44
Aberdeen Standard Investments Australia Limited45
Aberdeen Standard Investments Co. Ltd. 46
Aberdeen Standard Investments Columbia SAS47
Aberdeen Standard Investments Deutschland AG48
Aberdeen Standard Investments ETFs (US) LLC49
Aberdeen Standard Investments ETFs Advisors LLC49
Aberdeen Standard Investments ETFs Sponsor LLC49
Aberdeen Standard Investments Ireland Limited50
Aberdeen Standard Investments Limited
Aberdeen Standard Investments Luxembourg S.A.26
Aberdeen Standard Investments Nominees Services (HK) Limited41
Aberdeen Standard Investments Taiwan Limited37
Aberdeen Standard Islamic Investments (Malaysia) Sdn. Bhd. 43
Aberdeen Standard Life Asset Management Limited
Aberdeen Standard Life Group Limited
Aberdeen Standard Life Investments Limited
Aberdeen Standard Life Limited
Aberdeen Standard Limited
Aberdeen Standard Overseas Investment Fund Management
(Shanghai) Co., Ltd34
Share class1 % interest held
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
92%
100%
84%
22%
81%
100%
100%
100%
100%
100%
100%
100%
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Investment Trust
Ordinary shares
Unit Trust
Unit Trust
Unit Trust
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares,
Irredeemable non-convertible preference shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Limited Liability company
Limited Liability company
Limited Liability company
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
100%
100%
100%
100%
94%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
219
FINANCIAL INFORMATIONStandard Life Aberdeen 2018
8. Group financial statements continued
Name of related undertaking
Aberdeen Sterling Long Dated Corporate Bond Fund3
Aberdeen Sterling Long Dated Government Bond Fund3
Aberdeen Trust Limited3
Aberdeen UK Infrastructure Carry GP Limited3
Aberdeen UK Infrastructure Carry Limited3
Aberdeen UK Infrastructure GP Limited4
Aberdeen Unit Trust Managers Limited3
AEROF (Luxembourg) GP S.a.r.l. 26
AIPP Pooling I S.A.26
Airport Industrial GP Limited4
Amberia General Partner Oy13
Andean Social Infrastructure GP Limited11
Arden Asset Management (UK) Limited23
Arden Asset Management LLC21
Arthur House (No.6) Limited4
Artio Global Investors Inc.14
Asander Investment Management Limited51
ASI (General Partner 2019 European PE B) Limited
ASI (General Partner PE2) Limited
ASI (General Partner PFF 2018) S.a.r.l32
ASI (General Partner SOF IV) Limited
ASI Hark Capital I GP, LLC17
ASI Hark Capital II GP, LLC17
ASI Private Equity 2 GP LP
ASI REMM GP LLP3
ASI Shin Global Investment GP Limited11
ASPER (Luxembourg) GP S.a.r.l 26
Baigrie Davies & Company Limited2
Baigrie Davies Holdings Limited2
Bedfont Lakes Business Park (GP2) Limited4
Castlepoint General Partner Limited52
Castlepoint Nominee Limited52
Cockspur Property (General Partner) Limited23
Cumberland Place Financial Management Limited2
DEGI Beteiligungs GmbH48
Edinburgh Fund Managers Group Limited3
Edinburgh Fund Managers Plc53
Edinburgh Unit Trust Managers Limited3
Elevate Portfolio Services Limited2
FLAG Squadron Asia Pacific III GP LP11
Focus Business Solutions Limited5
Focus Holdings Limited5
Focus Software Limited5
Focus Solutions EBT Trustee Limited5
Fraser Health Financial Management Limited2
Griffin Nominees Limited4
HDFC Asset Management Company Limited54
HDFC Life Insurance Company55
Heng An Standard Life Insurance Company Limited56
Ignis Asset Management Limited
Ignis Cayman GP2 Limited11
Ignis Cayman GP3 Limited11
Ignis Fund Managers Limited
Ignis Investment Services Limited
Jones Sheridan Financial Consulting Limited2
Jones Sheridan Holdings Limited2
220
Share class1 % interest held
53%
34%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
94%
100%
100%
100%
OEIC
OEIC
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Limited Liability Company
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Limited Liability company
Limited Liability company
Limited partnership
Limited Liability Partnership
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Limited Liability Company
Ordinary shares
Ordinary shares
Ordinary shares
Deferred shares
Ordinary shares
Limited Partnership
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Redeemable preference shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
100%
100%
100%
100%
100%
100%
100%
100%
30%
29%
50%
100%
60%
60%
100%
100%
100%
100%
Standard Life Aberdeen 2018 Share class1 % interest held
100%
100%
100%
Name of related undertaking
Murray Johnstone Holdings Limited3
Murray Johnstone Limited3
North East Trustees Limited57
Pace Financial Solutions Limited2
Pace Mortgage Solutions Limited2
Parmenion Capital Ltd51
Parmenion Capital Partners LLP51
Parmenion Investment Management Ltd.51
Parmenion Nominees Limited51
Parnell Fisher Child & Co. Limited2
Parnell Fisher Child Holdings Limited2
Pearson Jones & Company (Trustees) Limited57
Pearson Jones Limited2
Pearson Jones Nominees Limited57
Phoenix Group Holdings plc6
PT Aberdeen Standard Investments Indonesia38
PURetail Luxembourg Management Company S.a.r.l.18
Regent Property Partners (Retail Parks) Limited4
Reksa Dana Syariah Aberdeen Standard Syariah Asia Pacific Equity USD Fund38
Residential Zoning Club General Partner Oy13
Self Directed Holdings Ltd51
Self Directed Investments Ltd51
Serin Wealth Limited2
SL Capital Partners (US) Limited
SL Capital Partners LLP
SLCP (Founder Partner Ignis Private Equity) Limited
SLCP (Founder Partner Ignis Strategic Credit) Limited
SLCP (General Partner 2016 Co-investment) Limited
SLCP (General Partner CPP) Limited
SLCP (General Partner EC) Limited
SLCP (General Partner Edcastle) Limited
SLCP (General Partner ESF I) Limited
SLCP (General Partner ESF II) Limited
SLCP (General Partner ESP 2004) Limited
SLCP (General Partner ESP 2006) Limited
SLCP (General Partner ESP 2008 Coinvestment) Limited
SLCP (General Partner ESP 2008) Limited
SLCP (General Partner ESP CAL) Limited
SLCP (General Partner Europe VI) Limited
SLCP (General Partner II) Limited
SLCP (General Partner Infrastructure I) Limited
SLCP (General Partner Infrastructure Secondary I) Limited
SLCP (General Partner NASF I) Limited
SLCP (General Partner NASP 2006) Limited
SLCP (General Partner NASP 2008) Limited
SLCP (General Partner Pearl Private Equity) Limited
SLCP (General Partner Pearl Strategic Credit) Limited
SLCP (General Partner SOF I) Limited
SLCP (General Partner SOF II) Limited
Ordinary shares
Ordinary shares
Ordinary A shares,
Ordinary B shares
Ordinary A shares,
Ordinary B shares,
Ordinary C shares
Ordinary A shares,
Ordinary B shares
Ordinary shares
Limited Liability Partnership
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary A shares,
Ordinary B shares
Ordinary shares
Ordinary A shares,
Ordinary B shares
Ordinary shares
Ordinary shares
Limited Liability Company
Class A shares
Ordinary shares
Unit trust
Ordinary shares
Ordinary A shares,
Ordinary B shares,
Ordinary C shares,
Preference shares
Ordinary shares
Ordinary shares
Ordinary shares
Limited Liability Partnership
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
20%
99%
50%
100%
21%
100%
100%
100%
100%
60%
60%
60%
60%
60%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
221
FINANCIAL INFORMATIONStandard Life Aberdeen 2018
8. Group financial statements continued
Name of related undertaking
SLCP (General Partner SOF III) Limited
SLCP (General Partner Tidal Reach) Limited
SLCP (General Partner USA) Limited
SLCP (General Partner) Limited
SLCP (Holdings) Limited
SLIPC (General Partner SCF 1) Ltd
SLIPC (General Partner Infrastructure II LTP 2017) Limited
SLIPC (General Partner Infrastructure II) S.a.r.l32
SLIPC (General Partner PMD Co-Invest 2017) Limited
SLTM Limited
Sorbin Systems Limited51
Squadron Capital Asia Pacific GP, LP11
Squadron Capital Asia Pacific II GP LP11
Squadron Capital Management Limited11
Squadron Capital Partners Limited11
Standard Aberdeen Asset Management Limited
Standard Aberdeen Group Limited
Standard Aberdeen Investment Management Limited
Standard Aberdeen Investments Limited
Standard Aberdeen Limited
Standard Life (Asia) Limited58
Standard Life Aberdeen Asset Management Limited
Standard Life Aberdeen Group Limited
Standard Life Digital Solutions Limited
Standard Life Investments - India Advantage Fund8
Standard Life Investments (Corporate Funds) Limited
Standard Life Investments (France) SAS59
Standard Life Investments (General Partner CRED) Limited4
Standard Life Investments (General Partner EPGF) Limited
Standard Life Investments (General Partner European Real Estate Club) Limited4
Standard Life Investments (General Partner European Real Estate Club II) Limited4
Standard Life Investments (General Partner European Real Estate Club III) Limited4
Standard Life Investments (General Partner GARS) Limited
Standard Life Investments (General Partner GFS) Limited
Standard Life Investments (General Partner Global Tactical Asset Allocation) Limited
Standard Life Investments (General Partner MAC) Limited
Standard Life Investments (General Partner PDFI) Limited
Standard Life Investments (General Partner UK PDF) Limited
Standard Life Investments (General Partner UK Shopping Centre Feeder Fund LP) Limited4
Standard Life Investments (Hong Kong) Limited60
Standard Life Investments (Jersey) Limited61
Standard Life Investments (Mutual Funds) Limited
Standard Life Investments (PDF No. 1) Limited61
Standard Life Investments (Private Capital) Limited
Standard Life Investments (Singapore) Pte. Ltd62
Standard Life Investments (USA) Limited
Standard Life Investments Brent Cross General Partner Limited
Standard Life Investments European RE Club (Offshore Feeder) Ltd11
Standard Life Investments European RE Club II (Offshore Feeder) Ltd11
Standard Life Investments Global Absolute Return Strategies Master Fund Limited 11
Standard Life Investments Global Absolute Return Strategies Offshore Feeder Fund Limited11
Standard Life Investments Global Focused Strategies Master Fund Limited11
Standard Life Investments Global Focused Strategies Offshore Feeder Fund Limited11
Standard Life Investments Global SICAV
Standard Life Investments Global SICAV Global Equity Unconstrained Fund63
Standard Life Investments Global SICAV II
Standard Life Investments Global SICAV II Enhanced-Diversification Multi Asset Fund63
Standard Life Investments Global SICAV II Global Equity Impact Fund63
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Limited Partnership
Limited Partnership
Limited Liability Company
Limited Liability Company
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Share class1 % interest held
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
50%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
SICAV
SICAV
SICAV
22%
66%
55%
222
Standard Life Aberdeen 2018
Name of related undertaking
Standard Life Investments Global SICAV II MyFolio Multi-Manager I Fund63
Standard Life Investments Global SICAV II MyFolio Multi-Manager II Fund63
Standard Life Investments Global SICAV II MyFolio Multi-Manager III Fund63
Standard Life Investments Global SICAV II MyFolio Multi-Manager IV Fund63
Standard Life Investments Global SICAV II MyFolio Multi-Manager V Fund63
Standard Life Investments GTAA Company11
Standard Life Investments Limited
Standard Life Investments Multi Asset Class Company11
Standard Life Investments Securities LLC14
Standard Life Investments UK Equity Impact – Employment Opportunities Fund
Standard Life Investments UK Shopping Centre Feeder Fund Company Limited4
Standard Life Portfolio Investments Limited
Standard Life Portfolio Investments US Inc64
Standard Life Premises Services Limited
Standard Life Savings Nominees Limited
Tenet Group Limited65
Tenon Nominees Limited3
The Coaching Platform Limited5
The Munro Partnership Ltd.66
Threesixty Partnerships Limited9
Touchstone Insurance Company Limited67
Two Rivers One Limited30
Two Rivers Two Limited30
UK PRS Opportunities General Partner Limited4
Waverley Healthcare Private Equity Limited3
Wealth Horizon Ltd51
Wise Trustee Limited51
1 OEIC = Open-ended investment company
SICAV = Société d’investissement à capital variable
ICAV = Irish collective asset-management vehicle
Share class1 % interest held
35%
24%
29%
36%
52%
100%
100%
100%
100%
90%
100%
100%
100%
100%
100%
25%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
SICAV
SICAV
SICAV
SICAV
SICAV
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
OEIC
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary B shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
223
FINANCIAL INFORMATIONStandard Life Aberdeen 2018
8. Group financial statements continued
Registered offices
2 14th Floor, 30 St Mary Axe, London, EC3A 8BF
3 10 Queen's Terrace, Aberdeen, AB10 1XL
4 Bow Bells House, 1 Bread Street, London, EC4M 9HH
5 Cranford House, Kenilworth Road, Blackdown, Leamington Spa, CV32 6RQ
6 Juxon House, 100 St Paul's Churchyard, London, EC4M 8BU
7 133 Cecil Street, #13-03 Keck Seng Tower, 069535, Singapore
8 c/o SGG Fund Services (Mauritius) Ltd, 33 Edith Cavell Street, Port Louis,
11324, Mauritius
9 2nd Floor, The Royals, Altrincham Road, Sharston, Manchester, M22 4BJ
10 2-8 avenue Charles De Gaulle, L-1653 Luxembourg, Luxembourg
11 c/o Maples Corporate Services Limited, Ugland House, PO Box 309, George
Town, KY1-1104, Cayman Islands
12 Tuborg Havnevej 15, 2nd Floor, DK-2900 Hellerup, Denmark
13 Kaivokatu 6, Helsinki, 00100, Finland
14 c/o Corporation Service Company, 2711 Centerville Road, Suite 400,
Wilmington, DE, 19808, USA
15 Henrik Ibsens gate 100, PO Box 2882 Solli, 0230 Oslo, Norway
16 Box 3039, Stockholm, 103 63, Sweden
17 c/o Corporation Service Company, 251 Little Falls Drive, Wilmington, DE,
19808, USA
18 80, Route d'Esch, L-1470 Luxembourg, Luxembourg
19 Office Unit 8, 6th Floor, Al Khatem Tower, Abu Dhabi Global Market Square, Al
Marya Island, PO Box 764605, Abu Dhabi, United Arab Emirates
20 1266 East Main Street, 5th Floor, Stamford, CT 06902, USA
21 c/o The Corporation Trust Company, Corporation Trust Center, 1209 Orange
Street, DE 19801 Wilmington, USA
22 Rua Joaquim Floriano, 913 – 7th floor – Cj. 71 São Paulo SP 04534-013, Brazil
23 1 More London Place, London, SE1 2AF
24 29 Rue De Berri, Paris, 75008, France
25 40 Upper Mount Street, Dublin 2, Republic of Ireland
26 35a Avenue John F. Kennedy, L-1855 Luxembourg, Luxembourg
27 State Street (Guernsey) Limited, First Floor Dorey Court, Admiral Park, St Peter
Port, Guernsey, GY1 6HJ
28 First Floor, Sir Walter Raleigh House, 48-50 Esplanade, St Helier, Jersey, JE2
3QB
29 Suite 26.3, Level 26, Menara IMC, Letter Box No.66, No. 8, Jalan Sultan Ismail,
50250 Kuala Lumpur, Malaysia
30 Lime Grove House,Green Street, St Helier, Jersey, JE1 2ST
31 Ahtri 6a, Tallinn, 10151, Estonia
32 2 Boulevard de la Foire, L-1528 Luxembourg, Luxembourg
33 WTC, H-Tower, 20th Floor, Zuiplein 166, 1077 XV Amsterdam, The
Netherlands
34 West Area, 2F, No.707 Zhangyang Road, China (Shanghai) Pilot Free Trade
Zone
35 Bangkok City Tower, 28th Floor, 179 South Sathorn Road, Thungmahamek,
Sathorn, Bangkok, 10120, Thailand
36 Liberte House, 19-23 La Molle Street, St Helier, Jersey, JE4 5RL
37 8F-1, No. 101, Songren Road, Taipei City, 110, Taiwan, Republic of China
38 16th Floor, Menara Dea Tower 2, Kawasan Mega Kuningan, Jl Mega Kuningan
Barat Kav. E4.3 No. 1-2, 12950 Jakarta, Indonesia
39 21 Church Street, #01-01, Capital Square Two, 049480, Singapore
40 44 Chipman Hill, Suite 1000 POX Box 7283, Stn. "A" Saint John, N.B. E2L 4S6,
Canada
41 6th Floor, Alexandra House, 18 Chater Road, Central, Hong Kong
42 Otemachi Financial City Grand Cube 9F, 1-9-2 Otemachi, Chiyoda-ku, 100-
0004, Tokyo, Japan
43 Suite 1005, 10th Floor, Wisma Hamzah-Kwong Hing No.1, Leboh Ampang
50100 Kuala Lumpur, Malaysia
44 Schweizergasse 14, Zurich, 8001, Switzerland
45 Level 10, 255 George Street, Sydney, NSW 2000, Australia
46 13th Fl., B Tower (Seocho-dong, Kyobo Tower Building), 465, Gangnam-daero,
Seocho-gu, Seoul, Korea
47 AC 82 NO. 10 60 P 5 Bogota DC, Columbia
48 Bockenheimer Landstrasse 25, 60325 Frankfurt am Main, Germany
49 712 5th Ave, New York, NY 10019, USA
50 24 Merrion Row, Dublin 2, Republic of Ireland
51 2 College Square, Anchor Road, Bristol , BS1 5UE
52 11th Floor, Two Snowhill, Birmingham, B4 6WR
53 7th Floor, 40 Princes Street, Edinburgh, EH2 2BY
54 HDFC House, 2nd floor, H.T. Parekh Marg, 165-166, Backbay Reclamation,
Churchgate, Mumbai- 400 020, India
55 Lodha Excelus, 13th Floor, Apollo Mills Compound, N.M. Joshi Marg,
Mahalaxmi, Mumbai - 400011, Maharashtra, India
56 18F, Tower II, The Exchange, 189 Nanjing Road, Heping District, Tianjin,
People’s Republic of China, 300051
57 Clayton Wood Close, West Park Ring Road, Leeds, LS16 6QE
58 40th Floor, Tower One, Times Square, 1 Matheson Street, Causeway Bay,
Hong Kong
59 100 Avenue des Champs Elysees, 1 Rue de Berri, F- 75008, Paris, France
60 30th Floor, Jardine House, One Connaught Place, Hong Kong
61 44 Esplanade, St Helier, Jersey, JE4 9WG
62 8 Marina Boulevard #05-02, Marina Bay Financial Centre Tower 1 01 8981,
Singapore
63 2-4, Rue Eugène Ruppert, L-2453 Luxembourg, Luxembourg
64 1735 Market St, 32nd FL, Philadelphia, PA 19103, USA
65 5 Lister Hill, Horsforth, Leeds, LS18 5AZ
66 Citadel House, 6 Citadel Place, Ayr, KA7 1JN
67 c/o Aon, PO Box 33, Maison Trinity, Trinity Square, St Peter Port, Guernsey
GY1 4AT
224
Standard Life Aberdeen 2018
9. Company financial statements
Company statement of financial position
As at 31 December 2018
Assets
Investments in subsidiaries
Investments in associates and joint ventures
Deferred tax assets
Loans to subsidiaries
Derivative financial assets
Equity securities and interests in pooled investment funds
Debt securities
Receivables and other financial assets
Other assets
Cash and cash equivalents
Total assets
Equity
Share capital
Shares held by trusts
Share premium reserve
Retained earnings
Brought forward retained earnings
Profit for the year
Other movements in retained earnings
Total retained earnings
Other reserves
Total equity
Liabilities
Subordinated liabilities
Derivative financial liabilities
Other financial liabilities
Other liabilities
Total liabilities
Total equity and liabilities
Notes
A
B
N
C
C
C
C
C
F
C
G
H
G
I
J
L
L
L
P
2018
£m
6,467
1,018
22
6
13
197
854
57
35
17
2017
£m
9,425
134
–
324
–
–
857
76
27
7
8,686
10,850
353
(88)
640
1,564
461
10
2,035
4,505
7,445
364
(36)
639
1,351
624
(411)
1,564
6,390
8,921
1,086
1,876
–
69
86
1,241
8,686
33
19
1
1,929
10,850
The financial statements on pages 225 to 236 were approved by the Board and signed on its behalf, by the following Directors:
Sir Douglas Flint
Chairman
13 March 2019
Bill Rattray
Chief Financial Officer
13 March 2019
The Notes on pages 228 to 236 are an integral part of these financial statements.
225
FINANCIAL INFORMATIONStandard Life Aberdeen 2018
9. Company financial statements continued
Company statement of changes in equity
For the year ended 31 December 2018
Share
capital
Shares held
by trusts
Share
premium
reserve
Retained
earnings
Other
reserves
Total
shareholders’
equity
Non
shareholders’
equity Total equity
2018
Notes
31 December 2017
Effect of change in accounting
policy to IFRS 9
1 January 2018
Profit for the year
Other comprehensive income
for the year
Total comprehensive
income for the year
Issue of share capital
Issue of ‘B’ shares
Reclassification of perpetual
debt instruments to equity
Repurchase of perpetual debt
instruments
Redemption of perpetual debt
instruments
Dividends paid on ordinary
shares
Coupons paid on perpetual
debt instruments
Redemption of ‘B’ shares
Shares bought back on-market
and cancelled
Reserves credit for employee
share-based payment
Transfer to retained earnings
for vested employee share-
based payment
Transfer between reserves on
disposal of investment in
subsidiaries
Transfer between reserves on
impairment of investment in
subsidiaries
Shares acquired by employee
trusts
Shares distributed by
employee and other trusts and
related dividend equivalents
Aggregate tax effect of items
recognised directly in equity
G
G
K
K
K
G
G
J
J
J
J
£m
364
–
364
–
–
–
–
1,000
–
–
–
–
–
(1,000)
(11)
–
–
–
–
–
–
–
31 December
353
£m
(36)
–
(36)
£m
639
–
639
£m
1,564
–
1,564
461
–
461
–
–
–
–
–
(634)
–
£m
6,390
(15)
6,375
–
11
11
–
(1,000)
–
–
–
–
–
(1,002)
1,000
(238)
–
68
11
36
(68)
1,290
(1,290)
570
(570)
–
(44)
–
–
–
–
£m
8,921
(15)
8,906
461
11
472
1
–
–
–
–
(634)
–
(993)
(238)
36
–
–
–
(101)
(4)
–
–
–
–
1
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
640
2,035
4,505
7,445
–
–
–
–
–
–
–
–
–
–
9
–
–
–
–
–
(101)
40
–
(88)
£m
–
–
–
28
–
28
–
–
£m
8,921
(15)
8,906
489
11
500
1
–
1,005
1,005
(970)
(970)
(44)
(44)
–
(634)
(25)
–
–
–
–
–
–
–
–
6
–
(25)
(993)
(238)
36
–
–
–
(101)
(4)
6
7,445
The Notes on pages 228 to 236 are an integral part of these financial statements.
226
Standard Life Aberdeen 2018
2017
1 January
Profit for the year
Other comprehensive income for the year
Total comprehensive income for the year
Issue of share capital
Dividends paid on ordinary shares
Reserves credit for employee share-based
payment schemes
Transfer to retained earnings for vested
employee share-based payment schemes
Shares acquired by employee trusts
Shares distributed or sold by employee trusts
31 December
Notes
G
J
J
Share
capital
Shares held
by trusts
£m
242
–
–
–
122
–
–
–
–
–
364
£m
(2)
–
–
–
–
–
–
–
(63)
29
(36)
Share
premium
reserve
£m
634
–
–
–
5
–
–
–
–
–
Retained
earnings
Other
reserves Total equity
£m
£m
1,351
2,393
624
–
624
–
(469)
–
86
–
(28)
–
(17)
(17)
3,972
–
96
(54)
–
–
£m
4,618
624
(17)
607
4,099
(469)
96
32
(63)
1
639
1,564
6,390
8,921
The Notes on pages 228 to 236 are an integral part of these financial statements.
227
FINANCIAL INFORMATIONStandard Life Aberdeen 2018
9. Company financial statements continued
Company accounting policies
(a) Basis of preparation
These separate financial statements are presented as required by the Companies Act 2006. The Company meets the definition of a qualifying
entity under Financial Reporting Standard 100 (FRS 100) issued by the Financial Reporting Council (FRC). In the year ended 31 December
2018 the Company has adopted Financial Reporting Standard 101 Reduced Disclosure Framework (FRS 101) as issued by the FRC and has
transitioned from reporting under International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board
(IASB) as endorsed by the European Union (EU) to FRS 101. Accordingly, these financial statements were prepared in accordance with FRS
101 incorporating the Amendments to FRS 101 issued by the FRC up to March 2018. This transition to FRS 101 had no impact on
measurement or recognition in the financial statements. The financial statements have been prepared on a going concern basis and under the
historical cost convention, as modified by the revaluation of financial assets and financial liabilities (including derivative instruments) at fair value
through profit or loss (FVTPL).
As permitted by FRS 101, the Company has taken advantage of the following disclosure exemptions available under that standard:
A cash flow statement and related notes
Capital management
Effect of IFRSs issued but not effective
Related party transactions with wholly owned subsidiaries
As equivalent disclosures are given in the consolidated financial statements, we have also applied the disclosure exemptions for share based
payments and financial instruments.
Other than in relation to IFRS 9, as discussed below, the principal accounting policies adopted are the same as those given in the consolidated
financial statements, together with the Company specific policies set out below, and have been consistently applied to all financial reporting
periods presented in these financial statements.
The Company has taken advantage of the exemption in section 408 of the Companies Act 2006 not to present its own income statement in
these financial statements. The auditors’ remuneration for audit and other services is disclosed in Note 5 to the consolidated financial
statements. The Company has no employees.
(a)(i) Standards, interpretations and amendments to existing standards that have been adopted by the Company
IFRS 9 Financial Instruments (effective for annual periods beginning on or after 1 January 2018)
On 1 January 2018 the company adopted IFRS 9 Financial Instruments: Recognition and Measurement. Financial assets are classified at initial
recognition based on whether their contractual cash flows are solely payments of principal and interest (SPPI) and the nature of the business
model they are managed under. This has resulted in the Company’s equity securities and interests in pooled investment funds being classified
as fair value through profit or loss (FVTPL) and the Company’s debt securities, loans to subsidiaries, receivables and other financial assets and
cash being measured at amortised cost except where they do not meet the SPPI test and are therefore classified as FVTPL. Derivative
instruments are measured at fair value.
Financial liabilities are measured at amortised cost using the effective interest method unless they are derivatives or they are designated as
FVTPL.
Changes in fair value of all financial instruments classified as FVTPL and derivative instruments are recognised in profit or loss except for
derivative instruments that are designated as a hedging instrument in a cash flow hedge. Interest is credited to profit or loss using the effective
interest rate method for financial instruments measured at amortised cost.
An expected credit loss impairment model is applied to financial assets measured at amortised cost. Impairment losses representing the
expected credit loss in the next 12 months are recognised unless there has been a significant increase in credit risk from initial recognition in
which case lifetime expected losses are recognised.
Where the terms of a financial liability are modified and the modification does not result in the derecognition of the liability, the liability is adjusted
to the net present value of the future cash flows less transaction costs with a modification gain or loss recognised in the income statement.
The Company has elected to continue applying the hedge accounting requirements of IAS 39. Therefore the hedge accounting policy is the
same as that given in the consolidated financial statements.
The main impact of adopting IFRS 9 is that the Company’s debt securities previously classified as available-for-sale (AFS) and therefore
measured at fair value are now measured at amortised cost. As permitted by IFRS 9 comparatives have not been restated.
At 31 December 2017 the fair value of AFS securities was £857m with a corresponding AFS financial assets reserve balance of £15m and
deferred tax liability of £3m. On reclassification, the Company’s debt securities were recognised at 1 January 2018 at their amortised cost (less
expected credit losses) of £839m. The available-for-sale financial assets reserve balance and the related deferred tax liability were no longer
recognised. The expected credit losses at 1 January 2018 were less than £1m.
228
Standard Life Aberdeen 2018
(a)(ii) Investment in subsidiaries, associates and joint ventures
The Company has certain subsidiaries which are investment vehicles such as open-ended investment companies, unit trusts and limited
partnerships whose primary function is to generate capital or income growth through holding investments. This category of subsidiary is held at
FVTPL since they are managed on a fair value basis.
Investments in subsidiaries (other than those measured at FVTPL), associates (other than those measured at FVTPL) and joint ventures are
initially recognised at cost and subsequently held at cost less any impairment charge. An impairment charge is recognised when the carrying
amount of the investment exceeds its recoverable amount. Any gain or loss on disposal of a subsidiary, associate or joint venture is recognised
in profit for the year.
Distributions received of non-cash assets, including investments in subsidiaries, are recognised at fair value in the balance sheet and as
dividends in specie in the income statement.
(b) Critical accounting estimates and judgement in applying accounting policies
The preparation of financial statements requires management to make estimates and assumptions and exercise judgements in applying the
accounting policies that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of
revenues and expenses arising during the year. Estimates and judgements are continually evaluated and based on historical experience and
other factors, including expectations of future events that are believed to be reasonable under the circumstances.
The areas where judgements have the most significant effect on the amounts recognised in the financial statements are as follows:
Financial statement area
Critical accounting estimates and assumptions
Related notes
Investments in subsidiaries
Determining the cash-generating unit to be used in
relation to the recoverable amount of investments
in subsidiaries
Note A
The areas where assumptions and other sources of estimation uncertainty at the end of the reporting period have a significant risk of resulting in
a material adjustment to the carrying amount of assets and liabilities within the next financial year are as follows:
Financial statement area
Critical accounting estimates and assumptions
Related notes
Investments in subsidiaries, associates
and joint ventures held at cost
Determination of the recoverable amount
Note A and B
229
FINANCIAL INFORMATIONStandard Life Aberdeen 2018
9. Company financial statements continued
Notes to the Company financial statements
A.
Investments in subsidiaries
Investments in subsidiaries measured at cost
Investments in subsidiaries measured at FVTPL
Investments in subsidiaries
At 1 January
Reclassified as operations held for sale during the year
Investment into existing subsidiaries measured at cost
Acquisition of subsidiaries at cost
Acquisition of subsidiaries at cost via in specie dividend
Disposal of subsidiaries measured at cost
Repayment of loan to subsidiaries classified as equity investment
Impairment of subsidiaries measured at cost
Acquisition of subsidiaries at FVTPL
Reclassification of subsidiaries at FVTPL to interests in pooled
investment funds
(Losses)/gains on subsidiaries at FVTPL
At 31 December
Notes
C
2018
£m
6,249
218
6,467
2018
£m
9,425
(2,312)
167
5
374
(2)
(486)
(589)
90
(198)
(7)
6,467
2017
£m
9,092
333
9,425
2017
£m
4,769
–
413
4,243
–
(37)
–
(20)
55
–
2
9,425
Details of the Company’s subsidiaries are given in Note 49 of the Group financial statements.
(a) Operations held for sale
Following the Group’s announcement of the proposed sale (the Sale) of the UK and European insurance business to Phoenix Group Holdings
(Phoenix) on 23 February 2018, the Company’s investments in Standard Life Assurance Limited (SLAL), excluding the loan to SLAL classified
as an equity investment, and Vebnet (Holdings) Limited (Vebnet) were classified as held for sale and measured at their carrying amount.
On 9 August 2018, the Company transferred its investment in Vebnet of £27m to SLAL, which increased the carrying value of SLAL by the same
amount.
The Sale completed on 31 August 2018.
(b) Acquisitions
During 2018, the Company made the following acquisitions of subsidiaries measured at cost:
On 8 August 2018, Standard Life Savings Limited, 1825 Financial Planning Limited and Standard Life Client Management Limited were
acquired via dividends in specie from SLAL and recognised at amounts of £320m, £50m and £4m respectively
On 11 May 2018 the Company increased its investment in Focus Solutions Group Limited through the purchase of 200,000,000 ordinary
shares for a cash consideration of £20m
On 11 May 2018 the Company increased its investment in Standard Life Oversea Holdings Limited through the purchase of 1,750,000
ordinary shares for a cash consideration of £2m
On 18 May 2018 the Company increased its investment in Aberdeen Asset Management PLC (Aberdeen) through the purchase of
31,547,174 ordinary shares for a cash consideration of £101m
On 16 August 2018 the Company acquired control of The Standard Life Assurance Company 2006 for a cash consideration of £5m
On 15 October 2018 the Company increased its investment in 1825 Financial Planning Limited through the purchase of 23,000,000 ordinary
shares for a cash consideration of £11m and the capitalisation of a loan of £12m
On 21 December 2018 the Company increased its investment in Standard Life Employee Services Limited through the purchase of 21,386
ordinary shares for the capitalisation of the intercompany receivable due from its subsidiary of £21m
During 2017, the Company made the following acquisitions of subsidiaries measured at cost:
On 14 August 2017 the Company acquired Aberdeen and was renamed Standard Life Aberdeen plc. The Company acquired 100% of the
share capital of Aberdeen, and Aberdeen ordinary shareholders received 0.757 of a share in Standard Life Aberdeen plc on the completion
date satisfied through newly issued shares. The cost of the investment in Aberdeen was £4,243m consisting of £4,098m based on the fair
value of the equity consideration at the date of completion including £98m for shares issued to the Aberdeen Asset Management Employee
Benefit Trust 2003, £89m for replacement employee share-based payments reflecting the fair value of the pre-acquisition service element of
the awards and transaction costs of £56m. Further details are provided in Note 1 of the Group financial statements.
230
Standard Life Aberdeen 2018
On 16 August 2017 the Company increased its investment in Standard Life Assurance Limited through the purchase of 13,000,000 ordinary
shares for a cash consideration of £13m
On 13 December 2017 the Company increased its investment in Aberdeen through the purchase of 125,000,000 ordinary shares for cash
consideration of £400m
See Section (e) below for details on investments in subsidiaries at FVTPL.
(c) Disposals
During 2018, the Company made the following disposals of subsidiaries measured at cost:
On 30 August 2018, SLAL repaid a loan from the Company with the principal amount of £500m. This bond had been classified as an equity
investment in SLAL and its repayment reduced the Company’s investment in SLAL by £486m.
On 19 April 2018 the Company redeemed £2m of equity capital in Standard Life (Mauritius Holdings) 2006 Limited through the cancellation of
30,000 Participating shares
During 2017, the Company made the following disposals of subsidiaries measured at cost:
On 22 November 2017 the Company reduced its investment in Standard Life (Mauritius Holdings) 2006 Limited through the disposal of
494,589.5 participating shares for a cash consideration of £37m, as a result of a share capital reduction by Standard Life (Mauritius Holdings)
2006 Limited
Impairment
(d)
The company holds investments in Aberdeen and Standard Life Investments (Holdings) Limited (SLIH). As Aberdeen and SLIH are managed
and reported together within the Asset management and platforms segment, and the synergies from the merger of these entities are expected to
benefit both entities, we judge that it is appropriate to consider the recoverable amount of these entities on a combined basis. The Company
impaired its investments in Aberdeen and SLIH by £570m (2017: £nil). The recoverable amount was £5,508m which was its value in use and
was determined using a pre-tax discount rate of 11.1%. The impairments are as a result of a decrease in projected future revenues of the
entities. Following the impairment loss recognised in the period, the recoverable amount was equal to the carrying amount. Therefore any
adverse movement in a key assumption would lead to further impairment. The sensitivity of the carrying value of the investments in Aberdeen
and SLIH to changes in key assumptions is the same as the sensitivity of Aberdeen Standard Investments goodwill to changes in key
assumptions provided in Note 14 of the Group financial statements.
The Company’s investment in its subsidiary Focus Solutions Group Limited (Focus) was impaired during 2018 by £19m (2017: £7m). The
recoverable amount of Focus is £13m (2017: £11m) which is its value in use and has been determined using a discount rate of 12% (2017:
12%).
Additionally in 2017, an impairment of £13m was recognised in relation to the Company’s investment in its subsidiary Standard Life Employee
Services Limited. The recoverable amount was £30m which was its value in use and was determined using a discount rate of 9%.
Investments in subsidiaries at FVTPL
(e)
Investments in subsidiaries at FVTPL, valued at £218m (2017: £333m), relate to a holding in money market funds over which the Company has
control. Holdings in two further funds were reclassified to equity securities and interests in pooled investment funds, following the sale of
Standard Life Assurance Limited to Phoenix.
B.
Investments in associates and joint ventures
Investment in associates measured at cost
Investment in joint venture measured at cost
Investments in associates and joint ventures
2018
£m
822
196
1,018
2017
£m
10
124
134
Investment in associates
(a)
Following the completion of the Sale in August 2018, as part of the total consideration, the Company was issued with new Phoenix shares
representing 19.98% of the issued share capital of Phoenix, a company incorporated in England and Wales (refer Note 1 and Note 16 of the
Group financial statements). The cost of this investment was considered to be the fair value of the shares issued at 31 August 2018.
The Company’s investments in associates are measured at cost less impairment. An impairment of £211m was recognised in relation to the
company’s associate investment in Phoenix. The impairment resulted from the fall in the Phoenix share price between 31 August 2018 and 31
December 2018. The recoverable amount was £812m which is the fair value of the Company’s interest in Phoenix at 31 December 2018.
The Company has an interest of 25.3% (2017: 25.3%) in Tenet Group Limited, a company incorporated in England and Wales. The year end
date for Tenet Group Limited is 30 September which is different from the Company’s year end date of 31 December. For the purposes of the
preparation of the Company’s financial statements, financial information for the year ended 31 December is used.
Investment in joint venture
(b)
The Company has a 50% (2017: 50%) interest in Heng An Standard Life Insurance Company Limited (HASL), a company incorporated in China.
On 19 April 2018, the Company made a US$95m (£72m) capital contribution to HASL. Further details on this joint venture are provided in Note
16 of the Group financial statements.
231
FINANCIAL INFORMATIONStandard Life Aberdeen 2018
9. Company financial statements continued
C. Financial investments
2018
Notes
Investments in subsidiaries measured at
FVTPL
Loans to subsidiaries
Derivative financial assets
Equity securities and interests in pooled
investment funds
Debt securities
Receivables and other financial assets
Cash and cash equivalents
Total
2017
Investments in subsidiaries measured at
FVTPL
Loans to subsidiaries
Debt securities
Receivables and other financial assets
Cash and cash equivalents
Total
A
D
E
Notes
A
E
Fair value through
profit or loss
£m
218
–
–
197
–
8
–
423
Derivative
financial
instruments used
for hedging Amortised cost
£m
£m
–
–
13
–
–
–
–
13
–
6
–
–
854
49
17
926
Designated as at fair
value through
profit or loss
Available
-for-sale
Loans and
receivables
£m
333
–
–
–
–
333
£m
–
–
857
–
–
857
£m
–
324
–
76
7
407
Total
£m
218
6
13
197
854
57
17
1,362
Total
£m
333
324
857
76
7
1,597
The amount of debt securities expected to be recovered or settled after more than 12 months is £270m (2017: £291m). The amount of loans to
subsidiaries expected to be recovered or settled after more than 12 months is £6m (2017: £324m).
D. Derivative financial instruments
The Company uses derivative financial instruments in order to reduce the risk from potential movements in foreign exchange rates.
Cash flow hedges
Foreign exchange forwards
Derivative financial instruments
2018
Contract
amount
Fair value
assets
Fair value
liabilities
Contract
amount
£m
589
6
595
£m
13
–
13
£m
–
–
–
£m
559
6
565
2017
Fair value
assets
Fair value
liabilities
£m
–
–
–
£m
(33)
–
(33)
Derivative asset of £13m (2017: derivative liability of £33m) is expected to be settled after more than 12 months.
On 18 October 2017, the Company issued subordinated notes with a principal amount of US$750m. In order to manage the foreign exchange
risk relating to the principal and coupons payable on these notes the Company entered into a cross-currency swap which is designated as a
hedge of future cash flows.
232
Standard Life Aberdeen 2018
The maturity profile of the contractual undiscounted cash flows in relation to derivative financial instruments is as follows:
Within 1 year
2-5 years
6-10 years
11-15 years
2018
Cash inflows
Cash flow hedges
Foreign exchange forwards
Total
Cash outflows
Cash flow hedges
Foreign exchange forwards
Total
Net derivative financial instruments cash flows
£m
25
6
31
(18)
(6)
(24)
7
£m
88
–
88
(64)
–
(64)
24
£m
£m
714
–
714
(660)
–
(660)
54
–
–
–
–
–
–
–
Within 1 year
2-5 years
6-10 years
11-15 years
2017
Cash inflows
Cash flow hedges
Foreign exchange forwards
Total
Cash outflows
Cash flow hedges
Foreign exchange forwards
Total
Net derivative financial instruments cash flows
E. Receivables and other financial assets
Due from related parties
Collateral pledged in respect of derivatives contracts
Contingent consideration asset
Other financial assets
Total receivables and other financial assets
£m
28
6
34
(22)
(6)
(28)
6
£m
94
–
94
(73)
–
(73)
21
£m
118
–
118
(91)
–
(91)
27
£m
566
–
566
(578)
–
(578)
(12)
2018
£m
49
–
8
–
57
Total
£m
827
6
833
(742)
(6)
(748)
85
Total
£m
806
6
812
(764)
(6)
(770)
42
2017
£m
43
28
–
5
76
The carrying amounts disclosed above reasonably approximate the fair values at the year end.
Amounts due to related parties are expected to be recovered within 12 months.
F. Other assets
Other assets of £35m (2017: £27m) comprise amounts due from related parties in respect of Group relief, which are expected to be recovered
within 12 months.
G. Share capital and share premium
Details of the Company’s share capital and share premium are given in Note 26 of the Group financial statements including details of the return
of capital, the share consolidation and the share buyback.
Details of the dividends paid on the ordinary shares by the Company are provided in Note 13 of the Group financial statements. Note 13 also
includes information regarding the final dividend proposed by the Directors for the year ended 31 December 2018.
H. Shares held by trusts
Shares held by trusts relates to shares in Standard Life Aberdeen plc that are held by the Employee Share Trust (EST) and the Unclaimed Asset
Trust (UAT). Further details of these trusts are provided in Note 27 of the Group financial statements.
Retained earnings
I.
The 2017 transfer for vested employee share-based payments included £32m in relation to replacement awards granted to employees of
Aberdeen which vested before the acquisition date and were recognised directly in retained earnings on acquisition.
233
FINANCIAL INFORMATIONStandard Life Aberdeen 2018
9. Company financial statements continued
J. Movements in other reserves
The following tables show the movements in other reserves during the year
Merger
reserve
Equity
compensation
reserve
Special
reserve
Capital
redemption
reserve
Available-for-
sale financial
assets
2018
At 31 December 2017
Effect of change in accounting policy to IFRS 9
At 1 January 2018
Fair value losses on cash flow hedges
Realised losses on cash flow hedges transferred to
income statement
Issue/redemption of ‘B’ shares
Shares bought back on-market and cancelled
Reserves credit for employee share-based
payments
Transfer to retained earnings for vested employee
share-based payments
Transfer between reserves on disposal of
investment in subsidiaries
Transfer between reserves on impairment of
investment in subsidiaries
Tax effect of items that may be reclassified
subsequently to profit or loss
At 31 December
£m
6,052
–
6,052
–
–
(1,000)
–
–
–
(1,290)
(570)
–
3,192
£m
99
–
99
–
–
–
–
36
(68)
–
–
–
£m
241
–
241
–
–
–
–
–
–
–
–
–
£m
–
–
–
–
–
1,000
11
–
–
–
–
–
67
241
1,011
£m
15
(15)
–
–
–
–
–
–
–
–
–
–
–
Cash flow
hedges
£m
Total
£m
(17)
6,390
–
(17)
54
(15)
6,375
54
(41)
(41)
–
–
–
–
–
–
–
11
36
(68)
(1,290)
(570)
(2)
(6)
(2)
4,505
2017
At 1 January 2017
Shares issued in respect of business combinations
Fair value losses on cash flow hedges
Realised losses on cash flow hedges transferred to income
statement
Reserves credit for employee share-based payments
Transfer to retained earnings for vested employee
share-based payments
Tax effect of items that may be reclassified subsequently to
profit or loss
At 31 December 2017
Merger
reserve
Equity
compensation
reserve
Special
reserve
Available-for-
sale financial
assets
Cash flow
hedges
Total
£m
2,080
3,972
–
–
–
–
–
6,052
£m
57
–
–
–
96
(54)
–
99
£m
241
–
–
–
–
–
–
£m
15
–
–
–
–
–
–
£m
£m
– 2,393
– 3,972
(33)
(33)
13
–
–
3
13
96
(54)
3
241
15
(17) 6,390
On completion of the sale of the investment in Standard Life Assurance Limited, (refer Note A) £1,290m (2017: £nil) was transferred from the
merger reserve to retained earnings.
As part of the return of capital, £1,000m (2017: £nil) was transferred from the merger reserve to the capital redemption reserve. A further £11m
(2017:£nil) was also recognised in the capital redemption reserve for the share buyback (refer Note 26 of the Group financial statements).
Following the impairment loss recognised in the period on the Company’s investments in Aberdeen and SLIH (refer to note A), £570m
(2017:£nil) was transferred from the merger reserve to retained earnings.
Following the completion of the merger of Standard Life plc and Aberdeen on 14 August 2017 an amount was recognised in the merger reserve
representing the difference between the nominal value of shares issued to shareholders of Aberdeen and their fair value on that date. Further
information on the merger reserve and special reserve is given in Note 29 of the Group financial statements.
For the year ended 31 December 2017 the reserves credit for employee share-based payments included £57m in relation to replacement
awards granted to employees of Aberdeen which were unvested at the acquisition date.
234
Standard Life Aberdeen 2018
K. Non shareholders’ equity
On 30 August 2018, the Company’s subordinated guaranteed bonds and Mutual Assurance Capital Securities (MACS) were reclassified as non
shareholders’ equity from subordinated liabilities. Following a tender and mandatory redemption process which completed on 25 October 2018,
the Company repurchased/redeemed the guaranteed bonds and MACS. Further information is given in Note 30 of the Group financial
statements.
L. Financial liabilities
2018
Subordinated liabilities
Other financial liabilities
Total
2017
Subordinated liabilities
Derivative financial liabilities
Other financial liabilities
Total
M. Subordinated liabilities
Subordinated notes:
4.25% US Dollar fixed rate due 30 June 2028
(2017 – 30 June 2048)
5.5% Sterling fixed rate due 4 December 2042
Subordinated guaranteed bonds:
6.75% Sterling fixed rate perpetual
Mutual Assurance Capital Securities:
6.546% Sterling fixed rate perpetual
Total subordinated liabilities
Notes
M
O
Notes
M
D
O
Amortised
cost
£m
1,086
69
1,155
Cash flow
hedge
Amortised
cost
£m
–
33
–
33
£m
1,876
–
19
1,895
2018
Principal
amount
Carrying
value
2017
Principal
amount
$750m
£500m
£586m
£500m
$750m
£500m
Total
£m
1,086
69
1,155
Total
£m
1,876
33
19
1,928
Carrying
value
£556m
£500m
–
–
–
–
£1,086m
£500m
£502m
£300m
£318m
£1,876m
Subordinated liabilities are considered current if the contractual re-pricing or maturity dates are within one year. The principal amount of all the
subordinated liabilities is expected to be settled after more than 12 months. The accrued interest on the subordinated liabilities of £2m (2017:
£42m) is expected to be settled within 12 months.
On 18 October 2017, the Company issued US Dollar subordinated notes with a principal amount of $750m. The subordinated notes of
US$750m have been subject to renegotiation during the year which resulted in a modification loss of £4m. Further information including the
terms and conditions of all subordinated liabilities is given in Note 34 of the Group financial statements.
On 30 August 2018, the Company’s subordinated guaranteed bonds and MACS were reclassified as non shareholders’ equity. Refer Note K.
N. Deferred tax assets and liabilities
Deferred tax assets
2018
£m
22
The amount of deferred tax assets expected to be recovered or settled after more than 12 months are £22m (2017: £nil).
The Company has surrendered the benefit of its tax losses to underlying subsidiaries for a consideration of £35m (2017: £27m).
2017
£m
–
235
FINANCIAL INFORMATIONStandard Life Aberdeen 2018
9. Company financial statements continued
Recognised deferred tax
Deferred tax assets comprise:
Unused tax losses
Unrealised losses on cash flow hedges
Deferred tax liabilities comprise:
Unrealised gains on assets held as available-for-sale
Net deferred tax assets
Movements in net deferred tax assets comprise:
At 1 January
Effect of change in accounting policy to IFRS 9
Amounts credited to profit or loss
Amounts charged to other comprehensive income
At 31 December
2018
£m
2017
£m
21
1
–
22
–
3
21
(2)
22
–
3
(3)
–
(3)
–
3
–
–
The deferred tax assets recognised are in respect of unused tax losses arising in the year and unrealised losses on cash flow hedges. The
deferred tax assets are recognised to the extent that it is probable that the losses will be capable of being offset against future taxable profits.
O. Other financial liabilities
Amounts due to related parties
Collateral held in respect of derivative contracts
Other
Other financial liabilities
2018
£m
38
21
10
69
2017
£m
13
–
6
19
Other financial liabilities are expected to be settled within 12 months (2017: £19m).
P. Other liabilities
Other liabilities of £86m (2017: £1m) are expected to be settled within 12 months.
Q. Contingent liabilities, contingent assets, indemnities and guarantees
(a) Legal proceedings and regulations
The Company, like other financial organisations, is subject to legal proceedings and complaints in the normal course of its business. All such
material matters are periodically reassessed, with the assistance of external professional advisers where appropriate, to determine the likelihood
of the Company incurring a liability. Where it is concluded that it is more likely than not that a material outflow will be made a provision is
established based on management’s best estimate of the amount that will be payable. In some cases it will not be possible to form a view, for
example because the facts are unclear or because further time is needed to properly investigate, and no provisions are held for such matters. It
is not possible to predict with certainty the extent and timing of the financial impact of legal proceedings, complaints and related regulatory
matters.
Indemnities and guarantees
(b)
Under the trust deed in respect of the UK Standard Life defined benefit pension plan, Standard Life Employee Services Limited (SLESL), the
principal employer, must pay contributions to the pension plan as the trustees’ actuary may certify necessary. The Company guarantees the
obligations of certain subsidiaries’ UK and Ireland defined benefit pension plans, which did not give rise to any liabilities at 31 December 2018
(2017: £nil).
R. Related party transactions
(a) Compensation of key management personnel
The Directors and key management personnel of the Company are considered to be the same as for the Group. See Note 46 of the Group
financial statements for further information.
236
Standard Life Aberdeen 2018
10. Supplementary information
10.1 Alternative performance measures
We assess our performance using a variety of measures that are not defined under IFRS and are therefore termed alternative performance
measures (APMs). The APMs that we use may not be directly comparable with similarly named measures used by other companies.
We have presented below reconciliations from these APMs to the most appropriate measure prepared in accordance with IFRS. All APMs
should be read together with the IFRS consolidated income statement, IFRS consolidated statement of financial position and IFRS consolidated
statement of cash flows, which are presented in the Group financial statements section of this report.
KPI
R
Key performance indicators (KPIs) are defined as the measures by which the development, performance or position of the business can be measured effectively.
Measure is a key input to a metric used for executive remuneration. See page 86 for more information.
Definition
Purpose and changes made
Adjusted profit before tax
KPI R
Adjusted profit before tax is the Group’s key alternative performance measure. Adjusted profit
excludes the impact of the following items:
Restructuring costs and corporate transaction expenses. Restructuring includes the impact
of major regulatory change.
Amortisation and impairment of intangible assets acquired in business combinations and
through the purchase of customer contracts
Profit or loss arising on the disposal of a subsidiary, joint venture or associate
Fair value movements in contingent consideration
Items which are one-off and, due to their size or nature, are not indicative of the long-term
operating performance of the Group
Adjusted profit also excludes impacts arising from investment return variances (formerly
called short-term fluctuations in investment return) and economic assumption changes in the
Group’s insurance entities. It is calculated based on expected returns on investments backing
equity holder funds, with consistent allowance for the corresponding expected movements in
equity holder liabilities. Impacts arising from the difference between the expected return and
actual return on investments, and the corresponding impact on equity holder liabilities except
where they are directly related to a significant management action, are excluded from
adjusted profit and are presented within profit before tax. The impact of certain changes in
economic assumptions is also excluded from adjusted profit and is presented within profit
before tax.
Coupons payable on perpetual notes classified as non-controlling interests for which interest
is accrued are included in adjusted profit before tax. For IFRS purposes, these are
recognised directly in equity. This gave rise to an adjusting item in 2017, prior to the
reclassification of such instruments to subordinated liabilities on 18 December 2017.
Dividends payable on preference shares classified as non-controlling interests are excluded
from adjusted profit in line with the treatment of ordinary shares. Similarly to preference
shares, our share of interest payable on Tier 1 debt instruments held by associates, which
are only accounted for when paid (as if interest is not paid it is cancelled), is excluded from
adjusted profit.
Adjusted cash generation
Adjusted cash generation presents a shareholder view of cash generation. For the Aberdeen
Standard Investments element of the Asset management and platforms segment, adjusted
cash generation adjusts IFRS net cash flows from operating activities for restructuring and
corporate transaction expenses paid. For the platforms and corporate centre elements of the
Asset management and platforms segment, adjusted cash generation removes certain non-
cash items from adjusted profit before tax. Adjustments are made for deferred acquisition
costs/deferred income reserve and fixed/intangible assets. Adjusted cash generation is
stated net of current (cash) tax. IFRS net cash flows from operating activities is not used as
the basis for these segments as it includes policyholder cash flows, and does not exclude
adjusting items. For the Insurance associates and joint ventures segment, adjusted cash
generation reflects dividends received in the period.
Adjusted profit reporting provides further
analysis of the results reported under IFRS
and the Directors believe it helps to give
shareholders a fuller understanding of the
performance of the business by identifying
and analysing adjusting items. Adjusted
profit before tax is consistent with the way
that financial performance is measured by
management and reported to the Board and
executive committee. Adjusted profit before
tax is also a key input to the adjusted
earnings per share measure which is used
to assess performance for remuneration
purposes.
This APM presents a shareholder view of
cash generation and removes adjusting
items to make this cash metric more
comparable to adjusted profit after tax.
Adjusted cash generation provides insight
into our ability to generate cash that
supports further investment in the business
and the payment of dividends to
shareholders. The IFRS consolidated
statement of cash flows includes
policyholder cash flows, and therefore does
not present a shareholder view, and does
not exclude adjusting items.
237
FINANCIAL INFORMATIONStandard Life Aberdeen 2018 10. Supplementary information continued
Adjusted profit before tax
The table below reconciles adjusted profit before tax from continuing operations to Profit before tax.
The merger of Standard Life plc and Aberdeen completed on 14 August 2017, with the merger accounted for as an acquisition of Aberdeen by
Standard Life plc on that date. The Reported basis results reflect this accounting treatment with Aberdeen results included from 14 August 2017
only. Therefore, Aberdeen is included from 14 August 2017 only in the 2017 results on a Reported basis. In our Strategic report we have also
presented comparative results on a Pro forma basis to assist in explaining trends by showing performance for the combined Group as if
Standard Life plc and Aberdeen had always been merged. The difference between the Reported results and Pro forma results is the results of
Aberdeen in the period prior to completion of the merger.
Pro forma basis
Remove Aberdeen results
pre-merger completion
Reported basis
2018
£m
1,868
(1,395)
473
(9)
186
650
2017
£m
2016
£m
2018
£m
2,099
2,051
(1,551)
(1,453)
548
13
99
598
20
76
660
694
–
–
–
–
–
–
2017
£m
2016
£m
(652)
(1,035)
467
(185)
697
(338)
–
–
2
–
(185)
(336)
Fee based revenue
Total adjusted operating expenses
Adjusted operating profit
Capital management
Share of associates’ and joint
ventures’ profit before tax
Adjusted profit before tax from
continuing operations
Share of associates’ and joint
ventures’ tax expense1
Total adjusting items from
continuing operations
Profit before tax
2018
£m
1,868
(1,395)
2017
£m
1,447
(1,084)
363
13
99
473
(9)
186
650
2016
£m
1,016
(756)
260
22
76
475
358
(40)
(41)
(13)
(1,397)
(787)
4
438
(83)
262
1 2018 Includes £3m (2017: £nil) relating to tax on adjusting items.
The table below provides a segmental breakdown of adjusted profit before tax on a continuing operations basis. Comparatives are shown on a
pro forma basis:
Asset management and platforms
Insurance associates and joint
ventures
2018
£m
2017
£m
2016
£m
2018
£m
2017
£m
2016
£m
2018
£m
Total
2017
£m
2016
£m
Fee based revenue
1,868
2,099
2,051
Total adjusted operating expenses
(1,395)
(1,551)
(1,453)
Adjusted operating profit
Capital management
Share of associates’ and joint
ventures’ profit before tax
Adjusted profit before tax from
continuing operations
473
(9)
46
548
13
41
598
20
35
510
602
653
–
–
–
–
140
140
–
–
–
–
58
58
–
–
–
–
41
41
1,868
2,099
2,051
(1,395)
(1,551)
(1,453)
473
(9)
186
548
13
99
650
660
598
20
76
694
The table below provides a breakdown for the calculation of our share of adjusted profit before tax from Phoenix of £86m which is included in the
Insurance associates and joint ventures total of £140m above. Phoenix use an operating profit alternative performance measure which is before
finance costs, while the Group’s adjusted profit is after deducting finance costs.
Phoenix profitability for the four months ended 31 December 2018
Operating profit before tax (Phoenix APM)
Finance costs
Adjusted profit before tax (Standard Life Aberdeen APM)
238
2018
100%
£m
458
(30)
428
2018
19.98%
£m
92
(6)
86
Standard Life Aberdeen 2018
The table below provides a summarised reconciliation of adjusted profit before tax (split by continuing operations, discontinued operations and
Total) to Profit before tax. Comparatives are shown on a Reported basis.
Continuing operations
Discontinued operations
Total
Adjusted profit before tax
Share of associates’ and joint ventures’ tax
expense
Total adjusting items
2018
£m
650
(40)
(1,397)
2017
£m
475
(41)
4
2016
£m
358
(13)
(83)
Profit attributable to non-controlling
interests – ordinary shares
Profit before tax1
1 Discontinued operations shown as profit before tax expense attributable to equity holders.
(787)
438
–
–
–
262
2018
£m
210
–
1,519
5
1,734
2017
£m
379
2016
£m
360
–
–
(44)
(186)
25
360
51
225
2018
£m
860
(40)
122
5
947
2017
£m
854
(41)
(40)
25
798
2016
£m
718
(13)
(269)
51
487
Analysis of adjusting items
The table below provides detail of the adjusting items made in the calculation of adjusted profit before tax:
Restructuring and corporate transaction
expenses
Amortisation and impairment of intangible
assets acquired in business combinations
and through the purchase of customer
contracts
Provision for annuity sales practices
Profit on disposal of subsidiaries
Profit on disposal of interests in associates
Impairment of associates
Investment return variances and economic
assumption changes
Other
Total adjusting items
Continuing operations
Discontinued operations
2018
£m
2017
£m
2016
£m
2018
£m
2017
£m
2016
£m
2018
£m
Total
2017
£m
2016
£m
(239)
(162)
(42)
(264)
(11)
(25)
(503)
(173)
(67)
(1,155)
(138)
(38)
–
–
–
(1,155)
–
–
185
(228)
54
(14)
(1,397)
–
–
319
–
–
(15)
4
––
–
–
––
–
(3)
1,780
–
(41)
44
(100)
(175)
–
–
–
67
–
–
–
–
13
1
(83)
1,519
(44)
(186)
–
1,780
185
(228)
13
30
122
(138)
(100)
–
319
–
67
(15)
(40)
(38)
(175)
–
–
–
13
(2)
(269)
An explanation for why individual items are excluded from adjusted profit is set out below:
Restructuring and corporate transaction expenses are excluded from adjusted profit. Restructuring includes the impact of major regulatory
change. By highlighting and excluding these costs we aim to give shareholders a fuller understanding of the performance of the business.
Restructuring and corporate transaction expenses include costs relating to the integration of businesses acquired. Other restructuring costs
excluded from adjusted profit relate to projects which have a significant impact on the way the Group operates. Costs are only excluded from
adjusted profit where they are outwith business as usual activities and the costs would not have been incurred had the restructuring project not
taken place. For headcount related costs, where duplicate posts are identified as a result of an integration plan, the duplicated cost will be
treated as a restructuring cost from the beginning of the process which eliminates the duplicate cost. For continuing operations, the 2018
expenses mainly relate to integration and merger related costs of £191m (2017: £109m of which £59m relates to transaction costs) which
included £20m of merger related costs relating to the accounting impact of the alignment of Aberdeen and Standard Life Investments variable
pay structures. For discontinued operations, the 2018 expenses mainly related to the redemption of our Tier 1 subordinated bonds of £198m
(2017: £nil), and £53m (2017: £nil) of separation costs relating to the sale of the UK and European insurance business to Phoenix. 2018 also
included £14m of costs in relation to Brexit which we consider to be a major regulatory change. The residual costs of £47m related to other
restructuring and corporate transaction expenses.
Amortisation and impairment of intangible assets acquired in business combinations and through the purchase of customer contracts is
included as an adjusting item. This is consistent with peers and therefore excluding these items aids comparability. Highlighting this as an
adjusting item aims to give a fuller understanding of these accounting impacts which arise where businesses have been acquired but do not
arise where businesses have grown organically. 2018 includes the £880m impairment of the Aberdeen Standard Investments goodwill
intangible asset, reflecting the impact of markets and flows on future earnings expectations. Further details are provided in Note 14.
239
FINANCIAL INFORMATIONStandard Life Aberdeen 2018
10. Supplementary information continued
Profits on the disposal of a subsidiary, joint venture or associate are also removed to assist comparability of results period on period. The sale
of our UK and European insurance subsidiary completed on 31 August 2018. Profit on disposal of interests in associates in 2018 of £185m
includes £177m in relation to the HDFC Asset Management IPO. Details are provided in Note 1 of the Group financial statements.
Impairment of associates in 2018 of £228m relates to our investment in Phoenix and reflects the fall in the Phoenix share price between 31
August 2018 and 31 December 2018. This impairment will reverse in future periods if the Phoenix share price increases. The impairment of
Phoenix is considered an item which is one-off and not indicative of the long-term operating performance of the Group and has therefore been
excluded from adjusted profit to assist comparability of results period to period. More details are provided in Note 12 of the Group financial
statements.
Investment return variances and economic assumption changes in the Group’s insurance entities are excluded from adjusted profit. The
Group’s UK and European insurance business was sold during the year and is classified as discontinued operations. The Group’s other wholly
owned insurance business, SL Asia, is classified as held for sale. For annuities, all fluctuations in liabilities and the assets backing those
liabilities due to market interest rate (including credit risk) movements over the period are excluded from adjusted profit. Removing these
investment return variances and economic assumption changes is consistent with many of our insurance peers and aims to ensure that
adjusted profit reflects a long-term view aligned to the maturity profile and economic matching of the corresponding assets and liabilities. In
relation to certain subordinated liabilities this adjustment also excludes an accounting mismatch that arises where subordinated liabilities are
measured at amortised cost and certain assets backing the liabilities are measured at fair value. Where associates and joint ventures have a
policy for determining investment return variances and economic assumption changes, the Group uses the policy of the associate or joint
venture for including their results in the Group’s adjusted profit. This currently applies only to the Group’s investment in Phoenix. The Phoenix
policy is similar to that used by the wholly owned insurance entities. Details of the main differences are included in Note 12 of the Group
financial statements.
Details on items classified as ‘Other’ in the table on the previous page are provided in Note 12 of the Group financial statements. In 2018 this
balance primarily relates to a held for sale accounting adjustment. Following the classification of the UK and European insurance business as
held for sale on the announcement of the transaction on 23 February 2018, no amortisation or depreciation was recognised. This increase to
profit was classified as an adjusting item as it related to the disposal of a subsidiary.
Restructuring and corporate transaction expenses used to determine adjusted profit before tax in 2017 were £215m on a Pro forma basis
compared to £173m on a Reported basis. The Pro forma basis in 2017 included merger related costs of £42m incurred by Aberdeen. The results
for 2018 are the same on a Pro forma basis as on a Reported basis.
240
Standard Life Aberdeen 2018
Reconciliation of adjusted profit to IFRS profit by component
The key components of adjusted profit before tax are total adjusted operating income (which is broken down into fee based revenue and
spread/risk margin), total adjusted operating expenses and share of associates’ and joint ventures’ profit before tax. These components provide
a meaningful analysis of our adjusted results.
The table below provides a reconciliation of movements between adjusted profit component measures and their closest IFRS equivalent:
Adjusted profit term
2018
Fee based revenue
Adjusted operating expenses
Capital management
Share of associates’ and joint
ventures’ profit before tax
Adjusted profit before tax
from continuing operations
Tax on adjusted profit
Share of associates’ and joint
ventures’ tax
Adjusted profit after tax
from continuing operations
Adjusted profit after tax from
discontinued operations
Adjusted profit after tax
Group
adjusted
profit
£m
1,868
(1,395)
(9)
186
650
(95)
(43)
512
133
645
Adjusted profit term
2017
Fee based revenue
Group
adjusted
profit
(Reported
basis)
£m
1,447
Presentation
differences
Adjusting
items
Capital
management
£m
70
£m
202
(70)
(1,355)
£m
(9)
–
–
–
–
–
–
–
–
–
(244)
(1,397)
52
–
(1,345)
1,560
215
9
–
–
–
–
–
–
–
Presentation
differences
Adjusting
items
Capital
management
£m
360
£m
345
1
Includes £228m loss on impairment of interest in associates.
Adjusted operating expenses
(1,084)
(360)
(328)
Capital management
Share of associates’ and joint
ventures’ profit before tax
Adjusted profit before tax
from continuing operations
Tax on adjusted profit
Share of associates’ and joint
ventures’ tax
Adjusted profit after tax
from continuing operations
Adjusted profit after tax from
discontinued operations
Adjusted profit after tax
13
99
475
(77)
(41)
357
348
705
–
–
–
–
–
–
–
–
–
(13)
4
49
–
53
(51)
2
Share of
associates’
and joint
ventures’
tax expense
Non-
controlling
interests
Group
IFRS
IFRS term
£m
£m
£m
–
–
–
(40)
(40)
–
43
3
–
3
2,131 Total income
–
–
–
–
–
(2,820) Total expenses
– N/A
Share of profit from
associates and JVs1
(98)
(787) Profit before tax
(43) Total tax expense
– N/A
–
(830)
5 1,698
Profit for the year from
continuing operations
Profit for the year from
discontinued operations
5
868 Profit for the year
Share of
associates’
and joint
ventures’ tax
expense
Non-
controlling
interests –
ordinary
shares
Group
IFRS
IFRS term
£m
£m
£m
–
–
–
(41)
(41)
–
41
–
–
–
– 2,165 Total income
–
–
–
–
–
–
–
25
25
(1,772) Total expenses
– N/A
Share of profit from
associates and JVs
45
438 Profit before tax
(28) Total tax expense
– N/A
Profit for the year from
continuing operations
410
Profit for the year from
discontinued operations
322
732 Profit for the year
£m
13
–
(13)
–
–
–
–
–
–
–
This reconciliation includes a number of reconciling items which arise due to presentation differences between IFRS reporting requirements and
the determination of adjusted operating income and adjusted operating expenses. Adjusted operating income and expenses exclude items
which have an equal and opposite effect on IFRS income and IFRS expenses in the consolidated income statement. Other presentation
differences also include Aberdeen Standard Investments commission expenses which are presented in expenses in the consolidated income
statement but are netted against adjusted operating income in the analysis of Group adjusted profit by segment. Further details of presentation
differences are included in Note 2(b)(ii) of the Group financial statements section of this report.
241
FINANCIAL INFORMATIONStandard Life Aberdeen 2018
10. Supplementary information continued
Adjusted cash generation from continuing operations
Adjusted cash generation provides insight into our ability to generate cash that supports further investment in the business and the payment of
dividends to shareholders. The IFRS consolidated statement of cash flows includes policyholder cash flows, and therefore does not present a
shareholder view, and does not exclude adjusting items.
Analysis of adjusted cash generation
(Comparatives shown on a Pro forma basis)
Asset management and platforms
Insurance associates and joint ventures
Adjusted cash generation (continuing operations)
2018
£m
420
33
453
Further details of the calculation of adjusted cash generation for the Asset management and platforms segment are included below:
Investment management
Per Group financial
statements
Consolidated statement
of cash flows
2018
£m
826
2017
£m
495
10
505
2017
£m
2,194
(482)
(1,846)
344
–
124
468
(48)
420
348
140
63
551
(56)
495
IFRS Net cash flow from operating activities – total Group
Less: Net cash flows from operating activities – discontinued
operations, platforms and corporate centre
Net cash flow from operating activities – Aberdeen Standard
Investments1
Pro forma adjustment for pre-merger results2
Restructuring and corporate transaction expenses paid –
Aberdeen Standard Investments
Adjusted cash generation – Aberdeen Standard Investments
Adjusted cash generation – platforms and corporate centre
Adjusted cash generation – Asset management and
platforms (2017 on Pro forma basis)
1 From 2018, net cash flow from operating activities excludes movements between cash and pooled cash funds.
2 The Pro forma adjustment adds pre-merger results for Aberdeen which are excluded from the consolidated statement of cash flows.
242
242 Standard Life Aberdeen 2018
Standard Life Aberdeen 2018
10.2 Financial ratios
We also use a number of financial ratios to help assess our performance and these are also not defined under IFRS. Details of our main financial
ratios and how they are calculated are presented below.
Definition
Purpose and changes
Cost/income ratio
KPI R
This is an efficiency measure that is calculated as adjusted operating expenses divided by
adjusted operating income in the period, and includes the share of associates’ and joint
ventures’ profit before tax.
This ratio is used by management to assess
efficiency and reported to the Board and
executive committee.
Adjusted diluted earnings per share
KPI
R
Adjusted diluted earnings per share is calculated on adjusted profit after tax. The weighted
average number of ordinary shares in issue is adjusted during the period to assume the
conversion of all dilutive potential ordinary shares, such as share options granted to
employees.
Details on the calculation of adjusted diluted earnings per share are set out in Note 11 in the
Group financial statements section.
Fee revenue yield (bps)
The fee revenue yield is calculated as annualised fee based revenue (excluding performance
fees, SL Asia, 1825, Focus and Threesixty) divided by monthly average fee based AUM/AUA.
This ratio is also a measure used to assess
performance for remuneration purposes.
Earnings per share is a commonly used
financial metric which can be used to
measure the profitability and capital efficiency
of a company over time. We also calculate
adjusted diluted earnings per share to
illustrate the impact of adjusting items on the
metric.
This ratio is used by management to assess
performance and reported to the Board and
executive committee.
The average revenue yield on fee based
business is a measure that illustrates the
average margin being earned on the assets
that we manage or administer.
Cost/income ratio from continuing operations
Pro forma basis
Reported basis
Adjusted operating expenses (£m)
2018
(1,395)
2017
2016
2017
(1,551)
(1,453)
(1,084)
Fee based revenue (£m)
Share of associates’ and joint ventures’ profit before tax (£m)
Total adjusted operating income and share of associates’ and
joint ventures’ profit before tax (£m)
Cost/income ratio (%)
1,868
186
2,054
68
2,099
99
2,198
71
2,051
76
2,127
68
1,447
99
1,546
70
2016
(756)
1,016
76
1,092
69
243
FINANCIAL INFORMATIONStandard Life Aberdeen 2018
10. Supplementary information continued
Adjusted diluted earnings per share
Continuing operations1
Discontinued operations
Total
Pro forma
basis
Reported
basis
Pro forma
basis
Reported
basis
Pro forma
basis
Reported
basis
2018
£m
512
2017
£m
516
2017
£m
357
(5)
(5)
–
507
(835)
511
N/A
357
402
Million
Million
Million
2018
£m
133
–
133
1,665
Million
2017
£m
348
2017
£m
348
2018
£m
645
2017
£m
864
2017
£m
705
–
–
(5)
(5)
–
348
N/A
348
297
640
830
859
N/A
705
699
Million
Million
Million
Million
Million
2,848
2,943
2,343
2,848
2,943
2,343
2,848
2,943
2,343
–
29
17
–
29
17
–
29
17
2,848
Pence
(29.3)
2,972
2,360
Pence
Pence
N/A
17.1
2,848
Pence
58.4
2,972
2,360
Pence
Pence
N/A
12.7
2,848
Pence
29.1
2,972
2,360
Pence
Pence
N/A
29.8
17.8
17.2
15.1
4.7
11.7
14.8
22.5
28.9
29.9
Adjusted profit after tax
Dividend paid on preference
shares
Adjusted profit after tax
attributable to equity holders of
the Company
Profit attributable to equity
holders of the Company
Weighted average number of
ordinary shares outstanding
Dilutive effect of share options and
awards
Weighted average number of
diluted ordinary shares
outstanding
Basic earnings per share
Adjusted diluted earnings per
share1
1
In accordance with IAS 33, earnings per share have not been restated following the share consolidation as there was an overall corresponding change in resources due to the
redemption of the ‘B’ shares. As a result of the share consolidation and share buyback, earnings per share from continuing operations for the year ended 31 December 2018 is
not directly comparable with the prior year. Refer to Note 11 of the Group financial statements for information relating to the calculation of diluted earnings per share.
Fee revenue yield (bps) from continuing operations
Fee revenue yield
(Comparatives shown on a Pro forma basis)
Equities
Fixed income
Multi-asset
Private markets
Alternatives
Real estate
Quantitative
Cash/Liquidity
Institutional/Wholesale2
Strategic insurance partners
Retail – Wrap and Elevate
Eliminations
Group fee revenue yield
SL Asia
Retail advice and other3
Performance fees
Group fee based revenue
2
3
Includes Wealth/Digital.
Includes 1825, Focus and Threesixty.
244
Average AUMA (£bn)
Fee based revenue (£m)
Fee revenue yield (bps)
2018
86.3
46.9
65.4
15.8
10.5
28.9
2.1
17.3
273.2
265.0
55.6
(7.9)
585.9
2017
2018
2017
2018
2017
66.9
27.7
53.6
43.1
17.4
53.2
12.2
8.0
48.1
13.1
25.6
N/A
30.8
67.9
29.4
57.7
50.7
16.9
54.4
12.1
7.4
51.1
13.7
26.2
N/A
33.1
98.1
49.0
74.7
16.7
7.1
29.2
2.2
19.1
296.1
271.1
49.2
(7.2)
609.2
578
130
350
68
18
154
3
14
1,315
347
142
N/A
666
144
432
84
12
159
3
14
1,514
372
129
N/A
1,804
2,015
12
43
9
12
46
26
1,868
2,099
Standard Life Aberdeen 2018
10.3 Assets under management and administration and flows
Definition
Purpose and changes
AUMA
KPI
AUMA is a measure of the total assets we manage or administer on behalf of our clients and
customers. It includes assets under management (AUM) and assets under administration
(AUA).
AUM is a measure of the total assets that we manage on behalf of individual customers and
institutional clients. AUM also includes captive assets managed on behalf of the Group
including assets managed for corporate purposes.
AUA is a measure of the total assets we administer for customers through products such as
platforms and ISAs.
Gross inflows and net flows
KPI R
Net flows represent gross inflows less gross outflows or redemptions. Gross inflows are new
funds from clients and customers. Gross outflows or redemptions is the money withdrawn by
clients or customers during the period.
As an investment company, AUMA and flows
are key drivers of shareholder value.
AUMA has been restated to exclude
associates, joint ventures, SL Asia and is
also only presented on a continuing
operations basis. This change has been
made to simplify disclosures and to better
align asset and fee revenue disclosures.
A reconciliation of AUMA and net flows to
previously disclosed information is provided
in Section 10.5.
As an investment company, AUMA and flows
are key drivers of shareholder value. Gross
inflows have been included as a KPI in 2018
to align with our remuneration measures.
Gross inflows and net flows has been
restated to exclude associates, joint ventures,
SL Asia and is also only presented on a
continuing operations basis.
10.3.1 AUMA
12 months ended 31 December 2018
Opening
AUMA at
1 Jan 2018
Gross
inflows Redemptions
Equities
Fixed income
Multi-asset
Private markets
Alternatives
Real estate
Quantitative
Cash/Liquidity
Institutional/Wholesale2
Strategic insurance partners
Total AUM
Retail – Wrap and Elevate
Eliminations
Total AUMA
£bn
97.5
48.0
72.4
16.5
8.0
28.5
2.2
17.2
290.3
271.8
562.1
54.0
(8.0)
608.1
£bn
11.8
6.0
9.3
1.1
0.8
3.8
0.2
7.4
40.4
28.6
69.0
8.5
(2.3)
75.2
Net
flows
£bn
£bn
(29.4)
(17.6)
(8.8)
(2.8)
(25.0)
(15.7)
(2.4)
(1.2)
(4.0)
(0.3)
(8.7)
(1.3)
(0.4)
(0.2)
(0.1)
(1.3)
(79.8)
(39.4)
(34.1)
(5.5)
(113.9)
(44.9)
(4.3)
2.1
4.2
(0.2)
(116.1)
(40.9)
Market
and other
movements
£bn
(8.2)
0.6
(2.8)
0.8
2.6
0.8
–
0.6
(5.6)
(11.3)
(16.9)
(4.0)
0.4
(20.5)
Corporate actions
and business
rationalisation1
£bn
1.2
0.9
–
–
2.1
0.6
–
–
4.8
–
4.8
–
–
4.8
1 Corporate actions relate to the acquisition of £4.8bn of AUM in transactions with Alpine Woods, ETF Securities and Hark Capital.
2
Includes Wealth/Digital.
Closing
AUMA at
31 Dec 2018
£bn
72.9
46.7
53.9
16.0
12.3
29.7
2.1
16.5
250.1
255.0
505.1
54.2
(7.8)
551.5
245
FINANCIAL INFORMATIONStandard Life Aberdeen 2018
10. Supplementary information continued
12 months ended 31 December 2017 (Pro forma basis)
Opening
AUMA at
1 Jan 2017
Gross
inflows Redemptions
Equities
Fixed income
Multi-asset
Private markets
Alternatives
Real estate
Quantitative
Cash/Liquidity
Institutional/Wholesale2
Strategic insurance partners
Total AUM
Retail – Wrap and Elevate
Eliminations
Total AUMA
10.3.2 Quarterly net flows
Equities
Fixed income
Multi-asset
Private markets
Alternatives
Real estate
Quantitative
Cash/Liquidity
Institutional/Wholesale2
Strategic insurance partners
Total net flows from AUM
Retail – Wrap and Elevate
Eliminations
Total net flows
£bn
93.6
51.6
79.1
16.8
8.9
27.5
2.4
18.7
298.6
271.5
570.1
44.2
£bn
14.2
8.6
13.9
1.1
0.8
3.6
0.2
6.4
48.8
15.6
64.4
10.7
(6.4)
(2.7)
Net
flows
£bn
(10.2)
(3.1)
(6.9)
(0.3)
(0.5)
(1.0)
(0.5)
(1.7)
£bn
(24.4)
(11.7)
(20.8)
(1.4)
(1.3)
(4.6)
(0.7)
(8.1)
(73.0)
(24.2)
(30.8)
(15.2)
(103.8)
(39.4)
(3.7)
2.2
7.0
(0.5)
Market
and other
movements
£bn
14.1
0.8
2.6
–
(0.4)
2.0
0.3
0.2
19.6
15.5
35.1
2.8
(1.1)
36.8
Corporate actions
and business
rationalisation1
£bn
–
(1.3)
(2.4)
–
–
–
–
–
(3.7)
–
(3.7)
–
–
(3.7)
Closing AUMA
at
31 Dec 2017
£bn
97.5
48.0
72.4
16.5
8.0
28.5
2.2
17.2
290.3
271.8
562.1
54.0
(8.0)
608.1
607.9
72.4
(105.3)
(32.9)
3 months to
31 Dec 18
3 months to
30 Sep 18
3 months to
30 Jun 18
3 months to
31 Mar 18
3 months to
31 Dec 17
£bn
(5.7)
(0.4)
(6.7)
0.3
(0.6)
(0.2)
0.1
0.6
(12.6)
(1.7)
(14.3)
0.7
0.1
(13.5)
£bn
(4.3)
(0.3)
(4.6)
(0.9)
0.4
0.2
(0.2)
(3.5)
(13.2)
1.8
(11.4)
1.0
(0.1)
(10.5)
£bn
(3.9)
(0.9)
(2.9)
(0.2)
(0.4)
–
–
1.4
(6.9)
(3.1)
(10.0)
1.0
(0.1)
(9.1)
£bn
(3.7)
(1.2)
(1.5)
(0.5)
0.2
(0.2)
–
0.2
(6.7)
(2.5)
(9.2)
1.5
(0.1)
(7.8)
£bn
(3.5)
(0.5)
(1.3)
(0.1)
–
(0.1)
–
(0.8)
(6.3)
(3.5)
(9.8)
1.6
(0.1)
(8.3)
1 Corporate actions include the closure of an uneconomic multi-manager fund range and the rationalisation of the US fixed income business.
2
Includes Wealth/Digital.
246
Standard Life Aberdeen 2018
10.4 AUM and flows (excludes strategic insurance partners)
10.4.1 Detailed asset class split and by channel
12 months ended 31 December 2018
Developed markets equities
Emerging markets equities
Asia Pacific equities
Global equities
Total equities
Developed markets credit
Developed markets rates
Emerging markets fixed income
Total fixed income
Absolute return
Diversified growth/income
MyFolio
Other multi-asset
Parmenion
Aberdeen Standard Capital
Total multi-asset
Private equity
Private credit and solutions
Infrastructure equity
Total private markets
Total alternatives
UK real estate
European real estate
Global real estate
Real estate multi-manager
Total real estate
Total quantitative
Total cash/liquidity
Total
Opening
AUM at
1 Jan 2018
Gross
inflows Redemptions
Market
and other
movements
Net
flows
Corporate
actions and
business
rationalisation
Closing
AUM at
31 Dec 2018
£bn
16.3
37.0
27.7
16.5
97.5
32.9
5.7
9.4
48.0
39.8
1.5
13.3
6.5
4.4
6.9
72.4
12.4
0.3
3.8
16.5
8.0
15.8
11.1
0.1
1.5
28.5
2.2
17.2
£bn
2.2
4.2
3.9
1.5
11.8
3.3
0.8
1.9
6.0
2.5
0.7
2.7
0.7
2.1
0.6
9.3
0.9
0.2
–
1.1
0.8
1.1
2.3
0.2
0.2
3.8
0.2
7.4
£bn
(3.6)
(13.4)
(6.8)
(5.6)
£bn
(1.4)
(9.2)
(2.9)
(4.1)
(29.4)
(17.6)
(5.6)
(1.2)
(2.0)
(8.8)
(2.3)
(0.4)
(0.1)
(2.8)
(19.0)
(16.5)
(0.3)
(1.5)
(1.9)
(1.0)
(1.3)
0.4
1.2
(1.2)
1.1
(0.7)
(25.0)
(15.7)
(1.9)
(0.2)
(0.3)
(2.4)
(1.2)
(2.3)
(1.4)
(0.1)
(0.2)
(4.0)
(0.3)
(8.7)
(1.0)
–
(0.3)
(1.3)
(0.4)
(1.2)
0.9
0.1
–
(0.2)
(0.1)
(1.3)
£bn
(2.0)
(2.8)
(2.3)
(1.1)
(8.2)
0.6
(0.1)
0.1
0.6
(1.4)
(0.2)
(0.6)
0.2
(0.3)
(0.5)
(2.8)
0.9
(0.3)
0.2
0.8
2.6
0.7
0.2
–
(0.1)
0.8
–
0.6
290.3
40.4
(79.8)
(39.4)
(5.6)
£bn
–
–
–
1.2
1.2
0.9
–
–
0.9
–
–
–
–
–
–
–
–
–
–
–
2.1
–
–
0.6
–
0.6
–
–
4.8
£bn
12.9
25.0
22.5
12.5
72.9
32.1
5.2
9.4
46.7
21.9
1.7
13.9
5.5
5.2
5.7
53.9
12.3
–
3.7
16.0
12.3
15.3
12.2
0.8
1.4
29.7
2.1
16.5
250.1
12 months ended 31 December 2018
Institutional
Wholesale
Wealth/Digital
Total
£bn
192.5
86.6
11.2
290.3
£bn
19.3
18.4
2.7
40.4
Opening
AUM at
1 Jan 2018
Gross
inflows Redemptions
Net
flows
£bn
(27.7)
(12.1)
0.4
£bn
(47.0)
(30.5)
(2.3)
(79.8)
(39.4)
Market
and other
movements
Corporate
actions and
business
rationalisation
Closing
AUM at
31 Dec 2018
£bn
1.9
(6.8)
(0.7)
(5.6)
£bn
–
4.8
–
4.8
£bn
166.7
72.5
10.9
250.1
247
FINANCIAL INFORMATIONStandard Life Aberdeen 2018
Opening
AUM at
1 Jan 2017
Gross
inflows Redemptions Net flows
Market
and other
movements
£bn
15.8
33.9
26.1
17.8
93.6
37.8
5.5
8.3
51.6
48.9
0.7
10.6
9.1
3.0
6.8
79.1
14.6
–
2.2
16.8
8.9
15.2
10.5
0.2
1.6
27.5
2.4
18.7
£bn
2.4
5.6
4.6
1.6
£bn
(3.2)
(8.4)
(7.7)
(5.1)
14.2
(24.4)
4.8
1.4
2.4
8.6
5.8
1.0
3.3
1.4
1.5
0.9
13.9
0.8
0.3
–
1.1
0.8
1.4
2.1
–
0.1
3.6
0.2
6.4
(9.1)
(1.2)
(1.4)
(11.7)
(15.6)
(0.3)
(1.3)
(2.2)
(0.2)
(1.2)
(20.8)
(1.4)
–
–
(1.4)
(1.3)
(2.0)
(2.3)
(0.1)
(0.2)
(4.6)
(0.7)
(8.1)
£bn
(0.8)
(2.8)
(3.1)
(3.5)
(10.2)
(4.3)
0.2
1.0
(3.1)
(9.8)
0.7
2.0
(0.8)
1.3
(0.3)
(6.9)
(0.6)
0.3
–
(0.3)
(0.5)
(0.6)
(0.2)
(0.1)
(0.1)
(1.0)
(0.5)
(1.7)
£bn
1.3
5.9
4.7
2.2
14.1
0.7
–
0.1
0.8
0.7
0.1
0.7
0.6
0.1
0.4
2.6
(0.2)
–
0.2
–
(0.4)
1.2
0.8
–
–
2.0
0.3
0.2
Corporate
actions and
business
rationalisation
£bn
–
–
–
–
–
(1.3)
–
–
(1.3)
–
–
–
(2.4)
–
–
(2.4)
(1.4)
–
1.4
–
–
–
–
–
–
–
–
–
Closing
AUM at
31 Dec 2017
£bn
16.3
37.0
27.7
16.5
97.5
32.9
5.7
9.4
48.0
39.8
1.5
13.3
6.5
4.4
6.9
72.4
12.4
0.3
3.8
16.5
8.0
15.8
11.1
0.1
1.5
28.5
2.2
17.2
298.6
48.8
(73.0)
(24.2)
19.6
(3.7)
290.3
Opening
AUM at
1 Jan 2017
Gross
inflows Redemptions Net flows
Market
and other
movements
Corporate
actions and
business
rationalisation
Closing
AUM at
31 Dec 2017
£bn
202.4
86.4
9.8
298.6
£bn
24.3
22.1
2.4
48.8
£bn
(44.0)
(27.7)
(1.3)
(73.0)
£bn
(19.7)
(5.6)
1.1
(24.2)
£bn
11.1
8.2
0.3
19.6
£bn
(1.3)
(2.4)
–
(3.7)
£bn
192.5
86.6
11.2
290.3
10. Supplementary information continued
AUM and flows (excludes strategic insurance
partners)
12 months ended 31 December 2017
(Pro forma basis)
Developed markets equities
Emerging markets equities
Asia Pacific equities
Global equities
Total equities
Developed markets credit
Developed markets rates
Emerging markets fixed income
Total fixed income
Absolute return
Diversified growth/income
MyFolio
Other multi-asset
Parmenion
Aberdeen Standard Capital
Total multi-asset
Private equity
Private credit and solutions
Infrastructure equity
Total private markets
Total alternatives
UK real estate
European real estate
Global real estate
Real estate multi-manager
Total real estate
Total quantitative
Total cash/liquidity
Total
12 months ended 31 December 2017
(Pro forma basis)
Institutional
Wholesale
Wealth/Digital
Total
248
Standard Life Aberdeen 2018
10.4.2 AUM by geography (excludes strategic insurance partners)
12 months ended 31 December
31 Dec 2018
31 Dec 2017
UK
Europe, Middle East and Africa (EMEA)
Asia Pacific (APAC)
Americas
Total
10.4.3 Total AUM by asset class
Equities
Fixed income
Multi-asset
Private markets
Alternatives
Real estate
Quantitative
Cash/Liquidity
Total AUM
1
Includes Wealth/Digital.
£bn
125.4
57.1
18.2
49.4
250.1
31 Dec 2017
Strategic
insurance
partners
£bn
53.1
92.6
17.6
1.2
–
10.7
66.3
30.3
£bn
145.6
61.8
22.7
60.2
290.3
Total
£bn
150.6
140.6
90.0
17.7
8.0
39.2
68.5
47.5
31 Dec 2018
Strategic
insurance
partners
£bn
44.0
90.0
17.5
2.3
–
10.3
60.7
30.2
Institutional/
Wholesale1
£bn
72.9
46.7
53.9
16.0
12.3
29.7
2.1
16.5
Total
£bn
116.9
136.7
71.4
18.3
12.3
40.0
62.8
46.7
Institutional/
Wholesale1
£bn
97.5
48.0
72.4
16.5
8.0
28.5
2.2
17.2
250.1
255.0
505.1
290.3
271.8
562.1
10.5 AUMA – reconciliation to previously disclosed information
12 months ended 31 December 2017 (Pro forma basis)
Opening
AUMA at
1 Jan 2017 Gross inflows Redemptions
Net flows
Market and
other
movements
Corporate
actions and
business
rationalisation
Closing
AUMA at
31 Dec 2017
£bn
£bn
£bn
£bn
£bn
£bn
£bn
Standard Life Aberdeen plc AUMA
as reported
Less: Discontinued operations
Less: Discontinued eliminations
Less: HDFC AMC
Less: India and China life
Total Standard Life Aberdeen
AUMA
647.6
(127.4)
102.8
(10.5)
(4.6)
80.1
(9.2)
4.6
(2.1)
(1.0)
(111.1)
(31.0)
12.2
(6.9)
–
0.5
3.0
(2.3)
(2.1)
(0.5)
607.9
72.4
(105.3)
(32.9)
42.6
(9.7)
5.2
(1.0)
(0.3)
36.8
(4.3)
–
–
–
0.6
(3.7)
654.9
(134.1)
105.7
(13.6)
(4.8)
608.1
249
FINANCIAL INFORMATIONStandard Life Aberdeen 2018
Other information
Contents
11. Glossary
12. Shareholder information
13. Contact us
252
255
IBC
250
Standard Life Aberdeen 2018
Contents
11. Glossary
12. Shareholder information
13. Contact us
252
255
IBC
251
OTHER INFORMATIONStandard Life Aberdeen 2018
11. Glossary
Aberdeen Asset Management or Aberdeen
Aberdeen Asset Management PLC, or Aberdeen Asset Management
PLC and its subsidiaries.
Adjusted cash generation
Adjusted cash generation presents a shareholder view of cash
generation. The calculation of this measure has been amended
following the merger. For the Aberdeen Standard Investments element
of the Asset management and platforms segment, adjusted cash
generation adjusts IFRS net cash flows from operating activities for
restructuring and corporate transaction expenses paid. For the
platforms and corporate centre elements of the Asset management
and platforms segment, adjusted cash generation removes certain
non-cash items from adjusted profit before tax. Adjustments are made
for deferred acquisition costs/deferred income reserve and
fixed/intangible assets. Adjusted cash generation is stated net of
current (cash) tax. IFRS net cash flows from operating activities is not
used as the basis for these segments as it includes policyholder cash
flows, and does not exclude adjusting items. For the Insurance
associates and joint ventures segment, adjusted cash generation
reflects dividends received in the period.
Adjusted operating expenses
Adjusted operating expenses is a component of adjusted profit and
relates to the day-to-day expenses of managing our business.
Adjusted operating income
Adjusted operating income is a component of adjusted profit and
consists of fee based revenue and spread/risk margin.
Adjusted profit
Adjusted profit before tax is the Group’s key alternative performance
measure. Adjusted profit excludes the impact of the following items:
Restructuring costs and corporate transaction expenses.
Restructuring includes the impact of major regulatory change.
Amortisation and impairment of intangible assets acquired in
business combinations and through the purchase of customer
contracts
Profit or loss arising on the disposal of a subsidiary, joint venture or
associate
Fair value movements in contingent consideration
Items which are one-off and, due to their size or nature, are not
indicative of the long-term operating performance of the Group
Adjusted profit also excludes impacts arising from short-term
fluctuations in investment return variances (formerly called short-term
fluctuations in investment return) and economic assumption changes
in the Group’s insurance entities. It is calculated based on expected
returns on investments backing equity holder funds, with consistent
allowance for the corresponding expected movements in equity holder
liabilities. Impacts arising from the difference between the expected
return and actual return on investments, and the corresponding impact
on equity holder liabilities except where they are directly related to a
significant management action, are excluded from adjusted profit and
are presented within profit before tax. The impact of certain changes in
economic assumptions is also excluded from adjusted profit and is
presented within profit before tax.
Coupons payable on perpetual notes classified as non-controlling
interests for which interest is accrued are included in adjusted profit
before tax. For IFRS purposes, these are recognised directly in equity.
This gave rise to an adjusting item in 2017, prior to the reclassification
of such instruments to subordinated liabilities on 18 December 2017.
Dividends payable on preference shares classified as non-controlling
interests are excluded from adjusted profit in line with the treatment of
ordinary shares. Similarly to preference shares, our share of interest
payable on Tier 1 debt instruments held by associates, which are only
252
accounted for when paid (as if interest is not paid it is cancelled), is
excluded from adjusted profit.
Assets under management and administration (AUMA)
AUMA is a measure of the total assets we manage or administer on
behalf of our clients and customers. It includes assets under
management (AUM) and assets under administration (AUA). AUMA
does not include AUM/AUA for associates and joint ventures and is
also only presented on a continuing operations basis.
AUM is a measure of the total assets that Aberdeen Standard
Investments manages on behalf of individual customers and
institutional clients. AUM also includes assets managed for corporate
purposes.
AUA is a measure of the total assets we administer for customers
through our Platforms.
Board
The Board of Directors of the Company.
Capital management
Capital management is a component of adjusted profit and relates to
the return from the net assets of the shareholder business, net of costs
of financing. This includes the net assets in defined benefit staff
pension plans and net assets relating to the financing of subordinated
liabilities.
Chief Operating Decision Maker
The executive committee.
Company
Standard Life Aberdeen plc. Prior to the merger, Standard Life plc.
Cost/income ratio
This is an efficiency measure that is calculated as adjusted operating
expenses divided by adjusted operating income, and includes the
share of associates’ and joint ventures’ profit before tax.
CRD IV
CRD IV is the European regulatory capital regime (comprising the
Capital Requirements Directive and Capital Requirements Regulation)
that applies to investment firms. Following the sale of the UK and
European insurance business to Phoenix, the Group is supervised
under the CRD IV regulatory regime for group prudential supervisory
purposes. Previously, SLA was regulated as an insurance group
subject to Solvency II.
Director
A Director of the Company.
Earnings per share (EPS)
EPS is a commonly used financial metric which can be used to
measure the profitability and strength of a company over time. EPS is
calculated by dividing profit by the number of ordinary shares. Basic
EPS uses the weighted average number of ordinary shares
outstanding during the year. Diluted EPS adjusts the weighted
average number of ordinary shares outstanding to assume conversion
of all dilutive potential ordinary shares, such as share options awarded
to employees.
Effective tax rate
Tax expense/(credit) attributable to equity holders’ profit divided by
profit before tax attributable to equity holders’ profits expressed as a
percentage.
Elevate
Elevate adviser platform acquired through the purchase of the entire
share capital of AXA Portfolio Services Limited, subsequently renamed
Elevate Portfolio Services Limited.
Standard Life Aberdeen 2018
Executive committee
Responsible for supporting the Co-Chief Executives in the day-to-day
running of the business and comprises: Co-Chief Executives and the
functional/regional leaders for UK, Finance, Distribution, Americas,
EMEA, Asia Pacific, People and Investment Management.
Fair value through profit or loss (FVTPL)
FVTPL is an IFRS measurement basis permitted for assets and
liabilities which meet certain criteria. Gains or losses on assets or
liabilities measured at FVTPL are recognised directly in the income
statement.
FCA
Financial Conduct Authority of the United Kingdom.
Fee based business/revenue
Fee based business is a component of adjusted profit and includes
products where we generate revenue primarily from asset
management charges (AMCs), premium based charges and
transactional charges. AMCs are earned on products such as SIPP,
corporate pensions and mutual funds, and are calculated as a
percentage fee based on the assets held. Investment risk on these
products rests principally with the customer, with our major indirect
exposure to rising or falling markets coming from higher or lower
AMCs. Fee based revenue is shown net of fees, commissions and
similar charges (e.g. rebates and initial charges).
Fee revenue yield (bps)
The average revenue yield on fee based business is a measure that
illustrates the average margin being earned on the assets that we
manage or administer. It is calculated as annualised fee based
revenue (excluding performance fees, SL Asia, 1825, Focus and
Threesixty) divided by monthly average fee based assets under
management/administration.
Forward looking statements
This document may contain certain ‘forward-looking statements’ with
respect to the financial condition, performance, results, strategy,
objectives, plans, goals and expectations of the Company and its
affiliates. These forward-looking statements can be identified by the
fact that they do not relate only to historical or current facts. Forward-
looking statements are prospective in nature and are not based on
historical facts, but rather on current expectations and projections of
management about future events, and are therefore subject to risks
and uncertainties which could cause actual results to differ materially
from the future results expressed or implied by the forward-looking
statements. For example, statements containing words such as ‘may’,
‘will’, ‘should’, ‘could’, ‘continue’, ‘aims’, ‘estimates’, ‘projects’,
‘believes’, ‘intends’, ‘expects’, ‘hopes’, ‘plans’, ‘pursues’, ‘seeks’,
‘targets’ and ‘anticipates’, and words of similar meaning, may be
forward-looking. These statements are based on assumptions and
assessments made by the Company in light of its experience and its
perception of historical trends, current conditions, future developments
and other factors it believes appropriate. By their nature, all forward-
looking statements involve risk and uncertainty because they are
based on information available at the time they are made, including
current expectations and assumptions, and relate to future events and
depend on circumstances which may be or are beyond the Company’s
control, including among other things: UK domestic and global political,
economic and business conditions (such as the UK’s exit from the
EU); market related risks such as fluctuations in interest rates and
exchange rates, and the performance of financial markets generally;
the impact of inflation and deflation; the impact of competition; the
timing, impact and other uncertainties associated with future
acquisitions, disposals or combinations undertaken by the Company
or its affiliates and/or within relevant industries; the value of and
earnings from Standard Life Aberdeen’s strategic investments and
ongoing commercial relationships; default by counterparties;
information technology or data security breaches; natural or man-
made catastrophic events; the failure to attract or retain necessary key
personnel; the policies and actions of regulatory authorities; and the
impact of changes in capital, solvency or accounting standards, and
tax and other legislation and regulations (including changes to the
regulatory capital requirements that the Company is subject to) in the
jurisdictions in which the Company and its affiliates operate. As a
result, the Company’s actual future financial condition, performance
and results may differ materially from the plans, goals, objectives and
expectations set forth in the forward-looking statements. Persons
receiving this document should not place undue reliance on forward-
looking statements. Neither the Company nor its affiliates assume any
obligation to update or correct any of the forward-looking statements
contained in this document or any other forward-looking statements it
or they may make (whether as a result of new information, future
events or otherwise), except as required by law. Past performance is
not an indicator of future results and the results of the Company and
its affiliates in this document may not be indicative of, and are not an
estimate, forecast or projection of, the Company’s or its affiliates’ future
results.
Global absolute return strategies (GARS)
A discretionary multi-asset fund provided under several regulated
pooled and segregated structures globally by Aberdeen Standard
Investments. The investment objective is to target a level of return over
a rolling three-year period equivalent to cash plus 5% a year (gross of
fees), and to do so with as little risk as possible.
Group, Standard Life Aberdeen Group or Standard Life
Aberdeen
Relates to the Company and its subsidiaries following the completion
of the merger of Standard Life plc and Aberdeen Asset Management
PLC on 14 August 2017.
ICAAP
Internal Capital Adequacy Assessment Process. The ICAAP is the
means by which the Group assesses the level of capital that
adequately supports all of the relevant current and future risks in its
business.
International Financial Reporting Standards (IFRS)
International Financial Reporting Standards are accounting standards
issued by the International Accounting Standards Board (IASB). The
Group’s consolidated financial statements are prepared in accordance
with IFRS as endorsed by the EU. All EU-listed companies are
required to prepare consolidated financial statements using IFRS
issued by the International Accounting Standards Board (IASB) as
endorsed by the EU. The IFRS financial results in the Strategic report
and in the Group financial statements have been prepared on the
basis of the IFRS accounting policies as disclosed in the Group
financial statements section of this report.
Investment performance
Investment performance has been aggregated using a money
weighted average of our assets under management which are
outperforming their respective benchmarks on a gross of fees basis.
Benchmarks differ by fund and are defined in each fund’s Investment
Management Agreement (for example, the benchmark for our GARS
unit trust fund is six-month GBP LIBOR). For total AUM, the
investment performance calculation covers 81% of Aberdeen
Standard Investments AUM, with certain assets excluded such as
non-discretionary portfolios e.g. full replication tracker funds or funds
where no applicable index is available such as Aberdeen Standard
Capital funds.
253
OTHER INFORMATIONStandard Life Aberdeen 2018
Spread/risk business
Spread/risk business relates to our discontinued UK and European
insurance business and mainly comprises products where we provide
a guaranteed level of income for our customers in return for an
investment, for example, annuities. The ‘spread’ referred to in the title
primarily relates to the difference between the guaranteed amount we
pay to customers and the actual return on the assets over the period of
the contract.
Spread/risk margin
Spread/risk margin is a component of adjusted profit and reflects the
margin earned on spread/risk business. This includes net earned
premiums, claims and benefits paid, net investment return using long-
term assumptions and reserving changes. Spread/risk margin
excludes the impact of economic assumption changes, which are not
included in determining adjusted profit.
Standard Life
Following completion of the sale of our UK and European insurance
business to Phoenix in August 2018, we have retained ownership of
the Standard Life brand while also licensing it to Phoenix. The
Standard Life brand will continue to be a prominent feature of our retail
platforms.
Standard Life Group
Prior to demutualisation on 10 July 2006, The Standard Life
Assurance Company 2006 and its subsidiaries and, from
demutualisation on 10 July 2006 to 13 August 2017, Standard Life plc
and its subsidiaries.
Strategic insurance partners
A measure of the assets managed on behalf of a number of strategic
partners such as Lloyds Banking Group and Phoenix.
Subordinated liabilities
Subordinated liabilities are debts of a company which, in the event of
liquidation, rank below its other debts but above share capital.
Underpin
In relation to remuneration, refers to a further performance condition
that is required to be met in addition to the performance targets when
determining the vesting of an award.
11. Glossary continued
Key performance indicators (KPI)
A measure by reference to which the development, performance or
position of the business can be measured effectively.
Net flows
Net flows represent gross inflows less gross outflows or redemptions.
Gross inflows are new funds from clients and customers. Gross
outflows or redemptions is the money withdrawn by clients or
customers during the period.
Phoenix or Phoenix Group
Phoenix Group Holdings plc or Phoenix Group Holdings plc and its
subsidiaries.
Pillar 1
Under CRD IV, Pillar 1 focuses on fixed overhead requirements and
the Group’s exposure to credit and market risks in respect of risk-
weighted assets, and sets a minimum requirement for capital based
on these measures.
Pillar 2
The requirement for companies to assess the level of additional capital
held against risks not covered in Pillar 1.
Pillar 3
This complements Pillar 1 and Pillar 2 with the aim of improving
market discipline by requiring companies to publish certain details of
their risks, capital and risk management. The Group’s Pillar 3
disclosures will be published on the Group’s website at
www.standardlifeaberdeen.com/annualreport before 31 December
2019.
Platform
An investment platform (e.g. Wrap or Elevate) which is essentially a
trading platform enabling investment funds, pensions, direct equity
holdings and some life assurance contracts to be held in the same
administrative account rather than as separate holdings.
Pro forma basis
The merger of Standard Life plc and Aberdeen completed on 14
August 2017, with the merger accounted for as an acquisition of
Aberdeen by Standard Life plc on that date. Pro forma results for the
Group are prepared as if Standard Life Group and Aberdeen had
always been merged and are included for comparative periods to
assist in explaining trends in financial performance by showing a full
12 months performance for the combined Group for all years.
Reported basis
The merger of Standard Life plc and Aberdeen completed on 14
August 2017, with the merger accounted for as an acquisition of
Aberdeen by Standard Life plc on that date. The financial statements
for 2017 have been prepared on this basis, with Aberdeen results
included only from the date of merger onwards. This is referred to as
the Reported basis.
Retail
Our UK Retail business offers a range of leading asset administration
and financial planning services to advised and non-advised customers
through our retail Platforms (Wrap, Elevate and Fundzone) and our
1825 financial advice business.
SLAL
Standard Life Assurance Limited.
Solvency II
Solvency II is the European regulatory capital regime that applies to
insurance firms.
254
Standard Life Aberdeen 2018
12. Shareholder information
Registered office
1 George Street
Edinburgh
EH2 2LL
Scotland
Company registration number: SC286832
For shareholder services call:
0345 113 0045*
*Calls may be monitored and/or recorded to protect both you and us and help with our
training. Call charges will vary.
Secretary
Kenneth A Gilmour
Registrar
Link Market Services Limited (Link)
Auditors
KPMG LLP
Solicitors
Slaughter and May
Brokers
JP Morgan Cazenove
Goldman Sachs
Cenkos Securities
Shareholder services
We offer a wide range of shareholder services. For more information,
please:
Contact our registrar, Link, who manage this service for us. Their
details can be found on the inside back cover.
Visit our share portal at www.standardlifeaberdeenshares.com
Sign up for Ecommunications
Signing up means:
You’ll receive an email when documents like the Annual report and
accounts, Half year results and AGM guide are available on our
website
Voting instructions for the Annual General Meeting will be sent to
you electronically
Set up a share portal account
Having a share portal account means you can:
Manage your account at a time that suits you
Download your documents when you need them
To find out how to sign up, visit
www.standardlifeaberdeenshares.com
Preventing unsolicited mail
By law, the Company has to make certain details from its share
register publicly available. Because of this, it is possible that some
registered shareholders could receive unsolicited mail or phone calls.
You could also be targeted by fraudulent ‘investment specialists’.
Remember, if it sounds too good to be true, it probably is.
You can find more information about share scams at the Financial
Conduct Authority website www.fca.org.uk/consumers/scams
If you are a certificated shareholder, your name and address may
appear on a public register. Using a nominee company to hold your
shares can help protect your privacy. You can transfer your shares into
the Company-sponsored nominee – the Standard Life Aberdeen
Share Account – by contacting Link, or you could get in touch with
your broker to find out about their nominee services.
If you want to limit the amount of unsolicited mail you receive
generally, please visit www.mpsonline.org.uk
Financial calendar
Full year results 2018
Ex-dividend date for 2018 final dividend
Record date for 2018 final dividend
Last date for DRIP elections for 2018 final dividend
Annual General Meeting – Edinburgh
Dividend payment date for 2018 final dividend
Half year results 2019
Ex-dividend date for 2019 interim dividend
Record date for 2019 interim dividend
Last date for DRIP elections for 2019
interim dividend
13 March
11 April
12 April
01 May
14 May
21 May
07 August
15 August
16 August
04 September
Dividend payment date for 2019 interim dividend
24 September
Analysis of registered shareholdings at 31 December 2018
Number
of holders
% of total
holders
Number of
shares
% of total
shares
Range of shares
1-1,000
1,001-5,000
5,001-10,000
10,001-100,000
#100,001+
66,632
29,943
2,464
1,556
586
65.85
29.59
2.44
1.54
0.58
27,314,687
60,755,578
16,390,222
38,520,767
2,386,430,970
Total
101,181
100
2,529,412,224
# These figures include the Company-sponsored nominee – the Standard Life
Aberdeen Share Account – which had 1,022,001 participants holding 648,081,141
shares.
255
1.08
2.40
0.65
1.52
94.35
100
OTHER INFORMATIONStandard Life Aberdeen 2018
Notes
256
Standard Life Aberdeen 2018
Financial highlights
Key performance indicators from continuing operations1
Adjusted profit before tax
Cost/income ratio
Adjusted diluted earnings per share3
KPI R
KPI R
KPI R
2018
£650m
2017
Pro forma basis2
£660m
2017
Reported basis2
£475m
68%
71%
70%
17.8p
17.2p
15.1p
Assets under management and administration
(AUMA)
KPI
£551.5bn
£608.1bn
Gross inflows
Net flows
Investment performance
Percentage of AUM above benchmark over three years
Full year dividend per share
KPI R
KPI R
KPI R
KPI
£75.2bn
£72.4bn
£32.9bn
outflow
63%
£40.9bn
outflow
50%
21.6p
21.3p
Certain measures such as adjusted profit before tax, are not defined under IFRS and are therefore termed alternative performance measures
(APMs). Further details on APMs are included in Supplementary information in Section 10.
We include financial measures below which have not been determined to be KPIs but we believe are integral to the Group’s performance.
Other financial highlights
IFRS (loss)/profit before tax from continuing
operations1
IFRS profit after tax attributable to
equity holders (including discontinued operations)
Diluted earnings per share3
(including discontinued operations)
Non-financial highlights
Employee survey
2018 Defaqto ratings
Engagement
56%
KPI
Gold rating for service
Wrap and Elevate
5 star rating for discretionary
portfolio services
Aberdeen Standard Capital and
Parmenion
(£787m)
£830m
29.1p
£438m
£699m
29.6p
Investment innovation
of the year
2019 Insurance Asset Risk
Awards
Financial services company
of the year
2018 Better Society Awards
FTSE4Good
Ranked in top 1% of
companies
(2017: Top 3%)
KPI
R
Key performance indicators (KPIs) are defined as the measures by which the development, performance or position of the business can be measured effectively.
The KPIs that we use may not be directly comparable with similarly named measures used by other companies. See Supplementary information in Section 10 for
further information.
Measure is a key input to a metric used for executive remuneration. See page 86 for more information.
1 Continuing operations excludes the UK and European insurance business. The sale of this business to Phoenix completed on 31 August 2018.
2 This report includes results for comparative periods on both a Reported basis and a Pro forma basis. See page 1 for details.
3
In accordance with IAS 33, earnings per share have not been restated following the share consolidation as there was an overall corresponding change in resources. As a
result of the share consolidation and share buyback earnings per share from continuing operations for the year ended 31 December 2018 is not directly comparable with the
prior year. Refer to Note 11 of the Group financial statements for information relating to the calculation of diluted earnings per share.
Contact us
Got a shareholder question? Contact our shareholder services team.
UK and Ireland
phone
0345 113 0045*
+353 (1) 431 9829*
+44 (0)20 3367 8224*
Germany and Austria
Canada
phone
+49 (0)69 9753 3030*
phone
1‑866‑982‑9939
email
questions@standardlifeaberdeenshares.com
visit
www.standardlifeaberdeenshares.com
email
fragen@standardlifeaberdeenshares.de
email
questions@standardlifeaberdeenshares.ca
visit
www.standardlifeaberdeenshares.com
visit
www.standardlifeaberdeenshares.com
mail
Standard Life Aberdeen Shareholder Services
34 Beckenham Road
Beckenham Kent
BR3 4TU
mail
Standard Life Aberdeen Aktionarsservice
Postfach 2705
36243 Niederaula
Germany
mail
Standard Life Aberdeen Shareholder Services
PO Box 4636, Station A
Toronto M5W 7A4
Canada
* Calls may be monitored and/or recorded to protect both you and us and help with our training. Call charges will vary.
Download our app
Keep up to date with Standard Life
Aberdeen news, share price updates and
other useful information on Standard Life
Aberdeen’s Investor App
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Designed by Black Sun Plc (Strategic report) and
Standard Life Aberdeen plc (rest of Annual report and accounts)
Published by Adare SEC (Nottingham) Limited
Please remember that the value of shares can go down as well
as up and you may not get back the full amount invested or any
income from it. All figures and share price information have been
calculated as at 31 December 2018 (unless otherwise indicated).
This document has been published by Standard Life Aberdeen
plc for information only. It is based on our understanding as at
March 2019 and does not provide financial or legal advice.
Apple and the Apple logo are trademarks of Apple Inc.,
registered in the U.S. and other countries. App Store is a
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Google Play and the Google Play logo are trademarks of
Google LLC.
Standard Life Aberdeen plc is registered in Scotland (SC286832)
at 1 George Street, Edinburgh EH2 2LL.
www.standardlifeaberdeen.com © 2019 Standard Life
Aberdeen, images reproduced under licence. All rights reserved.
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Standard Life Aberdeen plc Annual report and accounts 2018Investing for a better future