Annual report and accounts 2019
Highlights
Key performance indicators from continuing operations1
Fee based
revenue
£1,634m
2018: £1,868m
Adjusted profit
before tax3
£584m
2018: £650m
KPI
R
KPI
R
Investment
performance2
60%
2018: 50%
Cost/income
ratio3
71%
2018: 68%
KPI
R
KPI
IFRS profit/(loss)
before tax3
£243m
2018: (£787m)
KPI
R
KPI
Adjusted diluted
earnings per share3,4
19.3p
2018: 17.8p
KPI
Full year dividend
per share
21.6p
2018: 21.6p
Certain measures, such as fee based revenue, cost/income ratio and adjusted profit before tax are not defined under International Financial
Reporting Standards (IFRS) and are therefore termed alternative performance measures (APMs). Further details on APMs are included in
Supplementary information in Section 9.
Other financial highlights
Non-financial highlights
Gross inflows
Total
£86.2bn
2018: £75.2bn
Net flows
Total
£58.4bn outflow
2018: £40.9bn outflow
Net flows
Excl. Lloyds
Banking Group5
£17.4bn outflow
2018: £40.9bn outflow
Assets under
management and
administration (AUMA)
£544.6bn
2018: £551.5bn
Diluted earnings per share3,4
(including discontinued operations)
11.1p
2018: 29.1p
See page 1 for footnotes.
KPI
We have revised our key performance indicators (KPIs) in 2019 to reflect our
increased focus on revenue rather than flows/AUMA and also to include IFRS
profit as a KPI in addition to APMs. The KPIs that we use may not be directly
comparable with similarly named measures used by other companies.
See Supplementary information in Section 9 for further information.
R
Metric used for executive remuneration in the proposed 2020 remuneration
policy. Gross inflows and net flows were metrics under the 2019 remuneration
policy but are not included in the proposed 2020 remuneration policy.
See pages 83 to 84 for more information.
Clients and customers
2020 Defaqto ratings
• Gold rating for service
Wrap, Elevate and Parmenion
• 5 star rating for bespoke portfolio management
and managed portfolio service
Aberdeen Standard Capital
2019 Financial News Asset Management Awards
• Asset Management Innovation of the Year
Best performing trusts/funds of 2019
• Standard Life UK Smaller Companies and
Aberdeen Smaller Companies (both top 10 trusts)
• ASI UK Impact Employment Opportunities
Equity fund (top 20 fund)
People
KPI R
Employee
engagement survey
• Actions in place
to address
feedback from
2018 survey –
See page 20
Society
FTSE4Good
• Ranked in top 4%
of companies
Hampton-Alexander
Review 2019 –
FTSE100 gender
representation
• 10th position and
most improved
company
Dow Jones
Sustainability
Indices (DJSI)
• Ranked in top 4%
of companies in
our sector
Contents
The Annual report and accounts 2019 and the Strategic report and financial
highlights 2019 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.
Details of forward-looking statements are on page 259.
The integration of environmental, social and governance (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 2019 which can be found at
www.standardlifeaberdeen.com/annualreport
This symbol indicates further information is
available within this annual report or on the
Group corporate website.
Download this report from:
www.standardlifeaberdeen.com/annualreport
1. Strategic report
Our business at a glance ............................................................. 2
Message from the Chairman ....................................................... 4
Chief Executive’s review and strategic drivers ............................. 6
Our stakeholders and business model ...................................... 10
Our clients and customers ......................................................... 12
Our people .................................................................................. 18
Our role in society ....................................................................... 22
Our shareholders ........................................................................ 28
Chief Financial Officer’s overview .............................................. 34
Risk management ...................................................................... 44
Governance
2. Board of Directors ...................................................................... 52
3. Corporate governance statement .............................................. 56
3.1 Audit Committee report ....................................................... 65
3.2 Risk and Capital Committee report ..................................... 72
3.3 Nomination and Governance Committee report ................ 76
3.4 Directors’ remuneration report ............................................ 78
4. Directors’ report ....................................................................... 105
5. Statement of Directors’ responsibilities .................................. 111
Financial information
6. Independent audit report ......................................................... 114
7. Group financial statements ..................................................... 121
8. Company financial statements ............................................... 232
9. Supplementary information ..................................................... 243
Other information
10. Glossary ................................................................................... 256
11. Shareholder information .......................................................... 258
12. Forward-looking statements ................................................... 259
13. Contact us ................................................................................ IBC
1 Continuing operations excludes the UK and European insurance business which was sold to Phoenix on 31 August 2018.
2 Percentage of AUM above benchmark over three years. Calculated on a Pro forma basis (which combines the results for Standard Life Group and Aberdeen prior to
completion of the merger in 2017) and gross of fees. A full definition is included in the Glossary.
3 The Group has initially applied IFRS 9 and IFRS 16 at 1 January 2019. Under the transition methods chosen, comparative information is not restated. Refer to the basis of
preparation section of the Group financial statements.
4
In accordance with IAS 33, earnings per share has not been restated following the share consolidation in 2018 as there was an overall corresponding change in resources. As
a result of the share consolidation and share buybacks, earnings per share from continuing operations for the year ended 31 December 2019 is not directly comparable with
the prior year. Refer to Note 12 of the Group financial statements for information relating to the calculation of diluted earnings per share.
5 Net outflows excluding Lloyds Banking Group (LBG) do not include the tranche withdrawals relating to the settlement of arbitration with LBG. Refer to Note 5 of the Group
financial statements.
Standard Life Aberdeen 2019
1
Strategic report
2
Standard Life Aberdeen 2019
Our purpose
Together we invest for a better future.
Our strategy is to build a vibrant and value-creating
purpose-led organisation, with the current and future needs
of our stakeholders at the heart of all we do.
• For our clients and customers, this means building
solutions to create wealth and help meet their needs
• For our employees, it means creating an environment
where everyone can thrive
• For society, it means promoting positive change through
how we operate and invest
• For our shareholders, it means turning opportunities into
sustainable long-term returns
Our business
We meet the evolving needs of investors
and savers.
We do this by building lasting relationships and developing
innovative products and services. We offer:
• Active asset management to institutional, wholesale and
strategic insurance clients
• Wealth management, financial planning and advice
services, either directly to customers or through financial
advisers
We also have significant holdings in associate and joint
venture businesses: Phoenix in the UK, HDFC Life and
HDFC Asset Management in India, and Heng An Standard
Life in China.
Our operations
We are headquartered in Scotland and listed in London, with around 6,000 employees
in over 50 locations worldwide. We have operations in global financial capitals and
important regional centres, which bring us closer to our clients and customers around the
world, and provide invaluable knowledge and insight to share with our people.
Employees by location
1
2
UK
78%
Europe,
Middle East
and Africa
6%
3
4
Americas
6%
Asia Pacific
10%
Countries with office locations
Standard Life Aberdeen 2019
3
Strategic report
Message from the Chairman
A business with purpose
To enable us to build on where we are, we have continued our
progress in transforming our organisation to ensure that we are ready
to embrace the challenges and opportunities of today and tomorrow.
Nowhere is this more important than contributing to the transition to a
lower carbon future and, as an active manager, we take our
engagement responsibilities in this regard very seriously. Already we
do a great deal, but we can and will do more. We look forward to
COP26, the United Nations Climate Change Conference, in Glasgow
later this year, at which we hope to demonstrate leadership in the
discussions as to what more the investment industry can do.
Delivering value for shareholders
Last year I highlighted three priorities for 2019. First, improve
investment performance; second, progress the integration and
transformation of the two businesses into a coherent forward-looking
entity; and third, unlock the revenue potential of the combined
business.
I am pleased to report that investment performance has shown
marked improvement; Keith will cover this in more detail. As regards
integration, we made solid progress and while completion will now
take a bit longer and cost more to deliver, the synergy benefits
targeted have also increased; this is covered in detail in the financial
review. Finally, we have been investing to grow our business and
further diversify sources of revenue. This includes focusing on
building our capabilities and assigning resources to markets where
we see the most growth potential, and in the UK bringing together the
proven capabilities in our Platforms and Wealth channel.
While the net fund flow of the business is improving, market
conditions and competitive pricing are constraining the revenue
growth we had expected. This had a consequential negative impact
on the carrying value of goodwill on the Group balance sheet and
resulted in a further impairment charge. Stephanie talks more about
this in the Chief Financial Officer’s review.
Market conditions however were very favourable to the unlocking of
value from our Indian stakes. We completed four share sales with
regard to HDFC Life, no longer regarded as strategic following the
sale of our UK and European insurance business in 2018. In addition,
we sold 3.02% of our stake in HDFC Asset Management, progressing
towards the requirement to create a minimum free float. Together
these stake sales realised £1.7bn and generated a profit of £1.5bn.
We returned £0.5bn during 2019 through share buybacks. This was a
contributing factor to our excellent share price performance over the
year, resulting in a total shareholder return of 39%.
Together with the adjusted profits in 2019, these gains also allowed
us, as planned, to maintain the dividend at a constant level while the
business is transformed, cost synergies are delivered, and future
financial performance confirms the sustainability of the level of
distribution and provides line of sight to its future growth. As a
consequence of this, your Board is proposing a final dividend of
14.3p, the same amount as last year. Assuming shareholders vote to
approve this at the upcoming AGM, this would give a total dividend for
2019 of 21.6p, again the same as last year.
Board activity
Since we reported in August we have announced a number of
important changes as we refresh and augment the skills and
experience on the Board.
We welcomed Jonathan Asquith and Cecilia Reyes to the Board in
September and October respectively. Jonathan brings a wealth of
experience in the asset management industry and in financial
services more generally and is chairing the Remuneration Committee
as well as taking on the responsibilities of Senior Independent
Director. Cecilia joins us after a long and distinguished career as
Chief Investment Officer and Chief Risk Officer at one of Europe’s
leading insurance companies.
In his roles as Senior Independent Director and Remuneration
Committee Chair, Jonathan has over the past six months spent time
with many of our largest institutional shareholders to understand their
views on the Company. One important outcome of this is that we will
be proposing a new remuneration policy in 2020, a year ahead of the
usual cycle. Jonathan shares more about this, and the approach we
have taken, in his introduction to the Directors’ remuneration report on
page 78. We will be asking you to vote on the new proposed policy at
our AGM in May.
In February of this year, we announced the appointment of Brian
McBride, with effect from 1 May. As we position our business for a
technology driven future, his direct experience of developing digital
strategies and solutions in consumer-facing businesses tackling
rapidly evolving markets will be of great benefit.
Turning to our executive Board directors, at the end of December,
Rod Paris stepped down from the Board as part of simplifying our
governance structure; he remains Chief Investment Officer and a key
member of the executive leadership team.
In October we announced that Martin Gilbert will not seek re-election
at the upcoming AGM and will retire from the Group at the end of
September this year. This is a significant moment of transition for our
business. As I said at the time, it is impossible to overstate Martin’s
Section 172 statement
The Board recognises that the long-term success of our
business is dependent on the way it works with a large number
of important stakeholders. The Directors have had regard to the
interests of our stakeholders (including, for example, our clients
and customers, our people, society and our shareholders) while
complying with their obligations to promote the success of the
Company in line with section 172 of the Companies Act. The
Board has discussed these obligations throughout the year,
including how stakeholder engagement is incorporated into
our long-term decision-making with further details provided on
page 59.
The Board’s decision-making considers both risk and reward in
pursuit of delivering long-term value for all of our stakeholders,
and protecting their interests. Awareness and understanding of
the current and the potential risks to the business, including both
financial and non-financial risks, are fundamental to how we
manage the business. Further information on how risks are
appropriately assessed, monitored, controlled and governed is
provided in the Risk management section.
A key example of stakeholder activity in 2019 was the
appointment of Melanie Gee as the non-executive Director for
employee engagement. Strong progress has been made in this
area and regular communications will continue in 2020.
You can read more about how we connect with our stakeholders
in the pages that follow.
In more traditional areas of concern, it is clear that the trade and
diplomatic relationship between the United States and China will
remain a source of friction for some time, particularly in the
technology arena.
achievement in building Aberdeen Asset Management over 37 years
Likewise the resetting of the UK’s trading relationships with the EU
from virtually nothing into a truly global and widely respected
and the rest of the world will create both opportunities and challenges
investment firm. His foresight in recognising the factors that would
for national economies – and investment markets will respond
reshape the industry and the opportunities that could be delivered
accordingly.
from combining with Standard Life, led to the creation of Standard Life
Aberdeen in 2017. We owe him a huge debt of gratitude and accept
the significant responsibility to build on his legacy.
Looking ahead
At the opening to my statement I recognised that we now have more
management capabilities that we believe are essential to meeting the
clarity, at least in the short term, on some key issues in the last year.
demands of all our stakeholders.
Finally, the empowering yet disruptive impacts of technological
innovation and data management will change many business models
faster than we have seen in the past. It is for all these reasons we
invest heavily in investment research, in our own technology and in
human talent to build the agile and responsive active asset
Let me close by expressing on behalf of shareholders my gratitude to
all my colleagues who have worked so hard in the past year to deliver
the improved investment performance and organisational change
needed to position Standard Life Aberdeen well for future success.
Unsurprisingly in these times, other issues have emerged and a level
of uncertainty remains for existing geopolitical tensions, all of which
deserve continuing watchful oversight.
The spread of the COVID-19 coronavirus in China and beyond has
already had a significant impact and could have a material disruptive
effect on trade, supply chains and international travel.
Sir Douglas Flint
Chairman
Sir Douglas Flint
2019 was, in many respects, a pivotal year in areas of great
significance for our industry and for your company. We have more
clarity on a number of geopolitical uncertainties; the finalisation of the
agreement by which the UK departed from the European Union; a
first stage agreement between the United States and China on trade
matters which brought some relief to a trade war that had escalated
during 2019; and, the election of a government in the UK with a
sizeable majority, unlocking the potential for clear policy choices after
a period of inactivity while the UK’s position on exiting the EU was
settled. In financial markets, we saw smooth leadership transitions at
both the European Central Bank and the Bank of England. And
finally, in investment markets, the importance of Environmental,
Social and Governance (ESG) considerations was elevated into
mainstream cognisance as the impact of human influence on climate
change was compellingly exposed. Keith talks more about the market
context for our business in his review.
Together we invest for a better future
Never has it been more important to recognise the impact we can
have, not just in the financial returns we can deliver for our ultimate
beneficiaries, but in the influence we have with the companies in
which we invest and how this can contribute to a better future for all
our stakeholders. In uncertain times, we have anchored our business
with a common and unifying purpose to ensure that we deliver good
financial outcomes responsibly, taking into account the concerns and
aspirations of all our stakeholders.
I am pleased to report that the work we have done to improve
investment performance for our clients and customers has made
good progress. Equally important, I am proud of the culture we are
building with our people and, through all of the above, our positive
role in society and the communities of which we are a vital part.
4
Standard Life Aberdeen 2019
Board activity
Since we reported in August we have announced a number of
important changes as we refresh and augment the skills and
experience on the Board.
We welcomed Jonathan Asquith and Cecilia Reyes to the Board in
September and October respectively. Jonathan brings a wealth of
experience in the asset management industry and in financial
services more generally and is chairing the Remuneration Committee
as well as taking on the responsibilities of Senior Independent
Director. Cecilia joins us after a long and distinguished career as
Chief Investment Officer and Chief Risk Officer at one of Europe’s
leading insurance companies.
In his roles as Senior Independent Director and Remuneration
Committee Chair, Jonathan has over the past six months spent time
with many of our largest institutional shareholders to understand their
views on the Company. One important outcome of this is that we will
be proposing a new remuneration policy in 2020, a year ahead of the
usual cycle. Jonathan shares more about this, and the approach we
have taken, in his introduction to the Directors’ remuneration report on
page 78. We will be asking you to vote on the new proposed policy at
our AGM in May.
In February of this year, we announced the appointment of Brian
McBride, with effect from 1 May. As we position our business for a
technology driven future, his direct experience of developing digital
strategies and solutions in consumer-facing businesses tackling
rapidly evolving markets will be of great benefit.
Turning to our executive Board directors, at the end of December,
Rod Paris stepped down from the Board as part of simplifying our
governance structure; he remains Chief Investment Officer and a key
member of the executive leadership team.
In October we announced that Martin Gilbert will not seek re-election
at the upcoming AGM and will retire from the Group at the end of
September this year. This is a significant moment of transition for our
business. As I said at the time, it is impossible to overstate Martin’s
achievement in building Aberdeen Asset Management over 37 years
from virtually nothing into a truly global and widely respected
investment firm. His foresight in recognising the factors that would
reshape the industry and the opportunities that could be delivered
from combining with Standard Life, led to the creation of Standard Life
Aberdeen in 2017. We owe him a huge debt of gratitude and accept
the significant responsibility to build on his legacy.
Looking ahead
At the opening to my statement I recognised that we now have more
clarity, at least in the short term, on some key issues in the last year.
Unsurprisingly in these times, other issues have emerged and a level
of uncertainty remains for existing geopolitical tensions, all of which
deserve continuing watchful oversight.
The spread of the COVID-19 coronavirus in China and beyond has
already had a significant impact and could have a material disruptive
effect on trade, supply chains and international travel.
Section 172 statement
The Board recognises that the long-term success of our
business is dependent on the way it works with a large number
of important stakeholders. The Directors have had regard to the
interests of our stakeholders (including, for example, our clients
and customers, our people, society and our shareholders) while
complying with their obligations to promote the success of the
Company in line with section 172 of the Companies Act. The
Board has discussed these obligations throughout the year,
including how stakeholder engagement is incorporated into
our long-term decision-making with further details provided on
page 59.
The Board’s decision-making considers both risk and reward in
pursuit of delivering long-term value for all of our stakeholders,
and protecting their interests. Awareness and understanding of
the current and the potential risks to the business, including both
financial and non-financial risks, are fundamental to how we
manage the business. Further information on how risks are
appropriately assessed, monitored, controlled and governed is
provided in the Risk management section.
A key example of stakeholder activity in 2019 was the
appointment of Melanie Gee as the non-executive Director for
employee engagement. Strong progress has been made in this
area and regular communications will continue in 2020.
You can read more about how we connect with our stakeholders
in the pages that follow.
In more traditional areas of concern, it is clear that the trade and
diplomatic relationship between the United States and China will
remain a source of friction for some time, particularly in the
technology arena.
Likewise the resetting of the UK’s trading relationships with the EU
and the rest of the world will create both opportunities and challenges
for national economies – and investment markets will respond
accordingly.
Finally, the empowering yet disruptive impacts of technological
innovation and data management will change many business models
faster than we have seen in the past. It is for all these reasons we
invest heavily in investment research, in our own technology and in
human talent to build the agile and responsive active asset
management capabilities that we believe are essential to meeting the
demands of all our stakeholders.
Let me close by expressing on behalf of shareholders my gratitude to
all my colleagues who have worked so hard in the past year to deliver
the improved investment performance and organisational change
needed to position Standard Life Aberdeen well for future success.
Sir Douglas Flint
Chairman
Standard Life Aberdeen 2019
5
Strategic report
Chief Executive’s review
Transforming today, investing for tomorrow
We have seen a significant improvement in investment performance
following a particularly challenging year in 2018. At the end of 2019
74%, 60% and 67% of AUM was outperforming its benchmark over
one, three and five years respectively. The three-year metric reflects
improved performance in Multi-asset and continued strong
performance in Fixed income and Asia Pacific equities. This in turn
reflects the work of the team on our process enhancement plans,
which helped us review and refine our investment approach on an
ongoing basis. We have also developed decision support tools and
quantitative frameworks to aid portfolio construction.
It was pleasing then, at the start of 2020, to see this improvement
recognised with a number of our funds featuring in Investment Week's
coverage of the best performers of 2019. One of those included was
our ASI UK Impact Employment Opportunities Equity fund, illustrating
our long-held belief that a fund oriented towards ESG considerations
does not mean a compromise on returns. Both Standard Life UK
Smaller Companies and Aberdeen Smaller Companies were featured
in the top ten performing investment trusts, marking an outstanding
year for the team.
Our focus, of course, is on meeting the needs of our clients and
customers, wherever they are in the world. To this end, as well as
improving investment performance, we have maintained our
commitment to innovation. We have developed and launched 36
products and 48 funds globally during the year, including our first
tactical Emerging Markets Bond Fixed Maturity Product and our
China OEIC and China Bond fund. We also launched new and highly
innovative technology on our Wrap platform, which allows for greater
client portfolio personalisation.
We have evolved our multi-channel approach to focus on four
channels: Institutional, Wholesale, Strategic insurance and Platforms
and Wealth. This model reflects the new shape of our business and
gives a sharp focus to our activities and how we can best utilise our
brands. We also work with our partners to get closer to more UK
consumers. We made some significant developments in our business
in the UK in 2019 including our joint venture with Virgin Money and
the launch of a strategic partnership with Skipton Building Society.
Leadership, culture and strategy
Sustaining our performance, and meeting our ambitions, requires that
our people are united – working together towards a common purpose
with a shared culture. This starts with leadership. Over the last year
we have made a significant investment in our people and have taken
major steps forward in building the culture that will enable us to deliver
our strategy.
I have realigned my executive leadership team to ensure we can be
quick and effective in decision-making. I have also brought together a
wider global leadership group, a team of our top leaders from across
the organisation who hold collective responsibility for delivering our
business plan. These leaders have a key role in achieving our
strategy.
Our purpose is that together we invest for a better future. Importantly
we do this as a single cohesive team and with the interests of all our
stakeholders at the heart of our decision-making.
Given the context for our business – the pace of change, the final
stages of our transformation plan and the need to align our people’s
focus and energy – we are continually evolving our strategy to
accelerate our progress towards achieving our ambitions. Alongside
our purpose, we have defined our strategic drivers, the imperatives
that underline how we will deliver and move forward as a business.
Our people are coming together behind this single, focused approach.
Details of these strategic drivers are opposite, and on pages 32 to 33.
A transforming business
We are now over two years on from our merger, and over a year on
from the sale of our UK and European insurance business to
Phoenix. A great deal has been achieved over the last two years with
some 700 milestones delivered as we integrated the two fund
management businesses. The positive benefits were reflected in
improved investment performance and flows, excluding Lloyds
Banking Group, in the second half of the year. Expected cost
synergies from integration and transformation have increased.
However, given the increased complexity that the separation
programme has added to the already challenging integration
programme, the expected gross cost of delivery has also increased
and the timing of the completion has lengthened. While we plan to
complete the build-out of the integrated investment platform and
commence migration of portfolios in 2020, migration of all portfolios
will now complete in 2021.
Our plan is working but there is still more we need to do, and we will
need to sustain our focus and energy on this work while also looking
to the future for our business.
Not least in this programme of work is a significant project to complete
the full separation of our business from the operations that transferred
to Phoenix. As an important strategic partner we will continue to work
closely with Phoenix, helping to grow their open book business and
as their asset manager of choice.
Sustainable return for long-term shareholders
Through this period of transformation, we are focused on reshaping
our cost base to match our transformed business, while also investing
to build a business fit for the future. Our financial stability is supported
by our strong balance sheet, including our valuable listed investments
in successful third party businesses including HDFC Life, HDFC
Asset Management and Phoenix.
In last year’s annual report, we stated our intention to maintain our
dividend at a stable level through our transformation. During this
period, we have sustained the dividend, despite tough market
conditions, and our shareholders have also benefited from a
substantial return of capital: with £1.75bn returned over 2018/2019
through our ‘B’ share scheme and our on-market share buyback. In
2020, we also announced a further share buyback of up to £400m.
In 2021 we will be a very different business to what we were at the
start of 2018. This will mean a sharp focus on our Asset
management, Platforms and Wealth activity. For shareholders who
have held our stock for ten years, this represents a total return of
162%. We believe that we are well placed to continue to reward our
patient shareholders with long-term value.
Our strategic drivers
The foundations from which we deliver for all our
stakeholders.
High impact intelligence
Harness our intellectual capital, emotional
intelligence and data to generate best in
class impact.
Enduring relationships
Deepen our understanding of customers
and clients to ensure we exceed their
expectations and build relationships
that last.
Connections without borders
Bring the best of our business to all our
markets by constantly connecting our
people, capabilities and assets to deliver a
seamless proposition.
Future fit
Build a strong organisation, positioned for
growth and ready to anticipate and meet the
challenges of tomorrow.
Read more about our strategic priorities
on pages 32 to 33.
Keith Skeoch
2019 was another year of intense change for both our industry and
our business. To take advantage of the undoubted opportunities that
these changes bring, we continued to invest in transforming the
business in order to ensure we are future fit. While there is still
important work to be done, particularly on systems integration, I am
pleased to report significant progress on the priorities highlighted by
Sir Douglas in his report.
Investment performance improved throughout the year. We built on
the work done to bring our people together and created a single
executive leadership team. This has put strong foundations in place
for the development of a shared culture across the business. The
heavy lifting to integrate our systems is also well underway.
We started to see evidence of progress in the second half of the year
as flows improved. Our progress was also recognised by the industry
as we received external recognition for investment performance, the
quality of our platforms, our innovation and HR practices.
We also took advantage of favourable market conditions to monetise
some of the value of our listed investments in India, in order to extend
our share buyback programme and improve our financial resilience.
Driving performance, delivering for clients and
customers
Turning to the financial results, I am pleased with the improved
momentum in the second half of the year. IFRS profit before tax from
continuing operations increased to £243m (2018: loss of £787m)
primarily reflecting the gains realised from the sale of shares in HDFC
Life and HDFC Asset Management. Adjusted profit before tax from
continuing operations of £584m was a 10% reduction on 2018, mainly
due to the impact on revenue of the outflows in both 2018 and 2019.
6
Standard Life Aberdeen 2019
Given the context for our business – the pace of change, the final
stages of our transformation plan and the need to align our people’s
focus and energy – we are continually evolving our strategy to
accelerate our progress towards achieving our ambitions. Alongside
our purpose, we have defined our strategic drivers, the imperatives
that underline how we will deliver and move forward as a business.
Our people are coming together behind this single, focused approach.
Details of these strategic drivers are opposite, and on pages 32 to 33.
A transforming business
We are now over two years on from our merger, and over a year on
from the sale of our UK and European insurance business to
Phoenix. A great deal has been achieved over the last two years with
some 700 milestones delivered as we integrated the two fund
management businesses. The positive benefits were reflected in
improved investment performance and flows, excluding Lloyds
Banking Group, in the second half of the year. Expected cost
synergies from integration and transformation have increased.
However, given the increased complexity that the separation
programme has added to the already challenging integration
programme, the expected gross cost of delivery has also increased
and the timing of the completion has lengthened. While we plan to
complete the build-out of the integrated investment platform and
commence migration of portfolios in 2020, migration of all portfolios
will now complete in 2021.
Our plan is working but there is still more we need to do, and we will
need to sustain our focus and energy on this work while also looking
to the future for our business.
Not least in this programme of work is a significant project to complete
the full separation of our business from the operations that transferred
to Phoenix. As an important strategic partner we will continue to work
closely with Phoenix, helping to grow their open book business and
as their asset manager of choice.
Sustainable return for long-term shareholders
Through this period of transformation, we are focused on reshaping
our cost base to match our transformed business, while also investing
to build a business fit for the future. Our financial stability is supported
by our strong balance sheet, including our valuable listed investments
in successful third party businesses including HDFC Life, HDFC
Asset Management and Phoenix.
In last year’s annual report, we stated our intention to maintain our
dividend at a stable level through our transformation. During this
period, we have sustained the dividend, despite tough market
conditions, and our shareholders have also benefited from a
substantial return of capital: with £1.75bn returned over 2018/2019
through our ‘B’ share scheme and our on-market share buyback. In
2020, we also announced a further share buyback of up to £400m.
In 2021 we will be a very different business to what we were at the
start of 2018. This will mean a sharp focus on our Asset
management, Platforms and Wealth activity. For shareholders who
have held our stock for ten years, this represents a total return of
162%. We believe that we are well placed to continue to reward our
patient shareholders with long-term value.
Our strategic drivers
The foundations from which we deliver for all our
stakeholders.
High impact intelligence
Harness our intellectual capital, emotional
intelligence and data to generate best in
class impact.
Enduring relationships
Deepen our understanding of customers
and clients to ensure we exceed their
expectations and build relationships
that last.
Connections without borders
Bring the best of our business to all our
markets by constantly connecting our
people, capabilities and assets to deliver a
seamless proposition.
Future fit
Build a strong organisation, positioned for
growth and ready to anticipate and meet the
challenges of tomorrow.
Read more about our strategic priorities
on pages 32 to 33.
Standard Life Aberdeen 2019
7
Strategic report
Chief Executive’s review continued
Understanding our market
2019 was unusual for financial markets, with both ‘growth’ and ‘defensive’ assets
producing strong positive returns. Investors entered the year expecting rising interest
rates, but rates actually fell. This, and a flood of central bank liquidity, lifted asset
classes across the market.
Over 2019 we saw global equities rise over 20%, global bonds
rise almost 7% and gold rise nearly 20% – a group of assets
that rarely march in such close step.
It was also a year when many of the worries expressed by
investors at the start of the year proved less taxing by the end.
Trade wars, Brexit, a looming US recession and rising interest
rates were all much discussed over the year – but all proved
less troublesome to markets than many had feared.
That said, the central bank assistance was principally driven by
disappointing economic data. Economies struggled to shake off
the hangover from the financial crisis of 2008. So while the
global economy did grow, it was at lower levels than most
expected.
The rise and rise of technology stocks fuelled further significant
outperformance of ‘growth’ over ‘value’ styles. Similarly, in debt
markets the hunt for yield and increased risk appetite resulted in
huge demand for emerging market and high yield debt compared
to low or negative yielding developed market government debt.
At the start of 2020, many of these themes hold true, though we
face the added challenge of dealing with the COVID-19
coronavirus and its potential impact on the world’s economy and
supply chains. We continue to see weak economic growth and
little inflation. Meanwhile, interest rates look set to remain at the
current very low levels. In this environment, and given more
stretched valuations, we can expect more moderate returns for
the year ahead. It continues to be an environment where careful
diversification of portfolios is likely to be rewarded.
Key global trends
Democratisation of financial risk
Changes in regulation, legislation and demographics are
shifting the savings landscape. Increasingly the financial risk of
long-term saving is shifting away from governments and
institutions towards the individual. In recognition of this, we are
scaling up our advice business, which completed two
significant acquisitions during 2019. Our strategic partnerships
mean we have potential access to millions of UK savers.
Rebuilding trust in financial services
The global financial crisis damaged trust, and rebuilding this trust
in the industry has not been helped by some poor corporate
practices. We believe the best way we can help regain this trust
is investing responsibly, encouraging diversity of thought and
practising what we preach in how we act. It also means a
continued focus on robust governance and risk management. As
an example of acting on our principles, we are offsetting our
operational carbon footprint to become carbon neutral in 2020.
Innovation, technology and digitalisation
Successful innovation is a key driver of value and the next
generation of savers will expect a seamless digital customer
experience. In 2019, we invested in new capabilities for our
award-winning adviser platforms and launched 36 products and
48 new funds. One example is our new index of hedge funds
which is a pioneering product in the market and has been one
of the most successful UCITS fund launches in 2019.
Slow growth, low inflation, compressed
return environment
Market volatility and uncertainty will be with us for some time and
will continue to drive clients’ and customers’ demand for
outcome-oriented products. We are a leader in ‘new active’
investment globally. This is an area of focus for us and we have
brought together our private markets franchise with our real
estate team, and we continue to invest in designing innovative
funds.
8
Standard Life Aberdeen 2019
Chief Executive’s review continued
Understanding our market
2019 was unusual for financial markets, with both ‘growth’ and ‘defensive’ assets
producing strong positive returns. Investors entered the year expecting rising interest
rates, but rates actually fell. This, and a flood of central bank liquidity, lifted asset
classes across the market.
Over 2019 we saw global equities rise over 20%, global bonds
The rise and rise of technology stocks fuelled further significant
rise almost 7% and gold rise nearly 20% – a group of assets
outperformance of ‘growth’ over ‘value’ styles. Similarly, in debt
that rarely march in such close step.
It was also a year when many of the worries expressed by
investors at the start of the year proved less taxing by the end.
markets the hunt for yield and increased risk appetite resulted in
huge demand for emerging market and high yield debt compared
to low or negative yielding developed market government debt.
Trade wars, Brexit, a looming US recession and rising interest
At the start of 2020, many of these themes hold true, though we
rates were all much discussed over the year – but all proved
face the added challenge of dealing with the COVID-19
less troublesome to markets than many had feared.
coronavirus and its potential impact on the world’s economy and
That said, the central bank assistance was principally driven by
disappointing economic data. Economies struggled to shake off
the hangover from the financial crisis of 2008. So while the
global economy did grow, it was at lower levels than most
expected.
supply chains. We continue to see weak economic growth and
little inflation. Meanwhile, interest rates look set to remain at the
current very low levels. In this environment, and given more
stretched valuations, we can expect more moderate returns for
the year ahead. It continues to be an environment where careful
diversification of portfolios is likely to be rewarded.
Key global trends
Democratisation of financial risk
Rebuilding trust in financial services
Changes in regulation, legislation and demographics are
The global financial crisis damaged trust, and rebuilding this trust
shifting the savings landscape. Increasingly the financial risk of
in the industry has not been helped by some poor corporate
long-term saving is shifting away from governments and
practices. We believe the best way we can help regain this trust
institutions towards the individual. In recognition of this, we are
is investing responsibly, encouraging diversity of thought and
scaling up our advice business, which completed two
practising what we preach in how we act. It also means a
significant acquisitions during 2019. Our strategic partnerships
continued focus on robust governance and risk management. As
mean we have potential access to millions of UK savers.
an example of acting on our principles, we are offsetting our
operational carbon footprint to become carbon neutral in 2020.
Innovation, technology and digitalisation
Successful innovation is a key driver of value and the next
generation of savers will expect a seamless digital customer
experience. In 2019, we invested in new capabilities for our
award-winning adviser platforms and launched 36 products and
48 new funds. One example is our new index of hedge funds
which is a pioneering product in the market and has been one
of the most successful UCITS fund launches in 2019.
Slow growth, low inflation, compressed
return environment
Market volatility and uncertainty will be with us for some time and
will continue to drive clients’ and customers’ demand for
outcome-oriented products. We are a leader in ‘new active’
investment globally. This is an area of focus for us and we have
brought together our private markets franchise with our real
estate team, and we continue to invest in designing innovative
funds.
A rapidly changing market
Our actions over the course of 2019 ensure we are in a strong
position in a global market that continues to be volatile. The pace of
change remains relentless and the coming year will naturally bring its
own challenges. The outbreak of the COVID-19 coronavirus brings a
unique set of risks for global businesses to deal with.
We will also have to deal with the practical challenges that Brexit, and
retaining regulatory equivalence, will bring as we continue to serve
our valued clients in the European Union. The negotiations on a Free
Trade Agreement (FTA) between the UK and EU have begun. As
part of our Brexit planning we have considered a range of scenarios
and put in place arrangements to mitigate any potential disruption for
our customers, clients and operations. We will continue to follow
developments closely and regularly review the arrangements we
have in place. As a global asset manager we have extensive
experience of adapting to regulatory change and working across
borders.
Importantly, we now have a government with a sizeable majority. This
will bring political stability but also the ability to define and deliver its
own economic and social agenda beyond Brexit.
In 2019 we took further action to improve our resilience so that our
business is well placed to deal with the uncertainties the constantly
changing external environment brings. We continue to invest in
innovation, in our culture, our investment processes, our platforms
and in the way we develop new funds, alongside the transformation
programme, so that we can meet changing client and customer
needs as they evolve.
A positive force for change
One area of notable change in 2019 was the increased attention on
ESG factors in investment. Our responsible investment capabilities
are nearly 30 years in the making and our impact on the companies
we hold to account is important and necessary. In 2019, we voted on
issues from human rights and employment practices to single-use
plastics and pesticides. The number of environmental and social
resolutions we voted on in 2019 increased by 26% compared to the
previous year.
One issue that has characterised the past year, probably more than
any before, is the overwhelming call to action by people around the
world to address the urgent crisis of climate breakdown. We cannot
underestimate the role our industry has in addressing this issue.
Acting alone, governments around the world will not be able to
provide the investment, or the will, to decarbonise the economy. It will
need large scale realignment of capital. Through engagement and our
voting rights, we can have a positive influence on companies around
the world.
We are innovating to meet
our customers’ and clients’
needs, investing in our culture
and championing positive
change for society and the
environment. We remain
financially strong and resilient,
delivering sustainable value
for shareholders.
Looking ahead
Our strong financial position, capital generation potential and focus on
operational efficiency enables us to invest in the business to drive
profitable revenue growth and shareholder return.
The outlook for the markets and our industry in 2020 is turbulent with
the additional complexity of COVID-19. We are focused on what we
can control, namely: delivering for our clients, customers, colleagues
and shareholders; diversifying our revenues; investing for the future,
and maintaining financial discipline. By doing this we will build a
business that is fit for the future and well positioned to manage
through the uncertainties ahead.
Keith Skeoch
Chief Executive
Standard Life Aberdeen 2019
9
Strategic report
Our stakeholders and business model
Creating and preserving stakeholder value
Sustainable stakeholder value
Our simple business model is designed to create value and deliver long-term sustainable
benefits to all our stakeholders. Read more about our stakeholders on page 59.
For clients and customers
Read more:
See pages 12 to 17
We focus on delivering outcomes that truly matter to our clients and customers, and are committed to active asset management.
We draw on expertise and insight from our teams around the world to deliver long-term investment performance.
Our platforms and wealth management services help us respond to increasing demand for financial advice and guidance, and
provide advisers with technology to support their customers effectively.
For our people
Read more:
See pages 18 to 21
We aim to provide a market-leading proposition for our people. We have made significant steps in developing new UK terms and
conditions and harmonised policies that are fair and consistent.
We are committed to investing in attracting, retaining and developing talent at every career stage and we offer development
opportunities that link to our business needs.
Our aim is to understand our people’s diverse perspectives and reflect their views in how we operate, through an inclusive and
unifying culture.
For society
Read more:
See pages 22 to 27
We have important responsibilities to society and the environment.
Through active engagement with the companies in which we invest, we maintain constructive relationships that help us
understand their risks and opportunities, and positively influence their business practices. By investing responsibly, we play a
critical role in financing the transition to a low-carbon economy, limiting environmental damage, protecting human rights and
promoting fair work and pay.
We apply the same principles to our own corporate practices.
For shareholders
Read more:
See pages 28 to 33
By combining diverse revenue growth from asset management, platform and wealth capabilities with a strong balance sheet and
careful management of our costs, we can create sustainable shareholder value over the long term. The sale of part of our
holdings in HDFC Life and HDFC Asset Management has strengthened our capital position.
We have a strong track record of returning value to shareholders which includes the payment of dividends and share
buyback activity.
10
Standard Life Aberdeen 2019
Our stakeholders and business model
Creating and preserving stakeholder value
Our simple business model is designed to create value and deliver long-term sustainable
benefits to all our stakeholders. Read more about our stakeholders on page 59.
For clients and customers
Read more:
See pages 12 to 17
We focus on delivering outcomes that truly matter to our clients and customers, and are committed to active asset management.
We draw on expertise and insight from our teams around the world to deliver long-term investment performance.
Our platforms and wealth management services help us respond to increasing demand for financial advice and guidance, and
provide advisers with technology to support their customers effectively.
For our people
Read more:
See pages 18 to 21
We aim to provide a market-leading proposition for our people. We have made significant steps in developing new UK terms and
conditions and harmonised policies that are fair and consistent.
We are committed to investing in attracting, retaining and developing talent at every career stage and we offer development
opportunities that link to our business needs.
Our aim is to understand our people’s diverse perspectives and reflect their views in how we operate, through an inclusive and
unifying culture.
For society
We have important responsibilities to society and the environment.
Through active engagement with the companies in which we invest, we maintain constructive relationships that help us
understand their risks and opportunities, and positively influence their business practices. By investing responsibly, we play a
critical role in financing the transition to a low-carbon economy, limiting environmental damage, protecting human rights and
promoting fair work and pay.
We apply the same principles to our own corporate practices.
Read more:
See pages 22 to 27
For shareholders
Read more:
See pages 28 to 33
By combining diverse revenue growth from asset management, platform and wealth capabilities with a strong balance sheet and
careful management of our costs, we can create sustainable shareholder value over the long term. The sale of part of our
holdings in HDFC Life and HDFC Asset Management has strengthened our capital position.
We have a strong track record of returning value to shareholders which includes the payment of dividends and share
buyback activity.
Sustainable stakeholder value
Our resources to create and preserve value
Client and customer
relationships
We focus on relationships
with our clients and
customers based on
mutual trust and our
ability to effectively meet
their needs.
We invest in products and
services so that they are
relevant to our clients and
customers today and in
the future.
High quality customer
service is a key focus for
our operations teams.
In addition, we have
important brands that we
continue to invest in.
Investment
capabilities
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
which create diversification
of our services.
Talented people
Our ability to deliver for
clients and customers
relies on having people
with the right skills and
knowledge, drawn from
diverse backgrounds
and experiences and
through encouraging a
collaborative approach.
The skills and knowledge
of our people cover a
range of areas including
planning and advice,
investment management
and customer service.
Financial strength
We have a strong capital
position which is further
supported by substantial
listed investments.
We actively manage our
balance sheet to ensure we
hold enough capital to
allow us to invest for future
business growth and
deliver returns to
shareholders.
How we generate profits and shareholder returns
Generating revenue
Revenue is primarily generated
from asset management and
platform and advice fees we
charge based on the value of the
assets we look after for clients
and customers.
Controlling costs
We control expenses and invest
strategically to improve both the
scalability and efficiency of our
business. Our cost base has a high
proportion of fixed costs and we
remain focused on reducing and
altering our cost base as we
reshape our business to respond to
the changing external environment.
Optimising the balance sheet
We ensure that we have the appropriate level of capital and liquidity to
support and protect our operations while continuing to invest in our business.
Delivering profit and
shareholder returns
Generating revenue and
controlling costs enables us
to drive our profit and cash
flow that allow us to invest in
our business and deliver
returns to shareholders.
Cash generation for our
Asset management and
Platforms and Wealth
activity is closely aligned
with profit.
We balance investing
for business growth,
investing in our people and
continuing to provide returns
to shareholders.
Standard Life Aberdeen 2019
11
Strategic report
12
Standard Life Aberdeen 2019
How we engage with our clients and customers
We operate across the world, building and evolving
relationships with over 12,000 institutional and wholesale
clients globally, and over 500,000 customers through our
platforms and wealth activity in the UK.
Our annual conferences, regular events, roadshows and
sponsorship activity enable us to share knowledge and gain
valuable feedback, while showcasing our capabilities and
enhancing our relationships.
We aim for high-quality service and targeted interactions
to build enduring relationships. Our clients and customers
want to engage with us in different and evolving ways.
Technology is a powerful enabler, so we utilise our digital
capabilities, while others prefer a personal, tailored
approach.
We go beyond providing products to act as a trusted
adviser. This includes sharing high-impact market
intelligence from our Research Institute and our adviser
clients have access to our expert technical team.
Importantly, it means we can act in partnership to build
bespoke solutions that meet our clients’ and customers’
specific requirements for today and tomorrow.
Our multi-channel approach
We offer our clients and customers investment capabilities and services through four channels:
Institutional
Wholesale
We are a chosen
investment partner for
organisations ranging
from financial institutions
and pension funds to
local authorities and
charities.
We support private
banks, wealth
managers, and financial
advisers, as well as
making our products
available directly to their
underlying customers.
Strategic insurance
We provide investment
solutions to manage
assets on behalf of our
strategic insurance
partners.
Platforms and Wealth
We provide wealth
management, financial
planning and advice
services, both directly to
customers and through
financial advisers.
Long-term savings
and investments in
the UK
Global investment capabilities
Working with our partners
Our strategic partnerships help us reach more clients and
customers globally. In the UK, this includes our
partnership with Phoenix, the largest life and pensions
consolidator in Europe. Through this partnership we
manage money on behalf of Phoenix’s customers as their
asset manager of choice. We have also established a joint
venture with Virgin Money – with the ambition to combine
their brand, scale and retail distribution with our market-
leading investment solutions and digital expertise to meet
the needs of retail investors.
We are also working with Skipton Building Society and their
customers now have access to a new range of MyFolio
Index funds using our Focus Solutions market-leading
technologies.
We also have relationships with asset managers in some of
the world’s largest economies. We benefit from local
expertise and together we are able to help drive product
innovation and generate greater insights and active
opportunities for clients and customers.
Standard Life Aberdeen 2019
13
Strategic report
Our clients and customers
Building enduring relationships
Our investment capabilities
As an active asset manager, we look for ways to deepen our understanding of clients
and customers to meet and exceed their expectations, wherever they are in the world.
To do this we offer products and innovative solutions across a diverse range of
asset classes.
Equities
One of the world’s largest
active asset managers
offering wide ranging equity
strategies.
World-leading global
fundamental research
platform, providing deep
company-level insights
across a comprehensive
suite of equity funds.
Particular strength across
developed and emerging
markets.
Fixed income
One of Europe’s largest fixed
income managers, offering
capabilities across the full
spectrum of fixed income
markets.
Disciplined, research-driven
and team-based approach,
enabling us to target
repeatable outcomes for
clients.
Enhanced scale and
resources providing a clear
information advantage
across global bond markets,
allowing us to identify the
best investment opportunities
for client portfolios.
Multi-asset
Distinct and complementary
multi-asset capabilities to
meet a broad range of client
needs.
Private markets
One of the top ten largest
managers of private markets
(including real estate) assets
globally.
Multi-manager and advanced
strategies that constrain and
control risk.
Largest real estate manager
in the UK and in the top three
in Europe.
Scale, experience and
structure to harness
investment insight globally.
Capabilities across real
estate, private equity,
infrastructure, private credit
and real assets, helping to
deliver flexible solutions to
clients.
Alternatives
Full range of global hedge
fund and diversification
strategies across the liquidity
spectrum following active
and passive approaches.
Outcome-orientated
portfolios that use a
disciplined and proven
research-driven investment
process.
Highly experienced team in
alternative investing
supported by global research
coverage.
Quantitative
Experienced team managing
assets across a range of
strategies: traditional passive
indexation, enhanced
indexation, smart beta and
active quant using artificial
intelligence.
One of the first long-only
asset managers to offer an
active quantitative approach
that uses machine learning
to find potential sources of
returns.
Cash/Liquidity
Managing assets for a
diverse base of institutional
clients.
Experienced team, delivering
consistent returns through
market cycles.
Offering pooled and tailored
solutions to meet client
needs.
14
Standard Life Aberdeen 2019
How we consider clients and customers in strategic decisions: bringing together private markets
We work with our clients and customers to understand what they
We have a strong heritage in a wide range of private market
want from us and put this at the centre of the solutions we
capabilities. In 2019 we launched an integrated private markets
develop. Our ability to innovate and connect our different
franchise encompassing infrastructure, natural resources, private
capabilities helps us to deliver better outcomes. This is what has
credit, private equity and real estate.
driven our decision to take a fully integrated approach to private
markets.
In combining real estate with the rest of our private markets
capabilities, we believe it will help us improve cohesion and
As global markets evolve, we are seeing a greater number of
collaboration – leading to improved access to growth markets
investors shifting assets from public to private markets. Access to
globally and best-in-class performance for clients.
private markets is increasingly considered essential to
diversifying investors’ portfolios, in order to benefit from areas of
market growth.
Scale and growth
• More than 1,000 investment professionals worldwide
• Spanning a broad range of markets, asset classes and strategies
• Deep knowledge of local markets with the power of coordinated
Responsible investing
For over two decades, we have led the way in embedding
environmental, social and governance (ESG) considerations
throughout our investment activities.
global oversight to drive better investment outcomes
We encourage collaboration across asset classes, sharing research,
• Across a full suite of asset class capabilities, we seek to provide the
solutions to our clients at all stages of their investment life cycle
• Targeted approach to growth that concentrates on the markets
where we have a strong track record
• Promotion of our strong brands
Active expertise
We continue to believe that active management and engagement
deliver superior outcomes for clients over the long term.
We believe in a connected team-based ethos and fundamental
research delivering insights to exploit market inefficiencies.
To deliver solutions for clients and customers that focus on their
desired outcomes, rather than on benchmarks, we believe that all
investment approaches require active decision-making at some level.
This could be through incorporating fundamental discretionary or
through systematic quantitative techniques.
experiences and understanding.
Regional investment teams are further supported by our centralised
ESG Investment & Stewardship team. We believe that ESG factors
have a material impact on a company’s long term performance.
Our research process helps us to understand how well investee
companies are managing ESG risks and opportunities alongside
financial metrics and then whether the market has priced them
accordingly. This insight allows us to make better investment
decisions, leading to better outcomes for our clients.
In 2019 we were awarded 33 ‘Green Stars’ across the real estate
funds we manage by GRESB – the global ESG benchmark for real
estate and infrastructure investments. Four funds achieved Five Star
status, placing them in the top 20% of their peers. Additionally, three
funds achieved the highest ESG performance of their peer group.
More information about our commitment to responsible investing, and
the role our company plays in supporting positive change in society, is
on pages 22 to 27.
Preparing for Brexit
Our priority is to ensure we are in the best possible position to
provide our customers and clients with continuity of service,
regardless of the scope and terms of any agreement which takes
effect between the UK and the EU when the transition period
comes to an end on 31 December 2020.
Arrangements that we have put in place to mitigate any potential
disruption include the establishment of a fully staffed and
operational EU MiFID firm in Dublin and we have also expanded
the activities of our Luxembourg-based management company.
How we consider clients and customers in strategic decisions: bringing together private markets
We work with our clients and customers to understand what they
want from us and put this at the centre of the solutions we
develop. Our ability to innovate and connect our different
capabilities helps us to deliver better outcomes. This is what has
driven our decision to take a fully integrated approach to private
markets.
As global markets evolve, we are seeing a greater number of
investors shifting assets from public to private markets. Access to
private markets is increasingly considered essential to
diversifying investors’ portfolios, in order to benefit from areas of
market growth.
We have a strong heritage in a wide range of private market
capabilities. In 2019 we launched an integrated private markets
franchise encompassing infrastructure, natural resources, private
credit, private equity and real estate.
In combining real estate with the rest of our private markets
capabilities, we believe it will help us improve cohesion and
collaboration – leading to improved access to growth markets
globally and best-in-class performance for clients.
Scale and growth
• More than 1,000 investment professionals worldwide
• Spanning a broad range of markets, asset classes and strategies
• Deep knowledge of local markets with the power of coordinated
global oversight to drive better investment outcomes
• Across a full suite of asset class capabilities, we seek to provide the
solutions to our clients at all stages of their investment life cycle
• Targeted approach to growth that concentrates on the markets
where we have a strong track record
• Promotion of our strong brands
Active expertise
We continue to believe that active management and engagement
deliver superior outcomes for clients over the long term.
We believe in a connected team-based ethos and fundamental
research delivering insights to exploit market inefficiencies.
To deliver solutions for clients and customers that focus on their
desired outcomes, rather than on benchmarks, we believe that all
investment approaches require active decision-making at some level.
This could be through incorporating fundamental discretionary or
through systematic quantitative techniques.
Responsible investing
For over two decades, we have led the way in embedding
environmental, social and governance (ESG) considerations
throughout our investment activities.
We encourage collaboration across asset classes, sharing research,
experiences and understanding.
Regional investment teams are further supported by our centralised
ESG Investment & Stewardship team. We believe that ESG factors
have a material impact on a company’s long term performance.
Our research process helps us to understand how well investee
companies are managing ESG risks and opportunities alongside
financial metrics and then whether the market has priced them
accordingly. This insight allows us to make better investment
decisions, leading to better outcomes for our clients.
In 2019 we were awarded 33 ‘Green Stars’ across the real estate
funds we manage by GRESB – the global ESG benchmark for real
estate and infrastructure investments. Four funds achieved Five Star
status, placing them in the top 20% of their peers. Additionally, three
funds achieved the highest ESG performance of their peer group.
More information about our commitment to responsible investing, and
the role our company plays in supporting positive change in society, is
on pages 22 to 27.
Preparing for Brexit
Our priority is to ensure we are in the best possible position to
provide our customers and clients with continuity of service,
regardless of the scope and terms of any agreement which takes
effect between the UK and the EU when the transition period
comes to an end on 31 December 2020.
Arrangements that we have put in place to mitigate any potential
disruption include the establishment of a fully staffed and
operational EU MiFID firm in Dublin and we have also expanded
the activities of our Luxembourg-based management company.
Standard Life Aberdeen 2019
15
Strategic report
Our clients and customers continued
Platforms and Wealth
With changes in demographics and regulation,
particularly in the UK, individuals are increasingly
having to take responsibility for their savings and
investments. As they do so, there is an increasing
demand for advice and guidance to meet their needs.
The financial adviser community has a vital support
role to play.
• We provide financial advisers with intuitive technology to
help them run their businesses effectively and efficiently.
We innovate and develop platforms and services to keep
pace with the changing lives of UK customers, and to
help advisers deliver good quality advice in response.
This means developing sustainable and scalable
solutions that support them to meet their customers’
savings goals.
• We also support customers directly to help them make
informed and effective financial decisions. Through our
UK-based wealth management services, we offer full
financial planning and personal tax advice services to
meet long-term financial goals.
Making it easier for financial advisers
The highly rated and award-winning platforms we offer in the
UK provide differentiated services to suit the full range of
customer needs.
To help customers with complex investment requirements,
Wrap offers financial advisers one of the fullest and most
flexible adviser platforms on the market. Combining technology
with customer service, it enables advisers to deliver high-quality
financial planning to large numbers of customers.
Elevate is a lower-cost proposition for advisers. Elevate
provides advisers with the core services to deliver advice at
scale, offering an extensive range of investment options from
across the market.
Parmenion integrates discretionary investment management, a
range of platform services and intuitive technology. It is well
suited to advisers who seek to outsource investment decisions
and focus on core financial planning. It is intended that
Parmenion will also provide the platform to support customers
through our joint venture with Virgin Money.
16
Standard Life Aberdeen 2019
As individuals take greater
responsibility for their
financial future, demand for
quality support and guidance
increases. We enable advisers
to meet that challenge, as well
as support customers directly
with their planning.
Keith Skeoch, Chief Executive
We focus on continually innovating and improving the functionality
across our platforms, all with the intent of making them easier for
advisers to use. During 2019 we made progress in a number of
areas:
• We repriced our Wrap and Elevate platforms and launched our
drawdown price lock on Wrap – which allows advisers to lock
their customers charges at their lowest level, with customers
benefiting from reduced fees throughout their retirement.
• We launched Individually Managed Accounts on the Wrap
platform – a cost-effective and scalable solution that, for the first
time, allows advisers to personalise investment solutions for
individual customers.
• We launched Parmenion’s Sterling Solution in response to
demand from advisers – whose customers are looking to
diversify their portfolio by investing in a low-risk solution that still
has the potential for positive returns.
Leveraging the value of our strategic partnerships
When we completed the sale to Phoenix of our UK and European insurance business in 2018, we created a strategic
partnership with Phoenix in respect of our activity in the UK savings market. Wrap, Elevate and 1825 are all part of the
Standard Life brand, through which we already have a relationship with millions of individuals throughout the UK, and are
key to this strategic partnership.
Our strategic partnership with Phoenix provides us with the potential access to up to 10 million of their customers in the UK.
Under our partnership, Phoenix also uses the Standard Life brand under licence from our company.
The partnership creates the potential for us to offer these customers products and services through our Platforms and
Wealth channel. These products are complementary to those provided directly by Phoenix, which are typically workplace
and individual pensions. The partnership has also created the potential for revenue growth that will allow us to further invest
in our capabilities, including how we innovate and develop our offering to advisers and customers.
Financial advice and planning for
individuals
Discretionary investment management
clients
Our financial planning and advice activity is undertaken through
1825, which brings together experienced professionals from
across the UK to help people make sound financial decisions
and plan effectively for their futures.
During 2019, we completed two acquisitions that accelerated our
growth plans and strengthened our UK-wide presence:
• In July, we completed the acquisition of BDO Northern
Ireland’s wealth management business
• In November, we completed the acquisition of the wealth
advisory business of Grant Thornton UK LLP
Combined, these deals resulted in a £1.8bn increase in assets
under advice to a total of £5.7bn. 1825 now has over 110
financial planners and increased reach across the UK.
We continue to see strong opportunity for growth in other areas,
particularly retirement advice. We announced our digital
retirement advice proposition in 2019 and we will continue to
develop this in 2020.
Through Aberdeen Standard Capital we provide a discretionary
investment management service across the UK and
internationally.
Aberdeen Standard Capital manages investment portfolios for
private clients, intermediaries acting for clients, charities and
trustees, who can use these services either directly or through a
professional adviser.
For professional advisers, there is also a managed portfolio
service, available via a variety of well-known platforms.
In 2019 we further evolved our responsible investing offering, as
we launched Aberdeen Standard Capital’s Global Impact
Strategy and fossil-fuel-free income unconstrained strategy.
These strategies invest in companies whose activities or
products are designed to have a positive social and
environmental impact.
Standard Life Aberdeen 2019
17
Strategic report
18
Standard Life Aberdeen 2019
How we engage with our people
Our people around the world are encouraged to share their
views openly and honestly with our leadership team, through
our ‘In Conversation with’ and ‘Meet the Board’ sessions, as
well as their local and department leaders.
In the UK, our people are represented by an Employee
Forum which engages with the leadership team on key
decisions. Globally, our people can join one of our diverse
employee networks or regional inclusion committees.
Building a workplace fit for the future
Extraordinary change in our industry means ongoing change
for our people. We must ensure that how we work, our
capabilities and the culture we foster are right for today,
tomorrow and the future.
We recognise each of our colleagues is unique and our
workforce is drawn from a variety of age groups, family
circumstances and career aspirations.
Building an inclusive culture is central to how we operate and
our efforts are recognised by our people. We undertook a
survey in 2019 to seek views on our inclusive culture. The
chart opposite shows the responses from 1,071 of our people.
We will reflect their responses in our inclusion activities.
Read more about our approach to diversity and inclusion
in our Corporate sustainability report, available on our
website www.standardlifeaberdeen.com/annualreport
In 2019 we continued the development of our digital
workplace programme. Due to launch in 2020, it
represents a modern and intuitive digital interface for our
people across the world. Employees’ insight is central to
the work which will help foster the culture of the business
while providing a seamless experience for our workforce.
You can find out more about our employee engagement activities
in the Directors’ report on page 58.
I feel I can be myself
at work
In my team we make sure
our ways of working are
inclusive of everyone
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Leading through change and developing our people
In common with most companies, change is constant and
leaders at all levels have a critical role in supporting their
teams through this change.
More than 700 of our managers have benefited from
workshops to help them understand what we expect from
our people.
Good leadership has great people management as its
foundation. In 2019 we have made this a key focus, which we
will continue in 2020.
In January 2020, we also launched our new system for
learning and development, providing an improved
experience for our people.
In 2019, employees accessed 66,000 leadership,
management and personal development resources.
Central to this new proposition is the importance we place
on providing access to the training and development to
succeed in our organisation.
Standard Life Aberdeen 2019
19
Strategic report
Our people
All our people contribute to our success
Our success depends on our ability to retain and attract the right talent to drive
business performance.
Our employee proposition
In 2019 we undertook significant work to develop our employment
proposition in the UK, where the majority of our employees are based,
that will enable our people to drive our business forward. It has been
the foundation for a new, unified set of UK terms and conditions,
which has also been a significant step on our journey towards full
integration. We also moved all of our people onto a single HR system
for the first time.
Through this piece of work we considered our employment
proposition and supporting policies and how to balance our overall
offer. Comparisons with our competitors helped us decide where we
would choose to be market-leading.
A set of key principles underpinned the detailed development of the
new UK terms and conditions and our harmonised policies. As an
example it was important that they were fair and consistent,
irrespective of how long someone has worked here.
We designed our proposition to support our multi-generational
workforce and the upcoming generation that will take our business
forward. We are leading the industry in designing a family friendly
proposition that is fully inclusive and helps our people to manage their
personal and professional responsibilities in a flexible way.
Our new market-leading parent policy
From 1 January 2020, all of our employees in the UK
welcoming a child into their family are entitled to:
• 52 weeks’ leave in total
• 40 weeks of full paid leave
• The option to take these 52 weeks as one, two or three
periods of leave, during the two years following the birth
or placement
• Additional paid leave if they have a pre-term baby
The policy means that the primary caregiver does not have
to share their entitlement and end their leave early. The
policy applies whether the mother gives birth to the baby,
the baby is born via surrogacy, or if the child is adopted. All
new parents are eligible, regardless of gender, family set-up
or how long they have been at the company.
By equalising the opportunity to take paid leave for parents
of all genders, the policy is a tangible step towards ensuring
that becoming a parent does not limit their career potential.
The policy has generated positive feedback both from our
people and the market. In January 2020 members of the
Scottish Parliament lodged a cross-party motion
congratulating us on our new parent leave policy.
20
Standard Life Aberdeen 2019
Simple
Easy to
understand and
administer
Consistent
Application and
inclusive
Engaging and
attractive
For current and
prospective
colleagues
Principles for
our employee
proposition
Sustainable
Financial and
operational, fit
for future
Professional
Reflects the
organisation we
want to be
Employee feedback
As we reported last year, 69% of our workforce responded to our
global employee survey at the end of 2018. The engagement score
was 56%.
The main themes that emerged from the survey included the need to
improve how we communicate our strategy to colleagues, and how
we minimise factors that can prevent people from doing their jobs as
effectively as possible.
Positive feedback centred on how our managers lead through
change, people feeling able to be themselves at work and our
continued focus on all aspects of inclusion.
During 2019, we put actions in place to address this employee
feedback. This included a focused programme of internal
communications activity to engage our people on our strategy.
Our next employee survey, to measure progress, is planned for
later in 2020.
Our purpose, together we invest
for a better future, is the North
Star for our colleagues that
ensures we are truly building a
one-team culture across all our
businesses and geographies.
Rose Thomson, Chief HR Officer
Employee voice at the Board table
The UK Corporate Governance Code has established new
requirements for Boards of UK listed companies to set out how
employees’ views have been considered in Board discussions
and decision-making. Melanie Gee is our non-executive Director
responsible for leading this work.
In 2019 she set up a Board Employee Engagement Group,
which met twice in 2019 and will continue to meet in 2020. The
group includes representatives from our UK employee forum, our
global employee networks, and our HR function.
Melanie has implemented a programme of face-to-face activity
with non-executive Directors, which has included ‘Meet the
Board’ sessions in Edinburgh, London and Philadelphia.
In tandem, Melanie initiated a series of deep-dive surveys on
issues of interest to employees. In 2019 we undertook two
surveys focused on ESG and diversity. 1,021 employees
responded to the first survey on ESG issues. Climate change
came out as the most important issue for our people. You can
find out about our response to climate change on page 25.
Read more about Board employee engagement on page
58.
Employees were asked which three ESG themes were
most important to them in how we operate as a business
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Gender representation
Balanced representation of men and women is vital to building
an inclusive culture and effective business. As part of our HM
Treasury Women in Finance Charter pledge, we have set
targets for representation of women.
In 2019 our progress was recognised by the Hampton-
Alexander Review in which we ranked tenth in the FTSE 100,
up from ranking 92nd in 2018. We are pleased with this
progress but we are not complacent. We know that sustaining
improvement is vital.
A key driver of our gender pay and bonus gaps is the lower
number of women in senior roles and the higher number of
women in junior roles; and we believe progress against our
senior leadership targets will result in a reduction of these gaps.
This is the second year we have disclosed a gender pay gap.
Progress has been slow and this pace of change does not
meet our aspirations. We are carrying out in-depth analysis to
understand where we should be prioritising efforts to make a
sustainable and significant change.
Our Women in Finance Charter targets
Level
Board
CEO-1 & CEO-22
Subsidiary directors3
UK
2020
Target
(WiFC)
Change since
target set
(2017)
Women as %1
45% (5 of 11)
36% (53 of 146)
40% (8 of 20)
33%
33%1
N/A
+20%
+9%
N/A
-1%
-1%
Global
46% (2,861 of 6,213) 50% (+/-3%)
46% (2,209 of 4,846) 50% (+/-3%)
1 Data shown as at 7 January 2020.
2 Targets are set for our senior leadership population CEO-1 and CEO-2 (leaders one and
two levels below CEO, minus administration roles).
3 Relates to Directors of the Company’s principal subsidiaries as defined in the Standard Life
Aberdeen plc Board Charter and not classified above as Board Directors or CEO-1 or
CEO-2.
April 2019
April 2018
Mean
pay gap
39.5%
39.7%
Median
pay gap
Mean
bonus gap
Median
bonus gap
31.4%
30.6%
67.1%
69.1%
54.2%
56.5%
Hampton-Alexander Review 2019
10th position and most improved
company in FTSE 100
Our full pay gap disclosure and more information about our work on
gender equality can be found in our Gender Report
www.standardlifeaberdeen.com/annualreport
Standard Life Aberdeen 2019
21
Strategic report
22
Standard Life Aberdeen 2019
How we engage with society
At a time when trust in businesses remains low, and people are having to take more responsibility for their own financial
futures, it is important that we engage with how today’s investment choices can determine the world we live in tomorrow:
• We promote global economic development that is
• We also engage with and support communities and
sustainable for the planet and society. As a signatory to the
UN Global Compact, we integrate the UN Sustainable
Development Goals into our business. These goals offer a
clear shared vision for a better future, and a framework that
helps us align to client and customer interests.
• We aim to take a lead role in addressing key societal issues,
through our investment approach and innovative products
and services. An example is impact investing – strategies
that seek to generate attractive returns while having a
measurable, positive environmental and societal impact.
charitable causes – for example, by running programmes
that help to promote fair employment and social inclusion
• To protect stakeholder interests, and understand material
risks and opportunities we need to address, we collaborate
with initiatives both within our industry and more widely
• We worked with an external organisation to gather views of
our stakeholders, including our employees and charities, to
review our approach to charitable giving. We also carried out
a materiality survey to understand the ESG topics that are
most important to our stakeholders.
Shareholder meetings 2019 – environmental and social topics we voted on
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As investors, we always pay close
attention to the strategy, financial
resilience and management
performance of the companies in
which we invest. We also believe
environmental and social factors
have a material impact on a
company’s long-term performance.
The number of environmental and
social resolutions we voted on in
2019 increased by 26% compared to
the previous year. Climate change,
environmental reporting and
renewable energy topics made up
the highest percentage of such
resolutions we voted on.
Read more about active
engagement at
www.aberdeenstandard.com/
responsible-investing
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Active stewards and owners
As an active steward of our customers’ and clients’ capital, we
support the principles of good stewardship set out in the UK
Stewardship Code. As part of our regular interactions with
investee companies, we seek to provide constructive
challenge to management and boards.
Voting at shareholder meetings represents one of our most
important duties, and we cast our votes in line with our
investment views. During the year we voted at 5,193
shareholder meetings, and on 58,839 resolutions.
Unlike certain passive investment strategies, where
research may be limited, we review proposed
resolutions and where appropriate engage with
stakeholders, including proxy advisors, investee
companies and the proponents of resolutions, before
reaching a decision.
We conduct independent internal research to ensure
we are comfortable with our voting positions rather than
outsource decisions and simply follow a proxy voting
service’s recommendations.
Standard Life Aberdeen 2019
23
Strategic report
Our role in society
Investing responsibly
Environmental, social and governance (ESG) investment focuses on active engagement, with
the goal of improving the performance of assets we manage around the world.
There are numerous academic studies and research that examine the
relationship between integrating ESG considerations and strong
stewardship with investment performance. We believe, supported by
strong evidence, that
• Long-term responsible investing is important for all investment
managers in order to fulfil their fiduciary duties
• There is no trade-off in terms of financial return
• Funds with strong ESG characteristics, and effective management
of material ESG risks, typically are at lower risk of suffering losses
This is consistent with our investment approach in looking to generate
sustainable, consistent and positive risk-adjusted returns for clients
and customers over the long term.
Active engagement
We engage actively with investee companies for two core reasons:
• To understand more about company management, which enables
us to learn more about a company’s strategy and performance
• To encourage best practice and drive change
Through our discussions we share insights from our experiences and
knowledge across geographies and asset classes.
We expect the companies in which we invest to be good corporate
citizens. Where we believe we need to encourage change we do so
through constructive dialogue, engagement, voting, and other
stewardship tools depending on the asset class.
In 2019, we challenged, advocated, or made recommendations to
companies around the world on topics including climate change and
the transition to a low carbon economy, executive remuneration,
deforestation, labour practices, plastics recycling and board
composition.
Using our influence
To help encourage best practice where we operate, we are
actively involved, directly and indirectly, in the ongoing
development of policy initiatives on a broad range of topics,
including stewardship, sustainable finance, ESG integration,
audit quality, the audit market, gender diversity and climate
change.
We participate in a number of influential committees,
including the Investment Association’s committees on
Stewardship and on Sustainable and Responsible
Investment. Through our membership of the Stewardship,
Market Integrity & ESG investment standing committee –
which is part of the European Fund and Asset Management
Association – we take an active role in monitoring and
seeking to influence European policy developments.
We seek opportunities to engage with policymakers directly
by replying to calls for evidence and feedback on policy
developments, and also by meeting with officials to discuss
changes to policy relating to sustainable finance, ESG
integration and corporate governance.
We have also been involved in several policy consultations
that have provided opportunities to share information and
collaborate within our industry. The purpose of these is to
promote the best interests of our clients:
• In the UK, for example, we contributed to consultations in
2019 by the Department for Business, Energy & Industrial
Strategy, aiming to improve quality and competition in the
audit market
• We also took part in the German Regierungskommission
consultation on proposed amendments to the Deutscher
Corporate Governance Kodex, which proposes
improvements to governance arrangements in German
companies
Our objective is to deliver the
best outcomes for our clients
and customers, and that is why
we make ESG considerations
core to our investment
approach.
Euan Stirling, Global Head of Stewardship and
ESG Investment
24
Standard Life Aberdeen 2019
Our approach to tackling climate change
The risks of climate change, and the implications for individuals, businesses and investors,
are increasing. We believe companies should be transparent on the financial implications of
climate change for their business, and set out what action they are taking.
The Taskforce on Climate-Related Financial Disclosures (TCFD)
encourages company disclosure of material climate-related risks and
opportunities. We are fully supportive of the recommendations and
have published our first TCFD report, detailing our approach.
Governance
Our Chief Executive is the overall executive lead for our work on
climate change. He delegates operational oversight to the Chief
Operating Officer and investment oversight to the Chief Investment
Officer. We have a working group that addresses the impact of
climate change risks and opportunities on our investment activities,
and another to ensure we have the governance, strategy and metrics
to manage our material climate-related risks and opportunities.
Strategy
Through our operations and investments, we have a strategy to
support the transition to a low-carbon future. We believe that
understanding climate-related risks and opportunities leads to better
investment decisions. In 2019 we published a report setting out our
approach to this, titled ‘Climate Change: Our approach for
investments’. We also published two white papers for investors:
‘Investing in a changing climate’ and ‘Going Green: A climate policy
toolkit for investors’.
Providing climate-related research and data to understand its financial
materiality is a core part of our strategy. We have developed
capabilities to assess the carbon footprint across our Equity and
Credit portfolios. We have also selected a specialist provider to help
deepen our understanding of the financial impact of different climate
change scenarios on our portfolios.
Operationally, we focus on the material areas of our carbon footprint
and have long-term targets to reduce our emissions. We aim to
reduce where we can, then offset what remains. We have pledged to
offset our entire operational footprint in 2020 by supporting projects
around the world that help to reduce carbon emissions – such as
renewable energy and social impact projects.
Risk and opportunity management
We monitor risks and opportunities related to climate change and
align these with the TCFD framework. For our investments, we
assess the financial materiality of transition and physical risks across
regions, sectors and companies. Our aim is to influence and assess
which companies will perform well in a low-carbon world, so
stewardship and engagement are critical.
Active investors have a
critical role to play in
accelerating the transition to
a low-carbon economy. We do
not have much time.
Keith Skeoch, Chief Executive
Metrics and targets
We have been measuring our operational carbon footprint since
2006. It is mostly comprised of the energy we use in our buildings and
air travel, and the data is independently assured. From a baseline
year of 2018, we aim to reduce emissions from our fleet of cars and
from energy use in our buildings by 50% by 2030, and our energy use
in Megawatt hours (MWh) by 30% by 2030. We also pledge to
procure 100% renewable electricity at the offices we operate across
the globe by the end of 2020.
Our total greenhouse gas emissions are down 39% in comparison to
2018. Greenhouse gas emissions from our fleet and energy use are
down 32%, and energy use (MWh) is down by 33%.
Having reliable climate-related data is critical to effective investment
decisions. We currently provide a carbon footprint for portfolios in
Equities, Fixed income and Real estate. This helps identify carbon-
intensive companies and drive corporate engagement, but has
limitations as a backwards-looking measure. As of 2020 we
introduced an ESG House Score for each listed company to create a
consistent framework for analysing and communicating our ESG
company views across our listed company investments. One
quadrant of the scorecard is climate change, providing both backward
(carbon footprint) and forward looking data (such as targets and
projects) to assess a company’s response to its climate risks.
Read more in our TCFD report, available on our website
www.standardlifeaberdeen.com/annualreport
Operational greenhouse gas emissions – Continuing operations
Scope 1
Scope 2
Scope 3
Greenhouse gas emissions
Total
Tonnes CO2e/FTE ratio
2019
Location-based
(tonnes CO2e)1
Market-based
(tonnes CO2e)2
1,784
4,807
13,078
19,669
3.2
1,784
2,147
12,870
16,801
2.7
MWh1
6,420
17,109
–
23,529
3.8
2018
Location-based
(tonnes CO2e)
Market-based
(tonnes CO2e)
2,667
7,069
22,482
32,218
5.2
2,667
4,376
22,106
MWh
10,201
24,908
–
29,149
35,109
4.7
5.7
1 2019 emissions data have been independently assured by Bureau Veritas. Bureau Veritas assurance 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.
Standard Life Aberdeen 2019
25
Strategic report
Our role in society
Working collaboratively for a better society
We want to drive meaningful social and environmental change, but we know we cannot do
this alone. Collaborating with others is key to delivering innovative solutions that address
key societal issues.
We are taking direct action relating to a number of the UN’s 17
Sustainable Development Goals (SDGs). SDG 17, Partnerships for
the Goals, underpins everything we do as we believe collaborating
with others enables greater impact. We work to understand the
material risks and opportunities for our business and stakeholders,
and link up with others to take targeted action – whether as part of
investor groups or in multi-partner charity projects.
We believe that people have a right to equality of opportunity, for work
to pay fairly, and to find routes out of poverty. Promoting fair work and
inclusive employment is an area of particular focus for us, and aligns
with SDG 8 – Decent Work and Economic Growth.
Living Hours
Our company is one of four organisations piloting the Living Wage
Foundation’s ‘Living Hours’ programme. Living Hours provides a new
standard for ensuring more certainty over working hours, and more
predictable work patterns and pay. It calls on employers to provide the
right to fair notice periods, and contracts offering guaranteed
minimum hours of work unless the worker requests otherwise.
Our company has also been part of the Living Wage Foundation’s
steering group, providing strategic guidance on this project.
Big Issue Invest
We aim to provide investment strategies that reflect society’s
concerns about key issues, and promote societal as well as financial
returns.
We collaborate with Big Issue Invest, the social investment arm of
The Big Issue, and an example of our work with them is our UK
Impact Employment Opportunities Equity Fund. The fund aims to
promote ‘decent jobs’ – stable employment, with wages that enable
people to live at a socially acceptable standard, and opportunities for
learning and progression – particularly in the UK’s most deprived
communities.
In 2019 we published the fund’s first annual report assessing the
impact it has made since it was launched in 2018, which highlights
the positive progress the fund is making towards its societal aims. A
percentage of the fund’s annual management charge also goes to Big
Issue Invest, to help finance social enterprises that deliver business
solutions to social problems.
Read more in our Corporate sustainability report, available on
our website www.standardlifeaberdeen.com/annualreport
Our impact through charitable giving
During 2019 we reviewed the social and environmental
impact of our approach to charitable giving. Combined with
data from measurement of past community investment
programmes and philanthropy, we conducted stakeholder
interviews and analysed activities taking place externally.
Some of our key charity partnerships in recent years have
highlighted the significant value they get from our strategic
support and in-kind expertise. These include:
• Career Ready and The Prince’s Trust in the UK – which
focus on building skills and confidence in young people, to
help break down barriers to employment
• Primary school breakfast clubs in the UK and MANNA, a
nutrition services provider in the USA – which help to
support wellbeing and social inclusion
• AbleChildAfrica, a UK charity that works with local
partners in Africa to improve the lives of children with
disabilities.
Additionally, there is clear demand from our people and the
public for us to do more to respond to climate and ecological
breakdown. We aim to reflect the insights built up in our new
social and environmental impact strategy later in 2020.
We are also committed to maintaining our charitable
contribution at a consistent level, both directly and through
the Standard Life Aberdeen Charitable Foundation.
£3.4m total charitable contribution in 2019
(2018: £3.2m)
17,921 total number of volunteering
hours donated by our people in 2019
(2018: 15,118)
26
Standard Life Aberdeen 2019
A responsible business
Global code of conduct
Our global code of conduct, which details the standards of behaviour
we expect in our business, 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 clients
and customers at the heart of our business.
In 2019, 100% of employees 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 our Conduct and
Conflicts Committee. If employees have any concerns relating to
issues covered by the code such as bribery and corruption,
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 in this way, or wish to raise it anonymously, we provide
an independent and confidential hotline that they can use.
Working with our suppliers
We aim to build effective and supportive relationships with our
suppliers. Our supplier code of conduct sets out the standards and
principles we require our suppliers to follow, and that we expect them
to demand from their own supply chains.
We also recognise the importance of prompt payment. Our
organisation has gone through significant change and bringing
together two businesses has meant operating two finance systems.
Whilst in general our payment turnaround times have been
maintained within Prompt Payment Code requirements, for one of our
entities we have fallen short of the standards we committed to. We
have put actions in place to put this back on track. We are moving to
one combined payment system with well-defined supplier terms. This
will include a renewed commitment to our policy of prompt payment.
Modern slavery statement
We want to do all we can to help tackle human trafficking, forced
labour, bonded labour and child slavery. We worked to raise
awareness of modern slavery issues with a new employee training
module in 2019, which was completed by 92% of employees, and we
continue to encourage good practices among our suppliers and the
companies in which we invest. Our 2019 statement and outcomes are
published 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, clients and customers, community and
those impacted by our suppliers, partners and the companies we
invest in. As an investor, 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.
Financial crime prevention
We have a zero-tolerance approach to financial crime, bribery and
corruption. Policies, frameworks and controls are 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. Mandatory annual training is held 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. Processes
for reporting and reviewing breaches of our policies are in place. In
2019 we had no breaches. Further information on our approach to
managing the risk of fraud and financial crime is included within the
Risk management section.
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 the Taskforce on Climate-Related Financial Disclosures, 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
Our approach to climate change
Global code of conduct1
Gender representation
Our role in society (page 25)
Our role in society (page 27)
Our people (pages 19 to 21)
Our role in society (page 27)
Anti-bribery and corruption
Human rights policy1
Modern slavery statement1
Our impact through charitable giving Our role in society (page 26)
Supplier code of conduct1
Our role in society (page 27)
Business model
Our role in society (page 27)
Our role in society (page 27)
Our stakeholders and business model (pages 10 to 11)
Non-financial KPIs
Highlights (Inside front cover)
Our role in society (page 25)
1 Group policy published on our website at www.standardlifeaberdeen.com/annualreport
Standard Life Aberdeen 2019
27
Strategic report
28
Standard Life Aberdeen 2019
How we engage with our investors and shareholders
We have an extensive programme of
investor engagement involving Directors
and members of our executive leadership
team. This includes meeting with
institutional investors, fund managers,
analysts and shareholder representative
groups to discuss a wide range of topics
including business strategy, financial
performance, operational activities and
corporate governance.
We are equally committed to the interests
of our one million individual retail
shareholders, engaging through a variety of
channels including regular direct
communications, the information that we
publish on our website and a dedicated
shareholder phone line.
Read more about
how we engage with
shareholders on
page 59.
Using strength of balance sheet to create value for shareholders
£1,794m
£235m
£1,000m
£626m
£420m
£345m
£206m
£214m
2017
2018
£1,010m
£515m
£322m
£173m
2019
“Our strong capital position
has enabled us to reward
shareholders through the period
of transformation of the business.”
As well as the payment of regular dividends, we have also
returned an additional £1.75bn to shareholders during
2018 and 2019 through the ‘B’ share scheme and the
share buyback programme. On 7 February 2020 we
announced a further share buyback of up to £400m.
Interim dividend
‘B’ share scheme
Final dividend (announced)
Share buyback
Read more on page 41.
The strength of our capital position and balance sheet supports ongoing investment in
the business and continuing returns to shareholders
Investing in the business:
Continuing returns to shareholders:
• Growing our platforms and wealth proposition
• Enhancing our investment capabilities and global coverage
• Attracting, retaining and developing talented people
• Maintaining dividend through period of transformation
• Over £1bn returned to shareholders in 2019
• Creating strong capital surplus and distributable reserves
+162%
Total shareholder return
over 10-year period to
31 December 2019
(FTSE 100: +104%)
£1.7bn
Group capital surplus
£2.3bn
Distributable reserves
Standard Life Aberdeen 2019
29
Strategic report
Associate and joint venture businesses
Key source of further shareholder value
We have significant and valuable investments in leading companies in the UK, India and China. As well
as representing substantial potential for future growth and giving insight into important markets, these
investments are a source of earnings and dividends, further strengthen our balance sheet and provide a
strong source of value for shareholders.
Phoenix
HDFC Asset Management
Holding1
19.97%
Listed value
of holding1
£1.0bn
Holding1
26.90%
Listed value
of holding1
£1.7bn
• We are asset manager of choice for Phoenix (£146bn of AUM)
• Potential for new asset management mandates from further
• Leading asset manager in India, one of the world’s fastest
growing markets
Phoenix acquisitions
• Potential collaboration opportunity as investor behaviours and
• Provides Platforms and Wealth access to up to 10m potential
regulations change
customers
• Sale of 3.02% for £0.2bn in 2019 – further reduction in stake
required to achieve 25% required free float by August 2021
(free float currently c20%)
Heng An Standard Life
HDFC Life
Holding1
50.00%
Listed value
of holding1
Unlisted
Holding1
14.73%
Listed value
of holding1
£1.6bn
• Long-term strategic opportunity through exposure to the
pensions market in China which is expected to grow
significantly
• Approval obtained in Q1 2019 to form a pensions company
• Potential collaboration opportunity to use our investment
• Consistently ranked in top three private life insurers in India
• Sale of 14.49% for £1.5bn in 2019
• Intention to monetise holding over time – 9% of holding
locked-up until end March 2021; 5.73% unrestricted
expertise with HASL
1 As at 9 March 2020.
Realising the value of our listed investments
The successful public listings of HDFC Life in 2017 and HDFC
Asset Management in 2018, resulted in greater transparency of
the value of these investments.
During 2019, we reduced our stake in HDFC Life through sales
totalling 14.49%, realising £1.5bn of net proceeds. We also sold
a 3.02% share of HDFC Asset Management.
Over the last three years we have generated total cash proceeds
of £2.2bn which allows us to invest for future business growth
and deliver returns to shareholders.
30
Standard Life Aberdeen 2019
Our investment case
Transforming today, investing for tomorrow
We are transforming our business and continue to invest for future growth.
We aim to:
Increase diversification
into growth areas to drive
overall revenue growth
Continue to
reduce and alter
our cost base
This will allow us to drive growth in future earnings and cash generation.
Combined with our strong balance sheet, with potential for further stake
sales of listed associates – supports ongoing investment in innovation,
technology and our people. This is aligned with our strategic priorities for
growth and to generate sustainable dividends and returns to shareholders.
Drivers of our business
We believe that we are well positioned for future growth.
Asset management
Platforms and Wealth
Associates and JVs
AUM1
£469bn
AUMA1
£86bn
Value2
£4.3bn
• Active asset management for
institutional and wholesale clients
• Offering innovative investment
solutions at scale across four
regions
• Advisory and platforms services
for intermediaries and individuals
• Award-winning customer service
across UK market
• Strategic benefits for accessing
customers
• Managed for capital realisation
and efficiency on the balance
sheet
1 Stated prior to eliminations.
2 Listed value as at 9 March 2020.
Standard Life Aberdeen 2019
31
Strategic report
Strategy dashboard
The foundation for long-term growth
Our strategic drivers
2019 progress
Performance highlights Key risks Focus for 2020 and beyond
High impact intelligence
Harness our intellectual capital,
emotional intelligence and data to
generate best in class impact.
• Gained industry recognition for our investment capabilities, including winning
Asset Management Innovation of the Year at the 2019 Financial News Asset
Management Awards
• Launched innovative new technology on Wrap platform – Individually Managed
Investment performance
1 year: 74% 2018: 47%
3 years: 60% 2018: 50%
5 years: 67% 2018: 62%
Enduring relationships
Deepen our understanding of
customers and clients to ensure we
exceed their expectations and build
relationships that last.
Accounts
• Partnered with Asian Infrastructure Investment Bank to drive ESG investing
and develop sustainable debt capital markets in emerging Asia
• Developed our global ESG offering by more deeply embedding it into our
proposition to meet client and customer demand
• Won industry awards across all three of our UK platforms recognising our
service to clients and customers
• Lower fee based revenue in 2019 reflected continued net outflows which were
impacted by investor sentiment, as well as weaker 2018 investment
performance in both Equities and Multi-asset
• Established joint venture with Virgin Money, which will aim to serve UK retail
customers by combining a unique mix of Virgin Money’s brand, scale and retail
distribution expertise with our market-leading investment solutions
Connections without borders
Bring the best of our business to all our
markets by constantly connecting our
people, capabilities and assets to
deliver a seamless proposition.
• Significantly strengthened our private markets and real estate franchise globally
• Refreshed the 1825 visual identity to create a closer association with the
valuable Standard Life brand, strengthening 1825’s brand positioning in the
marketplace
• Collaborated across our EMEA business to put robust arrangements in place to
mitigate any impact of Brexit on our clients, customers and operations
• Heng An Standard Life was granted approval to establish and develop a
pensions business in China
Fee based revenue
£1,634m 2018: £1,868m
Net flows
Excl. Lloyds Banking Group
£17.4bn outflow
2018: £40.9bn outflow
AUMA
£544.6bn 2018: £551.5bn
Gross inflows
£86.2bn 2018: £75.2bn
Future fit
Build a strong organisation, positioned
for growth and ready to anticipate and
meet the challenges of tomorrow.
• Achieved key integration milestones: employees are now co-located, and we
are making strong progress towards one common IT platform with employees
now on the same human resources and risk management systems
• Experienced delays in the integration of our investment platform due to
additional complexity resulting from the separation of technology infrastructures
• Continued to expand our 1825 advice business with two further acquisitions
completed in 2019
• Introduced a new price lock on the Wrap platform, an innovative approach for
customers utilising income drawdown
Cost/income ratio
71% 2018: 68%
Adjusted profit before tax
£584m 2018: £650m
IFRS profit/(loss) before tax
£243m 2018: (£787m)
• Further expand our capabilities, including next generation fixed
income, sustainable development equity funds and enhancements
to our quantitative and systematic investing franchise
• Develop market-leading digital capability to provide digital advice at
retirement
• Deliver a global, integrated investment platform
• Optimise performance for our chosen channels: Institutional,
Wholesale, Strategic insurance, Platforms and Wealth – in order to
drive profitable growth
• Continue to develop trusted client relationships at a local level
through our investment centres worldwide
• Enable the technology strategy that will deliver the digital needs of
the business for engaging with clients and customers
• Leverage UK strategic partnerships to grow retail business and
access new customers
• Drive accelerated growth and increase flows through combining
proven capabilities in platforms and wealth channel
• Continue to embed our group-wide culture and the agreed
behaviours that have been collectively identified by our leaders in
order to drive successful team performance
• Further develop modern working practices to enhance efficiency
• Build increased connectivity between teams to enable delivery of
and the work environment
shared strategic priorities
• Complete integration and platform activity, and progress Phoenix
separation activity to ensure that we are ‘fit for growth’
• Focus on operational efficiency and cost control through the
implementation of our simplified global operating model
• Seek further opportunities to grow and diversify our business,
including by selective bolt-on acquisitions
• Further improve scalability of our platforms to benefit from industry
growth in this channel
32
Standard Life Aberdeen 2019
Read more about risk management
on pages 44 to 48.
Key risks
Strategic risk
Financial risk
Conduct risk
Regulatory and legal risk
Technology
Change management
Process execution and trade errors
Business resilience and continuity
Supplier risk
People
Fraud and financial crime
Financial management process
Performance highlights Key risks Focus for 2020 and beyond
Investment performance
1 year: 74% 2018: 47%
3 years: 60% 2018: 50%
5 years: 67% 2018: 62%
KPI
1
6
Fee based revenue
£1,634m 2018: £1,868m
Net flows
Excl. Lloyds Banking Group
£17.4bn outflow
2018: £40.9bn outflow
KPI
1
9
3
8
11
• Further expand our capabilities, including next generation fixed
income, sustainable development equity funds and enhancements
to our quantitative and systematic investing franchise
• Develop market-leading digital capability to provide digital advice at
retirement
• Deliver a global, integrated investment platform
• Optimise performance for our chosen channels: Institutional,
Wholesale, Strategic insurance, Platforms and Wealth – in order to
drive profitable growth
• Continue to develop trusted client relationships at a local level
through our investment centres worldwide
• Enable the technology strategy that will deliver the digital needs of
the business for engaging with clients and customers
• Leverage UK strategic partnerships to grow retail business and
access new customers
AUMA
£544.6bn 2018: £551.5bn
Gross inflows
£86.2bn 2018: £75.2bn
1
5
8
3
6
9
4
7
10
• Drive accelerated growth and increase flows through combining
proven capabilities in platforms and wealth channel
• Continue to embed our group-wide culture and the agreed
behaviours that have been collectively identified by our leaders in
order to drive successful team performance
• Further develop modern working practices to enhance efficiency
11
12
and the work environment
• Build increased connectivity between teams to enable delivery of
shared strategic priorities
Cost/income ratio
71% 2018: 68%
Adjusted profit before tax
£584m 2018: £650m
IFRS profit/(loss) before tax
£243m 2018: (£787m)
KPI
KPI
KPI
1
5
2
6
4
7
• Complete integration and platform activity, and progress Phoenix
separation activity to ensure that we are ‘fit for growth’
• Focus on operational efficiency and cost control through the
implementation of our simplified global operating model
10
11
12
• Seek further opportunities to grow and diversify our business,
including by selective bolt-on acquisitions
• Further improve scalability of our platforms to benefit from industry
growth in this channel
Key risks
1
2
3
Strategic risk
Financial risk
Conduct risk
Read more about risk management
on pages 44 to 48.
4
5
6
Regulatory and legal risk
Process execution and trade errors
People
7
8
9
Technology
Business resilience and continuity
Fraud and financial crime
10
11
12
Change management
Supplier risk
Financial management process
Standard Life Aberdeen 2019
33
Strategic report
Chief Financial Officer’s overview
Focus on profitable growth and financial
discipline
We continue to focus on
financial discipline through a
period of change internally and
as a result of the impact of
ongoing external pressures. We
have intensified our focus on
profitable growth to ensure the
business is fit for our future
strategies.
Stephanie Bruce
2019 has been a busy year across the business:
IFRS profit benefited from India stake sales:
• The focus on delivering value for clients has generated much
improved investment performance across one, three and five-year
benchmarks and we have enhanced our focus on client and
customer service. These have contributed to the improving trend in
the pattern of flows into and from the business.
• We are seeing growth in new services and from past investments
• We have continued to progress with the transformation activity,
which incorporates both the aspects arising from the corporate
transactions in 2017/18, and the development of the business in
line with our strategic priorities for success in these more volatile
market conditions
• We have invested in the business to support new opportunities
which align to our strategic priorities, including growing our
Platforms and Wealth proposition, enhancing our investment
capabilities and global coverage and attracting, retaining and
developing talented people
• We have realised value from our listed investments in India which
has benefited our balance sheet
• We have completed the £750m share buyback programme
We delivered IFRS profit before tax from continuing operations of
£243m in 2019, an increase of £1bn from the loss of £787m in 2018.
This principally reflects the gains realised from the sale of shares in
HDFC Life and HDFC Asset Management of £1.5bn. In addition, the
arbitration case with Lloyds Banking Group (LBG) was resolved in our
favour, resulting in receipt of compensation of £140m. In 2019 there
was an asset management goodwill impairment of £1,569m (2018:
£880m) partly offset by a reversal of the impairment relating to our
investment in Phoenix of £243m (2018: loss on impairment £228m).
Looking forward we will continue to focus on:
• Diversification of revenue streams to drive profitable growth
• Ensuring our cost base is future fit
• Capital generation to support investment in the business and
shareholder returns
The following commentary provides more detail on our financial
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 9.
34
Standard Life Aberdeen 2019
Chief Financial Officer’s overview
Focus on profitable growth and financial
discipline
We continue to focus on
financial discipline through a
period of change internally and
as a result of the impact of
ongoing external pressures. We
have intensified our focus on
profitable growth to ensure the
business is fit for our future
strategies.
2019 has been a busy year across the business:
IFRS profit benefited from India stake sales:
• The focus on delivering value for clients has generated much
We delivered IFRS profit before tax from continuing operations of
improved investment performance across one, three and five-year
£243m in 2019, an increase of £1bn from the loss of £787m in 2018.
benchmarks and we have enhanced our focus on client and
This principally reflects the gains realised from the sale of shares in
customer service. These have contributed to the improving trend in
HDFC Life and HDFC Asset Management of £1.5bn. In addition, the
the pattern of flows into and from the business.
• We are seeing growth in new services and from past investments
• We have continued to progress with the transformation activity,
which incorporates both the aspects arising from the corporate
transactions in 2017/18, and the development of the business in
arbitration case with Lloyds Banking Group (LBG) was resolved in our
favour, resulting in receipt of compensation of £140m. In 2019 there
was an asset management goodwill impairment of £1,569m (2018:
£880m) partly offset by a reversal of the impairment relating to our
investment in Phoenix of £243m (2018: loss on impairment £228m).
line with our strategic priorities for success in these more volatile
Looking forward we will continue to focus on:
market conditions
• We have invested in the business to support new opportunities
which align to our strategic priorities, including growing our
Platforms and Wealth proposition, enhancing our investment
capabilities and global coverage and attracting, retaining and
developing talented people
• Diversification of revenue streams to drive profitable growth
• Ensuring our cost base is future fit
• Capital generation to support investment in the business and
shareholder returns
• We have realised value from our listed investments in India which
has benefited our balance sheet
• We have completed the £750m share buyback programme
results.
The following commentary provides more detail on our financial
Key performance indicators
2019
2018
Fee based revenue
Investment performance – 3 years1
Cost/income ratio2
IFRS profit/(loss) before tax2
Adjusted profit before tax2
Adjusted diluted earnings per share2,3
Full year dividend per share
£1,634m
£1,868m
60%
71%
£243m
£584m
19.3p
21.6p
50%
68%
(£787m)
£650m
17.8p
21.6p
Other financial highlights
Gross inflows
Net flows
Excluding LBG4
Total
Assets under management and
administration
Diluted earnings per share (including
discontinued operations)2,3
2019
2018
£86.2bn
£75.2bn
(£17.4bn)
(£40.9bn)
(£58.4bn)
(£40.9bn)
£544.6bn £551.5bn
11.1p
29.1p
All figures are shown on a continuing operations basis unless otherwise
stated.
Adjusted profit before tax of £584m is a decrease of 10% on 2018,
reflecting principally the impact on revenue of the outflows in both
2018 and 2019. The fee based revenue decrease of 13% has been
driven by a 19% reduction in revenue in the institutional and
wholesale channels, with revenue in Platforms and Wealth channel
increasing by 4%. Revenue has been adversely impacted by flows
and margin, partly offset by a benefit from markets.
• Continued net outflows are disappointing, however the trend is
improving. In 2019, net outflows reflect the expected LBG tranche
withdrawal of £41bn. Excluding this item, net outflows reduced by
57% on 2018 to £17bn and H2 2019 net outflows of £1.5bn was an
improvement of 91% on H1 2019 of £15.9bn. This trend includes
the benefit of both the continued strengthening of investment
performance, albeit there is a time lag until such improvements are
reflected in flows, and the continued high levels of client and
customer service we provide. Stronger investment performance
also contributed to an increase in revenue from performance fees
to £37m (2018: £9m).
• On margins, the overall average revenue yield has decreased to
27.9bps (2018: 31.1bps) which principally reflects the lower
proportion of assets that we manage for our clients in Equities and
Multi-asset
• Fee based revenue, particularly in relation to equities, benefited
from positive market movements. The average daily MSCI World
Index was 2% higher in 2019 than 2018.
Adjusted operating expenses are 4% lower than 2018. We are
undertaking a targeted cost reduction programme of which more
details are provided below and also continuing to invest in the
business to support future sustainable growth. However, our cost
income ratio at 71% remains too high, reflecting the fact that our cost
base has a high proportion of fixed costs. Our focus will continue on
reducing and altering our cost base as we reshape our business in
order that it is set up to take advantage of the trends impacting our
industry globally.
Adjusted diluted earnings per share was 19.3p. We have continued to
deliver value to shareholders through a substantial return of capital
which continues to benefit earnings per share. This includes £515m
returned in 2019 in respect of the previously announced £750m share
buyback programme which completed in 2019. On 7 February 2020,
we announced a further share buyback of up to £400m and expect
that it will complete in the second half of 2020.
With the proposed final dividend of 14.3p, the full year dividend per
share will be the same as 2018. This is aligned with the Board’s
stated intention for the period of transformation.
Adjusted profit before tax from
continuing operations
Fee based revenue
Adjusted operating expenses
Adjusted operating profit
Capital management
Asset management associates and joint
ventures
Asset management, Platforms and
Wealth
Insurance associates and joint
ventures
Adjusted profit before tax
2019
£m
1,634
(1,333)
301
37
57
395
189
584
2018
£m
1,868
(1,395)
473
(9)
46
510
140
650
Analysis of adjusted profit before tax
£650m
(£234m)
£62m
£46m
£60m
£584m
2018
Fee based
revenue
Adjusted
operating
expenses
Capital
mgt
Share of
associates
& JVs profit
2019
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 9.
1 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 257.
2 The Group has initially applied IFRS 9 and IFRS 16 at 1 January 2019. Under the transition methods chosen, comparative information is not restated. Refer to the basis
of preparation section of the Group financial statements.
3
In accordance with IAS 33, earnings per share has 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 2019 is not directly comparable with
the prior year. Refer to Note 12 of the Group financial statements for information relating to the calculation of diluted earnings per share.
4 Net outflows excluding LBG do not include the tranche withdrawals relating to the settlement of arbitration with LBG. Refer to Note 5 of the Group financial statements.
Standard Life Aberdeen 2019
35
Strategic report
Chief Financial Officer’s overview continued
Asset management, Platforms and Wealth
Reduction in revenue reflects impact of net outflows in Institutional and Wholesale. Positive impact of synergies
on operating expenses.
Revenue analysis
Fee based revenue
Fee revenue yield
Institutional and Wholesale
Strategic insurance partners
Platforms and Wealth
Wrap and Elevate
Wealth1
Fee revenue2
SL Asia
Performance fees
Fee based revenue
2019
bps
42.8
12.2
25.3
48.4
27.9
2018
bps
47.9
13.1
25.6
57.5
31.1
2019
£m
1,011
317
150
107
2018
£m
1,253
347
142
105
1,585
1,847
12
37
12
9
1,634
1,868
1 Wealth fee revenue yield calculation excludes revenue of £13m (2018: £16m) for which there are no attributable assets.
2 Restated to include revenue and assets under advice relating to our 1825 advice business. Previously AUMA excluded assets under advice.
Adjusted operating expenses
Movement in adjusted operating expenses
£1,395m (£114m)
(£62m)
£68m
£16m
£30m £1,333m
2018
Synergies
realised
Additional
efficiencies
Inflation/
investment
Acquisitions/
new
partnerships
FX/Other
2019
Adjusted operating expenses decreased by 4% to £1,333m (2018:
£1,395m) mainly due to further synergies of £114m which included
lower staff, premises and infrastructure costs arising through the
ongoing integration process. In addition we realised further
efficiencies of £62m from investing in transforming our business, from
improving the efficiency of how we work and enhancing our
infrastructure.
Cost inflation of £68m includes wage inflation as well as investment in
enhanced capabilities. There were also £16m of higher costs
following acquisitions in our 1825 advice business, acquisitions in the
US and Asia during 2018 and early 2019, and expenses relating to
our new partnership with Virgin Money.
The cost/income ratio, which includes our share of associates’ and
joint ventures’ profit, was 71% (2018: 68%) reflecting principally the
fall in revenue. Excluding our share of associates’ and joint ventures’
profit, the cost/income ratio was 82% (2018: 75%).
We remain focused on financial discipline and actions are underway
to align our cost base to the current revenue outlook. This includes
completion of the integration activity and modernising and improving
the efficiency and scalability of our Platforms and Wealth business.
Fee based revenue
Institutional and Wholesale
Fee based revenue in Institutional and Wholesale reduced by 19% to
£1,011m (2018: £1,253m) reflecting outflows which were
concentrated in Equities and Multi-asset. The average fee revenue
yield decreased to 42.8bps (2018: 47.9bps), reflecting the lower
proportion of higher margin Multi-asset and Equity assets.
Performance fees, which primarily relate to Institutional and
Wholesale, increased to £37m (2018: £9m) reflecting improved
investment performance and included £12m in relation to maturing
Real estate funds.
Strategic insurance partners
Revenue from Strategic insurance partners reduced to £317m (2018:
£347m) as a result of net outflows, in particular the £41bn LBG
tranche withdrawals.
Platforms and Wealth
Platforms and Wealth comprises our Wrap and Elevate platforms, our
Parmenion discretionary investment management platform, our 1825
financial planning and advice business, and the Aberdeen Standard
Capital discretionary investment management business. It also
includes assets relating to our joint venture with Virgin Money which
will utilise Parmenion platform technology.
Revenue from Wrap and Elevate increased by 6% to £150m
(2018: £142m) reflecting the continuing growth in our platform
offering.
Wealth fee based revenue increased to £107m (2018: £105m) largely
due to higher average assets. The average revenue yield decreased
to 48.4bps (2018: 57.5bps), as a result of £3.5bn of lower margin
assets in this channel from Virgin Money in Q1 2019.
Further information on the fee revenue yield is included in
the Supplementary information section of this report.
36
Standard Life Aberdeen 2019
Insurance associates and joint ventures
Ownership
at 31 Dec
2019
%
19.97
14.73
50.00
Ownership
at 31 Dec
2018
%
19.98
29.23
50.00
2019
£m
136
36
17
189
2018
£m
86
42
12
140
Phoenix
HDFC Life
HASL
Adjusted profit before
tax
Adjusted profit before tax in our insurance associates and joint
ventures increased by 35% to £189m (2018: £140m) mainly due to
the inclusion of a full 12-month share of Phoenix adjusted profit in
2019 arising from our stake in Phoenix following the sale of our UK
and European insurance business on 31 August 2018. Our share of
Phoenix adjusted profit before tax included a reduced benefit from
actuarial assumption changes of £30m (2018: £42m).
HDFC Life profits increased in 2019 due to strong premium growth.
However, our share of profits decreased to £36m (2018: £42m) due
to the reduction in our shareholding from 29.23% to 14.73%. Our
combined sales of 14.49% of HDFC Life generated net cash
proceeds of £1.5bn.
Our share of HASL profits increased to £17m (2018: £12m) mainly
due to favourable investment returns.
Synergies
We have made solid progress with the integration and we are
advanced in implementing our simplified operating model. We now
expect to deliver £400m of annual synergies, £350m by end of 2020
and an additional £50m during 2021.
However, the integration of our investment platform is proving more
complex and is now expected to take until 2021 to complete due to
additional complexity resulting from the separation of technology
infrastructures required following the sale of our UK and European
insurance business to Phoenix.
As at 31 December 2019, actions have been taken which will deliver
£283m of annualised synergies, benefiting 2019 operating expenses
by £234m (2018: £120m) with further benefits to come in 2020 and
2021. Cost synergies have been realised from a reduction in staff
costs, rationalisation of premises, and efficiencies in supplier spend.
The related implementation costs, which are included in restructuring
expenses, incurred to date are £436m, of which £214m were incurred
in 2019. We expect that the total costs to deliver the £400m of
annualised synergies will be £555m, compared to the previous
estimate of £430m to deliver £350m of synergies, reflecting additional
costs relating to the investment platform integration.
Capital management
Capital management generated a profit of £37m (2018: loss £9m)
mainly due to the positive impact of markets on pooled investment
fund holdings and the benefit of lower finance costs following the
repurchase of £408m of subordinated debt in 2019.
Asset management associates and joint ventures
Our share of profit from asset management associates and joint
ventures increased to £57m (2018: £46m) due to strong revenue
growth in HDFC Asset Management.
Our percentage ownership of HDFC Asset Management at
31 December 2019 reduced to 26.91% (2018: 29.96%) due to the
sale of 3.02% of the shares in December 2019 in order to increase
the public shareholding towards the minimum required under Indian
listing rules by August 2021. This sale generated net cash proceeds
of £195m.
Standard Life Aberdeen 2019
37
Strategic report
Chief Financial Officer’s overview continued
Profitability
IFRS profit before tax from continuing operations increased to £243m (2018: loss £787m) mainly due to the gain
on sale of shares in both HDFC Life and HDFC Asset Management.
IFRS profit
Adjusted profit before tax
Adjusting items
Share of associates’ and joint ventures’ tax
expense1
Profit/(loss) before tax from continuing
operations
Tax expense
Profit/(loss) for the year from continuing
operations
Profit attributable to non-controlling interests
Profit/(loss) for the year from continuing
operations attributable to equity
shareholders of Standard Life Aberdeen plc
IFRS profit from discontinued operations
Profit for the year attributable to equity
shareholders of Standard Life Aberdeen plc
2019
£m
2018
£m
584
(333)
650
(1,397)
(8)
(40)
243
(28)
(787)
(43)
215
(830)
(5)
(5)
210
56
(835)
1,665
266
830
1 2019 includes £38m (2018: £3m) relating to a tax credit on adjusting items.
Adjusting items are shown in the table below.
The profit on disposal of interests in associates of £1,542m includes
£1,337m relating to the combined sales of 14.49% of the shares in
HDFC Life and £204m, pre-tax, from the sale of 3.02% of the shares
in HDFC Asset Management.
Restructuring and corporate transaction expenses were £407m
(2018: £239m) primarily reflecting ongoing transformation costs for
integration, separation from Phoenix, and implementing our simplified
operating model. 2019 also included £49m relating to the repurchase
of subordinated debt. 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 £1,844m (2018: £1,155m) mainly due to the
£1,569m (2018: £880m) impairment of the asset management
goodwill intangible asset in 2019. The impairment reflects the impact
of 2019 net outflows, market conditions and competitive pricing on
future revenue projections and excludes expected significant benefits
from planned future expense savings. Further details are provided in
Note 15 of the Group financial statements.
The reversal of impairment of associates of £243m relates to our
investment in Phoenix. The Phoenix share price has recovered in
2019 and the impairment recognised in 2018 has therefore been
reversed. Further details are provided in Note 16.
Investment return variances and economic assumption changes loss
of £25m relates to our share of Phoenix adjusting items. Further
details are provided in Note 13.
Other adjusting items of £158m include £140m relating to the
settlement of arbitration with LBG. Restructuring and corporate
transaction costs above include £20m of variable compensation
funded from the settlement.
38
Standard Life Aberdeen 2019
Analysis of adjusting items
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
Reversal of/(loss on) impairment of associates
Investment return variances and economic
assumption changes
Other
Total adjusting items from continuing
operations
2019
£m
1,542
(407)
2018
£m
185
(239)
(1,844) (1,155)
(228)
243
(25)
158
54
(14)
(333) (1,397)
See pages 123 and 152 for further details on adjusted profit and
reconciliation of adjusted profit to IFRS profit.
Settlement of arbitration with Lloyds Banking Group/
Scottish Widows
On 24 July 2019, the Group announced that it had agreed a final
settlement with LBG in relation to the arbitration proceedings
concerning LBG’s attempt to terminate investment management
arrangements with the Group.
We are pleased with the settlement with LBG and believe that it
represents a fair and positive outcome. The retention of c£35bn of
assets in our passive strategies as well as active real estate portfolios,
positions us to benefit from scale and growth in these growing parts of
the asset management industry. As part of the settlement we
received an upfront payment of £140m. Further details are included in
Note 5 of the Group financial statements.
The initial withdrawals of £41bn of the previously announced c£70bn
of transferring LBG AUM were made in H2 2019. An additional
c£25bn is expected to be withdrawn by the end of March 2020. The
remaining tranche withdrawals are expected to be made over the
following 12 months.
IFRS profit from discontinued operations
The IFRS profit from discontinued operations of £56m in 2019 reflects
a change in the value of indemnities relating to the sale of the UK and
European insurance business to Phoenix. 2018 included the £1,780m
gain on sale of the insurance business.
The FCA announced in July 2019 that they had fined SLAL £31m for
failures relating to non-advised sales of annuities. As part of the sale
of SLAL we provided an indemnity to Phoenix covering this fine, and
provided for an estimate of the financial impact of this indemnity in our
2018 results. As a result of this indemnity provision there was no
adverse impact of the fine on our 2019 results.
Phoenix separation costs
We announced in May 2018 that we expected to incur one-off costs
relating to the separation of the UK and European insurance business
sold to Phoenix of approximately £250m. As this work has progressed
additional complexity has been identified relating to the separation of
the technology infrastructure and as a result these one-off separation
costs are now expected to be £310m. Total separation costs
accounted for to date amount to £170m and include £37m in 2019
(£133m in 2018).
Investment performance
Investment performance over three years improved in
2019 to 60% (2018: 50%).
% of AUM ahead of benchmark1
Equities
Fixed income
Multi-asset
Alternatives
Real estate
Quantitative
Cash/Liquidity
Total
1 year
3 years
5 years
2019
2018
2019
2018
2019
2018
59
83
68
89
39
44
91
74
40
50
20
77
71
69
81
47
31
86
46
98
48
52
88
60
31
76
35
82
56
59
81
50
31
72
61
100
36
58
88
67
29
64
62
79
61
67
82
62
1
Investment performance excludes non-discretionary portfolios and funds, where no
applicable index is available. Includes strategic insurance partners.
Our investment teams have a continuous improvement philosophy,
with the initiatives identified over the past two years supporting the
improved investment outcomes across a range of strategies.
Three-year investment performance improved in 2019, with 60%
(2018: 50%) of total assets under management ahead of benchmark
on a gross of fees basis. This reflects improved investment
performance within Multi-asset, in particular in absolute return
strategies such as GARS, and strong performances for Fixed income,
Cash/Liquidity and Alternatives. This was partly offset by weaker
performance in Real estate and Quantitatives.
Weaker three-year performance continued in most Equity classes,
although strong performance continued in Asia Pacific equities.
Shorter-term equity performance over one year improved in most
Equity classes with Emerging markets equities particularly strong. A
number of capabilities such as Smaller Companies and European
Long-Term Quality equities have maintained strong performance
resulting in top decile ranking relative to peers.
We are encouraged by additional strategies receiving positive ratings
from investment consultants, bringing the total to 46 strategies. The
new ratings were in liability driven investments, Alternatives/Private
markets and Fixed income.
The investment performance calculation covers 79% of total AUM,
with certain assets excluded where no applicable index is available,
such as private markets and Aberdeen Standard Capital funds.
Further details about the calculation of investment performance are
included in the Glossary.
Tax expense from continuing operations
The total IFRS tax expense attributable to the profit for the year was
£28m (2018: £43m) including a credit of £41m (2018: credit £52m)
relating to adjusting items. The effective tax rate on total IFRS profit
is 11.5% (2018: negative 5.5%). The main factors that have caused
the effective tax rate to be below the UK rate of corporation tax of
19% are:
• The gains arising from the sales of shares in HDFC Life did not
give rise to taxable gains due to reliefs available under India’s tax
legislation and its international tax treaties, and the long-term
capital gain arising from the sale of shares in HDFC Asset
Management was subject to tax in India at a lower rate than the UK
corporation tax rate
• The reversal of the loss on the impairment of investments in
associates is not taxable and 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
These factors are partially offset by:
• Impairment losses on intangible assets are not tax deductible
• Deferred tax assets have not been recognised on tax losses in
some jurisdictions in which we operate and existing deferred tax
assets relating to certain overseas tax losses brought forward have
been written down due to uncertainty of recovery
The tax expense attributable to adjusted profit before tax totalled
£115m (2018: £138m), of which £46m (2018: £43m) represents
equity holders’ share of tax which is borne directly by our associates
and joint ventures. The effective tax rate on adjusted profit is 19.7%
(2018: 21.2%). This difference to the 19% UK rate primarily reflects
the deferred tax not recognised on certain tax losses and the write
down of deferred tax assets.
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 £526m
(2018: £538m). Of the total £211m (2018: £218m) was borne by
Standard Life Aberdeen whilst £315m (2018: £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 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
Standard Life Aberdeen 2019
39
Strategic report
Chief Financial Officer’s overview continued
Assets under management and administration and net flows
AUMA at £545bn is lower than 2018 (£552bn) due to redemptions, including LBG tranche withdrawals of £41bn,
partly offset by increased gross inflows and positive market movements. Net outflows continued but slowed to
£17bn excluding LBG tranche withdrawals.
Institutional
Wholesale
Strategic insurance partners (Excluding LBG tranche withdrawals1)
Platforms and Wealth
Wrap and Elevate
Wealth
Eliminations
Total (Excluding LBG tranche withdrawals1)
LBG tranche withdrawals1
Total
Gross inflows
Net flows
2019
£bn
27.1
20.2
26.9
7.0
7.1
(2.1)
86.2
–
86.2
2018
£bn
19.3
18.4
28.6
8.5
2.7
(2.3)
75.2
–
75.2
2019
£bn
(14.2)
(7.3)
(3.4)
2.3
4.7
0.5
(17.4)
(41.0)
(58.4)
2018
£bn
(27.7)
(12.1)
(5.5)
4.2
0.4
(0.2)
(40.9)
–
(40.9)
1 Net outflows excluding Lloyds Banking Group (LBG) do not include the tranche withdrawals relating to the settlement of arbitration with LBG. Refer to Note 5 of the Group
financial statements.
Gross and net flows
Institutional and Wholesale
Institutional gross inflows improved significantly in 2019 to £27.1bn
(2018: £19.3bn) with a higher level of inflows in Quantitatives, Fixed
income and Alternatives, which benefited from a win of £5.5bn in Q4
of a lower margin US advisory mandate. Wholesale gross inflows
increased to £20.2bn (2018: £18.4bn).
Net outflows continued reflecting investor sentiment towards
emerging markets and equity markets more generally, as well as
weaker 2018 investment performance in both Equities and
Multi-asset. However, net outflows for Institutional and Wholesale
significantly reduced to £21.5bn (2018: £39.8bn) due to lower
redemptions in Equities and Multi-asset, strong Cash/Liquidity flows
and the higher gross inflows described above.
Multi-asset redemptions were dominated by GARS, despite the
significant improvement in investment performance, with GARS net
outflows of £10.6bn (2018: £16.7bn) reducing GARS AUM in
Institutional and Wholesale channels to £10.6bn (2018: £19.9bn).
AUMA
Movement in AUMA
£551.5bn (£17.4bn)
(£41.0bn)
£49.0bn
£2.5bn
£544.6bn
co-investment activity and regularly monitors exposures arising from
these investments. Additional detail is provided in Note 38.
2018
Net flows
LBG
tranches
Market &
other
movements
Corporate
actions
2019
For 2019, we changed our definition of AUMA to include assets under
advice as we continue to build scale in the 1825 business. Opening
assets under advice of £4.0bn are included within market and other
movements in the chart above.
AUMA has benefited from positive market movements supported by
robust investment performance, primarily within Equities and
Multi-asset.
Strategic insurance partners
Gross inflows of £26.9bn (2018: £28.6bn) continued to benefit from
additional assets from our strategic partnership with Phoenix and
included £10.6bn (2018: £8.5bn) from LBG. Net outflows were £3.4bn
(2018: £5.5bn) reflecting redemptions from maturing insurance
business in long-term run-off, partly offset by the gross inflows.
Corporate actions include £1.8bn of assets under advice following
1825’s acquisition of Grant Thornton’s wealth advisory business and
BDO Northern Ireland’s wealth management business. These
acquisitions increase Wealth assets and help to drive forward our
advice capability in alignment with the strategic ambitions for our
financial planning and advice business in the UK.
Tranche withdrawals of LBG funds were £41bn (£27bn in Q3 2019
and £14bn in Q4 2019).
AUMA
Platforms and Wealth
Net inflows continued on Wrap and Elevate at £2.3bn (2018: £4.2bn).
This is an encouraging level of inflows given the weak market
sentiment caused by the political uncertainty in the UK during 2019,
as well as a further reduction in defined benefit to defined contribution
transfers. Wealth had strong net inflows of £4.7bn (2018: £0.4bn)
including £3.5bn from Virgin Money in H1 2019.
Further information on AUMA and net flows are included in
the Supplementary information section of this report.
Institutional
Wholesale
Strategic insurance partners
Platforms and Wealth
Wrap and Elevate
Wealth
Eliminations
Total AUMA
2019
£bn
160.6
72.4
235.8
62.6
23.4
(10.2)
544.6
2018
£bn
166.7
72.5
255.0
54.2
10.9
(7.8)
551.5
40
Standard Life Aberdeen 2019
Financial strength and liquidity
Strong balance sheet and capital generation to support investment and shareholder returns.
Shareholder equity
Capital generation
IFRS equity attributable to equity holders of Standard Life Aberdeen
Our strong capital position supports ongoing investment in the
plc decreased to £6.6bn (2018: £7.4bn) mainly due to distributions to
business and delivering shareholder returns.
shareholders including the return of capital. This was partly offset by
profitability in the year which included the gain on sale of shares in
both HDFC Life and HDFC Asset Management.
Intangible assets of £1.7bn (2018: £3.4bn) primarily relate to goodwill,
customer relationships, technology and brands from acquired
businesses. The reduction in intangibles is due to the impairment of
asset management goodwill of £1.6bn, further details are provided in
Note 15 of the Group financial statements.
Adjusted capital generation
This measure aims to show how adjusted profit contributes to
regulatory capital, and therefore provides insight into our ability to
generate capital to support the payment of dividends to shareholders.
As explained further in Section 9, Supplementary information,
adjusted capital generation is a new APM that we are reporting for the
first time.
The principal defined benefit staff pension scheme, which is closed to
Adjusted capital generation
future accrual, continues to have a significant surplus of £1.1bn
(2018: £1.1bn). Further details are provided in Note 34.
Adjusted profit after tax
Subordinated liabilities reduced to £0.7bn (2018: £1.1bn) reflecting
Remove staff pension scheme returns
the repurchase of debt in March 2019. Further details are provided in
Remove associates’ and joint ventures’
2019
£m
469
(29)
2018
£m
512
(21)
Note 33.
adjusted profit after tax
(200)
(143)
We hold £275m (2018: £179m) in newly established investment
vehicles which the Group has seeded and co-investments of £84m
Add associates’ and joint ventures’
dividends received
(2018: £37m). The Group sets limits for investing in seed capital and
Adjusted capital generation
93
333
47
395
Surplus regulatory capital
Capital resources comprise shareholders’ equity reduced by a
number of deductions (including deductions for intangible assets,
defined benefit pension plan surpluses and significant investments in
certain associates). Under regulatory rules, the vast majority of the
value of our shareholdings in listed associates is not recognised in
capital resources. At 31 December 2019, the indicative 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
2019
£bn
2.2
0.6
2.8
(1.1)
1.7
2018
£bn
1.1
0.6
1.7
0.6
The £1.7bn capital surplus above includes a deduction to allow for the
proposed final dividend in 2019 which will be paid in May 2020.
Capital resources includes c£0.3bn from holdings in insurance
associates and JVs that will no longer be eligible following changes to
the capital regime during 2021. The position is also shown before a
Adjusted capital generation reduced to £333m (2018: £395m) as a
result of the lower revenue in 2019. The increase in dividends was
primarily due to holding our Phoenix associate for a full year.
Net movement in surplus regulatory capital
In addition to the adjusted capital generation, significant capital was
generated in 2019 through the £1.7bn of proceeds from the sale of
shares in HDFC Life and HDFC Asset Management.
The primary uses of capital in 2019 related to £0.5bn for the payment
of the interim and final dividends to shareholders and £0.4bn for
funding the remainder of the £750m share buyback programme which
commenced in 2018.
Analysis of movements in surplus
regulatory capital
Opening 1 January
(1.1)
Adjusted capital generation
HDFC Life and HDFC Asset Management sale
Restructuring and corporate transaction expenses
proceeds
(net of tax)
Dividends
Remainder of £750m share buyback programme
2019
£bn
0.6
0.3
1.7
(0.3)
(0.5)
(0.4)
0.3
1.7
deduction for the further share buyback of up to £400m announced in
Other
February 2020.
Closing 31 December
Note 46 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.
Financial strength and liquidity
Strong balance sheet and capital generation to support investment and shareholder returns.
Shareholder equity
IFRS equity attributable to equity holders of Standard Life Aberdeen
plc decreased to £6.6bn (2018: £7.4bn) 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 shares in
both HDFC Life and HDFC Asset Management.
Intangible assets of £1.7bn (2018: £3.4bn) primarily relate to goodwill,
customer relationships, technology and brands from acquired
businesses. The reduction in intangibles is due to the impairment of
asset management goodwill of £1.6bn, further details are provided in
Note 15 of the Group financial statements.
The principal defined benefit staff pension scheme, which is closed to
future accrual, continues to have a significant surplus of £1.1bn
(2018: £1.1bn). Further details are provided in Note 34.
Subordinated liabilities reduced to £0.7bn (2018: £1.1bn) reflecting
the repurchase of debt in March 2019. Further details are provided in
Note 33.
We hold £275m (2018: £179m) in newly established investment
vehicles which the Group has seeded and co-investments of £84m
(2018: £37m). The Group sets limits for investing in seed capital and
co-investment activity and regularly monitors exposures arising from
these investments. Additional detail is provided in Note 38.
Surplus regulatory capital
Capital resources comprise shareholders’ equity reduced by a
number of deductions (including deductions for intangible assets,
defined benefit pension plan surpluses and significant investments in
certain associates). Under regulatory rules, the vast majority of the
value of our shareholdings in listed associates is not recognised in
capital resources. At 31 December 2019, the indicative 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
2019
£bn
2.2
0.6
2.8
(1.1)
1.7
2018
£bn
1.1
0.6
1.7
(1.1)
0.6
The £1.7bn capital surplus above includes a deduction to allow for the
proposed final dividend in 2019 which will be paid in May 2020.
Capital resources includes c£0.3bn from holdings in insurance
associates and JVs that will no longer be eligible following changes to
the capital regime during 2021. The position is also shown before a
deduction for the further share buyback of up to £400m announced in
February 2020.
Note 46 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.
Capital generation
Our strong capital position supports ongoing investment in the
business and delivering shareholder returns.
Adjusted capital generation
This measure aims to show how adjusted profit contributes to
regulatory capital, and therefore provides insight into our ability to
generate capital to support the payment of dividends to shareholders.
As explained further in Section 9, Supplementary information,
adjusted capital generation is a new APM that we are reporting for the
first time.
Adjusted capital generation
Adjusted profit after tax
Remove staff pension scheme returns
Remove associates’ and joint ventures’
adjusted profit after tax
Add associates’ and joint ventures’
dividends received
Adjusted capital generation
2019
£m
469
(29)
2018
£m
512
(21)
(200)
(143)
93
333
47
395
Adjusted capital generation reduced to £333m (2018: £395m) as a
result of the lower revenue in 2019. The increase in dividends was
primarily due to holding our Phoenix associate for a full year.
Net movement in surplus regulatory capital
In addition to the adjusted capital generation, significant capital was
generated in 2019 through the £1.7bn of proceeds from the sale of
shares in HDFC Life and HDFC Asset Management.
The primary uses of capital in 2019 related to £0.5bn for the payment
of the interim and final dividends to shareholders and £0.4bn for
funding the remainder of the £750m share buyback programme which
commenced in 2018.
Analysis of movements in surplus
regulatory capital
Opening 1 January
Adjusted capital generation
HDFC Life and HDFC Asset Management sale
proceeds
Restructuring and corporate transaction expenses
(net of tax)
Dividends
Remainder of £750m share buyback programme
Other
Closing 31 December
2019
£bn
0.6
0.3
1.7
(0.3)
(0.5)
(0.4)
0.3
1.7
Standard Life Aberdeen 2019
41
Strategic report
Chief Financial Officer’s overview continued
Liquidity management
Cash and liquid resources
Cash and liquid resources were £2.7bn at 31 December 2019 (2018:
£2.6bn) which includes cash and cash equivalents of £1.3bn (2018:
£0.9bn), short-term debt securities (Certificates of Deposit) of £0.9bn
(2018: £1.2bn), bonds of £0.3bn (2018: £0.3bn) and holdings in
pooled investment funds of £0.2bn (2018: £0.2bn). Of these cash and
liquid resources £1.4bn were held in the Standard Life Aberdeen plc
holding company (2018: £1.3bn).
Net cash inflows
Following the sale of the UK and European insurance business in
2018, the IFRS consolidated statement of cash flows now presents a
shareholder view of cash generation, and therefore the Group no
longer reports adjusted cash generation as an alternative
performance measure. Further details are provided in Section 9,
Supplementary information.
Net cash inflows from operating activities were £201m which includes
outflows from restructuring costs, net of tax, of £242m and the LBG
settlement inflow, net of tax, of £113m.
Cash inflows from investing activities of £1.8bn includes proceeds of
£1.7bn from the sale of shares in HDFC Life and HDFC Asset
Management.
Cash outflows from financing activities of £1.6bn primarily relate to the
repayment of subordinated debt of £0.5bn, the purchase of shares as
part of the buyback programme of £0.5bn and £0.5bn for dividends
paid in the year.
Shareholder return
Total shareholder return (TSR)
TSR represents the total return to shareholders in a period and
includes share price growth and the reinvestment of dividends. The
TSR was 39%, 5% and 162% over one-year, five-years and ten-years
respectively.
162%
104%
39%
41%
17%
1 year
FTSE 100
Standard Life Aberdeen plc
5%
5 years
10 years
Earnings per share1
Adjusted diluted earnings per share was 19.3p and diluted earnings
per share from continuing operations was 8.8p. This reflects our focus
on financial discipline and a 22% reduction in our share count arising
from the £1.75bn capital return to shareholders via the ‘B’ share
scheme and related share consolidation, and share buyback
programme.
Dividends
Dividend policy
Management actions, in terms of improving underlying profitability
and reducing the share count, are designed to deliver a level of
dividend that is sustainable and progressive over the medium term.
As disclosed in last year’s Annual report and accounts, it is the
Board’s current intention that the total annual dividend per share 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.
Proposed dividend
The Board is recommending a final dividend for 2019 of 14.3p
(2018: 14.3p) per share. Subject to shareholder approval, this will be
paid on 19 May 2020 to shareholders on the register at close of
business on 3 April 2020.
The dividend payment is expected to be £322m. At 31 December
2019 Standard Life Aberdeen plc held £1.4bn of cash and liquid
resources and £2.3bn of distributable reserves, which will be used to
support the dividend.
The final dividend, combined with the 2019 interim dividend of 7.3p,
brings the total dividend for the year to 21.6p. Adjusted capital
generation for 2019 was £333m, with a further £1,698m of capital
generated from HDFC stake sales.
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. The need to hold appropriate regulatory
capital is the primary restriction on the Group’s ability to pay
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 took place in
November 2018 and the £750m share buyback was completed in
December 2019. A total of 273m shares have been repurchased in
2018 and 2019 at an average price of £2.75 per share.
Following the sale of shares in HDFC Asset Management in
December 2019, we announced that we intended to undertake a
further share buyback programme. On 7 February 2020 we
announced a further share buyback of up to £400m and expect that it
will complete in the second half of 2020.
Dividend per share paid by the Company
19.82p
13.35p
21.30p
14.30p
21.60p
14.30p
21.60p
14.30p
6.47p
7.00p
7.30p
7.30p
2016
2017
2018
2019
Interim
Final
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. As a
result of the share consolidation and share buyback earnings per share from continuing operations for the year ended 31 December 2019 is not directly comparable with the
prior year. Refer to Note 12 of the Group financial statements for information relating to the calculation of diluted earnings per share.
42
Standard Life Aberdeen 2019
Viability statement
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.
Viability
We consider that three years is an appropriate period for this viability
assessment as this is in line with our business planning horizon and
the period over which strategic actions such as the launch of new
investment propositions are typically delivered.
The key processes used by the Board to assess viability are set out
below.
The business planning process includes the projection of Group
profitability, regulatory capital and liquidity over a three year period,
under a range of scenarios. The most severe economic scenario
assumes a significant global recession in 2020 with a sharp fall in
global equity markets of around 45% before recovering by 15% in
2021 and by 15% in 2022; bond yields fall and remain at lower levels
throughout the forecast period. Viability was not threatened under any
of the scenarios explored.
Stress testing and scenario analysis looks at the key risk
exposures of the business and the financial resilience of the business
to severe, and in some cases extreme, individual and combined
stresses. We explored a broad range of stresses that could adversely
impact future profitability, capital and liquidity including:
• Individual stresses applied to fixed interest, equity and property
market values, reduction in bps fees and increased costs
• Combined stress scenarios considering severe economic
conditions, poor fund performance, adverse flows, a spike in
operational errors, integration/ separation/ transformation stalling
and pressure on fees
The most onerous scenario incorporated the severe economic
scenario with flows being 20% worse than experienced in 2018 and
transformation stalling resulting in transformation costs increasing by
50% and the cost-savings anticipated from this activity being deferred
by 12 months.
Whilst capital was eroded and liquidity fell under all scenarios, the
strength and quality of our capital base and the diverse range of
management actions available mean that the Group is able to
withstand these extreme stresses and remain viable. The range of
possible management actions that are available includes reducing
costs, deferring project expenditure, realising the value of our
holdings in joint ventures and listed associates, and reducing
dividends.
Reverse stress testing gives a quantitative and qualitative
understanding of extreme but plausible risk scenarios which could
threaten business model viability.
In 2019 we explored three scenarios which were:
• A market shock with adverse impacts on our joint ventures and
listed associates: this work highlighted that viability was only
threatened under a specific set of assumptions and the likelihood of
this scenario occurring was considered very remote.
• A significant breakdown in the SLA-Phoenix relationship: this work
highlighted that, in the event of a breakdown in the relationship,
SLA’s viability was not expected to be threatened over the short to
medium-term as a result of any commercial impacts; the work also
highlighted the importance of actions being taken to reduce the
operational reliance on Phoenix for certain outsourced services.
• The outage of a key payment mechanism: SLA’s viability was
considered most at risk from a prolonged outage impacting one or
more of SLA’s significant customer / client segments or SLA’s main
corporate banking counterparty. Mitigants are in place to reduce
this risk including contingency plans to respond to short-term
outages and controls around the use of outsourced service
providers.
Developments relating to reverse stress tests performed in previous
years were also reassessed to support the Board in their assessment
of viability.
Reverse stress tests are, by their very nature, intended to explore
scenarios that could potentially threaten viability. However, the
remoteness of the scenarios reviewed and the mitigants that are in
place mean the viability assessment is supported and no qualification
is considered necessary.
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 Directors have determined that three years is an appropriate
period over which to assess prospects. In addition to aligning with our
business planning horizon this reflects the timescale over which
changes to major regulations and the external landscape affecting our
business typically take place.
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 10 to 11 and 13 to 17 of this report.
The Directors’ assessment of prospects also takes into account:
• The Group’s strong surplus regulatory capital, as set out on page
41
• The substantial holdings of Group cash and liquid resources as set
out on page 42
• The Group’s holdings in listed associates as set out on page 30
Assessment of prospects
Based on the above, the Directors consider the Group’s focus on
operational and strategic delivery, including the completion of
transformation activity, will deliver the environment, capability and
focus to grow revenue sources and manage the cost base. The
Group’s financial position and business model are considered to
support the assumptions within the business plan regarding
maintaining a strong capital position and the dividend policy described
on the previous page.
Standard Life Aberdeen 2019
43
Strategic report
Risk management
Strong risk management focused on delivering
the right outcomes
Our approach to risk management
A strong risk and compliance culture flows from our strategic drivers
and behaviours and is fundamental to how we manage the business.
Effective risk-based decision-making is essential to the delivery of the
right outcomes for our clients, customers and all our stakeholders.
Ultimate accountability for risk management rests with the Board who
oversee the effectiveness of the Enterprise Risk Management (ERM)
framework.
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 ERM
framework:
• First line: Day-to-day risk management, including identification and
mitigation of risks and maintaining appropriate controls
• Second line: Risk oversight is provided by the Risk and
Compliance function which reports to the Chief Risk Officer
• Third line: Independent verification of the adequacy and
effectiveness of our risk and control management systems is
provided by our Internal audit function under the direction of the
Chief Internal Auditor
Enterprise Risk Management framework
As part of our corporate transformation, we have continued to
strengthen the ERM framework and embed it in the activities of our
business. This ensures that the framework keeps pace with industry
standards and is appropriate for the risk profile of the business.
During 2019, key improvements to the ERM framework included:
• Streamlining the policy framework to support the management of
risk in all locations
• Completing the roll-out of our risk system, Shield, so that it can be
used by all our people
• Strengthening our risk appetite framework by introducing new risk
tolerances to support governance and risk management
• Extending and refining our risk taxonomy to support better
articulation and discussion of the risks
• Continuing the programme to refresh risk-control self-assessments
across our global functions
• Implementing a single internal capital adequacy assessment
process across Standard Life Aberdeen
• Extending the Senior Manager and Certification Regime across all
of our UK regulated subsidiaries, including training and support for
our senior managers and certified staff
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
44
Standard Life Aberdeen 2019
Business risk environment
Our commercial risk profile improved in 2019. Investment
performance strengthened in contrast to a particularly challenging
year in 2018. Gross inflows strengthened across a range of asset
classes. However, net flows have remained negative and revenue
margins across the industry continue to be under pressure.
We have strengthened our capital and liquidity positions while also
returning capital to our shareholders through our buyback
programme.
In the near-term, operational stretch continues to exist as work is
progressing to transform the business. It is proving complex to
undertake the separation activity and associated consequences and
will require further cost to do so. Ongoing actions are in place to retain
talent and support staff engagement. We have undertaken careful
resource planning with executive ownership and accountability for
delivery of our transformation programmes, alongside delivery of our
business as usual activities.
Following the ratification of the EU/UK Withdrawal Agreement in
January, the Brexit process has entered a transition period up to 31
December 2020. We will closely monitor developments in relation to
the negotiations for the UK’s future relationship with the EU and
actively engage with industry groups such as the Investment
Association. This phase of Brexit presents the prospect of further
political and commercial uncertainty in the UK.
We maintain a heightened level of vigilance to risks to our operations
from cyber intrusion. Dedicated teams of internal experts, augmented
by external expert input, help to ensure we actively manage this
continually evolving risk.
We are managing the impact of COVID-19 coronavirus, utilising
business continuity and resilience processes where appropriate. Its
spread could begin to materially impact the global economy and
delivery of our business plan. Our joint venture in China, HASL, is
similarly managing its operations given its exposure to risks impacting
the wider Chinese market.
We continue to strengthen our conduct risk framework and ensure
that we bring the interests of our clients and customers to every
conversation.
We are committed to managing our direct impact on climate change
and are very mindful of the positive influence we can have as a global
active fund manager, for example, to encourage positive change by
companies in which we choose to invest. You can read more about
our approach to tackling climate change on page 25.
Emerging risks
We are vigilant to emerging risks which could impact our strategy and
operations. Many of these have geopolitical, economic, societal,
technological, legal/regulation and environmental themes. We draw
on internal experts and external specialist reports to build a picture of
how these risks could crystallise in the future and inform our approach
to addressing them. Specifically, emerging risks include availability of
talent in our future workplace, new cyber threats, disruptive
technologies, unprecedented market shifts and climate change.
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 sets the framework
for assessing, monitoring, controlling and governing the risks of the
business. Our principal and emerging risks were subject to robust
assessment by the Board and the principal risks are described in the
following pages.
1 Strategic risk
Risks to our business
Our approach to managing these risks
Strategic drivers
◄ ►
Those risks which threaten the achievement of the strategy through failing to
meet customer/client expectations, poor strategic decision-making,
implementation or response to changing circumstances.
Our strategy is to build a vibrant and value-creating purpose-led organisation,
with the current and future needs of our stakeholders at the heart of what we
do. We build solutions for our customers and clients to create wealth and help
meet their needs. We have strategic holding in associates and joint venture
businesses in the UK, India and China that generate value for our
shareholders. Performance failure in any of these strategic activities may have
short-term and/or long-term financial impacts.
• The Chief Executive (supported by the executive
leadership team) is responsible for the
development and promotion of our strategy and
the monitoring of its progress and success
• Regular assessments of the business plan are
performed
• Brexit planning has refocused to consider the
operational impacts of the outcome of UK/EU
negotiations in advance of the end of the
transition period
High impact
intelligence
Enduring
relationships
Connections
without borders
Future fit
How has this risk evolved in 2019
The Chief Executive’s review (pages 6-9) outlines how this risk has evolved
across the drivers of investment performance, flows, ESG (climate risk in
particular), Brexit and geopolitical uncertainty more generally.
• Actively involved with ESG from an investment
and operating perspective and the TCFD (page
25)
• Representation on the boards of our associates
and joint ventures as well as wider business
engagement
2
Financial risk
Risks to our business
Our approach to managing these risks
Strategic driver
▼
The risk that we have insufficient financial resources or suffer loss from
adverse markets or the failure/default of counterparties.
• Capital is held against our risks and we review
these risks on an ongoing basis
Future fit
Our business is exposed to the overall level of revenue margins on our
investment mandates, platforms and wealth services as well as inflows and
outflows throughout the year and global markets. Financial discipline is
required to manage our cost base and align it to our revenue outlook to
manage our overall financial efficiency. Our capital and liquidity positions are
directly impacted by our profitability.
How has this risk evolved in 2019
The cost/income ratio has risen due to falls in revenue which have only been
partially offset by reductions in our costs. The loss of the LBG mandates was
compensated by a one-off gain arising from the settlement with LBG.
Targeted disposals of shares in our Indian associates generated value that
strengthens our capital base and increases strategic optionality for the future.
• In light of the ongoing transformation activities,
we remain vigilant to opportunities to generate
further cost efficiencies
• Stress testing assesses our financial resilience
to market risk, operational risk and business risk
• We maintain external liquidity facilities as part of
a wider liquidity management framework
• Management of fees and costs in relation to our
proposition
3 Conduct risk
Risks to our business
Our approach to managing these risks
Strategic drivers
◄ ►
The risk that through our behaviours, strategies, decisions and actions we fail
to meet customer/client expectations, and/or deliver unfair outcomes, and/or
have poor market conduct.
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.
How has this risk evolved in 2019
Our conduct risk framework was strengthened during 2019 and our conduct
risk metrics have been stable throughout the year.
• A Global Code of Conduct which is applicable
for all of our people
• Mandatory training modules embed a strong
conduct culture across our business
• Conduct embedded within our Enterprise Risk
Management Committee, Client Committee and
Conduct & Conflicts Committee to ensure we are
meeting our commitments
• Regular conduct risk agenda items at the Risk
and Capital Committee
Enduring
relationships
Connections
without borders
Trends
▲Increase
◄ ►Stable
Decrease
Link to strategic priorities
High impact
intelligence
Enduring
relationships
Connections
without boarders
Future Fit
Standard Life Aberdeen 2019
45
Strategic report
Risk management continued
4 Regulatory and legal risk
◄ ►
Risks to our business
Our approach to managing these risks
Strategic drivers
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 we operate.
As part of a highly regulated global industry, we work with a number of different
regulators and legal systems. The high volume of regulatory change continues
and this often presents interpretation and implementation challenges and hence
risk of non-compliance.
• Legal team support for our senior management
in relevant areas across our business
• Scanning of the regulatory horizon to ensure
we engage early in any areas of potential
regulatory change
• Open and transparent relationships with our
key regulators to support trust and clarity in
terms of their expectations
How has this risk evolved in 2019
Delivery of certain regulatory projects was challenged by tight implementation
deadlines.
The complexity of MiFID II highlighted some prior implementation challenges
which needed to be remediated.
Operational risks (5-12)
5 Process execution and trade errors
Connections
without borders
Future fit
◄ ►
Risks to our business
Our approach to managing these risks
Strategic drivers
The risk that people, processes, systems or external events impede our ability
to meet our strategic objectives.
Risks arising from process execution and trade errors are inherent in our
business and we seek to minimise the incidence and impact of these through
our controls and management actions. Our transformation programme will
deliver simpler and more reliable processes, however while this programme is
being implemented this principal risk will be elevated.
• Monitoring underlying causes of operational
errors with a view to identify commonalities
that require action
• Strengthening our three lines of defence by
promoting greater accountability and
awareness of risks and improving processes
to address risk issues
How has this risk evolved in 2019
While there has been a rise in risk events that warrant investigation and
remediation, this has not led to any material adverse impact on our customers
or clients, or breached our risk appetite. Outages of important systems were
successfully dealt with through our incident management processes.
• Well-established incident management
processes for dealing with system outages that
impact important processes that might cause
harm to customers or clients
• Continued improvements to key components
of our ERM framework
Connections
without borders
Future fit
6 People
Risks to our business
The risk that resources and employment practices do not align with our
strategic objectives.
We are a people business and the engagement of our people is critical to the
implementation of our business plan, our strategy and the overall success of
the business.
How has this risk evolved in 2019
The ongoing transformation programme and industry environment continued
to place extensive demands on our people. Involuntary turnover remained
stable in 2019 and well within acceptable business levels.
◄ ►
Our approach to managing these risks
Strategic drivers
• Significant progress in 2019 in building stronger
staff cohesion and commenced the roll-out of
refreshed values and purpose, improving
communication and harmonising UK
employees’ terms and conditions
• Promoting stability, engagement and
High impact
intelligence
Connections
without borders
Future fit
diversity in our workforce
• Actively seek to be a leading employer with a
strong employer proposition
46
Standard Life Aberdeen 2019
7
Technology
Risks to our business
Our approach to managing these risks
Strategic drivers
▲
The risk of the failure of technology systems to adapt to changing business
needs and from unwanted actions of unauthorised users including through
cyber-attacks.
Our current IT estate is complex and will remain so until separation from Phoenix
is complete. Our dependence on third party outsource firms also adds a level of
risk that needs to be managed in a dedicated way. Our business is exposed to a
wide range of threats which can impact its resilience and continuity, e.g. weather
events, internal failure, external intrusion or supplier failure.
How has this risk evolved in 2019
Separation of our technology infrastructure is proving more complex than
anticipated. This is covered in more detail in the Chief Financial Officer’s overview
on page 37.
• Ongoing benchmarking of our IT systems
environment to identify areas for
improvement
• Regular penetration testing and crisis
management exercises
• Ongoing programme of investment and
improvements in enhancing and developing
controls in IT infrastructure
• Outsourcing some critical IT processes to
Cognizant with a view to enabling these
services to be delivered and developed by a
specialist third party
Connections
without borders
Future fit
8 Business resilience and continuity
◄ ►
Risks to our business
Our approach to managing these risks
Strategic drivers
The risk of business interruptions from a range of internal and external incidents
or threats including environmental and climatic issues, terrorism, economic
instabilities, pandemic and operational incidents.
• Enhancing our operational resilience
framework to strengthen our responses to
disruptions
Our business is exposed to a wide range of threats which can impact its
resilience and continuity.
How has this risk evolved in 2019
During 2019, the risk of internally-generated disruption remained broadly stable
however, the risks from external parties especially cyber intruders increased as
tools for exploiting IT vulnerabilities became more widely available.
Concerns around Brexit-related supplier disruption abated as 2019 progressed.
• Business continuity and contingency
planning processes which are regularly
reviewed and tested
• Operating workplace recovery locations to
allow key functions to continue servicing
clients and customers
• Managing the impact of COVID-19
coronavirus, utilising business continuity and
resilience processes where appropriate
Enduring
relationships
Connections
without borders
9
Fraud and financial crime
◄ ►
Risks to our business
Our approach to managing these risks
Strategic drivers
The risk of fraudulent and dishonest activities.
As a business, we handle clients’ and customers’ money which exposes us to
the risk of fraud. We also engage with a wide number of external parties and
we have to be vigilant to the risk that these parties are connected with criminal
behaviour or are subject to sanctions by national or global authorities.
How has this risk evolved in 2019
We continue to experience very low levels of fraud and have sound processes
in place to identify customer and client activity linked with financial crime globally.
• Controls covering anti-money laundering,
anti-bribery, fraud and other areas of financial
crime
• Continued investment in systems and
process to improve our monitoring of fraud
and financial crime risks
• Global Code of Conduct and Policy
Framework providing our people with
minimum standards and drives our culture
Enduring
relationships
Connections
without borders
10 Change management
Risks to our business
The risks of failure in the management of strategic and operational change
initiatives.
This risk is a function of implementing strategies for effecting change, controlling
change and helping staff to adapt to change. We have a significant change
programme arising from the ongoing integration of legacy systems and the
decoupling of IT systems from Phoenix.
How has this risk evolved in 2019
The complexity of this work has led to some delay and to increased budget
forecasts for the change programme. We are closely managing the potential
impact of the IR35 tax change on our contractor population.
◄ ►
Our approach to managing these risks
Strategic drivers
• Central management of major change
projects with clear governance processes
and consolidation of our change workload
• Defined roles for second and third lines in
overseeing the progress of change activities
• Actively managing risks around IT
contractors arising from IR35
Connections
without borders
Future fit
Standard Life Aberdeen 2019
47
Strategic report
Risk management continued
11 Supplier risk
Risks to our business
Our approach to managing these risks
Strategic drivers
◄ ►
The risk that suppliers fail to deliver products/services in accordance with their
contractual obligations.
Outsourcing of key activities to firms with specialist capabilities is part of our strategy.
We remain responsible for the delivery of activities by these firms and continue to
streamline the delivery of these services so as to reduce complexity. Increased
outsourcing brings with it an increased risk associated with the failure of that supplier
to deliver the service required of them.
How has this risk evolved in 2019
Cognizant became a key supplier of IT support services in 2019.
We actively engaged with our key suppliers in relation to their Brexit preparations
throughout 2019 so as to mitigate the impact of disruption to their services were a
no-deal Brexit to arise. We are closely monitoring the negotiations between the UK
and EU during the transition period.
• Strong relationships with our external
providers to ensure we understand the
risks that they pose to our operations
and reputation
• Maintaining close oversight of our key
suppliers and their impact on the risk
profile of the business
• Improvements to our operational
resilience framework include actions to
better manage the risks from our
suppliers
Enduring
relationships
Connections without
borders
Future fit
12 Financial management process
◄ ►
Risks to our business
Our approach to managing these risks
Strategic drivers
The risk of the failure of financial planning processes.
Sound and reliable financial reporting is critical to informing how the business is
performing and for future planning. It is also essential for the disclosures that we
provide to external stakeholders. Failures in these processes have the potential to
result in sub-optimal decisions being taken by our business and our shareholders.
How has this risk evolved in 2019
This risk was broadly stable throughout 2019 however delays were experienced
with the payment of invoices in respect of some subsidiaries during 2019 which
required remedial action.
• Financial reporting is aligned to external
reporting standards and industry best
practices
• Our Audit Committee challenges
reporting as part of financial planning and
control processes
• The second line challenges our business
plan to support decision-making
• Transformation of the Finance function is
ongoing
Connections without
borders
Future fit
48
Standard Life Aberdeen 2019
Pages 2 to 49 constitute the Strategic report which was approved by the Board and signed off on its behalf by:
Kenneth A Gilmour
Company Secretary,
Standard Life Aberdeen plc (SC286832)
10 March 2020
Standard Life Aberdeen 2019
49
Strategic report
Governance
50
Standard Life Aberdeen 2019
Governance
Contents
2. Board of Directors ............................................................................................................................................................... 52
3. Corporate governance statement ........................................................................................................................................ 56
3.1 Audit Committee report ................................................................................................................................................ 65
3.2 Risk and Capital Committee report .............................................................................................................................. 72
3.3 Nomination and Governance Committee report........................................................................................................... 76
3.4 Directors’ remuneration report ..................................................................................................................................... 78
4. Directors’ report ................................................................................................................................................................. 105
5. Statement of Directors’ responsibilities ............................................................................................................................. 111
Standard Life Aberdeen 2019
51
Governance
2. Board of Directors
Our business is overseen by our Board of Directors. Biographical details (and shareholdings)
of the Directors as at 9 March 2020 are listed below.
Sir Douglas Flint CBE –
Chairman
Keith Skeoch –
Chief Executive
Stephanie Bruce –
Chief Financial Officer
Appointed to the Board
November 2018
Nationality
British
Board committees:
Age
64
Shares
89,024
NC
Sir Douglas’ wide-ranging international and
financial experience is an important asset to
the business as it delivers against its
strategy. His strong track record of board
leadership as a chairman helps to facilitate
open and constructive boardroom
discussion.
Previously, Sir Douglas 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.
In other current roles, Sir Douglas is
chairman of IP Group plc, and serves as HM
Treasury’s special envoy to China’s Belt and
Road Initiative.
Additionally, he is chairman of the Just
Finance Foundation, non-executive director
of the Centre for Policy Studies, member of
the global advisory council of Motive
Partners and board member of the Institute
of International Finance. He also chairs the
Corporate Board of Cancer Research UK
and is a trustee of the Royal Marsden
Cancer Charity.
He holds a BAcc (Hons) from the University
of Glasgow, a PMD from Harvard Business
School and is a Member of the Institute of
Chartered Accountants of Scotland.
Appointed to the Board
May 2006
Nationality
British
Age
63
Shares
2,615,458*
Appointed to the Board
June 2019
Nationality
British
Age
51
Shares
Nil
Keith joined the business in 1999 as Chief
Investment Officer of Standard Life
Investments, before becoming Chief
Executive of that division in 2004. In 2015 he
was appointed Chief Executive of Standard
Life plc, and led the merger with Aberdeen
Asset Management in 2017. He was named
as sole Chief Executive in 2019. He has
accountability for the day-to-day running of
the business, and leads its integration and
transformation activities.
Stephanie was appointed Chief Financial
Officer on joining the Board in June 2019.
She is a highly experienced financial
services practitioner with significant sector
knowledge, both technical and commercial.
She brings experience of working with
boards and management teams of financial
institutions in respect of financial and
commercial management, reporting, risk and
control frameworks and regulatory
requirements.
Keith started his career in 1979 at the
Government Economic Service. He moved
into financial services in 1980 and became
chief economist with James Capel (HSBC
Securities from 1996), where he was latterly
managing director of international equities.
Keith holds a BA from the University of
Sussex and an MA from the University of
Warwick. In recognition of his wider
contribution to the financial services industry,
particularly his work in response to the global
financial crisis, he has been awarded
honorary doctorates from the University of
Sussex and Teesside University. For
services to the economics profession, he
has been named a Fellow of the Society of
Business Economists.
He is deputy chair of the Investment
Association, and assumes the role of chair
on 1 May 2020. He is also a board member
of the Financial Reporting Council and a
trustee of the Edinburgh International
Festival.
Before joining Standard Life Aberdeen,
Stephanie was a partner at PwC, a member
of the Assurance Executive and led the
financial services assurance practice. She
joined Price Waterhouse in 1990, qualified
as a chartered accountant in 1993 and
joined the PwC partnership in 2002.
During her career, she has specialised in the
financial services sector, working with
organisations across asset management,
insurance and banking, with national and
international operations.
Stephanie is a council member of the
Institute of Chartered Accountants of
Scotland and the chair of the audit
committee for the Institute. Stephanie is also
an associate of the Association of Corporate
Treasurers.
She holds a Bachelor of Laws (LLB) from
the University of Edinburgh.
Key to Board committees
R
RC
A
NC
Remuneration Committee
Risk and Capital Committee
Audit Committee
Nomination and Governance Committee
Committee Chair
52
Standard Life Aberdeen 2019
* Shares include qualifying awards as described on page 88
of the Directors’ remuneration report 2019.
2. Board of Directors
Our business is overseen by our Board of Directors. Biographical details (and shareholdings)
of the Directors as at 9 March 2020 are listed below.
Sir Douglas Flint CBE –
Chairman
Keith Skeoch –
Chief Executive
Stephanie Bruce –
Chief Financial Officer
Appointed to the Board
November 2018
Nationality
British
Board committees:
Age
64
Shares
89,024
NC
Appointed to the Board
Appointed to the Board
Age
63
Shares
2,615,458*
June 2019
Nationality
British
Age
51
Shares
Nil
May 2006
Nationality
British
Sir Douglas’ wide-ranging international and
Keith joined the business in 1999 as Chief
Stephanie was appointed Chief Financial
financial experience is an important asset to
Investment Officer of Standard Life
Officer on joining the Board in June 2019.
the business as it delivers against its
Investments, before becoming Chief
She is a highly experienced financial
strategy. His strong track record of board
Executive of that division in 2004. In 2015 he
services practitioner with significant sector
leadership as a chairman helps to facilitate
was appointed Chief Executive of Standard
knowledge, both technical and commercial.
open and constructive boardroom
Life plc, and led the merger with Aberdeen
She brings experience of working with
discussion.
Previously, Sir Douglas 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
Asset Management in 2017. He was named
boards and management teams of financial
as sole Chief Executive in 2019. He has
institutions in respect of financial and
accountability for the day-to-day running of
commercial management, reporting, risk and
the business, and leads its integration and
control frameworks and regulatory
transformation activities.
requirements.
where he was a partner. Between 2005 and
Keith started his career in 1979 at the
Before joining Standard Life Aberdeen,
2011 he also served as a non-executive
Government Economic Service. He moved
Stephanie was a partner at PwC, a member
director of BP plc.
In other current roles, Sir Douglas is
chairman of IP Group plc, and serves as HM
Treasury’s special envoy to China’s Belt and
into financial services in 1980 and became
of the Assurance Executive and led the
chief economist with James Capel (HSBC
financial services assurance practice. She
Securities from 1996), where he was latterly
joined Price Waterhouse in 1990, qualified
managing director of international equities.
as a chartered accountant in 1993 and
joined the PwC partnership in 2002.
Road Initiative.
Keith holds a BA from the University of
Additionally, he is chairman of the Just
Finance Foundation, non-executive director
of the Centre for Policy Studies, member of
the global advisory council of Motive
Partners and board member of the Institute
of International Finance. He also chairs the
Corporate Board of Cancer Research UK
and is a trustee of the Royal Marsden
Cancer Charity.
He holds a BAcc (Hons) from the University
of Glasgow, a PMD from Harvard Business
School and is a Member of the Institute of
Chartered Accountants of Scotland.
Sussex and an MA from the University of
During her career, she has specialised in the
Warwick. In recognition of his wider
financial services sector, working with
contribution to the financial services industry,
organisations across asset management,
particularly his work in response to the global
insurance and banking, with national and
financial crisis, he has been awarded
international operations.
honorary doctorates from the University of
Sussex and Teesside University. For
services to the economics profession, he
has been named a Fellow of the Society of
Business Economists.
Stephanie is a council member of the
Institute of Chartered Accountants of
Scotland and the chair of the audit
committee for the Institute. Stephanie is also
an associate of the Association of Corporate
He is deputy chair of the Investment
Treasurers.
Association, and assumes the role of chair
on 1 May 2020. He is also a board member
of the Financial Reporting Council and a
trustee of the Edinburgh International
She holds a Bachelor of Laws (LLB) from
the University of Edinburgh.
Key to Board committees
* Shares include qualifying awards as described on page 88
of the Directors’ remuneration report 2019.
Festival.
R
Remuneration Committee
RC
Risk and Capital Committee
A
Audit Committee
NC
Nomination and Governance Committee
Committee Chair
Martin Gilbert –
Vice Chairman Standard Life Aberdeen
and Chairman Aberdeen Standard
Investments
Appointed to the Board
August 2017
Nationality
British
Age
64
Shares
1,010,016*
Martin brings significant entrepreneurial and
executive leadership experience, with a
particular focus on global client engagement
and business development. He is co-founder
and former chief executive of Aberdeen
Asset Management and was a director from
1983. In March 2019 he was appointed Vice
Chairman, Standard Life Aberdeen and
Chairman, Aberdeen Standard Investments.
Martin is a non-executive director and senior
independent director of Glencore plc, and
non-executive chairman of the online bank
Revolut. He is a member of the Monetary
Authority of Singapore’s international
advisory panel and the BritishAmerican
Business international advisory board. From
January 2016 to October 2018 he was
deputy chairman of Sky PLC having joined
the board in 2011.
A chartered accountant, Martin holds an MA
in Accounting and a Bachelor of Laws (LL.B)
from the University of Aberdeen. He is
Adjunct Professor of Finance at Imperial
College Business School and, in 2014 he
was awarded a Doctorate of Letters from
Heriot-Watt University. Martin also has two
honorary degrees for services to business
and entrepreneurship from University of
Aberdeen and Robert Gordon University.
In October 2019 Martin advised that he will
not seek re-election at the Standard Life
Aberdeen 2020 Annual General Meeting,
and will retire from the Company on 30
September 2020.
Jonathan Asquith –
Non-executive Director and Senior
Independent Director
John Devine –
Non-executive Director
Appointed to the Board
September 2019
Nationality
British
Board committees:
Age
63
Shares
20,000
R NC
Jonathan has considerable experience as a
non-executive director within the investment
management and wealth industry. This
brings important insight to his roles as Senior
Independent Director and Chair of our
Remuneration Committee.
Jonathan is deputy chairman and senior
independent director of 3i Group plc and
non-executive director of CiCap Limited
(Coller Capital), Northill Capital Services
Limited and Northill UK Management
Holdings Limited. Previously, he has been
chairman of Citigroup Global Markets
Limited, Citibank International Limited,
Dexion Capital PLC and AXA Investment
Managers. He has also been a director of
Ashmore Group plc and AXA UK PLC.
In his executive career Jonathan worked at
Morgan Grenfell for 18 years, rising to
become group finance director of Morgan
Grenfell Group, before going on to take the
roles of chief financial officer and chief
operating officer at Deutsche Morgan
Grenfell. From 2002 to 2008 he was a
director of Schroders, during which time he
was chief financial officer and later executive
vice chairman.
He holds an MA from the University of
Cambridge.
Appointed to the Board
July 2016
Nationality
British
Board committees:
Age
61
Shares
28,399
A NC R RC
John’s previous roles in asset management,
his experience in the US and Asia and his
background in operations and technology,
are all areas of importance to our strategy.
John’s experience is important to the
Board’s discussions of financial reporting
and risk management, and in his role as
Chairman of our Audit Committee.
John was appointed a Director of Standard
Life plc in July 2016. From April 2015 until
August 2016, he was non-executive
Chairman of Standard Life Investments
(Holdings) Limited.
He is non-executive chairman of Credit
Suisse International, Credit Suisse Securities
(Europe) Limited and a non-executive
director of Citco Custody Limited and Citco
Custody (UK) Limited.
From 2008 to 2010, John was chief
operating officer of Threadneedle Asset
Management Limited. Prior to this, he held a
number of senior executive positions at
Merrill Lynch in London, New York, Tokyo
and Hong Kong.
He holds a BA (Hons) from Preston
Polytechnic and is a Fellow of the Chartered
Institute of Public Finance and Accounting.
Standard Life Aberdeen 2019
53
Governance
2. Board of Directors continued
Melanie Gee –
Non-executive Director
Martin Pike –
Non-executive Director
Cathleen Raffaeli –
Non-executive Director
Appointed to the Board
November 2015
Nationality
British
Board committees:
Age
58
Shares
67,500
NC RC A
Appointed to the Board
September 2013
Nationality
British
Board committees:
Age
58
Shares
69,476
RC NC A
Appointed to the Board
August 2018
Nationality
American
Board committees:
Age
63
Shares
9,315
RC R
Cathi has strong experience in the financial
technology sector and background in the
platforms sector, as well as international
board experience. She brings these insights
to her role as non-executive chairman of the
boards of Elevate Portfolio Services Limited
and Standard Life Savings Limited. This role
provides a direct link between the Board and
the platform businesses that help us connect
with customers and their advisers.
Cathi is a non-executive director of Federal
Home Loan Bank of New York, where she is
vice chair of the compensation and human
resources committee and of the technology
committee. She is also a member of the
executive committee. She is managing
partner of Hamilton White Group, LLC which
offers advisory services, including business
development, to companies in financial
services growth markets. In addition, she is
managing partner of Soho Venture Partners
Inc, which offers third party business
advisory services.
Previously, Cathi 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.
She holds an MBA from New York University
and a BS from the University of Baltimore.
Melanie brings to the Board significant
executive experience in creating successful
businesses and leading teams of bankers in
various roles. This experience was derived
from her career in financial services, where
she has specialised in advisory and
corporate finance work. She has also had a
particular focus on the evolution of cultures
and working practices, and is able to draw
on these insights as our designated non-
executive Director for employee
engagement.
Melanie was appointed as a Director of
Standard Life plc in November 2015. She is
a non-executive director and chair of the
healthcare company Syncona Limited, a
FTSE 250 company. She is also chair of
Ridgeway Partners Holdings Ltd and of its
wholly-owned subsidiary Ridgeway Partners
Limited. Melanie was appointed a managing
director of Lazard and Co. Limited in 2008
and became a senior adviser in 2012.
Previously Melanie held various roles with
UBS, having been appointed a managing
director in 1999 and served as a senior
relationship director from 2006 to 2008. She
was a non-executive director of The Weir
Group PLC between 2011 and 2017 and the
Drax Group plc between 2013 and 2016.
She holds an MA in Mathematics from the
University of Oxford.
Martin provides broad commercial insight
into strategy and risk to the Board, and to his
role as Chair of our Risk and Capital
Committee. He has particular knowledge of
enterprise-wide risk management. His
actuarial and strategic consultancy
background brings a strong understanding of
what drives success in the markets in which
we operate.
Martin was appointed as a Director of
Standard Life plc in September 2013. He is
also chairman and non-executive director of
Faraday Underwriting Limited – where he is
a member of the audit and risk committee
and chair of the nomination and
remuneration committee. Between 2015 and
2018 he served as a non-executive director
of esure Group plc where he was chair of the
remuneration committee.
He joined R Watson and Sons, consulting
actuaries, 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 of
insurance and financial services, Watson
Wyatt during 2009, and managing director of
risk consulting & software for EMEA, Towers
Watson from 2010 to 2013.
Martin holds an MA in Mathematics from the
University of Oxford. He is a Fellow of the
Institute and Faculty of Actuaries and a
Fellow of the Institute of Directors.
Key to Board committees
R
RC
A
NC
Remuneration Committee
Risk and Capital Committee
Audit Committee
Nomination and Governance Committee
Committee Chair
54
Standard Life Aberdeen 2019
Cecilia Reyes –
Non-executive Director
Jutta af Rosenborg –
Non-executive Director
Appointed to the Board
August 2017
Nationality
Danish
Board committees:
Age
61
Shares
8,750
R A
Jutta has extensive knowledge of
international management and strategy,
from sector operational roles in a number of
listed companies. Her previous experience,
which includes group finance and auditing,
risk management and mergers and
acquisitions, allows her to offer valuable
perspectives to strategic discussions.
Jutta was appointed a non-executive
director of Aberdeen Asset Management
PLC in January 2013. She is a non-
executive director of JPMorgan European
Investment Trust plc and chair of its audit
committee. In addition, she is a non-
executive director of NKT A/S and Nilfisk
Holding A/S, and chairs the audit and
remuneration committees of both
organisations. She is also a member of the
supervisory board of BBGI SICAV S.A,
where she chairs the audit committee.
Previously, she was the executive vice
president, chief financial officer, of ALK-
Abelló A/S and was chairman of Det
Danske Klasselotteri A/S.
A qualified accountant, she holds a
Master’s degree in Business Economics
and Auditing from Copenhagen Business
School.
Appointed to the Board
October 2019
Nationality
Swiss and Philippine
Board committees:
Age
61
Shares
Nil
R RC
Cecilia brings great insight from operating in
leadership positions in international financial
markets. Her direct experience of risk
management and her knowledge of the
investment process are of great benefit to
the work of the Board.
Before joining our Board, Cecilia was with
Zurich Insurance Group Ltd (Zurich) for 17
years where she was most recently its group
chief risk officer, leading the global function
comprising group risk management and
responsible for its enterprise risk
management framework.
Prior to that, she was their group chief
investment officer, responsible for the
execution of the investment management
value chain – including analysis,
development and global implementation of
the investment strategy for the group's
investments. In both positions, she was a
member of Zurich’s executive committee.
Cecilia started her career at Credit Suisse,
following which she held senior positions at
ING Barings, latterly as head of risk analysis,
asset management. She is also the founder
of Pioneer Management Services GmbH
which seeks to develop a non-profit social
enterprise.
She holds a BSc from Ateneo de Manila
University, an MBA from the University of
Hawaii and a PhD (Finance) from the
London Business School, University of
London.
Board diversity
Gender
Male: 55%
Female: 45%
Executive and
Non-executive mix
Executive: 36%
Non-executive: 64%
Nationality
British: 73%
American: 9%
Danish: 9%
Swiss and Philippine: 9%
Tenure as at March 2020
0 – 3 years: 73%
3 – 5 years: 9%
5+ years: 18%
Standard Life Aberdeen 2019
55
Governance
3. Corporate governance statement
Evaluation once again facilitated this review and you can read about
the process and its outcomes on pages 61.
Culture
Continuing to build on the integration and transformation work across
the business, the Board has discussed the Group’s culture and
considered the executive leadership team’s (ELT) initiatives to embed
it throughout the organisation. One of my operating principles is to
operate in a culture of openness and debate, and show the Board
leading in promoting the desired cultural outcomes throughout the
organisation. You can read more about the activities to oversee culture
in this statement and in the Strategic report.
Board developments and diversity
Continuing our focus on building a Board with the best skills and
diversity mix to lead the Group, we have welcomed new Directors and
said farewell to long-serving Directors over the year. I am particularly
pleased to have welcomed Jonathan Asquith, Cecilia Reyes and
Stephanie Bruce to the Board and to thank Bill Rattray, Richard Mully
and Simon Troughton for their many years of service. Rod Paris stood
down from the Board on 31 December 2019 but remains our Chief
Investment Officer and we also announced that Martin Gilbert will retire
from the Board at the conclusion of the 2020 Annual General Meeting.
In addition, I look forward to welcoming Brian McBride who will join the
Board on 1 May 2020. You can read more about the Board changes
and our wider work on diversity and inclusion on pages 76 and 77.
The Board continues to emphasise the importance of strong
governance and I look forward to updating you on this in future reports.
Sir Douglas Flint
Chairman and Chairman of the Nomination and Governance
Committee
Statement of application of and compliance with the UK
Corporate Governance Code 2018
The statement below, together with the rest of the Corporate
governance statement, explains the main aspects of the Company’s
corporate governance structure and gives a greater understanding of
how the Company has applied the principles in the Code. For the year
ended 31 December 2019, the Board considers that it has complied in
full with the provisions of the Code, available at www.frc.org.uk. The
Corporate governance statement also explains the relevant
compliance with the Disclosure Guidance and Transparency
Sourcebook. The table on page 110 sets out where to find each of the
disclosures required in the Directors’ report in respect of Listing Rule
9.8.4 R.
Together with the Directors’ remuneration report, this statement
explains how our governance framework supports the way we apply
the Code’s principles and provisions of good governance.
1. Board leadership and company purpose
Governance framework
The Group’s governance framework is approved by the Board and
documented in the Board Charter, which is reviewed annually and
updated as appropriate.
You can read the Board Charter on our website at
www.standardlifeaberdeen.com/annualreport
Sir Douglas Flint
Sir Douglas Flint
Letter from the Chairman
I am pleased to introduce the 2019 Corporate governance statement
which reflects the work of both myself and the Board during my first
year as Chairman of the Group and of the Nomination and
Governance Committee.
The revised UK Corporate Governance Code (the
Code)
We have taken time to identify how our governance framework needed
to be amended to allow us to implement the revised Code. This gave
us the opportunity to revisit our governance processes on stakeholder
engagement, employee engagement, succession planning, diversity
and inclusion, and some elements of remuneration. Where we have
proposed revisions as a result, they have been reflected in the Board
Charter. Revisions approved include a specific reference to the Board’s
commitment to hearing the employee voice in the Boardroom.
Stakeholder engagement and the Board’s duty
Recognising our obligations under the Companies (Miscellaneous
Reporting) Regulations 2018, the Directors have explained how we
have complied with our duty to have regard to the matters in section
172 (1) (a)-(f) of the Companies Act. These matters include our
responsibilities with regard to the interests of employees, suppliers,
customers, the community and the environment, all within the context
of promoting the success of the Company. During the year the
Nomination and Governance Committee mapped out our key
stakeholder groups and how engagement with them is incorporated
into our discussions. The Strategic report includes our section 172
compliance statement, and on page 59, the Corporate governance
statement shows how we consider these responsibilities in our
discussions and decision-making.
Employee engagement
As we announced in the Annual report and accounts 2018, Melanie
Gee was appointed as the non-executive Director (NED) who would
take forward employee engagement and you can read about progress
during the year on page 58. Melanie’s work has built upon the strong
processes we had in place and her direct communication with our
employees has been very well received. We report later in this
statement on the various engagement mechanisms including
employee surveys, Meet the NEDs sessions and NED dinners.
External Board evaluation
Acknowledging that the Board continues to refresh and develop
following on from the transformational transactions in 2017 and 2018,
we agreed that it would be beneficial to have a further externally
facilitated review during 2019 to build on the findings and
recommendations from the 2018 review. Independent Board
56
Standard Life Aberdeen 2019
Governance framework
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. During 2019, these included approving, overseeing and challenging:
The development and implementation of strategy and the business
plan
Capital and management structures including capital allocation and
how it supports the Group’s long-term sustainable growth
Oversight of culture, our standards and ethical behaviours
Dividend policy
Financial reporting which during 2019 included the impact of the
arbitration with Lloyds Banking Group
How risks are managed, including the Enterprise Risk Management
(ERM) framework, risk strategy, risk appetite limits and internal
controls
Remuneration policy
Succession planning
Significant corporate and other transactions which during 2019
included public offerings of shares in our Indian life assurance and
asset management associate businesses, preparation for the sale of
our Hong Kong insurance subsidiary and commencing joint ventures
with Virgin Money and Investcorp
The sustainability of the Group’s business and our own sustainability
responsibilities to stakeholders, including wider society and the
environment
Significant external communications
The work of the 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 Chief Executive and from the Chief Financial Officer on progress against approved strategies and the
business plan, as well as updates on stock market and global economic conditions. There are also regular presentations from the Chief Investment
Officer as well as key business functional leaders and regional heads.
Chairman
Leads the Board and ensures that
its principles and processes are
maintained
Promotes high standards of
corporate governance
Together with the CE and the
Company Secretary, sets agendas
for meetings of the Board
Ensures Board members receive
accurate, timely and clear
information on the Group and its
activities
Encourages open debate and
constructive discussion and
decision-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
Chief Executive (CE)
The CE operates within authorities delegated by the Board to:
Develop strategic plans and structures for presentation to the
Board
Make and implement operational decisions
Lead the other executive Directors and the ELT 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 Chairman, represent the Group to external
stakeholders, including shareholders, customers, suppliers,
regulatory and governmental authorities, and the local and wider
communities
On 13 March 2019, Keith Skeoch became sole CE and Martin
Gilbert continued his individual accountability for managing
relationships with clients, winning new business and realising the
potential from our global network and product capabilities. This
structure was in place until 2 October 2019 when the timing of
Martin’s standing down from the Board was announced. Since
then, he has continued to focus on strengthening the Group’s
relationships with clients.
Senior Independent Director (SID)
The SID is available to talk with our
shareholders about any concerns that
they may not have been able to
resolve through the channels of the
Chairman, the CE or Chief Financial
Officer, or where a shareholder
considered these channels as
inappropriate.
The SID leads the annual review of the
performance of the Chairman.
Non-executive Directors (NED)
The role of our NEDs is to participate
fully in the Board’s decision-making
work including advising, supporting and
challenging management as
appropriate.
Nomination and Governance
Committee (N&G)
Board and Committee
composition
Succession planning
Board appointments
Governance framework
Audit Committee (AC)
Financial Reporting
Internal audit
External audit
Whistleblowing
Financial crime
Regulatory financial reporting
Remuneration Committee (RC)
Development and
Implementation of remuneration
policy
Incentive design and setting of
targets
Employee benefit structures
Risk and Capital Committee
(RCC)
Risk management framework
Compliance reporting
Risk appetites and tolerances
Transactional risk assessments
Capital adequacy
Executive leadership team (ELT)
The role of the ELT is to support the CE by providing clear leadership, line of sight and accountability throughout the business. The ELT is
responsible to the CE for the development and delivery of strategy and for leading the organisation through challenges and opportunities.
Investment Management
Committee
Support the Chief Investment
Officer by overseeing the
application of investment
processes across asset classes.
Client and Customer
Committee
Support the Global Head of
Distribution by overseeing the
development, delivery and
monitoring of client and
customer initiatives.
Operating Committee
Support the Chief Operating
Officer by overseeing global
functions and the delivery of
functional priorities.
Enterprise Risk Management
Committee
Support the CE in the first line
management of risk.
Standard Life Aberdeen 2019
57
Governance
3. Corporate governance statement continued
The governance framework also sets out the Board’s relationship with
the boards of the principal subsidiaries (as defined in the Board
Charter) in the Group. In particular, it specifies the matters which
these subsidiaries refer to the Board or to a Committee of the Board
for approval.
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.
At these meetings, there is general discussion of engagement themes
which have been raised to the various representatives. At each Board
meeting, Melanie gives a formal report on the issues that have been
raised through both the general discussion and the surveys, and the
Board considers how the ELT can be asked to take any specific
actions to address the points raised, and agree who is accountable to
implement the action.
Melanie has also implemented a programme of NED engagement
dinners, which are attended by several of the NEDs, and which take
employee engagement as their theme.
In further BEE activities, there were three Meet the NEDs sessions –
in Edinburgh, Philadelphia and London. These informal sessions were
hosted either by Melanie Gee or the Chairman, and employees took
the opportunity to raise a wide variety of questions with the NEDs.
Feedback from the NED engagement dinners and the Meet the NEDs
sessions has been very positive and they complement the ‘Town Hall’
sessions held by the ELT throughout the year, all across the Group’s
operations.
The general feedback themes which Melanie escalated to the Board
during 2019 included the need for continuing focus on comprehensive
and quality communications to help employees understand clearly the
ongoing transformation activities, and resolving the outstanding
practical challenges arising from these activities cost effectively and
pragmatically. The ELT, in particular the Chief HR Officer, the Chief
Communications Officer and the Chief Operating Officer (COO), have
taken forward the points raised.
Board employee engagement (BEE)
Melanie Gee is the designated NED to support workforce
engagement and during 2019, she has sought to engage from two
standpoints – top-down engagement through direct all-employee
surveys on key topics and bottom-up engagement from regular
meetings with relevant employee representatives.
During 2019, there were two all-employee surveys – the first on
Environmental, Social and Governance (ESG) from the point of view
of the Group as both an investor and an operating company, and the
second on diversity and inclusion. For how we operate as a company,
the top three ESG themes important to employees were climate
change, wellbeing and ethical conduct. For how we invest/develop
products, the top three ESG themes were climate change, ethical
conduct and poverty & inequality. From the diversity and inclusion
(D&I) survey, the key areas where staff thought progress had been
made were the strength of the culture, the parental leave policy and
the commitment to diversity and inclusion.
The BEE group met twice in 2019 and will meet regularly in 2020. On
a rotating basis, employees attending these meetings include:
The UK employee representative forum
Representatives of the employee networks (Unity, YPDN,
Lighthouse, Balance, Armed Forces, Mind Matters)
Regional HR representatives to discuss local initiatives on
employee engagement
The Talent and Leadership team and the Diversity and Inclusion
Team to discuss how they are taking forward employee
engagement matters, including those arising from the Viewpoints
survey
The Innovation Team, to consider how employees’ views are
reflected in innovation activities
The Sustainability team, to consider how operational ESG and
climate change initiatives are being taken forward
58
Standard Life Aberdeen 2019
Stakeholder engagement
The Board recognises that the long-term success of our business is dependent on the way it interacts with a large number of stakeholders. The
table below sets out the Board’s focus on our key relationships and shows how the relevant stakeholder engagement is reported up to the Board
or Board Committees.
Who are our key
stakeholders?
s
r
e
m
o
t
s
u
c
d
n
a
Read more
on pages 12
to 17.
How does the Board engage with
them/understand their views directly?
The Chairman, CE and Vice-
Chairman meet directly with key
clients and report to the Board
Board met with clients during its
How does the Board engage with them/understand
their views indirectly (via information from
management)?
Global Head of Distribution reports at each
Board meeting on key client engagement,
support programmes and client strategies
Specific Board report on key client
visit to Philadelphia
management
s
t
n
e
i
l
C
e
l
p
o
e
p
r
u
O
y
t
e
i
c
o
S
Read more
on pages 18
to 21.
Business partners/
supply chain
Read more
on pages 22
to 27.
Meet the NEDs sessions and
NED engagement dinners
Employee engagement NED
appointed
CE and CFO ‘Town Hall’ sessions
Risk and Capital Committee
review the number of suppliers
and how they are managed
Audit Committee leads on
assessment of external audit
performance and service provision
Engagement with FNZ in relation
to the Platforms business
Communities
Chairman/NEDs/EDs attend
Regulators/
policymakers/
governments
Read more
on pages 22
to 27.
Strategic partners
Read more
on pages 28
to 33.
l
s
r
e
d
o
h
e
r
a
h
S
Shareholders
Read more
on pages 28
to 33.
Regular engagement with CE,
Chairman and Committee Chairs
FCA presents to the Board at least
annually
‘Dear Board/CE’ letters
Relevant CE engagement with
regulators in overseas territories
(MAS, CSSF, CBI, SEC)
CE on Board of HDFC Asset
Management and CFO on Board
of HDFC Life
ED direct meetings
Results, AGM presentations and Q&A
Chairman, CE and CFO meetings
with investors
Remuneration Committee Chair
meetings with institutional investors
Publication of Shareholder News
Dedicated mailbox and shareholder
call centre team
Chairman/CE/CFO direct
shareholder correspondence
How does that engagement
support the Board’s decision-
making?
Engagement supported
the development of the
key client management
process, the Wealth
business, and initiatives
such as the ‘students of
clients’ programme
Engagement feedback
recognised in Board
discussions
The Platforms strategy,
IT and transformation
discussions have
included a focus on the
quality, service
provision, availability and
costs of relevant
suppliers
Considered as input to
the Group’s culture and
strategic drivers
Relevant Board
decisions recognise
regulatory impact and
environment
Reasons for client wins/losses reported
Results of client perceptions
survey/customer sentiment index reported
Updates from Melanie Gee on a wide range
of employee engagement activities
Full specific programme supported by the
Board (see page 58)
COO attends each Board meeting and
reports on key supplier relationships
Supplier surveys undertaken
Tendering process include smaller level firms
Access and audit rights in place to key
suppliers
Modern slavery compliance process in place
Procurement/payment principles in place
Certain key suppliers regularly discussed at
Audit Committee, Risk and Capital
Committee, Board and SLSL Board
Stewardship/sustainability teams report
Review of charitable giving strategy
ESG presentations to the Board
Chief Risk Officer (CRO) updates at
every Board meeting
Reports on the results of active
participation through industry groups
Specific updates in CE report
As appropriate, reports to Board/
Committees from representative Directors
Two ELT members serve on the Phoenix
Board
The development of our
business through our
relationships with
Strategic partners is an
important element of the
Board’s strategy
Regular reports from the Investor Relations
Engagement supported
Director/ Chairman/ Chairman of
Remuneration Committee summarising the
output from their programmes of
engagement
Weekly Investor Relations reports distributed
various decisions
including the final terms
of the CFO Deferred
Share Plan award in
2019
to the Board
As relevant, feedback from corporate
brokers
Standard Life Aberdeen 2019
59
Read more
on pages 22
to 27.
relevant events
regularly to the Board
Board support for EDs taking up
Feedback on annual Sustainability and
outside appointments
TCFD Reports
Governance
3. Corporate governance statement continued
2. Division of responsibilities
The roles of the Chairman and the CE are separate and are
summarised on page 57. 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 the scheme of delegation. This includes reporting to the
CE on how they are performing against approved plans and budgets.
The Company Secretary is responsible for advising the Board on
governance matters.
3. Composition, succession and evaluation
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 10 March 2020, the Board comprises the
Chairman, seven independent non-executive Directors and three
executive Directors. The Board is made up of six men (55%) and five
women (45%) (2018: 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
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
Believes that it should be able to demonstrate with conviction that
any new appointee can make a meaningful contribution to its
deliberations
Is committed to maintaining its diverse composition
Supports the CE’s commitment to achieve and maintain a diverse
workforce and an inclusive workplace, both throughout the Group,
and within the ELT
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.
You can read more about our diversity activities and current targets in
the Our people section of the Strategic report and in our stand alone
Sustainability report. We are committed to working to make the Group
as inclusive a place to work as possible. Our activities and targets are
published in the Strategic report and in the Sustainability report. You
can find our gender pay gap disclosure statement on page 60. The
Nomination and Governance Committee continues to follow the
development of, and the Group’s participation in, significant diversity
reviews, including the Hampton-Alexander Review and the Parker
Review, and we were one of the initial signatories to the Women in
Finance Charter. We became one of the founding members of the UK
Government Race at Work Charter. The Nomination and Governance
Committee supports our commitments under these charters and
continues to oversee our progress against these, which we report
publically on an annual basis.
60
Standard Life Aberdeen 2019
Board changes during the period
Appointments
Stephanie Bruce was elected to the Board at the 2019 AGM as
Executive Director and Chief Finance Officer, and took up those roles
on 1 June 2019. Jonathan Asquith was appointed as non-executive
Director and SID on 1 September 2019, and Cecilia Reyes was
appointed as a non-executive Director on 1 October 2019. MWM
Consulting were engaged to support the appointments of Jonathan
and Cecilia. The Group has additionally used the services of MWM
Consulting to support other senior management searches. As
announced on 26 February 2020, Brian McBride will join the Board on
1 May 2020.
Retirements
Simon Troughton and Richard Mully retired from the Board on 14 May
2019. Bill Rattray retired from the Board on 31 May 2019. As
announced, Rod Paris stood down from the Board on 31 December
2019, remaining as CIO, and Martin Gilbert will retire from the Board
at the conclusion of the 2020 AGM.
Board appointment process, terms of service and role
Board appointments are overseen by the Nomination and
Governance Committee.
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. Taking account of their appointment
dates to the predecessor boards, the current average length of service
of the non-executive Directors is 3 years. For those NEDs who have
served two three-year terms, the Nomination and Governance
Committee considers any factors which might reflect on their
independence or time commitment prior to making any
recommendation to the Board.
The letter of appointment confirms that the amount of time we expect
each non-executive Director to commit to each year, once they have
met all of the approval and induction requirements, is a minimum of 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 2020 AGM. Non-
executive Directors are required to confirm that they can allocate
sufficient time to carry out their duties and responsibilities effectively.
Director election and re-election
At the 2020 AGM, all of the current Directors will retire. Jonathan
Asquith, Stephanie Bruce. Cecilia Reyes and Brian McBride, having
been appointed since the previous AGM, will retire and stand for
election. All the others with the exception of Martin Gilbert will stand
for re-election.
As well as in Section 2, you can read more background information
about the Directors, including the reasons why the Chairman,
following their annual reviews, believes that their individual skills and
contribution supports their election or re-election, in our AGM guide
2020, which will be published online at
www.standardlifeaberdeen.com in advance of this year’s AGM.
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 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 of
associations (the 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 February 2020, 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 February 2022. 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 as the Directors consider this can
bring an additional perspective to the Director’s contribution. Keith
Skeoch does not have any FTSE 100 non-executive roles but
continued as a non-executive director of the Financial Reporting
Council (FRC) and will be appointed Chairman of the Investment
Association on 1 May 2020. Martin Gilbert is a non-executive director
at Glencore plc. He was also appointed chair of Revolut on 1 January
2020, this additional appointment having been approved by the Board
and recognising that his full-time role had been reduced by 20% on 1
January 2020.
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.
Board effectiveness
Review process
In accordance with the Code, the Board commissions externally
facilitated reviews regularly. Following the 2018 externally facilitated
review, it was agreed that it would be appropriate to commission a
further externally facilitated review for 2019 to follow-up on the findings
of the 2018 review. As a result, Independent Board Evaluation (IBE)
was appointed as the external facilitator and carried out the 2019
review. IBE does not have any other connection with the Group.
To carry out the review, a senior representative of IBE was 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, members of the
Executive leadership team who are regular attendees at Board
meetings and the key members of the Board and Committee support
teams. Following this, IBE prepared a draft report for review and
discussion. The Board then reviewed and discussed the report, and a
representative of IBE attended to present the report and
recommendations.
Outcome
The review recognised that amid a changing landscape, with the
Board still settling down after overseeing two major transactions in two
years, the review’s principal purpose was to check the direction of
travel for the Board, take early-stage soundings on the new
chairmanship and to help induct and assimilate new Board members.
The tone of the feedback was positive overall, with the Board
particularly recognising the strengths of its composition, and the
processes to select and induct new members and support the Board
and its Committees. The Directors also reported solid performance on
their work on culture, as well as shareholder and stakeholder
accountability.
The key conclusions and recommendations from the review included
Prioritising strategy work to align it with the work on purpose,
strategic drivers and behaviours and create an overall framework to
support Board decision making
Reviewing the Board skills matrix to add more sector experience
over time
Continuing the drive for more effective Board and Committee
papers by reinforcing limits on paper lengths, imposing a standard
template and an absolute deadline for issuing papers
Introduce a mentoring programme for any new Board member who
has not previously served on a UK plc board, including executive
directors
Considering other ways of connecting non-executive Directors with
senior executives such as Committee visits to relevant locations,
and Board and Committee NED only sessions with key members of
the ELT and senior managers
Continuing to refine the annual board objectives as a guide to
setting agendas and cascading them down to the Committees, as a
basis for reporting back to the board
Progress to implement the recommendations is monitored by the
Company Secretary and reported to the Nomination and Governance
Committee.
Chairman
The review of Sir Douglas’s performance as Chairman was led by the
SID, Jonathan Asquith, and supported by IBE. It was based on
feedback given in individual interviews between the external facilitator
and each Director as well as focused discussions between the SID
and the other NEDs.
The feedback was summarised into a report which was reviewed by
the SID and distributed to all Board members, except Sir Douglas.
The Directors, led by Jonathan Asquith and without Sir Douglas being
present, met to consider the report. They concluded that in his first
year as Chairman, Sir Douglas had performed his role very effectively
and shown strong leadership of the Board. He had brought his own
experienced style to the Boardroom and was building strong
relationships with the EDs while supporting the NEDs in challenging
and holding the ELT to account. The NEDs were looking forward to
continuing to work with him, individually and collectively, to deliver
continued progress in 2020. Jonathan Asquith met with Sir Douglas to
pass feedback from the review directly to him.
Standard Life Aberdeen 2019
61
Governance
3. Corporate governance statement continued
Directors
As part of the review, IBE prepared an individual evaluation of the
members of the Board to support the Chairman’s annual round of
feedback to Directors and to assist him in leading the Nomination and
Governance Committee’s ongoing succession planning. Sir Douglas
discussed the individual results with each Director. These discussions
also considered individual training, development and engagement
opportunities.
Director induction and development
The Chairman, supported by the Company Secretary, is responsible
for arranging a comprehensive preparation and induction programme
for all new Directors. The programme takes their background
knowledge and experience into account. If relevant, Directors are
required to complete the FCA’s approval process before they are
appointed and Directors 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 business
functions
Focused technical meetings with internal l experts on specific areas
including investments, CRD IV, ESG, 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 contact with the FCA
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 as holders of a Senior Management Function role
Background information is also provided including:
Key Board materials and information, stakeholder and shareholder
communications and financial reports
The Group’s organisational structure, strategy, business activities
and operational plans
The Group’s key performance indicators, financial and operational
measures and industry terminology
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 its Committees and to support them as they
build their knowledge and strengthen their performance further.
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 2019 specific Board
awareness and deep-dive sessions took place on:
Transformation
Investments capabilities, covering:
–
Investment governance and investments oversight
– Quantitative investment strategies and investment
innovation
Private markets and real estate
Embedding ESG
–
–
The Internal Capital Adequacy Assessment Process (ICAAP)
Portfolio dimensionality
Investments capabilities covering:
–
–
Active equities
Solutions and multi-manager strategies
Similarly, the relevant Board Committees received updates on
developments in financial reporting, remuneration and corporate
governance.
4. Audit, risk and internal control
The Directors retain the responsibility to state that they consider the
Annual report and accounts, taken as a whole, is fair, balanced and
understandable as well as the responsibility to establish procedures to
manage risk and oversee the internal control framework. The reports
from the Audit Committee and the Risk and Capital Committee
Chairmen show how they have supported the Board in meeting these.
Annual review of internal control
The Directors have overall responsibility for the governance structures
and systems of the group, which includes the 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 2019.
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 Audit
Committee and Risk and Capital Committee during the period. Key
risk items were also discussed at the Enterprise Risk Management
Committee throughout the period. At the request of the Audit
Committee, management also reported that they had considered the
effectiveness of the system of internal control from a ‘first line of
defence’ point of view, and confirmed that they supported the
conclusions of the Risk and Compliance review.
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.
Additionally, with regard to regular financial reporting and preparing
consolidated accounts, 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.
5. Remuneration
The Directors’ remuneration report on pages 78 to 104 sets out the
work of the Remuneration Committee and its activities during the year,
the levels of Directors’ remuneration and the proposed new
remuneration policy.
62
Standard Life Aberdeen 2019
Communicating with investors
The Company continues to maintain a dialogue with its shareholders.
As part of this, our Investor Relations and Secretariat teams support
communication with investors. During 2019, the Company continued
its programme of domestic and international presentations and
meetings between Directors and investors, fund managers and
analysts. The wide range of relevant issues discussed, in compliance
with regulations, at investor presentations and meetings included
transformation, business strategy, financial performance, operational
activities and corporate governance. The Chairman has his own
investor contact programme and brings relevant issues to the
attention of the Board. The Remuneration Committee Chairman has
also consulted with major institutional investors regarding executive
remuneration plans during the year. More information on this
consultation can be found below and in the Directors’ remuneration
report.
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. We
encourage shareholders to receive their communications
electronically and around 410,000 shareholders receive all
communications this way. We actively promote self service via our
share portal and over 400,000 shareholders have signed up to this
service. Share portal participants can maintain their personal details
and dividend instructions online, and view and download personal
documents such as statements and tax documents. Shareholders
have the option to hold their shares in the Standard Life Aberdeen
Share Account where shares are held electronically in a secure
environment and around 90% of individual shareholders hold their
shares in this way.
To give all shareholders access to the Company’s announcements, all
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. At the 2020 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 2019 AGM was held in Edinburgh on 14 May 2019 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. 46% of the shares in issue were voted and all resolutions were
passed.
Our 2020 AGM will be held on 12 May in Edinburgh.
Following on from the level of the vote to approve the 2018 Directors’
Remuneration Report, the Board issued a regulatory announcement
on 14 November 2019. The announcement summarised the
engagement which Jonathan Asquith, the recently appointed
Chairman of the Remuneration Committee, had had with institutional
investors and proxy voting agencies. The engagement took the form
of a series of meetings and phone calls which also allowed Jonathan
to hear investors’ views on other remuneration-related matters and
this engagement also allowed Jonathan to capture feedback in his
capacity as SID. Following on from this engagement, shareholders will
be invited to vote on a revised remuneration policy at the 2020 AGM.
You can read more about this engagement on page 79 of the
Directors’ remuneration report.
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 2019, the Board held its meeting in Philadelphia. As well
as meeting with clients, this allowed the Board to spend time with
locally-based employees. 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 at each Board meeting, and informally, without the executive
Directors present. At these meetings, matters including executive
performance and succession and Board effectiveness were
discussed.
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 Chairman or to the Company Secretary.
If necessary, they can follow up with the Chairman 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 met 4 times during 2019.
Standard Life Aberdeen 2019
63
Governance
3. Corporate governance statement continued
The Chairman 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 2019 and the members’ attendance. The Board met nine times
during the year.
Number of meetings
Chairman
Sir Douglas Flint
Executive Directors
Keith Skeoch
Martin Gilbert
Stephanie Bruce
Rod Paris (stood down 31/12/2019)
Non-executive Directors
Jonathan Asquith
John Devine
Melanie Gee
Martin Pike
Cathleen Raffaeli
Cecilia Reyes
Jutta af Rosenborg
Former members
Bill Rattray
Richard Mully
Simon Troughton
Board
9/9
9/9
9/9
5/5
9/9
3/3
9/9
9/9
8/9
9/9
2/2
9/9
4/4
4/4
4/4
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 Chairmen
provide reports of the key issues considered at recent Committee
meetings, and minutes of Committee meetings are circulated to the
appropriate Board members. This includes reporting from the
Chairman of the Audit Committee on any whistleblowing incidents
which have been escalated to him. 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 Chairman 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.
Committee reports
This statement includes reports from the chairmen of the Audit
Committee, the Risk and Capital Committee and the Nomination and
Governance Committee. The report on the responsibilities and
activities of the Remuneration Committee can be found in the
Directors’ remuneration report in Section 3.4.
The Committee Chairmen are happy to engage with you on their
reports. Please contact them via
questions@standardlifeaberdeenshares.com
64
Standard Life Aberdeen 2019
John Devine
John Devine
3.1 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.
I am pleased to present my report as Audit Committee Chairman.
As well as overseeing financial reporting, a major role of the
Committee in 2019 was to consider the impact of transformation
activities on internal controls as the business transitions following the
sale of the UK and European insurance business to Phoenix in 2018
(the Sale).
During the year the Committee also:
Considered the carrying value of intangible assets, in particular
asset management goodwill
Considered reports from the Chief Internal Auditor
Reviewed CRD IV reporting following the change in the prudential
supervision of the group in late 2018
Received reports on compliance with the FCA Client Assets
Sourcebook (CASS) rules in the Company’s CASS permissioned
regulated legal entities
The Committee also continued to focus on the quality of financial
reporting, including the impact of Code changes and other guidance
on the Strategic report.
Our report to you is structured in four parts:
1. Governance
2. Report on the year
3. Internal audit
4. External audit
John Devine
Chair, Audit Committee
3.1.1 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
Attendance
7/7
6/7
7/7
7/7
The Board believes Committee members have the necessary range
of financial, risk, control and commercial expertise required to provide
effective challenge to management, and have competence in
accounting and auditing as well as recent and relevant financial
experience. John Devine is a member of the Chartered Institute of
Public Finance and Accounting. Jutta af Rosenborg is also a qualified
accountant and sits on other audit committees.
The Committee schedules six meetings per annum, four of which are
co-ordinated with external reporting timetables. In 2019, there was
one additional meeting, which was focused on a specific year end
accounting matter.
Invitations to attend Committee meetings are extended on a regular
basis to the Chairman, the Chief Executive, the Chief Financial
Officer, the Group Financial Controller, the Chief Internal Auditor and
the Group Chief Risk Officer.
The Audit Committee meets privately for part of its meetings and also
has regular private meetings separately with the External auditors and
the Chief Internal Auditor. 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 Audit 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
Standard Life Aberdeen 2019
65
Governance
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 2018
Strategic report and financial highlights 2018
Financial reporting judgements
Liaison with the Remuneration Committee on
targets and measures
External auditors’ review of Full year results
Internal audit findings
CASS update
Half year results 2019
External auditors’ review of Half year results
Initial findings from the 2019 year end work
Regulatory reporting
The Internal audit plan
Integration cost and synergies update
Effectiveness of the External auditors and related
non-audit services
The indicative proportion of time spent on the business of the
Committee is illustrated below:
Financial reporting
External audit
Internal audit
Regulatory reporting
Other controls (including CASS and anti-financial crime reporting)
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 Managers and Certification Regime the
Audit Committee Chairman 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 employees that raise concerns from detrimental
treatment. Throughout the year the Audit Committee Chairman 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
2019 review was carried out by external consultants IBE. The review
included observation of a meeting, access to papers and interviews
with Committee members. The key points arising from the review
were:
The overall feedback was very positive and Committee members
believe that the Committee’s oversight of the financial governance
of the Company is conducted with diligence and due process
In line with feedback on the Board pack, the Committee papers can
be too lengthy and may benefit from a sharper focus on key points
While the Committee’s work has been very thorough, it may now
benefit from reconsidering the amount of time it spends on
reviewing the technical detail of financial reporting matters as this
would allow the members to reflect on the wider context
The Board’s review similarly confirmed its satisfaction with the
performance of the Committee and its Chairman.
3.1.2 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 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
the business
Other agenda items
66
Standard Life Aberdeen 2019
Detail of work
The focus of work in respect of 2019 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 2019 Group
financial statements. The Committee noted, in particular, the impact
on accounting policies from the adoption of IFRS 9 Financial
Instruments and IFRS 16 Leases. IFRS 9 had a small effect on the
reported results but does result in new classifications and disclosures.
IFRS 16 had a significant effect on the Statement of Financial Position
through the recognition of right of use assets and lease liabilities, but
only a small effect on the income statement, and also results in
substantial new disclosures.
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 considered
the result of stress testing and reverse stress testing presented to the
Risk and Capital Committee. The Committee recommended the
viability statement to the Board.
During 2019, the Committee reviewed the Annual report and accounts
2018 and the Half year results 2019. For the half year it received
written and/or oral reports from the Chief Financial Officer, the
Company Secretary, the Chief Internal Auditor and the External
auditors. The Committee used these reports to aid its understanding
of the composition of the financial statements, to confirm that the
specific reporting standards and compliance requirements had been
met and to support the 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
full and half year financial statements complied with laws and
regulations and had been appropriately compiled.
Accounting estimates and judgements
The Audit Committee considered all estimates and judgements that Directors understood could be material to the 2019 financial statements. The
Committee also focused on disclosure of these key accounting estimates and judgements.
Significant accounting estimates, judgements and
assumptions for the year ended 31 December 2019
How the Audit Committee addressed
these significant accounting estimates and assumptions
Intangible assets including goodwill
An annual recoverable amount assessment is required
for goodwill. In particular, the most significant
judgements relate to goodwill for the asset
management cash generating unit. Goodwill and
intangibles primarily relate to the 2017 transaction
which was accounted for under IFRS as an acquisition
of Aberdeen Asset Management PLC, creating a
goodwill asset.
Annual reviews for impairment triggers are also
required for other intangibles. The intangibles with
material judgements are the customer relationship and
investment management contract intangibles.
Financial instruments at fair value – contingent
consideration
Estimation was required in relation to the valuation of
certain indemnities and other contingent assets and
liabilities relating to the Phoenix transaction in 2018.
This included indemnities relating to the Standard Life
Assurance Limited review of past sales practices for
annuities, where the main financial risks (both positive
and negative) continue to be with the Group, and
indemnities relating to lapse experience.
The year end impairment review of asset management goodwill resulted in the
recognition of an impairment of £1,569m. The Committee spent time at three
meetings reviewing and challenging assumptions relating to future cash flow
projections and the discount and long-term growth rates. The Committee
considered, in particular, the basis of revenue projections and the margin for
forecasting risk in the discount rate, which were considered to be the most
significant assumptions. The Committee considered these assumptions were
appropriate, and supported the disclosure of sensitivities given the significant
inherent judgements involved and range of reasonable outcomes. See Note 15
for further details. The Committee also considered the value in use compared to
analyst valuations for the asset management business, and concluded that the
analysts’ market perspective did not contradict the impairment conclusion.
The Committee also considered analysis provided by management on
impairment triggers relating to the customer relationship and investment
management contract intangibles. The Committee agreed with management that
there were no indicators of impairment for these intangibles.
The Committee considered analysis of the contingent assets and liabilities
prepared by management and related key assumptions including those
relating to persistency and the past sales practices for annuities. The
Committee also considered assumptions in relation to certain disagreements
under discussion with Phoenix. The Committee was satisfied that the fair
value of the contingent consideration was appropriate at this time. Further
details are disclosed in Note 40.
Standard Life Aberdeen 2019
67
Governance
3. Corporate governance statement continued
Significant accounting estimates, judgements and
assumptions for the year ended 31 December 2019
UK defined benefit pension plan
In compiling a set of financial statements, it is
necessary to make some judgements and estimates
about outcomes that are 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.
For the UK defined benefit pension plan, the
Committee reviewed the assumptions for mortality,
discount rate and inflation.
Investments in associates
There were significant sales of the holding in HDFC
Life in 2019, and therefore determining whether this
investment should continue to be classified as an
associate was a critical accounting policy judgement.
In relation to the Phoenix associate, judgements were
also required relating to the recoverable amount and
carrying value of the investment.
How the Audit Committee addressed these significant accounting
estimates and assumptions
The Committee considered the proposed assumptions taking into account
market data and information from pension scheme advisors. In relation to
inflation the Committee considered the long-term gap between the Retail
Price Index (RPI) and the Consumer Price Index (CPI), as pensions in
payment are generally linked to CPI, taking into account uncertainties
relating to RPI from government announcements.
The Committee also considered reporting from the External auditors and
related benchmarking of the pension scheme assumptions.
Note 34 of the Group financial statements provides further details on the
actuarial assumptions used, and sets out the impact of mortality, discount
rate and inflation sensitivities. Note 34 also provides details on the
accounting policy applied and accounting policy judgements relating to the
Group’s assessment that it has an unconditional right to a refund of a
surplus, and the treatment of tax relating to this surplus.
During 2019 the shareholding in HDFC Life was reduced to 14.73%. The
Committee considered whether HDFC Life should continue to be classified
as an associate, and concluded that this classification remained
appropriate, notwithstanding that the holding was less than 20%. The
classification as an associate was based on significant influence from the
Group’s Board representation on HDFC Life’s board. The Committee noted
that if the holding was considered an investment rather an associate it
would give rise to a significant increase in the carrying value (to fair value)
and the recognition of a significant gain in the income statement. See Note
16 for further disclosures.
In relation to Phoenix the Committee considered that the increase in the
market value of Phoenix was an indicator that the previous impairment
should be reversed. See Note 16 for further information.
Provision for separation costs
The Group expects to incur significant costs in future
periods relating to the separation of the UK and
European insurance business. Last year the
Committee concluded that a provision should only be
recognised for costs for which the Group does not
expect to derive ongoing benefits, such as those
relating to de-coupling and decommissioning of
systems and data.
The Committee reviewed analysis from management on separation costs
which noted that the total estimate of separation costs had increased by
£60m compared to previous estimates. The Committee agreed with
management that no additional provision should be recognised in the year
ended 31 December 2019 for the additional costs as these related to
expenditure from which the Group will derive future benefits. The
Committee concluded that the year end separation costs provision was
appropriate. See Note 37 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.
68
Standard Life Aberdeen 2019
Fair, balanced and understandable
The Committee supported the financial reporting team’s continued
aim to draft the Annual report and accounts to be ‘fair, balanced and
understandable’. A focus in 2019 was ensuring that the Strategic
report appropriately explained transformation synergies and related
costs, and risks relating to the COVID-19 virus.
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’
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 is appropriate for our
stakeholders’
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’
The narrative contained in the Annual
report and accounts is honest and
accurate
The key messages in the narrative in
the Strategic report and Governance
sections of the Annual report and
accounts reflect the financial reporting
contained in the financial statements
The Key Performance Indicators
(KPIs) for the period are consistent
with the key messages outlined in the
Strategic report
The Annual report and accounts
presents both successes and
challenges experienced during the
year and, as appropriate, reflects
those expected in the future
The level of prominence we give to
successes in the year versus
challenges faced is appropriate
The narrative and analysis contained
in the Annual report and accounts
effectively balances the information
needs and interests of each of our
key stakeholder groups
There is a clear and easy to
understand framework to the Annual
report and accounts
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
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
and include colleagues from Investor Relations, Communications
and Strategy.
Fair, balanced and understandable guidance was provided 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 2019 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. This review considered
guidelines issued by the European Securities and Markets Authority in
2016 and the thematic reviews by the Financial Reporting Council
(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, consistent with previous
practice and appropriately disclosed. Where there were judgemental
areas, such as in relation to certain restructuring costs, the Committee
specifically reviewed the proposed treatments and ensured that the
Annual report and accounts provided appropriate disclosures.
We agreed to recommend to the Board that the Annual report and
accounts 2019, taken as a whole, is fair, balanced and can be
understood by someone with a reasonably informed knowledge of
financial statements and our industry.
Prudential reporting
During 2019 the Group published its first Standard Life Aberdeen plc
Pillar 3 report, following the move to group level CRD IV reporting in
late 2018. The Committee reviewed the Pillar 3 report and reviewed
and discussed papers which set out the control and verification
processes followed in the compilation of the report.
The Committee also considered disclosures relating to CRD IV results
included in the Strategic report section of the Annual report and
accounts and half year reporting, 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 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 submissions. Further, the 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
Our people 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.
Standard Life Aberdeen 2019
69
Governance
3. Corporate governance statement continued
The Committee Chairman is the designated whistleblower’s champion
and the Committee receives regular updates on the operation of the
whistleblowing procedures from the Conduct and Conflicts Oversight
Manager. 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.
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. The audit was last subject to a tender for the
financial year ended 31 December 2017.
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. The Committee Chairman reports to the Board
on the updates the Committee receives.
3.1.3 Internal audit
The role and mandate of the Internal audit function is set-out on in its
Charter, which is reviewed and approved by the Committee annually.
An exercise was undertaken during the year to benchmark Internal
audit resources, with increased consideration of how audit assurance
activity across the Group is aligned and coordinated, avoiding gaps
and overlaps. Whilst Internal audit maintains a relationship with the
External auditors, in accordance with relevant independence
standards, the External auditors do not place reliance on the work of
Internal audit.
The internal audit plan is reviewed and approved by the Committee
annually, but is flexed during the year to respond to internal and
external developments. The function’s coverage aligns to the Group’s
activities and footprint, taking account of local Internal audit
requirements. 2019 saw a heavy focus on the Group’s transformation
programme, along with regulatory priorities such as operational
resilience and conduct, as well as specific items such as the Senior
Mangers & Certification Regime and client money.
The Committee formally assess the effectiveness of the function via a
scorecard, which is aligned to the Group’s objectives, along with
assessing its independence and quality assurance practices. In
addition, regular reporting is provided to the Committee to illustrate
plan progress, and the status of implementation of recommendations.
The audit function continued to progress its own functional
transformation over 2019, with a move to agile auditing, increasing
efficiency and effectiveness; whilst also continuing to invest in data
and analytics capability.
The Chief Internal Auditor reports to the Committee Chairman. During
the year, regular dialogue takes place, at least monthly, between the
Committee Chairman and the Chief Internal Auditor.
3.1.4 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 2020 AGM.
The members of the Committee attend some industry and
governance events arranged by KPMG. The Chairman of the
Committee is a director of Credit Suisse International, currently
audited by KPMG, with PwC taking over the audit for 2020. Jutta af
Rosenborg is a member of the supervisory board of BBGI SICAV SA,
currently audited by KPMG, and a director of JPMorgan European
Investment Trust which uses KPMG for tax advice on withholding tax.
The Committee complies with the UK Corporate Governance Code,
the FRC Guidance on Audit Committees with regard to the external
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Auditor independence
The Board has an established policy (the Policy) setting out which
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 revised
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
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
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 2019 was £4.8m
(2018: KPMG £4.7m). In addition £2.1m (2018: £1.7m) 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 small (which we have defined as less than £75,000), the approval
of the whole Committee is now required.
Non-audit fees amounted to £1.2m (2018: £1.8m) all of which related
to other assurance services (2018: £1.6m). Other assurance services
in 2019 primarily related to control assurance reports (£0.7m), which
are closely associated with audit work, and assurance reporting
relating to fund mergers where KPMG are the auditors of the relevant
funds (£0.4m). 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
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 8 of the
Group financial statements.
The ratio of non-audit fees to audit and audit related assurance fees is
17% (2018: 28%). The total of audit related assurance fees (£2.1m)
and non-audit fees (£1.2m) is £3.3m, and the ratio of these audit
related assurance fees and non-audit fees to audit fees is 69% (2018:
75%). 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 completing his third audit as the 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:
The Committee discussed the scope of the audit prior to its
commencement
The Committee reviewed the annual findings of the Audit Quality
Review 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. We were
satisfied insofar as the issues might be applicable to Standard Life
Aberdeen’s audit, that KPMG had proper and adequate procedures
in place for our audit.
The Committee approved a formal engagement with the auditor
and agreed its audit fee
The Committee Chairman had at least monthly meetings with our
lead audit partner to discuss Group developments
The Committee receives updates on KPMG’s work, compliance
with independence and its findings
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 next paragraph for more
detail.
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 £31m
(2018: £32m). This equates to approximately 4.4% of normalised
profit before tax (as set out in the KPMG independent auditors’ report)
and 5% of adjusted 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 £1.6m (2018: £1.6m). The aggregated net difference
between the reported pre-tax profit and the auditor’s judgement of pre-
tax profit was less than £8m which was significantly 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.
KPMG has confirmed to us that the audit complies with their
independent review procedures.
Standard Life Aberdeen 2019
71
Governance
3. Corporate governance statement continued
Martin Pike
Martin Pike
3.2 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.
I am pleased to present my report as Chairman of the Risk and
Capital Committee.
Over the year, the Risk and Capital Committee has focused on
ensuring the effective oversight and independent challenge of the
management of risks in the business so as to ensure that we could
meet the expectations of our shareholders, clients and customers.
The Committee has closely monitored developments from our
regulators across the world who have increased their focus on
operational resilience to further strengthen the integrity of the financial
system and protect customers and clients. The overall risk
environment for the Group remains at an elevated level given the
combination of business transformation activity and the difficult market
environment.
Key areas of focus for the Committee during 2019 were on the
assessment, challenge and review of key risks arising from the
ongoing transformation activity across the Group and risk and capital
implications arising from the delivery of the business plan. Particular
attention was given to the risks of IT disruption and data loss which
could be very disruptive for our clients and customers. In light of
ongoing uncertainty in the political landscape over the year, the
Committee regularly assessed Standard Life Aberdeen’s preparations
for a disorderly Brexit scenario to ensure we continue to be able to
provide our customers and clients with continuity of service, whatever
the outcome.
Furthermore, the Committee continued to challenge and advise the
Board in respect of key activities undertaken by the business
throughout 2019, including:
The ongoing development of the Enterprise Risk Management
(ERM) framework and the Risk transformation programme.
Considering aspects of the Group’s ICAAP and reviewing the
documentation of the first Standard Life Aberdeen wide ICAAP
document following the sale of the UK and European insurance
business to Phoenix in 2018 (the Sale). This included teach-in
sessions on specific elements of the ICAAP
Reviewing the external assessment of our cyber risk exposures
against the US National Institute of Standards and Technology
(NIST) framework
Reviewing Standard Life Aberdeen’s exposure to climate change
and management of related risks and opportunities
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Standard Life Aberdeen 2019
Further details on this and other activities carried out by the
Committee during the year can be found in the report that follows.
Martin Pike
Chairman, 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 for 2019:
Member
Attendance
Martin Pike, Chair
John Devine
Melanie Gee
Cathleen Raffaeli
Cecilia Reyes (first attendance in October 2019)
7/7
7/7
6/7
6/7
2/2
The Committee meetings are attended by the Chief Risk Officer.
Others invited to attend on a regular basis include the Chief Executive,
the Chief Financial Officer, the Chief Investment Officer, Chief
Operating Officer, Group General Counsel 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 Chairman 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 purpose of investing for a better future 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 purpose.
The role of the Committee is to provide the oversight and advice to the
Board, and where appropriate, the board of each relevant Group
company on:
The Group’s current risk strategy, material risk exposures and their
impact on the levels and allocations of capital
The structure and implementation of the Group’s 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
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.
The Committee’s work in 2019
Overview
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. An indicative
breakdown as to how the Committee spent its time is shown below:
ERM Framework including risk policies and appetites
Operational risks
Conduct and compliance risks
Capital adequacy
Other controls (including transaction risk assessments)
The key recurring items considered by the Committee are:
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
Ongoing activity to enhance and develop Standard Life Aberdeen’s
ERM framework, for example the Risk Appetite and Policy
frameworks
Performance of the Group’s ICAAP processes in accordance with
the Capital Requirements Directive. The ICAAP supports the
Committee in understanding changes to the risk profile of the Group
and the capital position over the course of the year
Minutes from the Standard Life Aberdeen plc Enterprise Risk
Management Committee (ERMC) and from those risk committees
comprising non-executives that operate in Standard Life Aberdeen
plc’s directly-held subsidiaries
Through these recurring activities the Committee was able to
challenge management’s assessment of risks and to oversee the key
actions being taken to manage these risks.
In addition to reviewing these recurring items the Committee provided
oversight of a broad range of topics in 2019. This included
consideration of:
Advice provided to the Remuneration Committee
Jan-Mar
regarding the delivery of performance in 2018 relative to
risk appetites
Findings included in the 2018 Internal controls report
issued for Aberdeen Standard Investments
Risk and compliance organisational design update
Update on Standard Life Aberdeen’s preparations for a
disorderly Brexit
Plans for testing, assurance reviews, and validation
activity to be performed in 2019
Monitoring of risks related to overall transformation and
integration activities
Proposed changes to the risk appetite framework
Overview of the steps taken to refresh the policy
Apr-Jun
framework
Update on Standard Life Aberdeen’s preparations for a
disorderly Brexit
Discussion of the key points following Woodford Fund
Disclosure
Cyber risk and cyber security related matters
Liquidity risk framework overview
Results from stress tests and scenario analysis
Actions taken to enhance the conduct risk framework
Jul-Sep
Update on the management of IT obsolescence
Review of Standard Life Aberdeen’s exposure to and
management of climate change related risks and
opportunities
Update on Standard Life Aberdeen’s preparations for a
disorderly Brexit
Pillar 2 operational risk capital requirements
Oct-Dec
The Standard Life Aberdeen ICAAP report
Results from the 2019 stress and scenario testing
programme
Annual review of risk policies
Monitoring and oversight regional plans for 2020
The combined second and third line assurance plan
Review of the risk assessment of the business plan
After each meeting, the Committee Chairman reports to the Board,
summarising the key points from the Committee’s discussions and
any specific recommendations.
Risk exposures and risk strategy
Standard Life Aberdeen’s risk appetite framework provides a common
framework to enable the communication, understanding and control of
the types and levels of risk that the Board is willing to accept in its
pursuit of the strategy of the Group, including the business plan
objectives and the capital it requires.
The Committee has continued to support the Board through
monitoring exposures against tolerances and appetites throughout the
year. The Committee reviewed and proposed updates to the
framework to ensure that the risk appetites and risk limits
appropriately reflected changes to the risk profile in view of the
ongoing transformation of the business. Additional metrics for Supplier
Risk, Strategic Risk and Conduct Risk were created to strengthen our
oversight in these areas. In advance of the new prudential regime for
investment firms, the tolerances in relation to our capital management
framework have been revised.
The Committee has received regular reporting through the Views on
Risk report on each of the 12 principal risks. The Views on Risk report
includes relevant dashboards on the risks, commentaries and
associated management information. Through reviewing this reporting
the Committee has monitored risks relative to applicable risk appetites
and the resilience of the capital position under current and stressed
conditions. 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.
Standard Life Aberdeen 2019
73
Governance
3. Corporate governance statement continued
Key items that the Committee discussed during the year in this
context included:
Risks relating to the status of the Group’s Brexit preparations and
the possibility of a disorderly exit from the EU
Risks associated with the delivery of the business plan
Enhancements to components of the Group’s risk appetite
framework
The ICAAP report produced for Standard Life Aberdeen
The management of cyber risk across the Group
Approach to management of the Group’s liquidity risk framework
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.
Stress testing and scenario analysis performed in 2019 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:
Individual stresses – looking at stresses to a range of financial
variables in isolation
Combined stress scenarios – looking at simultaneous stresses
impacting on economic conditions, flows and idiosyncratic factors
specific to the Group
Reverse stress testing – considering extreme but plausible events,
including as a result of operational, conduct or reputational risks,
that have the potential to cause the business to become unviable
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: a market shock with adverse impacts on our strategic
investments; a significant breakdown in a key strategic relationship
and the outage of a key payment mechanism.
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 the risk and capital implications
of the financial reforecasts produced during the year and the strategic
business plan produced in December 2019.
Enterprise Risk Management (ERM) framework
During the year the business continued to embed the ERM framework
used to identify, assess, control and monitor the Group’s risks.
The Committee has obtained 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 and board risk appetite
metrics to understand the Group’s risk profile and the effectiveness of
the framework in supporting the management of these risks.
The Committee 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 support
identification of key risks facing the business. The completion of this
survey along with subsequent discussion of the results at the ERMC 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 the
key risks facing the business.
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.
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
particular the Committee paid close attention to developments in
connection to Operational Resilience, remedies arising from the FCA’s
Asset Management Market Study and Liquidity Management.
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Standard Life Aberdeen 2019
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. This has included the risk committees in place for
Aberdeen Standard Investments Life and Pensions Limited, Standard
Life Savings Limited, Elevate Portfolio Services Limited and Standard
Life (Asia) Limited.
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. In
addition to the Committee reviewing reporting from the subsidiary risk
committees, arrangements also exist for the Committee’s Chairman to
attend those subsidiary risk committees.
During the year the Committee 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 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 2019
this was carried out by external consultants IBE. The review included
observation of a meeting, access to papers and interviews with
Committee members. The key points arising from the review were:
The Committee has had a challenging year given the particular risk
environment and the complexity of its duties, but the feedback
indicates that the Committee has performed well and is making
progress and continuing to fulfil its remit
Some Committee members commented that there was still a
tendency for the Committee to spend a lot of its time discussing
details, and it would benefit from keeping its focus on the bigger
picture
In line with feedback on the Board pack, members commented that
while the quality of materials is seen as high, they could be too long
and complex and they would encourage the paper sponsors to
simplify and reduce the levels of complexity
Overall, Board members have confidence in the Committee and its
Chairman and appreciate the care and diligence with which it fulfils its
duties.
Standard Life Aberdeen 2019
75
Governance
3. Corporate governance statement continued
Sir Douglas Flint
Sir Douglas Flint
3.3 Nomination and Governance Committee report
Following on from my introductory letter to the Corporate Governance
statement, and together with the other relevant parts of the statement,
this section covers the specific work of the Nomination and
Governance Committee as it supports the Board in providing effective
oversight and challenge of the governance framework.
Sir Douglas Flint
Chairman and Chairman of the Nomination and Governance
Committee
Membership
The members of the Committee are the Chairman and a number of
the independent non-executive Directors. The table below reflects the
composition of the Committee and the members’ attendance during
2019:
Apr-Jun
Member
Sir Douglas Flint
Melanie Gee
Jonathan Asquith
John Devine
Martin Pike
Former member
Richard Mully
Simon Troughton
Attendance
5/5
5/5
2/2
3/3
3/3
2/2
2/2
Keith Skeoch and Martin Gilbert, in their CE and Deputy Chairman of
Aberdeen Standard Investments 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’s role is to support the composition and effectiveness
of the Board, and oversee the Group’s activities to strengthen its talent
pipeline. It also oversees the ongoing development and
implementation of the Group’s governance framework.
In this report and other parts of the corporate governance statement
you can read about the Committee’s role in relation to its key
responsibilities.
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Standard Life Aberdeen 2019
Key responsibilities:
Identifying and recommending Directors to be appointed to the
Board and the Board Committees
Reviewing and assisting in the development and implementation of
the Company’s culture, diversity and inclusion activities
Reviewing Board diversity, skills and experience
Supporting the process and output of the Board’s effectiveness
review
Overseeing succession planning, leadership and talent
management development and diversity levels throughout the
Group
Considering how the Group should comply with developing
corporate governance requirements
The Committee reports regularly to the Board so that all Directors can
be involved in discussing these topics as appropriate.
The Committee’s work in 2019
An indicative breakdown as to how the Committee spent its time is
shown below:
Jan-Mar
Supported the Chairman transition arrangements
Recommended the co-CE transition arrangements
Reviewed compliance with the UK Corporate
Governance Code 2016 for the 2018 ARA
Considered the gender diversity action plan
Considered the 2019 ethnicity action plan
Reviewed the proposal for Board employee
engagement
Reviewed the Board Charter and Committees’ terms of
reference
Recommended the appointment of the CFO
Reviewed Board and Committee composition
Reviewed the SID succession process
Culture, Diversity and Inclusion action plans update
Reviewed the process for stakeholder engagement
Recommended the appointment of two NED Board
members
Reviewed ELT succession planning
Reviewed ELT development activities
Supported the Chairman Aberdeen Standard
Oct-Dec
Investments retirement process
Culture, Diversity and Inclusion action plans update
Supported the selection of the external facilitator for the
Board Effectiveness Review
Reviewed ELT development activities
Reviewed ELT succession planning
An indicative breakdown as to how the Committee spent its time is
shown below:
Corporate governance and 2018 Code implementation
Board and committee appointments and composition
Culture, diversity and inclusion
Succession planning and talent development
The key governance activities during the year included:
Maintaining high-quality membership of the Board and its
Committees
Reviewing the executive governance structures, including the move
to a single CE and the rebalance between the CE role and the client
relationship role
Oversight of our transformation programme from the perspective of
the evolution of the firm’s culture, strategic drivers and behaviours
Reviewing employee feedback from the Viewpoints survey on our
purpose, values and culture and executive management’s response
Supporting the externally facilitated Board effectiveness review for
2019 and ensuring the feedback from the 2018 review was fully
considered
Supporting the Chairman ASI transition process
The 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.
Board appointments
When seeking to make Board appointments, the Committee identifies
the skills, experience and capabilities needed for particular Board
roles. This recognises the need to secure a pipeline of potential
successors to be able to chair the Board Committees, and also the
need to plan ahead to take account of the length of time served on the
Board by the current independent NEDs. In addition, it also
recognises the skills which the Board will need as it moves forward to
oversee the implementation of its approved strategy, such as digital
experience, and takes account of the Group’s commitments to
achieve and maintain its Board diversity target (33% by 2020).
The related role profile is then 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. Part of this
includes considering 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 appointments of Stephanie Bruce,
Jonathan Asquith, Cecilia Reyes and Brian McBride.
The Committee also 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. Martin Pike’s continued appointment was
reviewed during the year. This was his third term of appointment, and
the Committee agreed that he continued to meet all independence
and time commitment expectations
Succession planning and talent management activities
The Committee regularly reviews the results of succession planning
activities, including key person and retention risk, and talent
development programmes across the Group.
In particular, 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 the executive leadership team. 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 HR Officer, with input from the CE
and supported by the Group Talent and Organisation Development
team. Also during 2019, the non-executive Directors held specific
private discussions on Board and executive succession, the results of
which fed into the overall plan.
Board evaluation
The Committee has a key role in supporting the Board evaluation
process. You can read about the 2019 review on page 61. The
Committee oversaw the process to select IBE as the external
facilitator and also reviews the progress to implement the
recommendations of the 2018 review.
Diversity and inclusion
The Board’s diversity statement is on page 60. The Committee has a
key role in supporting this through its oversight of diversity and
inclusion activities. In the Directors’ report you can read about our
inclusion direction, progress against which is monitored by the
Committee. In the Strategic report you can read about our Gender
representation, and the progress against the targets we have set. In
addition, in the Sustainability report, you can read the Diversity and
Inclusion section. The Global Head of Diversity and Inclusion attends
the Committee at least twice a year to report on progress on delivering
against our action plans and initiatives.
Culture
During the year the Committee also received updates on the initiatives
on corporate culture. These included co-creating, articulating and
embedding the drivers and behaviours to support our strategy, as well
as the leadership role to support these, and then measurement via a
proposed scorecard. This work also included the initiatives on Board
employee engagement and bringing the employee’s voice into the
Boardroom, work which will continue to evolve in 2020.
Committee effectiveness
The Committee reviews its remit and effectiveness each year. In
2019, this was carried out by external consultants IBE via an external
review and IBE was appointed as the external facilitator. The review
included observation of a meeting, access to papers and interviews
with Committee members. The key points arising from the review
were:
The Committee has been able to focus its work on the most
important issues: succession, culture and D&I, and employee
engagement
In particular the Committee was keen to continue its consideration
of how to make the most appropriate use of the information it
receives through the NED Board employee engagement channel
The Committee was also keen to continue to maintain its focus on
supporting the delivery of action on the people issues within its
remit
Overall, Board members have confidence in the effectiveness of the
Committee and the way in which it performs its duties.
Standard Life Aberdeen 2019
77
Governance
3. Corporate governance statement continued
Jonathan Asquith
Jonathan Asquith
3.4 Directors’ remuneration report
Remuneration Committee Chairman’s statement
This report sets out what the Directors of Standard Life Aberdeen
were paid in 2019 and how we will pay them in 2020, together with an
explanation of how the Remuneration Committee reached its
recommendations. It also sets out the proposed remuneration policy
which, subject to shareholder approval at the 2020 AGM, will apply
from that date. 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
An overview of the 2019 remuneration outcomes and the proposed
remuneration policy and how it will be implemented in 2020
The annual remuneration report, which sets out in detail how the
remuneration policy was implemented in 2019
The new remuneration policy, which is subject to a shareholder
vote at the 2020 AGM
Approval
The Directors’ remuneration report was approved by the Board and
signed on its behalf by
Jonathan Asquith
Chairman, Remuneration Committee
10 March 2020
Report contents
At a glance – 2019 Remuneration outcomes
At a glance – proposed Remuneration policy
and 2020 implementation
In detail – 2019 Remuneration Outcomes
Shareholdings and outstanding share awards
Executive Directors’ remuneration in context
Remuneration for non-executive Directors and
the Chairman
The Remuneration Committee
Future remuneration policy
78
Standard Life Aberdeen 2019
Page reference
81
83
85
88
90
92
94
96
This is my first report to shareholders, having been appointed to the
Board and as Remuneration Committee Chair in September 2019. I
would like to thank Richard Mully who served as the previous
Committee Chairman, the Board, and my fellow Committee members
for their support.
On appointment, I took the opportunity to meet with a number of our
key institutional shareholders and their representatives as well as to
undertake a review of our approach to executive remuneration. The
outcome is the new remuneration policy which I now present for your
approval, together with the Remuneration Committee’s report on
Directors’ remuneration for the year ended 31 December 2019.
We recognise that it is important for all companies, not least major
investors such as Standard Life Aberdeen, to consider carefully how
their executives are paid. We need to be able to attract and retain
talented individuals from diverse backgrounds to manage our
businesses and ensure that they are appropriately incentivised. In
setting the terms of remuneration for the most senior employees, we
must ensure that the interests of a broad range of stakeholders
including shareholders, clients, regulators and the wider workforce are
respected; their trust is central to our Company and therefore of
foremost importance to the pay decisions that we take.
Changes to the executive leadership team (ELT) and Board
succession during 2019
In March 2019, it was confirmed that Keith Skeoch had been
appointed as the sole CE, with Martin Gilbert remaining on the Board
in his new role as Vice Chairman. Subsequently, it was announced in
October 2019 that Martin would leave the Company on 30 September
2020. He relinquished his executive reports with effect from the date
of that announcement. His time reduced to 4 days per week from 1
January 2020, with his remuneration (fixed and variable opportunity)
pro-rated accordingly from that date. He will not seek re-election as a
Director at the 2020 AGM.
Stephanie Bruce was appointed to the Board as CFO with effect from
1 June 2019. Her remuneration arrangements were disclosed as part
of our Annual report and accounts 2018. The performance targets
attached to her initial award are set out on page 89. Her predecessor,
Bill Rattray retired from the Board on 31 May 2019 and remained
employed to support transition to Stephanie until 31 December 2019.
His remuneration for the period of time he was on the Board is set out
on page 85 and his remaining remuneration is detailed on page 87.
It was also announced on 17 December 2019 that Rod Paris would
step down from the Board with effect from 31 December 2019, while
continuing his valuable work as CIO of the Company. His
remuneration for the 2019 performance year, as well as the vesting
and release of deferred awards granted in his capacity as an
executive Director, will be delivered in accordance with existing policy.
In line with this, his shareholding requirement under the current policy
will remain in-force until the end of 2020.
There were also extensive changes on the non-executive Director
front. Sir Douglas Flint stepped up to Chairman on 1 January
following the retirement of Sir Gerry Grimstone. Richard Mully and
Simon Troughton stepped down from the Board at the Annual
General Meeting in May. Following my appointment on 1 September
2019, Cecilia Reyes also joined the Board as a non-executive
Director and a member of the Remuneration Committee from 1
October 2019. All non-executive Directors’ fee arrangements are set
out on page 93.
Variable remuneration outcomes in respect of 2019
The targets for the Executive Incentive Plan (EIP) in 2019 covered a
range of focus areas that the Board regarded as critical in challenging
management to drive stretch performance while operating within
appropriate risk settings. The outcome of the scorecard is set out on
page 82 and summarised in the table below.
Looking back at the 2019 AGM
The Board changes announced in March 2019 included the transition
away from the co-CEO structure and Martin Gilbert’s appointment as
Vice Chairman, the prospective appointment of Stephanie Bruce as
Finance Director and the detailed terms of the appointment of the new
Chairman.
Executive Director
Keith Skeoch
Martin Gilbert
Rod Paris
Stephanie Bruce1
Bill Rattray1
Final outcome
(% of max)
Final outcome
(% of salary)
Final outcome
(£000s)
20.83%
20.83%
22.83%
22.83%
19.83%
125%
83%
137%
47%
29%
750
498
616
246
129
1 Outcome (% of annual salary) has been prorated to reflect the period of time spent
on the Board.
Financial performance
Performance against financial metrics accounts for 80% of the bonus
opportunity for executive Directors. As set out in the Chairman’s
review, investment performance for our clients and customers
improved in the year, with positive effects on their returns. Despite this
improving background, the balance of financial metrics in the EIP
scorecard landed below target. This has given rise to a final
assessment of 8.33% of maximum on financial measures.
It should be noted that four of the financial performance metrics are
included in the Underpin condition for the 2018 EIP Deferred Award.
The final outcome of this award is not due to be assessed until 2022
and will be reported at that time; it is likely, however, that the result will
be negatively impacted by the financial performance for 2019.
Non-financial performance
In addition to the above, the Committee set a range of non-financial
(10%) and personal (10%) performance targets for the executive
Directors, amounting to 20% of bonus opportunity in total. The
Remuneration Committee assessed that a final score of 6.5% out of
10% of the maximum on non-financial measures was appropriate.
This was driven by the following key factors:
A positive assessment for achievements under strategic delivery, in
particular unlocking of value from our Indian stakes
Considerable progress on our people agenda including the
formation of a new leadership team
Progress against key milestones for integration and transformation
Full detail on the Committee’s assessment is provided on page 86
together with the achievements of each of the individual executive
Directors against the personal targets which make up the final 10% of
their scorecards.
Remuneration Committee assessment
To consider whether the awards generated by the scorecard were fair
in the broader performance and risk context, the Remuneration
Committee considered the following factors:
The outcome from the perspective of overall Company
performance including one-off items
The shareholder experience during 2019
The input from the Risk and Capital Committee, and Audit
Committee
The context of incentive funding across the workforce
The Remuneration Committee concluded that there were no grounds
for exercising its discretion to amend the outcome of the process.
All of these changes had remuneration implications and it became
clear in the lead up to the 2019 AGM that some shareholders had
concerns in this area. As such, prior to the 2019 AGM, the Chairman
held discussions with a number of our largest shareholders and their
representatives. Having listened to the concerns raised, the
Committee approved further conditionality on the one-off deferred
award made to Stephanie Bruce. This was in the form of a
performance condition linked to efficiency targets and was
communicated to the Stock Exchange on 30 April 2019. At the AGM
57.98% of shareholders’ votes cast were in favour of the resolution to
approve the Directors’ remuneration report. As a result, the Company
committed to consult further with shareholders and report back on
their concerns and how the Company proposed to address them.
This consultation got under way as soon as practicable after my
appointment as Chairman of the Remuneration Committee and
involved letters to our leading shareholders and follow up meetings
with them and their proxy voting advisers in the fourth quarter of 2019.
In these meetings, the discussion points around the 2019 AGM were
recognised to be one-off issues of which the key agenda items were:
Martin Gilbert’s remuneration with effect from 13 March 2019 to
reflect his new role as Vice Chairman. By the time of the
consultation, Martin’s decision to step down from this role and retire
from the Company had already been announced and the issue was
treated as closed.
Stephanie Bruce’s one-off deferred award with a face value of
£750,000 which was the subject of the performance condition
referred to above
Stephanie Bruce was considered a critical addition to the Board to
deliver our strategic plan and her recruitment from outside the
financial sector presented particular challenges. As a partner at
PricewaterhouseCoopers LLP, her annual emoluments were
exclusively in cash and included a share of partnership profits which
were relatively dependable, while not guaranteed. On leaving the
partnership, she forfeited the right to these payments and transitioned
to a pay model with a higher proportion of pay truly at risk. In
compensation for her loss of partnership earnings going forward, the
Committee felt it was appropriate to grant her a one-off deferred
award, to which the performance conditions set out on page 89 were
subsequently attached.
Shareholders made it clear that they had not expected the Company
to use its general discretions in the remuneration policy to grant an
award of this kind. On behalf of the Committee I acknowledged their
concerns and agreed that prior consultation with key investors would
be considered should a similar issue arise in the future. I also
confirmed that assessment of performance against the targets for
Stephanie Bruce’s one-off award would be separately verified, noting
that the first performance assessment is due to take place in June
2020 on the anniversary of her appointment.
I also took the opportunity during my shareholder meetings to discuss
our thinking regarding remuneration arrangements and solicited views
on the future shape and direction of executive remuneration at the
Company. The encouragement received from shareholders and their
representatives to consider alternative approaches and the points that
they raised informed the decision by the Remuneration Committee to
propose the new remuneration policy set out below.
Standard Life Aberdeen 2019
79
Governance
3. Corporate governance statement continued
Changes to remuneration for 2020
As outlined in both the Chairman’s message and the Chief
Executive’s review, 2019 was a pivotal year for both our industry and
our business. Looking forward we need to position our Company for
2020 and beyond to ensure we are ready to meet the turbulent
challenges facing markets and our industry. This demands a
remuneration policy and package for our executive Directors that
motivates and incentivises delivery against our plan, whilst aligning
their long-term interests with those of shareholders.
Our existing remuneration policy is only two years old, but changes to
the business since it was first proposed and practical issues around
its implementation in the form of the current EIP have undermined its
suitability. In particular, much of the current remuneration policy
focuses on the achievement of budgetary targets around adjusted
profits; this gives rise to four key issues:
The Company has a substantial and costly programme of
integration and systems restructuring work to complete following
the Standard Life/Aberdeen Asset Management merger and the
sale of the UK and European insurance businesses to Phoenix in
2018. The cost-effective and timely delivery of these ‘below the line’
items is not addressed by the incentives embedded in the EIP.
While the existing EIP achieves a degree of shareholder alignment
by delivering rewards in the form of shares, there is no explicit
linkage between the quantum delivered and any of the
conventional independent measures of shareholder value
The Phoenix transaction provides the Company with the
opportunity to reorganise its capital structure via the realisation of
value in non-core assets and the return of excess capital to
shareholders. Since this process has little impact on Adjusted
Earnings, it again falls outside the scope of the EIP.
The EIP has been established as a multi-year plan, with financial
performance measured in the main over trailing periods of up to
three years; awards are then subject to annual re-tests on
challenging criteria until vesting. The complexity of the structure
makes outcomes highly unpredictable and significantly weighted
towards trailing performance rather than future growth, while its
rigidity does not equip it well to deal with evolving strategic
challenges in a fast-changing environment.
These factors, together with feedback obtained from our investors
through our meetings over the last six months, have led the
Committee to develop the new remuneration policy which is proposed
for approval at this year’s AGM. It has been designed to address the
shortcomings identified above and to ensure that our remuneration
policy is structured appropriately to drive delivery of our strategy and
meet the following core principles:
Simple and transparent: easy for participants and wider
stakeholders to understand.
Alignment to performance: executive remuneration aligned to
overall performance of the Company.
Reward short and long-term performance: rewards delivery of
short-term plans and long-term shareholder returns.
External landscape: considers the evolving external landscape for
executive reward.
Market competitive: attracts and retains the right talent to deliver our
strategy.
80
Standard Life Aberdeen 2019
Key elements of our new policy
For simplicity and ease of understanding, the new remuneration
policy is structured to conform substantially with existing market
norms. It has six key features:
Base salary – set to reflect the role and experience of the relevant
individual, with increases typically in line with the wider workforce,
adjusted where appropriate for changes in role or responsibilities.
Benefits and pensions – aligned with the wider workforce.
Annual bonus – rewarding management for the efficient and timely
execution of the stretching plan agreed with the Board over the short
term (12 months), with a majority focus (75%) on financial
performance. Non-financial performance (20%) makes up most of the
balance, concentrating on the achievement of desired outcomes in
our relationships with our customers and our people. The remaining
5% is reserved to reward the achievement of specific personal targets
set for each of the executive Directors. Underpinning the final
outcome is Board discretion, where Risk and Conduct matters are
considered along with any other contextual references such as
sustainability of outcomes. Given the importance of these aspects,
they can have a substantial impact on final awards, notwithstanding
performance against the targets set.
Long-Term Incentive Plan (LTIP) – aligning management
expectations with those of the Board and shareholders over the long
term (five years), with a three year performance measurement period
and subsequent two year retention period. Performance measures
are linked to the creation of long-term shareholder value and must
include a minimum of two measures of which one should be absolute
and one relative in nature.
Shareholding requirement – remains 500% of salary for CE and
300% for CFO. For executive Directors serving from this year’s AGM
the post-employment shareholding requirement has been extended to
two years following departure from the Board.
Quantum – there is no increase in the overall opportunity available to
any of the executive Directors as a result of the change from the
existing to the proposed remuneration policy.
2020 policy implementation
A core part of the design of our new remuneration policy was to
maintain a similar remuneration potential at target and maximum for
executive Directors as their potential under the current policy. The
proposed 2020 remuneration package for our executive Directors is
detailed on page 96. The Board increased salaries in line with the
salary increase being awarded to our employees. Pension has been
reduced to align to the pension opportunity for our wider workforce.
There has been no change to the incentive pay opportunity or the
proportion potentially available to recipients in cash, as distinct from
deferred. We have chosen adjusted diluted earnings per share (EPS)
and relative total shareholder return (TSR) as the two shareholder
value measures to be used as the basis for judging performance for
the 2020 LTIP.
Further detail regarding the proposed new policy and its
implementation for 2020 is summarised in the ‘At a glance’ section on
page 83 and set out in full in the ‘Future remuneration policy’ section
starting from page 96.
Shareholder consultation
As we reported in an RNS announcement in November, the
Committee consulted extensively with shareholders and their
representatives in the development of this policy and their views have
helped us to shape our final proposals. The shareholders that we
consulted were supportive of the proposed approach going forward,
and in particular:
Increased alignment to shareholders through the introduction of an
LTIP
Greater levels of transparency for both management and
shareholders on how performance and remuneration outcomes
align through a simplified model for delivery which removes trailing
performance measures and performance retests
Shareholders and their representative bodies also provided helpful
commentary which have guided the implementation of the new policy
for our executives in 2020. I thank them for both their time and
contribution.
To help you navigate the report effectively, I would like to draw your
attention to the ‘At a glance’ sections between pages 81 and 84 which
summarise both the outcomes for 2019 and also the proposed new
remuneration policy and its implementation in 2020. Further detailed
information is then set out in the rear sections of the report for your
reference as required.
On behalf of the Board, I invite you to read our remuneration report and welcome your feedback.
At a glance – 2019 Remuneration outcomes
This section sets out our 2019 remuneration policy, the 2019 award outcomes for each executive Director, the performance against the
executive incentive plan scorecard and the performance against each of the 2019 performance measures contained in this scorecard.
2019 Remuneration outcomes
This chart shows the outcome for each executive Director based on 2019 performance compared to the maximum opportunity.
Keith Skeoch
Maximum
Actual 2019
Martin Gilbert
Maximum
Actual 2019
Rod Paris
Maximum
Actual 2019
Stephanie Bruce
Maximum
Actual 2019
Bill Rattray
Maximum
Actual 2019
£722
£722
£721
£721
£542
£542
£370
£370
£900
£187
£563
£598
£374
£124
£2,700
£1,794
£675
£154 £462
£2,025
£269
£808
£185
£61
£224
£223
£163
£489
£97
£32
Salary, benefits and pension
EIP deferred and subject to underpin performance
EIP cash
Total: £4,322
Total: £1,472
Total: £3,113
Total: £1,219
Total: £3,242
Total: £1,158
Total: £1,447
Total: £616
Total: £876
Total: £352
All figures in £000s
1 The figure for Stephanie Bruce has been pro-rated to reflect her appointment to the Board on 1 June 2019.
2 The EIP opportunity for Martin Gilbert has been pro-rated to reflect the change in his opportunity as a result of his change in role on 13 March 2019.
3 Bill Rattray retired from the Board on 31 May 2019. The EIP outcome and opportunity shown above has been pro-rated to reflect the period of time spent on the Board.
2019 Remuneration outcomes (long-term incentive awards)
Both Keith Skeoch (Executive LTIP) and Rod Paris
(SLI LTIP) were granted LTIP awards in 2017, prior
to the merger with a performance period ending 31
December 2019. The Committee reviewed the
performance conditions attached to these awards
and assessed that performance had not met the
minimum threshold required to vest. The awards will
lapse in full. More detail on the performance
conditions can be found on page 88.
£0
£500
£1,000
£1,500
£2,000
£2,500
£3,000
Maximum
Keith Skeoch
(2017 Executive
LTIP)
Actual 2019
£0
Maximum
£1,800
Rod Paris
(2017 SLI
LTIP)
Actual 2019
£0
£2,800
All figures in £000s
Standard Life Aberdeen 2019
81
Governance
3. Corporate governance statement continued
The 2019 EIP scorecard outcome
In determining the final outcome for the EIP, the Remuneration Committee took advice from the Risk and Capital Committee and the Audit
Committee, while also considering culture and conduct, the shareholder experience and pay for the wider workforce. As a result of this, the
Committee concluded that there would be no further discretion applied to the scorecard outcome. The following table sets out the final outcome
for the 2019 EIP, including the personal performance assessment. The table also details the final value derived for each individual.
Financial
metrics
(maximum
80%)
Non-financial
metrics
(maximum
10%)
Personal
Performance
(maximum
10%)
Formulaic
outcome
(% of
maximum)
Board
approved final
outcome (% of
maximum)
Maximum
opportunity
(% of
salary)
Total
payable
(% of
salary)
Total
payable
(£000s)
EIP cash
(£000s)
EIP
deferred
(£000s)1
6.5%
6.5%
8.33%
20.83%
6.0% 20.83%
8.33%
8.33%
6.0% 20.83%
Keith Skeoch
Martin Gilbert2
Rod Paris
Stephanie Bruce3
Bill Rattray4
1 Deferred awards will be made in 2020, in the form of nil cost options under the Deferred Bonus Plan rules. Performance Underpins are applied, as set out on page 87.
2 Martin Gilbert’s total opportunity was 600% of salary until the 13 March 2019 and 350% of salary thereafter as a result of his change in role to Vice Chairman of the Company.
3 Stephanie Bruce’s total opportunity was 350% of salary from 1 June 2019 to 31 December 2019.
4 Bill Rattray retired from the Board on 31 May 2019. The EIP outcome has been pro-rated to reflect the period of time spent on the Board.
5.0% 19.83%
8.0% 22.83%
8.0% 22.83%
22.83%
19.83%
20.83%
22.83%
8.33%
8.33%
137%
600%
350%
350%
399%
600%
6.5%
6.5%
6.5%
47%
29%
83%
246
129
498
616
124
154
185
374
462
61
32
97
750
187
125%
563
2019 outcome of the financial and non-financial performance metrics used to determine the 2019 EIP vesting percentage
The following chart shows performance against the target range for each of the financial and non-financial metrics which form the EIP. Financial
metrics contribute a maximum of 80% of the outcome, with non-financial metrics contributing a maximum of 10% of the outcome. Further detail
on the assessment of the performance conditions, including highlights from the personal performance assessment (which account for a
maximum of 10% of the final outcome) can be found on page 86.
Stretch
49.1p
£168.2bn
£17.2bn
70%
66.6%
100%
100%
100%
100%
Actual
60%
Actual
60%
Actual
80%
Actual
60%
68.6%
50%
50%
50%
50%
Target
44.3p
£153.0bn
£2.9bn
Actual
41.5p
(3.33%)
Actual
£138.3bn
(0.2%)
60%
Actual
54.8%
(4.8%)
Threshold
40.1p
£137.7bn
(£11.2bn)
50%
70.6%
0%
0%
0%
0%
Actual
(£50.2bn)
(0%)
Actual
70.9%
(0%)
Adjusted
diluted EPS
Gross new
business flows
Net new
business flows
Investment
performance
Cost/income
ratio
Strategic
Customer
and client
People
Risk, compliance
and conduct
Financial metrics (maximum 80% of outcome)
Non-financial metrics (maximum 10% of outcome)
Current policy summary
The following table describes the remuneration policy applicable in 2019. A comparison between the current and the proposed policy is
presented on page 84.
Salary: Core reward for undertaking the role, normally reviewed annually.
Pension and Benefits: Provides market competitive cost-effective benefits.
Executive Incentive Plan: A single incentive plan designed to reward the delivery of the Company’s business plan in a range of financial and
non-financial areas. 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 (subject to Underpin conditions which are measured over three years from award)
Vested awards are subject to a holding period until the fifth anniversary of the grant date.
Shareholding guidelines: Executive Directors are required to build up substantial interests in the Company. The shareholding requirement
for the Chief Executive is 500% of salary, and 300% of salary for other directors. Executive Directors are required to hold shares to the value
of the shareholding requirement for one year post-cessation.
82
Standard Life Aberdeen 2019
At a glance – proposed remuneration policy and 2020 implementation
This section sets out our proposed 2020 remuneration policy (and compares this to our current policy), 2020 implementation of this policy
(including a comparison to 2019) and the 2020 performance measures and targets that will be used to determine outcomes.
Key elements of our proposed policy (full policy set out on page 96)
As referred to in the Chairman’s statement, a new policy has been proposed for implementation in 2020. The tables below summarise the key
elements and implementation of the policy. Details of how our proposed policy supports the delivery of our strategy can be found on page 99.
The policy for Chairman and non-executive Director fees remains unchanged and is set out on page 104.
Salary: Core reward for undertaking the role, normally reviewed annually.
Change from current policy: No change
Pension and benefits: Provides a competitive and flexible retirement benefit that does not create an unacceptable level of financial risk or cost
to the Company. Provides market competitive cost effective benefits. The level of pension and benefits is reviewed periodically in line with the
opportunity offered to other employees in the Company.
Change from current policy: Reduction in pension quantum proposed. This is to bring executive Director pension into line with the opportunity
available to the wider workforce.
Bonus: Annual plan designed to reward the delivery of the Company’s business plan in a range of financial and non-financial areas.
Performance assessed against key financial, non-financial and personal performance measures
Awards will vest at 25% for threshold performance, 50% for target performance and 100% for maximum performance with straight line
vesting between these points
Awards are delivered 50% in the form of cash and 50% in the form of a deferred award. The deferred award is delivered in shares and vests
in equal tranches over three years. Retention is applied as required by regulation. Cash and deferred awards are subject to malus and
clawback.
Change from current policy: The EIP is replaced by an annual bonus and LTIP award. Annual bonus performance will be assessed against
forward looking metrics measured over 12 months, rather than based on trailing performance.
Long-Term Incentive Plan (LTIP): Designed to incentivise and reward long-term performance and shareholder value creation.
Performance measures will include an absolute and relative measure
Awards are subject to a three-year performance period with vested awards subject to a further two-year holding period
Awards are subject to malus and clawback
The first LTIP award will be made following the 2020 AGM, subject to the policy’s approval
Change from current policy: New element of remuneration (partly replaces the EIP).
Shareholding guidelines: Executive Directors are required to build up substantial interests in the Company. The shareholding requirement
for executive Directors remains at 500% of salary for the CE and 300% of salary for the CFO. Executive Directors are required to hold shares
to the value of the shareholding requirement for two years following departure from the Board. Martin Gilbert will be subject to the policy in
place at the time of the announcement of his departure, i.e. one year post-cessation of employment with the Company.
Change from current policy: Increase from current post employment shareholding requirement of 12 months to 24 months.
Quantum: There is no increase in the quantum of opportunity available to any of the executive Directors as a result of the change from the
existing to the proposed remuneration policy.
Annual bonus
At the beginning of each year the Remuneration Committee sets the performance measures for the annual bonus based on strategic priorities.
For 2020, 75% of the measures are based on financial performance, with the remainder based on non-financial performance. The Remuneration
Committee retains an appropriate level of flexibility to apply discretion to ensure that remuneration outcomes are reflective of a holistic view of
overall performance. The discretionary assessment will include, but will not be limited to risk, compliance and conduct, and culture.
The following table sets out the performance scorecard to be used based on the Company’s strategic priorities:
Focus area
Positioning for growth
Delivering for our shareholders
Investing in our people and our
customer experience
Individual objectives
Weighting
Example performance metrics to be used to assess 2020
45%
30%
20%
5%
Investment performance, Fee based revenue, Cost/income ratio
Profitability and delivery of key strategic initiatives
Performance against key people objectives (including people engagement
and diversity) and key customer objectives (including customer advocacy)
Key individual deliverables
Due to commercial sensitivity, actual targets and ranges will be disclosed at the end of the performance period.
Standard Life Aberdeen 2019
83
Governance
3. Corporate governance statement continued
The 2020 LTIP award
The first award under the LTIP plan will be made following the 2020 AGM, subject to the approval of the remuneration policy. Targets for the
award will be measured for the three-year period ended 31 December 2022 and are set as follows:
Performance measure
Weighting Threshold performance (25% vesting) Stretch performance (100% vesting)1
Adjusted diluted EPS Compound
Annual Growth Rate (CAGR)
Relative TSR2
50%
50%
5%
15%
Equal to the median company
Equal to, or in excess of, the upper quartile company
1 Straight line vesting occurs between threshold and maximum.
2 Relative TSR will be calculated using a 90-day average share price, both at the beginning and at the end of the performance period. The 90-day averaging will commence 45
days prior to the beginning and also 45 days prior to the end of the performance period. The calculation will be performed on a local currency basis.
The proposed peer group1 to be used for the relative TSR measure consists of the following global asset management peers:
Affiliated Managers
Alliance Bernstein
Ameriprise Financial
Amundi
Ashmore Group
DWS Group
Eaton Vance
Franklin Resources
Invesco
Janus Henderson Group
Jupiter Fund Management
M&G
Man Group
Quilter
Schroders
SEI Investments
St James’s Place
T Rowe Price Group
1 This peer group will be subject to re-evaluation throughout the performance period to adjust for the effects of corporate events such as mergers and acquisitions, with
substitutes introduced where necessary to maintain the approximate size and comparability of the group.
Comparison of opportunities of the policy in 2020 compared to 2019
The following chart compares the implementation of the previous policy to the proposed policy. Salary and pension for 2020 shown below
includes the following adjustments:
Salary of £615k for the CE, and £538k for the CFO (representing a 2.5% increase, in line with the wider workforce)
Pension of 18% of salary (a reduction from 20% of salary, and in line with the maximum contribution in place across the wider workforce)
£0
£500
£1,000
£1,500
£2,000
£2,500
£3,000
£3,500
£4,000
£4,500
Chief
Executive
Chief
Financial
Officer
2020
Maximum
Salary and
pension £726
Annual bonus
opportunity in cash
(150% of salary)
Annual bonus
opportunity deferred
(150% of salary)
LTIP opportunity
(300% of salary)
2019
Maximum
Salary and
pension £720
EIP cash opportunity
(150% of salary)
EIP deferred opportunity
(450% of salary)
2020
Maximum
Salary and
pension £635
Annual bonus
opportunity
in cash
(75% of salary)
Annual bonus
opportunity
deferred
(75% of salary)
LTIP opportunity
(200% of salary)
2019
Maximum
Salary and
pension £630
EIP cash
opportunity
(87.5% of
salary)
EIP deferred opportunity
(262.5% of salary)
Total:
£4,417
Total:
£4,320
Total:
£2,519
Total:
£2,467
Salary and pension
Bonus cash
Bonus deferred
LTIP
EIP cash
EIP deferred
All figures in £000s
The Committee recognises that the split between annual bonus and LTIP is typically more heavily weighted towards the longer term
performance. Under the new policy, the maximum variable opportunity is 300% of salary for the annual bonus, and 500% of salary for the LTIP,
with a maximum total combined variable award of 700% of salary. The Committee therefore retains flexibility to vary the balance between short
and long-term remuneration in the future.
The terms of Martin Gilbert’s retirement were agreed at the time of the announcement relating to his departure. In line with the prevailing
policy at that time, Martin Gilbert will continue to receive a pension of 20% of salary until his departure. He will have a maximum opportunity
for 2020 Annual Bonus of 204% of salary, to be pro-rated for time served (he will not be eligible to receive a 2020 long-term incentive
award). His salary will remain as £480,000, reflecting the pro-rated value based on his working four days per week.
84
Standard Life Aberdeen 2019
2019 Remuneration Outcomes
This section reports remuneration awarded and paid at the end of 2019 in further detail, including the performance Underpins to be applied to the
EIP deferred awards granted in 2020 and payments to past 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 2019:
Executive
Directors
Keith
Skeoch
Martin
Gilbert
Rod Paris
Stephanie
Bruce7
2019
2018
2019
2018
2019
2018
2019
2018
Basic
salary for
year
£000s
Taxable
benefits
in year
£000s1
Pension
allowance
paid in
year
£000s
600
600
600
600
450
450
308
–
1
1
1
2
1
1
–
–
120
120
120
120
90
90
62
–
Other
payments
£000s2
Fixed pay
sub-total
£000s
EIP paid
in cash3
£000s
EIP
deferred4
£000s
1
1
–
–
1
1
–
–
722
722
721
722
542
542
370
–
187
–
124
–
154
151
61
–
563
367
374
367
462
454
185
–
Long-term
incentives with
performance
period ending
during the year
£000s5,6
Variable
sub-total
£000s
Total
remuneration
for the year
£000s
750
367
498
367
616
645
246
–
1,472
1,089
1,219
1,089
1,158
1,187
616
–
0
–
–
–
0
40
–
–
–
0
352
Bill
Rattray8
847
1 This includes the taxable value of all benefits paid in respect of the relevant year. Included for 2019 are medical premiums at a cost to the group of £518 for Keith Skeoch and
2019
2018
186
450
97
229
129
306
223
541
37
90
32
77
–
1
–
–
Rod Paris and £1,274 for Martin Gilbert.
2 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 2019 was £600.
3 This figure shows the annual cash bonus paid in respect of the year.
4 This figure shows the annual deferred EIP awarded in respect of the year. In the event that all, or part, of the award fails to satisfy the Underpin performance condition and
subsequently lapses, the single figure outcome will be restated in the following Annual report and accounts.
5 The values reported for 2018 have been restated to reflect the value of the shares vesting in respect of the three-year performance measurement period ending on 31
December 2018. Where the awards vested in 2019 the price has been restated using the share price on the vesting date. For 2018, the Executive LTIP vested at 0% and the
Standard Life Investments LTIP vested at 3.175% of maximum, with the outcome restated in the table above at the vesting price of £2.5775. The previous share price used
(based on the three month average to 31 December 2018) was £2.6415.
6 For 2019, both the Executive and Standard Life Investments LTIPs failed to achieve threshold performance and will vest at 0%.
7 Appointed 1 June 2019 – all figures reflect amounts paid/awarded since the date of appointment.
8 Stepped down from the Board on 31 May 2019. The values shown represent the emoluments paid for the period spent on the Board.
Base salary (audited)
No salary changes were made in 2019.
Pension (audited)
During 2019, all executive Directors received a cash allowance in lieu of pension contributions of 20% of base salary.
Executive Incentive Plan
The following section contains details on the targets and the Remuneration Committee’s assessment of outcomes for the period 1 January 2019
to 31 December 2019 against each of the elements of the EIP scorecard.
Financial performance metrics – 80% of total scorecard outcome
Long-term financial
Adjusted diluted EPS (pence) 1,2
Gross new business flows (all channels) (£bn)1,3,4
Net new business flows (excl. Strategic insurance
partners) (£bn)1,3
Investment performance 5
Weighting
(% of max
opportunity)
Threshold
(0% of
maximum)
Target
(50% of
maximum)
Stretch
(100% of
maximum)
Result
(% of max
opportunity)
Actual
20%
10%
10%
20%
40.1
137.7
(11.2)
50.0%
44.3
153.0
2.9
60.0%
49.1
168.2
41.5
138.3
17.2
(50.2)
70.0%
54.8%
3.33%
0.2%
0%
4.8%
Includes eight months of discontinued business in 2018
Includes 2018 adjusted diluted EPS outcome, which is aligned to the 2018 adjusted profit outcome
Short-term financial
Cost/income ratio 6
1
2
3 Flows excludes investment in cash and liquidity funds and Advice flows net of eliminations
4 Excludes Lloyds in 2019
5
6 Cost/income ratio targets have been restated following the HDFC Life and AM stake sales
Includes an adjustment for GARS returns below LIBOR +2.5% or equivalent
20%
70.6%
68.6%
66.6%
70.9%
0%
Standard Life Aberdeen 2019
85
Governance
3. Corporate governance statement continued
Non-financial performance metrics – 10% of total scorecard outcome
Quadrant
Highlights from assessment
Strategic
(2.5%)
Customer
and client
(2.5%)
People
(2.5%)
Risk,
compliance,
conduct
(2.5%)
Enabling execution of planned HDFC Life/ Asset Management share sales, delivering above target outcomes
£3bn gross AUM added from new products, significantly ahead of target of £2bn
–
–
– Development of a cohesive and ambitious plan for the Group’s Wealth and Platforms business
–
– Global Brand rank remained in the top 10 of the NMG client survey, in line with the target. The Retail
Transformation objectives assessed as being on track but behind stretch targets
–
–
–
–
–
Gatekeeper and Retail Advisor rankings remained static.
Top awards received in respect of the Group’s IFA platforms
Activity rates were measured at 112% of the stretch target
Strong levels of client retention from the high risk profile, above target range
AUM at high risk fell by approximately 1/3rd
Transformation of leadership team completed during 2019, with the ELT and Global Leadership Group
established, providing continued development for future succession pool
– Most improved company in the Hampton-Alexander FTSE 100 index, to 10th position and a 9% increase in
women in senior roles since 2017 to 36%, ensuring strong progress towards the Women in Finance targets
Voluntary turnover within the Company remains ahead of the benchmark at 9.7%
Implementation of an integrated HR system
–
–
– Global Code of Conduct attestation rate across all employees of over 99%, in line with the stretch target
–
Successful planning and execution of organisational and customer documentation changes to prepare for the
full range of possible Brexit scenarios
– Company operating at an elevated level of risk as a result of the transformation environment, however
positive management action has resulted in improvements over the second half of the year
Improvement in Cyber threat defences and preparedness
–
Personal performance metrics – 10% of total scorecard outcome
Highlights from assessment
Keith
Skeoch
–
–
–
–
–
Martin
Gilbert
Rod Paris
Stephanie
Bruce
Bill Rattray
Leading role in strategic planning and execution of HDFC Life /AMC sales considerably enhancing value of
retained shareholdings, and in planning and executing share buyback activity
Leading consultant recognition for improved investment performance which reflects a multi-strategy approach
Strong focus on the people agenda and development of a talented leadership team
Leadership of an improved planning and budgeting process through final stage of transition
Progress with Phoenix on exiting from elements of the Transitional Service Agreement and developing the
strategic relationship had been slower than expected
Further transformation synergies identified, however with additional costs and some delay
–
– Ongoing and impressive outreach to a diverse client base while successfully transitioning key client and
industry relationships to senior colleagues
–
Strong management of the development plans for strategic clients and distribution and marketing agenda
– Continuing participation in leading investor conferences to project the Aberdeen Standard Investments brand
–
Improvement of investment performance as a result of strong leadership on the integration of the investment
teams and capabilities
– Completing transition of the target operating model and management succession planning in core areas
– Reinforcing focus on stewardship and environmental, social and governance activities across the company and
–
–
–
–
–
introducing a more proactive and public engagement policy
Strong impact in first 6 months of taking over leadership of the finance function, including improved efficiency in
the delivery of results reporting and target setting for our business plan
Enhancement of Board financial information and support for the Audit Committee. Effective oversight of the
regulatory and capital management requirements and relationship building with key regulators
Effective management of our strong capital position to support strategic investments to grow the business and
maintain our dividend policy
Provided support and effective handover of his finance function responsibilities to Stephanie Bruce
Supported Stephanie Bruce in initial dealings with the investor community and provided ad hoc input as
required on complex historic matters
Result
(% of max)
1.5%
1.5%
2%
1.5%
Result
(% of max)
6%
6%
8%
8%
5%
Before approving the level of performance in 2019, the Remuneration Committee sought the views of the Audit Committee on material
accounting, reporting and disclosure matters that it considered during the year and the Risk and Capital Committee on the management of risk
within the business. When reflecting on whether the formulaic outcome could be considered fair in the context of the overall results, they took into
account the feedback received as well as items including culture and conduct, shareholder experience and pay for the wider workforce.
The Remuneration Committee determined there should be no adjustments made to the EIP scores as a result of this review. The final outcome,
including how this impacted the payout for each Director, is set out on page 82.
86
Standard Life Aberdeen 2019
Underpin conditions to be applied to the EIP deferred awards to be granted in 2020
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
Investment
performance
Weighting Underpin level
– Measured based on a blend of three-year and five-year investment performance.
– Requires average results of the three years to be at or above 55% of AUM by value to be outperforming
25%
benchmark
Flows
25%
Return on
adjusted equity
Cost/income ratio
including
associates and
joint ventures
25%
25%
– Rewards a key driver of AUMA
– Cumulative performance between 2020-2022
– For Gross new business flows, Underpin set at greater than or equal to £235bn (excludes flows arising
from investment in cash and liquidity funds and flows from LBG)
– For Net new business flows, Underpin set at greater than or equal to £30bn (excludes flows arising from
investment in cash and liquidity funds and excludes Strategic Insurance Partners)
– Rewards efficient profit generation
– Average performance between 2020 – 2022 to be 17% or higher
– Return on equity is calculated as adjusted profit before tax divided by adjusted IFRS equity
– Rewards strategy of building an efficient and effective business
– Measured based on performance in 2022
– Underpin set at less than or equal to 65%
Payments to past Directors and payments for loss of office (audited)
Payments made to former Directors that have not been previously reported elsewhere are reported if they are in excess of £20,000.
Bill Rattray stepped down from the Board with effect from 31 May 2019 but remained employed until 31 December 2019 to support transition to
Stephanie Bruce, after which point he left the Company. Details of his pro-rata remuneration until stepping down from the Board are included in
the table on page 85. He continued to be eligible for his salary and benefits until his termination date of 31 December 2019. The amounts
payable in respect of the period 1 June to 31 December 2019 include base salary, contractual benefits and pension (totalling £316k). No further
payments were made to him in respect of 2019. For the remaining portion of his notice period, until 31 May 2020, Bill Rattray will be entitled to
payment for his base salary, contractual benefits and pension (totalling £226k).
As Bill retired from the Company, he was treated as a good leaver for the purpose of outstanding incentive awards. In line with the respective
plan rules, the following treatment applied:
Legacy awards under the Aberdeen Deferred Share Plan: Unvested awards will vest in full at the normal vesting date
Deferred awards under the EIP: Unvested awards will pay-out at the normal time, subject to performance against the Underpin conditions
Rod Paris remains employed with the Company in his role as CIO following stepping down from the Board and his outstanding incentive awards
will continue to vest in line with their original terms.
As disclosed in the 2018 Directors’ remuneration report, in accordance with the terms of his letter of appointment, in 2019 Sir Gerry Grimstone
received fees of £190,000 and an allowance of £10,000 in respect of his six month notice period.
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
Keith Skeoch
Non-executive Director Financial Reporting Council
Martin Gilbert
Director and deputy chair of the Investment Association
Non-executive Director Glencore plc
Chairman of the Practitioner Panel – Prudential Regulation Authority1
Stephanie Bruce
Board and council member of ICAS
Bill Rattray
Non-executive Director Curtis Banks Group PLC
1 Stepped down from this position with effect from November 2019.
2019 Fees
£nil
£nil
US$300,000
£nil
£nil
£50,833
Standard Life Aberdeen 2019
87
Governance
3. Corporate governance statement continued
Shareholdings and outstanding share awards
This section reports our Directors’ interests in shares.
Vesting of the 2017 Executive LTIP and Standard Life Investments Long-Term Incentive Plan (SLI LTIP)
Keith Skeoch participated in the 2017 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.
The table below sets out the adjusted performance targets for Executive LTIP awards granted in 2017:
Performance condition
Cumulative Group adjusted profit before tax1
Cumulative Group net flows2
Performance
measurement period
1 January 2017 to
31 December 2019
Threshold
Maximum
Actual
% Vesting
£2,635m
£27.7bn
£3,210m
£45.9bn
£2,171m
(£70.1bn)
0%
0%
1 These are the performance targets after the adjustments in 2017 in light of the merger and in 2018 following the transaction with Phoenix. Further adjustments were made to
this target in 2019 as a result of the Lloyds Banking Group withdrawal and associate and joint venture share reduction changes. These adjustments resulted in a reduction in
the threshold and maximum targets of £30m and £35m respectively. These formulaic adjustments have not resulted in a change to vesting outcome.
2 No change was made to the net flows condition in 2017 from those originally set at grant.
Rod Paris participated in the 2017 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 the award did not meet the required
thresholds against the measure and the award lapsed in full. The actual adjusted profit targets are not disclosed as Aberdeen Standard
Investments is a subsidiary of the Company and the Board deems that this is commercially sensitive information which, if disclosed, could
seriously prejudice the Company’s business.
Threshold
Target
Maximum
Actual
% Vesting
Cumulative adjusted profit performance
70% of target 100% of target
130% of target
59% of target
0%
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 a proxy for the tax due on
exercise of the awards). All executive Directors have complied with the current requirement as at 31 December 2019, with the exception of
Stephanie Bruce who was appointed during 2019.
The following table shows the total number of Standard Life Aberdeen plc shares held by the executive Directors and their connected persons:
Keith Skeoch
Martin Gilbert
Rod Paris
Stephanie Bruce
Bill Rattray
Total number of shares
owned at 1 January 2019
Shares acquired during
the period 1 January 2019
to 31 December 2019
Total number of shares
owned at 31 December
20191
Shares acquired
between 31 December
2019 and 9 March
2020
2,386,031
431,161
671,722
–
1,525,603
49,195
–
9,093
–
–
2,435,226
431,161
680,815
–
1,525,603
54
–
–
–
–
The following table shows the number of qualifying awards included in assessing achievement towards the shareholding requirement, as at 31
December 2019:
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
2019 as a % of salary
Keith Skeoch
Martin Gilbert
Rod Paris
Stephanie Bruce
Bill Rattray
–
1,157,710
–
–
746,831
360,355
2,615,404
£8,581,139
–
53,017
–
–
1,010,016
£3,313,863
707,324
£2,320,728
–
–
1,899,019
£6,230,680
500%
300%
300%
300%
300%
1430%
552%
516%
N/A
1385%
1 The closing price at 31 December 2019 used to determine value was 328.10 pence.
88
Standard Life Aberdeen 2019
Under the proposed remuneration policy set out on page 96, which is subject to approval at the 2020 AGM, an executive Director will have to
hold shares up to the value of their shareholding requirement for 24 months post departure from the Board. The previous policy required shares
up to the value of the requirement to be held for 12 months post departure. Bill Rattray continues to hold more than 300% of his salary in shares,
which must be held until 31 December 2020. In line with the policy which was in place at the time of the announcement relating to his departure,
Martin Gilbert will be required to hold 300% of his pro-rated salary in shares until 30 September 2021.
This table shows the total number of share options with and without performance conditions held at 31 December 2019:
Keith Skeoch
Martin Gilbert
Rod Paris
Stephanie Bruce
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 year5
1,678,540
138,107
1,160,882
281,571
360,355
807,969
53,017
–
–
1,157,710
–
–
–
1,167,351
15,399
–
–
£3,616,453
£39,953
–
Bill Rattray
1
Includes LTIP awards made in 2017 and 2018 and awards granted in 2019 disclosed below, excluding, in each case, shares to be awarded in lieu of dividend equivalents.
2 This comprises awards under the LTIP granted in 2015 and deferred bonus awards (including unvested awards under the Aberdeen Variable Pay plans). It does not include
163,960
746,831
86,190
–
–
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 For Martin Gilbert, this comprises of deferred bonus awards. The dividend equivalent value of £1,706,173 for these shares was settled in cash. For Rod Paris, this comprises
an award made under the 2016 Standard Life Investments LTIP. It includes shares awarded in lieu of dividend equivalents.
5 The closing market price of Standard Life Aberdeen plc shares at 31 December 2019 was 328.10 pence and the range for the year was 231.05 pence to 336.90 pence.
Awards granted in 2019 (audited)
The table below shows the key details of the EIP deferred awards granted in 2019:
Participant
Type of award
Basis of award
Face value
at grant
Number of
shares
awarded
% payable for
threshold
performance Details on performance conditions
Keith Skeoch
Nil-cost option
Martin Gilbert
Nil-cost option
Rod Paris
Nil-cost option
Deferred
Bonus1
£367,200 138,107
£367,200 138,107
£453,600 170,603
Not
applicable
Nil-cost option
Bill Rattray
Stephanie Bruce Nil-cost option One-off award2 £750,000 281,571 66.6%
1 The share price used for the deferred bonus awards was 265.88p.
2 The share price used for the deferred awards was 266.36p.
£229,163 86,190
EIP deferred awards are subject to
performance Underpins measured over three
years as set out on page 91 in the Annual
report and accounts 2018
See below
Performance targets for the award made to Stephanie Bruce
As set out in the announcement made on 30 April relating to the one-off award for Stephanie Bruce, efficiency targets of £350m had previously
been disclosed, with £230m still to be realised at 31 December 2018. Two-thirds of her award will vest to the extent that an efficiency target of
£175m is achieved. If the total remaining efficiencies of £230m are delivered by 3 June 2022, the award vests in full. Awards will be assessed
based on progress made over the three years from grant, with performance measured prior to vest for each tranche. The Committee believes
that the targets attached to this award are challenging, ambitious and stretching, and also central to the Company's strategic transformation. The
first anniversary of the award is 3 June 2020, and vesting of the first tranche will be determined based on performance up to that date.
Performance will be assessed by the Committee, with input from the Audit Committee to be received to aid the assessment of performance.
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 2019, the Company’s standing against these dilution limits was:
1.56% where the guideline is no more than 5% in any 10 years under all discretionary share plans in which the executive Directors participate
2.03% where the guideline is no more than 10% in any 10 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 2019 the trusts held 52,644,135 shares acquired to satisfy these awards. Of these shares, 10,909,928 are committed to satisfying
vested but unexercised awards. The percentage of share capital held by the employee trusts is 2.25% of the issued share capital of the
Company – within the 5% best practice limit endorsed by the IA.
Promoting all-employee share ownership
The Company promotes employee share ownership with a range of initiatives, including:
The Standard Life (Employee) Share Plan which allows eligible employees to buy Standard Life Aberdeen plc shares directly from earnings.
A similar tax-approved plan is used in Ireland. At 31 December 2019, 1,717 individuals in the UK and Ireland were making a monthly average
contribution of £64. On 31 December 2019, 2,188 individuals were Standard Life Aberdeen plc shareholders through participation in the Plan.
The Sharesave Plan offered in 2019 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%
the market price. At 31 December 2019, 2,479 individuals were saving towards one or more of the Sharesave offers.
Standard Life Aberdeen 2019
89
Governance
3. Corporate governance statement continued
Executive Directors’ remuneration in context
Total shareholder return of Standard Life Aberdeen plc compared to
the FTSE 100 index
Pay compared to performance
The graph shows the difference in the
total shareholder return at 31 December
2019 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.
)
£
(
e
u
a
V
l
350
300
250
200
150
100
Dec 2009
Dec 2010
Dec 2011
Dec 2012
Dec 2013
Dec 2014
Dec 2015
Dec 2016
Dec 2017
Dec 2018
Dec 2019
Standard Life Aberdeen plc FTSE 100
Source: Datastream
The following table shows the single figure of total remuneration for the Director in the role of Chief Executive for the same 10 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
2019
Keith Skeoch
Keith Skeoch
Martin Gilbert
Keith Skeoch
Martin Gilbert
Keith Skeoch
Keith Skeoch
David Nish
David Nish
David Nish
David Nish
David Nish
David Nish
20181
20171
2016
2015
2015
2014
2013
2012
2011
2010
1 Co-CEO.
Chief Executive single figure
of total remuneration (£000s)
EIP outcome/ Annual incentive
rates against maximum
opportunity (%)
Long-term incentive plan vesting
rates against maximum
opportunity (%)
1,472
1,089
1,089
3,028
1,317
2,746
1,411
2,143
6,083
4,206
5,564
2,601
1,971
21
10
10
82
56
81
87
90
95
75
88
77
83
–
–
–
70
–
31.02
40.77
40.77
100
64
100
63.5
–
Relative importance of spend on pay
The following table compares what the Company spent on employee remuneration to what is paid in the form of dividends to the Company’s
shareholders. Also shown is the Company’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)
Share buybacks and return of capital (£m)
Adjusted profit before tax (£m)1
1
Includes discontinued operations in respect of the year ended 31 December 2018.
2019
% change
646
495
515
584
(16.3%)
(11.4%)
(58.3%)
(32.1%)
2018
772
559
1,235
860
90
Standard Life Aberdeen 2019
Percentage change in remuneration of the Chief Executive compared to UK based employees
The table below shows the percentage year-on-year change in salary, benefits and annual bonus earned between the year ended 31 December
2018 and the year ended 31 December 2019 for Keith Skeoch as Chief Executive compared to the average UK-based Group employee. The
Remuneration Committee considers these appropriate comparators as the Chief Executive is UK-based and the largest number of Group
employees are based in the UK.
Keith Skeoch
UK-based employees
% change in base
salary
% change in EIP
outcome1
% change in
benefits2
0%
3%
104%
5%
0%
0%
1 The percentage change in EIP outcome for the CE reflects the Committee’s discretion exercised in 2018 to reduce the vesting outcome by 50%; in 2019 the Committee
concluded that no such discretionary reduction was required.
2 The change in benefits figure is based on the change in medical premium paid by the Group on behalf of employees. Benefits do not include pension contributions for these
purposes.
Pay ratio
The table below sets out the ratio of Keith Skeoch’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 (snapshot data from April 2019) and updated the figures for remuneration received in respect of the 2019
performance year ending 31 December 2019 (methodology B). This was chosen by the Committee as it utilised a data set which had already
been processed and thoroughly reviewed, and this enabled timely reporting for disclosure purposes. Some employing entities are excluded from
the gender pay gap calculation due to the number of individuals employed by these entities being less than 250, in line with the regulations. The
Committee considered this would not have a material impact on the outcome of the pay ratio calculation given the limited number of individuals
this excludes, relative to the total population being captured and the range of the remuneration for those excluded individuals, which was spread
across quartiles.
The remuneration paid to the individuals identified under methodology B was reviewed and considered representative of the quartiles and the
trends seen across the Company on remuneration in respect of both the salary and bonus. Benefits figures were based on the medical premium
paid by the Company on behalf of employees.
The ratio has increased from 2018, which reflects the outcome paid to the CE under the EIP, due to the Committee’s assessment of
performance in each of the relevant years.
Keith Skeoch
Keith Skeoch
CE remuneration
25th percentile employee
50th percentile employee
75th percentile employee
Year
2019
2018
Method
25th percentile
50th percentile
75th percentile
Option B
Option B
34
30
23
19
13
12
Base salary
(£000s)
Total pay
(£000s)
600
32
47
71
1,472
44
64
117
How pay was set across the wider workforce in 2019
Our principles for setting pay across the wider workforce are the same as for our executives, with arrangements varying in respect of proportion
of the package which is linked to performance increasing for more senior roles within the Company as responsibility and accountability
increases. In the data set out above, individuals received different pension contributions and benefits depending on the terms and conditions
they were eligible for at the time of the merger, however bonus payments were made under the same plan. A project to harmonise terms and
conditions was undertaken following a comprehensive employee consultation and engagement program. UK employees (below executive
Director) are, as of 1 January 2020, subject to the same pension and benefits structures for the first time since the merger.
Base salaries are targeted at an appropriate level in the relevant markets in which the Group competes for talent. The Committee considers the
base salary percentage increases for the Group's broader UK and international employee populations when determining any annual salary
increases for the executive Directors.
In 2019, all employees were eligible to be considered for performance related variable remuneration. This has been designed to reward delivery
of results over appropriate time horizons and includes deferred variable compensation at a suitable level for the employee’s role. Variable
remuneration for employees, including executive Directors, is determined as a total pool.
The Group engaged with its employee associations from an early stage in the annual remuneration cycle. The areas discussed include: external
market data, economic factors, employee expectations and congruence of executive pay with that of the wider workforce in terms of overall pay
budgets and approach. The Group operates a Compensation Committee consisting of the Chief HR Officer (Chair), Chief Financial Officer and
Chief Risk Officer. The role of the Compensation Committee is to consider the implementation of the remuneration policy across the Group. The
Compensation Committee refers its terms of reference to the Remuneration Committee for approval and the Chair of the Compensation
Committee formally reports to the Remuneration Committee on all matters which fall within the Compensation Committee’s remit.
Standard Life Aberdeen 2019
91
Governance
3. Corporate governance statement continued
Remuneration for non-executive Directors and the Chairman
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 2019. Non-executive Directors do not participate in bonus or long-term incentive plans and do not
receive pension funding:
Non-executive Directors
Sir Douglas Flint1
Simon Troughton2
Jonathan Asquith3
John Devine
Melanie Gee
Richard Mully2
Martin Pike
Cathleen Raffaeli4
Jutta af Rosenborg
Cecilia Reyes5
Fees for year ended
31 December
£000s
Taxable benefits in
year ended
31 December
£000s
Total remuneration
for the year ended
31 December
£000s
475
14
75
200
46
–
131
124
117
114
46
124
128
114
149
35
94
94
24
–
1
–
1
13
–
–
3
3
4
4
8
8
3
5
3
–
–
1
–
–
476
14
76
213
46
–
134
127
121
118
54
132
131
119
152
35
94
95
24
–
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
1 Appointed to the Board with effect from 1 November 2018. Appointed Chairman with effect from 1 January 2019. Sir Douglas Flint is eligible for life assurance of 4x his annual
fee. For 2019 this figure relates to the period 19 December-31 December which was the relevant period that cover was in place.
2 Stepped down from the Board on 14 May 2019.
3 Appointed to the Board with effect from 1 September 2019.
4 Appointed to the Board with effect from 1 August 2018.
5 Appointed to the Board with effect from 1 October 2019.
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, and can be found on page 104.
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 on page 258) and at the 2019 AGM. 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 Board
Initial election by shareholders
Chairman
Sir Douglas Flint
Senior Independent Director
Jonathan Asquith
Non-executive Directors
John Devine
Melanie Gee
Martin Pike
Cathleen Raffaeli
Jutta af Rosenborg
Cecilia Reyes
92
Standard Life Aberdeen 2019
1 November 2018
AGM 2019
1 September 2019
4 July 2016
1 November 2015
27 September 2013
1 August 2018
14 August 2017
1 October 2019
AGM 2017
AGM 2016
AGM 2014
AGM 2019
AGM 2018
Implementation of policy for non-executive Directors in 2020
The following table sets out non-executive Director fees to be paid in 2020. No increases were made to the level of fees from 2019.
Role
Chairman’s fees2
Non-executive Director fee3
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)
Employee engagement4
2020 fees1
£475,000
£73,500
£25,000
£30,000
£30,000
£30,000
£10,000
£15,000
2019 fees
£475,000
£73,500
£25,000
£30,000
£30,000
£30,000
£10,000
£15,000
1 The core fee of £73,500 paid to each non-executive Director (including the Chairman) is expected to total £662k for 2020 (2019: £588k). 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 £1,408k for 2020
(2019: £1,413k).
2 The Chairman’s fees are inclusive of the non-executive Directors’ core fee and no additional fees are paid to the Chairman where they chair, or are a member of, other
committees/boards. The Chairman is eligible to receive life insurance benefits with effect from December 2019.
3 For non-executive Directors, individual fees are constructed by taking a base fee and adding extra fees for being the Senior Independent Director, chairman or member of
committees and/or subsidiary boards where a greater responsibility and time commitment is required.
4 This fee was introduced in 2019. Details on the role responsibilities are set out on page 79 of the Annual report and accounts 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 2019 or date of
appointment if later
Shares acquired during the
period 1 January 2019 to 31
December 2019
Total number of shares owned
at 31 December 2019 or date
of cessation if earlier4
Sir Douglas Flint
Simon Troughton1
Jonathan Asquith2
John Devine
Melanie Gee
Richard Mully1
Martin Pike
Cathleen Raffaeli
Jutta af Rosenborg
Cecilia Reyes3
50,374
64,054
–
28,399
67,500
90,116
69,476
–
8,750
–
38,650
–
20,000
–
–
–
–
9,315
–
–
89,024
64,054
20,000
28,399
67,500
90,116
69,476
9,315
8,750
–
1 Stepped down from the Board on 14 May 2019.
2 Appointed to the Board with effect from 1 September 2019.
3 Appointed to the Board with effect from 1 October 2019.
4 There were no changes to the number of shares held by Directors between 31 December 2019 and 9 March 2020.
Sir Douglas Flint, as Chairman, is 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.
Standard Life Aberdeen 2019
93
Governance
3. Corporate governance statement continued
The Remuneration Committee
Membership
During 2019 the Remuneration Committee was made up of independent non-executive Directors.
Member
Jonathan Asquith (Chair since 1 September 2019)
John Devine (acting Chair between 14 May and 1 September)
Cathleen Raffaeli
Jutta af Rosenborg
Cecilia Reyes (since 1 October 2019)
Richard Mully (Chair until 14 May 2019)
Attendance
2/2
8/8
8/8
8/8
2/2
4/4
The role of the Remuneration Committee
To consider and make recommendations to the Board in respect of the total remuneration policy across the Company, 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 Company
Changes to employee benefit structures (including pensions) throughout the Company
The Remuneration Committee’s work in 2019
Jan-Mar
Apr-Jun
Jul-Sep
Oct-Dec
2018 Directors’ remuneration report
2018 bonus payments and 2016 LTIP outcomes
Set 2019 EIP scorecard targets
Review remuneration outcomes for executive Directors and the Material Risk Taker population
Approval of the remuneration arrangements for the incoming CFO, and departure terms for the previous CFO
Update on the external environment and feedback from AGM
Remuneration decisions for the ELT and other senior employees within Remuneration Committee’s remit
Review of the Employee Sharesave Plan
Review of relevant disclosures required under regulation, including CE pay ratio data
Review of Martin Gilbert’s retirement arrangements
Mid-year review of performance against target for annual bonus and LTIP awards
Review investor consultation material
Review overall approach to remuneration philosophy at Standard Life Aberdeen
Material Risk Takers and related 2019 disclosures
Update on the regulatory position of Standard Life Aberdeen and the Committee’s Terms of Reference
Review gender pay gap data
Update on investor consultation and consider proposals for the executive remuneration policy
Review of the Deferred Share Plan and Discretionary Share plan rules
Update on the terms and conditions harmonisation across the wider workforce
External advisers
During the year, the Remuneration Committee took advice from Deloitte LLP (a member of the Remuneration Consultants Group) who were
appointed by the Remuneration Committee in 2017. The Remuneration Committee is satisfied that the advice given is objective and
independent.
A representative from Deloitte LLP attends, by invitation, all Remuneration Committee meetings to provide information and updates on external
developments affecting remuneration as well as specific matters raised by the Remuneration Committee. Outside of the meetings, the
Remuneration Committee’s Chairman seeks advice on remuneration matters on an ongoing basis. As well as advising the Remuneration
Committee, Deloitte LLP also provided tax, risk management and consultancy services to the Company during the year. Deloitte Total Rewards
and Benefits is an investment adviser to the trustees of the Standard Life Staff Pension Scheme.
Fees paid to Deloitte LLP during 2019 for professional advice to the Remuneration Committee were £294,486.
Where appropriate, the Remuneration Committee receives input from the Chairman, Chief Executive, Chief Financial Officer, Chief HR Officer,
Global Head of Reward, Chief Risk Officer, and the Head of Stewardship and ESG Investments. This input never relates to their own
remuneration. The Remuneration Committee also receives input from the Risk and Capital Committee and Audit Committee.
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Standard Life Aberdeen 2019
Remuneration Committee effectiveness
The Remuneration Committee reviews its remit and effectiveness annually. In 2019 an independent externally facilitated review was conducted
by IBE. This included observation of a meeting, review of papers and interviews with Remuneration Committee members. The key points arising
from the review were:
The Remuneration Committee had a significant period of change in 2019, due to the change in leadership, which led to some loss of
momentum. However, there were positive early signs of a fresh approach under the new Chair.
Remuneration Committee members were considered engaged and well informed
Remuneration Committee reports to the Board were considered specific, concise and timely
Going forward, the Committee will consider holding routine private sessions at each meeting to agree how best to focus their time and review
progress
Shareholder voting
We remain committed to ongoing shareholder dialogue and take an active interest in voting outcomes. As set out in the Chairman’s statement,
the Committee was disappointed with the outcome of the vote on the 2019 Directors’ Remuneration Report. Details of the follow-up actions taken
by the Committee following the vote are published in the Remuneration Committee Chairman’s statement.
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 (2018 AGM)
% 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 2019 AGM on 14 May 2019 and the following table sets out the outcome.
2019 Directors’ remuneration report
% of total votes
No. of votes cast
For
Against
Withheld
57.98%
607,428,291
42.02%
440,226,225
89,312,048
Standard Life Aberdeen 2019
95
Governance
3. Corporate governance statement continued
Future remuneration policy
This section sets out the remuneration policy for executive Directors and non-executive Directors, which is subject to a binding vote of
shareholders and will, if approved, take effect from the date of the 2020 AGM.
The Remuneration Committee agreed the following core principles designed to support our strategy, culture and values which guided the design
of the remuneration framework going forward:
Simple and easy to understand for participants and wider stakeholders alike
Aligns executive remuneration with the overall performance of the Company
Rewards executives for the delivery of both short-term plans and long-term returns to shareholders
Takes into consideration the external landscape relating to executive reward
Is market competitive to ensure that the Company is able to attract and retain the right talent to deliver the Company’s strategic ambitions
In determining the new remuneration policy, the Committee followed a robust process which included detailed discussions on the content of the
policy at multiple Committee meetings. The Committee considered input from management (although decisions were taken by the Committee
alone to avoid conflicts of interest), shareholders and its independent advisers.
Remuneration policy for executive Directors
Base salary – there is no change in the operation of this element of pay compared to the previous policy
Purpose and link to strategy
To provide a core reward for undertaking the role, commensurate with
the individual’s role, responsibilities and experience.
Maximum opportunity
Salaries for executive Directors are set at an appropriate level to
attract and retain individuals of the right calibre and with the
experience required.
Whilst no maximum is set, when considering annual incremental
increases the Remuneration Committee is guided by the general
increase for the broader employee population.
The Remuneration Committee may determine larger increases in
certain circumstances, such as: development in role; change in
responsibility; where a new or promoted employee's salary has been
set lower than the market level for such a role and larger increases
are justified as the individual becomes established in the role.
Operation
Normally reviewed annually, taking into account a range of factors
including: (i) the individual's skills, performance and experience; (ii)
increases for the broader employee population; (iii) external market data
and other relevant external factors; (iv) the size and responsibility of the
role; and (v) the complexity of the business and geographical scope.
Performance metrics
Not applicable.
Pension – the maximum opportunity has been reduced to align with that available to the wider workforce in the UK
Purpose and link to strategy
To provide a competitive, flexible retirement benefit in a way that does
not create an unacceptable level of financial risk or cost to the
Company.
Maximum opportunity
Maximum employer contribution aligned to those available to the
wider workforce in the relevant jurisdiction.
The current maximum employer contribution available to the UK
wider workforce is 18% of salary.
Operation
Employee contributions are made to the Company‘s defined
contribution pension arrangement, or equivalent cash allowances are
paid.
The level of contribution/cash equivalent is reviewed periodically
taking into account the pension opportunity offered to other
employees within the Company.
Performance metrics
Not applicable.
Benefits – there is no change to the operation of this element of pay compared to our previous policy
Purpose and link to strategy
To provide market competitive and cost effective benefits.
Maximum opportunity
There is no maximum value of the core benefit package. The costs
associated with benefits provision are monitored and controlled by the
Remuneration Committee.
Maximum contributions under ‘all-employee’ share plans will be set in
line with other employees and within the limits set by the relevant tax
authority.
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Standard Life Aberdeen 2019
Performance metrics
Not applicable.
Operation
In line with other employees, executive Directors are provided with a
package of core benefits, which include (i) private healthcare; (ii)
death in service protection; (iii) income protection (iv) reimbursement
of membership fees of professional bodies; and (v) eligibility for the all
employee share plan. Executive Directors are also eligible to
participate in the Company’s flexible benefits programme.
Executive Directors are provided with a health screening
assessment.
Specific benefit provision may be subject to change from time to time.
Additional benefits may be provided on recruitment or to support
relocation with the Remuneration Committee’s agreement.
Annual Bonus – this element (together with the new Long-Term Incentive Plan) replaces the Executive Incentive Plan
Purpose and link to strategy
To reward the delivery of the Company’s business plan in a range of
financial and non-financial areas and to align executives’ interests to
those of shareholders and our customers and clients.
Operation
An annual incentive programme in respect of which the performance
measures, and their respective weightings and targets, are normally
set annually by the Remuneration Committee.
Normally 50% of the award will be paid in cash. No less than 50% will
be deferred into shares vesting in equal tranches over a three-year
period. A retention period may be applied, as required by regulation.
Where required, for regulatory purposes, deferred awards may be
made in a combination of share awards and fund awards (which are
conditional rights to receive a cash sum based on the value of a
notional investment in a range of Standard Life Aberdeen funds).
Deferred awards may include the right to receive (in cash or
shares) the value of the dividends that would have accrued during
the vesting period.
Awards are subject to malus and clawback.
The Remuneration Committee may adjust and amend awards in
accordance with the rules.
Maximum opportunity
The maximum award opportunity in respect of any financial year is
based on role and is up to 300% of salary.
Performance metrics
Performance is assessed against a range of key financial, non-
financial and personal performance measures.
At least 75% will be based on financial performance measures and
no more than 10% will be based on personal performance measures.
For threshold performance, the award opportunity is 25%, with 100%
of the award payable for maximum performance. Payouts between
threshold and maximum (100%) are determined on an annual basis.
Details of the payout schedule will be disclosed in the relevant DRR.
The Remuneration Committee exercises its judgement to determine
awards at the end of the performance period, which in normal
circumstances will be one financial year, and will use its discretion to
amend them if material change is required to ensure that the outcome
is fair in the context of overall Company and individual performance
and conduct. The Risk and Capital Committee and the Audit
Committee advise the Committee as part of this process to ensure that
the performance outcomes have not been achieved by assuming
inappropriate levels of risk.
Long-Term Incentive Plan – this is a new element which (together with the Annual Bonus) replaces the Executive Incentive Plan
Purpose and link to strategy
To align with our shareholders and promote sustainability by rewarding
the delivery of long-term growth in shareholder value.
Maximum opportunity
The maximum award opportunity in respect of any financial year is
based on role and is up to 500% of salary.
However, when combined with the annual bonus, the total incentive
opportunity may not exceed 700% of salary. This means that in
financial years where the Annual Bonus opportunity is set at the
maximum (300% of salary), the maximum LTIP award would be 400%
of salary.
Up to 25% of the award vests for threshold performance
Standard Life Aberdeen 2019
97
Governance
3. Corporate governance statement continued
Operation
An annual award of performance shares, normally subject to a
three-year performance period, with a subsequent two-year holding
period.
Performance targets are normally set annually for each three-year
cycle by the Remuneration Committee.
Awards are subject to review by the Remuneration Committee at the
end of the three-year performance period to confirm that vesting of
the award is appropriate in the context of overall performance of the
Company and the individual. The Committee may take advice from
the Risk and Capital Committee and the Audit Committee to
determine appropriate vesting.
Awards may include the right to receive (in cash or shares) the value
of the dividends that would have accrued over the performance and
holding period.
The Remuneration Committee may adjust and amend awards in
accordance with the LTIP rules.
Awards are subject to malus and clawback.
Performance metrics
Performance metrics are set by the Remuneration Committee and
are linked to the achievement of the Company’s long-term strategic
priorities and the creation of long-term shareholder value.
LTIP awards are subject to at least two performance metrics, with at
least one being absolute in nature (e.g. an earnings based metric)
and one being a relative metric (e.g. a shareholder return based
metric)
Subject to these restrictions, the Committee retains the discretion to
introduce other or additional performance metrics for future awards.
Were the Committee to intend to introduce any such alternative or
additional metric(s) for future awards, it would expect to consult with
the Company’s largest institutional shareholders in advance.
For 2020, the LTIP award will be based on the following metrics:
Adjusted diluted earnings per share (50%)
Relative total shareholder return measured against a bespoke
competitor peer group (50%) (the provisional peer group to be used
for the 2020 LTIP is set out on page 84).
The Remuneration Committee retains the discretion to amend the
final vesting level of awards if material change is required to ensure
that they reflect fairly the performance of individuals or the Company.
Other features
Malus and clawback
Share ownership
Malus and clawback provisions apply to annual bonus and LTIP
awards.
Executive Directors are required to build up a substantial interest in
Company shares.
Under the malus and clawback provisions, the Remuneration
Committee has the ability to reduce awards that have not yet vested
(malus) and can require repayment of an award (clawback) for a
period of up to five years from the date of award.
The circumstances in which malus or clawback would apply, include
but are not limited to:
A material misstatement of the Company‘s audited financial
statement
Any failure of risk management, fraud or other material financial
irregularity
Material corporate failure
An error in the information or assumptions on which the relevant
award was paid/granted or vests, as a result of erroneous or
misleading data or otherwise
Serious misconduct by a participant or otherwise
The shareholding requirement for executive Directors remains at
500% of salary for the CE and 300% of salary for other executive
Directors. The Committee retains the discretion to reduce this
requirement for new joiners to align it with the higher of their
maximum LTIP opportunity or 200% of salary.
The post cessation of employment share ownership policy for
executive Directors in place after the close of this year’s AGM will
require shares up to the value of the shareholding requirement to be
held for a period of two years following departure from the Board.
98
Standard Life Aberdeen 2019
How our proposed remuneration structure supports our long-term strategy and strategic drivers
Our remuneration policy is designed to support our long-term strategy of delivering shareholder value, by aligning the interests of our executive
Directors with our stakeholders – including our customers, our shareholders and our people. The performance goals that are set for the short-
term element of variable remuneration reward the delivery of the Company’s business plan, while the long-term element promotes
sustainability and alignment by rewarding the delivery of long-term growth in shareholder value. A significant proportion of variable
remuneration is delivered in the form of shares and deferred over a period of time, ensuring our Directors are further aligned to the shareholder
experience. The remuneration policy is also designed to support our strategic drivers, as follows:
Our strategic drivers
How our remuneration structure supports our strategic drivers
High impact intelligence
Harness our intellectual capital,
emotional intelligence and data to
generate best in class impact.
Investment performance is measured as part of the annual bonus assessment,
incentivising best in class impact
Personal and people metrics are considered as part of the annual assessment of
award outcomes. This rewards game changing innovation and contribution to our
success.
Enduring relationships
Deepen our understanding of
customers and clients to ensure we
exceed their expectations and build
relationships that last.
Connections without borders
Bring the best of our business to all
our markets by constantly connecting
our people, capabilities and assets to
deliver a seamless proposition.
Future fit
Build a strong organisation, positioned
for growth and ready to anticipate and
meet the challenges of tomorrow.
Our remuneration structure is weighted to long-term success, ensuring that executive
Directors are incentivised to focus on sustainable outcomes
Customer and client metrics for satisfaction are included as part of the annual bonus
non-financial assessment
Long-term investment performance is considered as part of the financial assessment
of annual award outcomes
By ensuring our performance metrics are focused on Company performance and
KPIs, individuals are incentivised to deliver strong performance across all Company
activity globally
Employee engagement metrics form a part of the non-financial metrics under the
Annual Bonus Plan
The focus on long-term outcomes via the LTIP incentivises and rewards future
sustainable success and the creation of shareholder value
Our new remuneration structure is transparent for executive Directors and
shareholders. This enables the package to attract and retain key talent providing
clear alignment between performance and reward outcomes for all our stakeholders.
The achievement of strategic milestones sets out a number of key objectives which
have been identified for future success will be recognised within the annual bonus
assessment
The remuneration framework appropriately addresses the following principles as set out in the 2018 Corporate Governance Code.
Code provision
Standard Life Aberdeen approach
Clarity
Incentive arrangements are based on clearly defined financial, non-financial and individual performance metrics which
are aligned with the Company’s strategy for sustainable long-term growth.
Simplicity
Remuneration arrangements are simple, comprising the following key elements:
Fixed element: comprises base salary, benefits and pension, which are aligned to those offered to the majority of the
workforce
Short-term incentive: annual bonus which incentivises the delivery of financial, non-financial and individual
performance metrics aligned to the Plan for the year agreed with the Board. Half of the bonus is paid in cash with the
balance deferred over a period of three years.
Long-term incentive: LTIP which incentivises financial performance over a three-year period, promoting long-term
sustainable value creation for shareholders tied to established and transparent shareholder value metrics. Awards are
subject to a two-year holding period post vesting.
Risk
In line with regulatory requirements, remuneration arrangements across the Company are designed to ensure that they
do not encourage excessive risk taking. Performance targets for incentive arrangements are set to reward delivery of the
Company’s business plan which is set in line with the Company’s risk appetite statement.
The Remuneration Committee retains the flexibility to review and amend formulaic outcomes to ensure that they are
appropriate in the context of overall performance of the Company, including adherence to risk appetite limits. The
Remuneration Committee takes advice from the Risk and Capital Committee and Audit Committee as part of this review.
Predictability
The Remuneration scenario charts, set out on page 103, provide estimates on the potential future reward opportunity in a
range of scenarios, including below threshold, target and maximum performance (including share price appreciation).
Conditions around vesting are clear and understandable.
Standard Life Aberdeen 2019
99
Governance
3. Corporate governance statement continued
Code provision
Proportionality
Standard Life Aberdeen approach
Variable remuneration is directly aligned to the Company’s strategic priorities (through the selection of key financial and
non-financial performance metrics), with payments calibrated to ensure that payments are only made where strong
performance is delivered.
As noted above, the Remuneration Committee retains the flexibility to review formulaic outcomes to ensure that they are
appropriate in the context of overall performance of the Company.
Alignment with
culture
The remuneration policy at Standard Life Aberdeen has been set to be appropriate for the nature, size and complexity of
the Company, recognising variances in markets and geographies. It has been designed to support the delivery of the
Company’s key strategic priorities and is in the best interests of the Company and its stakeholders, as set out on page
99. A shared culture and values by employees of the Company is critical to delivery of the Company’s strategic priorities.
This is recognised through alignment of the remuneration policy with the wider workforce whenever possible.
Notes to the policy table
Performance measures and approach to target setting
Performance targets for the Company’s incentive arrangements are set on an annual basis by the Remuneration Committee. The Committee
takes into account a range of factors including business forecasts, prior year performance, degree of stretch against the performance targets in
the business plan, the economic environment, market conditions and expectations.
The following table sets out details on why the performance measures for the purpose of the annual incentive plan were chosen. These metrics
and the balance between them may vary over time, but financial metrics will be weighted no less than 75% of the total.
Financial metrics
Non-financial metrics
Measures to support the delivery of performance in each area are set
as part of the Company’s annual business plan. For reasons of
commercial confidentiality detailed measures will be disclosed
annually in arrears as part of the remuneration policy implementation
report.
Performance areas are grouped by category below, together with
their weightings for the 2020 performance period:
Positioning for growth (45%): Investment performance, Fee
based revenue, Cost/income ratio may be used to support delivery
of financial performance as set out in the business plan
Non-financial metrics chosen to focus management on the delivery of
the business strategic priorities for the financial year.
Metrics may be linked to factors including, but are not limited to:
Investing in our People and our Customer experience (20%):
Performance against key people objectives (including people
engagement and diversity) may be used to focus management on
developing organisational capability and encouraging desired
behaviours. Customer objectives (including customer advocacy) may
be used to measure our success in ensuring that customers remain
at the forefront of our sustainable strategy
Delivering for our shareholders (30%): Profitability and delivery
of key strategic initiatives may be used to focus management on
strategic priorities, delivery of shareholder value and drive
improved performance in future years
Individual objectives (5%): Key individual deliverables will be used
to focus executives on specific projects related to their leadership
role which they can influence in order to drive improved performance
in future years
The following table sets out details on why the performance measures for the purpose of the Long-term Incentive Plan (LTIP) were chosen for
the 2020 awards.
Adjusted diluted earnings per share
Relative total shareholder return
Chosen measure of profitability and a key performance indicator for
the Company. Targets the Company’s ability to deliver incremental
returns to the Company’s shareholders and provides an indication of
the Company’s dividend paying capability.
Aligns executive reward with the creation of shareholder value and
provides an external assessment of Company performance against
relevant peers which is less influenced by market effects.
100 Standard Life Aberdeen 2019
Remuneration Committee discretion in relation to existing commitments
The Remuneration Committee reserves the right to make any remuneration payments and payments for loss of office, notwithstanding that they
are not in line with the policy set out above where the terms of the payment were agreed: (i) before the policy set out above, or (ii) at a time when
a previous policy, approved by shareholders, was in place provided the payment is in line with the terms of that policy, or (iii) at a time when the
relevant individual was not a Director of the Company and the payment was not in consideration for the individual becoming a Director of the
Company. For these purposes, payments include the Remuneration Committee satisfying awards of variable remuneration. This means making
payment in line with the terms that were agreed at the time the award was granted.
The key terms of the executive Directors legacy plans are set out below. All awards are subject to malus and clawback provisions.
Overview of key terms for awards
Executive Incentive Plan
Awards granted in 2019 and 2020.
Executive Long-Term
Incentive Plan
(Executive LTIP)
Awards (in the form of nil-cost options) granted to executive Directors under the Executive Incentive Plan
prior to the approval of this policy are subject to the achievement of Underpin performance conditions relating
to investment performance, flows, return on adjusted equity and cost/ income ratio performance over a three-
year performance period
Awards vest in equal tranches on the third, fourth and fifth anniversary of the grant date and are subject to a
holding period until the end of the fifth anniversary of the grant date
The Remuneration Committee has the discretion to amend the extent to which the Underpin performance
conditions have been met to ensure that the outcome is fair in the context of overall Company performance
The awards accrue dividend equivalents over the deferral and holding period
Awards granted in 2016, 2017 and 2018.
Awards (in the form of nil-cost options) granted to executive Directors under the Executive LTIP are subject
to the achievement of cumulative Company operating profit before tax and cumulative Company net flows
performance over three-year performance periods. Awards are subject to a two-year holding period after the
end of the performance period.
Adjustments have been made to update the profit measure to adjusted profit before tax in the 2016 and 2017
LTIP performance measures and to adjusted profit excluding spread/risk margin in the 2018 LTIP
performance measures. In addition, the net flows target has been updated in the 2018 LTIP performance
measures to Company growth net flows. Finally the cumulative targets which relate to the 2018 performance
year onwards reflect the enlarged Company.
The Remuneration Committee has the discretion to amend the final vesting levels of these awards if it does
not consider that they reflect the overall performance of the Company and individuals. Awards are also
subject to review by the Risk and Capital Committee at the end of the performance period to confirm that
vesting of the award is appropriate. These awards accrue dividend equivalents over the vesting period which
will normally be paid in shares on a reinvested basis.
Aberdeen Variable Pay in
Deferred shares
Pre-merger awards – under the terms of the merger, existing awards granted to employees of Aberdeen
under the Aberdeen Deferred Share Plan 2009 or the Aberdeen USA Deferred Share Award Plan prior to
completion were exchanged for equivalent awards over shares in the Company
Awards granted post-merger – awards (in the form of nil-cost options) that were granted to executive
Directors under the Aberdeen Deferred Share Plan 2009. Awards will be released in equal tranches over five
years from grant. Awards are eligible to receive dividend equivalents between the date of grant and the date
of exercise, which may be paid only after the earliest vesting date has passed.
Remuneration Committee discretion in relation to future operation of the remuneration policy
The Committee will operate variable remuneration plans according to the respective rules of the plans. The Committee will retain
flexibility in a number of areas regarding the operation and administration of these plans, including (but not limited to): change of control,
changes in regulatory requirements, variation of share capital, demerger, special dividend, fund merger, winding up or similar events.
The Committee also retains the discretion within the remuneration policy to adjust targets and/or set different measures and weightings if
events happen that cause it to determine that the original targets or conditions are no longer appropriate and that amendment is required
so that the targets or conditions achieve their original purpose. Revised targets/measures will be, in the opinion of the Committee, no
less difficult to satisfy than the original conditions.
Share awards, under the Company’s share plans, may be granted as conditional share awards, nil cost options or forfeitable shares at
the discretion of the Committee. Awards may at the Committee’s discretion be settled in cash (for example, where required for local
legal/regulatory purposes).
The Committee may accelerate the vesting and/or the release of awards if an executive Director moves jurisdictions following grant and
there would be greater tax or regulatory burdens on the award in the new jurisdiction.
Standard Life Aberdeen 2019
101
Governance
3. Corporate governance statement continued
Remuneration policy for new executive Director appointments
Area
Policy
Principles
In determining remuneration arrangements for new executive appointments to the Board (including internal
promotions), the Committee applies the following principles:
The Committee takes into consideration all relevant factors, including the calibre of the individual, local market
practice and existing arrangements for other executive Directors, adhering to the underlying principle that any
arrangements should reflect the best interests of the Company and its shareholders
Remuneration arrangements for new appointments will typically align with the remuneration policy
In the case of internal promotions, the Committee will honour existing commitments entered into before promotion
Components and
approach
The remuneration package offered to new appointments may include any element of remuneration included in the
remuneration policy set out in this report, or any other element which the Committee considers is appropriate given
the particular circumstances but not exceeding the maximum level of variable remuneration set out below.
In considering which elements to include, and in determining the approach for all relevant elements, the Committee
will take into account a number of different factors, including (but not limited to) typical market practice and existing
arrangements for other executive Directors and internal relativities.
The maximum level of variable remuneration which may be awarded to a new executive Director, at or shortly
following recruitment, shall be limited to 700% of salary. This limit excludes buyout awards which are in line with the
policy as set out below.
Buyouts
To facilitate recruitment, the Committee may make an award to buy out remuneration terms forfeited on leaving a
previous employer. In doing so, the Committee will adhere to regulatory guidance in relation to the practice of buyout
awards to new recruits.
In considering buyout levels and conditions, the Committee will take into account to the best of their ability the type of
award, performance measures and the likelihood of performance conditions being met in setting the quantum of the
buyout. The buyout award will reflect the foregone award in amount and terms (including any deferral or retention
period) as closely as possible.
Where appropriate, the Committee retains the discretion to utilise Listing Rule 9.4.2 for the purpose of making an
award to buy out remuneration terms forfeited on leaving a previous employer or to utilise any other incentive plan
operated by the Company.
Service Contracts and loss of office policy for executive Directors
Within executive service contracts, the Committee aims to strike the right balance between the Company’s interests and those of the executive
Directors, whilst ensuring that the contracts comply with best practice, legislation and the agreed remuneration principles. Contracts are not for a
fixed term, but set out notice periods in line with the executive Director’s role.
Area
Policy
Notice period
Our standard notice policy is:
Six months by the executive Director
Up to 12 months by the employer to the executive Director
Executive Directors may be required to work during the notice period or take a period of ‘garden leave’ or may be provided
with pay in lieu of notice if not required to work the full notice period.
Termination
payments
Any payment in lieu of notice will be made up of up to 12 months’ salary, pension contributions and the value of other
contractual benefits. The payment may be made in phased instalments (this will be standard policy for notice periods of over
six months). A duty to mitigate applies.
Non-compete
clauses
Treatment of
incentive
awards
Applies during the contract and for up to 12 months after leaving, at the Company’s choice.
For the purpose of awards under the annual bonus, long-term incentive plan and Executive Incentive Plan, approved leavers
are defined as those whose office or employment comes to an end because of death, ill-health, injury or disability,
redundancy, or retirement with the agreement of the employing company; the sale of the individual’s employing company or
business out of the Group or any other reasons at the discretion of the Committee.
Annual bonus plan
Leavers during the award year
For approved leavers, rights to awards under the annual bonus will typically be pro-rated for time in service to termination as
a proportion of the performance period, and will be paid at the normal time in the normal manner (i.e. in cash/ deferred
awards as appropriate and subject to performance), unless the Committee determines that payments should be accelerated
(e.g. on death). For other leavers, rights to awards under the annual bonus will be forfeit.
102 Standard Life Aberdeen 2019
Area
Policy
Leavers during the deferral period
For approved leavers, outstanding deferred awards under the annual bonus will typically vest and be released at the
scheduled vesting date. The Committee retains the discretion to apply time pro-rating (over the deferral period) for approved
leavers and to accelerate the vesting and/or release of awards if it considers it appropriate. For other leavers, rights to
deferred awards will be forfeited.
Awards under the Long-Term Incentive Plan
Leavers during the performance period
For approved leavers, outstanding awards under the LTIP will typically be pro-rated for time in service to termination as a
proportion of the performance period and will be released at the scheduled vesting date subject to performance. Subsequent
holding periods will also apply. The Committee retains the discretion to dis-apply time prorating for approved leavers.
For other leavers, rights to outstanding awards will be forfeited.
Leavers during the holding period
Vested awards subject only to a holding period will be retained and released at the scheduled date.
Legacy awards under the Executive Incentive Plan
Leavers during the deferral period
Outstanding deferred awards under the EIP will typically be paid at the normal time, subject to performance against the
Underpin performance conditions. The Committee retains the discretion to apply time pro-rating (over the deferral period) for
approved leavers and to accelerate the vesting and/or release of awards if it considers it appropriate. For other leavers, rights
to deferred awards will be forfeited.
Legacy awards under the Aberdeen Deferred Share Plans
A good leaver is defined as someone whose employment comes to an end because of death, ill-health, injury, disability,
redundancy or retirement, sale of the employing company or business or any other reason at the discretion of the
Remuneration Committee. Unvested awards granted to good leavers will typically vest in full at the normal vesting date,
unless the Remuneration Committee decides that they should vest on the date of termination.
Other payments The Committee reserves the right to make any other payments (including appropriate legal fees) in connection with an
executive Director’s cessation of office or employment where the payments are made in good faith in discharge of an existing
legal obligation (or by way of damages for breach of such an obligation) or by way of settlement of any claim arising in
connection with the cessation of that executive Director’s office or employment.
Change of
control
Outstanding awards will be treated in line with the terms of the respective plans.
Scenario charts
The following chart illustrates how much the current executive Directors could receive under a range of different scenarios along with a
comparison to our current policy:
Chief Executive
Current Policy (maximum)
Maximum
Target
Minimum
Chief Financial Officer
Current Policy (maximum)
Maximum
Target
Minimum
Vice Chairman
Current Policy (maximum)
Maximum
Target
Minimum
£722
£728
£728
£728
£630
£634
£634
£634
£577
£577
£577
£577
£900
£923
£461
£2,700
£923
£923
£461
£459
£404
£1,378
£404
£1,076
£202 £202
£538
£1,845
£706
£538
£420
£490
£1,260
£490
£245
£245
£630
Salary, benefits and pension
Bonus deferred
Bonus cash
LTIP
EIP cash
EIP deferred
Assumed share price growth
£1,350
£923
Total: £5,672
Total: £5,342
Total: £2,573
Total: £728
Total: £3,173
Total: £3,056
Total: £1,576
Total: £634
Total: £2,887
Total: £1,557
Total: £1,067
Total: £577
All figures in £000s
Outcomes for the 2020 scenario chart are based on the following:
Minimum – fixed pay, consisting of salary and pension effective 1 April 2020 (18% of salary), and benefits (the value of taxable benefits are
as shown in the Single Total Figure of Remuneration table for 2019 on page 85)
Target – fixed pay, 50% of the maximum bonus award, 50% of LTIP vesting
Maximum – fixed pay, 100% of maximum bonus award, 100% of LTIP vesting
Maximum + share price growth assumes share price growth of 50% for the LTIP element
Standard Life Aberdeen 2019
103
Governance 3. Corporate governance statement continued
Remuneration policy for non-executive Directors
No changes are being proposed to the remuneration policy for the Chairman and non-executive Directors. The policy remains as follows:
Area
Approach to fees
Policy
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 from non-executive Directors
Board membership fees are subject to a maximum cap which is stated in the Company’s articles of association. Any
changes to the cap would be subject to shareholder approval.
The remuneration policy for non-executive Directors is to pay: (i) Board membership fees; and (ii) further fees for
additional Board duties such as chairmanship or membership of a committee, the Senior Independent Director, and the
chairman of subsidiary boards, in each case to take into account the additional responsibilities and time commitments
of the roles. Additional fees may be paid in the exceptional event that non-executive Directors are required to commit
substantial additional time above that normally expected for the role.
Operation
The Chairman receives an aggregate fee, which includes the chairmanship of any appropriate Board committee
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 Committee
Fees are set at a market rate with reference to the level of fees paid to other non-executive Directors of FTSE100
financial services companies
The Board retains discretion to remunerate the non-executive Directors in shares rather than cash where appropriate
The Chairman and non-executive Directors are not eligible to participate in any incentive arrangements
Additional fees or benefits may be provided at the discretion of the Committee in the case of the Chairman, and the
Board in the case of the other non-executive Directors, to reflect, for example, life assurance, housing, office, transport
and other business-related expenses incurred in carrying out their role
Other items
Non-executive Directors, including the Chairman, have letters of appointment that set out their responsibilities. The key terms are:
Period of appointment: A three-year term, which can be extended by mutual consent and is subject to re-election by shareholders in line with
the Company’s articles of association and the UK Corporate Governance Code
Notice periods: Six months for the Chairman. No notice period for other non-executive Directors.
Termination payment: There is no provision for compensation payments for loss of office for non-executive Directors
If a new Chairman or non-executive Director is appointed, the remuneration arrangements will normally be in line with those detailed in the
remuneration policy for non-executive Directors above.
Remuneration arrangements throughout the Company
When setting the policy for executive Directors’ remuneration, the Committee takes into account the pay and employment conditions elsewhere
in the Company, recognising international variance and jurisdictional differences, where appropriate. The Committee is informed about the
approach to salary increases, Company-wide benefits offerings including pensions, the structure of incentive arrangements and distribution of
outcomes throughout the wider organisation, as well as the take-up of all-employee share plans, employee engagement survey results and
employee morale, although it does not directly consult employees in the Company on the remuneration policy for executive Directors.
The Company applies a consistent remuneration philosophy for employees. The remuneration philosophy is reviewed at least annually by the
Remuneration Committee and may be updated to ensure that this remains aligned to business strategy and regulatory requirements as well as
being appropriately structured to attract, retain and incentivise our employees.
Consideration of shareholder views
The Remuneration Committee values the opportunity to engage in meaningful dialogue with its investors.
Prior to the 2020 AGM, as detailed in the Committee Chairman’s cover statement, the Committee consulted with key institutional shareholders
on the proposed policy and the changes that were being made. The proposed policy reflects the discussions with shareholders during the
consultation process.
104 Standard Life Aberdeen 2019
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 2019.
As at 31 December 2019, there were 2,338,723,724 ordinary shares in
issue held by 98,984 registered members. The Standard Life
Aberdeen Share Account (the Company-sponsored nominee) held
651,170,271 of those shares on behalf of 1,005,103 participants. No
person has any special rights of control over the Company’s share
capital and all issued shares are fully paid.
Reporting for the year ended 31 December 2019
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 2019, 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 Chief
Executive’s overview section of the Strategic report. Reviews of the
operating and financial performance of the Group for the year ended
31 December 2019 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 20 and Note 38 to the
Group financial statements.
This report was prepared by the executive leadership team together
with the Board and forms part of the management report.
Dividends
The Board recommends paying a final dividend for 2019 of 14.30p per
ordinary share. This will be paid on 19 May 2020 to shareholders
whose names are on the register of members at the close of business
on 3 April 2020.
The total payment is estimated at £322m for the final dividend and
together with the interim dividend of 7.30p per share totalling £173m
paid on 24 September 2019, the total dividend for 2019 will be 21.60p
per share (2018: 21.60p) totalling £495m (2018: £559m).
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
2019, in the Shareholder information section.
On 25 June 2018, shareholders voted at a general meeting for a return
of capital of up to £750 million to be returned by way of a share
buyback programme.
On 9 August 2018 the Company announced the commencement of an
initial share buyback programme of the Company’s ordinary shares up
to a maximum aggregate consideration of £175m. This was followed
by announcements on 20 November 2018, 1 April 2019 and 16
August 2019 of the commencement of further tranches of the share
buyback programme up to a maximum aggregate consideration of
£200m, £175m and £200m respectively. The final tranche of this
programme completed on 27 December 2019. The purpose of this
programme was to reduce the share capital of the Company. All
shares purchased have been cancelled. In total, 273,282,699 shares
were cancelled through this programme, of which 190,689,614 were
purchased and cancelled between 1 January 2019 and 31 December
2019.
Between 1 January 2019 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.
Number of
voting rights
following the
transaction
Percentage of
voting rights
following the
transaction
150,500,406 6.002%
Shareholder
Date of
transaction
Type of
transaction
8 February
2019
Decrease of
common
shares
outstanding
by the issuer
Mitsubishi
UFJ Trust
and Banking
Corporation
15 February
2019
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 and The Standard Life
Aberdeen Employee Benefit Trust 2019, 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.
Restrictions on the transfer of shares and securities
Except as 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 of the Articles 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
Standard Life Aberdeen 2019
105
Governance
4. Directors’ report continued
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 of
members 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
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 approval 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).
106 Standard Life Aberdeen 2019
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 2019 Annual General Meeting (AGM), shareholders granted the
Directors limited powers to:
Allot ordinary shares in the Company up to a maximum aggregate
amount of £115,557,697
Disapply, up to a maximum total nominal amount of £17,333,654 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 248,186,418 of its issued ordinary shares
As noted earlier in the share capital section, at the general meeting on
25 June 2018, shareholders authorised directors to undertake a share
buyback programme. During 2019, under the authorities granted at the
2018 general meeting and the 2019 AGM, the Company has
purchased 190,689,614 of its ordinary shares of 13 61/63 pence each,
paying an aggregate amount of £515,099,546. As at 31 December
2019, the percentage of share capital represented by these purchased
shares was approximately 8.2%.
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, Simon Troughton and Richard Mully retired as Directors on 14
May 2019, and on 31 May 2019 Bill Rattray retired as Director and
CFO. Stephanie Bruce was appointed to the Board on 1 June 2019 as
Director and CFO after shareholders were given and took the
opportunity to vote on her election at the 2019 AGM. Jonathan Asquith
was appointed to the Board on 1 September 2019. Cecilia Reyes was
appointed to the Board on 1 October 2019. Rod Paris stood down
from the Board on 31 December 2019 but remains as the Company’s
Chief Investment Officer. As announced, Brian McBride will join the
Board on 1 May 2020.
Having been appointed since the 2019 AGM, Jonathan Asquith,
Cecilia Reyes and Brian McBride will stand for election at the 2020
AGM.
All remaining Directors as at the date of the 2020 AGM will retire and,
if they wish to continue in office, will stand for re-election. As
announced by the Company on 2 October 2019, Martin Gilbert will not
stand for election at the 2020 AGM and will retire from the Company
on 30 September 2020.
The powers of the Directors can also be found in the Articles.
Directors and their interests
The Directors who served during the year were:
Melanie Gee
Richard Mully1
Martin Pike
Cathleen Raffaeli
Cecilia Reyes5
Jutta af Rosenborg
Simon Troughton1
Sir Douglas Flint (Chairman)
Keith Skeoch
Martin Gilbert
Bill Rattray2
Stephanie Bruce3
Rod Paris6
Jonathan Asquith4
John Devine
1 Retired 14 May 2019.
2 Retired 31 May 2019.
3 Appointed 1 June 2019.
4 Appointed 1 September 2019.
5 Appointed 1 October 2019.
6 Resigned 31 December 2019.
Biographies of the current Directors can be found on pages 52 to
55.
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 2019, 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.
Our people
Our people have always been central to delivering our strategy, and
we remain focused on helping them thrive.
You can read more on our people strategy in the Strategic report
section of this report.
Reward
We have developed our employment proposition in the UK, where the
majority of our people are based, and this has provided the foundation
for a new, unified, set of UK terms and conditions of employment.
These were designed to be fair and consistent, and to help us
continue to attract and retain talented people.
Since these changes included pensions, we formally consulted with
employees and their representatives for more than the required
minimum of 60 days (under Regulation 6 of the Occupational and
Personal Pension Schemes 2006). We also opted to engage with
employee representatives on all the other proposed changes to terms
and conditions and they had an opportunity to help shape them.
As a result, UK employees now have consistent and competitive
benefits, including pension, life assurance, group income protection
and healthcare. Our new My Benefits platform gives our people
information at their fingertips, as well as seamless access to provider
sites.
As well as the harmonisation of benefits, we have also focused on
education to ensure employees fully understand their benefits. We
have delivered a large number of educational communications
throughout 2019 and will continue with this financial, health and
wellbeing education and engagement programme through 2020 and
beyond.
We believe that when our employees own shares in the Company it
increases their understanding of the interests of our shareholders.
We invited UK and Ireland based employees to participate in the
Standard Life Aberdeen Sharesave plan in 2019 and 1,736 (36%)
employees accepted the invitation. They will have the opportunity to
acquire Standard Life Aberdeen plc shares for £1.994 (UK) and
€2.197 (Ireland) with their accumulated savings when their savings
contracts end in three or five years’ time. At 31 December 2019, 2,479
employees in UK and Ireland were saving towards the purchase of
Standard Life Aberdeen plc shares through the current Sharesave
plans.
Standard Life Aberdeen 2019
107
Governance
4. Directors’ report continued
As at 31 December 2019, 2,188 individuals were shareholders through
participation in the Standard Life Aberdeen (Employee) Share Plan.
This is now available to a greater number of our people – as a result of
the harmonisation of terms and conditions – and we expect
participation to increase in 2020. 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. We
match the shares purchased by employees, matching up to £50 per
month in the UK and €70 per month in Ireland.
Employee engagement
The Board takes employee engagement at all levels very seriously. As
noted in the Annual report and accounts 2018, Melanie Gee accepted
the role as the designated non-executive Director to support workforce
engagement. During 2020, we will continue to develop her role to
ensure it remains effective. You can find out more about this in the
Corporate governance statement on page 58.
In addition, during 2019 we took action on the key themes which
emerged from the engagement survey we ran in Q4 2018. That survey
provided an overall engagement score of 56% with some obvious
areas of focus for us to consider. These included the need for further
clarity on our strategic direction, more leadership visibility, as well as
minimising barriers to delivery. Positive feelings centred on our
managers leading through change, employees feeling able to be
themselves and our continued focus on inclusion.
We engaged our people in discussions about what would further
enhance Standard Life Aberdeen as a great place to work. Drawing on
what we learned, we drove forward a series of activities at a local and
company-wide level, such as local engagement committees and a
range of leadership initiatives.
Employees place significant value on seeing and hearing from our
leaders, and being given the opportunity to directly engage with them.
In 2019 we also held more than twenty ‘In conversation with …’
sessions, using our global video conference facilities to connect our
people across the world with our senior leaders. They had the
opportunity to hear and discuss strategic messages directly with
leaders thereby helping to embed these messages and encourage
collaboration across our global business. We received great feedback
on the sessions: 76% of attendees told us that they feel they have a
better understanding of our strategy and 91% found the leaders to be
open and honest during the sessions.
Recognising that our people want more clarity on our direction, we will
continue with a programme of work, started at the end of 2019, to
engage our people with our case for change, our purpose, strategic
drivers and behaviours. We will rely heavily on our leadership
population to deliver and ensure understanding of these strategic
messages so that we can create the commitment and belief across
every employee to power the business forwards.
As part of our commitment to understanding how people feel about
working in Standard Life Aberdeen, we will conduct a short ‘pulse’
survey in the first quarter of 2020, and all employees globally will have
an opportunity to participate. The survey will provide us with further
organisational insight, allow us to track progress against the key
organisational themes and give us an updated measurement of
employee engagement.
Talent
Attracting, nurturing and retaining high quality people is critical to our
strategic objectives and future prosperity, and we are fully committed
to developing the required pools of talent (at all levels of our
organisation) to meet our current and anticipated needs.
We’re creating an environment where our people can achieve their full
potential at every stage of their career.
Continuing our focus on Early Careers talent, in the last 12 months we
have hired a total of 151 employees – comprising university graduates,
interns and school leavers - into our Early Careers programmes in the
UK, Europe, Asia and the U.S. Our Early Careers programmes are a
major component of our broader commitment to hiring a diverse global
workforce. In 2019, we set up a one year development programme for
school leavers which is open to any school leaver, regardless of their
background or qualification level. We hire people with the attitude and
skills to help our business succeed. In 2019 we hired 20 individuals
into this programme and they are working in the Investments,
Distribution and Operations functions with plans to track their progress
and hire an additional 22 individuals into the programme in 2020.
Our programmes, alongside other sustainability work, have received
external recognition: we were ranked 21st amongst the top 75
employers in the UK Social Mobility index. We have also maintained
our presence in the Top 100 UK Undergraduate Employers for 2019
(ranked 77th at the National Undergraduate Employer Awards) based
on participant feedback.
Structured succession planning helps us ensure we have a strong
pipeline of talent, with both the technical expertise and leadership
capabilities to support our growth agenda and enable smooth
succession into our most critical roles. Our Board and Executive
leadership team are highly engaged in our talent and succession
agenda and in mentoring future talent.
Where gaps are identified in our succession plans, we are proactive in
enhancing our talent pool through selective and focused external
hiring, as well as through development. Our recruitment effectiveness
has improved, through a combination of active market intelligence,
innovative candidate attraction/assessment technology and a skilled
in-house recruitment team that is increasingly able to source the
highest quality of candidates directly rather than via search firms.
Diversity of succession pipelines is closely monitored as part of our
succession review to create appropriately diverse talent pools from
which future leaders are drawn. In particular our Women in Finance
Charter commitments mean we must ensure balanced representation
at all levels of our workforce. We have launched female leadership
development programmes at senior and mid-career levels, with more
than 200 participants in 2019 which have been well-received by
participants and their managers.
Developing our people
During 2019 we constructed My Development as the primary learning
and development system for the whole Company and this was
launched in early January 2020. The system uses artificial intelligence
to recommend resources and development opportunities to our people
based on the topics they are interested in. It’s available for all
employees and underpins our philosophy of individual-driven
development.
Our People Management Academy is central to developing the skills
and capability of our people managers. In 2019, over 700 line
managers attended courses across the globe, focusing on topics such
as Inclusive Leadership, Coaching and Great Conversations. We
recently communicated our new People Manager Commitments,
highlighting what we expect from people managers and supported this
with bite-sized workshops that included a selection of the support tools
available. People Management Academy content in 2020 will be
curated to address the expectations laid out in the People Manager
Commitments.
All employees can benefit from the courses in our Learning Academy
and in 2019 over 900 of our people attended a diverse range of
courses, including technology skills, industry-specific training, and
personal effectiveness solutions.
108 Standard Life Aberdeen 2019
We have continued to upskill our people through vocational
qualifications, supporting new and experienced hires through Modern
and Graduate level apprenticeships. We have also been an active
voice along with Scottish Government and other industry leaders to
modernise apprenticeship frameworks currently used in our sector, as
well as lobbying for improvements to the apprenticeship levy policy in
devolved nations.
Our efforts have been recognised at the Learning and Performance
Institute’s Learning Awards where we won a Bronze Award for our
digital learning initiative, The Leading Edge Challenge Series, which
saw over 50,000 learning resources consumed across the campaign.
Inclusion and diversity
At Standard Life Aberdeen we consider diversity in the broadest sense
– in our backgrounds, experiences, strengths and thinking. Our aim is
to create a workplace where everyone can be themselves and can
perform and progress, regardless of their background. By building and
sustaining a diverse talent pipeline and enabling people to reach their
potential, we provide our global customers with the diversity of thought
and creativity required to bring long-term value.
We have an inclusion direction, which was co-created with our people,
and which defines our priorities over the next two to four years.
Progress against this is reviewed by the Nomination and Governance
Committee bi-annually. This year we have worked with our most
senior leaders to create and publish action plans relevant to their
business areas and regions, which will build more inclusive
workplaces. Transparency is key to how we talk about and report our
inclusion and diversity progress and our transparency was recognised
again this year by Bloomberg, who included us for the second time in
their Gender Equality Index.
We empower people to take individual and collective action as we all
have a role to play in creating an inclusive environment. For example,
our six employee network groups and three regional inclusion forums
support members and allies of the diverse groups they represent, and
raise awareness of issues that affect them. With over 1,700 members,
our networks continue to expand their global reach, and focus on
gender, LGBT+, ethnicity, mental health, young people, and armed
forces. In addition to supporting these groups, 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.
Our commitment to support people with disabilities is included within
our internal Global Diversity and Inclusion Policy, published in 2019.
Achieving a better gender balance at all levels remains a priority for us.
Last year we published our gender update, including gender pay gap
figures, an update on our HM Treasury Women in Finance Charter
targets, and progress against our gender actions. We know we have
more to do to improve representation of women but welcome the
progress made over the past 12 months at Board and Executive (CE-1
and CE-2) levels. Our Board is currently comprised of 45% female
members; surpassing our 33% target for June 2020 and our pledge to
the 30% Club. At Executive (CE-1 and CE-2) levels we have improved
female representation from 34%, as at 31 December 2018 to 36% as
at 7 January 20201. Our progress was recognised by the
Hampton-Alexander Review which ranked us 10 in the FTSE 100 in
2019, up from ranking 92 in 2018. Following analysis last year into
how men and women join, progress and leave our organisation, we
have prioritised actions to address the differences we uncovered. The
actions we have in place to improve representation of women at all
levels in our organisation are stretching, benchmarked and sponsored
by our CE. 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.
As one of the inaugural signatories to the Race at Work Charter, we
are committed to tackling barriers that ethnic minority people face in
recruitment and progression. We published an ethnicity action plan
and during 2019 we have improved understanding and awareness of
experiences of ethnic minority employees, improved attraction and
outreach to ethnically diverse candidates and built the capability for us
to know more about the ethnicity of our employees. At Board level,
appointments are made based on merit and with due consideration for
the Board’s gender and ethnicity composition, as outlined in our Board
Charter.
You can read the Board Charter on our website
www.standardlifeaberdeen.com
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 27 summarises
where you can find key information on our approach. For details of our
greenhouse gas emissions, please see page 25.
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 8, 2019 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 2020 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.
1 Data shown as at 7 January 2020. Data has been reported as at 31 December in previous years but due to data impacts associated with migrating HR systems on 6 January
2020, data is shown as at 7 January for this reporting cycle only.
Standard Life Aberdeen 2019
109
Governance
4. Directors’ report continued
Annual General Meeting
The 2020 AGM will be held in Edinburgh on 12 May. Details of the meeting content can be found in our AGM guide 2020. 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 7 February 2020, the Company announced a share buyback of up to £400m through on-market purchases commencing on 10 February
2020 and ending no later than 30 September 2020. As at 6 March 2020, the Company had repurchased 20,214,403 shares for a
consideration of £60m.
In early 2020, the existence of a new coronavirus, now known as COVID-19, was confirmed and since this time COVID-19 has spread across
China and to a significant number of other countries. COVID-19 has caused disruption to businesses and economic activity which has been
reflected in recent fluctuations in global stock markets. The Group considers the emergence and spread of COVID-19 to be a non-adjusting post
balance sheet event. Given the inherent uncertainties, it is not practicable at this time to determine the impact of COVID-19 on the Group or to
provide a quantitative estimate of this impact.
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
Location
Directors’ report
Directors’
remuneration report
None/
Not applicable
x
x
x
x
x
x
x
x
x
x
x
x
x
Going concern
The Group’s business activities, together with the factors likely to affect its future development, performance and position, are set out in the
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 33), management of its risks including market, credit and liquidity risk (Note 38), its contingent liabilities and
commitments (Notes 42 and 43), and its capital structure and position (Note 46).
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.
The Directors’ report was approved by the Board and signed on its behalf by
Kenneth A Gilmour
Company Secretary
10 March 2020
110 Standard Life Aberdeen 2019
5. Statement of Directors’ responsibilities in respect
of the Annual report and the financial statements
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
10 March 2020
Stephanie Bruce
Chief Financial Officer
10 March 2020
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.
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 controls as they determine are 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.
Standard Life Aberdeen 2019
111
Governance
Financial information
112 Standard Life Aberdeen 2019
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Contents
6.
Independent auditors’ report ............................................................................................................................................. 114
7. Group financial statements ............................................................................................................................................... 121
8. Company financial statements .......................................................................................................................................... 232
9. Supplementary information ............................................................................................................................................... 243
Group financial statements
Group primary statements .............................................. 121
Note 25. Unit linked liabilities and assets
Presentation of consolidated financial statements ......... 129
Note 1. Group structure ............................................... 136
Note 2. Segmental analysis ......................................... 138
Note 3.
Investment return ............................................ 142
Note 4. Revenue from contracts with customers ......... 143
Note 5. other income .................................................. 144
Note 6. other administrative expenses ....................... 144
Note 7. Staff costs and other employee-related costs . 145
Note 8 Auditors’ remuneration .................................... 145
Note 9. Restructuring and corporate
transaction expenses ...................................... 145
Note 10. Taxation .......................................................... 146
Note 11. Discontinued operations .................................. 149
Note 12. earnings per share .......................................... 151
Note 13. Adjusted profit and adjusting items ................. 152
Note 14. Dividends on ordinary shares .......................... 153
Note 15. Intangible assets ............................................. 154
Note 16. Investments in associates and joint ventures .. 158
Note 17. Property, plant and equipment ........................ 164
Note 18. Leases ............................................................ 165
Note 19. Financial assets .............................................. 168
Note 20. Derivative financial instruments ...................... 169
Note 21. Receivables and other financial assets ........... 172
Note 22. other assets .................................................... 172
Note 23. Assets and liabilities held for sale ................... 173
Note 24. Cash and cash equivalents ............................. 174
How to navigate our Group financial statements
backing unit linked liabilities ............................ 174
Note 26. Issued share capital and share premium ........ 177
Note 27. Shares held by trusts ...................................... 177
Note 28. Retained earnings ........................................... 178
Note 29. Movements in other reserves ......................... 178
Note 30. Non-controlling interests and other equity ....... 181
Note 31. Insurance contracts, investment contracts
and reinsurance contracts ............................... 182
Note 32. Financial liabilities ........................................... 185
Note 33. Subordinated liabilities .................................... 186
Note 34. Pension and other post-retirement
benefit provisions ............................................ 187
Note 35. Deferred income .............................................. 194
Note 36. other financial liabilities .................................. 194
Note 37. Provisions and other liabilities ......................... 194
Note 38. Financial instruments risk management ......... 195
Note 39. Structured entities ........................................... 203
Note 40. Fair value of assets and liabilities ................... 204
Note 41. Statement of cash flows .................................. 210
Note 42. Contingent liabilities and contingent assets .... 213
Note 43. Commitments .................................................. 213
Note 44. employee share-based payments and
deferred fund awards ...................................... 214
Note 45. Related party transactions .............................. 218
Note 46. Capital management ....................................... 218
Note 47. events after the reporting date ........................ 219
Note 48. Related undertakings ...................................... 220
The Group’s significant accounting policies are included at the
beginning of the relevant notes to the Group financial statements with
The Group’s critical accounting estimates and assumptions are
summarised in the Presentation of consolidated financial statements
this background colour. Critical judgements in applying accounting
section which follows the primary financial statements. Further detail
policies are summarised in the Presentation of consolidated financial
on these critical accounting estimates and assumptions is provided in
statements section which follows the primary financial statements.
the relevant note with this background colour.
Accounting policies that are relevant to the financial statements as a
whole are also set out in that section.
Standard Life Aberdeen 2019
113
Financial inFormation
6. Independent auditors’ report to the members of
Standard Life Aberdeen plc
Overview
Materiality:
Group financial
statements as a
whole
Coverage
Key audit
matters
£31m (2018: £32m)
4.4% (2018: 4.8%) of normalised profit
before tax
97% (2018:78%) of profits and losses that
made up Group profit before tax
Recurring risk Recoverability of Group goodwill and
of parent’s investment in subsidiaries
Recurring risk Provision for separation costs
Recurring risk
Carrying value of investment in
Phoenix – share of Phoenix Profit
Recurring risk Valuation of defined benefit pension
scheme obligation
◄►
vs
2018
◄►
◄►
◄►
1. Our opinion is unmodified
We have audited the financial statements of Standard Life Aberdeen
plc (the Company) for the year ended 31 December 2019 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 the Basis of preparation.
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
2019 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 audit committee.
We were first appointed as auditor by the shareholders on 16 May
2017. The period of total uninterrupted engagement is for the three
financial years ended 31 December 2019. 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.
114 Standard Life Aberdeen 2019
2. Key audit matters: our assessment of risks of material misstatement
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 decreasing order of audit significance, in arriving at our audit opinion above, together with our key
audit procedures to address those matters and our findings from those procedures in order that the Company's members as a body may better
understand the process by which we arrived at our audit opinion. These matters were addressed,and our findings are based on our 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.
Recoverability of Group goodwill and of
parent’s investment in subsidiaries
(Group Goodwill: £1,000m; (2018: £2,532m);
Goodwill impairment losses recognised:
£1,569m (2018: £891m)
(Parent Company: Investments in
subsidiaries, Impairment of subsidiaries:
£795m (2018: 589m))
Refer to page 67 (Audit Committee Report),
page 154 (accounting policy) and page 156
(financial disclosures).
The risk
Our response
Subjective estimate:
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 or a change in the mix of
the assets under management which would
impact revenues. 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 £1,569m and the parent
company’s investments in subsidiaries were
impaired by £795m.
The effect of these matters is that, as part of
our risk assessment, we determined that both
the carrying amount of goodwill and 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 of
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, growth rates and discount
rates.
Sensitivity analysis: We performed our own
sensitivity analysis which included assessing
the effect of reasonably possible reductions in
growth rates, discount rates and forecast cash
flows to evaluate the impact on the carrying
value of goodwill and the investment in
subsidiaries.
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 findings:
We found the estimates of the recoverable
amount of Group goodwill and of the parent
company’s investment in subsidiaries to be
balanced (2018: balanced) with proportionate
(2018: proportionate) disclosures of the related
assumptions and sensitivities.
Standard Life Aberdeen 2019
115
Financial inFormation
6. Independent auditors’ report to the members of Standard Life Aberdeen plc continued
Provision for Separation Costs
(Separation costs provision £77m; 2018:
£80m)
Refer to page 68 (Audit Committee
Report), page 194 (accounting policy) and
page 195 (financial disclosures).
Carrying value of investment in
Phoenix – share of Phoenix profit
((£5m); 2018 £65m)
Refer to page 68 (Audit Committee
Report), page 158 (accounting policy)
and page 159 (financial disclosures).
The risk
Our response
Subjective estimate – Provision for
separation costs
The calculation of the provision for separation
costs arising out of the disposal of Standard
Life Assurance Limited (‘SLAL’) in 2018
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 is the costs that are estimated to relate to
separating the business and which do not
relate to costs related to the Group’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 37)
disclose the range estimated by the Group.
Our procedures included:
Test of details: We assessed the terms in the
Sale and Purchase Agreement (‘SPA’) and other
documents to confirm that the Group 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.
Personnel interviews: We interviewed relevant
managers, including project staff, to validate the
current progress of the Separation Plan, including
current cost forecasts.
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 findings:
We found the estimate of the separation cost
provision to balanced (2018: balanced) with
proportionate (2018: proportionate) disclosures of
the related assumptions and sensitivities.
Subjective estimate
Our procedures included:
The calculation of Phoenix’s profit is
judgemental and dependent on a number of
management estimates, in particular the
actuarial assumptions underpinning the
movements in insurance contract liabilities.
In this regard, the assumptions that have the
most significant impact over the Phoenix
profit are the base and trend longevity and
persistency assumptions.
The effect of these matters is that, as part of
our risk assessment, we determined that the
share of Phoenix profit and hence the carrying
value of 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.
Control design and operation: We tested
the design and operating effectiveness of key
controls including over management’s process
for modelling insurance contract liabilities and
for setting and updating actuarial assumptions.
Our actuarial experience: We used our own
actuarial specialists to review and challenge the
rationale for key assumptions adopted.
Our findings:
We found the Group’s share of the Phoenix
profit to be balanced (2018: balanced) with
proportionate (2018: proportionate) disclosure of
the related assumptions.
116 Standard Life Aberdeen 2019
Valuation of the UK defined benefit
pension scheme present value of
funded obligation
(£2,852m, 2018: £2,542m)
Refer to page 68 (Audit Committee
Report), page 187 (accounting policy) and
page 189 (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 34) 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 findings:
We found the estimated valuation of the UK
defined benefit pension scheme obligation to be
balanced (2018: balanced) with proportionate
(2018: proportionate) disclosures of the related
assumptions and sensitivities.
We have summarised below the changes to our key audit matters from the 31 December 2018 year end audit.
For the purposes of our audit for the period ended 31 December 2018, we recognised a key audit matter in association with the
accounting for the obligations arising out of the disposal of SLAL and investment in Phoenix. One element of this risk related to a
subjective estimate around the provision for separation costs. We continue to recognise this as a key audit matter above. The two other
elements of this risk were in relation to the subjective valuation of the initial investment into Phoenix and the subjective estimate of the fair
valuation of indemnities within the SPA. The valuation of the initial investment was a one-off and therefore does not recur for the audit for
the year to 31 December 2019. The indemnities fair valuation has materially reduced in the period as a result of the finalisation of certain
matters which determined the value of these and therefore we no longer recognise it as an element of the key audit matter.
We also previously recognised a key audit matter in relation to the carrying value of the investment in Phoenix. This risk was focused on
the year end valuation given the market valuation was significantly below the carrying value. This year, as the market value is above the
carrying value, the risk is now focused on the share of Phoenix profit that the Company has recognised within the carrying value of the
investment in Phoenix.
We also reported a key audit matter in respect of the impact of uncertainties due to the UK exiting the European Union. As a result of
developments since the prior year report, including the Group’s own preparation, the relative significance of this matter on our audit work
has reduced. Accordingly, we no longer consider this a key audit matter.
Lastly, we previously reported a key audit matter in respect of the valuation of intangible assets. There were no impairment triggers
identified during the year to 31 December 2019 and therefore we no longer consider this a key audit matter.
Standard Life Aberdeen 2019
117
Financial inFormation
6. Independent auditors’ report to the members of Standard Life Aberdeen plc continued
Group materiality
£31m (2018: £32m)
£31m
Whole financial
statements materiality
(2018: £32m)
£26m
Range of materiality at 10
components £3.1m-£26m
(2018: £2m-£20.8m)
£1.5m
Misstatements reported to
the audit committee
(2018: £1.6m)
Group revenue
97%
(2018: 84%)
Group total assets
93%
(2018: 90%)
Total profits and losses
that made up group profit
before tax
97%
(2018: 78%)
Full scope for group audit purposes 2019
Specific risk-focused audit procedures 2019
Residual components
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 £31m (2018: £32m), determined as 5% of our estimate of Group
profit before tax made at the planning stage, normalised for our
expectation of the level of adjusting items including impairment,
restructuring costs and the profits arising on disposal of associate
shareholdings. This equates to 4.4% of reported Group profit
normalised on a consistent basis and to 12.7% of Group profit
before tax from continuing operations of £243m. Prior year
materiality represented 4.8% of our assessed normalised Group
profit before tax.
Materiality for the parent company financial statements as a whole
was set at £19m (2018:£19m), determined with reference to a
benchmark of normalised profit before tax, of which it represents
1.08% (2018:3.6%).
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 28 (2018:75) continuing reporting components, we
subjected 8 (2018: 6) to full scope audits for Group purposes and
2 (2018:3) 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.
The components within the scope of our work accounted for the
percentages illustrated opposite.
The remaining 3% of total Group revenue, 3% of Group profit
before tax and 7% of total Group assets is represented by 18
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 £3.1m to £26m, having regard to the mix of size and risk
profile of the Group across the components.
The work on 8 of the 10 continuing components (2018: 8 of the 9
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.
The Group team visited 8 (2018: 8) component teams in 5
locations (2018: 5) to assess the audit risk and strategy. Video
and telephone conference meetings were also held with these
component auditors. At these visits and meetings, the findings
reported to the Group team were discussed in more detail, and
any further work required by the Group team was then performed
by the component auditor.
118 Standard Life Aberdeen 2019
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 risk that we considered most likely to adversely
affect the Group’s and Company’s available financial resources over
this period was movements in investment markets and assets under
management.
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.
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 110
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 emerging and 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 43
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 provisions
of the UK Corporate Governance Code specified by the Listing Rules
for our review.
We have nothing to report in these respects.
Standard Life Aberdeen 2019
119
Financial inFormation
6. 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 111, 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. This included communication from the Group
to component audit teams of relevant laws and regulations
identified at Group level.
The potential effect of these laws and regulations on the financial
statements varies considerably.
120 Standard Life Aberdeen 2019
Firstly, the Group is subject to laws and regulations that directly affect
the financial statements including financial reporting legislation
(including related companies legislation), distributable 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. Through
these procedures, we became aware of actual or suspected non-
compliance and considered the effect as part of our procedures on the
related financial statement items. The identified actual or suspected
non-compliance was not sufficiently significant to our audit to result in
our response being identified as a key audit matter.
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 and
the terms of our engagement by the Company. 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 the further matters we are required to state to them in accordance
with the terms agreed with the Company, and for no other purpose,
and the further matters we are required to state to them in accordance
with terms agreed with the Company, 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
10 March 2020
7. Group financial statements
Consolidated income statement
For the year ended 31 December 2019
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 – asset management
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
Reversal of/(loss on) impairment of interest in associates
Profit/(loss) before tax from continuing operations
Tax expense attributable to continuing operations
Profit/(loss) for the year from continuing operations
Profit for the year from discontinued operations
Profit for the year
Attributable to:
Equity shareholders of Standard Life Aberdeen plc
From continuing operations
From discontinued operations
Equity shareholders of Standard Life Aberdeen plc
Other equity holders
From discontinued operations – perpetual notes2
Non-controlling interests
From continuing operations – preference shares
From discontinued operations – ordinary shares
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
5
31
25
9
15
6
16
16
10
11
30
30
30
12
12
12
12
2019
£m
464
1,743
66
1,542
178
3,993
156
265
374
1,569
1,651
3,594
21
36
4,072
79
243
243
28
215
56
271
210
56
266
–
5
–
271
8.9
8.8
11.2
11.1
20181
£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
28
5
5
868
(29.3)
(29.3)
29.1
29.1
1 The Group has initially applied IFRS 9 and IFRS 16 at 1 January 2019. Under the transition methods chosen, comparative information is not restated. Refer Basis of
preparation.
2 The presentation of amounts attributable to certain perpetual debt instruments in 2018 has been restated to show these amounts separately as related to other equity holders
rather than as part of non-controlling interests. Refer Note 30.
The Notes on pages 129 to 231 are an integral part of these consolidated financial statements.
Standard Life Aberdeen 2019
121
Financial inFormation
7. Group financial statements continued
Consolidated statement of comprehensive income
For the year ended 31 December 2019
Profit for the year
Less: profit from discontinued operations
Profit/(loss) 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 (losses)/gains 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 losses/(gains) 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
Notes
11
34
16
10
20
29
16
20
10
11
11
Attributable to:
Equity shareholders of Standard Life Aberdeen plc
From continuing operations
From discontinued operations
Other equity holders
From discontinued operations – perpetual notes2
Non-controlling interests
From continuing operations – preference shares
From discontinued operations – ordinary shares
2019
£m
271
(56)
215
(23)
(17)
–
(40)
(10)
–
(46)
7
22
–
(2)
(29)
(69)
146
56
–
56
202
141
56
–
5
–
202
20181
£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
28
5
5
796
1 The Group has initially applied IFRS 9 and IFRS 16 at 1 January 2019. Under the transition methods chosen, comparative information is not restated. Refer Basis of
preparation.
2 The presentation of amounts attributable to certain perpetual debt instruments in 2018 has been restated to show these amounts separately as related to other equity holders
rather than as part of non-controlling interests. Refer Note 30.
The Notes on pages 129 to 231 are an integral part of these consolidated financial statements.
122 Standard Life Aberdeen 2019
Reconciliation of consolidated adjusted profit before tax to IFRS profit for the year
For the year ended 31 December 2019
2019
Continuing
operations
£m
Discontinued
operations
£m
Total
£m
Continuing
operations
£m
Notes
20181
Discontinued
operations
£m
Adjusted profit before tax
Asset management, platforms and wealth2
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
Profit on disposal of subsidiaries
Profit on disposal of interests in associates
Reversal of/(loss on) impairment of associates
Investment return variances and economic
assumption changes
Other3
Total adjusting items
Share of associates’ and joint ventures’ tax expense
Profit attributable to non-controlling interests – ordinary
shares
Profit/(loss) before tax expense4
Tax (expense)/credit attributable to
Adjusted profit
Adjusting items
Total tax expense
Profit/(loss) for the year
2
9
2
1
1
16
13
13
2
2
2
2
2
395
189
–
584
(407)
(1,844)
–
1,542
243
(25)
158
(333)
(8)
–
243
(69)
41
(28)
215
–
–
–
–
–
–
–
–
–
–
56
56
–
–
56
–
–
–
56
Total
£m
510
140
210
860
395
189
–
584
510
140
–
650
–
–
210
210
(407)
(239)
(264)
(503)
(1,844)
–
1,542
243
(25)
214
(277)
(8)
–
299
(69)
41
(28)
271
(1,155)
–
185
(228)
54
(14)
(1,397)
(40)
–
(787)
(95)
52
(43)
–
1,780
–
–
(41)
44
1,519
–
5
1,734
(77)
41
(36)
(830)
1,698
(1,155)
1,780
185
(228)
13
30
122
(40)
5
947
(172)
93
(79)
868
1 The Group has initially applied IFRS 9 and IFRS 16 at 1 January 2019. Under the transition methods chosen, comparative information is not restated. Refer Basis of
preparation.
2 The Asset management, platforms and wealth segment was previously named Asset management and platforms. Refer Note 2.
3 The Other adjusting item in 2019 relating to continuing operations includes £140m received in relation to the settlement of arbitration with Lloyds Banking Group/ Scottish
Widows (LBG). Refer Note 5.
4 For discontinued operations profit before tax expense attributable to equity holders consists of profit before tax of £56m (2018: £1,780m) less tax expense attributable to
policyholders’ returns of £nil (2018: £46m).
The Group’s key alternative performance measure is adjusted profit before tax. Refer Note 13 for further details.
The Notes on pages 129 to 231 are an integral part of these consolidated financial statements.
Standard Life Aberdeen 2019
123
Financial inFormation
7. Group financial statements continued
Consolidated statement of financial position
As at 31 December 2019
Assets
Intangible assets
Pension and other post-retirement benefit assets
Investments in associates and joint ventures accounted for using the equity method
Property, plant and equipment
Deferred tax assets
Financial investments
Receivables and other financial assets
Current tax recoverable
Other assets
Assets held for sale
Cash and cash equivalents
Assets backing unit linked liabilities (excluding held for sale)
Financial investments
Receivables and other financial assets
Cash and cash equivalents
Notes
15
34
16
17
10
19
19
10
22
23
19
25
2019
£m
1,707
1,163
1,509
266
74
2,115
560
9
55
767
1,615
9,840
1,528
10
44
1,582
11,422
20181,2
£m
3,404
1,111
1,444
61
61
2,115
697
6
46
762
1,110
10,817
1,659
11
30
1,700
12,517
Total assets
1 The Group has initially applied IFRS 9 and IFRS 16 at 1 January 2019. Under the transition methods chosen, comparative information is not restated. Refer Basis of
preparation.
2 The Group has made a presentational change to show its unit linked liabilities and the assets backing these liabilities separately. Refer Note 25.
The Notes on pages 129 to 231 are an integral part of these consolidated financial statements.
124 Standard Life Aberdeen 2019
Liabilities
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
Unit linked liabilities (excluding held for sale)
Investment contract liabilities
Third party interest in consolidated funds
Other unit linked liabilities
Total liabilities
Equity
Share capital
Shares held by trusts
Share premium reserve
Retained earnings
Other reserves
Equity attributable to equity shareholders of Standard Life Aberdeen plc
Non-controlling interests
Ordinary shares
Preference shares
Notes
32
32
34
35
10
10
20
32
37
37
23
25
26
27
26
28
29
30
30
2019
£m
119
655
55
67
87
19
3
1,315
102
5
747
3,174
1,152
416
14
1,582
4,756
327
(134)
640
2,886
2,845
6,564
3
99
6,666
11,422
20181,2
£m
26
1,081
38
75
100
22
4
1,161
105
9
657
3,278
1,468
228
4
1,700
4,978
353
(115)
640
2,778
3,782
7,438
2
99
7,539
12,517
Total equity
Total equity and liabilities
1 The Group has initially applied IFRS 9 and IFRS 16 at 1 January 2019. Under the transition methods chosen, comparative information is not restated. Refer Basis of
preparation.
2 The Group has made a presentational change to show its unit linked liabilities and the assets backing these liabilities separately. Refer Note 25.
The Notes on pages 129 to 231 are an integral part of these consolidated financial statements.
The consolidated financial statements on pages 121 to 231 were approved by the Board and signed on its behalf by the following Directors:
Sir Douglas Flint
Chairman, 10 March 2020
Stephanie Bruce
Chief Financial Officer, 10 March 2020
Standard Life Aberdeen 2019
125
Financial inFormation
7. Group financial statements continued
Consolidated statement of changes in equity
For the year ended 31 December 2019
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
shareholders of
Standard Life
Aberdeen plc
£m
Ordinary
shares
£m
Preference
shares
£m
Total
equity
£m
31 December 2018
Effect of change in accounting policy
to IFRS 91
Effect of change in accounting policy
to IFRS 161
1 January 2019
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
Dividends paid on preference 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
impairment of subsidiaries
Shares acquired by employee trusts
Shares distributed by employee and
other trusts and related dividend
equivalents
Transfer from the Standard Life
Unclaimed Asset Trust
353
(115)
640
2,778
3,782
7,438
–
–
–
–
–
–
(5)
(12)
(7)
–
353
(115)
640
2,761
3,775
–
–
–
–
–
–
–
–
(26)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(50)
31
–
28,29
26
14
26,
28,29
29
28,29
28,29
28
27,28
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
210
56
–
–
(33)
(36)
–
–
233
–
(518)
–
(36)
–
–
–
(390)
(100)
–
–
–
43
57
(57)
780
–
(780)
–
(38)
1
–
–
(12)
(12)
7,414
210
56
(69)
–
197
–
(518)
–
(516)
–
43
–
–
(50)
(7)
1
31 December
327
(134)
640
2,886
2,845
6,564
2
–
–
2
–
–
–
–
–
–
–
–
–
1
–
–
–
–
–
–
3
99 7,539
–
–
(12)
(12)
99 7,515
5
–
–
–
5
–
–
(5)
–
–
–
–
–
–
–
215
56
(69)
–
202
–
(518)
(5)
(516)
1
43
–
–
(50)
(7)
–
1
99 6,666
1 The Group has initially applied IFRS 9 and IFRS 16 at 1 January 2019. Under the transition methods chosen, comparative information is not restated and the cumulative effect
of initially applying these standards is recognised in retained earnings at the date of initial application. Refer Basis of preparation.
126 Standard Life Aberdeen 2019
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
shareholders of
Standard Life
Aberdeen plc
£m
Other
equity1
£m
Ordinary
shares
£m
Preference
shares
£m
Total
equity
£m
364
(61)
639
3,162
4,500
8,604
(835)
1,665
–
–
–
–
(835)
1,665
28
(44)
15
(29)
–
(43)
(43)
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
14
–
–
–
–
–
–
26,28 (1,000)
26,
28,29
(11)
–
–
–
–
–
–
–
–
29
28,29
1
28,29
28
10
–
–
–
–
–
–
–
–
–
–
–
–
–
17
–
–
–
–
–
–
(100)
29
–
–
–
–
–
–
1
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
786
–
–
–
–
–
(634)
–
–
(28)
–
(1,000)
–
–
–
–
–
–
(1,002)
1,000
(238)
–
–
68
99
11
–
36
(68)
(99)
570
(570)
–
(33)
–
–
–
–
289
99 8,992
–
5
–
–
5
–
–
–
–
–
–
–
–
–
–
(292)
–
–
–
–
–
–
–
2
5
(830)
– 1,698
–
–
5
–
–
(29)
(43)
796
1
–
– 1,005
–
–
–
(970)
(44)
(634)
(5)
(5)
–
–
–
–
–
–
–
–
–
–
–
(25)
(985)
(238)
(292)
36
–
–
–
(100)
(4)
6
99 7,539
–
–
28
–
–
1,005
(970)
(44)
–
–
(25)
–
–
–
–
–
–
–
–
–
6
–
758
1
–
–
–
–
(634)
–
–
(985)
(238)
–
36
–
–
–
(100)
(4)
–
7,438
31 December
353
(115)
640
2,778
3,782
1 The presentation of amounts attributable to certain perpetual debt instruments in 2018 has been corrected to show these amounts separately as related to other equity holders
rather than as part of non-controlling interests. Refer Note 30.
The Notes on pages 129 to 231 are an integral part of these consolidated financial statements.
Standard Life Aberdeen 2019
127
Financial inFormation
7. Group financial statements continued
Consolidated statement of cash flows
For the year ended 31 December 2019
Cash flows from operating activities
Profit/(loss) 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
Dividends received from associates and joint ventures
Taxation paid3
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 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
Proceeds from contingent consideration assets
Payments of contingent consideration liabilities
Disposal of investments in associates and joint ventures
Taxation paid on disposal of investments in associates and joint ventures3
Purchase of financial investments
Proceeds from sale or redemption of financial investments
Purchase of intangible assets
Net cash flows from investing activities
Cash flows from financing activities
Repayment of other borrowings
Repayment of subordinated liabilities and perpetual notes
Payment of lease liabilities
Shares acquired 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 increase/(decrease) 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
11
41
41
41
16
17
41
16
40
40
1
26
26
26
14
24
2019
£m
243
56
299
158
(291)
4
–
(28)
93
(34)
201
(28)
2
(40)
–
(51)
63
(18)
1,720
(22)
(590)
800
(15)
1,821
–
(455)
(32)
(50)
–
(39)
–
(516)
(5)
(518)
(1,615)
407
957
(17)
1,347
5
34
143
3
20181,2
£m
(787)
1,780
993
3,273
(3,127)
(80)
(48)
(581)
44
(224)
250
(28)
1
(33)
(5,501)
(72)
–
–
201
(21)
(55)
51
(128)
(5,585)
(2)
(1,377)
–
(100)
1
(117)
(983)
(238)
(5)
(634)
(3,455)
(8,790)
9,715
32
957
6
1,118
1,545
329
1 The Group has initially applied IFRS 16 at 1 January 2019. Under the transition methods chosen, comparative information is not restated. Refer Basis of preparation.
2 Restated. The Group has changed the classification of certain cash flows following the disposal of the UK and European insurance business in 2018. The reason for the
changes is to make the financial statements more relevant to users as it is more consistent with asset management peers. Refer Basis of preparation (a)(iii).
3 Total taxation paid was £56m in 2019 (2018: £245m).
The Notes on pages 129 to 231 are an integral part of these consolidated financial statements.
128 Standard Life Aberdeen 2019
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 owner occupied property, derivative instruments and other financial assets and financial liabilities 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 except as described below.
(a)(i) New standards, interpretations and amendments to existing standards that have been adopted by the Group
The Group has adopted the following new IFRS, interpretations and amendments to existing standards, which are effective by EU endorsement
for annual periods beginning on or after 1 January 2019 and IFRS 9 whose adoption has previously been deferred (see the Group’s Annual
report and accounts for the year ended 31 December 2018 for further details).
IFRS 9 Financial Instruments
On 1 January 2019 the Group adopted IFRS 9 Financial Instruments. 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 Group’s equity securities and interests in pooled investment funds and certain debt securities being classified as FVTPL and
the Group’s receivables, other financial assets, cash and other debt securities being measured at amortised cost. Derivative instruments are
measured at fair value.
The classification of financial liabilities is unchanged from that applied under IAS 39. Financial liabilities are measured at amortised cost using the
effective interest method unless they are derivatives or are designated at 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 or net investment 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 or
they relate to trade receivables or contract assets recognised under IFRS 15 Revenue from Contracts with Customers or lease receivables
recognised under IFRS 16 Leases 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 Group has elected to continue applying the hedge accounting requirements of IAS 39.
Transition
As permitted by IFRS 9 comparatives have not been restated. The impact of adopting IFRS 9 is recognised in retained earnings at 1 January
2019.
Accounting policies
The updated accounting policies for financial assets, derivatives and financial liabilities are included in Notes 19, 20 and 32 respectively.
Standard Life Aberdeen 2019
129
Financial inFormation
7. Group financial statements continued
Impact of transition
The table below sets out the impact of adopting IFRS 9 on 1 January 2019 on the Group’s financial assets and liabilities.
31 December
2018
IAS 39 Reclassification Remeasurement
£m
£m
£m
Notes
Financial assets – excluding those backing unit linked liabilities
Designated at FVTPL (IAS 39)
Equity securities and interests in pooled investment funds
Debt securities
Receivables and other
Held for trading (IAS 39)
Derivative financial assets
At FVTPL (IFRS 9)
Cash flow hedge (IAS 39)
Derivative financial assets
Cash flow hedge (IFRS 9)
Available for Sale (IAS 39)
Debt securities
Loans and receivables (IAS 39)
Debt securities
Receivables and other financial assets
Cash and Cash equivalents
At amortised cost (IFRS 9)
Total
Financial liabilities – excluding those backing unit linked liabilities
Designated at FVTPL (IAS 39)
Third party interest in consolidated funds
Other financial liabilities
Held for trading (IAS 39)
Derivative financial liabilities
Designated at FVTPL (IFRS 9)
At amortised cost (IAS 39)
Subordinated liabilities
Other financial liabilities
At amortised cost (IFRS 9)
Total
Financial assets backing unit linked liabilities
Designated at FVTPL (IAS 39)
Financial investments
At FVTPL (IFRS 9)
At amortised cost (IAS 39)
Receivables and other financial liabilities
Cash and cash equivalent
At amortised cost (IFRS 9)
Total
Financial liabilities backing unit linked liabilities
Designated at FVTPL (IAS 39)
Investment contract liabilities
Third party interest in consolidated funds
Designated at FVTPL (IFRS 9)
At amortised cost (IAS 39)
Other financial liabilities
At amortised cost (IFRS 9)
Total
Change in deferred tax liability
509
725
8
6
13
–
–
–
–
–
862
(862)
–
689
1,110
862
–
–
19
3,922
(26)
(29)
(4)
(1,081)
(1,132)
32
(2,272)
1,659
11
30
25
1,700
(1,468)
(228)
(3)
25
(1,699)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1 January
2019
IFRS 9
£m
509
725
8
6
1,248
13
13
–
854
689
1,110
2,653
3,914
(26)
(29)
(4)
(59)
(1,086)
(1,132)
(2,218)
(2,277)
1,659
1,659
11
30
41
1,700
(1,468)
(228)
(1,696)
(3)
(3)
(1,699)
–
–
–
–
–
–
(8)
–
–
(8)
–
–
–
(5)
–
(5)
–
–
–
–
–
–
–
–
1
Total net impact of transition from IAS 39 to IFRS 9
(12)
130 Standard Life Aberdeen 2019
The main impacts of adopting IFRS 9 are as follows:
The Group’s debt securities which were previously classified as available-for-sale (AFS) and therefore measured at fair value are now
measured at amortised cost. At 31 December 2018 the fair value of AFS securities was £862m with a corresponding AFS financial assets
reserve balance of £7m and deferred tax liability of £1m. On reclassification, the Group’s debt securities were recognised at 1 January 2019 at
their amortised cost (less expected credit losses) of £854m. The AFS financial assets reserve balance and the related deferred tax liability
were no longer recognised. The expected credit losses at 1 January 2019 were less than £1m.
At 31 December 2018, the Group 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. Consequently, on adoption of IFRS 9, these subordinated liabilities
have been recognised at 1 January 2019 at a revised amortised cost of £1,086m. The impact on retained earnings was £5m.
The Group’s loans and receivables were reclassified as financial assets measured at amortised cost. This had no impact on their initial
recognition or subsequent measurement.
Held for trading no longer exists as a separate FVTPL category and these assets and liabilities were included within the financial assets or
liabilities measured at fair value through profit or loss. Similarly this had no impact on their initial recognition or subsequent measurement.
All the Group’s financial liabilities that were designated as FVTPL under IAS 39 at 31 December 2018 remain designated as FVTPL under
IFRS 9. All the Group’s financial assets that were designated as FVTPL under IAS 39 at 31 December 2018 are mandatorily classified as
FVTPL under IFRS 9.
Disclosure
The adoption of IFRS 9 has also resulted in a number of new disclosure requirements under IFRS 7 Financial Instruments: Disclosure. These
include new disclosures in relation to:
Classification of financial assets and liabilities including disclosure of those that are mandatorily classified as FVTPL and those designated as
such along with details of any significant reclassifications in the year
Information on impairment including the Group’s approach to expected credit losses
Additional disclosure on hedging activities
These disclosures are provided in Notes 19 (financial assets), 20 (derivatives), 32 (financial liabilities) and 38 (financial instruments risk
management), where relevant.
IFRS 16 Leases
On 1 January 2019 the Group adopted IFRS 16 Leases. 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. However, a number of the Group’s subleases which were operating leases
under IAS 17 now qualify as finance leases under IFRS 16.
Transition
The Group has applied the cumulative catch up approach to IFRS 16 and therefore comparatives have not been restated. On transition to IFRS
16, the Group recognised right-of-use assets and lease liabilities. Right-of-use assets for property have been calculated as if IFRS 16 has always
been applied, recognising the difference between the assets and liabilities in retained earnings. For non-property leases, the right-of-use assets
initially recognised were equal to the lease liabilities calculated with no impact on retained earnings.
Practical expedients
The Group has used the following practical expedients permitted under IFRS 16:
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 short-term leases including those whose term ends within 12 months at 1 January 2019
To apply a single discount rate to leases with similar characteristics
In addition, as at 31 December 2018 the Group recognised an onerous lease provision of £12m under IAS 37 Provisions, Contingent Liabilities
and Contingent Assets. The Group has applied the practical expedient to utilise the assessment that the lease was onerous under IAS 37 and
therefore adjust the right of use asset at the date of initial application by the onerous lease provision rather than conduct an impairment test.
Standard Life Aberdeen 2019
131
Financial inFormation
7. Group financial statements continued
Impact of transition
The impact on opening retained earnings at 1 January 2019 is summarised below:
Recognised under IFRS 16
Right-of-use assets (within property, plant and equipment)1
Property net of impairment
Equipment
Net investment in finance leases (within Receivables and other financial assets)
Lease liabilities (within Other financial liabilities)1
Derecognised on application of IFRS 16
Onerous lease provisions
Accruals for lease incentives (within Other financial liabilities)
Net liabilities recognised before tax
Deferred tax
Reduction in opening retained earnings
1 January 2019
£m
178
1
7
(227)
12
16
(13)
1
(12)
1 Additional right-of-use assets of £5m and additional lease liabilities for £5m were recognised within Assets held for sale and Liabilities of operations held for sale respectively.
When measuring lease liabilities for leases previously classified as operating leases, the Group used discount rates determined on a portfolio
basis depending on the geographic location and term of the lease. The weighted average rate used at initial application was 2.6%. The lease
commitments for operating leases as previously disclosed in the Group’s Annual report and accounts for the year ended 31 December 2018 is
reconciled to the lease liabilities at 1 January 2019 below:
Operating lease commitments at 31 December 2018 as disclosed in the Group’s Annual report and accounts for the
year ended 31 December 2018
Discounted value of operating lease commitments at 31 December 2018
Exemptions for low value leases and leases whose term ends within 12 months at 1 January 2019
Extension options reasonably certain to be exercised
Lease commitments for operations held for sale
Other
Lease liabilities recognised at 1 January 2019
Accounting policies
The updated accounting policies for leases are included in Note 18.
1 January 2019
£m
250
227
(4)
6
(5)
3
227
Disclosure
IFRS 16 introduces new disclosure requirements for lessees and lessors which are provided in Note 18. The objective of the disclosures is for
lessees and lessors to disclose information in the notes that, together with the information provided in the statement of financial position,
statement of profit or loss and statement of cash flows, gives a basis for users of financial statements to assess the effect that leases have on the
financial position, financial performance and cash flows.
Interpretations and amendments to other standards
IFRIC 23: Uncertainty over Income Tax Treatments
Amendments to IFRS 9 Prepayment Features with Negative Compensation
Amendments to IAS 19 Amendment, Curtailment or Settlement
Amendments to IAS 28 Long-term interests in associates and joint ventures
Annual Improvements 2015-2017 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.
132 Standard Life Aberdeen 2019
(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 2019. The Group has not early adopted the standards, amendments and interpretations described
below:
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
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) Statement of cash flows: Classification changes
In 2019, following the disposal of the UK and European insurance business in 2018, the Group’s operating cash flows no longer predominantly
relate to insurance business. From 1 January 2019 the Group has changed the classification of capital flows arising to/from third party interests in
consolidated funds from cash flows arising from financing activities to cash flows arising from operating activities. The reason for this change is to
make the financial statements more relevant to users as it is more consistent with asset management peers. Comparative amounts have been
restated. The impact of the restatement is to reclassify the 2018 capital flows to third party interests in consolidated funds of £507m and the 2018
distributions paid to third party interests in consolidated funds of £69m which were previously presented as cash flows arising from financing
activities. These capital outflows have been reclassified in the 2018 comparative balances and presented as changes in operating liabilities cash
flows arising from operating activities. The change in the amounts previously presented is as summarised in the table below.
Consolidated statement of cash flows
Net cash flows from operating activities
Net cash flows from financing activities
2018
As previously presented
£m
2018
Reclassification
£m
826
(4,031)
(576)
576
2018
Restated
£m
250
(3,455)
(a)(iv) 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:
Financial statement area
Defined benefit pension plans
Investments in associates
Intangible assets
Provisions
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 investments in Phoenix and HDFC Life should continue
to be classified as associates
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 and the determination of useful lives
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 34
Note 16
Note 15
Note 37
During the year to 31 December 2019 the following changes have been made to critical judgements in applying accounting policies:
As a result of the part disposal of our investment in HDFC Life, we have identified its classification as an associate as a critical judgement
There are no other changes to critical judgements from the prior year.
Standard Life Aberdeen 2019
133
Financial inFormation
7. Group financial statements continued
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
Defined benefit pension plans
Intangible assets
Critical accounting estimates and assumptions
Determination of the fair value of contingent consideration assets and
liabilities relating to the sale of the UK and European insurance
business to Phoenix
Determination of principal UK pension plan assumptions for mortality,
discount rate and inflation
Determination of the recoverable amount in relation to impairment
assessment of asset management goodwill
Related note
Notes 19, 36 and
40
Note 34
Note 15
Investments in associates
Determination of the recoverable amount in relation to the impairment
assessment of investments in associates
Note 16
The determination of the recoverable amount in relation to customer relationships and investment management contract intangibles is no longer
considered a critical estimate as a result of amortisation and market movements. 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.
(a)(v) 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 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:
Euro
US Dollar
Indian Rupee
Chinese Renminbi
Hong Kong Dollar
Singapore Dollar
2019
2018
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)
1.142
1.280
90.106
8.830
10.030
1.745
1.180
1.325
94.563
9.228
10.322
1.781
1.129
1.333
90.711
8.818
10.444
1.795
1.114
1.274
88.913
8.744
9.971
1.736
134 Standard Life Aberdeen 2019
(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.
Standard Life Aberdeen 2019
135
Financial inFormation
7. Group financial statements continued
Notes to the Group financial statements
1. Group structure
(a) Composition
The following diagram is an extract of the Group structure at 31 December 2019 and gives an overview of the composition of the Group.
A full list of the Company’s subsidiaries is provided in Note 48.
(b) Acquisitions
(b)(i) Subsidiaries
On 29 November 2019, 1825 Financial Planning and Advice Limited (a subsidiary of 1825 Financial Planning Limited) purchased the wealth
advisory business of Grant Thornton UK LLP through a business acquisition agreement under which the majority of the clients and employees of
the wealth advisory business transferred to 1825 Financial Planning and Advice Limited. The assets under advice at the acquisition date were
£1.6bn. The acquisition significantly expands 1825’s advice capability and national client reach.
At the acquisition date the consideration, net assets acquired from Grant Thornton UK LLP and resulting goodwill were as follows:
29 November 2019
Cash
Fair value of contingent consideration
Consideration
Fair value of net assets acquired
Customer-related intangible assets
Total assets
Deferred tax liabilities
Total liabilities
Goodwill
£m1
40
5
45
12
12
2
2
35
1 The fair value of the contingent consideration of £5m has been calculated by reference to assets under advice growth and could range from £nil to £5m.
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 non-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 2019 from the acquired wealth advisory business were £1m and £nil respectively. The profit contributed excludes amortisation of
intangible assets acquired through business combinations. If the acquisition had occurred on 1 January 2019, the Group’s total revenue from
contracts with customers for the period would have increased by £10m to £1,753m and the profit would have increased by £2m to £273m.
In addition, the following acquisitions were made in the year but are not considered to be material.
On 1 July 2019, 1825 Financial Planning and Advice Limited purchased the wealth management business of BDO Northern Ireland through a
similar business acquisition agreement. The assets under advice at the acquisition date were £0.2bn.
On 15 February 2019, Aberdeen Asset Management PLC (AAM PLC) completed the purchase of the entire share capital of Orion Partners
Holding Limited and Orion Partner Services Inc. The assets under management were US$0.9bn (£0.7bn) at the acquisition date.
136 Standard Life Aberdeen 2019
(b)(ii) Joint ventures
On 31 July 2019, as part of the Group’s strategic joint venture with Virgin Money, AAM PLC completed the acquisition of 50% (less one share) of
Virgin Money Unit Trust Managers Limited (VMUTM) for an upfront cash payment of £40m plus 50% of the capital in the business and certain
other costs.
(b)(iii) Prior year acquisitions
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.
In addition, 1825 Financial Planning Limited 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.
(c) Disposals
(c)(i) Associates
Profit on disposal of investments in associates for the year ended 31 December 2019 of £1,542m includes £1,337m in relation to sales of HDFC
Life Insurance Company Limited (HDFC Life) shares and £204m in relation to the HDFC Asset Management Company Limited (HDFC Asset
Management) Offer for Sale described below.
(c)(i)(i)HDFC Life Insurance Company Limited (HDFC Life)
During the year, the Group completed the following sales of equity shares in HDFC Life on the National Stock Exchange of India Limited and
BSE Limited:
92,181,992 equity shares in HDFC Life sold through an Offer for Sale on 12 and 13 March 2019
33,032,381 equity shares in HDFC Life sold through an Offer for Sale from 3 to 6 May 2019
67,100,000 equity shares in HDFC Life sold through a Bulk Sale on 14 August 2019
100,000,000 equity shares in HDFC Life sold through a Bulk Sale on 30 October 2019
In total, 14.49% of the issued equity share capital of HDFC Life was sold for a combined consideration net of taxes and expenses of Rs
135,994m (£1,503m). The combined gain on sale of £1,337m was calculated using the weighted-average cost method. The Group’s
shareholding in HDFC Life at 31 December 2019 is 297,311,894 equity shares or 14.73% of the issued equity share capital of HDFC Life.
(c)(i)(ii) HDFC Asset Management Company Limited (HDFC Asset Management)
During the year, the Group completed the following sale of equity shares in HDFC Asset Management on the National Stock Exchange of India
Limited and BSE Limited:
6,422,310 equity shares in HDFC Asset Management sold through an Offer for Sale on 4 and 5 December 2019
Through the sale, 3.02% of the issued equity share capital of HDFC Asset Management was sold for a total consideration net of taxes and
expenses of Rs 18,279m (£195m). The gain on sale of £204m before tax was calculated using the weighted-average cost method. The Group’s
shareholding in HDFC Asset Management at 31 December 2019 is 57,228,305 equity shares or 26.91% of the issued equity share capital of
HDFC Asset Management.
Prior year disposals
(c)(ii) Subsidiaries
(c)(ii)(i) 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.
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 were classified as discontinued operations.
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 was subject to a lock-
up of 12 months from completion. The Group recognised a gain on disposal in respect of the Sale which is included in profit from discontinued
operations in the consolidated condensed income statement for the year ended 31 December 2018 of £1,780m. On disposal £43m was recycled
from the translation reserve and was included in determining the gain on sale. £99m (net) of other reserves were also released directly to
retained earnings.
(c)(iii) Associates
(c)(iii)(i) HDFC Asset Management
Profit on disposal of interests in associates for the year ended 31 December 2018 of £185m includes £177m in relation to the HDFC Asset
Management initial public offering (IPO) which completed on 6 August 2018 with HDFC Asset Management listing on the National Stock
Exchange of India Limited and the Bombay Stock Exchange Limited. Through the IPO, the Group sold 16,864,585 equity shares in HDFC Asset
Management for a total net consideration of Rs.16,212m (£180m). 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.
Standard Life Aberdeen 2019
137
Financial inFormation
7. Group financial statements continued
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 leadership team.
(a) Basis of segmentation
The Group’s reportable segments are as follows:
Continuing operations:
Asset management, platforms and wealth (formerly Asset management and platforms)
The name of the segment has been changed from Asset management and platforms to Asset management, platforms and wealth. There has
been no change to the definition of the segment.
This segment primarily relates to our Asset management, Platforms and Wealth businesses. Our Asset management subsidiaries and our Asset
management associate in India, HDFC Asset Management, provide a range of investment products and services for individuals and institutional
customers through a number of different investment vehicles. Our Platforms comprise the Standard Life branded Wrap and Elevate platforms
which provide administration services to advisers. Our Wealth activity primarily relates to: Aberdeen Standard Capital which manages assets for
private clients, intermediaries acting for clients, charities and trustees; Parmenion, our digital platform; 1825, our financial planning and advice
business; and our strategic joint venture with Virgin Money. The segment also includes other wholly owned activities of the Group including the
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.
Discontinued operations:
UK and European insurance
On 23 February 2018, the Group announced the proposed sale of the UK and European insurance business. Refer 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.
138 Standard Life Aberdeen 2019
(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.
Asset
management,
platforms
and wealth
£m
1,634
(1,333)
301
37
Insurance
associates and
joint ventures
£m
–
–
–
–
Total
continuing
operations
£m
1,634
(1,333)
301
37
Discontinued
operations
£m
–
–
–
–
Eliminations
£m
–
–
–
–
Total
£m
1,634
(1,333)
301
37
Notes
10
31 December 2019
Fee based revenue
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 interests in
associates
Reversal of 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)
(Loss)/profit for the year attributable to
equity shareholders of Standard Life
Aberdeen plc
Profit attributable to non-controlling
interests
Ordinary shares
Preference shares
Profit for the year
57
395
(69)
(21)
305
189
189
–
(25)
164
246
584
(69)
(46)
469
9
(379)
(28)
(407)
1
13
(1,733)
(111)
(1,844)
205
–
–
160
(1,747)
41
(5)
(5)
1,337
243
(25)
(2)
1,414
–
43
–
1,542
243
(25)
158
(333)
41
38
(5)
(1,411)
1,621
210
–
5
215
–
–
–
–
–
–
–
–
–
–
56
56
–
–
–
56
–
–
56
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
246
584
(69)
(46)
469
(407)
(1,844)
1,542
243
(25)
214
(277)
41
38
(5)
266
–
5
271
1 Share of associates’ and joint ventures’ profit before tax comprises the Group’s share of results of HDFC Life, HDFC Asset Management, Phoenix, HASL and VMUTM.
2 Amortisation and impairment of intangible assets acquired in business combinations and through the purchase of customer contracts includes £1,733m included in
administrative expenses and set out in Note 15, and £111m 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.
Fee based revenue is reported as the measure of revenue in the analysis of adjusted profit before tax. Refer Note 4 for a reconciliation to
revenue from contracts with customers. For the year ended 31 December 2019, fee based revenue is the same as adjusted operating income.
Fee based revenue for the year ended 31 December 2019 relates to revenues generated from external customers. The fee based revenue
forming part of the adjusted operating income of the Asset management, platforms and wealth segment for the year ended 31 December 2018
included £94m which related 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 was required to remove intra-group impacts.
All interest income, interest expense, depreciation and amortisation from continuing operations relates to the Asset management, platforms and
wealth segment.
There are no customers whose revenue represents greater than 10% of fee based revenue (2018: none).
Standard Life Aberdeen 2019
139
Financial inFormation
7. Group financial statements continued
31 December 2018
Fee based revenue
Spread/risk margin
Total adjusted operating income
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 other equity holders
and non-controlling interests (preference
shares and perpetual notes)
(Loss)/profit for the year attributable to
equity shareholders of Standard Life
Aberdeen plc
Profit attributable to other equity holders
and non-controlling interests
Ordinary shares
Preference shares and perpetual notes
(Loss)/profit for the year
Notes
Asset
management,
platforms
and wealth
£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)
10
9
1
1
13
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 Asset Management, Phoenix and HASL.
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 15, 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.
140 Standard Life Aberdeen 2019
(b)(ii) Total income and expenses
The following table provides a reconciliation of adjusted operating income and adjusted operating expenses, as presented in the analysis of
Group adjusted profit by segment, to total income and total expenses respectively, as presented in the IFRS consolidated income statement. For
2019, adjusted operating income is the same as fee based revenue.
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 income and expenses
Capital management
Total income and expenses as presented in the IFRS consolidated
income statement from continuing operations
2019
2018
Income
£m
Expenses
£m
Income
£m
Expenses
£m
1,634
(1,333)
1,868
(1,395)
156
265
21
177
1,703
37
3,993
(156)
(265)
(21)
(177)
(2,120)
–
1
(78)
(5)
152
202
(9)
(1)
78
5
(152)
(1,355)
–
(4,072)
2,131
(2,820)
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, 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 or are directly related to fee income. Other presentation differences include 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
2019
£m
1,862
265
1,708
158
3,993
2018
£m
1,291
201
464
175
2,131
The income of the operating businesses shown above 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
Non-current non-financial assets for this purpose consist of property, plant and equipment and intangible assets.
2019
£m
1,700
60
71
142
1,973
2018
£m
3,417
2
6
40
3,465
Standard Life Aberdeen 2019
141
Financial inFormation
7. Group financial statements continued
3.
Investment return
Gains and losses resulting from changes in both market value and foreign exchange on investments classified as 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 measured at amortised cost 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.
Prior to the implementation of IFRS 9, interest income on debt securities classified as available-for-sale under IAS 39 was also separately
recognised in the consolidated income statement using the effective interest rate method. These debt securities are measured at amortised
cost under IFRS 9. Refer Basis of preparation for further details.
Investment return from discontinued operations for the year ended 31 December 2018 included rental income from investment property (refer
Note 11) which was 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 were recognised as an integral part of the total rental income and were spread over the term of the lease.
Interest and similar income
Cash and cash equivalents
Debt securities measured at amortised cost
Available-for-sale debt securities
Gains 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
Dividend income
Gains/(losses) on financial instruments at amortised cost
Foreign exchange (losses)/gains on financial instruments other than those at fair value through profit
or loss
Investment return from continuing operations
2019
£m
18
10
–
28
365
21
1
387
52
1
(4)
464
2018
£m
18
–
11
29
(193)
2
(8)
(199)
49
–
5
(116)
Included in investment return from continuing operations of £464m (2018: (£116m)) is £392m (2018: (£139m)) in relation to unit linked business
including £107m (2018: (£65m)) relating to operations held for sale. Investment returns relating to unit linked business are for the account of
policyholders and are excluded from adjusted operating income as they have an equal and opposite effect on IFRS income and IFRS expenses
in the consolidated income statement.
142 Standard Life Aberdeen 2019
4. Revenue from contracts with customers
Revenue from contracts with customers is recognised as services are provided i.e. as the performance obligation is satisfied 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 (refer Note 35).
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 partners1
Management fee income – Other clients1
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
1
In addition to revenues earned as a percentage of AUM, management fee income includes certain other revenues such as registration fees.
2019
£m
312
1,122
37
1,471
204
68
1,743
2018
£m
370
1,372
9
1,751
173
31
1,955
Asset management
Through a number of its subsidiaries, the Group provides asset management services 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 some 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.
Fee income from fund platforms includes revenue passed to the product provider and included below in other cost of sales.
The revenue from the contracts with customers is reported within the Asset management, platforms and wealth 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, platforms and wealth segment.
Revenue from contracts with customers from continuing operations as presented in the
consolidated income statement
Presentation differences
Commission expenses
Other cost of sales
Other differences
Fee based revenue from continuing operations as presented in the Asset management, platforms
and wealth segment
2019
£m
2018
£m
1,743
1,955
(89)
(26)
6
(105)
(8)
26
1,634
1,868
Commission expenses and other costs of sales are netted against fee based revenue in the segment reporting but are included within expenses
in the consolidated income statement. Other presentation differences relate to amounts presented in a different income line item of the
consolidated income statement and charges made to third parties for expenses incurred by the Group.
Standard Life Aberdeen 2019
143
Financial inFormation
7. Group financial statements continued
(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 acquisition costs
Total contract receivables and assets
Deferred Income
Accruals
Total contract liabilities
Notes
21
21
15
22
Notes
35
36
31 December
2019
£m
31 December
2018
£m
1 January
2018
£m
130
227
60
6
423
112
214
80
6
412
104
249
11
356
720
31 December
2019
£m
31 December
2018
£m
1 January
2018
£m
67
3
70
75
5
80
157
6
163
5. Other income
The Group’s other income for the year ended 31 December 2019 of £178m (2018: £34m) includes £140m (2018: £nil) in relation to the
settlement of arbitration with Lloyds Banking Group/ Scottish Widows (LBG).
On 24 July 2019, the Group announced that it had agreed a final settlement in relation to the arbitration proceedings between the parties
concerning LBG’s attempt to terminate investment management arrangements under which assets were managed by members of the Group for
LBG entities.
In its decision of March 2019, the arbitral tribunal found that LBG was not entitled to terminate these investment management contracts. The
Group had continued to manage approximately £104bn (as at 30 June 2019) of assets under management (AUM) for LBG entities during the
period of the dispute.
Under the terms of the settlement:
The Group will continue to manage approximately one third of the total AUM (circa £35bn as at 30 June 2019) on behalf of LBG entities until at
least April 2022 (the end of the initial term under the original investment management agreements) subject to applicable investment
management arrangements. As at 30 June 2019, this AUM comprised circa £30bn in passive portfolios as well as £5bn in real estate funds.
Approximately two thirds of the total AUM (the transferring AUM) will be transferred to third party managers appointed by LBG through a series
of planned tranches over nine months from 24 July 2019. During this period, the Group will continue to be remunerated for its services in
relation to the transferring AUM.
In addition, the Group received an upfront payment of £140m from LBG as final settlement to compensate for loss of profit in relation to the
transferring AUM
6. Other administrative expenses
Interest expense
Commission expenses
Other cost of sales
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 assets1
Impairment losses on disposal group classified as held for sale
Impairment losses on property right-of-use assets
Other
Acquisition costs deferred during the year
Amortisation of deferred acquisition costs
Total other administrative expenses from continuing operations
Notes
8
17
15
15
23
17
2019
£m
5
89
26
646
2
8
47
184
2
–
16
626
1,651
(2)
2
1,651
20182
£m
5
105
8
673
50
8
16
207
46
2
–
626
1,746
(2)
2
1,746
1
Impairment losses on intangible assets excludes a goodwill impairment charge of £1,569m (2018: £880m) recognised separately as an individual item on the consolidated
income statement. Refer Note 15.
2 The Group has initially applied IFRS 16 at 1 January 2019. Under the transition methods chosen, comparative information is not restated and the cumulative effect of initially
applying these standards is recognised in retained earnings at the date of initial application. Refer Basis of preparation.
144 Standard Life Aberdeen 2019
In addition to interest expense of £5m (2018: £5m) set out above, interest expense of £29m (2018: £45m) was incurred in respect of
subordinated liabilities and the related cash flow hedge (refer Note 20) and interest expense of £7m (2018: £nil) in respect of lease liabilities
which are included in Finance costs in the consolidated income statement.
7. 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
44
Total staff costs and other employee-related costs
Notes
The average number of staff employed by the Group during the year:
Asset management, platforms and wealth
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 78 to 104.
8. 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
2019
£m
531
63
(40)
58
34
646
2019
6,268
–
6,268
2019
£m
1.1
3.7
2.1
6.9
1.2
–
1.2
8.1
2018
£m
655
68
(36)
71
14
772
2018
6,360
1,959
8,319
2018
£m
1.1
3.6
1.7
6.4
1.6
0.2
1.8
8.2
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 2019 no audit fees were payable in respect of defined benefit plans to the Group’s principal auditor (2018:
£nil).
For more information on non-audit services, refer to the Audit Committee report in Section 3 – Corporate governance statement.
9. Restructuring and corporate transaction expenses
Total restructuring and corporate transaction expenses incurred from continuing operations during the year were £374m (2018: £231m). The
2019 expenses mainly relate to merger integration, implementing our global simplified operating model, separation costs following the sale of the
UK and European insurance business and £49m in respect of the repurchase of subordinated liabilities (refer Note 33). Deal costs relating to
acquisitions included in restructuring and corporate transaction expenses for the year ended 31 December 2019 were £2m (2018: £1m).
For the purposes of determining adjusted profit from continuing operations, an additional £33m was recognised in 2019 relating to our share of
asset management joint venture and insurance associate restructuring and corporate transaction expenses (2018: £8m).
Restructuring and corporate transaction expenses of £264m were used to determine adjusted profit before tax from discontinued operations in
2018. These expenses mainly related to the sale of the UK and European insurance business discussed in Note 1. This included separation
costs of £53m and £198m in relation to the redemption of Tier 1 subordinated bonds. A further £80m of separation costs was included in the gain
on sale relating to contractual obligations arising from the transaction.
Standard Life Aberdeen 2019
145
Financial inFormation
7. Group financial statements continued
10. 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
Overseas
Adjustment to tax expense in respect of prior years
Total current tax attributable to continuing operations
Deferred tax:
Deferred tax credit 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
2019
£m
2018
£m
6
49
(1)
54
(26)
–
(26)
28
20
44
3
67
(12)
(12)
(24)
43
The share of associates’ and joint ventures’ tax expense is £8m (2018: £40m) and is included in profit before tax in the consolidated income
statement in ‘Share of profit from associates and joint ventures’.
In 2019 unrecognised tax losses from previous years were used to reduce the current tax expense by £nil (2018: £4m). Unrecognised tax losses
and timing differences were used to reduce the deferred tax expense by £1m (2018: £nil).
Current tax recoverable and current tax liabilities at 31 December 2019 were £9m (2018: £6m) and £19m (2018: £22m) respectively. In addition
current tax recoverable and current tax liabilities in relation to unit linked business were £nil (2018: £nil) and £2m (2018: £1m) respectively.
Current tax assets and liabilities at 31 December 2019 and 31 December 2018 are expected to be recoverable or payable in less than 12
months.
(a)(ii) Reconciliation of tax expense
Profit/(Loss) before tax from continuing operations
Tax at 19% (2018: 19%)
Permanent differences
Tax effect of accounting for share of profit from associates and joint ventures
Impairment losses on intangible assets
(Reversal of)/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 on sale of subsidiaries and associates
Other
Total tax expense from continuing operations for the year
146 Standard Life Aberdeen 2019
2019
£m
243
46
(4)
(15)
298
(46)
(15)
(1)
(1)
13
–
6
(254)
1
28
2018
£m
(787)
(150)
21
(25)
171
43
(16)
3
(4)
10
(12)
4
(2)
–
43
The standard UK corporation tax rate for the accounting period is 19%. As at 31 December 2019 the standard UK corporation tax rate is due to
fall to 17% from 1 April 2020 under legislation which had been substantively enacted at the reporting date. This change has, therefore, been
taken into account in the calculation of UK deferred tax balances. The UK government has indicated that it will legislate to repeal the reduction in
the standard UK corporation tax rate and maintain it at 19%.
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 2019 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.
The share of profits from associates and joint ventures is presented net of tax in the consolidated income statement and therefore gives a
reconciling item
The impairment of the goodwill intangible asset is not tax deductible
The reversal of the impairment of the investment in associates is not subject to tax
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 2019 mainly comprises a non-recurring reconciling item from the gain on sale made from the sale of shares in our associate
HDFC Asset Management. This arose because the Indian rate of tax on long-term 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. We have not recognised a deferred tax asset of £13m on tax
losses arising in the year due to uncertainty as to when these losses will be utilised and have written off previously recognised deferred tax
assets of £6m due to uncertainty of recovery.
The sales of shares in HDFC Life did not give rise to taxable gains due to the effect of reliefs available under India’s tax legislation and its
international tax treaties
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 subjective by their nature and require management judgement
based on the interpretation of legislation, management experience and professional advice. As such, this 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. When making estimates, management considers all
available evidence. This may include forecasts of future profitability, the frequency and severity of any losses, and statutory carry forward and
carry back provisions as well as management experience of tax attributes expiring without use. 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-sale1
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
2019
£m
–
–
–
(2)
4
2
2
1 Debt securities that were previously held at fair value as available-for-sale under IAS 39 are held under IFRS 9 at amortised cost from 1 January 2019.
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 relating to coupons payable on perpetual notes classified as equity
Tax relating to items taken directly to equity
Notes
2019
£m
–
–
2018
£m
–
–
(1)
9
(7)
1
1
2018
£m
(6)
(6)
Standard Life Aberdeen 2019
147
Financial inFormation
7. Group financial statements continued
(d) Deferred tax assets and liabilities
(d)(i) Movements in net deferred tax liabilities
Opening balance carried forward
Effect of change in accounting policy to IFRS 91
Effect of change in accounting policy to IFRS 161
Opening balance at 1 January
Reclassified as held for sale during the year
Acquired through business combinations
Amounts credited to the consolidated income statement
Amounts credited directly to equity in respect of employee share-based payments
Tax on available-for-sale assets
Tax on cash flow hedge
Other
Net deferred tax liability at 31 December
2019
£m
(39)
1
1
(37)
–
(2)
26
–
–
(2)
2
(13)
2018
£m
(302)
–
–
(302)
224
(1)
44
(2)
1
(2)
(1)
(39)
1 The Group has initially applied IFRS 9 and IFRS 16 at 1 January 2019. Under the transition methods chosen, comparative information is not restated. Refer Basis of
preparation.
(d)(ii) Analysis of recognised deferred tax
Deferred tax assets comprise:
Losses carried forward
Depreciable assets
Employee benefits
Provisions and other temporary timing differences
Gross deferred tax assets
Less: Offset against deferred tax liabilities
Deferred tax assets
Deferred tax liabilities comprise:
Unrealised gains on investments
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
2019
£m
2018
£m
40
12
22
1
75
(1)
74
2
3
2
78
3
88
(1)
87
(13)
27
9
24
2
62
(1)
61
3
2
1
92
3
101
(1)
100
(39)
A deferred tax asset of £40m (2018: £27m) 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 £80m in the UK and £301m overseas (2018: £74m, £268m respectively)
Of these unrecognised deferred tax assets, certain losses have expiry dates as follows:
US losses of £164m with expiry dates between 2027-2037 (2018: £169m)
Other overseas losses of £19m with expiry dates before 2024 (2018: £11m)
Other overseas losses of £9m with expiry dates between 2025 and 2029 (2018: £3m)
148 Standard Life Aberdeen 2019
11. 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).
For the year ended 31 December 2019, the profit from discontinued operations of £56m reflects a change in the value of the contingent
consideration relating to the sale of the UK and European insurance business to Phoenix. For the year ended 31 December 2019, net cash flows
from discontinued operations of £63m are included in net cash flows from investing activities.
The consolidated income statement, other comprehensive income and cash flows from discontinued operations for the year ended 31 December
2018 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
9
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
Intercompany income and expenses that will continue post completion are eliminated in discontinued operations and 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 disclosures
more meaningful, policyholder tax and tax payable on equity holder’s profit are disclosed 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.
Standard Life Aberdeen 2019
149
Financial inFormation
7. Group financial statements continued
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)
20181
£m
(519)
(36)
(7,537)
(8,092)
1 Restated. The Group has changed the classification of certain cash flows following the disposal of the UK and European insurance business in 2018. The reason for the
changes is to make the financial statements more relevant to users as it is more consistent with asset management peers. Refer Basis of preparation (a)(iii).
The net cash flows from investing activities for the year ended 31 December 2018 did not include cash consideration received from the disposal
of the UK and European insurance business of £1,971m but included the cash and cash equivalents of £7,472m at the date of disposal.
150 Standard Life Aberdeen 2019
12. 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 11.2p (2018: 29.1p) and diluted earnings per share was 11.1p (2018: 29.1p) for the year ended 31 December
2019. 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 shareholders 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 shareholders 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
2019
Continuing
operations
£m
Discontinued
operations
£m
584
(69)
(46)
469
(5)
464
(333)
41
38
–
210
–
–
–
–
–
–
56
–
–
–
56
Continuing
operations
£m
2018
Discontinued
operations
£m
650
(95)
(43)
512
(5)
507
(1,397)
52
3
–
210
(77)
–
133
–
133
1,519
41
–
(28)
(835)
1,665
Total
£m
584
(69)
(46)
469
(5)
464
(277)
41
38
–
266
Millions
2,374
32
2,406
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
Pence
Pence
8.9
8.8
19.5
19.3
2.3
2.3
–
–
11.2
11.1
19.5
19.3
Pence
(29.3)
(29.3)
17.8
17.8
Pence
Pence
58.4
58.4
4.7
4.7
29.1
29.1
22.5
22.5
Details of the share options and awards which may be treated as dilutive are provided in Note 44. 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 ended 31 December 2018 followed by a return of capital
to shareholders. In accordance with IAS 33, earnings per share has 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 (refer Note
26), earnings per share from continuing operations for the year ended 31 December 2019 and the year ended 31 December 2018 are not
directly comparable.
Standard Life Aberdeen 2019
151
Financial inFormation
7. Group financial statements continued
13. 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 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.
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, coupons paid on perpetual debt instruments classified as equity for which interest is only
accounted for when paid is excluded from adjusted profit. This includes our share of interest payable on Tier 1 debt instruments held by
associates. Coupons payable on perpetual debt instruments classified as equity for which interest is accrued are included in adjusted profit
before tax.
Investment return variances and economic assumptions changes – insurance entities
(a)
Wholly owned insurance entities
The Group’s UK and European insurance business was sold during the year ended 31 December 2018 and was classified as discontinued
operations in 2018. The Group’s other wholly owned insurance business, SL Asia, is classified as held for sale (refer Note 23).
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 UK and European insurance annuities this meant that all fluctuations in liabilities and the assets backing those liabilities due to market
interest rate (including credit risk) movements over the year were excluded from adjusted profit.
The expected rates of return for debt securities and equity securities were determined separately for the UK and European insurance business.
The expected rates of return for equity securities were determined based on the gilt spot rates of an appropriate duration plus an equity risk
premium (2018: 3%). Investments in pooled investment funds which target equity returns over the longer term, including absolute return funds,
also used an expected rate of return determined based on the gilt spot rates of an appropriate duration plus a risk premium (2018: 3%).
In respect of debt securities at fair value through profit or loss, the expected rate of return was determined based on the average prospective
yields for the debt securities actually held.
For UK and European insurance business, the expected rates of return used for both the assets backing subordinated liabilities and the
subordinated liabilities themselves included a discount for expected credit defaults. This meant that the interest expense included in adjusted
profit for subordinated liabilities was 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, was also 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 related principally to the impact of
interest rate changes on UK annuity liabilities and the assets backing those liabilities.
152 Standard Life Aberdeen 2019
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 £140m (2018: £nil)
relating to the settlement of arbitration with LBG. Refer Note 5. Also included is (£16m) (2018: £nil) in relation to the impairment of property right-
of-use assets, £12m (2018: £nil) in relation to the alignment of the reporting period of HDFC Asset Management and £61m (2018: £3m) net fair
value movements in contingent consideration. In 2019, £56m of the £61m fair value gain is in relation to discontinued operations.
The other adjusting item in 2018 relating to discontinued operations included 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.
14. 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.
2019
Pence per share
14.30
7.30
14.30
£m1
345
173
518
322
2018
Pence per share
14.30
7.30
14.30
£m
420
214
634
345
The final recommended dividend will be paid on 19 May 2020 to shareholders on the Company’s register as at 3 April 2020, subject to approval
at the 2020 Annual General Meeting. After the current year final recommended dividend, the total dividend in respect of the year ended 31
December 2019 is 21.60p (2018: 21.60p).
During the year ended 31 December 2018, 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.
Standard Life Aberdeen 2019
153
Financial inFormation
7. Group financial statements continued
15.
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 intangible assets 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 (refer 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.
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 2018
Reclassified as held for sale
during the year
Additions
Disposals and adjustments
Other
At 31 December 2018
Additions
Other
At 31 December 2019
Accumulated amortisation and
impairment
At 1 January 2018
Reclassified as held for sale
during the year
Amortisation charge for the year
Impairment losses recognised2
At 31 December 2018
Amortisation charge for the year
Impairment losses recognised2
6
6
At 31 December 2019
Carrying amount
At 1 January 2018
At 31 December 2018
At 31 December 2019
3,442
93
982
(18)
14
–
–
3,438
37
–
3,475
–
–
–
–
93
–
–
93
(15)
(7)
–
–
(891)
(906)
–
(1,569)
(2,475)
3,427
2,532
1,000
–
(19)
–
(26)
(19)
–
(45)
86
67
48
–
37
–
–
1,019
13
(1)
1,031
(208)
–
(143)
(35)
(386)
(111)
–
(497)
774
633
534
74
(6)
–
(1)
–
67
–
–
67
(34)
6
(13)
–
(41)
(13)
(1)
(55)
40
26
12
403
(311)
29
–
–
121
10
–
131
66
(67)
4
1
–
4
3
(4)
3
(247)
(46)
204
(16)
–
(59)
(20)
(1)
(80)
156
62
51
46
–
–
–
(1)
–
(1)
20
4
2
11
–
79
–
6
96
2
(2)
96
–
–
(16)
–
(16)
(20)
–
(36)
11
80
60
Total
£m
5,071
(402)
163
–
6
4,838
65
(7)
4,896
(557)
256
(207)
(926)
(1,434)
(184)
(1,571)
(3,189)
4,514
3,404
1,707
1
2
Included in the internally developed software of £51m (2018: £62m) is £6m (2018: £13m) relating to intangible assets not yet ready for use.
Included in the 2019 goodwill impairment losses recognised of £1,569m (2018: £891m) is an impairment of £1,569m (2018: £880m) recognised on asset management
goodwill and shown separately in the consolidated income statement and £nil (2018: £11m) included in other administrative expenses in Note 6.
The Group’s goodwill has been acquired through a series of business combinations. Of the Group’s goodwill of £1,000m (2018: £2,532m) at 31
December 2019, £915m (2018: £2,483m) is attributed to the asset management group of cash-generating units, which comprises the Group’s
asset management business excluding HDFC Asset Management, in the Asset management, platforms and wealth segment. The remaining
goodwill of £85m (2018: £49m) is attributable to a number of smaller cash-generating units in the Asset management, platforms and wealth
segment.
154 Standard Life Aberdeen 2019
On the acquisition of AAM PLC in 2017, 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 asset management group of cash-generating units in relation to the acquisition of AAM PLC in 2017.
In attributing the goodwill relating to the acquisition of AAM PLC 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 was expected to arise across Aberdeen Standard
Investments (a combination of AAM PLC and Standard Life Investments now managed and reported together within the Asset management,
platforms and wealth segment) we judged it was appropriate to allocate goodwill to this asset management group of cash-generating units. This
is the lowest level at which goodwill is monitored for internal management purposes.
Customer relationships
The customer relationships acquired through AAM PLC 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 AAM PLC and open ended fund customers, rather than an intangible asset relating to investment management agreements between
AAM PLC and AAM PLC’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 of 14 August 2017 was as
follows:
Customer relationship
intangible asset
Description
Lloyds Banking
Group
Customer relationship with Lloyds Banking Group,
including Scottish Widows Group.
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.
Useful life at
acquisition
date
Fair value on
acquisition
date
£m
Carrying
value
2019
£m
Carrying
value
2018
£m
4 years
11 years
12 years
78
223
427
–
111
280
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 was primarily based on recent experience.
Market growth – a market growth adjustment was applied based on the asset class
Operating margin – this assumption was consistent with forecast margins and included the impact of synergies that would be expected by any
market participant and impacted the Aberdeen customer relationship cash flows
Discount rate – this assumption was 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.
There has been no change to the useful lives of the Open ended funds and Segregated and similar customer relationship intangible assets.
Therefore the residual useful life of the Open ended funds customer relationship intangible asset is 8.6 years and the residual life of the
Segregated and similar customer relationship intangible asset is 9.6 years.
Standard Life Aberdeen 2019
155
Financial inFormation
7. Group financial statements continued
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 other intangible assets, an assessment is made at each reporting date as to whether there is an indication that the intangible asset has
become impaired. If any indication of impairment exists then the recoverable amount of the asset is determined. 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
cash flows. Where the carrying value exceeds the recoverable amount then the carrying value is written down to the recoverable amount.
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 2019 of £1,569m relates to an impairment of asset management goodwill (2018: £880m), the group of cash-
generating units for which is our asset management business excluding HDFC Asset Management. The impairment charge is in the Asset
management, platforms and wealth segment. The impairment resulted from the impact of 2019 net outflows, market conditions and
competitive pricing on future revenue projections. Further details relating to 2019 net outflows, fee based revenue and fee revenue yield are
included in the Chief Financial Officer’s overview in the Strategic report. The impairment has been included within administrative expenses in
the consolidated income statement.
The recoverable amount of this group of cash-generating units, which is based on value in use (VIU) at 31 December 2019, is £2,603m
(2018: £4,111m). This is also the carrying value at the year end. The key assumptions are discount rate, growth rate and forecast cash flows.
The VIU calculation uses a pre-tax discount rate of 11.9% (2018: 11.1%). This is based on the Group/ peer companies cost of equity adjusted
for forecasting risk. The risk free rate used in determining the cost of equity is based on 20-year gilts. The increase in the discount rate
compared to 2018 reflects increased risk in variation of cash flows due to inherently uncertain market and sector conditions, and takes into
account that future revenue projections are now significantly lower than previously forecast and used in the prior year impairment review. The
VIU calculation uses a terminal growth rate of 2.2% (2018: 2.2%) based on global GDP growth and inflation.
The VIU calculation used cash flow projections for three years to end 2022 which were based on management approved profit forecasts
adjusted to market conditions at 31 December 2019, with the terminal growth rate used for subsequent years. Three years of projections is in
line with our business planning process. Profits were adjusted to a cash flow basis, e.g. amortisation and depreciation removed.
Key assumptions used by management in setting the three-year profit forecasts are:
Revenue is modelled based on future levels of assets under management and fee revenue yields by asset class
Assets under management is modelled from future net flow assumptions and market movements. Net flow assumptions take into account
past experience, the pipeline of sales, improved investment performance, the withdrawal of LBG assets and assume a reduction in
institutional channel redemptions over the three-year forecast period. Market assumptions assume modest equity market growth, for
example UK equity market growth of 3% per annum (excluding dividends).
Fee revenue yields reflect past experience adjusted to assume a decline relative to 2019 due to market pressure on margins
Cost forecasts are based on function level budgets, which are based on past experience adjusted to assume the delivery of planned
expense savings over the three-year planning period
Where future expense savings relating to staff and property costs require provisions to be made in future years, IFRS does not permit these
expense savings to be allowed for in VIU calculations. Consequently, for the purpose of the VIU calculation these expense savings (and the
related implementation costs) have been added back to management’s expectation of the level of future operating expenses.
The following table shows the consequence of illustrative downside sensitivities of key assumptions on the carrying amount of the goodwill
balance at 31 December 2019. As the year end carrying value is the recoverable amount any downside sensitivity will lead to a further future
impairment loss.
Reduction in terminal growth rate of 0.2%
Discount rate increased by 1%
Forecast cash flows reduced by 20%
Goodwill
£m
61
284
550
Customer relationship and investment management contract 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.
In 2019, no indicators of impairment have been identified in relation to customer intangible assets reflecting the impact of higher market levels
156 Standard Life Aberdeen 2019
on assets under management, and associated revenues, and the amortisation of the customer intangible assets in the year.
The 2018 impairment of £35m related to the open-ended funds customer relationship intangible asset which is in the Asset management,
platforms and wealth segment. The impairment resulted from the impact of markets and flows on future earnings expectations. The
recoverable amount of this asset was calculated using a pre-tax discount rate of 13.1%.
There have been no previous impairment charges recognised on the segregated and similar customer relationship intangible asset
recognised on the acquisition of Aberdeen.
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 can be 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.
Standard Life Aberdeen 2019
157
Financial inFormation
7. 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, 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. In general, investment
vehicles which are not subsidiaries are considered to be associates where the Group holds more than 20% of the voting rights.
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, certain local laws or foreign
currency transaction restrictions.
(a)
Investments in associates and joint ventures accounted for using the equity method
At 1 January
Reclassified from held for sale
Exchange translation adjustments
Additions
Disposals
Profit after tax
Other comprehensive income
Dilution gains
Reversal of impairment/ (impairment)
Distributions of profit
At 31 December
2019
Joint
ventures
£m
Associates
£m
Total Associates
£m
£m
2018
Joint
ventures
£m
1,260
–
(16)
–
(178)
63
(22)
–
243
(93)
1,257
184
–
(11)
51
–
16
12
–
–
–
252
1,444
–
(27)
51
(178)
79
(10)
–
243
(93)
1,509
404
8
(15)
1,023
–
121
(16)
7
(228)
(44)
1,260
99
–
3
72
–
9
1
–
–
–
184
Total
£m
503
8
(12)
1,095
–
130
(15)
7
(228)
(44)
1,444
158 Standard Life Aberdeen 2019
The following associates and joint ventures are considered to be material to the Group as at 31 December 2019.
Name of associate
Phoenix Group Holdings plc
(Phoenix)
HDFC Life Insurance Company
Limited (HDFC Life)
HDFC Asset Management
Company Limited (HDFC Asset
Management)
Heng An Standard Life Insurance
Company Limited (HASL)
Nature of
relationship
Associate
Associate
Principal
place of
business
United
Kingdom
India
Associate
India
Measurement
Method
Equity
Accounted
Equity
Accounted
Equity
Accounted
Joint
venture
China
Equity
Accounted
Interest held by
the Group at 31
December 2019
Fair value of
interest held by
the Group at
31 December
2019
Interest held by
the Group at 31
December 2018
Fair value of
interest held by
the Group at
31 December
2018
19.97%
1,079
19.98%
14.73%
1,968
29.23%
26.91%
1,937
29.96%
812
2,567
1,077
50.00%
n/a
50.00%
n/a
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. The material associates are all listed. HASL is not listed.
Investments in associates accounted for using the equity method
(b)
The table below provides 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
2019
£m
2018
£m
HDFC Life
2019
£m
2018
£m
HDFC Asset
Management1
2019
£m
2018
£m
Summarised financial information of
associate:
Revenue
Profit after tax (all from continuing
operations)
Other comprehensive income
Total comprehensive income
Total assets2
Total liabilities2
Net assets
Attributable to NCI and other equity
holders
Attributable to investee’s shareholder
Interest held
Share of net assets
4,182
1,409
3,617
3,072
28
(110)
(82)
366
(76)
290
242,666 230,111
237,043 224,042
6,069
5,623
128
–
128
14,607
13,818
789
118
–
118
13,349
12,598
751
276
170
–
170
388
27
361
207
83
–
83
336
23
313
788
5,281
808
4,815
–
313
19.97% 19.98% 14.73% 29.23% 26.91% 29.96%
94
–
361
–
789
–
751
1,055
220
962
116
97
Carrying value of associates accounted
for using the equity method
Dividends received3
Share of (loss)/profit after tax
Phoenix
2019
£m
2018
£m
HDFC Life
2019
£m
2018
£m
961
67
(5)
812
33
65
167
9
26
329
–
31
HDFC Asset
Management
2019
£m
120
17
42
2018
£m
110
14
26
Other
Total
2019
£m
2018
£m
2019
£m
2018
£m
9
–
–
9
–
(1)
1,257
93
63
1,260
47
121
1 Revenue and profit after tax for HDFC Asset Management presented are for the 15 months to 31 December 2019 (2018: 12 months to September 2018). Total assets and
total liabilities presented are as at 30 September 2019 (2018: 30 September 2018) as the statement of financial position at 31 December 2019 was not made publicly available.
(Refer below for details of accounting period alignment).
2 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 Asset Management’s assets and liabilities are current.
3 2018 dividend received from HDFC Asset Management includes £3m on interest that was classified as held for sale.
Standard Life Aberdeen 2019
159
Financial inFormation
7. Group financial statements continued
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 is 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.
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 comprised 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 was 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 incorporated a number of judgements and assumptions which impacted
the resultant valuation, the most significant of which were 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.
There has been no change to the useful lives of the SLAL AVIF and Existing Phoenix AVIF. Therefore the residual useful lives of these assets at
31 December 2019 are 22.7 years and 13.7 years respectively.
The determination of longevity and persistency actuarial assumptions is also a key judgement in the determination of the Phoenix profits for 2019
and therefore the Group’s carrying value of Phoenix at 31 December 2019.
Estimates and assumptions
A key area of estimation is determining the recoverable amount of Phoenix on a value in use basis for the purpose of assessing impairment.
We consider that under IAS 28 the market value of Phoenix represents the best estimate of the present value of future dividends and
therefore this market value is used as the value in use. As the value in use is based on the market value, a discount rate is not determined.
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. During the 12 months ended 31
December 2018 an impairment loss of £243m was recognised on the Group’s interest in Phoenix, of which £15m arose at acquisition and
was offset against the bargain purchase gain giving a loss on impairment in the consolidated income statement for the year ended 31
December 2018 of £228m.
At 31 December 2019 the market value of the Group’s interest in Phoenix was £1,079m and this has been used as the value in use. On this
basis, a reversal of the impairment above of £243m has been recognised in the consolidated income statement for the year ended 31
December 2019.
The determination that market value should be used as the value in use is an area of judgement. If the recoverable amount falls below the
carrying value in a future period this will result in a future impairment.
160 Standard Life Aberdeen 2019
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 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) are set out below together with 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 basis
Financial assets other than those above2
Total
Fair value as at
31 December 2019
£m
Fair value as at
31 December 20181
£m
6,197
218,355
224,552
6,526
204,398
210,924
1 Comparative figures have been restated by Phoenix to ensure a consistent presentation for all similar items across all Phoenix subsidiaries following the acquisition of the UK
and European insurance business.
2 The change in fair value in the year to 31 December 2019 of all other financial assets that are FVTPL is a gain of £20,231m (4 months ended 31 December 2018: loss of
£11,509m).
An analysis of credit ratings of financial assets with contractual cash flows that are SPPI, excluding those held for trading or managed on a fair
value basis, is provided below:
2019
Carrying value
Loans and deposits
Cash and cash equivalents
Accrued income
Other receivables
2018
Carrying value
Loans and deposits
Cash and cash equivalents
Accrued income
Other receivables
AAA
£m
–
295
–
–
295
AAA
£m
–
327
–
–
327
AA
£m
21
733
–
–
754
AA
£m
7
947
–
–
954
A
£m
47
3,105
–
–
3,152
A
£m
46
1,836
–
–
1,882
BBB
£m
164
23
–
–
187
BBB
£m
–
1,265
–
–
1,265
BB and
below
Non-rated
Unit-linked
£m
–
–
–
–
–
£m
284
142
160
1,183
1,769
£m
–
40
–
–
40
BB and
below
Non-rated Unit-linked
£m
–
–
–
–
–
£m
370
450
151
1,026
1,997
£m
–
101
–
–
101
Total
£m
516
4,338
160
1,183
6,197
Total
£m
423
4,926
151
1,026
6,526
HDFC Life
HDFC Life is one of India’s leading life insurance companies. The investment in HDFC Life allows the Group to benefit from the life insurance
market in one of the world’s fastest growing economies.
During 2019 the Group reduced its interest in HDFC Life to 14.73%. Refer Note 1 for further details. Whilst the Group’s remaining interest is less
than 20%, being the threshold where significant influence is presumed, our judgement is that HDFC Life should continue to be classified as an
associate. This judgement takes into account other key indicators of significant influence including the Group’s representation on the Board of
HDFC Life and the Group’s ability to participate in policy-making processes including decisions about dividends or other distributions that require
unanimous Board approval under the articles of association.
The difference between the carrying value of this associate and the Group’s current share of net assets is due primarily to goodwill of £49m
arising from additional investments being made at fair value rather than book value. (2018: £104m.)
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.
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 over 90% of its total liabilities. Therefore HDFC Life was eligible to defer the implementation of IFRS 9 for equity
accounting purposes.
Standard Life Aberdeen 2019
161
Financial inFormation
7. Group financial statements continued
The fair value of HDFC Life’s financial assets at 31 December 2019 that remain under IAS 39 for equity accounting purposes and the change in
fair value during the year ended 31 December 2019 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 basis1,2
Financial assets other than those above2
Total
Fair value as at
31 December 2019
£m
Fair value as at
31 December 2018
£m
6,871
8,046
14,917
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 2019 is £6,659m (2018: £5,642m). Securities with fair value and carrying value of £34m (2018: £10m) are rated
below BBB.
2 The change in fair value in the year to 31 December 2019 for financial assets that are SPPI (excluding those held for trading or managed on a fair value basis) is a gain of
£758m (2018: £385m). The change in fair value for all other financial assets is a gain of £727m (2018: £116m).
HDFC Asset Management
HDFC Asset Management manages a range of mutual funds and provides portfolio management and advisory services. The investment in
HDFC Asset Management is a strategic investment in a leading asset manager in India, one of the world’s fastest growing markets.
On 6 August 2018, HDFC Asset Management 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.
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 Asset Management from employees.
The year end date of HDFC Asset Management 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 for the period to 31 December is used for
HDFC Asset Management. In previous years, financial information for the 12 months to 30 September was used for HDFC Asset Management.
The Group’s share of HDFC Asset Management’s profits for the 15 months to 31 December 2019, being £42m which includes £7m related to
the 3 months to 31 December 2018 (£12m net of tax of £5m), has been recognised in the consolidated income statement. Profits for the 3
months to 31 December 2018 have been excluded from adjusted profit (Refer Note 13).
(c)
Investments in joint ventures
Carrying value of joint ventures accounted for using the
equity method
Dividends received
Share of profit/(loss) after tax
HASL
2019
£m
205
–
20
2018
£m
184
–
9
Other
2019
£m
47
–
(4)
2018
£m
–
–
–
Total
2019
£m
252
–
16
2018
£m
184
–
9
The Group’s share of the profit after tax (all from continuing operations) and total comprehensive income of other joint ventures was a loss of
£4m (2018: £nil).
HASL
The Group has a 50% share in HASL, one of China’s leading life insurance companies offering life and health insurance products. The
investment in HASL is a strategic investment giving the Group access to one of the world’s largest markets.
On 25 September 2018, the Group made a US$95m (£72m) capital contribution to HASL. The Group’s interest remained at 50%.
162 Standard Life Aberdeen 2019
The table below provides summarised financial information for HASL, the joint venture which is considered to be material to the Group. The
summarised financial information reflects the amounts presented in the financial statements of HASL amended to reflect adjustments made
when using the equity method.
Summarised financial information of joint venture:
Revenue
Depreciation and amortisation
Interest income
Interest expense
Income tax (expense)/income
Profit after tax (all from continuing operations)
Other comprehensive income
Total comprehensive income
Total assets1
Total liabilities1
Cash and cash equivalents
Net assets
Attributable to investee’s shareholder
Interest held
Share of net assets
HASL
2019
£m
426
3
57
2
6
41
25
66
1,957
1,547
67
410
410
50%
205
2018
£m
361
2
49
3
(6)
17
1
18
1,714
1,347
208
367
367
50%
184
1 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 HASL.
At 31 December 2015 HASL had significant insurance liabilities and its liabilities arising from contracts within the scope of IFRS 4 and liabilities
connected with insurance were over 90% of its total liabilities. Therefore HASL was eligible to defer the implementation of IFRS 9 for equity
accounting purposes.
The fair value of HASL’s financial assets at 31 December 2019 that remain under IAS 39 for equity accounting purposes and the change in fair
value during the year ended 31 December 2019 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 basis1,2
Financial assets other than those above2
Total
Fair value as at
31 December 2019
£m
Fair value as at
31 December 2018
£m
1,344
598
1,942
1,338
365
1,703
1 Financial assets that are SPPI (excluding those held for trading or managed on a fair value basis) are predominantly AAA debt instruments. Their carrying value at 31
December 2019 is £1,321m (2018: £1,321m). No securities are rated below BBB (2018: none).
2 The change in fair value in the year to 31 December 2019 for financial assets that are SPPI (excluding those held for trading or managed on a fair value basis) is a gain of
£63m (2018: £80m). The change in fair value for all other financial assets is a gain of £68m (2018: loss of £12m).
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 (refer Note
19) at 31 December 2019 is £45m (2018: £34m) none of which are considered individually material to the Group.
Standard Life Aberdeen 2019
163
Financial inFormation
7. Group financial statements continued
17. 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 along with right-of-use assets for leased property and equipment.
Owner occupied property: Owner occupied property is initially recognised at cost and subsequently 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: Equipment is initially recognised at cost and 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.
Right-of-use asset: Refer Note 18 below for the accounting policies for right-of-use assets.
Owner
occupied
property
£m
Right-of-use
assets –
property
£m
Right-of-use
assets –
equipment
£m
Equipment
£m
Notes
Cost or valuation
At 1 January 2018
Reclassified as held for sale during the year
Additions
Disposals and adjustments2
Foreign exchange adjustment
At 31 December 2018
Right-of-use assets recognised on implementation of
IFRS 161
At 1 January 2019
Additions
Disposals and adjustments2
Derecognition of right-of-use assets relating to
subleases classified as finance leases
Foreign exchange adjustment
At 31 December 2019
Accumulated depreciation and impairment
At 1 January 2018
Reclassified as held for sale during the year
Depreciation charge for the year
Disposals and adjustments2
Foreign exchange adjustment
At 31 December 2018
Right-of-use assets recognised on implementation of
IFRS 161
At 1 January 2019
Depreciation charge for the year
Disposals and adjustments2
Derecognition of right-of-use assets relating to
subleases classified as finance leases
Impairment
Foreign exchange adjustment
At 31 December 2019
Carrying amount
At 1 January 2018
At 31 December 2018
At 1 January 2019
At 31 December 2019
6
6
81
(79)
–
–
–
2
–
2
–
–
–
–
2
–
–
–
–
–
–
–
–
–
–
–
–
–
–
81
2
2
2
182
(108)
28
(4)
3
101
–
101
28
(3)
–
(1)
125
(117)
91
(16)
2
(2)
(42)
–
(42)
(18)
1
–
–
–
(59)
65
59
59
66
–
–
–
–
–
–
354
354
74
(9)
(11)
(4)
404
–
–
–
–
–
–
(176)
(176)
(28)
3
8
(16)
2
(207)
–
–
178
197
–
–
–
–
–
–
1
1
1
–
–
–
2
–
–
–
–
–
–
–
–
(1)
–
–
–
–
(1)
–
–
1
1
Total
£m
263
(187)
28
(4)
3
103
355
458
103
(12)
(11)
(5)
533
(117)
91
(16)
2
(2)
(42)
(176)
(218)
(47)
4
8
(16)
2
(267)
146
61
240
266
1 The Group has initially applied IFRS 16 at 1 January 2019. Under the transition methods chosen, comparative information is not restated and the cumulative effect of initially
applying these standards is recognised in retained earnings at the date of initial application. Refer Basis of preparation.
2 For the year ended 31 December 2019 £nil (2018: £nil) of disposals and adjustments relates to equipment with net book value of £nil which is no longer in use.
164 Standard Life Aberdeen 2019
Included in property right-of-use assets, are right-of-use assets that meet the definition of investment property. Their carrying amount at 31
December 2019 is £28m (1 January 2019: £24m). During the year to 31 December 2019 there were additions of £26m, depreciation of £2m,
derecognitions related to new subleases classified as finance leases £4m and impairments of £16m related to these assets. Rental income
received and direct operating expenses incurred to generate that rental income in the year to 31 December 2019 were £2m and £3m
respectively.
The fair value of these right-of-use assets at 31 December 2019 is £28m. The valuation technique used to determine the fair value considers the
rental income expected to be received under sub-leases during the term of the lease and the direct expenses expected to be incurred in
managing the leased property, discounted using a discount rate that reflects the risks inherent in the cash flow estimates. It is not based on
valuations by an independent valuer. This is a Level 3 valuation technique as defined in Note 40.
The impairment charge of £16m, which has been included in other administrative expenses in the consolidated income statement, relates to a
leased property that is vacant at 31 December 2019 awaiting subletting. The recoverable amount of the property right-of-asset is its value in use
of £11m and is reported in the asset management, platforms and wealth segment.
If owner occupied property was measured using the cost model, the historical cost before impairment would be £2m (2018: £2m). As the
expected residual value of owner occupied property is in line with the current fair value, no depreciation is currently charged.
Further details on the leases under which the Group’s right-of-use assets are recognised are provided in Note 18 below.
18. Leases
On 1 January 2019, the Group adopted IFRS 16 Leases. Refer Basis of preparation for details of the transition from the previous leasing
standard, IAS 17 to IFRS 16.
As the Group has not restated comparative information, the classification and measurement of leases at 31 December 2019 is in accordance
with IFRS 16 while the classification and measurement of leases at 31 December 2018 is in accordance with IAS 17.
Classification and measurement in accordance with IFRS 16
Under IFRS 16, a contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time
in exchange for consideration. At inception of a contract, the Group assesses whether a contract is, or contains, a lease. However, as noted in
the Basis of preparation, the Group used the practical expedient permitted under IFRS 16 to apply the new standard at transition solely to
leases previously identified in accordance with IAS 17 and IFRIC 4 Determining whether an Arrangement Contains a Lease.
Right-of-use assets are measured at cost less accumulated depreciation and impairment losses and are presented in property, plant and
equipment (refer Note 17). The Group does not revalue its right-of-use assets. This applies to all right-of-use assets, including those that are
assessed as meeting the definition of investment property. The cost comprises the amount of the initial measurement of the lease liability plus
any initial direct costs and expected restoration costs not relating to wear and tear. Costs relating to wear and tear are expensed over the term
of the lease. Depreciation is charged on right-of-use assets on a straight line basis from the lease commencement date to the earlier of the
end of the useful life of the right-of-use asset or the end of the lease term. The Group assesses right-of-use assets for impairment when such
indicators exist, and where required, reduces the value of the right-of-use asset accordingly.
The related lease liability (included in other financial liabilities – refer Note 36) is calculated as the present value of the future lease payments.
The lease payments are discounted using the rate implicit within the lease where readily available or the Group’s incremental borrowing rate
where the implicit rate is not readily available. Interest is calculated on the liability using the discount rate and is charged to the consolidated
income statement under finance costs.
In determining the value of the right-of-use assets and lease liabilities, the Group considers whether any leases contain lease extensions or
termination options that the Group is reasonably certain to exercise.
Where a leased property has been sublet, the Group assesses whether the sublease has transferred substantially all the risk and rewards of
the right-of-use asset to the lessee under the sublease. Where this is the case, the right-of-use asset is derecognised and a net investment in
finance leases (included in Receivables and other financial assets – refer Note 21) is recognised, calculated as the present value of the future
lease payments receivable under the sublease. Where a property is only partially sublet, only the portion of the right-of-use asset relating to
the sublet part of the property is derecognised and recognised as a net investment in finance leases.
Any difference between the initial value of the net investment in finance leases and the right-of-use asset derecognised is recognised in the
consolidated income statement (within other income or expenses). Interest is calculated on the net investment in finance lease using the
discount rate and is recognised in the consolidated income statement as interest income.
Where the sublease does not transfer substantially all the risk and rewards of the right-of-use assets to the lessee under the sublease, the
Group continues to recognise the right-of-use asset. The sub-lease is accounted for as an operating lease with the lease payments received
recognised as property rental income in other income in the consolidated income statement. Lease incentives granted are recognised as an
integral part of the property rental income and are spread over the term of the lease.
The Group does not recognise right-of-use assets and lease liabilities for short-term leases (less than 1 year from inception) and leases
where the underlying asset is of low value.
Classification and measurement in accordance with IAS 17 in respect of prior periods
Under IAS 17, a contract was or contained a lease based on the assessment of whether fulfilment of the arrangement was dependent on the
use of a specific asset or assets; and the arrangement had conveyed a right to use the asset.
All the Group‘s leases as lessee were classified as operating leases under IAS 17. Operating lease rentals were recognised in the
consolidated income statement on a straight line over the term of the lease. Lease incentives received such as rent free periods were
recognised as an integral part of the operating lease rental expense and were spread over the term of the lease.
Standard Life Aberdeen 2019
165
Financial inFormation
7. Group financial statements continued
Under IAS 17, all the Group’s subleases were also classified as operating leases. Unlike IFRS 16 where the assessment of whether a
sublease is a finance or operating lease is based on the head lease right-of-use asset, the IAS 17 assessment was based on the underlying
asset e.g. the building for property leases. IFRS 16 did not change the lessor accounting for operating leases.
(a) Leases where the Group is lessee
The Group leases various offices and equipment used to carry out its business. Leases are generally for fixed periods but may be subject to
extensions or early termination clauses. The remaining periods for current leases range from less than 1 year to 19 years. A number of leases
which are due to end in 2031 contain options that would allow the Group to extend the lease term. The Group reviews its property use on an
ongoing basis and these extensions have not been included in the right-of-use asset or lease liability calculations.
The Group has recognised the following assets and liabilities in relation to these leases where the Group is a lessee:
Right-of-use assets:
Property
Equipment
Total right-of-use assets
Lease liabilities
The following table provides a maturity analysis of the contractual undiscounted cash flows for the lease liabilities:
Less than 1 year
Greater than or equal to 1 year and less than 2 years
Greater than or equal to 2 years and less than 3 years
Greater than or equal to 3 years and less than 4 years
Greater than or equal to 4 years and less than 5 years
Greater than or equal to 5 years and less than 10 years
Greater than or equal to 10 years and less than 15 years
Greater than or equal to 15 years
Total undiscounted lease liabilities
2019
£m
197
1
198
(268)
2019
£m
33
29
28
26
23
102
57
14
312
Details of the movements in the Group’s right-of-use assets including additions and depreciation are included in Note 17.
The interest on lease liabilities for the year ended 31 December 2019 was £7m.
The Group does not recognise right-of-use assets and lease liabilities for short-term leases and leases where the underlying asset is of low
value. The expenses for these leases for the year ended 31 December 2019 were £2m. The Group lease commitment for short-term leases was
£nil at 31 December 2019.
Prior to the implementation of IFRS 16, the Group accounted for all leases where the Group was the lessee as operating leases and recorded an
operating lease rental expense of £50m for the year ended 31 December 2018. The Group’s commitment under operating leases was £250m at
31 December 2018. Refer to Basis of preparation for the reconciliation of this lease commitment on a discounted basis to the opening lease
liabilities on implementation of IFRS 16 at 1 January 2019.
The total cash outflow for lease liabilities recognised in the consolidated statement of cash flows for the year ended 31 December 2019 was
£32m.
(b) Leases where the Group is lessor (subleases)
Where the Group no longer requires a leased property, the property may be sublet to a third party. The sublease may be for the full remaining
term of the Group’s lease or only part of the remaining term.
At 31 December 2019, the Group had a net investment in finance leases asset of £15m for subleases which had transferred substantially all the
risk and rewards of the right-of-use assets to the lessee under the sublease. All other sub-leases are accounted for as operating leases. Prior to
the implementation of IFRS 16, all the Group’s subleases were accounted for as operating leases. The net investment in finance leases
recognised at 1 January 2019 on implementation of IFRS 16 was £7m. The increase during the year ended 31 December 2019 was mainly due
to four new subleases entered into during the year.
166 Standard Life Aberdeen 2019
(b)(i) Finance leases
During the year ended 31 December 2019, the Group received finance income on the net investment in finance leases asset of less than £1m.
The Group recorded an initial gain of £4m in relation to new sub-leases entered into during the year ended 31 December 2019.
The following table provides a maturity analysis of the future contractual undiscounted cash flows for the net investment in finance leases and a
reconciliation to the net investment in finance leases asset:
Less than 1 year
Greater than or equal to 1 year and less than 2 years
Greater than or equal to 2 years and less than 3 years
Greater than or equal to 3 years and less than 4 years
Greater than or equal to 4 years and less than 5 years
Greater than or equal to 5 years and less than 10 years
Greater than or equal to 10 years and less than 15 years
Total contractual undiscounted cash flows under finance leases
Unearned finance income
Total net investment in finance leases
2019
£m
2
2
2
1
1
7
2
17
(2)
15
(b)(ii) Operating leases
During the year ended 31 December 2019, the Group received property rental income from operating leases of £2m.
The following table provides a maturity analysis of the future contractual undiscounted cash flows for subleases classified as operating leases:
Less than 1 year
Greater than or equal to 1 year and less than 2 years
Greater than or equal to 2 years and less than 3 years
Greater than or equal to 3 years and less than 4 years
Greater than or equal to 4 years and less than 5 years
Greater than or equal to 5 years and less than 10 years
Greater than or equal to 10 years and less than 15 years
Total contractual undiscounted cash flows under operating leases
1 Subleases classified as operating leases under IAS 17.
2019
£m
20181
£m
3
3
2
–
–
–
–
8
4
3
3
3
1
5
1
20
Standard Life Aberdeen 2019
167
Financial inFormation
7. Group financial statements continued
19. Financial assets
On 1 January 2019, the Group adopted IFRS 9 Financial Instruments. Refer Basis of preparation for details of the transition from the previous
financial instruments standard, IAS 39 to IFRS 9.
As the Group has not restated comparative information, the classification and measurement of financial assets at 31 December 2019 is in
accordance with IFRS 9 while the classification and measurement of financial assets at 31 December 2018 is in accordance with IAS 39.
Classification and measurement in accordance with IFRS 9
Financial assets are initially recognised at their fair value. Subsequently all equity securities and interests in pooled investment funds and
derivative instruments are measured at fair value. All equity securities and interests in pooled investment funds are classified as FVTPL on a
mandatory basis. Changes in their fair value are recognised in investment return in the consolidated income statement. The classification of
derivatives and the accounting treatment of derivatives designated as a hedging instrument are set out in Note 20.
The subsequent measurement of debt instruments depends on whether their cash flows are solely payments of principal and interest and the
nature of the business model they are held in as follows:
SPPI1 test satisfied?
Yes
Yes
Yes
No
Business model
A: Objective is to hold to collect contractual cash flows
B: Objective is achieved by both collecting contractual cash
flows and selling
C: Objective is neither A nor B
N/A
IFRS 9 classification
Amortised cost2
Fair value through other comprehensive
income (FVOCI)2
FVTPL
FVTPL
1 Solely payments of principal and interest.
2 May be classified as FVTPL if doing so eliminates or significantly reduces a measurement or recognition inconsistency (sometimes referred to as an ‘accounting
mismatch’) that would otherwise arise from measuring assets or liabilities or recognising the gains and losses on them on different bases.
The Group has no debt instruments that are managed within a business model whose objective is achieved both by collecting contractual
cash flows and selling and therefore there are no debt instruments classified as FVOCI. Debt instruments classified as FVTPL are classified
as such due to the business model they are managed under, predominantly being held in consolidated investment vehicles.
The methods and assumptions used to determine fair value of financial assets at FVTPL are discussed in Note 40.
Amortised cost is calculated, and related interest is credited to the consolidated income statement, using the effective interest method.
Impairment is determined using an expected credit loss impairment model which is applied to all financial asset measured at amortised cost.
Financial assets measured at amortised cost attract a loss allowance equal to either:
12 month expected credit losses (losses resulting from possible default within the next 12 months)
Lifetime expected credit losses (losses resulting from possible defaults over the remaining life of the financial asset)
Financial assets attract a 12 month ECL allowance unless the asset has suffered a significant deterioration in credit quality or the simplified
approach for calculation of ECL has been applied. As permitted under IFRS 9 Financial Instruments, the Group has applied the simplified
approach to calculate the ECL allowance for trade receivables and contract assets recognised under IFRS 15 Revenue from Contracts with
Customers and lease receivables recognised under IFRS 16 Leases. Under the simplified approach the ECL is calculated over the remaining
life of the asset.
Classification and measurement in accordance with IAS 39 in respect of prior periods
Management determined the classification of financial investments at initial recognition. Financial investments which were not derivatives and
were not designated at FVTPL were classified as either available-for-sale (AFS) or loans and receivables.
Derivatives were measured at fair value. Derivatives were classified as held for trading except for derivatives that were designated as hedging
instruments in cash flow or net investment hedges. Changes in the fair value of held for trading derivatives were recognised in investment
return in the consolidated income statement. The classification of derivatives and the accounting treatment of derivatives designated as a
hedging instrument are set out in Note 20.
The majority of the Group’s debt securities and all equity securities and interests in pooled investment funds were designated at FVTPL as
they were part of groups of assets which were managed and whose performance was evaluated on a fair value basis. These investments
were recognised at fair value with changes in fair value recognised in investment return in the consolidated income statement. Commercial
real estate loans were included within debt securities designated at fair value.
All other debt securities were classified as AFS and were recognised at fair value with changes in fair value recognised in other
comprehensive income. Interest was 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 were recognised in the consolidated income
statement (recycling).
Loans and receivables which included cash and cash equivalents were measured at amortised cost calculated using the effective interest rate
method.
168 Standard Life Aberdeen 2019
The table below sets out an analysis of financial assets excluding those assets backing unit linked liabilities which are set out in Note 25.
2019
Derivative financial assets
Equity securities and interests in pooled investment funds
Debt securities
Financial investments
Receivables and other financial assets
Cash and cash equivalents
Total
Notes
20
40
40
21
24
At fair value
through profit
or loss1
£m
16
725
769
1,510
1
–
1,511
Cash flow
hedge
£m
3
–
–
3
At amortised
cost
£m
–
–
602
602
–
–
3
559
1,615
2,776
Total
£m
19
725
1,371
2,115
560
1,615
4,290
1 All financial assets measured at fair value through profit or loss have been classified at FVTPL on a mandatory basis. The Group has not designated any financial assets as
FVTPL.
20181
Derivative financial assets
Equity securities and interests in pooled
investment funds
Debt securities
Financial investments
Receivables and other financial assets
Cash and cash equivalents
Total
Notes
20
40
40
21
24
Designated as at
fair value through
profit or loss
£m
–
Held for
trading
£m
6
Cash flow
hedge
£m
13
Available-
for-sale
£m
–
Loans and
receivables
£m
–
509
725
1,234
8
–
1,242
–
–
6
–
–
6
–
–
13
–
–
13
–
862
862
–
–
862
–
–
–
689
1,110
1,799
Total
£m
19
509
1,587
2,115
697
1,110
3,922
1 Comparatives for 2018 have been represented to exclude assets backing unit linked liabilities. Refer Notes 20 and 25.
The amount of debt securities expected to be recovered or settled after more than 12 months is £273m (2018: £287m). Due to the nature of
equity securities and interests in pooled investment funds, there is no fixed term associated with these securities.
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 40.
20. 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 subordinated debt liabilities and to
reduce the risk from potential movements in foreign exchange rates on seed capital and co-investments and potential movements in market
rates on seed capital. Certain consolidated investment vehicles may 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. Under IFRS 9, all derivative instruments are classified as at
FVTPL except those designated as part of a cash flow hedge or net investment hedge. Derivatives at FVTPL are measured at fair value with
changes in fair value recognised in the consolidated income statement.
Under IAS 39, all derivative instruments were classified as held for trading except those designated as part of a hedging relationship. Held for
trading derivatives were also measured at fair value with changes in fair value recognised in the consolidated income statement.
On adoption of IFRS 9 Financial instruments, the Group has elected to continue applying the hedge accounting requirements of IAS 39. The
accounting treatment below applies to derivatives designated as part of a hedging relationship.
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.
Standard Life Aberdeen 2019
169
Financial inFormation
7. Group financial statements continued
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
FVTPL/Held for trading
Derivative financial instruments
Derivative financial instruments
backing unit linked liabilities
Total derivative financial
instruments
Notes
19,32
19,32
40
25
Contract
amount
£m
2019
Fair value
assets
£m
Fair value
liabilities
£m
Contract
amount
£m
2018
Fair value
assets
£m
Fair value
liabilities
£m
566
–
534
1,100
669
1,769
3
–
16
19
5
24
–
–
3
3
6
9
589
6
330
925
295
1,220
13
–
6
19
2
21
–
–
4
4
2
6
Derivative assets of £4m (2018: £13m) are expected to be recovered after more than 12 months. Derivative liabilities of £1m (2018: £nil) are
expected to be settled after more than 12 months.
(a) Hedging strategy
During 2019 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.
(a)(i) Cash flow hedges
On 18 October 2017, the Group issued subordinated notes with a principal amount of US$750m. In order to manage its 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 cash flow hedge was fully effective during the year. The cross-currency swap has the effect of swapping the 4.25% US Dollar fixed
rate subordinated notes into 3.2% Sterling fixed rate subordinated notes with a principal amount of £569m. The cross-currency swap has a fair
value asset position of £3m (2018: £13m asset). During the year ended 31 December 2019 fair value losses of £10m (2018: gains of £54m)
were recognised in other comprehensive income in relation to the cross-currency swap. Losses of £28m (2018: gains of £35m) and forward
points/gains of £6m (2018: gains of £6m) 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.
(a)(ii) Net investment hedges
At 31 December 2019, the Group had no open derivative contracts which were designated as net investment hedges. At 31 December 2018,
forward foreign exchange contracts with a notional principal amount of £6m and a net fair value liability position of less than £1m were
designated as net investment hedges and gave rise to losses for the year of less than £1m which was deferred in the net investment hedge
translation reserve. The effectiveness of hedges of net investments in foreign operations was measured with reference to changes in the spot
exchange rates. Any ineffectiveness, together with any difference in value attributable to forward points, was recognised in the consolidated
income statement. In 2019, the losses recognised in the consolidated income statement for forward foreign exchange contracts designated as
net investment hedges were less than £1m (2018: less than £1m).
170 Standard Life Aberdeen 2019
(a)(iii) FVTPL/Held for trading
Derivative financial instruments classified as FVTPL/held for trading include those that the Group holds as economic hedges of financial
instruments that are measured at fair value. FVTPL/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
2019
Fair value
assets
£m
Fair value
liabilities
£m
Contract
amount
£m
2018
Fair value
assets
£m
Fair value
liabilities
£m
Equity derivatives:
Futures
Variance swaps
Total return swaps
Bond derivatives:
Futures
Interest rate derivatives:
Swaps
Futures
Foreign exchange derivatives:
Forwards
Other derivatives:
Inflation rate swaps
Credit default swaps
177
5
29
1
153
–
718
14
106
Derivative financial instruments at FVTPL/
held for trading
1,203
2
6
–
–
–
–
10
1
2
21
1
–
1
–
2
–
5
–
–
9
58
4
–
–
37
15
475
5
31
625
1
4
–
–
–
–
2
–
1
8
(b) Maturity profile
The maturity profile of the contractual undiscounted cash flows in relation to derivative financial instruments is as follows:
10-15
years
£m
15-20
years
£m
Greater than
20 years
£m
2019
Cash inflows
Derivative financial assets
Derivative financial liabilities
Total
Cash outflows
Derivative financial assets
Derivative financial liabilities
Total
Within 1
year
£m
1-5
years
£m
411
281
692
(386)
(287)
(673)
99
–
99
(73)
(1)
(74)
5-10
years
£m
651
–
651
(633)
(1)
(634)
Net derivative financial instruments cash
inflows
19
25
17
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
6
–
–
6
Total
£m
1,162
281
1,443
(1,092)
(290)
(1,382)
1
–
1
–
(1)
(1)
–
61
Included in the above maturity profile are the following cash flows in relation to cash flow hedge assets:
2019
Cash inflows
Cash outflows
Net cash flow hedge cash inflows
Within 1
year
£m
24
(18)
6
1-5
years
£m
96
(73)
23
5-10
years
£m
650
(632)
18
10-15
years
£m
–
–
–
15-20
years
£m
–
–
–
Greater than
20 years
£m
–
–
–
Total
£m
770
(723)
47
Standard Life Aberdeen 2019
171
Financial inFormation
7. Group financial statements continued
Cash inflows and outflows are presented on a net basis where the Group is required to settle cash flows net.
2018
Cash inflows
Derivative financial assets
Derivative financial liabilities
Total
Cash outflows
Derivative financial assets
Derivative financial liabilities
Total
Within 1
year
£m
1-5
years
£m
34
5
39
(18)
(10)
(28)
88
–
88
(64)
–
(64)
5-10
years
£m
714
–
714
(660)
–
(660)
Net derivative financial instruments cash
inflows
11
24
54
10-15
years
£m
15-20
years
£m
Greater than
20 years
£m
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Included in the above maturity profile are the following cash flows in relation to cash flow hedge assets:
2018
Cash inflows
Cash outflows
Net cash flow hedge cash inflows
Within 1
year
£m
25
(18)
7
1-5
years
£m
88
(64)
24
21. Receivables and other financial assets
Amounts receivable from contracts with customers
Accrued income
Cancellations of units awaiting settlement
Net investment in finance leases
Collateral pledged in respect of derivative contracts
Contingent consideration asset
Other
Receivables and other financial assets
5-10
years
£m
714
(660)
54
Notes
4(b)
38
40
10-15
years
£m
–
–
–
15-20
years
£m
–
–
–
Greater than
20 years
£m
–
–
–
2019
£m
130
231
111
15
18
1
54
560
1 Comparatives for 2018 have been represented to exclude assets backing unit linked liabilities. Refer Note 25.
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 £25m (2018: £10m).
Accrued income includes £227m (2018: £214m) of accrued income from contracts with customers (refer Note 4(b)).
22. Other assets
Prepayments
Deferred acquisition costs
Other
Other assets
2019
£m
48
6
1
55
Total
£m
836
5
841
(742)
(10)
(752)
89
Total
£m
827
(742)
85
20181
£m
112
214
189
–
8
8
166
697
2018
£m
38
6
2
46
The amount of other assets expected to be recovered after more than 12 months is £6m (2018: £9m).
All deferred acquisition costs above are costs deferred on investment contracts (deferred origination costs) which relate to contracts with
customers (refer Note 4(b)). The amortisation charge for deferred origination costs relating to contracts with customers from continuing
operations for the year was £2m (2018: £2m).
172 Standard Life Aberdeen 2019
23. 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 interests in pooled investment funds. 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.
Interests in pooled investment funds 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
Assets held for sale
Liabilities of operations held for sale
Standard Life (Asia) Limited
Investment vehicles
Liabilities of operations held for sale
2019
£m
765
2
767
747
–
747
2018
£m
667
95
762
643
14
657
(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, platforms and wealth segment and Heng An Standard Life Insurance Company Limited is reported within the Insurance
associates and joint ventures segment. The transaction remains subject to regulatory approval and Standard Life (Asia) Limited continues to be
classified as an operation held for sale.
At 31 December 2019, 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
2019
£m
674
26
65
765
647
49
51
747
18
2018
£m
604
33
30
667
574
52
17
643
24
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
£nil (2018: £2m) 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 2019 are £18m (2018: £18m).
Standard Life Aberdeen 2019
173
Financial inFormation
7. Group financial statements continued
24. 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 with less than
three months to maturity from the date of acquisition. 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 backing unit linked liabilities
Cash and cash equivalents classified as held for sale
Bank overdrafts
Total cash and cash equivalents for consolidated statement of cash flows
1 Comparatives for 2018 have been represented to exclude assets backing unit linked liabilities. Refer Note 25.
Cash at bank, money at call and short notice and deposits are subject to variable interest rates.
Notes
25
23
36
2019
£m
852
763
1,615
2019
£m
1,615
44
26
(338)
1,347
20181
£m
658
452
1,110
20181
£m
1,110
30
33
(216)
957
Included in cash and cash equivalents and bank overdrafts are £592m (2018: £566m) and £338m (2018: £216m) 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 £219m (2018: £343m) 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.
25. Unit linked liabilities and assets backing unit linked liabilities
The Group operates unit linked life assurance businesses through a number of subsidiaries. These subsidiaries provide investment products
through a life assurance wrapper. These products do not contain any features which transfer significant insurance risk and therefore are
classified as 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). 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. This is unchanged
following the adoption of IFRS 9.
Where the Group is deemed to control an investment vehicle as a result of holdings in that vehicle by subsidiaries to back unit linked non-
participating investment contract liabilities, the assets and liabilities of the vehicle are consolidated within the Group’s statement of financial
position. The liability for third party interest in such consolidated funds is presented as a unit linked liability.
Unit linked liabilities and assets backing unit linked liabilities are presented separately in the consolidated statement of financial position except
for those held in operations held for sale, which are presented in assets and liabilities held for sale in the consolidated statement of financial
position. This is a change in presentation compared to 2018, where these assets and liabilities were not presented separately. This change in
presentation, which follows the sale of the UK and European insurance business in 2018, is to make the financial statements more relevant to
users by highlighting the matched assets and liabilities that relate to unit linked business separately to other shareholder business assets and
liabilities on the face of the consolidated statement of financial position.
Contributions received on non-participating investment contracts and from third party interest in consolidated funds are treated as deposits
and not reported as revenue in the consolidated income statement.
Withdrawals paid out to policyholders on non-participating investment contracts and to third party interest in consolidated funds are treated as
a reduction to deposits and not recognised as expenses in the consolidated income statement.
Investment return and related benefits credited in respect of non-participating investment contracts and third party interest in consolidated
funds are recognised in the consolidated income statement as changes in investment contract liabilities and changes in liability for third party
interest in consolidated funds respectively.
Assets backing unit linked liabilities comprise financial investments, which are all classified as FVTPL on a mandatory basis, and receivables
and other financial assets and cash and cash equivalents which are measured at amortised cost.
174 Standard Life Aberdeen 2019
(a) Financial instrument risk management
The shareholder is not directly exposed to market risk or credit risk in relation to the financial assets backing unit linked liabilities. The
shareholder’s exposure to market risk on these assets is limited to variations in the value of future fee based revenue as fees are based on a
percentage of fund value.
The shareholder is exposed to liquidity risk relating to unit linked funds. For the unit linked business, liquidity risk is primarily managed by holding
a range of diversified instruments which are assessed against cash flow and funding requirements. A core portfolio of assets is maintained and
invested in accordance with the mandates of the relevant unit linked funds. 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 are designated as payable
within one year. Such surrenders would be matched in practice, if necessary, by sales of underlying assets. Policyholder behaviour and the
trading position of asset classes are actively monitored. 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.
(b) Fair value measurement of unit linked financial liabilities and financial assets backing unit linked liabilities
Each of the unit linked financial liabilities and the financial assets backing unit linked liabilities has been categorised below using the fair value
hierarchy as defined in Note 40. Refer Note 40 for details of valuation techniques used.
2019
Financial investments
Receivables and other financial assets
Cash and cash equivalents
Total financial assets backing unit linked liabilities
Investment contract liabilities
Third party interest in consolidated funds
Other unit linked financial liabilities
Total unit linked financial liabilities
2018
Financial investments
Receivables and other financial assets
Cash and cash equivalents
Total financial assets backing unit linked liabilities
Investment contract liabilities
Third party interest in consolidated funds
Other unit linked financial liabilities
Total unit linked financial liabilities
Level 1
£m
1,991
–
–
1,991
–
–
–
–
Level 1
£m
2,114
–
–
2,114
–
–
–
–
Level 2
£m
211
–
–
211
1,201
416
6
1,623
Level 2
£m
149
–
–
149
1,520
228
–
1,748
Not at fair
value
£m
–
10
45
Classified
as held for
sale1
£m
(674)
–
(1)
55
–
–
6
6
(675)
(49)
–
–
(49)
Not at fair
value
£m
–
11
31
Classified
as held for
sale1
£m
(604)
–
(1)
42
–
–
3
3
(605)
(52)
–
–
(52)
Level 3
£m
–
–
–
–
–
–
–
–
Level 3
£m
–
–
–
–
–
–
–
–
Total
£m
1,528
10
44
1,582
1,152
416
12
1,580
Total
£m
1,659
11
30
1,700
1,468
228
3
1,699
1 Financial investments include financial assets backing unit linked liabilities classified as non-participating insurance contracts within liabilities of operations held for sale. (Refer
Note 23).
The financial investments backing unit linked liabilities comprise equity securities and interests in pooled investment funds of £1,338m (2018:
£1,521m), debt securities of £185m (2018: £136m) and derivative financial assets of £5m (2018: £2m). In addition to unit linked financial liabilities
shown above there is a current tax liability of £2m (2018: £1m) included in unit linked liabilities.
The fair value of financial instruments not held at fair value approximates to their carrying value at 31 December 2019 and 31 December 2018.
There were no financial instruments transferred from level 1 to level 2 in the year (2018: none). There were no movements in level 3 financial
assets and liabilities (2018: none).
Standard Life Aberdeen 2019
175
Financial inFormation
7. Group financial statements continued
(c) Change in non-participating investment contract liabilities
The change in non-participating investment contract liabilities was as follows:
At 1 January
Reclassified as held for sale during the year
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
At 31 December
2019
£m
1,468
–
158
(729)
258
(3)
1,152
2018
£m
105,769
(104,174)
183
(235)
(72)
(3)
1,468
1 Change in non-participating investment contract liabilities recognised in the consolidated income statement in the table above excludes £7m (2018: (£6m)) in relation to non-
participating investment contract liabilities classified as held for sale.
(d) Derivatives
The treatment of collateral accepted and pledged in respect of financial instruments and the Group’s approach to offsetting financial assets and
liabilities is described in Note 38. The following table presents the impact of master netting agreements and similar arrangements for derivatives
backing unit linked liabilities.
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
3
3
(5)
(5)
(2)
(2)
2
2
–
–
–
–
1
1
(3)
(3)
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
2
(2)
(2)
–
–
–
–
–
–
–
–
2
2
(2)
(2)
As at 31 December 2019
Financial assets
Derivatives1
Total financial assets
Financial liabilities
Derivatives1
Total financial liabilities
As at 31 December 2018
Financial assets
Derivatives1
Total financial assets
Financial liabilities
Derivatives1
Total financial liabilities
1 Only OTC derivatives subject to master netting agreements have been included above.
176 Standard Life Aberdeen 2019
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:
2019
2018
Issued shares fully paid
At 1 January
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
13 61/63p each
2,529,412,224
1,114
–
–
–
(190,689,614)
2,338,723,724
£m
353
–
–
–
–
(26)
327
12 2/9p each 13 61/63p each
–
2,978,936,877
288
435,340
–
350,156
–
4
(2,941,738,848) 2,574,021,492
(44,609,556)
– 2,529,412,224
(37,983,529)
£m
364
–
–
–
–
(11)
353
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.
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. During the year ended 31
December 2019, the Company has bought back and cancelled 190,689,614 shares (2018: 82,593,085 shares). The total consideration was
£516m (2018: £238m) which includes transaction costs and any unsettled purchases of shares. At 31 December 2019, there were no unsettled
purchases of shares (2018: 792,527 shares).
This consideration has resulted in a reduction in retained earnings of £390m (2018: £238m) and in the special reserve of £126m (2018: £nil). An
amount of £26m (2018: £11m) has been credited to the capital redemption reserve relating to the nominal value of the shares cancelled.
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 44.
(b) Return of capital in the prior year
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
2019
£m
640
–
640
2018
£m
639
1
640
Shares held by trusts relates to shares in Standard Life Aberdeen plc that are held by the Standard Life Aberdeen Employee Benefit Trust
(SLA EBT), Standard Life Employee Trust (ET), the Aberdeen Asset Management Employee Benefit Trust 2003 (AAM EBT) and, prior to its
closure, the Standard Life Unclaimed Asset Trust (UAT). The SLA EBT was established on 28 March 2019.
The SLA EBT, ET and AAM 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 SLA EBT, ET or AAM 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 had not claimed their shares and the UAT was established to hold these shares on their behalf. The claim
entitlement period for the UAT expired on 9 July 2016 and all remaining claims have now been concluded. On 13 December 2019, Standard
Life Aberdeen plc instructed the Trustees of the UAT to return all remaining unclaimed shares and other assets held and to formally close the
UAT. All assets in the UAT were transferred to Standard Life Aberdeen plc on 20 December 2019 and £1m was credited to the retained
earnings of the Company (see Note 28). Prior to Standard Life Aberdeen plc issuing its closure instruction to the Trustees, the shares
remaining in the UAT after 9 July 2016 had been measured at £nil.
Standard Life Aberdeen 2019
177
Financial inFormation
7. Group financial statements continued
The number of shares held by trusts at 31 December 2019 was as follows:
Number of shares held by trusts
Standard Life Aberdeen Employee Benefit Trust
Standard Life Employee Trust
Aberdeen Asset Management Employee Benefit Trust 2003
Standard Life Unclaimed Asset Trust
2019
2018
15,378,831
26,685,390
10,579,914
–
–
31,589,855
20,327,295
153,020
28. Retained earnings
The following table shows movements in retained earnings during the year. The movements are aggregated for both continuing and
discontinued operations.
Opening balance carried forward
Effect of change in accounting policy to IFRS 91
Effect of change in accounting policy to IFRS 161
Opening balance 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
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
Transfer from the Standard Life Unclaimed Asset Trust
Shares distributed by employee and other trusts
Total items recognised directly in equity
At 31 December
Notes
34
26
26
1
29
27
2019
£m
2,778
(12)
(5)
2,761
266
(23)
(10)
233
(518)
–
(390)
–
780
57
1
(38)
(108)
2,886
2018
£m
3,162
–
–
3,162
830
(29)
(15)
786
(634)
(1,002)
(238)
99
570
68
–
(33)
(1,170)
2,778
1 The Group has initially applied IFRS 9 and IFRS 16 at 1 January 2019. Under the transition methods chosen, comparative information is not restated and the cumulative effect
of initially applying these standards is recognised in retained earnings at the date of initial application. Refer Basis of preparation.
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 AAM 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 AAM 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.
178 Standard Life Aberdeen 2019
The following tables show the movements in other reserves during the year. The movements are aggregated for both continuing and
discontinued operations.
Cash
flow
hedges
£m
Foreign
currency
translation
£m
Notes
Available-
for-sale
financial
assets
£m
Merger
reserve
£m
Equity
compensation
reserve
£m
Special
reserve
£m
Reserve
arising on
Group
reconstruction
£m
Capital
redemption
reserve
£m
Total
£m
7
3,097
68
241
(685)
1,011
3,782
(7)
–
–
3,097
–
68
–
241
–
(685)
–
1,011
(7)
3,775
31 December 2018
Effect of change in
accounting policy to
IFRS 91
1 January 2019
Recognised in other
comprehensive income
Fair value gains on cash
flow hedges
Exchange differences on
translating foreign
operations
Items transferred to profit
or loss from continuing
operations
Aggregate tax effect of
items recognised in other
comprehensive income
Total items recognised
in other comprehensive
income
Recognised directly in
equity
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 impairment
of subsidiaries
Total items recognised
directly within equity
At 31 December 2019
26
(6)
–
(6)
49
–
49
(10)
–
–
(46)
22
(2)
–
–
10
(46)
–
–
–
–
–
4
–
–
–
–
–
3
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(780)
(780)
2,317
–
–
–
–
–
–
–
–
–
–
–
(126)
–
–
–
43
(57)
–
(14)
54
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(10)
(46)
22
(2)
(36)
26
(100)
–
–
–
43
(57)
(780)
(126)
115
–
(685)
26
1,037
(894)
2,845
1 The Group has initially applied IFRS 9 at 1 January 2019. Under the transition method chosen, comparative information is not restated and the cumulative effect of initially
applying this standard is recognised in retained earnings at the date of initial application. Refer Basis of preparation.
The merger reserve includes £2,304m (2018: £3,084m) in relation to the Group’s asset management businesses. This includes £1,990m (2018:
£2,601m) relating to the merger with Aberdeen. Following the impairment of the Company’s investments in its asset management entities (refer
Section 8), £780m (2018: £570m) was transferred from the merger reserve to retained earnings to mitigate the impact on distributable reserves.
£996m of the merger reserve relating to the asset management businesses was also utilised during the year ended 31 December 2018 for the
issue of the B shares (refer Note 26).
Standard Life Aberdeen 2019
179
Financial inFormation
7. Group financial statements continued
2018
Notes
Revaluation
of owner
occupied
property
£m
Cash
flow
hedges
£m
Foreign
currency
translation
£m
Available-
for-sale
financial
assets
£m
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
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
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
Transfer between
reserves on disposal of
subsidiaries
Transfer between
reserves on
impairment of
subsidiaries
Total items
recognised directly
within equity
At 31 December
180 Standard Life Aberdeen 2019
–
–
2
–
–
54
–
–
–
–
–
(41)
–
–
–
17
(5)
(2)
1
–
–
(43)
–
(2)
–
(9)
–
–
–
–
–
–
1
2
11
(33)
(8)
–
–
–
–
–
–
–
–
–
26
26
26
–
–
–
–
–
1
(3)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(3)
–
–
(6)
–
49
– (1,000)
–
–
–
–
–
–
–
–
– (1,290)
–
–
7
(570)
(2,860)
3,097
–
–
–
–
–
–
–
–
–
–
–
–
36
(68)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,194
–
–
–
–
–
–
–
–
(9)
54
2
17
(5)
(43)
(43)
(1)
–
(28)
– (1,000)
1,000 1,000
11
11
–
36
–
–
(68)
(99)
–
–
(570)
(32)
68
–
241
1,194
(685)
1,011
(690)
1,011 3,782
30. Non-controlling interests and other equity
Non-controlling interests include preference shares. In addition, the perpetual debt instruments issued by Standard Life Aberdeen plc were
classified prior to their redemption as other equity as no contractual obligation to deliver cash existed.
(a) Non-controlling interests – ordinary shares
Non-controlling interests – ordinary shares of £3m were held at 31 December 2019 (2018: £2m). The profit attributable to non-controlling
interests from discontinued operations for the year ended 31 December 2018 comprised £5m in respect of ordinary shares.
(b) Non-controlling interests – preference shares
5% 2015 Non-voting perpetual non-cumulative redeemable preference shares
2019
£m
99
2018
£m
99
The Group recognises preference shares issued by AAM PLC as non-controlling interests. The profit attributable to these non-controlling
interests from continuing operations for the year ended 31 December 2019 was £5m (2018: £5m).
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 2019 preference share dividends of £5m (2018:
£5m) were paid.
The preference shares can be converted irrevocably into a fixed number of ordinary shares of AAM PLC in the event of the conversion trigger.
The conversion trigger occurs if AAM PLC’s Common Equity Tier 1 (CET1) capital ratio falls below 5.125%. The CET1 ratio (unaudited) at 31
December 2019 was 29.3% (2018: 34.4%).
(c) Other equity – 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 (refer Note 33). 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. During the year ended 31
December 2018, the Group recognised a fair value loss of £198m on the reclassification which is included in Restructuring and corporate
transaction expenses from discontinued operations (refer Note 9).
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 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 other equity during the year ended 31 December 2018.
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) was recognised directly
in equity as profit attributable to other equity in relation to the coupons payable on the guaranteed bonds and MACS.
The total amount in respect of the year ended 31 December 2018 recognised as profit attributable to other equity holders in relation to
perpetual debt instruments was therefore £28m. The presentation of amounts attributable to these perpetual debt instruments in the
consolidated income statement, consolidated statement of comprehensive income and consolidated statement of changes in equity has
been corrected in 2019 to show these amounts separately as related to other equity holders rather than as part of non-controlling
interests.
Standard Life Aberdeen 2019
181
Financial inFormation
7. Group financial statements continued
31.
Insurance contracts, investment contracts and reinsurance contracts
Insurance contracts, participating investment contracts and reinsurance contracts relate to the UK and European insurance business sold in
2018, Standard Life (Asia) Limited classified as held for sale, and insurance associates in the UK, India and China.
(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.
182 Standard Life Aberdeen 2019
(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)).
Standard Life Aberdeen 2019
183
Financial inFormation
7. Group financial statements continued
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.
184 Standard Life Aberdeen 2019
(a)
Insurance contract premium income
Gross earned premium
Premium ceded to reinsurers
Insurance contract premium income from continuing operations
(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
32. Financial liabilities
2019
£m
67
(1)
66
2019
£m
61
(2)
59
1
96
156
2018
£m
75
(2)
73
2018
£m
62
(4)
58
5
(62)
1
On 1 January 2019, the Group adopted IFRS 9 Financial Instruments. Refer Basis of preparation for details of the transition from the previous
financial instruments standard, IAS 39 to IFRS 9.
As the Group has not restated comparative information, the measurement of financial liabilities at 31 December 2019 is in accordance with
IFRS 9 while the measurement of financial liabilities at 31 December 2018 is in accordance with IAS 39. The classification of financial
liabilities under IFRS 9 is the same as under IAS 39. Only one measurement difference arose as described below.
Management determines the classification of financial liabilities at initial recognition. Financial liabilities which are managed and whose
performance is evaluated on a fair value basis are designated as at fair value through profit or loss. Changes in the fair value of these
financial liabilities are recognised in the consolidated income statement.
Derivatives are also measured at fair value. Changes in the fair value of derivatives are recognised in investment return in the consolidated
income statement except for derivative instruments that are designated as a cash flow hedge or net investment hedge. The classification of
derivatives and the accounting treatment of derivatives designated as a hedging instrument are set out in Note 20.
Other financial liabilities are classified as being subsequently measured at amortised cost. Amortised cost is calculated, and the related
interest expense is recognised in the consolidated income statement, using the effective interest method.
All financial liabilities are initially recognised at fair value less, in the case of financial liabilities subsequently measured at amortised cost,
transaction costs that are directly attributable to the issue of the liability.
Under IFRS 9, where the terms of a financial liability measured at amortised cost 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. No modification gain or loss was recognised under IAS 39.
The methods and assumptions used to determine fair value of financial liabilities measured at fair value through profit or loss and derivatives
are discussed in Note 40.
The table below sets out an analysis of financial liabilities excluding unit linked financial liabilities which are set out in Note 25.
2019
Third party interest in consolidated funds
Subordinated liabilities
Derivative financial liabilities
Other financial liabilities
Total
20181
Third party interest in consolidated funds
Subordinated liabilities
Derivative financial liabilities
Other financial liabilities
Total
Notes
33
20
36
Designated as at
fair value through
profit or loss
£m
119
–
3
14
Cash flow
hedge
£m
–
–
–
–
At amortised
cost
£m
–
655
–
1,301
136
–
1,956
Designated as at
fair value through
profit or loss
£m
26
–
–
29
55
Notes
33
20
36
Held for
trading
£m
–
–
4
–
4
Cash flow
hedge
£m
–
–
–
–
At amortised
cost
£m
–
1,081
–
1,132
–
2,213
Total
£m
119
655
3
1,315
2,092
Total
£m
26
1,081
4
1,161
2,272
1 Comparatives for 2018 have been represented to exclude unit linked liabilities. Refer Note 25.
Standard Life Aberdeen 2019
185
Financial inFormation
7. Group financial statements continued
33. 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.
2019
20181
Notes
Principal
amount
Carrying
value
Principal
amount
Carrying
value
Subordinated notes
4.25% US Dollar fixed rate due 30 June 2028
5.5% Sterling fixed rate due 4 December 2042
Total subordinated liabilities
40
$750m
£92m
£563m
£92m
£655m
$750m
£500m
£581m
£500m
£1,081m
1 The Group has initially applied IFRS 9 at 1 January 2019. Under the transition method chosen, comparative information is not restated and the cumulative effect of initially
applying this standard is recognised in retained earnings at the date of initial application. Refer Basis of preparation.
On 26 March 2019, the Company repurchased 5.5% Sterling fixed rate subordinated notes with a principal amount of £408m (out of a total
principal amount of £500m). The total amount paid was £462m including £7m of accrued interest and a repurchase loss of £49m has been
included in restructuring and corporate transaction expenses (refer Note 9).
A description of the key features of the Group’s subordinated liabilities as at 31 December 2019 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)
$750m
18 October 2017
30 June 2028
Not applicable
Not applicable
4.25% US Dollar fixed rate1,2
(until 15 November 2018)
$750m
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
£92m
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 20 for further details.
2 During the year ended 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 (refer Note 46).
The difference between the fair value and carrying value of the subordinated liabilities is presented in Note 40. A reconciliation of movements in
subordinated liabilities in the year is provided in Note 41.
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 £nil (2018: £2m) 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
$500m
1 March 2013
Perpetual
1 March 2018 and on any interest
payment date thereafter
6.75% Sterling fixed rate
£500m
12 July 2002
Perpetual
12 July 2027 and on every fifth
anniversary thereafter
Not applicable 2.85% over the gross redemption
yield on the appropriate five-year
benchmark gilt rate
6.546% Sterling fixed rate
£300m
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 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.
186 Standard Life Aberdeen 2019
34. 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.
Standard Life Aberdeen 2019
187
Financial inFormation
7. Group financial statements continued
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 were recognised within past service cost in 2018, together with the associated
movement in the asset ceiling.
Following a High Court ruling against a third party’s pension scheme, that required that scheme to address the inequalities
in the statutory benefits paid to men and women, an allowance for assumed equalisation was introduced for our principal
defined benefit plan at 31 December 2018. The estimated impact was recognised as a past service cost in 2018, though
was not material.
Changes to death-in-service benefits for UK employees, as part of a wider harmonisation of terms and conditions, has
resulted in a plan amendment and associated (negative) past service cost in 2019 of £14m.
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 funding
valuation as at 31 December 2019 is currently being completed.
The Group also operates two UK defined benefit plans as a result of the acquisition of AAM PLC in 2017. 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 2019, one of the two schemes is now in surplus on an IAS 19 basis. The
valuations as at 30 June 2019 are currently being finalised.
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 fewer
than 10 employees who 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 was recognised in past service cost in 2018.
At the last funding valuation, effective 1 January 2019, the plan was 72% 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).
188 Standard Life Aberdeen 2019
(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
2019
£m
60
(13)
(31)
2
18
2018
£m
67
(15)
(27)
2
27
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 2019 comprised £15m (2018: £37m) to the Other UK plans and the
Ireland Standard Life plan. Contributions are expected to remain at this level over 2020 and are not expected to change materially over the
subsequent three years. These contributions include a mixture of deficit funding and funding to achieve a targeted level of overall financial
strength.
(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
(2,852)
–
4,609
(615)
1,142
2019
2018
Other
£m
(339)
(3)
308
–
(34)
Total
£m
(3,191)
(3)
4,917
(615)
1,108
Principal
plan
£m
(2,542)
–
4,251
(598)
1,111
Other
£m
(311)
(3)
276
–
(38)
Total
£m
(2,853)
(3)
4,527
(598)
1,073
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. Other includes a defined benefit plan with a surplus of £21m at 31 December 2019
(2018: £nil).
(c) Movement in the net defined benefit asset
2019
At 1 January
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
Gain from change in demographic assumptions
Loss from change in financial assumptions
Release of death in service obligation
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
(2,856)
4,527
Total
£m
1,671
(2)
13
(79)
(2)
(70)
–
16
(459)
7
28
–
(408)
7
–
133
–
–
127
–
127
385
–
–
–
–
–
385
(5)
15
(132)
(2)
13
48
(2)
57
385
16
(459)
7
28
–
(23)
2
15
1
Effect of limit on
plan surpluses
£m
(598)
–
–
(17)
–
(17)
–
–
–
–
–
–
–
–
–
–
At 31 December
(3,194)
4,917
1,723
(615)
Total
£m
1,073
(2)
13
31
(2)
40
385
16
(459)
7
28
–
(23)
2
15
1
1,108
Standard Life Aberdeen 2019
189
Financial inFormation
7. Group financial statements continued
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
Gain from change in financial assumptions
Experience losses
Change in effect of limit on plan surplus
Remeasurement gains/(losses) 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
190 Standard Life Aberdeen 2019
(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 40. 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
Multi-asset private markets
Property
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
2019
£m
3
171
330
–
117
68
275
3,098
4,062
262
102
104
157
–
121
6
752
222
(426)
(1)
2018
£m
9
81
308
–
115
60
297
2,494
3,364
289
102
100
149
–
163
5
808
381
(300)
(2)
Other
2019
£m
2018
£m
Total
2019
£m
–
–
12
34
6
116
22
4
194
(4)
–
–
–
10
34
71
111
3
–
–
1
–
–
26
9
109
36
31
212
(6)
–
–
–
–
–
64
58
6
–
–
3
171
342
34
123
184
297
3,102
4,256
258
102
104
157
10
155
77
863
225
(426)
(1)
2018
£m
10
81
308
26
124
169
333
2,525
3,576
283
102
100
149
–
163
69
866
387
(300)
(2)
Total
4,609
4,251
308
276
4,917
4,527
Further information on risks is provided in Section (g) of this note. The £3,257m (2018: £2,688m) of debt securities includes £3,205m (2018:
£2,622m) government bonds (including conventional and index-linked). Of the remaining £52m (2018: £66m) debt securities, £22m (2018:
£42m) are investment grade corporate bonds or certificates of deposit.
Included in the qualifying insurance policy asset of £77m (2018: £69m) is an insurance policy purchased by the trustees of one of the Other UK
defined benefit plans to protect the plan against future investment and actuarial risks. It has been valued at £64m (2018: £56m) with reference to
the estimated benefits that will be paid by the insurer using the same assumptions and approach used to value the present value of the funded
obligation covered by the policy.
One Other UK plan has a contract in place to hedge longevity risk for pensioners. The fair value of this derivative is £nil at 31 December 2019
(2018: £nil).
Standard Life Aberdeen 2019
191
Financial inFormation
7. Group financial statements continued
(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)
2019
%
2.05
2.00
2.90
2018
%
2.85
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:
2019
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%
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%
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
32
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.
Undiscounted benefit payments (£m)
120
100
80
60
40
20
0
Non-current pensioner
Current pensioner
2020
2030
2040
2050
2060
2070
2080
2090
2100
2110
2120
Weighted average duration
Current pensioner
Non-current pensioner
192 Standard Life Aberdeen 2019
2019
years
15
28
2018
years
14
28
(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.
A House of Lords report in 2019 raised the potential for changes to the RPI measure of inflation, which was followed by recommendations from
the UK Statistics Authority. While uncertainty remains, there is a risk that future cash flows from, and thus the value of, the plan’s RPI-linked
assets will fall without any corresponding reduction in the plan’s CPI-linked liabilities. While not directly observable from market data, the plan’s
RPI-linked asset values may already reflect an element of the expected changes and risk of such changes. We continue to monitor
developments closely.
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
2.05% to 1.05%)
Increase by 1%
Rates of inflation Decrease by 1%
Increase by 1%
Life expectancy
Decrease by 1 year
Increase by 1 year
2019
2018
(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
(846)
593
587
(756)
82
(96)
1,522
(1,092)
(889)
1,243
–
–
(729)
524
479
(683)
73
(68)
1,534
(1,080)
(942)
1,323
–
–
Standard Life Aberdeen 2019
193
Financial inFormation
7. Group financial statements continued
35. 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 revenue from contracts with customers
At 31 December
2019
£m
75
–
–
(8)
67
2018
£m
157
(157)
78
(3)
75
The deferred income at 31 December 2019 and 31 December 2018 relates to future services to be provided to Phoenix in relation to certain
client propositions. The amount of deferred income expected to be settled after more than 12 months is £60m (2018: £67m).
36. Other financial liabilities
Outstanding purchases of investment securities
Accruals
Creation of units awaiting settlement
Lease liabilities
Cash collateral held in respect of derivative contracts
Bank overdrafts
Contingent consideration liabilities
Other
Other financial liabilities
Notes
18
38
24
40
2019
£m
–
469
110
268
21
338
14
95
1,315
20181
£m
2
492
167
–
21
216
29
234
1,161
1 Comparatives for 2018 have been represented to exclude unit linked liabilities. Refer Note 25.
The amount of other financial liabilities expected to be settled after more than 12 months is £239m (2018: £15m).
Accruals includes £3m (2018: £5m) relating to contracts with customers (refer Note 4(b)).
37. 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:
2019
Opening balance carried forward
Effect of change in accounting policy to IFRS 161
At 1 January
Charged/(credited) to the consolidated income statement
Additional provisions
Release of unused provision
Used during the year
At 31 December
Separation
costs
£m
Other
provisions
£m
Total
provisions
£m
80
–
80
–
–
(3)
77
25
(12)
13
19
(7)
–
25
105
(12)
93
19
(7)
(3)
102
1 The Group has initially applied IFRS 16 at 1 January 2019. Under the transition method chosen, comparative information is not restated and the cumulative effect of initially
applying this standard is recognised in retained earnings at the date of initial application. Refer Basis of preparation.
194 Standard Life Aberdeen 2019
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
Provision for
annuity sales
practices
£m
248
(248)
Separation
costs
£m
–
–
Other
provisions
£m
68
(33)
–
–
–
–
80
–
–
80
7
(9)
(8)
25
Total
provisions
£m
316
(281)
87
(9)
(8)
105
The provision for separation costs of £77m (2018: £80m) is for costs expected to be incurred following the sale of the UK and European
insurance business to Phoenix. Refer Note 1 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. As our work has progressed we have encountered
additional complexity resulting from the separation of the technology infrastructure and as a result we now expect these one-off separation costs
to be £310m. 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. No additional provision has been recognised in the year
ended 31 December 2019 for the additional £60m of estimated costs as it is judged to relate to expenditure from which the Group will derive
future benefits. The costs covered by the provision are expected to be incurred in the next two years.
Other provisions primarily relate to restructuring and are expected to be settled within 12 months.
The amount of provisions expected to be settled after more than 12 months is £34m (2018: £72m).
The provision for annuity sales practices related to the UK and European insurance business sold during 2018. Refer Note 40 for disclosures
relating to the valuation of the related contingent consideration.
(b) Other liabilities
As at 31 December 2019, other liabilities totalled £5m (2018: £9m). The amount of other liabilities expected to be settled after more than 12
months is £2m (2018: £2m).
38. Financial instruments risk management
(a) Overview
The principal risks and uncertainties that affect the Group’s business model and the Group’s approach to risk management are set out in the
Risk management section of the Strategic report.
The Group’s exposure to financial instrument risk is derived from the financial instruments that it holds directly, the assets and liabilities of the unit
linked funds of the life operations of the Group and the Group’s defined benefit pension plans. In addition due to the nature of the business, the
Group’s secondary exposure extends to the impact on investment management and other fees that are determined on the basis of a percentage
of AUM and are therefore impacted by financial risks borne by third party investors. In this note exposures and sensitivities provided relate to the
financial instrument assets and liabilities, in scope of IFRS 7, to which the shareholder is directly exposed.
For the purposes of this note:
Shareholder business refers to the assets and liabilities to which the shareholder is directly exposed. The shareholder refers to the equity
holders of the Company and the preference shareholders.
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. These cash flows are included in
shareholder business.
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.
Unit linked funds are excluded from the analysis in this note. Details regarding the financial risks of instruments relating to the Group’s unit linked
funds can be found in Note 25 and the risks relating to the Group’s principal defined benefit pension plan are explained in Note 34.
Third party interests in consolidated funds do not expose the shareholder to market, credit or liquidity risk since the financial risks from the assets
and obligations are borne by third parties. As a result equity risk, interest rate risk and credit risk quantitative disclosures in this note exclude
these assets.
Under IFRS 7 the following financial instruments are excluded from scope:
Interests in subsidiaries, associates and joint ventures
Rights and obligations arising from employee benefit plans
Insurance contracts as defined by IFRS 4
Share-based payment transactions
Standard Life Aberdeen 2019
195
Financial inFormation
7. Group financial statements continued
For the purposes of managing risks to the Group’s financial instrument assets and liabilities, the Group considers the following categories:
Risk
Market
Credit
Liquidity
Definition and exposure
The risk of financial loss as a result of adverse financial market movements. The shareholder is directly exposed to
the impact of movements in equity prices, interest rates and foreign exchange rates on the value of assets held by
the shareholder business.
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 shareholder is directly exposed to credit risk from holding cash, debt
securities, loans and derivative financial instruments.
The risk of financial loss as a result of being unable to settle 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 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.
(b) Market risk
Market risk exposures in the Asset management, platforms and wealth segment primarily arise as a result of holdings in newly established
investment vehicles which the Group has seeded and co-investments in property and infrastructure funds. 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. Co-investments are typically held for a longer
term and align the Group’s economic interests with those of property, private equity and infrastructure fund co-investors. The consolidated
statement of financial position includes the following amounts in respect of seed capital and co-investments.
Equity securities and interests in pooled investment funds at FVTPL
Debt securities
Assets held for sale
Total seed capital
Equity securities and interests in pooled investment funds at FVTPL
Total co-investments
Notes
23
2019
£m
195
78
2
275
84
84
2018
£m
76
22
81
179
37
37
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 40.
Exposure to equity risk
(b)(i)(i)
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.
At 31 December 2019 the shareholder exposure to equity markets was £199m (2018: £37m) in relation to equity securities. In addition the
shareholder has interests in pooled investment funds of £458m (2018: £464m). Equity securities and interests in pooled funds in the
consolidated statement of financial position of £725m includes £68m of third party interests in consolidated funds.
The shareholder exposure to equity securities of £199m (2018: £37m) primarily relates to seed capital of £118m (2018: £19m) and £48m (2018:
£nil) held by the Standard Life Foundation.
The shareholder exposure of £458m (2018: £464m) to interests in pooled investment funds primarily relates to:
Corporate funds held in absolute return funds which are not consolidated of £210m (2018: £197m)
Co-investment holdings in property and infrastructure funds of £84m (2018: £37m)
Seed capital in funds which are not consolidated of £77m (2018: £57m)
Investments in certain 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 £44m (2018: £53m)
Holdings in cash funds which are not consolidated of £5m (2018: £5m)
Interest in pooled funds held by the Standard Life Foundation of £35m (2018: £81m)
196 Standard Life Aberdeen 2019
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.
The sensitivity of profit after tax to changes in equity security prices for the shareholder business is included in the profit after tax sensitivity to
market risk table, shown in Section (b)(ii).
(b)(i)(ii) 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.
Interest rate exposures are managed in line with the Group’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) Exposure to foreign currency risk
The Group’s financial assets are generally held in the local currency of its operational geographic locations. 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 UK Sterling. Foreign currency risk for shareholders also arises from the Group's investments in overseas subsidiaries, and
in associates and joint ventures accounted for using the equity method.
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.
The table below summarises the financial instrument exposure to foreign currency risks in UK Sterling. The table excludes inter-segment assets
and liabilities.
UK
Sterling
Euro
Canadian
Dollar
Hong Kong
Dollar
US
Dollar
Notes
2019 2018 2019 2018 2019
£m
£m
£m
£m
£m
Financial assets
Financial liabilities
19
32
3,387 3,158
256
190
(1,246) (1,533)
(57)
(20)
13
(1)
Net investment
hedges
Cash flow hedges
Non- designated
derivatives
–
6
(566)
(589)
–
–
–
–
266
108
(62)
(26)
–
–
–
2018
£m
10
–
–
–
–
1,841 1,150
137
144
12
10
2019
£m
6
(4)
–
–
(1)
1
2018
£m
10
2019
£m
356
2018
£m
244
Singapore
Dollar
Other
currencies
2019 2018 2019 2018
£m
£m
£m
£m
Total
2019
£m
2018
£m
80
117
192
193 4,290 3,922
(1)
(718)
(668)
(19)
(18)
(47)
(32) (2,092) (2,272)
(6)
–
–
–
–
3
566
589
(131)
73
(68)
97
–
–
–
61
–
–
–
99
–
–
–
–
(72)
(14)
–
–
–
–
–
–
73
147 2,198 1,650
Other currencies include assets of £12m (2018: £13m) and liabilities of £nil (2018: £3m) in relation to the fair value of derivatives used to manage
currency risk.
In addition to financial instruments analysed above, the principal source of foreign currency risk for shareholders arises from the Group's
investments in overseas subsidiaries and associates and joint ventures accounted for using the equity method.
The Group has holdings in Indian and Chinese associates and joint ventures. The carrying value and, where listed, market value is disclosed in
Note 16. The Group does not hedge foreign currency risk in relation to these investments.
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.
(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), changes in interest rates (interest rate risk) and changes in foreign exchange rate (foreign currency risk) as at the reporting date
applied to assets and liabilities other than those classified as held for sale. These sensitivities concern only the direct impact on financial
instruments and exclude indirect impacts on fee income and certain costs that may be affected by changes in the variable. The changes used in
the sensitivity analysis are considered reasonable assumptions and are consistent with market peers.
Standard Life Aberdeen 2019
197
Financial inFormation
7. Group financial statements continued
Limitations
The sensitivity of the Group’s profit after tax and equity may be 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:
Impact on profit after tax1
and on equity
Change in equity security prices
+10%
-10%
+20%
-20%
2019
£m
40
(40)
81
(81)
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.
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.
(2)
2
2019
£m
2018
£m
7
(7)
2019
£m
(2)
2
2018
£m
16
(16)
32
(32)
2018
£m
(4)
4
The impact of interest rate changes on profit after tax primarily relates to cash and cash equivalents.
In 2018, the Group’s financial instruments include certain debt securities classified as available-for-sale. These debt securities were measured at
fair value. Interest was calculated using the effective interest method and recognised in the consolidated income statement. Other changes in fair
value and the related tax were recognised in other comprehensive income. As a result, in 2018 the sensitivity of the Group's equity to variations
in interest rate risk exposures differed from the sensitivity of the Group's profit after tax to variations in interest rate risk exposures.
Profit after tax and equity sensitivity to foreign exchange risk
The impact of the following foreign exchange rate assumptions on profit and equity, net of tax, are as follows:
Impact on profit after tax1 and on equity
2018
2019
USD
£m
EUR
£m
SGD
£m
USD
£m
EUR
£m
SGD
£m
Change in foreign exchange rates
+10%2
-10%2
1 A positive number for impact on profit after tax represents a credit to the consolidated income statement.
2 The foreign exchange sensitivity is the impact of a 10% movement in each currency against UK Sterling.
11
(11)
15
(15)
5
(5)
19
(19)
16
(16)
9
(9)
198 Standard Life Aberdeen 2019
(c) Credit risk
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.
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.
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 Group adopted IFRS 9 Financial Instruments on 1 January 2019. Prior to adoption of IFRS 9, under IAS 39 impairment was only recognised
when a default occurred. See Basis of preparation for further information.
Under IFRS 9, expected credit losses (ECL) are calculated on financial assets which are measured at amortised cost.
Financial assets attract an ECL allowance equal to either:
12 month ECL (losses resulting from possible
default within the next 12 months)
Lifetime ECL (losses resulting from possible
defaults over the remaining life of the financial
asset)
–
–
–
– No significant increase in credit risk since initial recognition.
–
Trade receivables or contract assets with significant financing component, or
lease receivables if lifetime ECL measurement has not been elected
Significant increase in credit risk since initial recognition,
Trade receivables or contract assets with no significant financing component
Trade receivables or contract assets with significant financing component, or
lease receivables for which lifetime ECL measurement has been elected
Changes in Lifetime ECL
– Credit-impaired at initial recognition
In determining if a significant increase in the risk of default occurring has arisen since initial recognition the Group considers a range of factors
including whether a default has taken place, deterioration in credit quality of a counterparty and knowledge of specific events which could
influence a counterparty’s ability to pay.
The Group assumes that a significant increase in credit risk has arisen when contractual payments are more than 30 days past due. The Group
assumes that credit risk on a financial instrument has not increased significantly since initial recognition if the financial instrument is determined
to have low credit risk at the reporting date. Financial instruments with an external rating of ‘investment grade’ are determined to have low credit
risk. Investment grade financial instruments are financial assets with credit ratings assigned by external rating agencies with classification within
the range of AAA to BBB. If a financial asset is not rated by an external agency it is classified as ‘not rated’.
The Group applies the simplified approach, as permitted under IFRS 9, to calculate the ECL allowance for trade receivables, contract assets and
lease receivables. Under the simplified approach, the ECL allowance is calculated over the remaining life of the asset, using a provision matrix
approach based on historic observed default rates adjusted for knowledge of specific events which could influence loss rates.
Standard Life Aberdeen 2019
199
Financial inFormation
7. Group financial statements continued
(c)(i) Credit exposure
The following table presents an analysis of the credit quality of shareholder financial assets and the maximum exposure to credit risk without
taking into account any collateral held:
2019
AAA
AA+ to AA-
A+ to A-
BBB
BB
Not rated
Gross carrying amount
Loss allowance
Carrying amount
Derivative financial assets
Debt securities
Receivables and other financial assets
Cash and cash equivalents
Carrying amount
2018
Neither past due nor impaired:
AAA
AA+ to AA-
A+ to A-
BBB
Below BBB
Not rated
Past due
Impaired
Carrying amount
Derivative financial assets
Debt securities
Receivables and other financial assets
Cash and cash equivalents
Carrying amount
Fair value
through profit or
loss
£m
–
178
485
54
–
25
742
–
Cash flow
hedge
£m
–
–
3
–
–
–
3
–
742
16
725
1
–
742
3
3
–
–
–
3
Amortised cost
12 month
ECL
£m
100
843
1,146
120
2
187
2,398
–
2,398
–
602
187
1,609
2,398
Lifetime ECL –
not credit
impaired
£m
–
–
–
–
–
372
372
–
372
–
–
372
–
372
Designated at
fair value
through profit
or loss
£m
Held for
trading
£m
Cash flow
hedge
£m
Available-for-
sale
£m
Loans and
receivables
£m
–
170
515
–
–
31
–
–
716
–
708
8
–
716
–
–
–
–
–
5
–
–
5
5
–
–
–
5
–
–
13
–
–
–
–
–
13
13
–
–
–
13
36
92
605
113
16
–
–
–
862
–
862
–
–
862
162
567
350
20
3
669
26
–
1,797
–
–
687
1,110
1,797
Total
£m
100
1,021
1,634
174
2
584
3,515
–
3,515
19
1,327
560
1,609
3,515
Total
£m
198
829
1,483
133
19
705
26
–
3,393
18
1,570
695
1,110
3,393
In the table above debt securities exclude debt securities relating to third party interests in consolidated funds of £44m (2018: £17m). Cash and
cash equivalents exclude cash and cash equivalents relating to third party interests in consolidated funds of £6m (2018: £nil). Derivative financial
assets exclude derivative financial assets relating to third party interests in consolidated funds of £nil (2018: £1m). Receivables and other
financial assets exclude receivables and other financial assets relating to third party interests in consolidated funds of £nil (2018: £2m). The
shareholder is not exposed to the credit risk in respect of third party interests in consolidated funds since the financial risk of the assets are borne
by third parties.
200 Standard Life Aberdeen 2019
An analysis of debt securities by country based on the ultimate parent country of risk is provided below:
Government,
provincial and
municipal1
2019
£m
2018
£m
Banks
2019
£m
2018
£m
Other financial
institutions
2019
£m
2018
£m
Other
corporate
2019
£m
2018
£m
Other2
Total3
2019
£m
2018
£m
2019
£m
2018
£m
49
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2
51
13
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
262
9
–
50
30
60
277
45
30
–
45
–
53
60
80
–
–
13
10
25
65
45
–
459
115
50
–
337
25
63
–
50
50
–
13
1,001
1,307
9
5
–
–
–
–
–
–
–
–
–
–
–
–
–
15
–
29
35
–
–
–
–
–
–
–
–
–
–
–
–
–
–
15
–
50
86
–
–
–
–
–
16
25
–
6
–
2
–
–
–
10
–
93
–
–
–
–
–
17
19
–
6
–
2
–
–
–
10
8
41
–
–
–
–
–
–
–
–
–
–
–
–
–
–
13
47
145
155
101
14
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
31
45
447
14
–
50
30
60
293
70
30
6
45
2
53
60
80
38
49
168
10
25
65
45
–
476
134
50
6
337
27
63
–
50
75
39
1,327
1,570
UK
Australia
Canada
China
Denmark
Finland
France
Germany
Japan
Mexico
Netherlands
Spain
Sweden
Switzerland
United Arab
Emirates
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 includes debt securities issued by supranationals.
3 Total geographical exposures exclude debt securities relating to third party interests in consolidated funds of £44m (2018: £17m).
(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 2019, the Group had pledged £18m (2018: £8m) of cash and £nil (2018: £nil) of securities
as collateral for derivative financial liabilities. At 31 December 2019, the Group had accepted £21m (2018: £21m) of cash and £25m
(2018: £50m) 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 24, 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.
Standard Life Aberdeen 2019
201
Financial inFormation
7. Group financial statements continued
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
13
25
38
(2)
(2)
(2)
–
(2)
2
2
(9)
(25)
(34)
–
–
2
–
2
–
–
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
18
50
68
(3)
(3)
–
–
–
–
–
(14)
(50)
(64)
3
3
4
–
4
–
–
As at 31 December 2019
Financial assets
Derivatives2
Reverse repurchase
agreements
Total financial assets
Financial liabilities
Derivatives2
Total financial liabilities
As at 31 December 20181
Financial assets
Derivatives2
Reverse repurchase
agreements
Total financial assets
Financial liabilities
Derivatives2
Total financial liabilities
1 Comparatives for 2018 have been represented to exclude unit linked liabilities. Refer Note 25.
2 Only OTC derivatives subject to master netting agreements have been included above.
(d) Liquidity risk
The shareholder is exposed to liquidity risk if the Group 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. The following quantitative liquidity risk disclosures are provided in respect of these
financial liabilities.
The Group has a liquidity risk policy and processes in place for monitoring, assessing, and controlling liquidity risk.
During the year, the Group refined its processes for managing liquidity risk through the operation of its liquidity risk framework. This framework
ensures that liquidity risks are identified and also identifies which entities in the Group have this exposure. Stress testing of these risks is
performed to understand the quantum of risk under stress conditions. This then informs the level of liquid resources that need to be
maintained. Where appropriate, this is enhanced with external credit facilities and the Group has a syndicated revolving credit facility of £400m
which was undrawn at 31 December 2019.
The level of liquid resources in the Group is also projected under a number of adverse scenarios. These are described more fully in the Viability
Statement.
Contingency funding plans are also maintained to ensure that if liquidity risk did materialise, processes and procedures are already in place to
assist with resolving the issue. Regular monitoring of liquid assets is performed and projections undertaken (under both base and stressed
conditions) to understand the outlook.
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.
202 Standard Life Aberdeen 2019
(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, other than those related to unit linked funds which are discussed in Note 25.
Within
1 year
1-5
years
5-10
years
10-15
years
15-20
years
2019
£m
29
1,124
1,153
2018
£m
53
1,141
1,194
2019
£m
116
107
223
2018
£m
210
2
212
2019
£m
676
102
778
2018
£m
845
–
845
2019
£m
25
57
82
2018
£m
144
–
144
2019
£m
25
14
39
2018
£m
144
–
144
Subordinated liabilities
Other financial liabilities
Total
Greater than
20 years
2019
£m
2018
£m
Total
2019
£m
107
–
107
615
978
– 1,404
615 2,382
2018
£m
2,011
1,143
3,154
Refer Note 20 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 2019 with a contractual maturity of within
one year and between one and five years of £2m and £39m respectively (2018: £9m and £28m).
39. 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. Investments in associates at
FVTPL are included in equity securities and pooled investment funds in the analysis of financial investments.
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 2019 and 31 December 2018, 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 2019 and 31 December 2018, 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.
The following table shows the carrying value of the Group’s interests in unconsolidated structured entities by line item in the consolidated
statement of financial position.
Financial investments
Equity securities and interests in pooled investment funds
Debt securities
Total financial investments
Receivables and other financial assets
Other financial liabilities
2019
£m
917
12
929
221
129
2018
£m
675
13
688
280
177
(b)(i) Investments in unconsolidated structured entities
Equity securities and interests in pooled investment funds includes £650m (2018: £610m) of unconsolidated structured entities which are
managed by the Group and in which the Group has a direct investment. At 31 December 2019 the asset value of these unconsolidated
structured entities is £22,795m (2018: £21,020m). The total fees recognised in respect of these assets under management during the year to 31
December 2019 were £137m (2018: £44m).
The total issuance balance relating to unconsolidated structured debt securitisation vehicles in which the Group has an investment is £1,000m
(2018: £1,000m).
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 38, 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 38.
(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.
Standard Life Aberdeen 2019
203
Financial inFormation
7. Group financial statements continued
Total assets under management of structured entities in which the Group has no direct investments but has other interests in are £102,558m at
31 December 2019 (2018: £136,047m). The fees recognised in respect of these assets under management during the year to 31 December
2019 were £581m (2018: £813m).
40. 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.
(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 assets and financial liabilities
An analysis of the Group’s financial assets and financial liabilities in accordance with the categories of financial instrument set out in IFRS 9
Financial Instruments is presented in Notes 19, 25 and 32 and includes those financial assets and liabilities held at fair value.
(c) 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.
The Group’s exposure to unlisted equity securities primarily relates to interests in real estate, infrastructure and private equity funds. These are
valued in accordance with independent professional valuations or International Private Equity and Venture Capital Valuation Guidelines where
relevant. The fair value of unlisted investments in infrastructure funds is based on the phase of individual projects forming the overall investment
and discounted cash flow techniques based on project earnings. The valuation of these securities is 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.
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 valuation of these
securities is 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 held for sale is calculated as equal to the observable unit price.
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 2019 and 31 December 2018, the residual credit risk is considered immaterial and no credit risk
adjustment has been made.
204 Standard Life Aberdeen 2019
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.
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 has been 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 has been working with the FCA regarding the process for conducting this past
business review. The review is now substantially complete.
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 the Group paid to Phoenix an amount equivalent to the financial penalty of £31m levied by the FCA on SLAL in
July 2019.
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.
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.
In addition, the Group is currently engaged in ongoing discussions with Phoenix in respect of disagreements over the operation of certain
aspects of the agreements that were entered into at the time of the sale of SLAL to Phoenix and which impact the value of the indemnities and
other payments under the transaction terms. Whilst the Group and Phoenix are currently seeking a commercial resolution in respect of such
disagreements, it is possible that all or some of these matters (and any other disagreements which may arise from time to time in respect of
these agreements) could be escalated to a dispute resolution process provided for in the relevant agreements, which could result, if the Group
and Phoenix fail to reach agreement, in either party commencing legal proceedings. Management’s estimate of the impact of these discussions
on the value of the arrangements entered into with Phoenix at the time of the sale of SLAL to Phoenix has been taken into account in the fair
value of the contingent consideration.
Standard Life Aberdeen 2019
205
Financial inFormation
7. Group financial statements continued
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.
(c)(i) Fair value hierarchy for assets measured at fair value in the statement of financial position
The table below presents the Group's non-unit linked assets measured at fair value by level of the fair value hierarchy (refer Note 25 for fair value
analysis in relation to assets backing unit linked liabilities).
Fair value hierarchy
As recognised in
the consolidated
statement of
financial position
line item
2019
£m
2
19
725
769
1
2018
£m
2
19
509
1,587
8
Owner occupied property
Derivative financial assets
Equity securities and interests in
pooled investment vehicles
Debt securities
Contingent consideration asset
Total assets at fair value
1,516
2,125
Classified as
held for sale
2019
£m
2018
£m
Total
Level 1
Level 2
Level 3
2018
£m
2019
£m
2018
£m
2019
£m
2
19
727
783
1
2018
£m
2
19
604
1,600
8
–
–
95
13
–
2019
£m
2018
£m
–
–
609
57
–
666
–
1
523
50
–
574
2019
£m
–
19
36
725
–
–
18
22
1,549
–
108
1,532
2,233
780
1,589
–
–
2
14
–
16
2
–
82
1
1
86
2
–
59
1
8
70
Transfers from level 1 to level 2 and from level 2 to level 1 during the year ended 31 December 2019 were £7m (2018: £nil) and £6m (2018: £nil)
respectively. These transfers relate to assets where changes in the frequency of observable market transactions resulted in a change in whether
the market was considered active. Transfers are deemed to have occurred at the end of the calendar quarter in which they arose. Refer Note
40(c)(iii) for details of movements in level 3.
(c)(ii) Fair value hierarchy for liabilities measured at fair value in the statement of financial position
The table below presents the Group's non-unit linked 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
2019
£m
2018
£m
Classified as
held for sale
Total
Level 1
Level 2
Level 3
2019
£m
2018
£m
2019
£m
2018
£m
2019
£m
2018
£m
2019
£m
2018
£m
2019
£m
2018
£m
Liabilities in respect of third
party interest in consolidated
funds
Derivative financial liabilities
Contingent consideration
liabilities
Total liabilities at fair value
119
3
14
136
26
4
29
59
–
–
–
–
14
–
–
14
119
3
14
136
40
4
29
73
–
1
–
1
–
–
–
–
119
2
–
121
40
4
–
44
–
–
14
14
–
–
29
29
There were no significant transfers between levels 1 and 2 during the year (2018: none). Refer Note 40(c)(iii) for details of movements in level 3.
206 Standard Life Aberdeen 2019
(c)(iii) Reconciliation of movements in level 3 instruments
The movements during the year of level 3 assets and liabilities held at fair value, excluding unit linked assets and liabilities and assets and
liabilities held for sale, are analysed below.
Investment
property
2019
£m
2018
£m
Owner occupied
property
2019
£m
2018
£m
–
–
–
–
–
–
–
9,749
(9,749)
–
–
–
–
–
2
–
–
–
–
–
2
81
(79)
–
–
–
–
2
Equity securities
and interests in
pooled investment
funds
2019
£m
59
–
2
23
(8)
6
82
2018
£m
994
(921)
5
18
(37)
–
59
Debt securities
2019
£m
1
–
–
–
–
–
1
2018
£m
1,444
(1,443)
–
–
–
–
1
Liabilities in
respect of third
party interest in
consolidated
funds
2019
£m
–
–
–
–
–
–
–
2018
£m
(1,298)
1,298
–
–
–
–
–
At 1 January
Reclassified to held for sale during the year
Total gains/(losses) recognised in the
consolidated income statement
Purchases
Sales
Transfers in to level 31
At 31 December
1 Transfers are deemed to have occurred at the end of the calendar quarter in which they arose.
At start of period
Total amounts recognised in the income statement
Additions
Settlements
At end of period
Contingent
consideration asset
Contingent
consideration liabilities
2019
£m
8
56
–
(63)
1
2018
£m
6
(6)
8
–
8
2019
£m
(29)
5
(8)
18
(14)
2018
£m
(25)
9
(19)
6
(29)
For the year ended 31 December 2019, gains of £nil from continuing operations (2018: gains of £6m) 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. Of this amount £1m of losses (2018: gains of £7m) were recognised in other income with the remainder 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.
Standard Life Aberdeen 2019
207
Financial inFormation
7. Group financial statements continued
(c)(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 2019:
2019
Equity securities and interests in
pooled investment funds
Fair value
£m
82
Contingent consideration assets
and liabilities
(13)
Unobservable input
This comprises holdings in approximately 100 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.
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
–
Future lapse rates on relevant UK unit linked
products of SLAL
– Management’s assessment of the outcome of
ongoing discussions with Phoenix in respect of
disagreements over the operation of certain
aspects of the governing contracts that were
entered into at the time of the sale of SLAL to
Phoenix
Input used
N/A
Expected amount required
to cover the redress due
to customers compared to
SLAL’s provision at 31
December 2017
Statistical distribution used
in the Group’s Solvency II
internal model at 31
December 2017
Our assessment of the
expected resolution taking
into account our legal
advice
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
208 Standard Life Aberdeen 2019
Estimates and assumptions at 31 December 2019
At 31 December 2019 the contingent consideration relating to the indemnity covering future lapse rates on relevant UK unit linked products of
SLAL is considered a source of estimation uncertainty with a significant risk of resulting in a material adjustment to the carrying amount of
assets and liabilities within the next financial year. Other elements of contingent consideration are not considered to be a critical accounting
estimate at 31 December 2019.
The technique used to value the indemnity covering future lapses on relevant UK unit linked products of SLAL is based on a statistical model
used for the Group’s Solvency II reporting at 31 December 2017 (prior to the sale of the SLAL business to Phoenix), with each possible
outcome weighted by the likelihood of the outcome. Unobservable inputs are the statistical distribution of potential lapses over the indemnity
period based on past experience. The most likely amount payable is £nil and the range of possible impacts on the contingent consideration
asset valuation from reasonably possible alternative assumptions is -£50m to +£25m.
The contingent consideration related to the annuity sales practices indemnity was considered a critical estimate in 2018 but is not considered
a critical estimate in 2019 as the review of non-advised annuity sales is now substantially complete. The valuation of the contingent
consideration in relation to the annuity sales practices indemnity takes into account our view of the need for any changes in the provision held
by SLAL. During 2019 SLAL has released £79m of the provision that it recognised at 31 December 2017. This reflected the view that the
overall level of the provision at 31 December 2017 was in excess of the amount required to cover the redress due to customers. The fair
value of this component of the contingent consideration is based on an estimate of the amount expected to be paid by Phoenix to the Group
under this indemnity.
Estimates and assumptions at 31 December 2018
The contingent consideration related to the annuity sales practices indemnity was 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 had 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 reflected the view that the overall level of the provision at 31 December 2017 remained appropriate and therefore that the fair value of this
component of the contingent consideration, before considering insurance recoveries and potential FCA-levied penalties, was not material. The
valuation technique and underpinning assumptions were as follows:
The key assumptions underlying the provision for annuity sales practices relating to enhanced annuities were:
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 assumed 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 was based on expected experience from SLAL’s review utilising the redress calculator provided by the FCA in early
2018. This assumption was unchanged from that used at end 2017.
Assumptions relating to future annuity payments were 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 were based on SLAL’s project
planning.
Standard Life Aberdeen 2019
209
Financial inFormation
7. Group financial statements continued
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 took 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 was based on an assessment of the likelihood
of a financial penalty and the FCA’s methodology for calculating such penalties.
(c)(v) Sensitivity of the fair value of level 3 instruments to changes in key assumptions
At 31 December 2019 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 range of outcomes relating to contingent consideration assets
and liabilities which are considered critical accounting estimates are discussed in Section (c)(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.
(d) Assets and liabilities not carried at fair value
The table below presents estimated fair values by level of the fair value hierarchy of non-unit linked financial 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
2019
£m
2018
£m
Notes
Fair value
2019
£m
2018
£m
Level 1
Level 2
Level 3
2019
£m
2018
£m
2019
£m
2018
£m
2019
£m
2018
£m
Assets
Debt securities1
Liabilities
Subordinated notes
602
–
614
–
33
655
1,081
688
1,088
23
–
–
–
591
–
688
1,088
–
–
–
–
1 Debt securities are held under IFRS 9 at amortised cost. They were previously held at fair value as available-for-sale under IAS 39.
The estimated fair values for subordinated liabilities are based on the quoted market offer price.
The carrying value of all other financial assets and liabilities measured at amortised cost approximates their fair value.
41. Statement of cash flows
The Group classifies cash flows in the consolidated statement of cash flows as arising from operating, investing or financing activities.
Cash flows are classified based on the nature of the activity to which they relate and with consideration to generally accepted presentation
adopted by peers. For activities related to asset management business, cash flows arising from the sale and purchase of debt securities and
equity securities and interests in pooled investment funds, with the exception of those related to unit linked funds, are classified as cash flows
arising from investing activities. For activities related to insurance business, including those related to unit linked funds, cash flows arising from
the sale and purchase of debt securities and equity securities and interests in pooled investment funds are classified as cash flows arising
from operating activities.
From 1 January 2019 the Group has changed the classification of capital flows arising to/from, and distributions paid to, third party interest in
consolidated funds from cash flows arising from financing activities to cash flows arising from operating activities. Comparatives have been
restated. Refer basis of preparation.
Purchases and sales of financial investments are presented on a gross basis except for purchases and sales of short-term instruments held in
consolidated liquidity funds which are presented on a net basis.
Dividends received from associates and joint ventures are presented as cash flows arising from operating activities.
210 Standard Life Aberdeen 2019
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
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
(Reversal of)/loss on impairment of associates
Impairment losses recognised on property, plant and equipment
Impairment losses on disposal group held for sale
Movement in contingent consideration asset/liability
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
2019
£m
–
135
(55)
(12)
–
227
–
–
(137)
158
2019
£m
(230)
–
(60)
(8)
–
(316)
197
126
(291)
2019
£m
–
(1,542)
–
47
184
1,571
(243)
16
–
(61)
43
–
36
(79)
(28)
2018
£m
(303)
1,369
3,142
269
328
(1,796)
(13)
27
250
3,273
2018
£m
1,260
(397)
(7)
57
(586)
(2,756)
(622)
(76)
(3,127)
2018
£m
(1,780)
(185)
1
20
224
926
228
–
2
–
36
2
80
(135)
(581)
Standard Life Aberdeen 2019
211
Financial inFormation
7. 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
There were no operations disposed of in the year ended 31 December 2019.
(e) Movement in subordinated liabilities
The following table reconciles the movement in subordinated liabilities in the year, split between cash and non-cash items.
Opening balance carried forward
Effect of change in accounting policy to IFRS 91
Opening balance 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 to equity
Interest expense
Transfer to profit or loss on redemption of subordinated liabilities
Amortisation
Foreign exchange adjustment
At 31 December
2019
£m
1,081
5
1,086
(455)
–
(39)
(494)
–
35
47
–
(19)
655
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)
2018
£m
2,253
–
2,253
(363)
(4)
(117)
(484)
(803)
91
–
1
23
1,081
1 The Group has initially applied IFRS 9 at 1 January 2019. Under the transition method chosen, comparative information is not restated. Refer Basis of preparation.
In addition to the repayment of subordinated liabilities of £363m during the year ended 31 December 2018, an additional £1,014m was
redeemed from equity in the same period.
212 Standard Life Aberdeen 2019
(f) Movement in lease liabilities
The following table reconciles the movement in lease liabilities in the year, split between cash and non-cash items.
Opening balance carried forward
Effect of change in accounting policy to IFRS 161
Opening balance at 1 January
Cash flows from financing activities
Payment of lease liabilities
Cash flows from financing activities
Non-cash items
Additions
Disposals
Interest capitalised
Foreign exchange adjustment
At 31 December
2019
£m
–
227
227
(32)
(32)
74
(5)
7
(3)
268
1 The Group has initially applied IFRS 16 at 1 January 2019. Under the transition method chosen, comparative information is not restated. Refer Basis of preparation.
42. 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.
Refer Note 40 relating to ongoing discussions with Phoenix in respect of disagreements over the operation of certain aspects of the agreements
that were entered into at the time of the sale of the UK and European insurance business to Phoenix and which impact the value of indemnities
and other related payments under the transaction terms.
43. 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.
(a) Unrecognised financial instruments
As at 31 December 2019, the Group has committed to investing an additional £46m (2018: £37m) into funds in which it holds a co-investment
interest.
(b) Capital commitments
As at 31 December 2019, the Group has no capital commitments other than in relation to financial instruments (2018: none).
The Group’s investment property was sold in the year ended 31 December 2018 so there are no capital commitments in respect of investment
property as at 31 December 2019 and 31 December 2018.
Standard Life Aberdeen 2019
213
Financial inFormation
7. Group financial statements continued
44. 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). The Group also incentivises 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.
During the year ended 31 December 2019, the Group made the majority of its awards under the new Standard Life Aberdeen plc Deferred
Share and Standard Life Aberdeen plc Discretionary Share Plans both of which were established in 2018. The awards made under these plans
in the year ended 31 December 2019 were either share options, conditional share awards or deferred fund awards.
With the exception of Sharesave and the share incentive plan, no new awards were made under the previous plans during the year ended 31
December 2019.
Share options
The following plans issued share options during the year ended 31 December 2019.
(i) Deferred and discretionary share plans
The Group operates the following deferred and discretionary plans.
Plan
Standard Life Aberdeen plc Deferred
Share Plan
Recipients
Executives and senior management
Standard Life Aberdeen plc
Discretionary Share Plan
Executives and senior management
Conditions which must be met prior to vesting
Service, or service and performance
conditions. These can be tailored to the
individual award
Service, or service and performance
conditions. These can be tailored to the
individual award
All of the awards made under these plans are equity-settled except for a small number of cash-settled awards.
The awards made under these plans include awards for deferred bonuses of the prior year. With the exception of the Executive Incentive Plan
(EIP) awards, these awards have service conditions of one, two and three years after the date of the award and no outstanding performance
conditions. The awards for deferred bonus for executive directors are made under the conditions of the EIP including a performance underpin.
Further details of the EIP are set out in the Directors’ remuneration report.
(ii) 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.
In addition to the above, the following plans issued no share options during the year ended 31 December 2019 but have outstanding options.
214 Standard Life Aberdeen 2019
(iii) Long-term incentive plans
The Group operates the following long-term incentive plans which awarded share options prior to the introduction of the Standard Life Aberdeen
plc Deferred Share and Discretionary Share 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.
(iv) Annual bonus deferred share options
The Group operates the following deferred bonus plans which awarded share options prior to the introduction of the Standard Life Aberdeen plc
Deferred Share and Discretionary Share Plans.
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
Other share awards
The following plans issued other share awards during the year ended 31 December 2019.
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.
(i) Deferred and discretionary share plans
In addition to the share options above, conditional share awards are also made under the Standard Life Aberdeen plc Deferred Share Plan and
Standard Life Aberdeen plc Discretionary Share Plan. The awards are similar in nature to the share options under these plans except that unlike
share options which have an exercise period, conditional shares awarded have no exercise period and the employee receives the shares at the
end of the award’s vesting period. Conditional share awards are made to employees in a number of overseas locations including the US,
Denmark and the Netherlands.
(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.
In addition to the above, the following plan issued no share awards during the year ended 31 December 2019 but has outstanding awards.
(iii) Annual bonus deferred share awards
The Group operates the following deferred bonus plan which awarded conditional shares prior to the introduction of the Standard Life Aberdeen
plc Deferred Share and Discretionary Share Plans.
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.
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.
Standard Life Aberdeen 2019
215
Financial inFormation
7. Group financial statements continued
(a) Options granted
The number, weighted average exercise price and weighted average remaining contractual life for options outstanding during the year are as
follows:
2019
Outstanding at 1 January
Granted
Forfeited
Exercised
Expired
Cancelled
Outstanding at 31 December
Exercisable at 31 December
Deferred and
discretionary share
plans
–
23,636,874
(257,360)
(423,356)
–
–
22,956,158
35,295
Long-term
incentive plans
(excluding RSP)
55,702,777
–
(18,310,221)
(952,703)
(28,050)
–
36,411,803
–
Annual bonus
deferred share
options
26,220,720
–
(651,976)
(10,099,285)
–
–
15,469,459
10,357,995
RSP
6,562,186
–
(1,693,033)
(2,855,702)
(15,555)
–
1,997,896
89,798
Weighted
average
exercise price
for Sharesave
292p
199p
–
282p
–
294p
227p
285p
Sharesave
9,260,389
5,473,382
–
(353,534)
–
(6,510,173)
7,870,064
426,840
Remaining contractual life of options
outstanding (years)1
9.29
1.22
1.17
5.99
3.29
2018
Outstanding at 1 January
Granted
Forfeited
Exercised
Cancelled
Outstanding at 31 December
Exercisable at 31 December
Remaining contractual life of options
outstanding (years)1
1 Weighted average.
Long-term
incentive plans
(excluding RSP)
52,005,776
20,476,434
(10,979,340)
(5,800,093)
–
55,702,777
–
RSP
7,104,089
1,460,199
(437,714)
(1,564,388)
–
6,562,186
20,152
Annual bonus
deferred share
options
28,216,634
3,434,492
(312,312)
(5,118,094)
–
26,220,720
9,816,708
Weighted average
exercise price for
Sharesave
316p
257p
309p
287p
328p
292p
313p
Sharesave
9,004,370
3,712,915
(807,186)
(680,119)
(1,969,591)
9,260,389
2,292,876
1.96
1.38
7.10
2.65
The exercise price for options granted under the deferred and discretionary share plans, the long-term incentive plans (including RSP) and the
annual bonus deferred share option 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.
Deferred and discretionary share plans
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
1 Weighted average.
Throughout, main grant date 15 April 2019
272p
272p
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
2.77
16 October 2019
285p
54p
192p-199p
No dividend entitlement
3.53
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.
The following table shows the share price at exercise of options exercised during the year.
Deferred and
discretionary
share plans
Long-term
incentive plans
(excluding RSP)
275p
268p
Annual bonus
deferred share
options
Sharesave
271p
305p
RSP
252p
Options exercised during the year
Share price at time of exercise1
1 Weighted average.
216 Standard Life Aberdeen 2019
The following table shows the range of exercise prices of options outstanding at 31 December 2019. Options under the Standard Life Aberdeen
plc Deferred Share and Standard Life Aberdeen plc Discretionary Share Plans and the Aberdeen Asset Management DSP 2009 are exercisable
up to 10 years after the grant date. All other options are exercisable for a period of six months after the vesting date.
Deferred and discretionary share plans
£nil
Long-term incentive plans
£nil
Annual bonus deferred share options
£nil
Sharesave
192p-199p
200p-327p
328p-402p
Outstanding at 31 December
(b) Other share plans
2019
Deferred and
discretionary
share plans
Share
incentive
plan
2019
Number of options
outstanding
2018
Number of options
outstanding
22,956,158
–
38,409,699
62,264,963
15,469,459
26,220,720
5,442,217
1,711,180
716,667
84,705,380
–
6,102,619
3,157,770
97,746,072
2018
Annual bonus
deferred share
awards1
285,500
364p
364p
Share
incentive
plan2
562,261
336p
336p
Number of share awards granted
Share price at date of grant3
Fair value per granted instrument at grant date3
1 Conditional share awards made under the Aberdeen Asset Management USA DSAP.
2 The share incentive plan awards in the year ended 31 December 2018 included 5,898 rights to shares granted to eligible employees in Germany and Austria.
3 Weighted average.
4,283,186
272p
272p
348,461
277p
277p
No conditional share awards were made under the Aberdeen Asset Management USA DSAP in the year ended 31 December 2019.
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 and share awards granted under deferred and discretionary share plans1
Share options granted under long-term incentive plans
Share options granted under Sharesave
Matching shares granted under share incentive plans
Equity-settled share-based payments
Cash-settled deferred fund awards
Total expense
1
Includes expense for annual bonus deferred share awards.
2019
£m
36
4
2
1
43
10
53
2018
£m
33
–
2
1
36
9
45
Included in the expense above is £19m (2018: £31m) 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 2019 is £nil (2018: £2m).
Deferred fund awards
At 31 December 2019, the liability recognised for cash-settled deferred fund awards was £46m (2018: £48m).
Standard Life Aberdeen 2019
217
Financial inFormation
7. Group financial statements continued
45. 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 asset management
business.
During the year, the Group recognised management fees from Group managed non-consolidated investment vehicles. These fees are disclosed
in Note 39. It also recognised management fees of £4m (2018: £4m) from the Group’s defined benefit pension plans.
In the year ended 31 December 2019, for associates accounted for using the equity method, the Group recognised sales primarily in relation to
management fees of £145m (2018: £89m) and purchases in relation to services received of £49m (2018: £28m).
In the year ended 31 December 2019 there were sales to joint ventures of £1m (2018: £nil) and purchases from joint ventures of £1m (2018:
£nil).
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 £55m (2018: £63m), balances due to associates
accounted for using the equity method of £22m (2018: £19m) and no balances due to or from joint ventures as at 31 December 2019 (2018:
none). The Group’s defined benefit pension plans have assets of £1,154m (2018: £1,132m) invested in investment vehicles managed by the
Group.
Details of a proposed sale of a subsidiary to a joint venture are included in Note 23.
(b) Compensation of key management personnel
On 24 May 2019 the executive committee was replaced by the executive leadership team. For 2019 key management personnel therefore
includes Directors of Standard Life Aberdeen plc (since appointment) and the executive committee (since appointment) for the period from 1
January 2019 until 23 May 2019 and from 24 May 2019 includes Directors of Standard Life Aberdeen plc (since appointment) and the members
of the executive leadership team (since appointment).
In 2018 key management personnel included 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 included Directors of Standard Life
Aberdeen plc and the members of the executive committee (since appointment).
The summary of compensation of key management personnel is as follows:
Salaries and other short-term employee benefits
Post-employment benefits
Share-based payments and deferred fund awards
Termination benefits
Total compensation of key management personnel
2019
£m
8
–
7
1
16
2018
£m
6
–
6
–
12
(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.
46. 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 section of the Strategic report on page 44. Information on financial instruments risk is also provided in Note 38.
218 Standard Life Aberdeen 2019
(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 2019, the Group’s draft Pillar 1 minimum requirement for capital
was £0.4bn (2018: £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 2019 draft position on 10 March 2020 following finalisation of the Annual report and accounts, 2018 based on Pillar 3 reporting.
20191
£bn
6.6
(2.9)
(1.1)
(0.4)
2.2
0.6
2.8
(1.1)
1.7
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.
47. Events after the reporting date
On 7 February 2020, the Company announced a share buyback of up to £400m through on-market purchases commencing on 10 February
2020 and ending no later than 30 September 2020. As at 6 March 2020, the Company had repurchased 20,214,403 shares for a
consideration of £60m.
In early 2020, the existence of a new coronavirus, now known as COVID-19, was confirmed and since this time COVID-19 has spread across
China and to a significant number of other countries. COVID-19 has caused disruption to businesses and economic activity which has been
reflected in recent fluctuations in global stock markets. The Group considers the emergence and spread of COVID-19 to be a non-adjusting post
balance sheet event. Given the inherent uncertainties, it is not practicable at this time to determine the impact of COVID-19 on the Group or to
provide a quantitative estimate of this impact.
Our assessment of the recoverable amount of asset management goodwill and consideration of indicators of impairment relating to other
intangibles was based on economic conditions, including equity market levels, at 31 December 2019. At the year end the carrying amount of
asset management goodwill is the recoverable amount so any downside sensitivity will lead to a future further impairment loss. COVID-19 could
lead to continued lower equity market levels and reduced gross inflows and therefore reduced future revenues and future cash flows. Note 15
provides sensitivities which include the impact of reductions in forecast cash flows on the recoverable amount of asset management goodwill.
Standard Life Aberdeen 2019
S
219
Financial inFormation 7. Group financial statements continued
48. 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 2019 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. Under that policy limited partnerships in which
the Group has no interest but whose general partner is controlled by the Group are not consolidated. However such limited partnerships are
considered to be related undertakings under Companies Act 2006 and therefore are listed below. Where the Group has no interest in a limited
partnership that is considered a related entity, the interest held is disclosed as 0%.
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 2019 is £88m (2018: £81m) related to the Standard Life Foundation, a subsidiary undertaking of the Group. The assets of the
Standard Life Foundation are 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.
The registered head office of all related undertakings is 1 George Street, Edinburgh, EH2 2LL unless otherwise stated.
(a) Direct subsidiaries
Name of related undertaking
1825 Financial Planning Limited3
30 STMA 1 Limited5
30 STMA 2 Limited5
30 STMA 3 Limited5
30 STMA 4 Limited5
30 STMA 5 Limited5
Aberdeen Asset Management PLC4
Focus Solutions Group Limited6
Standard Life Aberdeen Trustee Company Limited
Standard Life (Asia Pacific Holdings) Private Limited8
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) Limited5
Standard Life (Mauritius Holdings) 2006 Limited9
Standard Life Oversea Holdings Limited
Standard Life Savings Limited
The Standard Life Assurance Company 2006
Threesixty Services LLP10
Threesixty Support LLP10
(b) Other subsidiaries, joint ventures, associates and other significant holdings
Name of related undertaking
1825 Financial Planning and Advice Limited3
21 Aberdeen Standard Investments Limited5
21ASI Long Term Fund I SCSp11
6 SAS 1 Limited
6 SAS 2 Limited
Aberdeen ACM Team LP4
Aberdeen ACP LLP4
Aberdeen Alternatives (Holdings) Limited4
Aberdeen Asia IV (General Partner) S.a.r.l.12
Aberdeen Asia Pacific Fund (Offshore), L.P.13
Aberdeen Asia Pacific Fund II (Offshore), L.P.13
Aberdeen Asia Pacific Fund II, L.P.13
Aberdeen Asia Pacific Fund, L.P.13
Aberdeen Asia Pacific III Ex-Co-Investment (Offshore), L.P.13
220 Standard Life Aberdeen 2019
Share class1
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
Ordinary A shares
Ordinary B shares
Ordinary shares
Limited partnership
Ordinary shares
Ordinary shares
Limited partnership
Limited liability partnership
Ordinary shares
Ordinary shares
Limited partnership
Limited partnership
Limited partnership
Limited partnership
Limited partnership
% interest held2
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
% interest held2
100%
50%
0%
100%
100%
0%
100%
100%
100%
0%
0%
0%
0%
0%
Name of related undertaking
Aberdeen Asia Pacific III Ex-Co-Investment, L.P.13
Aberdeen Asia Pacific III, L.P.13
Aberdeen ASIF Carry LP4
Aberdeen Asset Investment Group Limited5
Aberdeen Asset Investments Limited5
Aberdeen Asset Management Cayman Limited13
Aberdeen Asset Management Denmark A/S14
Aberdeen Asset Management Finland Oy15
Aberdeen Asset Management Sweden AB16
Aberdeen Asset Management US GP Control LLC17
Aberdeen Asset Managers (Luxembourg) S.a.r.l. 18
Aberdeen Asset Managers Limited4
Aberdeen Asset Middle East Limited19
Aberdeen Capital Management LLC20
Aberdeen Capital Managers GP LLC21
Aberdeen Claims Administration, Inc. 22
Aberdeen Co-Investment Mandate LP4
Aberdeen Direct Property (Holding) Limited5
Aberdeen do Brasil Gestao de Recursos Ltda23
Aberdeen Emerging Asia Fund, L.P.13
Aberdeen Emerging Asia Pacific II (Offshore), L.P.13
Aberdeen Emerging Asia Pacific III Ex-Co-Investments, L.P.13
Aberdeen Emerging Capital Limited24
Aberdeen Energy & Resource Company IV, LLC25
Aberdeen Energy & Resources Partners IV, L.P. 25
Aberdeen European Infrastructure Carry GP Limited4
Aberdeen European Infrastructure Carry Limited4
Aberdeen European Infrastructure Co-Invest II LP5
Aberdeen European Infrastructure GP II Limited5
Aberdeen European Infrastructure GP III Limited5
Aberdeen European Infrastructure GP Limited5
Aberdeen European Infrastructure Partners Carry II LP4
Aberdeen European Infrastructure Partners Carry LP4
Aberdeen European Infrastructure Partners II LP11
Aberdeen European Infrastructure Partners III LP
Aberdeen European Infrastructure Partners LP4
Aberdeen European Residential Opportunities Fund SCSp26
Aberdeen France S.A.27
Aberdeen Fund Distributors LLC22
Aberdeen Fund Management II Oy15
Aberdeen Fund Management Ireland Limited28
Aberdeen Fund Management Oy15
Aberdeen General Partner 1 Limited4
Aberdeen General Partner 2 Limited4
Aberdeen General Partner CAPELP Limited13
Aberdeen General Partner CGPLP Limited13
Aberdeen General Partner CMENAPELP Limited13
Aberdeen General Partner CPELP II Limited13
Aberdeen General Partner CPELP Limited13
Aberdeen Global Absolute Return Strategies Fund5
Aberdeen Global ex-Japan FoF's LP13
Aberdeen Global ex-Japan GP Limited13
Aberdeen Global Infrastructure Carry GP Limited4
Aberdeen Global Infrastructure GP II Limited29
Aberdeen Global Infrastructure GP Limited29
Aberdeen Global Infrastructure Partners Carry LP4
Aberdeen Global Infrastructure Partners II Carry LP4
Aberdeen Global Infrastructure Partners II LP4
Share class1
Limited partnership
Limited partnership
Limited partnership
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Limited liability company
Ordinary shares
Ordinary shares
Ordinary shares
Limited liability company
Limited liability company
Ordinary shares
Limited partnership
Ordinary shares
Limited liability company
Limited partnership
Limited partnership
Limited partnership
Ordinary shares
Limited liability company
Limited partnership
Ordinary shares
Ordinary shares
Limited partnership
Ordinary shares
Ordinary shares
Ordinary shares
Limited partnership
Limited partnership
Limited partnership
Limited partnership
Limited partnership
Limited partnership
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
Limited partnership
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Limited partnership
Limited partnership
Limited partnership
% interest held2
0%
0%
25%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
0%
100%
100%
0%
0%
0%
100%
73%
1%
100%
100%
0%
100%
100%
100%
25%
25%
3%
1%
3%
1%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
6%
100%
100%
100%
100%
25%
25%
0%
Standard Life Aberdeen 2019
221
Financial inFormation
7. Group financial statements continued
Name of related undertaking
Aberdeen Global Infrastructure Partners LP5
Aberdeen GP 1 LLP4
Aberdeen GP 2 LLP4
Aberdeen GP 3 LLP4
Aberdeen Infrastructure Feeder GP Limited4
Aberdeen Infrastructure Finance GP Limited29
Aberdeen Infrastructure GP II Limited5
Aberdeen Infrastructure Partners Carry LP4
Aberdeen Infrastructure Partners II Carry LP4
Aberdeen Infrastructure Partners II LP4
Aberdeen Infrastructure Partners LP Inc30
Aberdeen Institutional Commingled Funds LLC – Long Duration Corporate Bond Fund25
Aberdeen Investment Company Limited4
Aberdeen Investment Solutions Limited4
Aberdeen Investments Euro Limited5
Aberdeen Investments Jersey Limited31
Aberdeen Investments Limited5
Aberdeen Investments USD Limited5
Aberdeen Keva Asia IV Property Partners SCSP12
Aberdeen Liquidity Fund (Lux)
Share class1
Limited partnership
Limited liability partnership
Limited liability partnership
Limited liability partnership
Ordinary shares
Ordinary shares
Ordinary shares
Limited partnership
Limited partnership
Limited partnership
Limited partnership
Unit trust
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Limited partnership
% interest held2
1%
100%
100%
100%
100%
100%
100%
25%
25%
0%
0%
100%
100%
100%
100%
100%
100%
100%
0%
Seabury Sterling Liquidity 1 Fund26
Aberdeen Pension Trustees Limited4
Aberdeen Pooling II GP AB16
Aberdeen Property Fund Finland I Feeder Ky15
Aberdeen Property Fund Finland LP (APFF)15
Aberdeen Property Fund Limited Partner Oy15
Aberdeen Property Fund Management (Jersey) Limited32
Aberdeen Property Fund Management Estonia Ou33
Aberdeen Property Investors (General Partner) S.a.r.l.34
Aberdeen Property Investors Estonia Ou33
Aberdeen Property Investors France SAS27
Aberdeen Property Investors Limited Partner Oy15
Aberdeen Property Investors The Netherlands BV35
Aberdeen Property Secondaries Partners II26
Aberdeen Property UK Retail Parks Partnership5
Aberdeen Real Estate Fund Finland LP (AREFF)36
Aberdeen Real Estate Investors Operations (UK) Limited24
Aberdeen Real Estate Operations Limited4
Aberdeen Residential JV Feeder Limited Partner Oy15
Aberdeen Secondaries II GP S.a.r.l.26
Aberdeen Sidecar LP Inc30
Aberdeen SP 2013 A/S14
Aberdeen Standard 2019 European PE A Carry LP
Aberdeen Standard 2019 European PE B Carry LP
Aberdeen Standard Asset Management (Shanghai) Co., Ltd.37
Aberdeen Standard Asset Management (Thailand) Limited38
Aberdeen Standard Asset Management Limited
Aberdeen Standard Bloomberg WTI Crude Oil Strategy K-1 Free ETF25
Aberdeen Standard Capital (CI) Limited39
Aberdeen Standard Capital International Limited39
Aberdeen Standard Capital Limited
Aberdeen Standard Carlsbad GP Limited29
Aberdeen Standard Carlsbad LP4
Aberdeen Standard Diversified Fixed Income Fund40
Aberdeen Standard ECF II Carry Limited Partnership
Aberdeen Standard Emerging Market Local Currency Debt Fund40
Aberdeen Standard European Co-Investment II SCSp26
Aberdeen Standard Fund Managers Limited5
222 Standard Life Aberdeen 2019
SICAV
Ordinary shares
Ordinary shares
Limited partnership
Limited partnership
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Limited partnership
Limited partnership
Limited partnership
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Limited partnership
Ordinary shares
Limited partnership
Limited partnership
Ordinary shares
Ordinary shares
Ordinary shares
ETF
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Limited partnership
OEIC
Limited partnership
OEIC
Limited partnership
Ordinary shares
100%
100%
100%
0%
0%
100%
100%
100%
100%
100%
100%
100%
100%
1%
0%
5%
100%
100%
100%
100%
0%
100%
100%
100%
100%
100%
100%
67%
100%
100%
100%
100%
0%
22%
100%
41%
0%
100%
Name of related undertaking
Aberdeen Standard Global Infrastructure GP III Ltd.29
Aberdeen Standard Greater China Value Fund41
Aberdeen Standard Group Limited
Aberdeen Standard Indonesia Balanced Growth Fund42
Aberdeen Standard Indonesia Bond Fund42
Aberdeen Standard Indonesia Equity Fund42
Aberdeen Standard Indonesia Money Market Fund42
Aberdeen Standard Investment Management Limited
Aberdeen Standard Investments (Asia) Limited43
Aberdeen Standard Investments Australia Limited40
Aberdeen Standard Investments Beteiligungs GmbH44
Aberdeen Standard Investments (Canada) Limited45
Aberdeen Standard Investments Charitable Foundation4
Aberdeen Standard Investments Churchill Square General Partner Limited
Aberdeen Standard Investments Colombia SAS46
Aberdeen Standard Investments Deutschland AG44
Aberdeen Standard Investments ETFs (US) LLC47
Aberdeen Standard Investments ETFs Advisors LLC47
Aberdeen Standard Investments ETFs Sponsor LLC47
Aberdeen Standard Investments Fund Management A/S48
Aberdeen Standard Investments (Holdings) Limited
Aberdeen Standard Investments (Hong Kong) Limited49
Aberdeen Standard Investments Inc. 22
Aberdeen Standard Investments Ireland Limited50
Aberdeen Standard Investments (Japan) Limited51
Aberdeen Standard Investments Korea Co. Ltd.52
Aberdeen Standard Investments Life and Pensions Limited5
Aberdeen Standard Investments Limited
Aberdeen Standard Investments Luxembourg S.A.26
Aberdeen Standard Investments (Malaysia) Sdn. Bhd53
Aberdeen Standard Investments Nominees Services (HK) Limited49
Aberdeen Standard Investments Norway AS48
Aberdeen Standard Investments Norway Holding AS48
Aberdeen Standard Investments Operations AS48
Aberdeen Standard Investments (Switzerland) AG54
Aberdeen Standard Investments Taiwan Limited41
Aberdeen Standard Islamic Asia Pacific Ex Japan Equity Fund55
Aberdeen Standard Islamic Investments (Malaysia) Sdn. Bhd.53
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 Multi-Sector Private Credit Fund SCSp26
Aberdeen Standard OEIC I
ASI China A Share Equity Fund5
ASI Japanese Equity Fund5
ASI Sterling Long Dated Government Bond Fund5
Aberdeen Standard OEIC III
ASI MyFolio Index I Fund5
ASI MyFolio Index II Fund5
ASI MyFolio Index V Fund5
Aberdeen Standard OEIC IV
ASI American Equity Tracker Fund5
ASI Asia Pacific ex Japan Equity Tracker Fund5
ASI Emerging Markets Equity Tracker Fund5
Share class1 % interest held2
100%
94%
100%
86%
63%
80%
33%
100%
100%
100%
94%
100%
100%
100%
100%
94%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Ordinary shares
Investment trust
Ordinary shares
Unit trust
Unit trust
Unit trust
Unit trust
Ordinary shares
Ordinary shares
Ordinary shares
Limited liability company
Ordinary shares
N/A
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,
Irredeemable non-convertible
preference shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Unit trust
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Limited partnership
OEIC
OEIC
OEIC
OEIC
OEIC
OEIC
OEIC
OEIC
OEIC
Standard Life Aberdeen 2019
223
100%
100%
100%
100%
100%
100%
49%
100%
100%
100%
100%
100%
100%
0%
98%
80%
32%
84%
21%
39%
43%
100%
76%
Financial inFormation
7. Group financial statements continued
Name of related undertaking
ASI European Equity Tracker Fund5
ASI Global Inflation-Linked Bond Tracker Fund5
ASI Japan Equity Tracker Fund5
ASI Short Dated Global Corporate Bond Tracker Fund5
ASI Short Dated Sterling Corporate Bond Tracker Fund5
Aberdeen Standard OEIC V
ASI UK Impact – Employment Opportunities Equity Fund 5
Aberdeen Standard Opportunistic Core China Bond No. 1 Investment Private Fund56
Aberdeen Standard Overseas Investment Fund Management (Shanghai) Co., Ltd.37
Aberdeen Standard Pan European Residential Property Fund SICAV-RAIF26
Aberdeen Standard Private Real Assets Co-investment Fund I GP, LP25
Aberdeen Standard Private Real Assets Co-Investment Fund I, L.P.25
Aberdeen Standard SICAV I
Aberdeen Standard SICAV I – Asian Credit Bond Fund26
Aberdeen Standard SICAV I – Emerging Markets Local Currency Corporate Bond Fund26
Aberdeen Standard SICAV I – European Equity (ex-UK) Fund26
Aberdeen Standard SICAV I – German Equity Fund26
Aberdeen Standard SOF Evergreen GP LP
Aberdeen Standard SOF Evergreen LP
Aberdeen Standard SOF IV Feeder LP
Aberdeen Standard SOF IV GP LP
Aberdeen Standard SOF IV LP
Aberdeen Standard Syariah Asia Pacific Equity USD Fund42
Aberdeen Standard Unit Trust 1
ASI Diversified Growth Fund5
ASI Diversified-Core Adventurous Fund5
ASI Diversified-Core Cautious Fund5
ASI Diversified-Core Conservative Fund5
Aberdeen Trust Limited4
Aberdeen U.S. Mid Cap Equity Fund57
Aberdeen UK Infrastructure Carry GP Limited4
Aberdeen UK Infrastructure Carry Limited4
Aberdeen UK Infrastructure GP Limited5
Aberdeen UK Infrastructure Partners Carry LP5
Aberdeen UK Infrastructure Partners LP58
Aberdeen Unit Trust Managers Limited4
Aberdeen U.S. Private Equity Company VII, LLC25
Aberdeen U.S. Private Equity VII, L.P.25
Aberdeen Venture Company X, LLC25
Aberdeen Venture Partners X, L.P.25
Aberdeen Venture Partners X SPV-A, L.P.25
ACM Carry LP4
AEROF (Luxembourg) GP S.a.r.l.26
AIPP Folksam Europe II Kommanditbolag59
AIPP Pooling I SA26
Airport Industrial GP Limited5
Airport Industrial Limited Partnership5
Aldwych Capital Partners, L.P.
Amberia General Partner Oy15
Andean Social Infrastructure Fund I LP4
Andean Social Infrastructure GP Limited13
Arden Asset Management (UK) Limited24
Arden Asset Management LLC21
Arden Garden State NJ Fund, L.P.25
Arden Institutional Advisers, L.P.25
Arden Institutional Advisers, L.P. – AIA Series T Holdings LLC25
Arden Institutional Fund LP25
Arthur House (No.6) Limited5
224 Standard Life Aberdeen 2019
Share class1 % interest held2
69%
43%
74%
88%
73%
OEIC
OEIC
OEIC
OEIC
OEIC
OEIC
Private commingled fund
Ordinary shares
Limited partnership
Limited partnership
Limited partnership
SICAV
SICAV
SICAV
SICAV
Limited partnership
Limited partnership
Limited partnership
Limited partnership
Limited partnership
Unit trust
Unit trust
Unit trust
Unit trust
Unit trust
Ordinary shares
OEIC
Ordinary shares
Ordinary shares
Ordinary shares
Limited partnership
Limited partnership
Ordinary shares
Limited liability company
Limited partnership
Limited liability company
Limited partnership
Limited partnership
Limited partnership
Ordinary shares
Limited partnership
Ordinary shares
Ordinary shares
Limited partnership
Limited partnership
Ordinary shares
Limited partnership
Ordinary shares
Ordinary shares
Limited liability company
Limited partnership
Limited partnership
Limited partnership
Limited partnership
Ordinary shares
86%
100%
100%
1%
79%
1%
51%
84%
29%
53%
100%
0%
0%
100%
0%
29%
46%
50%
63%
68%
100%
69%
100%
100%
100%
25%
0%
100%
61%
1%
67%
0%
0%
40%
100%
0%
100%
100%
0%
0%
100%
0%
100%
100%
100%
0%
0%
0%
0%
100%
Name of related undertaking
Artio Global Investors Inc.22
ASI Core Private Equity Fund L.P.25
ASI (General Partner 2019 European PE B) Limited
ASI (General Partner 2019 European PE A Carry) Limited
ASI (General Partner 2019 European PE A) S.a.r.l.26
ASI (General Partner ECF II) Limited
ASI (General Partner PE2) Limited
ASI (General Partner PFF 2018) S.a.r.l.34
ASI (General Partner SOF IV) Limited
ASI (SOF E GP) Limited
ASI Direct RE GP LLP
ASI European Long Income RE Fund SCSp26
ASI European Private Equity 2019 B LP
ASI Han Co-Investment LP
ASI Hark Capital I GP, LLC17
ASI Hark Capital II GP, LLC17
ASI Korea GP 2 Pte. Ltd.61
ASI Korea Separate Account 2 LP61
ASI Little Mill Carry LP4
ASI Little Mill LP4
ASI Mid Market Fund 1 LP26
ASI Mid-Market 1 LP4
ASI MM Executive Co Investment LP4
ASI PE 1 Carry LP4
ASI Phoenix Fund Financing SCSp26
ASI Private Equity 1 LP4
ASI Private Equity 2 GP LP
ASI Private Equity 2 LP
ASI REMM GP LLP4
ASI Shin Co-Investment LP4
ASI Shin Global Investment GP Limited13
ASPER (Luxembourg) GP S.a.r.l.26
Baigrie Davies & Company Limited3
Baigrie Davies Holdings Limited3
BoS Mezzanine Partners Fund L.P.62
BOSEMP Feeder LP4
Bosera-Standard Life Investment Opportunities Market Debt Fund63
Castlepoint General Partner Limited64
Castlepoint LP64
Castlepoint Nominee Limited64
C.C. U.S. Private Equity Fund GP, LLC25
C.C. U.S. Private Equity Fund, L.P.25
Coutts Asian Private Equity Limited Partnership13
Coutts Global Property Limited Partnership13
Coutts Middle East and North Africa Private Equity Limited Partnership13
Coutts Private Equity Limited Partnership13
Coutts Private Equity Limited Partnership II13
CPP General Partner Limited Partnership
Cumberland Place Financial Management Limited3
Edinburgh Fund Managers Group Limited4
Edinburgh Fund Managers Plc
Edinburgh Unit Trust Managers Limited4
Elevate Portfolio Services Limited3
ESF I Executive Co Investment Limited Partnership64
ESP 2004 Co Investment Limited Partnership64
ESP 2004 Conduit LP
ESP 2004 General Partner Limited Partnership
Share class1 % interest held2
100%
0%
100%
100%
100%
100%
100%
100%
100%
100%
100%
0%
0%
0%
100%
100%
100%
1%
100%
0%
0%
0%
0%
40%
0%
0%
100%
0%
100%
0%
100%
100%
100%
100%
0%
0%
44%
100%
0%
100%
81%
0%
0%
0%
0%
0%
0%
20%
100%
100%
100%
Ordinary shares
Limited partnership
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Limited liability partnership
Limited partnership
Limited partnership
Limited partnership
Limited liability company
Limited liability company
Ordinary shares
Limited partnership
Limited partnership
Limited partnership
Limited partnership
Limited partnership
Limited partnership
Limited partnership
Limited partnership
Limited partnership
Limited partnership
Limited partnership
Limited liability partnership
Limited partnership
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Limited partnership
Limited partnership
Unit trust
Ordinary shares
Limited partnership
Ordinary shares
Limited liability company
Limited partnership
Limited partnership
Limited partnership
Limited partnership
Limited partnership
Limited partnership
Limited partnership
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Deferred shares
Ordinary shares
Limited partnership
Limited partnership
Limited partnership
Limited partnership
100%
100%
0%
0%
0%
0%
Standard Life Aberdeen 2019
225
Financial inFormation
7. Group financial statements continued
Name of related undertaking
ESP 2006 Co Investment Limited Partnership64
ESP 2006 Conduit LP
ESP 2006 General Partner Limited Partnership
ESP 2008 Coinvestment Fund L.P.
ESP 2008 Coinvestment General Partner Limited partnership
ESP 2008 Conduit LP
ESP 2008 Executive Co Investment Limited Partnership64
ESP 2008 General partner Limited Partnership
ESP Co Investment Limited Partnership64
ESP CPPIB European Mid Market Fund
ESP General Partner Limited Partnership
ESP Golden Bear Europe Fund
ESP Golden Bear General Partner Limited Partnership
ESP II Co Investment Limited Partnership64
ESP II Conduit LP
ESP II General Partner Limited Partnership
ESP Tidal Reach General Partner Limited Partnership
ESP Tidal Reach LP
European Strategic Partners
European Strategic Partners 2004 'A'
European Strategic Partners 2004 'B'
European Strategic Partners 2006 'A'
European Strategic Partners 2006 'B'
European Strategic Partners 2008 'A'
European Strategic Partners 2008 'B'
European Strategic Partners II 'A'
European Strategic Partners II 'B'
European Strategic Partners II 'C'
European Strategic Partners II 'D'
European Strategic Partners II 'E'
European Strategic Partners – I LP
European Strategic Partners Scottish 'B'
European Strategic Partners Scottish 'C'
FLAG Squadron Asia Pacific III GP LP13
Focus Business Solutions Limited6
Focus Holdings Limited6
Focus Software Limited6
Focus Solutions EBT Trustee Limited6
Fraser Heath Financial Management Limited3
Griffin Nominees Limited5
GTAAN – SL LP
HDFC Asset Management Company Limited65
HDFC Life Insurance Company Limited66
Healthcare Private Equity Limited Partnership5
Healthcare Private Equity LP58
Heng An Standard Life Insurance Company Limited67
Ignis Asset Management Limited
Ignis Cayman GP2 Limited13
Ignis Cayman GP3 Limited13
Ignis Fund Managers Limited
Ignis Investment Services Limited
Jones Sheridan Financial Consulting Limited3
Jones Sheridan Holdings Limited3
Lothian Thirty L.P.
Murray Johnstone Holdings Limited4
Murray Johnstone Limited4
NASP 2006 General Partner Limited Partnership
226 Standard Life Aberdeen 2019
Share class1 % interest held2
0%
0%
5%
0%
0%
0%
0%
0%
0%
0%
0%
2%
0%
0%
0%
0%
20%
1%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
100%
100%
100%
100%
100%
100%
100%
1%
27%
Limited partnership
Limited partnership
Limited partnership
Limited partnership
Limited partnership
Limited partnership
Limited partnership
Limited partnership
Limited partnership
Limited partnership
Limited partnership
Limited partnership
Limited partnership
Limited partnership
Limited partnership
Limited partnership
Limited partnership
Limited partnership
Limited partnership
Limited partnership
Limited partnership
Limited partnership
Limited partnership
Limited partnership
Limited partnership
Limited partnership
Limited partnership
Limited partnership
Limited partnership
Limited partnership
Limited partnership
Limited partnership
Limited partnership
Limited partnership
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Limited partnership
Ordinary shares
Redeemable preference shares
Ordinary shares
Limited partnership
Limited partnership
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Limited partnership
Ordinary shares
Ordinary shares
Limited partnership
15%
0%
0%
50%
100%
100%
100%
100%
100%
100%
100%
0%
100%
100%
5%
Name of related undertaking
NASP 2006 Special Limited Partnership
NASP 2008 General Partner Limited Partnership
NASP 2008 Special Limited Partnership
North American Strategic Partners 2006 LP13
North American Strategic Partners 2008 LP13
North American Strategic Partners (Feeder) 2006
North American Strategic Partners (Feeder) 2008 Limited Partnership
North American Strategic Partners Companion Fund LP68
North American Strategic Partners, LP68
North East Trustees Limited69
Origo Services Limited70
Orion Partners Holdings Limited71
Orion Partners Korea Inc.52
Orion Partners Mgmt (Singapore) Pte. Ltd.60
Orion Partners Services Inc.72
Ostara China RE Fund LP
Ostara China Real Estate Fund L.P.72
Ostara Japan Fund 3 LP72
Ostara Korea GP 2 Pte. Ltd.60
Ostara Korea Separate Account LP60
Ostara Partners CLP Inc.72
Ostara Partners Inc. China72
Ostara Partners Inc. Japan 372
P25 Limited Partnership Incorporated73
Pace Financial Solutions Limited3
Pace Mortgage Solutions Limited3
Parmenion Capital Ltd74
Parmenion Capital Partners LLP74
Parmenion Nominees Limited74
Parnell Fisher Child & Co. Limited3
Parnell Fisher Child Holdings Limited3
PE1 LP4
PE1A LP4
PE1B LP4
PE2 LP4
Pearl Private Equity LP
Pearl Strategic Credit LP
Pearson Jones & Company (Trustees) Limited75
Pearson Jones Nominees Limited75
PGB European Buy-out Fund I SCSp4
Phoenix Group Holdings plc7
PT Aberdeen Standard Investments Indonesia42
PURetail Luxembourg Management Company S.a.r.l.18
Regent Property Partners (Retail Parks) Limited5
Self Directed Holdings Ltd.74
Self Directed Investments Ltd.74
Serin Wealth Limited3
Shin Global Investment Partners LP13
SL Capital 2016 Co-Investment GP LP
SL Capital 2016 Co-Investment LP
Share class1
Limited partnership
Limited partnership
Limited partnership
Limited partnership
Limited partnership
Limited partnership
Limited partnership
Limited partnership
Limited partnership
Ordinary A shares
Ordinary B shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Limited partnership
Limited partnership
Limited partnership
Ordinary shares
Limited partnership
Ordinary shares
Ordinary shares
Ordinary shares
Limited partnership
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 A shares
Ordinary B shares
Limited partnership
Limited partnership
Limited partnership
Limited partnership
Limited partnership
Limited partnership
Ordinary shares
Ordinary shares
Limited partnership
Ordinary shares
Limited liability company
Class A shares
Ordinary shares
Ordinary A shares
Ordinary B shares
Ordinary C shares
Preference shares
Ordinary shares
Ordinary shares
Limited partnership
Limited partnership
Limited partnership
% interest held2
0%
0%
0%
0%
0%
0%
0%
0%
4%
100%
19%
100%
100%
100%
100%
0%
0%
0%
100%
0%
100%
100%
100%
0%
100%
100%
100%
100%
100%
100%
100%
0%
0%
0%
0%
0%
0%
100%
100%
0%
20%
99%
50%
100%
100%
100%
100%
95%
5%
0%
Standard Life Aberdeen 2019
227
Financial inFormation
7. Group financial statements continued
Name of related undertaking
SL Capital ECF GP LP
SL Capital ESF I GP LP
SL Capital ESF I LP
SL Capital European Co-Investment B LP
SL Capital European Co-Investment LP
SL Capital Ignis Private Equity Founder LP
SL Capital Ignis Strategic Credit Founder LP
SL Capital Infrastructure I GP LP
SL Capital Infrastructure I LP
SL Capital Infrastructure II LTP LP
SL Capital Infrastructure II SCSp34
SL Capital Infrastructure Secondary I GP LP
SL Capital Infrastructure Secondary I LP
SL Capital NASF I LP
SL Capital NASF I A LP
SL Capital NASF I Carry LP
SL Capital NASF I GP LP
SL Capital Partners (US) Limited
SL Capital Partners LLP
SL Capital Pearl Private Equity GP LP
SL Capital Pearl Strategic Credit GP LP
SL Capital SOF I Feeder LP
SL Capital SOF I GP LP
SL Capital SOF I LP
SL Capital SOF II Feeder LP
SL Capital SOF II GP LP
SL Capital SOF II LP
SL Capital SOF III Feeder LP
SL Capital SOF III GP LP
SL Capital SOF III LP
SLC EC Executive Co Investment Limited Partnership
SLCI (Infrastructure 2018 A) Co-Invest LP
SLCI I Executive Co Investment Limited Partnership
SLCI Rail Co-Invest LP
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
228 Standard Life Aberdeen 2019
Limited partnership
Limited partnership
Limited partnership
Limited partnership
Limited partnership
Limited partnership
Limited partnership
Limited partnership
Limited partnership
Limited partnership
Limited partnership
Limited partnership
Limited partnership
Limited partnership
Limited partnership
Limited partnership
Limited partnership
Ordinary shares
Limited liability partnership
Limited partnership
Limited partnership
Limited partnership
Limited partnership
Limited partnership
Limited partnership
Limited partnership
Limited partnership
Limited partnership
Limited partnership
Limited partnership
Limited partnership
Limited partnership
Limited partnership
Limited 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
Share class1 % interest held2
4%
0%
1%
0%
0%
65%
0%
100%
0%
100%
0%
100%
0%
0%
2%
0%
0%
100%
100%
0%
1%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
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
SLIF Property Investment LP
SLIPC (General Partner Infrastructure II LTP 2017) Limited
SLIPC (General Partner Infrastructure II) S.a.r.l34
SLIPC (General Partner PMD Co-Invest 2017) Limited
SLIPC (General Partner SCF 1) Ltd
SLIPC PMD Co-Invest 2017 LP
SLTM Limited
SOF I Executive Co Investment Limited Partnership64
SOF II Executive Co Investment Limited Partnership64
SOF III Executive Co Investment Limited Partnership
Squadron Capital Asia Pacific GP, LP13
Squadron Capital Asia Pacific II GP LP13
Squadron Capital Management Limited13
Squadron Capital Partners Limited13
Standard Aberdeen Asset Management Limited
Standard Aberdeen Group Limited
Standard Aberdeen Investment Management Limited
Standard Aberdeen Investments Limited
Standard Aberdeen Limited
Standard Life (Asia) Limited76
Standard Life Aberdeen Asset Management Limited
Standard Life Aberdeen Group Limited
Standard Life Digital Solutions Limited
Standard Life Investments Brent Cross General Partner Limited
Standard Life investments Brent Cross LP
Standard Life Investments Commercial Real Estate Debt LP5
Standard Life Investments (Corporate Funds) Limited
Standard Life Investments European Property Growth Fund L.P.5
Standard Life Investments European RE Club (Offshore Feeder) Ltd13
Standard Life Investments European RE Club II (Offshore Feeder) Ltd13
Standard Life Investments European Real Estate Club II LP5
Standard Life Investments European Real Estate Club II LP Feeder Fund13
Standard Life Investments European Real Estate Club III LP5
Standard Life investments European Real Estate Club LP5
Standard Life Investments European Real Estate Club LP Feeder Fund13
Standard Life Investments (France) SAS77
Standard Life Investments (General Partner CRED) Limited5
Standard Life Investments (General Partner ELIREF) S.a.r.l.26
Standard Life Investments (General Partner EPGF) Limited
Standard Life Investments (General Partner European Real Estate Club II) Limited5
Standard Life Investments (General Partner European Real Estate Club III) Limited5
Standard Life Investments (General Partner European Real Estate Club) Limited5
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)
Limited5
Standard Life Investments Global Absolute Return Strategies Master Fund Limited13
Standard Life Investments Global Absolute Return Strategies Offshore Feeder Fund
Limited13
Share class1 % interest held2
100%
100%
100%
100%
100%
0%
100%
100%
100%
100%
0%
100%
0%
0%
0%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
0%
0%
100%
0%
100%
100%
1%
0%
2%
2%
0%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Limited partnership
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Limited partnership
Ordinary shares
Limited partnership
Limited partnership
Limited partnership
Limited partnership
Limited 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
Limited partnership
Limited partnership
Ordinary shares
Limited partnership
Ordinary shares
Ordinary shares
Limited partnership
Limited partnership
Limited partnership
Limited partnership
Limited 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
100%
100%
100%
Standard Life Aberdeen 2019
229
Financial inFormation
7. Group financial statements continued
Name of related undertaking
Standard Life Investments Global Absolute Return Strategies Onshore Feeder Fund, L.P.
Standard Life Investments Global Focused Strategies Master Fund Limited13
Standard Life Investments Global Focused Strategies Offshore Feeder Fund Limited13
Standard Life Investments Global SICAV
Standard Life Investments Global SICAV Global Equities Unconstrained Fund78
Share class1 % interest held2
0%
100%
100%
Limited partnership
Ordinary shares
Ordinary shares
SICAV
64%
Standard Life Investments Global SICAV II
Standard Life Investments Global SICAV II Emerging Market Debt Sustainable &
Responsible Investment Fund78
Standard Life Investments Global SICAV II Global Equity Impact Fund78
Standard Life Investments Global SICAV II MyFolio Multi-Manager I Fund78
Standard Life Investments Global SICAV II MyFolio Multi-Manager II Fund78
Standard Life Investments Global SICAV II MyFolio Multi-Manager III Fund78
Standard Life Investments Global SICAV II MyFolio Multi-Manager IV Fund78
Standard Life Investments Global SICAV II MyFolio Multi-Manager V Fund78
Standard Life Investments Global SICAV Macro Systematic Dimensions Fund78
Standard Life Investments GTAA Company13
Standard Life Investments (Hong Kong) Limited79
Standard Life Investments (Jersey) Limited80
Standard Life Investments Limited
Standard Life Investments (Mutual Funds) Limited
Standard Life Investments (PDF No. 1) Limited80
Standard Life Investments (Private Capital) Limited
Standard Life Investments Secure Credit LP
Standard Life Investments Securities LLC22
Standard Life Investments (Singapore) Pte. Ltd81
Standard Life Investments (SLIPIT) Limited Partnership5
Standard Life Investments UK Shopping Centre Feeder Fund Company Limited5
Standard Life Investments UK shopping Centre Feeder Fund Limited Partnership5
Standard Life Investments (USA) Limited
Standard Life Portfolio Investments Limited
Standard Life Portfolio Investments US Inc.25
Standard Life Premises Services Limited
Standard Life Savings Nominees Limited
Tenet Group Limited82
Tenon Nominees Limited4
The Coaching Platform Limited6
The Munro Partnership Ltd.83
Threesixty Partnerships Limited10
Touchstone Insurance Company Limited84
Two Rivers Limited Partnership5
Two Rivers One Limited32
Two Rivers Two Limited32
UK PRS Opportunities General Partner Limited5
UK PRS Opportunities LP5
Virgin Money Unit Trust Managers Limited85
VZWL Private Equity GmbH & Co geschlossene Investment KG44
Waverley Healthcare Private Equity Limited4
Wealth Horizon Ltd74
Wise Trustee Limited74
1 OEIC = Open-ended investment company
SICAV = Société d’investissement à capital variable
SICAV
SICAV
SICAV
SICAV
SICAV
SICAV
SICAV
SICAV
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Limited partnership
Limited liability company
Ordinary shares
Limited partnership
Ordinary shares
Limited partnership
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary B shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Limited partnership
Ordinary shares
Ordinary shares
Ordinary shares
Limited partnership
Ordinary shares
Limited partnership
Ordinary shares
Ordinary shares
Ordinary shares
100%
39%
34%
22%
27%
32%
43%
45%
100%
100%
100%
100%
100%
50%
100%
0%
100%
100%
0%
100%
0%
100%
100%
100%
100%
100%
25%
100%
100%
100%
100%
100%
0%
100%
100%
100%
0%
50%
0%
100%
100%
100%
ETF = Exchange traded fund
2 Limited partnerships in which the Group has no interest but whose general partner is controlled by the Group are considered related undertakings under Companies Act 2006.
Where the Group has no interest in a limited partnership that is considered a related undertaking, the interest held is disclosed as 0%.
.
230 Standard Life Aberdeen 2019
Registered offices
3 14th Floor, 30 St Mary Axe, London, EC3A 8BF
4 10 Queen's Terrace, Aberdeen, AB10 1XL
5 Bow Bells House, 1 Bread Street, London, EC4M 9HH
6 Cranford House, Kenilworth Road, Blackdown, Leamington Spa, CV32 6RQ
7 Juxon House, 100 St Paul's Churchyard, London, EC4M 8BU
8 9 Raffles Place, #27-00 Republic Plaza, 048619, Singapore
9 C/O IQ EQ Fund Services (Mauritius) Ltd, 33 Edith Cavell Street, Port Louis,
11324, Mauritius
10 2nd Floor, The Royals, Altrincham Road, Sharston, Manchester, M22 4BJ
11 6, rue Gabriel Lippmann L – 5365 Munsbach, Luxembourg, Luxembourg
12 2-8 avenue Charles De Gaulle, L-1653 Luxembourg, Luxembourg
13 c/o Maples Corporate Services Limited, Ugland House, PO Box 309, George
Town, KY1-1104, Cayman Islands
14 Tuborg Havnevej 15, 2nd Floor, DK-2900 Hellerup, Denmark
15 Kaivokatu 6, Helsinki, 00100, Finland
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 c/o Corporation Service Company, 2711 Centerville Road, Suite 400,
Wilmington, DE 19808, USA
23 Rua Joaquim Floriano, 913 – 7th floor – Cj. 71 São Paulo SP 04534-013, Brazil
24 1 More London Place, London, SE1 2AF
25 1900 Market St, Suite 200, Philadelphia, PA 19103, USA
26 35a Avenue John F. Kennedy, L-1855 Luxembourg, Luxembourg
27 29 Rue De Berri, Paris, 75008, France
28 40 Upper Mount Street, Dublin 2, Republic of Ireland
29 First Floor Dorey Court, Admiral Park, St Peter Port, Guernsey, GY1 6HJ
30 Western Suite, Ground Floor Mill Court, La Charroterie, St Peter Port,
Guernsey, GY1 1EJ
31 First Floor, Sir Walter Raleigh House, 48-50 Esplanade, St Helier, Jersey, JE2
3QB
32 Lime Grove House, Green Street, St Helier, Jersey, JE1 2ST
33 Ahtri 6a, Tallinn, 10151, Estonia
34 2 Boulevard de la Foire, L-1528 Luxembourg, Luxembourg
35 WTC, H-Tower, 20th Floor, Zuiplein 166, 1077 XV Amsterdam, The
Netherlands
36 Mikonkatu 9 Fin 00100, Helsinki, Finland
37 West Area, 2F, No.707 Zhangyang Road, China (Shanghai) Pilot Free Trade
Zone
38 Bangkok City Tower, 28th Floor, 179 South Sathorn Road, Thungmahamek,
Sathorn, Bangkok, 10120, Thailand
39 Liberte House, 19-23 La Molle Street, St Helier, Jersey, JE4 5RL
40 Level 10, 255 George Street, Sydney, NSW 2000, Australia
41 8F-1, No. 101, Songren Road, Taipei City, 110, Taiwan, Republic of China
42 16th Floor, Menara Dea Tower 2, Kawasan Mega Kuningan, Jl Mega Kuningan
Barat Kav. E4.3 No. 1-2, 12950 Jakarta, Indonesia
43 21 Church Street, #01-01, Capital Square Two, 049480, Singapore
44 Bockenheimer Landstrasse 25, 60325 Frankfurt am Main, Germany
45 44 Chipman Hill, Suite 1000 POX Box 7283, Stn. "A" Saint John, N.B. E2L 4S6,
Canada
46 AC 82 NO. 10 60 P 5 Bogota DC, Columbia
47 712 5th Ave, New York, NY 10019, USA
48 Henrik Ibsens gate 100, PO Box 2882 Solli, 0230 Oslo, Norway
49 6th Floor, Alexandra House, 18 Chater Road, Central, Hong Kong
50 24 Merrion Row, Dublin 2, Republic of Ireland
51 Otemachi Financial City Grand Cube 9F, 1-9-2 Otemachi, Chiyoda-ku, 100-
0004, Tokyo, Japan
52 13th Fl., B Tower (Seocho-dong, Kyobo Tower Building), 465, Gangnam-daero,
Seocho-gu, Seoul, Korea
53 Suite 1005, 10th Floor, Wisma Hamzah-Kwong Hing No.1, Leboh Ampang
50100 Kuala Lumpur, Malaysia
54 Schweizergasse 14, Zurich, 8001, Switzerland
55 Suite 26.3, Level 26, Menara IMC, Letter Box No.66, No. 8, Jalan Sultan Ismail,
50250 Kuala Lumpur, Malaysia
56 Unit 1901-03, Platinum Tower, 233 Tai Cang Road Huang Pu District,
Shanghai 20020. China
57 PO Box 219534, Kansas City, MO 64121-9534, USA
58 Edinburgh One, Morrison Street, Edinburgh, EH3 8BE
59 Sveavägen 24, 111 57 Stockholm, Sweden
60 80 Robinson Road, #02-00, 068898, Singapore
61 7 Melville Crescent, Edinburgh, EH3 7JA
62 Suite 4109, Jardine House, One Connaught Place, Central, Hong Kong
63 11th Floor, Two Snowhill, Birmingham, B4 6WR
64 16 Charlotte Square, Edinburgh, EH2 4DF
65 HDFC House, 2nd floor, H.T. Parekh Marg, 165-166, Backbay Reclamation,
Churchgate, Mumbai – 400 020, India
66 Lodha Excelus, 13th Floor, Apollo Mills Compound, N.M. Joshi Marg,
Mahalaxmi, Mumbai – 400 011, Maharashtra, India
67 18F, Tower II, The Exchange, 189 Nanjing Road, Heping District, Tianjin,
People’s Republic of China, 300051
68 1 Rodney Square 10th Fl, 10 & King St, Wilmington, DE 19801, USA
69 Clayton Wood Close, West Park Ring Road, Leeds, LS16 6QE
70 7 Lochside View, Edinburgh, EH12 9DH
71 28th and 30th Floor, LHT Tower, 31 Queen's Road Central, Hong Kong
72 Campbells Corporate Services Limited, 4th Floor, Willow House, Cricket
Square, KY1-9010, Cayman Islands
73 Heritage Hall, Le Marchant Street, St Peter Port, Guernsey, GY1 4HY
74 Aurora (3rd Floor) Finzels Reach, Counterslip, Bristol, BS1 6BX
75 Clayton Wood Close, West Park Ring Road, Leeds LS16 6QE
76 12/F, Lincoln House, Taikoo Place, 979 King's Road, Quarry Bay, Hong Kong
77 100 Avenue des Champs Elysees, 1 Rue de Berri, F- 75008, Paris, France
78 2-4, Rue Eugène Ruppert, L-2453 Luxembourg, Luxembourg
79 30th Floor, Jardine House, One Connaught Place, Hong Kong
80 44 Esplanade, St Helier, Jersey, JE4 9WG
81 8 Marina Boulevard #05-02, Marina Bay Financial Centre Tower 1 01 8981,
Singapore
82 5 Lister Hill, Horsforth, Leeds, LS18 5AZ
83 Citadel House, 6 Citadel Place, Ayr, KA7 1JN
84 c/o Aon, PO Box 33, Maison Trinity, Trinity Square, St Peter Port, Guernsey
GY1 4AT
85 Jubilee House, Gosforth, Newcastle-Upon-Tyne, NE3 4PL
Standard Life Aberdeen 2019
231
Financial inFormation
8. Company financial statements
Company statement of financial position
As at 31 December 2019
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 attributable to equity shareholders of Standard Life Aberdeen plc
Other movements in retained earnings
Total retained earnings
Other reserves
Total equity
Liabilities
Subordinated liabilities
Other financial liabilities
Provisions
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
P
P
2019
£m
6,027
1,229
35
–
3
218
603
15
14
19
2018
£m
6,467
1,018
22
6
13
197
854
57
35
17
8,163
8,686
327
(119)
640
2,035
1,020
(122)
2,933
3,621
7,402
655
25
77
4
761
8,163
353
(88)
640
1,564
461
10
2,035
4,505
7,445
1,086
69
80
6
1,241
8,686
The financial statements on pages 232 to 242 were approved by the Board and signed on its behalf, by the following Directors:
Sir Douglas Flint
Chairman
10 March 2020
Stephanie Bruce
Chief Financial Officer
10 March 2020
The Notes on pages 235 to 242 are an integral part of these financial statements.
232 Standard Life Aberdeen 2019
Company statement of changes in equity
For the year ended 31 December 2019
2019
1 January
Profit for the year
Other comprehensive
income for the year
Total comprehensive
income for the year
Dividends paid on ordinary
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 impairment of
investment in subsidiaries
Shares acquired by
employee trusts
Shares distributed by
employee and other trusts
and related dividend
equivalents
Transfer from the Standard
Life Unclaimed Asset Trust
31 December
Share capital
£m
Notes
Shares held
by trusts
£m
Share
premium
reserve
£m
353
(88)
640
G
J
J
J
–
–
–
–
(26)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(76)
45
–
–
–
–
–
–
–
–
–
–
–
–
327
(119)
640
The Notes on pages 235 to 242 are an integral part of these financial statements.
Retained
earnings Other reserves
£m
£m
Total equity
£m
2,035
1,020
–
1,020
(518)
(390)
4,505
–
10
10
–
(100)
7,445
1,020
10
1,030
(518)
(516)
–
43
43
57
780
–
(52)
1
2,933
(57)
(780)
–
–
–
–
–
(76)
(7)
1
3,621
7,402
Standard Life Aberdeen 2019
233
Financial inFormation
8. Company financial statements continued
Share
capital
Shares held
by trusts
Share
premium
reserve
Retained
earnings
Other
reserves
Total equity
attributable to
equity
shareholders of
Standard Life
Aberdeen plc
Other 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)
–
–
–
–
–
–
–
–
–
–
9
–
–
–
–
–
(101)
40
–
(88)
£m
639
–
639
–
–
–
1
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
£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)
–
640
2,035
4,505
7,445
The Notes on pages 235 to 242 are an integral part of these financial statements.
£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
234 Standard Life Aberdeen 2019
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 adopted Financial Reporting Standard 101 Reduced Disclosure Framework (FRS 101) as issued by the FRC and
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. The 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.
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. Other than in relation to IFRS 16 Leases, which was adopted by the Group on 1 January 2019 and did not have a
material impact on the Company, these accounting policies have been consistently applied to all financial reporting periods presented in these
financial statements. The Company adopted IFRS 9 Financial Instruments: Recognition and Measurement on 1 January 2018.
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 8 to the consolidated financial
statements. The Company has no employees.
Investment in subsidiaries, associates and joint ventures
(a)
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
Standard Life Aberdeen 2019
235
Financial inFormation
8. 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
2019
£m
5,465
562
6,027
2019
£m
6,467
–
150
–
–
(139)
–
(795)
344
–
–
6,027
2018
£m
6,249
218
6,467
2018
£m
9,425
(2,312)
167
5
374
(2)
(486)
(589)
90
(198)
(7)
6,467
Details of the Company’s subsidiaries are given in Note 48 of the Group financial statements.
(a) Acquisitions
During 2019, the Company made the following acquisitions of subsidiaries measured at cost:
On 1 January 2019 the Company increased its investment in Aberdeen Asset Management PLC (AAM PLC) through the purchase of
100,000,000 ordinary shares for a non-cash consideration of £10m
On 11 February 2019 the Company increased its investment in AAM PLC through the purchase of 3,128,485 ordinary shares for a cash
consideration of £10m
On 26 March 2019 the Company increased its investment in 1825 Financial Planning Limited through the purchase of 17,600,000 ordinary
shares for a cash consideration of £17.6m
On 17June 2019 the Company increased its investment in 1825 Financial Planning Limited through the purchase of 46,000,000 ordinary
shares for a cash consideration of £46m
On 30 July 2019 the Company increased its investment in AAM PLC through the purchase of 15,783,294 ordinary shares for a cash
consideration of £50.5m
On 11 September 2019 the Company increased its investment in Focus Solutions Group Limited through the purchase of 30,000,000 ordinary
shares for a cash consideration of £3m
On 19 November 2019 the Company increased its investment in AAM PLC through the purchase of 3,098,779 ordinary shares for a cash
consideration of £9.9m
On 12 December 2019 the Company increased its investment in Standard Life Employee Services Limited through the purchase of 3,389
ordinary shares for a cash consideration of £3.4m
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 Standard Life Assurance Limited (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 AAM PLC 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
236 Standard Life Aberdeen 2019
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
See Section (e) below for details on investments in subsidiaries at FVTPL.
(b) Disposals
During 2019, the Company made the following disposals of subsidiaries measured at cost:
On 20 March 2019, 13 May 2019, 21 August 2019 and 5 November 2019 the Company redeemed £40.6m, £16.3m, £34.2m and £47.9m of
equity capital in Standard Life (Mauritius Holdings) 2006 Limited through the cancellation of 535,985.12, 211,759.58, 415,221.68 and
616,080.94 Participating shares respectively
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
(c) Operations held for sale
On 23 February 2018, the Company’s investments in 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 following the Group’s announcement of the
proposed sale of the UK and European insurance business to Phoenix Group Holdings (the Sale).
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.
Impairment
(d)
The Company holds investments in AAM PLC and Standard Life Investments (Holdings) Limited (SLIH). As AAM PLC and SLIH are managed
and reported together within the Asset management, Platforms and Wealth segment (formerly Asset management and platforms), 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 AAM PLC and SLIH by £780m (2018: £570m). The
recoverable amount was £4,808m which was its value in use and was determined using a pre-tax discount rate of 11.9% (2018:11.1%). The
value in use includes the fair value of HDFC Asset Management which is an associate of SLIH. Other assumptions used in the value in use are
the same as the assumptions used in the impairment review for asset management (Aberdeen Standard Investments) goodwill set out in Note
15 of the Group financial statements. 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 AAM PLC and SLIH to changes in key
assumptions is the same as the sensitivity of Aberdeen Standard Investments goodwill to changes in discount rate, growth and forecast cash
flow assumptions provided in Note 15 of the Group financial statements. The carrying value of the investments in AAM PLC and SLIH is also
sensitive to reductions in the fair value of HDFC Asset Management.
At 31 December 2019, the net assets of the Company of £7,402m (2018: £7,445m) are higher (2018: lower) than the net assets of the Group of
£6,666m (2018: £7,539m). This primarily arises because, as set out above, the value in use of the Company’s investments in AAM PLC and
SLIH includes the fair value of HDFC Asset Management which was £1,937m (2018: £1,077m) at 31 December 2019. In the Group accounts
the value in use of asset management goodwill excludes HDFC Asset Management, as HDFC Asset Management generates independent cash
flows. HDFC Asset Management is carried in the Group accounts under equity accounting at £120m (2018: £110m).
The Company’s investment in its subsidiary Focus Solutions Group Limited (Focus) was impaired during 2019 by £15m (2018: £19m). The
recoverable amount of Focus is £nil (2018: £13m) which is its value in use and has been determined using a discount rate of 12% (2018: 12%).
The impairment resulted from revenue projections being lower than those previously forecast as a result of lower projected new business.
Investments in subsidiaries at FVTPL
(e)
Investments in subsidiaries at FVTPL, valued at £562m (2018: £218m), relate to a holding in money market funds over which the Company has
control. During 2018, holdings in two further funds were reclassified to equity securities and interests in pooled investment funds, following the
Sale.
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
2019
£m
1,033
196
1,229
2018
£m
822
196
1,018
Standard Life Aberdeen 2019
237
Financial inFormation
8. Company financial statements continued
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. At 31 December 2018 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. At 31 December 2019 the fair value of the Company’s interest in Phoenix was £1,079m, on this basis a reversal
of the impairment recognised in 2018 of £211m has been recognised.
The Company has an interest of 25.3% (2018: 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% (2018: 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.
C. Financial investments
2019
Investments in subsidiaries measured at FVTPL
Derivative financial assets
Equity securities and interests in pooled investment funds
Debt securities
Receivables and other financial assets
Cash and cash equivalents
Total
2018
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
Notes
A
D
E
Notes
A
D
E
Fair value
through
profit or loss
Derivative financial
instruments used
for hedging Amortised cost
Total
£m
562
–
218
–
1
–
781
£m
–
3
–
–
–
–
3
£m
–
–
–
603
14
19
636
£m
562
3
218
603
15
19
1,420
Fair value
through
profit or loss
Derivative financial
instruments used
for hedging Amortised cost
Total
£m
218
–
–
197
–
8
–
423
£m
–
–
13
–
–
–
–
13
£m
–
6
–
–
854
49
17
926
£m
218
6
13
197
854
57
17
1,362
The amount of debt securities expected to be recovered or settled after more than 12 months is £266m (2018: £270m). The amount of loans to
subsidiaries expected to be recovered or settled after more than 12 months is £nil (2018: £6m).
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
2019
2018
Contract
amount
Fair value
assets
Fair value
liabilities
Contract
amount
Fair value
assets
Fair value
liabilities
£m
566
74
640
£m
3
–
3
£m
–
–
–
£m
589
6
595
£m
13
–
13
£m
–
–
–
The derivative asset of £3m (2018: derivative asset of £13m) is expected to be settled after more than 12 months.
238 Standard Life Aberdeen 2019
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.
The maturity profile of the contractual undiscounted cash flows in relation to derivative financial instruments is as follows:
2019
Cash inflows
Cash flow hedges
Foreign exchange forwards
Total
Cash outflows
Cash flow hedges
Foreign exchange forwards
Total
Net derivative financial instruments cash flows
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
E. Receivables and other financial assets
Due from related parties
Contingent consideration asset
Other financial assets
Total receivables and other financial assets
Within
1 year
£m
2-5
years
£m
24
57
81
(18)
(56)
(74)
7
96
–
96
(73)
–
(73)
23
Within
1 year
£m
2-5
years
£m
25
6
31
(18)
(6)
(24)
7
88
–
88
(64)
–
(64)
24
6-10
years
£m
650
–
650
(632)
–
(632)
18
6-10
years
£m
714
–
714
(660)
–
(660)
54
11-15
years
£m
–
–
–
–
–
–
–
11-15
years
£m
–
–
–
–
–
–
–
Total
£m
770
57
827
(723)
(56)
(779)
48
Total
£m
827
6
833
(742)
(6)
(748)
85
2019
2018
£m
12
1
2
15
£m
49
8
–
57
The carrying amounts disclosed above reasonably approximate the fair values at the year end.
Amounts due from related parties are expected to be recovered within 12 months.
F. Other assets
Other assets of £14m (2018: £35m) 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 events after the reporting date relating to share buybacks are set out in Note
47 of the Group financial statements.
Standard Life Aberdeen 2019
239
Financial inFormation
8. Company financial statements continued
H. Shares held by trusts
Shares held by trusts relates to shares in Standard Life Aberdeen plc that are held by the Standard Life Aberdeen Employee Benefit Trust (SLA
EBT), Standard Life Employee Trust (ET) and Standard Life Unclaimed Asset Trust (UAT). The SLA EBT was established on 28 March 2019.
On 13 December 2019 the Group instructed the Trustees to formally close the UAT and all assets in the UAT were transferred to Standard Life
Aberdeen Plc on 20 December 2019.
Further details of these trusts are provided in Note 27 of the Group financial statements.
Retained earnings
I.
Details of the dividends paid on the ordinary shares by the Company are provided in Note 14 of the Group financial statements. Note 14 also
includes information regarding the final dividend proposed by the Directors for the year ended 31 December 2019.
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
Cash flow
hedges
2019
At 1 January
Fair value losses on cash flow hedges
Realised losses on cash flow hedges transferred to
income statement
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 impairment of
investment in subsidiaries
Tax effect of items that may be reclassified
subsequently to profit or loss
At 31 December
£m
3,192
–
–
–
–
–
(780)
–
2,412
£m
67
–
–
–
43
(57)
–
–
53
£m
241
–
–
(126)
–
–
–
–
£m
1,011
–
–
26
–
–
–
–
115
1,037
£m
(6)
(10)
22
–
–
–
–
(2)
4
Merger
reserve
Equity
compensation
reserve
Special
reserve
Capital
redemption
reserve
Available-for-
sale financial
assets
Cash flow
hedges
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)
–
–
–
–
–
–
–
–
–
–
–
240 Standard Life Aberdeen 2019
Total
£m
4,505
(10)
22
(100)
43
(57)
(780)
(2)
3,621
Total
£m
6,390
(15)
6,375
54
£m
(17)
–
(17)
54
(41)
(41)
–
–
–
–
–
–
–
11
36
(68)
(1,290)
(570)
(2)
(6)
(2)
4,505
During 2019 £26m (2018: £11m) was 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 AAM PLC and SLIH (refer Note A), £780m (2018:
£570m) was transferred from the merger reserve to retained earnings.
During 2018, on completion of the Sale, (refer Note A) £1,290m was transferred from the merger reserve to retained earnings. As part of the
return of capital, £1,000m was transferred from the merger reserve to the capital redemption reserve.
K. Other equity
On 30 August 2018, the Company’s subordinated guaranteed bonds and Mutual Assurance Capital Securities (MACS) were reclassified as
other 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
2019
Subordinated liabilities
Other financial liabilities
Total
2018
Subordinated liabilities
Other financial liabilities
Total
M. Subordinated liabilities
Subordinated notes:
4.25% US Dollar fixed rate due 30 June 2028
5.5% Sterling fixed rate due 4 December 2042
Total subordinated liabilities
Notes
M
O
Notes
M
O
Amortised
cost
£m
655
25
680
Amortised
cost
£m
1,086
69
1,155
Total
£m
655
25
680
Total
£m
1,086
69
1,155
2019
Principal
amount
$750m
£92m
Carrying
value
£563m
£92m
£655m
2018
Principal
amount
$750m
£500m
Carrying
value
£586m
£500m
£1,086m
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 £nil (2018:
£2m) is expected to be settled within 12 months.
On 26 March 2019, the Company repurchased 5.5% Sterling fixed rate subordinated notes with a principal amount of £408m (out of a total
principal amount of £500m).
Further information including the terms and conditions of all subordinated liabilities is given in Note 33 of the Group financial statements.
N. Deferred tax assets and liabilities
Deferred tax assets
2019
£m
35
2018
£m
22
The amount of deferred tax assets expected to be recovered or settled after more than 12 months are £35m (2018: £22m).
The Company has surrendered the benefit of its tax losses to underlying subsidiaries for a consideration of £14m (2018: £35m).
Standard Life Aberdeen 2019
241
Financial inFormation
8. Company financial statements continued
Recognised deferred tax
Deferred tax assets comprise:
Unused tax losses
Unrealised losses on cash flow hedges
Gross deferred tax assets
Less: Offset against deferred tax liabilities
Deferred tax assets
Deferred tax liabilities comprise:
Unrealised gains on investments
Gross deferred tax liabilities
Less: Offset against deferred tax assets
Deferred tax liabilities
Net deferred tax asset at 31 December
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
2019
£m
2018
£m
36
–
36
(1)
35
1
1
(1)
–
35
22
–
15
(2)
35
21
1
22
–
22
–
–
–
–
22
–
3
21
(2)
22
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
2019
£m
2
13
10
25
2018
£m
38
21
10
69
Other financial liabilities are expected to be settled within 12 months (2018: £69m).
P. Provisions and other liabilities
Of Provisions of £77m (2018: £80m), £48m are expected to be settled within 12 months (2018: £80m). Of Other liabilities of £4m (2018: £6m),
£4m are expected to be settled within 12 months (2018: £6m). The provisions in 2019 and 2018 relate to separation costs. Refer Note 37 of the
Group financial statements for further information and details of the provisions.
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 2019
(2018: £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 45 of the Group
financial statements for further information.
242 Standard Life Aberdeen 2019
9. Supplementary information
9.1 Key performance indicators
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. We have
reviewed our KPIs in 2019 and made the following changes.
New KPIs for FY 2019
Fee based revenue
IFRS profit/(loss) before tax
No longer reported as a KPI
AUMA
Gross inflows and Net flows
We have increased our focus on revenue quality, rather than the volume of new business, in 2019. This is the reason for the inclusion of the Fee
based revenue KPI and the removal of the KPIs relating to flows and AUMA. We have also added IFRS profit before tax as a KPI – this KPI
includes key items such as restructuring costs and profits on disposal of interests in associates. IFRS profit before tax is the closest IFRS
equivalent to adjusted profit before tax.
9.2 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. Ratios are presented in Section 9.3.
In 2019, we are no longer reporting an alternative performance measure for cash generation. Following the sale of the UK and European
insurance business the IFRS condensed consolidated statement of cash flows provides a shareholder view of the Group’s cash generation. We
are now, however, reporting an adjusted capital generation APM as discussed below.
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.
Metric used for executive remuneration in the proposed 2020 remuneration policy. See pages 83 to 84 for more information.
Definition
Purpose
Adjusted profit before tax
KPI
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
Impacts arising from investment return variances and economic assumption changes in the
Group’s insurance entities
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,
coupons paid on perpetual debt instruments classified as equity for which interest is only
accounted for when paid is excluded from adjusted profit. This includes our share of interest
payable on Tier 1 debt instruments held by associates.
Further details are included in Note 13 of the Group financial statements.
Fee based revenue is a component of adjusted profit and includes revenue we generate from
asset management charges (AMCs), platform charges and other transactional charges. Fee
based revenue is shown net of fees, costs of sale, commissions and similar charges. Refer to
Note 4 of the Group financial statements.
Adjusted capital generation
Adjusted capital generation is part of the analysis of movements in CRDIV regulatory capital.
Adjusted capital generation is calculated as adjusted profit after tax less returns relating to
pension schemes in surplus, which do not benefit regulatory capital. It also excludes the Group’s
share of associates and joint ventures profit after tax which is replaced by dividends received from
these entities.
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
leadership team. 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.
Fee based revenue is shown net of
commission, costs of sale and similar
charges so as to show the net charges
received on AUMA and provides the
basis for reporting of the fee revenue
yield financial ratio.
Adjusted capital generation is a new
APM introduced in 2019. This measure
aims to show how adjusted profit
contributes to regulatory capital, and
therefore provides insight into our ability
to generate capital to support the
payment of dividends to shareholders.
Standard Life Aberdeen 2019
243
Financial inFormation
9. Supplementary information continued
Adjusted profit before tax
Reconciliation of adjusted profit to IFRS profit by component
The key components of adjusted profit before tax are fee based revenue, 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 relevant IFRS terms. A reconciliation
of Fee based revenue to the IFRS item Revenue from contracts with customers is provided in Note 4 of the Group financial statements.
Adjusted profit term
2019
Group
adjusted
profit
Presentation
differences
Adjusting
items
Capital
management
£m
£m
£m
Fee based revenue
KPI R
Adjusted operating expenses
1,634
(1,333)
619
1,703
(619)
(2,120)
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
37
246
584
(69)
(46)
469
–
469
–
–
–
–
–
–
–
–
–
84
(333)
41
–
(292)
56
(236)
1
Includes £243m reversal of impairment of interest in associates.
Share of
associates’
and joint
ventures’
tax expense
Non-
controlling
interests
Group
IFRS
IFRS term
£m
£m
£m
–
–
–
(8)
(8)
–
46
38
–
38
3,993 Total income
–
– (4,072) Total expenses
–
–
–
–
–
–
–
–
– N/A
Share of profit from
associates and JVs1
322
243 Profit before tax
(28) Total tax expense
– N/A
Profit for the year from
continuing operations
215
Profit for the year from
discontinued operations
56
271 Profit for the year
£m
37
–
(37)
–
–
–
–
–
–
–
Adjusted profit term
2018
Fee based revenue
Group
adjusted
profit
£m
1,868
Presentation
differences
Adjusting
items
Capital
management
£m
70
£m
202
£m
(9)
Adjusted operating expenses
(1,395)
(70)
(1,355)
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
(9)
186
650
(95)
(43)
512
133
645
2
Includes £228m loss on impairment of interest in associates.
–
–
–
–
–
–
–
–
–
(244)
(1,397)
52
–
(1,345)
1,560
215
9
–
–
–
–
–
–
–
Share of
associates’
and joint
ventures’
tax expense
£m
–
–
–
(40)
(40)
–
43
3
–
3
Non-
controlling
interests
Group
IFRS IFRS term
£m
£m
2,131 Total income
– (2,820) Total expenses
–
–
–
–
–
5
5
– N/A
Share of profit from
associates and JVs2
(98)
(787) Profit before tax
(43) Total tax expense
– N/A
Profit for the year from
continuing operations
(830)
Profit for the year from
discontinued operations
1,698
868 Profit for the year
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. Fee based revenue and adjusted operating expenses exclude
items which have an equal and opposite effect on IFRS income and IFRS expenses in the consolidated income statement. This particularly
relates to income and expenses of unit linked funds, where investment returns are for the accounts of policyholders. The increase in presentation
differences in 2019 reflects higher such policyholder investment returns.
244 Standard Life Aberdeen 2019
Other presentation differences also include commission and other cost of sales expenses which are presented in expenses in the consolidated
income statement but are netted against fee based revenue 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.
The table below provides a summarised reconciliation of adjusted profit before tax (split by continuing operations, discontinued operations and
Total) to Profit before tax
Continuing operations
Discontinued operations
Total
Adjusted profit before tax
Share of associates’ and joint ventures’ tax
expense
2019
£m
584
2018
£m
650
2017
£m
475
(8)
(40)
(41)
Total adjusting items
(333)
(1,397)
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)
243
–
–
438
4
–
2019
£m
–
–
56
–
56
2018
£m
210
–
1,519
5
1,734
2017
£m
379
–
(44)
25
360
2019
£m
584
(8)
(277)
–
299
2018
£m
860
(40)
122
5
947
2017
£m
854
(41)
(40)
25
798
Analysis of adjusting items
The table below provides detail of the adjusting items made in the calculation of adjusted profit before tax:
Continuing operations
Discontinued operations
2019
£m
2018
£m
2017
£m
2019
£m
2018
£m
2017
£m
2019
£m
Total
2018
£m
2017
£m
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
(407)
(239)
(162)
(1,844)
(1,155)
(138)
–
–
–
–
–
–
Profit on disposal of interests in associates
1,542
185
319
Reversal of/(loss on) impairment of
associates
Investment return variances and economic
assumption changes
Other
Total adjusting items
243
(228)
(25)
158
54
(14)
(333)
(1,397)
–
–
(15)
4
–
–
–
–
–
–
–
56
56
An explanation for why individual items are excluded from adjusted profit is set out below:
(264)
(11)
(407)
(503)
(173)
–
–
1,780
–
–
(41)
44
1,519
–
(1,844)
(1,155)
–
–
1,542
–
1,780
185
(138)
(100)
–
319
243
(228)
–
(100)
–
–
–
67
–
(44)
(25)
214
(277)
13
30
122
67
(15)
(40)
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 or transformation 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 2019 expenses included costs relating to integration and the implementation of our simplified operating model of £214m (2018:
£175m), £37m (2018: £133m included in discontinued operations) in respect of separation costs following the sale of the UK and European
insurance business, and £41m of other transformation related restructuring costs. 2019 also included £49m relating to the repurchase of
subordinated debt and £33m relating to our share of the restructuring costs of joint ventures and associates (primarily Phoenix). An additional
£20m has been included in restructuring expenses related to variable compensation that was linked to the receipt of the £140m LBG
compensation. This expense has been treated as an adjusting item in line with the receipt of the income (included in ‘Other’ below).
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. Further details are provided in Note 15 of the Group financial statements.
Standard Life Aberdeen 2019
245
Financial inFormation
9. 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. Profit on
disposal of interests in associates in 2019 of £1,542m includes £1,337m in relation to the sale of 14.49% of shares in HDFC Life and £204m in
relation to the sale of 3.02% of shares in HDFC Asset Management. Details are provided in Note 1 of the Group financial statements.
The reversal of impairment of associates of £243m relates to our investment in Phoenix. The Phoenix share price recovered in 2019 and the
impairment recognised in 2018 has therefore been reversed. In 2018, an impairment loss of £243m was recognised on the Group’s interest in
Phoenix, of which £15m arose at acquisition and was offset against the bargain purchase gain giving a loss on impairment in the consolidated
income statement of £228m. The reversal of impairment/impairment loss of Phoenix are considered one-off items and not indicative of the
long-term operating performance of the Group and have therefore been excluded from adjusted profit to assist comparability of results period
to period. More details are provided in Note 16 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 2018 and classified as discontinued operations in 2018. 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.
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 13 of the Group financial statements.
Details on items classified as ‘Other’ in the table on the previous page are provided in Note 13 of the Group financial statements. In 2019 this
balance primarily relates to £140m relating to the settlement of arbitration with LBG, (£16m) impairment losses on property-right-of-use assets
and £12m in relation to the alignment of the reporting period of HDFC Asset Management. For discontinued operations, the 2019 item reflects
a change in the value of indemnities relating to the sale of the UK and European insurance business to Phoenix.
Phoenix profitability
The table below provides a breakdown for the calculation of our share of adjusted profit before tax from Phoenix of £136m which is included in
the Insurance associates and joint ventures reportable segment total of £189m. Phoenix use an operating profit alternative performance
measure which is before finance costs, while the Group’s adjusted profit is after deducting finance costs.
Operating profit before tax (Phoenix APM)
Finance costs
Adjusted profit before tax (Standard Life Aberdeen APM)
1 Four months ended 31 December 2018.
2019
100%
£m
810
(127)
683
2019
19.97%
£m
162
(26)
136
20181
100%
£m
458
(30)
428
20181
19.98%
£m
92
(6)
86
246 Standard Life Aberdeen 2019
Adjusted capital generation
The table below provides a reconciliation of movements between adjusted profit after tax and adjusted capital generation. A reconciliation of
adjusted profit after tax to IFRS profit for the year is included earlier in this section.
Adjusted profit after tax
Remove staff pension scheme returns
Remove associates’ and joint ventures’ adjusted profit after tax
Add associates’ and joint ventures’ dividends received
Adjusted capital generation
2019
£m
469
(29)
(200)
93
333
2018
£m
512
(21)
(143)
47
395
Staff pension scheme returns
Staff pension scheme returns are the contribution to adjusted profit before tax from defined benefit pension schemes which are in surplus and
reconciled below.
Total income recognised in the consolidated income statement per Note 34 (c) of the Group financial
statements
Past service costs (included in adjusting items)
Remove IFRS charge relating to schemes in deficit
Share of associates’ and joint ventures’ adjusted profit after tax
An analysis is provided below.
Share of associates’ and joint ventures’ adjusted profit before tax – Note 2 (b)(i)
Share of associates’ and joint ventures’ adjusted tax expense – Note 2 (b)(i)
Share of associates’ and joint ventures’ adjusted profit after tax
Associates’ and joint ventures’ dividends received
This information is disclosed in Note 16 of the Group financial statements. An analysis is provided below.
Phoenix
HDFC Life
HDFC Asset Management
Associates’ and joint ventures’ dividends received
2019
£m
40
(13)
2
29
2019
£m
246
(46)
200
2019
£m
67
9
17
93
2018
£m
36
(15)
–
21
2018
£m
186
(43)
143
2018
£m
33
–
14
47
Standard Life Aberdeen 2019
247
Financial inFormation
9. Supplementary information continued
9.3 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 fee based revenue in the period, and includes the share
of associates’ and joint ventures’ profit before tax.
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 12 of the Group financial statements.
Fee revenue yield (bps)
The fee revenue yield is calculated as annualised fee based revenue
(excluding performance fees, SL Asia, Focus and Threesixty) divided by
monthly average fee based assets.
This ratio is used by management to assess efficiency and
reported to the Board and executive leadership team.
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 leadership team.
The average revenue yield on fee based business is a
measure that illustrates the average margin being earned on
the assets that we manage, administer or advise our customers
on.
Fee revenue yield has been restated to include revenue and
assets under advice relating to our 1825 advice business.
9.3.1 Cost/income ratio from continuing operations
Adjusted operating expenses (£m)
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 (%)
Cost/income ratio excluding our share of associates’ and joint ventures’ profit before tax (%)
2019
(1,333)
1,634
246
1,880
71
82
2018
(1,395)
1,868
186
2,054
68
75
248 Standard Life Aberdeen 2019
9.3.2 Fee revenue yield (bps)
Analysis of AUMA by channel
Institutional and Wholesale
Strategic insurance partners
Platforms and Wealth
Wrap and Elevate
Wealth1
Eliminations
Fee revenue yield2
SL-Asia
Performance fees
Fee based revenue
Average AUMA (£bn)
Fee based revenue (£m)
Fee revenue yield (bps)
2019
236.3
258.5
59.3
19.5
(10.1)
563.5
2018
261.8
265.0
55.6
15.4
(9.9)
587.9
2019
42.8
12.2
25.3
48.4
N/A
27.9
2018
47.9
13.1
25.6
57.5
N/A
31.1
2019
1,011
317
150
107
N/A
2018
1,253
347
142
105
N/A
1,585
1,847
12
37
12
9
1,634
1,868
Analysis of Institutional and Wholesale by asset class
Average AUM (£bn)
Fee based revenue (£m)
Fee revenue yield (bps)
Equities
Fixed income
Multi-asset
Private markets
Real estate
Alternatives3
Quantitative
Cash/Liquidity
2019
71.8
47.5
39.3
15.4
29.3
13.0
2.8
17.2
2018
2019
2018
86.3
46.9
54.0
15.8
28.9
10.5
2.1
17.3
472
131
164
71
142
17
2
12
578
130
288
68
154
18
3
14
Institutional and Wholesale
236.3
261.8
1,011
1,253
2019
65.7
27.6
41.7
46.5
48.3
12.9
8.4
7.1
42.8
2018
66.9
27.7
53.4
43.1
53.2
17.4
12.2
8.0
47.9
1 Wealth fee revenue yield calculation excludes revenue of £13m (2018: £16m) for which there are no attributable assets.
2 Restated to include revenue and assets under advice relating to our 1825 advice business. Previously AUMA excluded assets under advice.
3 Alternatives average AUM includes c£7bn (2018: c£6bn) of lower margin advisory mandates. At 31 December 2019 the closing AUM of these mandates was c£12bn.
Standard Life Aberdeen 2019
249
Financial inFormation
9. Supplementary information continued
9.4 Assets under management and administration and flows
Definition
Purpose and changes
AUMA
AUMA is a measure of the total assets we manage, administer or advise on
behalf of our clients and customers. It includes assets under management (AUM),
assets under administration (AUA) and assets under advice (AUAdv).
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
platform products such as ISAs and SIPPs.
AuAdv is a measure of the total assets we advise our customers on, for which
there is an ongoing charge.
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.
For 2019, we changed our definition of AUMA to include
AUAdv as we continue to build scale in the 1825 business.
2018 AUMA has not been restated and therefore 2019
market and other movements include 1825 AUAdv of
£4.0bn as at 1 January 2019.
Net flows in 2019 includes flows relating to AUAdv.
9.4.1 AUMA by channel
12 months ended 31 December 2019
Institutional
Wholesale
Strategic insurance partners
Platforms and Wealth
Wrap and Elevate
Wealth
Eliminations
Total AUMA
12 months ended 31 December 2018
Institutional
Wholesale
Strategic insurance partners
Platforms and Wealth
Wrap and Elevate
Wealth
Eliminations
Total AUMA
Opening
AUMA at
1 Jan 2019
Gross
inflows Redemptions
Market
and other
movements1
£bn
Net
flows
£bn
Corporate
actions2
£bn
£bn
166.7
72.5
255.0
54.2
10.9
£bn
27.1
20.2
26.9
7.0
7.1
(7.8)
(2.1)
£bn
(41.3)
(14.2)
(27.5)
(7.3)
(71.3)
(44.4)
(4.7)
(2.4)
2.6
2.3
4.7
0.5
551.5
86.2
(144.6)
(58.4)
8.1
6.5
25.2
6.1
6.0
(2.9)
49.0
–
0.7
–
–
1.8
–
2.5
Closing
AUMA at
31 Dec 2019
£bn
160.6
72.4
235.8
62.6
23.4
(10.2)
544.6
Opening
AUMA at
1 Jan 2018
Gross
inflows Redemptions
£bn
192.5
86.6
271.8
54.0
11.2
£bn
19.3
18.4
28.6
8.5
2.7
(8.0)
(2.3)
£bn
(47.0)
(30.5)
(34.1)
(4.3)
(2.3)
2.1
Net
flows
£bn
(27.7)
(12.1)
(5.5)
4.2
0.4
(0.2)
Market
and other
movements
£bn
1.9
(6.8)
(11.3)
(4.0)
(0.7)
0.4
Corporate
actions3
£bn
–
4.8
–
–
–
–
Closing
AUMA at
31 Dec 2018
£bn
166.7
72.5
255.0
54.2
10.9
(7.8)
608.1
75.2
(116.1)
(40.9)
(20.5)
4.8
551.5
1 Wealth channel market and other movements include 1825 opening assets under advice of £4.0bn.
2 Corporate actions in the Wholesale channel relate to the acquisition of Orion Partners (£0.7bn). Wealth channel corporate actions include £1.8bn of assets under advice
following 1825’s acquisition of Grant Thornton’s wealth advisory business and BDO Northern Ireland’s wealth management business.
3 Corporate actions relate to the acquisition of £4.8bn of AUM in transactions with Alpine Woods, ETF Securities and Hark Capital.
250 Standard Life Aberdeen 2019
9.4.2 Quarterly net flows by channel
15 months ended 31 December 2019
Institutional
Wholesale
Strategic insurance partners
Platforms and Wealth
Wrap and Elevate
Wealth
Eliminations
Total net flows
9.5
Institutional and Wholesale AUM
9.5.1 Detailed asset class split
12 months ended 31 December 2019
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
Total multi-asset
Private equity
Private credit and solutions
Infrastructure equity
Total private markets
UK real estate
European real estate
Global real estate
Real estate multi-manager
Total real estate
Total alternatives
Total quantitative
Total cash/liquidity
Total
3 months to
31 Dec 19
3 months to
30 Sep 19
3 months to
30 Jun 19
3 months to
31 Mar 19
3 months to
31 Dec 18
£bn
–
2.3
(10.8)
0.6
0.4
–
(7.5)
£bn
(7.3)
(1.0)
(27.9)
0.6
0.4
0.2
(35.0)
£bn
(4.9)
(2.8)
(2.7)
0.5
0.3
0.2
(9.4)
Opening
AUM at
1 Jan 2019
Gross
inflows Redemptions
Market
and other
movements
Net
flows
£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
43.0
12.3
–
3.7
16.0
15.3
12.2
0.8
1.4
29.7
12.3
2.1
16.5
£bn
(3.4)
(9.5)
(5.3)
(5.6)
£bn
(0.7)
(7.4)
(1.5)
(4.6)
£bn
2.5
4.0
2.3
1.5
(23.8)
(14.2)
10.3
£bn
2.7
2.1
3.8
1.0
9.6
6.0
0.6
3.7
(7.8)
(2.8)
(2.5)
(1.8)
(2.2)
1.2
(2.8)
10.3
(13.1)
1.1
0.5
2.5
0.7
4.8
2.1
–
0.4
2.5
0.9
1.6
0.1
0.3
2.9
7.7
1.7
7.8
(12.8)
(11.7)
(0.3)
(2.4)
(2.2)
0.2
0.1
(1.5)
(17.7)
(12.9)
(2.8)
(0.1)
–
(2.9)
(2.3)
(0.8)
(0.2)
(0.2)
(3.5)
(1.7)
(0.7)
(5.4)
(0.7)
(0.1)
0.4
(0.4)
(1.4)
0.8
(0.1)
0.1
(0.6)
6.0
1.0
2.4
1.9
0.3
0.3
2.5
2.5
–
1.7
–
4.2
0.5
0.1
(0.1)
0.5
(0.5)
(0.9)
(0.4)
(0.1)
(1.9)
(0.6)
1.1
(1.5)
14.6
239.2
47.3
(68.8)
(21.5)
£bn
(2.0)
(5.8)
(3.0)
0.6
3.6
0.1
(6.5)
Corporate
actions
£bn
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0.7
–
0.7
–
–
–
£bn
(7.4)
(5.3)
(1.7)
0.7
0.1
0.1
(13.5)
Closing
AUM at
31 Dec 2019
£bn
14.7
21.6
23.3
9.4
69.0
32.2
3.3
10.9
46.4
12.7
1.9
15.7
4.0
34.3
12.1
–
4.0
16.1
13.4
12.1
1.0
1.4
27.9
17.7
4.2
17.4
0.7
233.0
Standard Life Aberdeen 2019
251
Financial inFormation
9. Supplementary information continued
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
Total multi-asset
Private equity
Private credit and solutions
Infrastructure equity
Total private markets
UK real estate
European real estate
Global real estate
Real estate multi-manager
Total real estate
Total alternatives
Total quantitative
Total cash/liquidity
Total
Opening
AUM at
1 Jan 2018
Gross
inflows Redemptions
Net flows
Market
and other
movements
Corporate
actions
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
6.6
61.2
12.4
0.3
3.8
16.5
15.8
11.1
0.1
1.5
28.5
8.0
2.2
17.2
279.1
£bn
2.2
4.2
3.9
1.5
£bn
(3.6)
(13.4)
(6.8)
(5.6)
£bn
(1.4)
(9.2)
(2.9)
(4.1)
11.8
(29.4)
(17.6)
3.3
0.8
1.9
6.0
2.5
0.7
2.7
0.7
6.6
0.9
0.2
–
1.1
1.1
2.3
0.2
0.2
3.8
0.8
0.2
7.4
(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)
(22.7)
(1.9)
(0.2)
(0.3)
(2.4)
(2.3)
(1.4)
(0.1)
(0.2)
(4.0)
(1.2)
(0.3)
(8.7)
0.4
1.2
(1.2)
(16.1)
(1.0)
–
(0.3)
(1.3)
(1.2)
0.9
0.1
–
(0.2)
(0.4)
(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)
0.1
(2.1)
0.9
(0.3)
0.2
0.8
0.7
0.2
–
(0.1)
0.8
2.6
–
0.6
37.7
(77.5)
(39.8)
(4.9)
£bn
–
–
–
1.2
1.2
0.9
–
–
0.9
–
–
–
–
–
–
–
–
–
–
–
0.6
–
0.6
2.1
–
–
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
43.0
12.3
–
3.7
16.0
15.3
12.2
0.8
1.4
29.7
12.3
2.1
16.5
239.2
9.6 Analysis of Strategic insurance partners
Opening
AUM at
1 Jan 2019
Gross
inflows Redemptions
£bn
131.6
98.6
24.8
255.0
£bn
14.2
10.6
2.1
26.9
£bn
(13.2)
(53.7)
(4.4)
(71.3)
Net
flows
£bn
1.0
(43.1)
(2.3)
(44.4)
Market
and other
movements
£bn
13.3
9.0
2.9
25.2
Opening
AUMA at
1 Jan 2018
Gross
inflows Redemptions
Net flows
Market
and other
movements
£bn
139.8
108.4
23.6
271.8
£bn
12.8
8.5
7.3
28.6
£bn
(15.1)
(13.9)
(5.1)
(34.1)
£bn
(2.3)
(5.4)
2.2
£bn
(5.9)
(4.4)
(1.0)
(5.5)
(11.3)
Corporate
actions
£bn
–
–
–
–
Corporate
actions
£bn
–
–
–
–
Closing
AUM at
31 Dec 2019
£bn
145.9
64.5
25.4
235.8
Closing
AUMA at
31 Dec 2018
£bn
131.6
98.6
24.8
255.0
12 months ended 31 December 2019
Phoenix
Lloyds
Other
Total
12 months ended 31 December 2018
Phoenix
Lloyds
Other
Total
252 Standard Life Aberdeen 2019
9.7 Analysis of total AUM
9.7.1 AUM by geography
UK
Europe, Middle East and Africa
(EMEA)
Asia Pacific (APAC)
Americas
Total AUM
9.7.2 Total AUM by asset class
Equities
Fixed income
Multi-asset
Private markets
Real estate
Alternatives
Quantitative
Cash/Liquidity
Total AUM
31 Dec 2019
31 Dec 2018
Institutional
and
Wholesale
Strategic
insurance
partners
£bn
108.5
55.8
16.9
51.8
£bn
235.8
–
–
–
Wealth1
£bn
17.7
–
–
–
Total
£bn
362.0
55.8
16.9
51.8
Institutional
and
Wholesale
Strategic
insurance
partners
£bn
£bn
114.5
255.0
57.1
18.2
49.4
–
–
–
Wealth
£bn
10.9
–
–
–
Total
£bn
380.4
57.1
18.2
49.4
233.0
235.8
17.7
486.5
239.2
255.0
10.9
505.1
31 Dec 2019
31 Dec 2018
Institutional
and
Wholesale
Strategic
insurance
partners
£bn
69.0
46.4
34.3
16.1
27.9
17.7
4.2
17.4
£bn
50.3
88.5
10.2
0.8
9.2
0.6
46.7
29.5
233.0
235.8
Wealth1
£bn
–
–
14.2
–
–
–
3.5
–
17.7
Institutional
and
Wholesale
Strategic
insurance
partners
£bn
72.9
46.7
43.0
16.0
29.7
12.3
2.1
16.5
£bn
44.0
90.0
17.5
2.3
10.3
–
60.7
30.2
Total
£bn
119.3
134.9
58.7
16.9
37.1
18.3
54.4
46.9
Wealth
£bn
–
–
10.9
–
–
–
–
–
Total
£bn
116.9
136.7
71.4
18.3
40.0
12.3
62.8
46.7
486.5
239.2
255.0
10.9
505.1
1 Excludes assets under advice of £5.7bn at 31 December 2019.
Standard Life Aberdeen 2019
253
Financial inFormation
Other information
254 Standard Life Aberdeen 2019
Other information
Contents
10. Glossary ............................................................................................................................................................................ 256
11. Shareholder information .................................................................................................................................................... 258
12. Forward-looking statements .............................................................................................................................................. 259
13. Contact us ......................................................................................................................................................................... IBC
Standard Life Aberdeen 2019
255
OTHER InfORmaTIOn 10. Glossary
Aberdeen Asset Management or Aberdeen
Aberdeen Asset Management PLC, or Aberdeen Asset Management
PLC and its subsidiaries.
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 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 investment return
variances 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.
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, coupons paid on
perpetual debt instruments classified as equity for which interest is
only accounted for when paid is excluded from adjusted profit. This
includes our share of interest payable on Tier 1 debt instruments held
by associates. Coupons payable on perpetual debt instruments
classified as equity for which interest is accrued are included in
adjusted profit before tax.
Assets under management and administration (AUMA)
AUMA is a measure of the total assets we manage, administer or
advise on behalf of our clients and customers. It includes assets under
management (AUM), assets under administration (AUA) and assets
under advice (AUAdv). AUMA does not include assets for associates
and joint ventures.
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.
AuAdv is a measure of the total assets we advise our customers on,
for which there is an ongoing charge.
Board
The Board of Directors of the Company.
256 Standard Life Aberdeen 2019
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 leadership team.
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.
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.
Executive leadership team
Responsible for providing overall leadership of the business and
comprises: Chief Executive, General Counsel, Chief Financial Officer,
Global Head of Distribution, Head of EMEA, Chief of Staff, Chief
Investment Officer, Chief HR Officer, Chief Operating Officer, Chief
Corporate Affairs Officer, Head of Americas and Head of Asia Pacific.
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 revenue
Fee based revenue is a component of adjusted profit and includes
revenue we generate from asset management charges (AMCs),
platform charges and other transactional charges. AMCs are earned
on products such as 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, costs of sale, commissions and similar
charges. Costs of sale include revenue from fund platforms which is
passed to the product provider.
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 under
management, administration or advice. It is calculated as annualised
fee based revenue (excluding performance fees, SL Asia, Focus and
Threesixty) divided by monthly average fee based assets.
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.
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 30 June
2020.
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.
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.
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 79% 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. Investment performance is calculated as if Standard Life
Group and Aberdeen had always been merged.
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.
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.
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 continues to be a prominent feature of our retail
platforms.
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.
Standard Life Aberdeen 2019
257
OTHER InfORmaTIOn
11. 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
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 2019
Ex-dividend date for 2019 final dividend
Record date for 2019 final dividend
Last date for DRIP elections for 2019 final dividend
Shareholder services
We offer a wide range of shareholder services. For more information,
please:
Annual General Meeting – Edinburgh
Dividend payment date for 2019 final dividend
Contact our registrar, Link, who manage this service for us. Their
details can be found on the inside back cover.
Half year results 2020
Visit our share portal at www.standardlifeaberdeenshares.com
Ex-dividend date for 2020 interim dividend
10 March
2 April
3 April
29 April
12 May
19 May
7 August
20 August
21 August
9 September
Record date for 2020 interim dividend
Last date for DRIP elections for 2020
interim dividend
Dividend payment date for 2020 interim dividend
29 September
Analysis of registered shareholdings at 31 December 2019
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+
64,848
29,280
2,678
1,570
608
65.51
29.58
2.71
1.59
0.61
26,315,015
59,236,620
17,635,622
37,377,678
2,198,158,789
Total
98,984
100
2,338,723,724
# These figures include the Company-sponsored nominee – the Standard Life
Aberdeen Share Account – which had 1,005,103 participants holding 651,170,271
shares.
1.13
2.53
0.75
1.60
93.99
100
Sign up for Ecommunications
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Voting instructions for the Annual General Meeting will be sent to
you electronically
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Having a share portal account means you can:
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To find out how to sign up, visit
www.standardlifeaberdeenshares.com
258 Standard Life Aberdeen 2019
12. Forward-looking statements
This document may contain certain ‘forward-looking statements’ with respect to the financial condition, performance, results, strategy, targets,
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 or current facts, but rather on current expectations,
assumptions 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 but without limitation,
statements containing words such as ‘may’, ‘will’, ‘should’, ‘could’, ‘continue’, ‘aims’, ‘estimates’, ‘projects’, ‘believes’, ‘intends’, ‘expects’, ‘hopes’,
‘plans’, ‘pursues’, ‘ensure’, ‘seeks’, ‘targets’ and ‘anticipates’, and words of similar meaning (including the negative of these terms), 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/or depend on circumstances which may be or are beyond
the Group’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 the
Group’s strategic investments and ongoing commercial relationships; default by counterparties; information technology or data security breaches
(including the Group being subject to cyberattacks); operational information technology risks, including the Group’s operations being highly
dependent on its information technology systems (both internal and outsourced); natural or man-made catastrophic events; climate change and
a transition to a low carbon economy (including the risk that the Group may not achieve its targets); exposure to third party risks including as a
result of outsourcing; 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 Group is subject to) in the jurisdictions in which the Company and its affiliates operate. As a result, the Group’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 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.
Standard Life Aberdeen 2019
259
OTHER InfORmaTIOn
Notes
260 Standard Life Aberdeen 2019
Contact us
Got a shareholder question? Contact our shareholder services team.
UK and Ireland
phone 0345 113 0045*
(01) 431 9829*
+44 (0)20 3367 8224*
email
questions@standardlifeaberdeenshares.com
visit
mail
www.standardlifeaberdeenshares.com
Standard Life Aberdeen Shareholder Services
34 Beckenham Road
Beckenham Kent
BR3 4TU
Germany
phone +49 (0)69 9753 3030*
email
fragen@standardlifeaberdeenshares.de
visit
mail
www.standardlifeaberdeenshares.com
Standard Life Aberdeen Aktionärsservice
Postfach 2705
36243 Niederaula
Germany
Canada
phone 1-866-982-9939
email
questions@standardlifeaberdeenshares.ca
visit
mail
www.standardlifeaberdeenshares.com
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.
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 2019 (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 2020 and does not provide financial or legal advice.
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Standard Life Aberdeen plc is registered in Scotland
(SC286832) at 1 George Street, Edinburgh EH2 2LL.
www.standardlifeaberdeen.com © 2020 Standard Life
Aberdeen, images reproduced under licence. All rights reserved.
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