In 2021 we are building on our long-term commitment to responsible investing through a number of actions, nowhere more important than in our efforts to combat climate change. Our activities include bespoke climate change scenario research to take a view on the impact of climate change on future asset pricing and the creation of a proprietary ESG ‘House Score’ across public markets. We are working with clients on solutions that will allow them to achieve their future goals in this space, including support for institutional clients in the transition to net zero, and the launch of sustainability and climate thematic funds. Our influence as an active owner of assets, and commitment to enhancing transparency in ESG activity, will also continue to inform our approach. You can read more on page 17.
Importantly, we now have a clear path to revenue growth. The business has been reshaped and each vector’s contribution to revenue growth has been clearly defined. In support of our overall goal of client led growth we will invest our time and resources into seven strategic priorities: UK adviser and consumer market; growth in Asia; technology; solutions; client ecosystems; investing responsibly; and private markets.
Enhancing client service with FNZ strategic partnership Advisers need a range of technology and services. They also need a provider who creates the solutions they need today, and that they will need in the future. To be this provider, we have partnered with FNZ.
The combination of FNZ’s leading platform technology and our in-house expertise provides agility, scalability and stability. We have entered into a new, 10-year relationship with FNZ, instead of a one-year rolling agreement. The new agreement offers our clients access to a wider range of technology and services through our framework.
A 12-point increase since 2018, four points higher than the financial services sector norm
We also engaged with our investee companies on the steps we expected them to take during the pandemic. These included adapting strategy, considering long-term impact, and supporting their wider communities. We also made it clear how we would support them.
Thought leadership Insight and thought leadership plays an important role in helping to influence how the ESG agenda evolves. In 2020 we were recognised at Investment Week’s Sustainable & ESG Investment Awards, winning the prize for Best Thought Leadership Paper. Strategic Asset Allocation: ESG’s New Frontier focuses on climate change. It sets out how an ESG-enhanced process for strategic asset allocation can increase capital available for socially and environmentally important projects, without compromising returns.
Scope 1: Refrigerant gases, natural gas, oil and company-owned vehicles Scope 2: Electricity and district heating
On a regular and risk-proportionate basis, we carry out due diligence of our third parties, covering key social issues such as modern slavery, equality and environmental issues. We review the outcomes, and if any issues emerge, we escalate them through our supplier relationship managers or the service owners responsible for the goods or services being provided.
A key objective of the strategy is to return to revenue growth and increase the diversification of our business, particularly into higher yielding activities such as Wholesale and Private markets (within Investments) and Personal, and to drive benefits from growth in our Adviser business which has a high operating leverage. By focusing on the individual growth strategies within each vector, our aim is to arrest revenue decline in the near term, inflecting to a high single digit three year revenue CAGR over the period to 2023. We expect stabilisation of revenue yield in the near term, subsequently increasing as we meet client preferences for higher yielding assets.
Total staff and other related costs within adjusted operating expenses reduced by £73m to £643m (2019: £716m) mainly due to the planned reduction from transformation and lower spend on agency contractors, variable compensation and recruitment.
The vast majority of our colleagues are working from home, using the enhanced IT infrastructure that was implemented in response to the pandemic. We have also put strict processes and safeguards in place to protect critical workers who need to be in our offices.
In the near term, there is still operational stretch as work continues on the transformation of the business. Phoenix separation activity is complex and has to be managed and coordinated with other transformation work, so that the impact on business as usual is kept to a minimum.
6 People Engaging with our people, and supporting their wellbeing, is critical to our strategy and the overall success of the business. However, there is a risk of resources and employment practices failing to align with strategic objectives.
Stephen brings an established track record of delivering exceptional value to clients, creating high-quality revenue and earnings growth in complex and competitive financial markets, as well as deep experience of business transformation during periods of technological disruption and competitive change. Stephen joined the Board in July 2020 as Chief Executive-Designate, and was formally appointed Chief Executive Officer in September 2020. Previously, Stephen served as chief executive officer of global consumer banking at Citigroup from 2015, retiring from the role in November 2019. His responsibilities encompassed all consumer and commercial banking businesses in 19 countries, including retail banking and wealth management, credit cards, mortgages, and operations and technology supporting these businesses. Prior to this, Stephen was chief executive for all of Citigroup’s Asia Pacific business lines across 17 markets in the region, including India and China. Stephen joined Citigroup in 1998, and during his 21 years with the company he held a number of leadership roles in banking, operations and technology across its Asian and Latin American businesses. Before this, he held management positions in the UK at GE Capital – where he was director of UK operations from 1996 to 1998 – and at British Steel. He holds an MBA in Economics and Finance from University College Cardiff, where he is also an Honorary Fellow.
Lighthouse, Balance, Armed Forces, Mind Matters) • Regional HR representatives to discuss local initiatives on employee engagement. During 2020, the BEE group heard about how local activities were targeted to take account of country-specific circumstances. The regions also shared local lockdown experiences with a view to helping each other.
As a result of COVID-19, the planned programme of NED engagement dinners had to be changed and although only one physical dinner was held, in February, a ‘virtual get together’ was held in December, also attended by the Chairman, which looked back at the 2020 BEE programme and identified some objectives for 2021. At the NED engagement dinner in February 2020, the NED attendees heard from employees who support engagement activities in their teams. They shared with the NEDs some of their ideas on communication and innovation.
• Engagement feedback is a key input to succession planning for key roles and design of reward
• The quarterly performance of the investment business • The ESG approach, both as an issuer and as an asset manager • 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
Audit Committee (AC) • Financial Reporting • Internal audit • External audit • Whistleblowing • Financial crime • Regulatory financial reporting
Each non-executive Director is appointed for a three-year fixed term and shareholders vote on whether to elect/re-elect them 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 where relevant, the current average length of service of the nonexecutive Directors is three years. For those NEDs who have already 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. During 2020, the Committee reviewed and supported the recommendation that Jutta af Rosenborg’s appointment should be continued for a third term – taking account of her service on the board of AAM PLC prior to August 2017.
3. Board composition, succession, diversity and evaluation 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 Board continues to support its Board Diversity statement which states that the Board: • Believes in equal opportunities and supports the principle that the best person should always be appointed to the role with due regard given to the benefits of diversity, including gender, ethnicity, age, and educational and professional background when undertaking a search for candidates, both executive and non-executive
Taking all of this into account, the Board believes that it performed effectively during 2020. Arising from the review the Board looks to see continued developments in these areas: • Increased informal Board interaction between meetings to compensate, partly, for not being able to come together physically at this time
The formal preparation and induction programme includes: • Meetings with the executive Directors and the members of the ELT
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.
• Considered reports from the Chief Internal Auditor • Reviewed CRD IV reporting • Received reports on compliance with the FCA Client Assets
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 statement
• Half year results 2020 • External auditors’ review of Half year results • External auditors’ audit strategy, including fees • Internal audit findings • Financial crime and Whistleblowing • MiFID II reporting updates
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, other than in relation to the segregated and similar customer relationship intangible where an impairment of £134m was recognised. The Committee challenged the assumptions underlying the value in use for this intangible and concluded that they were reasonable and that related sensitivities were appropriately disclosed. See Note 15.
The Committee complies with the UK Corporate Governance Code, the FRC Guidance on Audit Committees with regard to the external audit tendering timetable, the provisions of the EU Regulation on Audit Reform, and the Competition and Markets Authority Statutory Audit Services Order with regard to mandatory auditor rotation and tendering. The Committee will continue to follow the annual appointment process but does not currently anticipate re-tendering the audit before 2026. The audit was last subject to a tender for the financial year ended 31 December 2017.
The services prohibited by the Policy are as set out in the FRC Revised Ethical Standard 2019.
In addition to reviewing these recurring items the Committee provided oversight of a broad range of topics in 2020. This included consideration of: • Advice provided to the Remuneration Committee regarding the delivery of performance in 2019 relative to risk appetites
The Committee has received regular reporting through the Views on Risk report on each of the Group’s 12 principal risks including risk dashboards, commentary and management information.
The Committee members did not raise any material issues or concerns regarding the above areas or the overall effectiveness of the Committee during 2020. The Committee was encouraged by the move of the investment risk team to come under the CRO’s remit and were keen to learn more about the work of the investment risk team. Acknowledging the amount of time the Committee spends on regulatory risk, the Committee would welcome the opportunity to spend more time on the interconnectedness of the holistic business risks the Company runs and manages, as the agendas allow. The Committee would also encourage the Risk Team to make more use of two-way secondment opportunities with business colleagues, so that both the risk team and the business learn from each other, and this business-partnering approach could further strengthen the quality of the information presented to the Committee. The Committee members were supportive of the Chairman’s role in managing the challenging number of matters which fall in the Committee’s remit.
• Reviewed the recommendations to shareholders to re/elect Directors at the AGM
An external search consultant is then requested to prepare a list of suitable candidates. From that, the Committee 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 interests to address.
• This was followed by further meetings of the Appointments Committee to discuss and review the views of its members
Committee effectiveness The Committee reviews its remit and effectiveness each year. The 2020 review was conducted internally by the Company Secretary interviewing each of the Committee members. As well as general observations, the key performance areas considered were: • The coverage of the Committee’s duties in the meeting agendas • How effectively agenda items were presented and discussed; • The quality and level of detail in the papers • How well the Committee met its objectives in terms of making decisions and reporting to the Board
This was also the year in which Martin Gilbert, previously joint Chief Executive Officer of the Group, stepped down from the Board and subsequently retired in line with the arrangements announced in 2019.
The package adopted differed from that of his predecessor in two key respects. First, the basic salary was returned to a level appropriate for a single CEO; at the time of his departure Keith Skeoch’s salary was still based on the reduced level introduced when he moved from being sole CEO of Standard Life to Co-CEO of Standard Life Aberdeen following the merger in 2017. Second, while the total maximum variable pay opportunity (comprising annual bonus and LTIP) of 600% of salary remained unchanged, the Committee shifted the balance between the components from 300%:300% to 250%:350% to increase its focus on long-term performance.
• Customer performance was assessed at threshold, reflecting positive movements in year on year client surveys within what are now the Advisor and Personal Vectors, but targets were not achieved for the Investments Vector
– Within the businesses now positioned under the Advisor and Personal vectors, client surveys evidenced positive year-on-year movement. In addition to core surveys, additional steps were taken to enhance these through the pandemic with timely questions reflecting real-time circumstances.
– Strong role in succession planning and transition of client relationships and industry body and governmental relationships as well as day to day operational management.
During 2021 the Committee will be reviewing the processes in place in order to ensure maximum enforceability of the post-employment shareholding requirement.
EIP deferred awards are subject to performance Underpins measured over three years as set out on page 87 of the Annual report and accounts 2019
Long-term incentive plan vesting rates against maximum 2016 Keith Skeoch 2,746 81 31.02 2015 Keith Skeoch 1,411 87 40.77 2015 David Nish 2,143 90 40.77 2014 David Nish 6,083 95 100 2013 David Nish 4,206 75 64 2012 David Nish 5,564 88 100 2011 David Nish 2,601 77 63.5 1 Co-CEO.
Stephen Bird – – – Keith Skeoch -32% -21% 0% Stephanie Bruce 74% 54% 100% Martin Gilbert -40% -31% -100%
• Review of Group Remuneration Policy • Material Risk Takers and related 2020 disclosures • Update on the regulatory position of Standard Life Aberdeen and the Remuneration Committee’s Terms of Reference • Review gender pay gap data • Review 2021 remuneration proposals
Purpose and link to strategy Operation Implementation in 2021 Long-Term Incentive Plan
For clarity, some of the matters that would otherwise have been included in the Directors’ report have been included in the Strategic report on pages 1 to 41, as the Board considers they fit better within that report. Specifically, these are: • Future business developments • Risk management • Total global greenhouse gas emissions • Information on how the Directors have had regard for the
• 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
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.
We remain confident that the actions we are taking will meaningfully improve representation of women at all levels and so improve gender balance. For example, our UK parent leave policy introduced in January 2020, is seen as market-leading and was designed as a tangible step to ensuring that becoming a parent does not limit anyone’s career progression.
Achieving gender balance at all levels remains a priority. We achieved the published Board and senior level (CE-1 and CE-2) gender targets this year and have set new gender targets running to the end of 2025. In our fourth gender equality update, we reported a 5% reduction in mean gender pay gap in 2020 and the actions we are taking to continue to improve this. The Board comprises 45% female members, while at Executive level (CE-1 and CE-2) representation levels are 37% (as at 31 December 2020) with women in the most senior CE-1 population having increased by 10% since 2019 to 28%. Improving gender balance at all levels continues to be a focus, as our gender pay gap primarily reflects the more significant number of men in senior and more highly-remunerated roles, as well as by the larger number of women in more junior roles.
Through the Reverse Mentoring programme, senior leaders are building a deeper understanding of lived experiences of minority ethnic colleagues, which will flow through the decisions they make. The Black Lives Matter movement heightened focus and discussion on racial diversity throughout the company this year, and the approach remains to focus on actions which will have a sustainable and systemic impact and will improve outcomes for black and ethnic minority colleagues.
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. The Group financial statements include additional information relating to going concern in the basis of preparation section.
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 Company and of the Group’s profit or loss for that period. In preparing each of the Group and Company financial statements, the Directors are required to: • Select suitable accounting policies and then apply them consistently
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 complies with that law and those regulations.
(Carrying value of investment in Phoenix: £1,008m (2019: £961m); Share of Phoenix profit: £110m (2019: £(5)m))
Our sector experience: Where there was an indicator of impairment, we used our sector experience to evaluate the appropriateness of assumptions applied in key inputs such as revenue from contracts with customers, operating costs and discount rates.
 Considering remuneration incentive schemes and performance targets for management and directors
We communicated identified fraud risks throughout the audit team and remained alert to any indications of fraud throughout the audit. This included communication from the Group to full scope component audit teams of relevant fraud risks identified at the Group level and request to full scope component audit teams to report to the Group audit team any instances of fraud that could give rise to a material misstatement at Group. As required by auditing standards, and taking into account possible pressures to meet profit targets and our overall knowledge of the control environment, we perform procedures to address the risk of management override of controls, in particular the risk that Group and component management may be in a position to make inappropriate accounting entries and the risk of bias in accounting estimates and judgements such as impairment and pension assumptions. We requested component audit teams to report to the Group audit team any instances of fraud that could give rise to a material misstatement at Group.
 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
Consolidated statement of comprehensive income For the year ended 31 December 2020
Notes £m £m £m £m £m £m £m £m £m 31 December 2018 353 (115) 640 2,778 3,782 7,438 2 99 7,539 Effect of change in accounting policy to IFRS 91 – – – (5) (7) (12) – – (12) Effect of change in accounting policy to IFRS 161 – – – (12) – (12) – – (12) 1 January 2019 353 (115) 640 2,761 3,775 7,414 2 99 7,515 Profit for the year from continuing operations – – – 210 – 210 – 5 215 Profit for the year from discontinued operations – – – 56 – 56 – – 56 Other comprehensive income for the year from continuing operations – – – (33) (36) (69) – – (69) Other comprehensive income for the year from discontinued operations – – – – – – – – – Total comprehensive income for the year 28,29 – – – 233 (36) 197 – 5 202 Issue of share capital 26 – – – – – – – – – Dividends paid on ordinary shares 14 – – – (518) – (518) – – (518) Dividends paid on preference shares – – – – – – – (5) (5) Share buyback 26 (26) – – (390) (100) (516) – – (516) Other movements in non-controlling interests in the year – – – – – – 1 – 1 Reserves credit for employee sharebased payments 29 – – – – 43 43 – – 43 Transfer to retained earnings for vested employee share-based payments 28,29 – – – 57 (57) – – – – Transfer between reserves on impairment of subsidiaries 28,29 – – – 780 (780) – – – – Shares acquired by employee trusts – (50) – – – (50) – – (50) Shares distributed by employee and other trusts and related dividend equivalents 28 – 31 – (38) – (7) – – (7) Transfer from the Standard Life Unclaimed Asset Trust – – – 1 – 1 – – 1 31 December 2019 327 (134) 640 2,886 2,845 6,564 3 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.
(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 2020. 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 2023) 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.
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.
• The Group’s asset management goodwill was fully impaired at 30 June 2020. While there was significant judgement relating to the recoverable amount at 30 June (refer Note 15), this is no longer a source of estimation uncertainty at the end of the reporting period.
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.
(c) Disposals (c)(i) Subsidiaries Standard Life (Asia) Limited (SL Asia) On 29 March 2017, the Group announced the proposed sale of its wholly owned Hong Kong insurance business, SL Asia, to the Group’s Chinese joint venture business, Heng An Standard Life Insurance Company Limited (HASL). SL Asia is reported in the Asset management, platforms and wealth segment and HASL is reported within the Insurance associates and joint ventures segment. The sale to HASL of the entire issued share capital of SL Asia was completed on 30 June 2020. Total consideration received comprised cash of £19m and the Group recognised a gain on disposal of £8m in respect of the sale within continuing operations in the consolidated income statement for the year ended 31 December 2020. On disposal a gain of £8m was recycled from the translation reserve and was included in determining the gain on sale.
This reconciliation includes a number of reconciling items which arise due to presentation differences between IFRS reporting requirements and the determination of fee based revenue 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, 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 and other cost of sales 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.
Following the reclassification of HDFC Life from an associate to an equity security on 3 December 2020 gains of £65m have been included in equity securities and interests in pooled investment funds (refer Note 16 for further details of the reclassification).
Fees payable to the Company’s auditors for the audit of the Company’s individual and consolidated financial statements 1.1 1.1 Fees payable to the Company’s auditors for other services
During the year ended 31 December 2020 no audit fees were payable in respect of defined benefit plans to the Group’s principal auditor (2019: £nil).
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 balance sheet date that are expected to apply when the deferred tax asset or liability are realised.
The share of associates’ and joint ventures’ tax expense is £17m (2019: £8m) and is included in profit before tax in the consolidated income statement in ‘Share of profit from associates and joint ventures’.
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.
(c) Other In the reconciliation of consolidated adjusted profit before tax to profit for the period the other adjusting item sub-total of £71m (2019: £214m) includes £66m which predominantly relates to our share of Phoenix gains on the acquisition of ReAssure (Refer Note 16) and the completion of the Part VII transfer of their Legal and General mature savings business. Also included is the gain on disposal of SL Asia of £8m. Net fair value movements in contingent consideration were (£10m) (2019: £61m) including (£15m) (2019: £56m) relating to discontinued operations.
On the acquisition of Aberdeen Asset Management PLC (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.
Associates Joint ventures Total Associates Joint ventures Total £m £m £m £m £m £m At 1 January 1,257 252 1,509 1,260 184 1,444 Exchange translation adjustments (11) 8 (3) (16) (11) (27) Additions – 5 5 – 51 51 Disposals (102) – (102) (178) – (178) Profit after tax 177 17 194 63 16 79 Other comprehensive income – – – (22) 12 (10) Dilution gains 4 – 4 – – – (Impairment)/Reversal of impairment – (45) (45) 243 – 243 Distributions of profit (80) – (80) (93) – (93) Reclassified to equity securities and interests in pooled investments funds (111) – (111) – – – At 31 December 1,134 237 1,371 1,257 252 1,509 147Standard Life Aberdeen 2020
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.
B: Objective is achieved by both collecting contractual cash flows and selling
Fair value liabilities £m £m £m £m £m £m Equity derivatives: Futures 100 1 9 177 2 1 Variance swaps 6 6 – 5 6 – Total return swaps – – – 29 – 1 Bond derivatives: Futures – – – 1 – – Interest rate derivatives: Swaps 52 – 4 153 – 2 Futures 34 – – – – – Foreign exchange derivatives: Forwards 859 15 2 718 10 5 Other derivatives: Inflation rate swaps 18 2 – 14 1 – Credit default swaps 81 – 1 106 2 – Derivative financial instruments at FVTPL/ held for trading 1,150 24 16 1,203 21 9 158 Standard Life Aberdeen 2020
Prepayments 40 48 Deferred acquisition costs 4 6 Other 2 1 Other assets 46 55
The fair value of financial instruments not held at fair value approximates to their carrying value at 31 December 2020 and 31 December 2019.
Aggregate tax effect of items recognised in other comprehensive income (2) – – – – – – – (2) Total items recognised in other comprehensive income 10 (46) – – – – – – (36) Recognised directly in equity Share buyback 26 – – – – – (126) – 26 (100) Reserves credit for employee share-based payments – – – – 43 – – – 43 Transfer to retained earnings for vested employee share-based payments – – – – (57) – – – (57) Transfer between reserves on impairment of subsidiaries – – – (780) – – – – (780) Total items recognised directly within equity – – – (780) (14) (126) – 26 (894) At 31 December 2019 4 3 – 2,317 54 115 (685) 1,037 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.
The Group recognised preference shares issued by AAM PLC as non-controlling interests. On 4 June 2020, AAM PLC notified the holders of the redeemable preference shares of its irrevocable intention to redeem the preference shares. Following notification the preference shares were reclassified as subordinated liabilities as an obligation to deliver cash was created. Refer Note 33.
The Group applies a liability adequacy test at each reporting date to ensure that the insurance 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.
(b) Analysis of amounts recognised in the consolidated statement of financial position 2020 2019
Total (expense)/income recognised in consolidated income statement (67) (70) 99 127 32 57 (13) (17) 19 40 Remeasurements
The provision for separation costs of £68m (2019: £77m) is for costs expected to be incurred following the sale of the UK and European insurance business to Phoenix. 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. Our estimate of the total separation costs, including those relating to the development of replacement systems and services, remains unchanged at £310m of which £282m has been accounted for as at 31 December 2020. The £282m includes the £80m provision recognised in 2018 for separation costs of which £68m remains unused at 31 December 2020. The main uncertainty relating to the provision relates to the costs required to complete the de-coupling of systems. The costs covered by the provision are expected to be incurred in the next two years.
A reasonable change in the variable within the next calendar year
The reasonable change in variables have no impact on any other components of equity. 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.
Subordinated liabilities 28 29 113 116 629 676 22 25 22 25 101 107 915 978 Other financial liabilities 963 1,124 108 107 101 102 44 57 10 14 – – 1,226 1,404 Total 991 1,153 221 223 730 778 66 82 32 39 101 107 2,141 2,382 182 Standard Life Aberdeen 2020
(b)(i) Investments in unconsolidated structured entities Equity securities and interests in pooled investment funds includes £729m (2019: £650m) of unconsolidated structured entities which are managed by the Group and in which the Group has a direct investment. At 31 December 2020 the asset value of these unconsolidated structured entities is £78,499m (2019: £22,795m). The total fees recognised in respect of these assets under management during the year to 31 December 2020 were £356m (2019: £137m).
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.
Other unlisted equity securities are generally valued at indicative share prices from off market transactions.
Debt securities valued using models and standard valuation formulas based on unobservable market data4.
Owner occupied property 1 2 – – 1 2 – – – – 1 2 Derivative financial assets 18 19 – – 18 19 – – 18 19 – – Equity securities and interests in pooled investment vehicles 1,980 725 1 2 1,981 727 1,422 609 458 36 101 82 Debt securities 787 769 – 14 787 783 2 57 784 725 1 1 Contingent consideration asset 28 1 – – 28 1 – – – – 28 1 Total assets at fair value 2,814 1,516 1 16 2,815 1,532 1,424 666 1,260 780 131 86
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.
(a) Unrecognised financial instruments As at 31 December 2020, the Group has committed to investing an additional £35m (2019: £46m) into funds in which it holds a coinvestment interest.
IFRS equity attributable to equity holders of Standard Life Aberdeen plc 6.8 6.6 Deductions for intangibles and defined benefit pension assets, net of related deferred tax liabilities (2.0) (2.9) Deductions for significant investments in financial sector entities (0.9) (1.1) Deductions for non-significant investments in financial sector entities (0.8) – Other deductions and adjustments, including provision for foreseeable dividend (0.2) (0.4) Common Equity Tier 1 capital resources 2.9 2.2 Tier 2 capital resources 0.5 0.6 Total regulatory capital resources 3.4 2.8 Total regulatory capital requirements (1.1) (1.1) Surplus regulatory capital 2.3 1.7 1 2020 draft position on 9 March 2021 following finalisation of the Annual report and accounts, 2019 based on Pillar 3 reporting.
Parmenion Capital Ltd65 Ordinary shares 100% Parmenion Capital Partners LLP65 Limited Liability Partnership 100% Parmenion Nominees Limited65 Ordinary shares 100% Parnell Fisher Child & Co. Limited3 Ordinary shares 100% Parnell Fisher Child Holdings Limited3
SICAV = Société d’investissement à capital variable 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%.
Wilmington, DE 19808, USA 17 Av Brigadeiro Faria Lima, 3729, SALA, 506, Brasil 18 1 More London Place, London, SE1 2AF 19 35a Avenue John F. Kennedy, L-1855 Luxembourg, Luxembourg 20 29 Rue De Berri, Paris, 75008, France 21 40 Upper Mount Street, Dublin 2, Republic of Ireland 22 First Floor Dorey Court, Admiral Park, St Peter Port, Guernsey, GY1 6HJ 23 Western Suite, Ground Floor Mill Court, La Charroterie, St Peter Port,
(b) Investment in joint venture The Company has a 50% (2019: 50%) interest in Heng An Standard Life Insurance Company Limited (HASL), a company incorporated in China. Further details on this joint venture are provided in Note 16 of the Group financial statements.
For Phoenix, we consider that 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 VIU for determining any impairment or reversal of impairment of the Company’s investment in Phoenix. As the VIU is based on the market value, a discount rate is not determined. At 31 December 2020 the market value of the Company’s interest in Phoenix was £1,010m (31 December 2019: £1,079m) and a £13m impairment has been recognised in 2020 (2019: reversal of impairment £211m). Further details of this associate are provided in Note 16 of the Group financial statements.
The Company’s shareholding in Phoenix remains at 14.4%. Following the changes to the commercial agreements between the Group and Phoenix, the Group concluded that Phoenix should no longer be accounted for as an associate with effect from 23 February 2021. From this date, the Company has reclassified its investment in Phoenix from an investment in associates measured at cost less impairment to equity securities measured at fair value.
KPI 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. Dividends from significant listed investments are also included. Adjusted diluted capital generation per share is calculated as adjusted capital generation divided by the weighted average number of diluted ordinary shares outstanding.
Corporate funds held in absolute return funds – Note 38 (b)(i)(i) 0.2 0.2
As an asset managing business this measure demonstrates our ability to generate investment returns for our clients.
Adjusted operating expenses (£m) (1,206) (1,333) Fee based revenue (£m) 1,425 1,634 Share of associates’ and joint ventures’ profit before tax (£m) 247 246 Cost/income ratio (%) 85 82 Cost/income ratio including our share of associates’ and joint ventures’ profit before tax (%) 72 71 9.4.2 Fee revenue yield (bps)1 Average AUMA (£bn) Fee based revenue (£m) Fee revenue yield (bps)
Wrap and Elevate 150 – – – 150 Adviser Wealth 107 (9) (7) (21) 70 Personal
Developed markets equities 14.7 3.6 (3.8) (0.2) 0.2 – 14.7 Emerging markets equities 21.6 1.6 (6.2) (4.6) 2.0 – 19.0 Asia Pacific equities 23.3 4.2 (4.8) (0.6) 3.9 – 26.6 Global equities 9.4 1.4 (2.7) (1.3) 0.8 – 8.9 Total equities 69.0 10.8 (17.5) (6.7) 6.9 – 69.2 Developed markets credit 32.2 6.8 (9.3) (2.5) 3.0 – 32.7 Developed markets rates 3.3 0.7 (0.9) (0.2) (0.3) – 2.8 Emerging markets fixed income 10.9 3.8 (2.5) 1.3 – – 12.2 Total fixed income 46.4 11.3 (12.7) (1.4) 2.7 – 47.7 Absolute return 12.7 0.7 (2.6) (1.9) 0.7 – 11.5 Diversified growth/income 1.9 0.2 (0.4) (0.2) (1.1) – 0.6 MyFolio 15.7 2.4 (2.9) (0.5) 0.4 – 15.6 Other multi-asset 4.1 0.9 (1.0) (0.1) 5.7 – 9.7 Total multi-asset 34.4 4.2 (6.9) (2.7) 5.7 – 37.4 Private equity 12.1 1.9 (1.0) 0.9 (1.8) – 11.2 Private credit and solutions – 0.5 – 0.5 0.3 – 0.8 Infrastructure equity 4.0 0.1 – 0.1 0.9 – 5.0 Total private markets 16.1 2.5 (1.0) 1.5 (0.6) – 17.0 UK real estate 13.4 0.5 (1.3) (0.8) (3.4) – 9.2 European real estate 12.1 1.0 (1.0) – – – 12.1 Global real estate 1.0 0.3 (0.3) – 0.8 – 1.8 Real estate multi-manager 1.4 0.3 (0.1) 0.2 – – 1.6 Total real estate 27.9 2.1 (2.7) (0.6) (2.6) – 24.7 Total alternatives 17.7 2.4 (1.1) 1.3 0.5 – 19.5 Total quantitative 7.8 1.3 (1.6) (0.3) (1.1) – 6.4 Total cash/liquidity 17.4 15.2 (6.0) 9.2 3.2 – 29.8 Total 236.7 49.8 (49.5) 0.3 14.7 – 251.7 1 AUMA is now presented on a vector basis and 2019 comparatives have been restated on this basis. See Section 9.9 for more information.
Investments Institutional 160.6 – – 160.6 Institutional Wholesale 72.4 – 3.7 76.1 Wholesale Strategic insurance partners 235.8 – – 235.8 Insurance Platforms and Wealth
This document has been published by Standard Life Aberdeen plc for information only. It is based on our understanding as at March 2021 and does not provide financial or legal advice.
Standard Life Aberdeen plc is registered in Scotland (SC286832) at 1 George Street, Edinburgh EH2 2LL.