(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)(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.
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.
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.
Discontinued operations Eliminations Total 31 December 2019 Notes £m £m £m £m £m £m Fee based revenue 1,634 – 1,634 – – 1,634 Adjusted operating expenses (1,333) – (1,333) – – (1,333) Adjusted operating profit 301 – 301 – – 301
Tax on adjusting items 41 – 41 – – 41 Share of associates’ and joint ventures’ tax expense on adjusting items (5) 43 38 – – 38 Profit attributable to non-controlling interests (preference shares) (5) – (5) – – (5) (Loss)/profit for the year attributable to equity shareholders of Standard Life Aberdeen plc (1,411) 1,621 210 56 – 266 Profit attributable to non-controlling interests
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.
There are no customers whose revenue represents greater than 10% of fee based revenue (2018: none).
Discontinued operations Eliminations Total 31 December 2018 Notes £m £m £m £m £m £m
Tax on adjusted profit (95) – (95) (77) – (172) Share of associates’ and joint ventures' tax expense 10 (17) (26) (43) – – (43)
Tax on adjusting items 52 – 52 41 – 93 Share of associates’ and joint ventures’ tax expense on adjusting items 2 1 3 – – 3 Profit attributable to other equity holders and non-controlling interests (preference shares and perpetual notes) (5) – (5) (28) – (33) (Loss)/profit for the year attributable to equity shareholders of Standard Life Aberdeen plc (714) (121) (835) 1,665 – 830 Profit attributable to other equity holders and non-controlling interests
(Loss)/profit for the year (830) 1,698 868 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.
(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 1,634 (1,333) 1,868 (1,395) Insurance and participating investment contract claims and change in liabilities 156 (156) 1 (1) Change in non-participating investment contract liabilities 265 (265) (78) 78 Change in liability for third party interest in consolidated funds 21 (21) (5) 5
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: £m £m
Europe, Middle East and Africa 265 201 Asia Pacific 1,708 464
Europe, Middle East and Africa 60 2 Asia Pacific 71 6
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.
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.
Gains on financial instruments at fair value through profit or loss
Equity securities and interests in pooled investment funds (other than dividend income) 365 (193) Debt securities 21 2 Derivative financial instruments 1 (8)
Revenue from contracts with customers for asset management 1,471 1,751 Fund platforms
Fee income 204 173 Other revenue from contracts with customers 68 31 Total revenue from contracts with customers from continuing operations 1,743 1,955 1 In addition to revenues earned as a percentage of AUM, management fee income includes certain other revenues such as registration fees.
Commission expenses (89) (105) Other cost of sales (26) (8) Other differences 6 26
Fee based revenue from continuing operations as presented in the Asset management, platforms and wealth segment 1,634 1,868
Total contract liabilities 70 80 163 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.
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 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.
The average number of staff employed by the Group during the year: Asset management, platforms and wealth 6,268 6,360 UK and European insurance (classified as discontinued operations)1 – 1,959 Total average number of staff employed 6,268 8,319 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.
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.
Adjustment to tax expense in respect of prior years (1) 3 Total current tax attributable to continuing operations 54 67
Deferred tax: Deferred tax credit arising from the current year (26) (12) Adjustment to deferred tax in respect of prior years – (12) Total deferred tax attributable to continuing operations (26) (24) Total tax expense attributable to continuing operations 28 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).
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
(b) Tax relating to components of other comprehensive income Tax relating to components of other comprehensive income is as follows: £m £m
Opening balance carried forward (39) (302) Effect of change in accounting policy to IFRS 91 1 – Effect of change in accounting policy to IFRS 161 1 – Opening balance at 1 January (37) (302) Reclassified as held for sale during the year – 224 Acquired through business combinations (2) (1) Amounts credited to the consolidated income statement 26 44 Amounts credited directly to equity in respect of employee share-based payments – (2) Tax on available-for-sale assets – 1 Tax on cash flow hedge (2) (2)
(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)
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 £m Income Investment return 2,350 Revenue from contracts with customers 117 Insurance and participating investment contract premium income 1,256 Profit on disposal of subsidiaries 1,780 Other income 10 Total income from discontinued operations 5,513
Total administrative expenses 603 Provision for annuity sales practices – Change in liability for third party interest in consolidated funds (32) Finance costs 35 Total expenses from discontinued operations 3,733 Profit before tax from discontinued operations 1,780
Profit before tax expense attributable to equity holders 1,734 Total tax expense 82 Less: Tax attributable to policyholders’ returns (46) Tax expense attributable to equity holders 36 Profit for the period from discontinued operations 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.
Items that may be reclassified subsequently to profit or loss: Exchange differences on translating foreign operations 3 Change in unallocated divisible surplus (5) Total items that may be reclassified subsequently to profit or loss (2) Items that were transferred to profit or loss on disposal of subsidiaries: Release of foreign currency translation reserve (43) Total items that were transferred to profit or loss on disposal of subsidiaries (43) Other comprehensive income for the period from discontinued operations (43)
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.
Dividend paid on preference shares (5) – (5) (5) – (5) Adjusted profit after tax attributable to equity shareholders of the Company 464 – 464 507 133 640
Share of associates’ and joint ventures’ tax expense on adjusting items 38 – 38 3 – 3 Adjustment for perpetual debt instruments classified as equity net of tax – – – – (28) (28) Profit attributable to equity shareholders of the Company 210 56 266 (835) 1,665 830
Adjusted diluted earnings per share 19.3 – 19.3 17.8 4.7 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.
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
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%).
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.
(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 rightof -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.
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.
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.
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
All other vehicle groups dominated by segregated mandates which represent 75% of this group.
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.
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.
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.
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%.
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
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.
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.
Associates Joint ventures Total Associates Joint ventures Total £m £m £m £m £m £m
The following associates and joint ventures are considered to be material to the Group as at 31 December 2019.
(b) Investments in associates accounted for using the equity method 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.
Carrying value of associates accounted for using the equity method 961 812 167 329 120 110 9 9 1,257 1,260
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.
Phoenix Phoenix is the largest life and pensions consolidator in Europe. Our investment in Phoenix supports our strategic partnership.
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.
Group’s share at acquisition date £m Intangible asset: SLAL AVIF 24 2,931 586 Existing Phoenix AVIF 15 1,503 300
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.
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
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 AAA AA A BBB BB and below Non-rated Unit-linked Total Carrying value £m £m £m £m £m £m £m £m Loans and deposits – 21 47 164 – 284 – 516 Cash and cash equivalents 295 733 3,105 23 – 142 40 4,338 Accrued income – – – – – 160 – 160 Other receivables – – – – – 1,183 – 1,183 295 754 3,152 187 – 1,769 40 6,197 2018 AAA AA A BBB BB and below Non-rated Unit-linked Total Carrying value £m £m £m £m £m £m £m £m Loans and deposits – 7 46 – – 370 – 423 Cash and cash equivalents 327 947 1,836 1,265 – 450 101 4,926 Accrued income – – – – – 151 – 151 Other receivables – – – – – 1,026 – 1,026 327 954 1,882 1,265 – 1,997 101 6,526
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: Fair value as at 31 December 2019
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 6,871 5,662 Financial assets other than those above2 8,046 7,596 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.
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.
(c) Investments in joint ventures HASL Other Total £m £m £m £m £m £m
Carrying value of joint ventures accounted for using the equity method 205 184 47 – 252 184 Dividends received – – – – – – Share of profit/(loss) after tax 20 9 (4) – 16 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).
On 25 September 2018, the Group made a US$95m (£72m) capital contribution to HASL. The Group’s interest remained at 50%.
Summarised financial information of joint venture: Revenue 426 361 Depreciation and amortisation 3 2 Interest income 57 49 Interest expense 2 3 Income tax (expense)/income 6 (6) Profit after tax (all from continuing operations) 41 17 Other comprehensive income 25 1 Total comprehensive income 66 18 Total assets1 1,957 1,714 Total liabilities1 1,547 1,347 Cash and cash equivalents 67 208 Net assets 410 367
Attributable to investee’s shareholder 410 367 Interest held 50% 50% Share of net assets 205 184 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.
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).
Disposals and adjustments2 – (4) – – (4) Foreign exchange adjustment – 3 – – 3
Right-of-use assets recognised on implementation of IFRS 161 – – 354 1 355
Disposals and adjustments2 – (3) (9) – (12) Derecognition of right-of-use assets relating to subleases classified as finance leases – – (11) – (11) Foreign exchange adjustment – (1) (4) – (5)
Accumulated depreciation and impairment At 1 January 2018 – (117) – – (117) Reclassified as held for sale during the year – 91 – – 91 Depreciation charge for the year 6 – (16) – – (16) Disposals and adjustments2 – 2 – – 2 Foreign exchange adjustment – (2) – – (2)
Right-of-use assets recognised on implementation of IFRS 161 – – (176) – (176)
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 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.
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.
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.
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.
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.
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.
The following table provides a maturity analysis of the contractual undiscounted cash flows for the lease liabilities: 2019 £m
Less than 1 year 33 Greater than or equal to 1 year and less than 2 years 29 Greater than or equal to 2 years and less than 3 years 28 Greater than or equal to 3 years and less than 4 years 26 Greater than or equal to 4 years and less than 5 years 23 Greater than or equal to 5 years and less than 10 years 102 Greater than or equal to 10 years and less than 15 years 57 Greater than or equal to 15 years 14 Total undiscounted lease liabilities 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.
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.
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: £m
(b)(ii) Operating leases During the year ended 31 December 2019, the Group received property rental income from operating leases of £2m.
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.
Yes C: Objective is neither A nor B FVTPL No N/A 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.
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.
Equity securities and interests in pooled investment funds 40 725 – – 725
Receivables and other financial assets 21 1 – 559 560 Cash and cash equivalents 24 – – 1,615 1,615 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
Equity securities and interests in pooled investment funds 40 509 – – – – 509
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.
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.
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.
(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).
Derivative financial instruments at FVTPL/ held for trading 1,203 21 9 625 8 6
Cash outflows Derivative financial assets (386) (73) (633) – – – (1,092)
Net derivative financial instruments cash inflows 19 25 17 – – – 61
Net cash flow hedge cash inflows 6 23 18 – – – 47 171Standard Life Aberdeen 2019
Greater than 20 years Total 2018 £m £m £m £m £m £m £m Cash inflows Derivative financial assets 34 88 714 – – – 836 Derivative financial liabilities 5 – – – – – 5
The amount of receivables and other financial assets expected to be recovered after more than 12 months is £25m (2018: £10m).
The amount of other assets expected to be recovered after more than 12 months is £6m (2018: £9m).
Assets of operations held for sale Standard Life (Asia) Limited 765 667 Investment vehicles 2 95
At 31 December 2019, this disposal group was measured at fair value less cost to sell and comprised the following assets and liabilities: £m £m
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).
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.
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 nonparticipating 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.
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.
Receivables and other financial assets – – – 10 – 10 Cash and cash equivalents – – – 45 (1) 44 Total financial assets backing unit linked liabilities 1,991 211 – 55 (675) 1,582 Investment contract liabilities – 1,201 – – (49) 1,152 Third party interest in consolidated funds – 416 – – – 416 Other unit linked financial liabilities – 6 – 6 – 12 Total unit linked financial liabilities – 1,623 – 6 (49) 1,580
Classified as held for sale1 Total 2018 £m £m £m £m £m £m
(c) Change in non-participating investment contract liabilities The change in non-participating investment contract liabilities was as follows: £m £m
Account balances paid on surrender and other terminations in the year (729) (235) Change in non-participating investment contract liabilities recognised in the consolidated income statement1 258 (72) Recurring management charges (3) (3)
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 nonparticipating investment contract liabilities classified as held for sale.
As at 31 December 2019 £m £m £m £m Financial assets Derivatives1 3 (2) – 1 Total financial assets 3 (2) – 1 Financial liabilities Derivatives1 (5) 2 – (3) Total financial liabilities (5) 2 – (3)
(a) Issued share capital The movement in the issued ordinary share capital of the Company was: 2019 2018 Issued shares fully paid 13 61/63p each £m 12 2/9p each 13 61/63p each £m
Shares issued in respect of share incentive plans 1,114 – 435,340 288 – Shares issued in respect of share options – – 350,156 – – New shares issued immediately prior to share consolidation – – 4 – – Share consolidation – – (2,941,738,848) 2,574,021,492 – Shares bought back on-market and cancelled (190,689,614) (26) (37,983,529) (44,609,556) (11)
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.
(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.
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 number of shares held by trusts at 31 December 2019 was as follows: 2019 2018
Recognised in comprehensive income Recognised in profit for the year attributable to equity holders 266 830 Recognised in other comprehensive income
Remeasurement (losses)/gains on defined benefit pension plans 34 (23) (29) Share of other comprehensive income of associates and joint ventures (10) (15)
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.
Capital redemption reserve Total Notes £m £m £m £m £m £m £m £m £m
Recognised in other comprehensive income Fair value gains on cash flow hedges (10) – – – – – – – (10) Exchange differences on translating foreign operations – (46) – – – – – – (46) Items transferred to profit or loss from continuing operations
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 Shares bought back on-
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)
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).
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.
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%).
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.
7. Group financial statements continued 31. Insurance contracts, investment contracts and reinsurance contracts
(ii) Income statement presentation – insurance and participating investment contracts 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.
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.
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.
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.
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.
At amortised cost Total 2019 Notes £m £m £m £m Third party interest in consolidated funds 119 – – 119
Subordinated notes 4.25% US Dollar fixed rate due 30 June 2028 $750m £563m $750m £581m 5.5% Sterling fixed rate due 4 December 2042 £92m £92m £500m £500m
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: 4.25% US Dollar fixed rate1,2
(until 15 November 2018) 5.5% Sterling fixed rate Principal amount $750m $750m £92m Issue date 18 October 2017 18 October 2017 4 December 2012 Maturity date 30 June 2028 30 June 2048 4 December 2042
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 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.
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.
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.
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.
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.
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 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.
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.
Current service cost 60 67 Past service cost (13) (15) Net interest income (31) (27) Administrative expenses 2 2 Expense from continuing operations recognised in the consolidated income statement 18 27
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.
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).
Return on plan assets, excluding amounts included in interest income – 385 385 – 385 Gain from change in demographic assumptions 16 – 16 – 16 Loss from change in financial assumptions (459) – (459) – (459) Release of death in service obligation 7 – 7 – 7
Change in effect of limit on plan surplus – – – – –
Remeasurement (losses)/gains recognised in other comprehensive income (408) 385 (23) – (23)
Assets measured at fair value based on level 1 inputs Derivatives 3 9 – 1 3 10
Total assets measured at fair value based on level 1 inputs 4,062 3,364 194 212 4,256 3,576 Assets measured at fair value based on level 2 or 3 inputs Derivatives 262 289 (4) (6) 258 283
The changes in economic assumptions over the period reflect changes in both corporate bond prices and market implied inflation.
Expectation of life from NRA Male age today Female age today 2019 Table Improvements NRA 40 NRA 40
These assumptions reflect a cautious allowance for the recently observed slowdown in longevity improvements.
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 Decrease by 1 year 82 – 73 – Increase by 1 year (96) – (68) –
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).
Creation of units awaiting settlement 110 167 Lease liabilities 18 268 – Cash collateral held in respect of derivative contracts 38 21 21
The amount of other financial liabilities expected to be settled after more than 12 months is £239m (2018: £15m).
(a) Provisions The movement in provisions during the year is as follows: Separation costs Other provisions Total provisions 2019 £m £m £m Opening balance carried forward 80 25 105 Effect of change in accounting policy to IFRS 161 – (12) (12)
Reclassified as held for sale during the year (248) – (33) (281) Charged/(credited) to the consolidated income statement
Other provisions primarily relate to restructuring and are expected to be settled within 12 months.
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).
 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.
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.
Equity securities and interests in pooled investment funds at FVTPL 195 76 Debt securities 78 22 Assets held for sale 23 2 81 Total seed capital 275 179
(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.
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.
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 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.
(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.
Notes £m £m £m £m £m £m £m £m £m £m £m £m £m £m £m £m
Net investment hedges – 6 – – – – – (6) – – – – – – – –
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.
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.
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 2019 2018 £m £m
Change in equity security prices +10% 40 16 1 A positive number for impact on profit after tax represents a credit to the consolidated income statement.
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 2019 2018 2019 2018 £m £m £m £m
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 2019 2018 USD EUR SGD USD EUR SGD £m £m £m £m £m £m
Change in foreign exchange rates +10%2 11 15 5 19 16 9 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.
Under IFRS 9, expected credit losses (ECL) are calculated on financial assets which are measured at amortised cost.
– 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 Lifetime ECL (losses resulting from possible defaults over the remaining life of the financial asset)
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.
Lifetime ECL – not credit impaired Total 2019 £m £m £m £m £m
Receivables and other financial assets 1 – 187 372 560 Cash and cash equivalents – – 1,609 – 1,609
Past due – – – – 26 26 Impaired – – – – – –
An analysis of debt securities by country based on the ultimate parent country of risk is provided below: Government, provincial and municipal1 Banks Other financial institutions Other £m £m £m £m £m £m £m £m £m £m £m £m 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).
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.
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.
Financial liabilities Derivatives2 (2) 2 – – Total financial liabilities (2) 2 – –
(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.
Refer Note 20 for the maturity profile of undiscounted cash flows of derivative financial instruments.
(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.
Financial investments Equity securities and interests in pooled investment funds 917 675 Debt securities 12 13
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.
Greater than 20 years Total £m £m £m £m £m £m £m £m £m £m £m £m £m £m 203Standard Life Aberdeen 2019
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.
 Level 3: Fair values measured using inputs that are not based on observable market data (unobservable inputs)
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.
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.
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.
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.
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.
Equity securities and interests in pooled investment vehicles 725 509 2 95 727 604 609 523 36 22 82 59
Total assets at fair value 1,516 2,125 16 108 1,532 2,233 666 574 780 1,589 86 70
(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.
Liabilities in respect of third party interest in consolidated funds 119 26 – 14 119 40 – – 119 40 – –
Liabilities in respect of third party interest in consolidated funds £m £m £m £m £m £m £m £m £m £m
Reclassified to held for sale during the year – (9,749) – (79) – (921) – (1,443) – 1,298 Total gains/(losses) recognised in the consolidated income statement – – – – 2 5 – – – –
1 Transfers are deemed to have occurred at the end of the calendar quarter in which they arose.
At start of period 8 6 (29) (25) Total amounts recognised in the income statement 56 (6) 5 9
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.
(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: Fair value 2019 £m Unobservable input Input used Equity securities and interests in pooled investment funds 82 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.
(13) 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 Expected amount required to cover the redress due to customers compared to SLAL’s provision at 31 December 2017
– 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
Fair value 2018 £m Unobservable input Input used Equity securities and interests in pooled investment funds 59 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.
Statistical distribution used in the Group’s Solvency II internal model at 31 December 2017 208 Standard Life Aberdeen 2019
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 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 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.
As recognised in the consolidated statement of financial position line item Fair value Level 1 Level 2 Level 3 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 Notes £m £m £m £m £m £m £m £m £m £m 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.
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.
The tables below provide further analysis of the balances in the statement of cash flows.
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.
Repayment of subordinated liabilities (455) (363) Proceeds of issue of subordinated liabilities – (4) Interest paid (39) (117)
Amounts reclassified to equity – (803) Interest expense 35 91 Transfer to profit or loss on redemption of subordinated liabilities 47 – Amortisation – 1 Foreign exchange adjustment (19) 23 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.
(f) Movement in lease liabilities The following table reconciles the movement in lease liabilities in the year, split between cash and non-cash items.
Additions 74 Disposals (5) Interest capitalised 7 Foreign exchange adjustment (3)
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.
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.
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.
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.
Plan Recipients Conditions which must be met prior to vesting Standard Life Aberdeen plc Deferred Share Plan
Executives and senior management 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.
Plan Recipients Conditions which must be met prior to vesting Standard Life Long-Term Incentive Plan (Standard Life LTIP)
Other share awards The following plans issued other share awards during the year ended 31 December 2019.
(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.
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.
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.
Annual bonus deferred share options Sharesave Options exercised during the year Share price at time of exercise1 275p 268p 252p 271p 305p 1 Weighted average.
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.
Share options and share awards granted under deferred and discretionary share plans1 36 33 Share options granted under long-term incentive plans 4 – Share options granted under Sharesave 2 2 Matching shares granted under share incentive plans 1 1 Equity-settled share-based payments 43 36 Cash-settled deferred fund awards 10 9 Total expense 53 45 1 Includes expense for annual bonus deferred share awards.
Deferred fund awards At 31 December 2019, the liability recognised for cash-settled deferred fund awards was £46m (2018: £48m).
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.
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.
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).
Salaries and other short-term employee benefits 8 6 Post-employment benefits – – Share-based payments and deferred fund awards 7 6 Termination benefits 1 – Total compensation of key management personnel 16 12
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 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.
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).
IFRS equity attributable to equity holders of Standard Life Aberdeen plc 6.6 7.4 Deductions for intangibles and defined benefit pension assets, net of related deferred tax liabilities (2.9) (4.5) Deductions for significant investments in financial sector entities (1.1) (1.3) Other deductions and adjustments, including provision for foreseeable dividend (0.4) (0.5) Common Equity Tier 1 capital resources 2.2 1.1 Tier 2 capital resources 0.6 0.6 Total regulatory capital resources 2.8 1.7 Total regulatory capital requirements (1.1) (1.1) Surplus regulatory capital 1.7 0.6 1 2019 draft position on 10 March 2020 following finalisation of the Annual report and accounts, 2018 based on Pillar 3 reporting.
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.
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.
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 registered head office of all related undertakings is 1 George Street, Edinburgh, EH2 2LL unless otherwise stated. (a) Direct subsidiaries Name of related undertaking Share class1 % interest held2 1825 Financial Planning Limited3 Ordinary shares 100% 30 STMA 1 Limited5 Ordinary shares 100% 30 STMA 2 Limited5 Ordinary shares 100% 30 STMA 3 Limited5 Ordinary shares 100% 30 STMA 4 Limited5 Ordinary shares 100% 30 STMA 5 Limited5 Ordinary shares 100% Aberdeen Asset Management PLC4 Ordinary shares 100% Focus Solutions Group Limited6 Ordinary shares 100% Standard Life Aberdeen Trustee Company Limited Ordinary shares 100% Standard Life (Asia Pacific Holdings) Private Limited8 Ordinary shares 100% Standard Life Charity Fund N/A 100% Standard Life Client Management Limited Ordinary shares 100% Standard Life Employee Services Limited Ordinary shares 100% Standard Life Finance Limited Ordinary shares 100% Standard Life Foundation N/A 100% Standard Life Investments (Holdings) Limited Ordinary shares 100% Standard Life (London) Limited5 Ordinary shares 100% Standard Life (Mauritius Holdings) 2006 Limited9 Ordinary shares 100% Standard Life Oversea Holdings Limited Ordinary shares 100% Standard Life Savings Limited Ordinary shares 100% The Standard Life Assurance Company 2006 N/A 100% Threesixty Services LLP10 Limited liability partnership 100% Threesixty Support LLP10 Limited liability partnership 100%
(b) Other subsidiaries, joint ventures, associates and other significant holdings Name of related undertaking Share class1 % interest held2 1825 Financial Planning and Advice Limited3 Ordinary A shares Ordinary B shares 21 Aberdeen Standard Investments Limited5 Ordinary shares 50% 21ASI Long Term Fund I SCSp11 Limited partnership 0% 6 SAS 1 Limited Ordinary shares 100% 6 SAS 2 Limited Ordinary shares 100% Aberdeen ACM Team LP4 Limited partnership 0% Aberdeen ACP LLP4 Limited liability partnership 100% Aberdeen Alternatives (Holdings) Limited4 Ordinary shares 100% Aberdeen Asia IV (General Partner) S.a.r.l.12 Ordinary shares 100% Aberdeen Asia Pacific Fund (Offshore), L.P.13 Limited partnership 0% Aberdeen Asia Pacific Fund II (Offshore), L.P.13 Limited partnership 0% Aberdeen Asia Pacific Fund II, L.P.13 Limited partnership 0% Aberdeen Asia Pacific Fund, L.P.13 Limited partnership 0% Aberdeen Asia Pacific III Ex-Co-Investment (Offshore), L.P.13 Limited partnership 0%
Aberdeen Asia Pacific III Ex-Co-Investment, L.P.13 Limited partnership 0% Aberdeen Asia Pacific III, L.P.13 Limited partnership 0% Aberdeen ASIF Carry LP4 Limited partnership 25% Aberdeen Asset Investment Group Limited5 Ordinary shares 100% Aberdeen Asset Investments Limited5 Ordinary shares 100% Aberdeen Asset Management Cayman Limited13 Ordinary shares 100% Aberdeen Asset Management Denmark A/S14 Ordinary shares 100% Aberdeen Asset Management Finland Oy15 Ordinary shares 100% Aberdeen Asset Management Sweden AB16 Ordinary shares 100% Aberdeen Asset Management US GP Control LLC17 Limited liability company 100% Aberdeen Asset Managers (Luxembourg) S.a.r.l. 18 Ordinary shares 100% Aberdeen Asset Managers Limited4 Ordinary shares 100% Aberdeen Asset Middle East Limited19 Ordinary shares 100% Aberdeen Capital Management LLC20 Limited liability company 100% Aberdeen Capital Managers GP LLC21 Limited liability company 100% Aberdeen Claims Administration, Inc. 22 Ordinary shares 100% Aberdeen Co-Investment Mandate LP4 Limited partnership 0% Aberdeen Direct Property (Holding) Limited5 Ordinary shares 100% Aberdeen do Brasil Gestao de Recursos Ltda23 Limited liability company 100% Aberdeen Emerging Asia Fund, L.P.13 Limited partnership 0% Aberdeen Emerging Asia Pacific II (Offshore), L.P.13 Limited partnership 0% Aberdeen Emerging Asia Pacific III Ex-Co-Investments, L.P.13 Limited partnership 0% Aberdeen Emerging Capital Limited24 Ordinary shares 100% Aberdeen Energy & Resource Company IV, LLC25 Limited liability company 73% Aberdeen Energy & Resources Partners IV, L.P. 25 Limited partnership 1% Aberdeen European Infrastructure Carry GP Limited4 Ordinary shares 100% Aberdeen European Infrastructure Carry Limited4 Ordinary shares 100% Aberdeen European Infrastructure Co-Invest II LP5 Limited partnership 0% Aberdeen European Infrastructure GP II Limited5 Ordinary shares 100% Aberdeen European Infrastructure GP III Limited5 Ordinary shares 100% Aberdeen European Infrastructure GP Limited5 Ordinary shares 100% Aberdeen European Infrastructure Partners Carry II LP4 Limited partnership 25% Aberdeen European Infrastructure Partners Carry LP4 Limited partnership 25% Aberdeen European Infrastructure Partners II LP11 Limited partnership 3% Aberdeen European Infrastructure Partners III LP Limited partnership 1% Aberdeen European Infrastructure Partners LP4 Limited partnership 3% Aberdeen European Residential Opportunities Fund SCSp26 Limited partnership 1% Aberdeen France S.A.27 Ordinary shares 100% Aberdeen Fund Distributors LLC22 Limited liability company 100% Aberdeen Fund Management II Oy15 Ordinary shares 100% Aberdeen Fund Management Ireland Limited28 Ordinary shares 100% Aberdeen Fund Management Oy15 Ordinary shares 100% Aberdeen General Partner 1 Limited4 Ordinary shares 100% Aberdeen General Partner 2 Limited4 Ordinary shares 100% Aberdeen General Partner CAPELP Limited13 Ordinary shares 100% Aberdeen General Partner CGPLP Limited13 Ordinary shares 100% Aberdeen General Partner CMENAPELP Limited13 Ordinary shares 100% Aberdeen General Partner CPELP II Limited13 Ordinary shares 100% Aberdeen General Partner CPELP Limited13 Ordinary shares 100% Aberdeen Global Absolute Return Strategies Fund5 Ordinary shares 100% Aberdeen Global ex-Japan FoF's LP13 Limited partnership 6% Aberdeen Global ex-Japan GP Limited13 Ordinary shares 100% Aberdeen Global Infrastructure Carry GP Limited4 Ordinary shares 100% Aberdeen Global Infrastructure GP II Limited29 Ordinary shares 100% Aberdeen Global Infrastructure GP Limited29 Ordinary shares 100% Aberdeen Global Infrastructure Partners Carry LP4 Limited partnership 25% Aberdeen Global Infrastructure Partners II Carry LP4 Limited partnership 25% Aberdeen Global Infrastructure Partners II LP4 Limited partnership 0%
Aberdeen Global Infrastructure Partners LP5 Limited partnership 1% Aberdeen GP 1 LLP4 Limited liability partnership 100% Aberdeen GP 2 LLP4 Limited liability partnership 100% Aberdeen GP 3 LLP4 Limited liability partnership 100% Aberdeen Infrastructure Feeder GP Limited4 Ordinary shares 100% Aberdeen Infrastructure Finance GP Limited29 Ordinary shares 100% Aberdeen Infrastructure GP II Limited5 Ordinary shares 100% Aberdeen Infrastructure Partners Carry LP4 Limited partnership 25% Aberdeen Infrastructure Partners II Carry LP4 Limited partnership 25% Aberdeen Infrastructure Partners II LP4 Limited partnership 0% Aberdeen Infrastructure Partners LP Inc30 Limited partnership 0% Aberdeen Institutional Commingled Funds LLC – Long Duration Corporate Bond Fund25 Unit trust 100% Aberdeen Investment Company Limited4 Ordinary shares 100% Aberdeen Investment Solutions Limited4 Ordinary shares 100% Aberdeen Investments Euro Limited5 Ordinary shares 100% Aberdeen Investments Jersey Limited31 Ordinary shares 100% Aberdeen Investments Limited5 Ordinary shares 100% Aberdeen Investments USD Limited5 Ordinary shares 100% Aberdeen Keva Asia IV Property Partners SCSP12 Limited partnership 0% Aberdeen Liquidity Fund (Lux)
Aberdeen Standard Global Infrastructure GP III Ltd.29 Ordinary shares 100% Aberdeen Standard Greater China Value Fund41 Investment trust 94% Aberdeen Standard Group Limited Ordinary shares 100% Aberdeen Standard Indonesia Balanced Growth Fund42 Unit trust 86% Aberdeen Standard Indonesia Bond Fund42 Unit trust 63% Aberdeen Standard Indonesia Equity Fund42 Unit trust 80% Aberdeen Standard Indonesia Money Market Fund42 Unit trust 33% Aberdeen Standard Investment Management Limited Ordinary shares 100% Aberdeen Standard Investments (Asia) Limited43 Ordinary shares 100% Aberdeen Standard Investments Australia Limited40 Ordinary shares 100% Aberdeen Standard Investments Beteiligungs GmbH44 Limited liability company 94% Aberdeen Standard Investments (Canada) Limited45 Ordinary shares 100% Aberdeen Standard Investments Charitable Foundation4 N/A 100% Aberdeen Standard Investments Churchill Square General Partner Limited Ordinary shares 100% Aberdeen Standard Investments Colombia SAS46 Ordinary shares 100% Aberdeen Standard Investments Deutschland AG44 Ordinary shares 94% Aberdeen Standard Investments ETFs (US) LLC47 Limited liability company 100% Aberdeen Standard Investments ETFs Advisors LLC47 Limited liability company 100% Aberdeen Standard Investments ETFs Sponsor LLC47 Limited liability company 100% Aberdeen Standard Investments Fund Management A/S48 Ordinary shares 100% Aberdeen Standard Investments (Holdings) Limited Ordinary shares 100% Aberdeen Standard Investments (Hong Kong) Limited49 Ordinary shares 100% Aberdeen Standard Investments Inc. 22 Ordinary shares 100% Aberdeen Standard Investments Ireland Limited50 Ordinary shares 100% Aberdeen Standard Investments (Japan) Limited51 Ordinary shares 100% Aberdeen Standard Investments Korea Co. Ltd.52 Ordinary shares 100% Aberdeen Standard Investments Life and Pensions Limited5 Ordinary shares 100% Aberdeen Standard Investments Limited Ordinary shares 100% Aberdeen Standard Investments Luxembourg S.A.26 Ordinary shares 100% Aberdeen Standard Investments (Malaysia) Sdn. Bhd53 Ordinary shares,
ASI China A Share Equity Fund5 OEIC 98% ASI Japanese Equity Fund5 OEIC 80% ASI Sterling Long Dated Government Bond Fund5 OEIC 32%
ASI European Equity Tracker Fund5 OEIC 69% ASI Global Inflation-Linked Bond Tracker Fund5 OEIC 43% ASI Japan Equity Tracker Fund5 OEIC 74% ASI Short Dated Global Corporate Bond Tracker Fund5 OEIC 88% ASI Short Dated Sterling Corporate Bond Tracker Fund5 OEIC 73%
ASI Diversified Growth Fund5 Unit trust 46% ASI Diversified-Core Adventurous Fund5 Unit trust 50% ASI Diversified-Core Cautious Fund5 Unit trust 63% ASI Diversified-Core Conservative Fund5 Unit trust 68%
ESP 2006 Co Investment Limited Partnership64 Limited partnership 0% ESP 2006 Conduit LP Limited partnership 0% ESP 2006 General Partner Limited Partnership Limited partnership 5% ESP 2008 Coinvestment Fund L.P. Limited partnership 0% ESP 2008 Coinvestment General Partner Limited partnership Limited partnership 0% ESP 2008 Conduit LP Limited partnership 0% ESP 2008 Executive Co Investment Limited Partnership64 Limited partnership 0% ESP 2008 General partner Limited Partnership Limited partnership 0% ESP Co Investment Limited Partnership64 Limited partnership 0% ESP CPPIB European Mid Market Fund Limited partnership 0% ESP General Partner Limited Partnership Limited partnership 0% ESP Golden Bear Europe Fund Limited partnership 2% ESP Golden Bear General Partner Limited Partnership Limited partnership 0% ESP II Co Investment Limited Partnership64 Limited partnership 0% ESP II Conduit LP Limited partnership 0% ESP II General Partner Limited Partnership Limited partnership 0% ESP Tidal Reach General Partner Limited Partnership Limited partnership 20% ESP Tidal Reach LP Limited partnership 1% European Strategic Partners Limited partnership 0% European Strategic Partners 2004 'A' Limited partnership 0% European Strategic Partners 2004 'B' Limited partnership 0% European Strategic Partners 2006 'A' Limited partnership 0% European Strategic Partners 2006 'B' Limited partnership 0% European Strategic Partners 2008 'A' Limited partnership 0% European Strategic Partners 2008 'B' Limited partnership 0% European Strategic Partners II 'A' Limited partnership 0% European Strategic Partners II 'B' Limited partnership 0% European Strategic Partners II 'C' Limited partnership 0% European Strategic Partners II 'D' Limited partnership 0% European Strategic Partners II 'E' Limited partnership 0% European Strategic Partners – I LP Limited partnership 0% European Strategic Partners Scottish 'B' Limited partnership 0% European Strategic Partners Scottish 'C' Limited partnership 0% FLAG Squadron Asia Pacific III GP LP13 Limited partnership 100% Focus Business Solutions Limited6 Ordinary shares 100% Focus Holdings Limited6 Ordinary shares 100% Focus Software Limited6 Ordinary shares 100% Focus Solutions EBT Trustee Limited6 Ordinary shares 100% Fraser Heath Financial Management Limited3 Ordinary shares 100% Griffin Nominees Limited5 Ordinary shares 100% GTAAN – SL LP Limited partnership 1% HDFC Asset Management Company Limited65 Ordinary shares
NASP 2006 Special Limited Partnership Limited partnership 0% NASP 2008 General Partner Limited Partnership Limited partnership 0% NASP 2008 Special Limited Partnership Limited partnership 0% North American Strategic Partners 2006 LP13 Limited partnership 0% North American Strategic Partners 2008 LP13 Limited partnership 0% North American Strategic Partners (Feeder) 2006 Limited partnership 0% North American Strategic Partners (Feeder) 2008 Limited Partnership Limited partnership 0% North American Strategic Partners Companion Fund LP68 Limited partnership 0% North American Strategic Partners, LP68 Limited partnership 4% North East Trustees Limited69 Ordinary A shares
PE1 LP4 Limited partnership 0% PE1A LP4 Limited partnership 0% PE1B LP4 Limited partnership 0% PE2 LP4 Limited partnership 0% Pearl Private Equity LP Limited partnership 0% Pearl Strategic Credit LP Limited partnership 0% Pearson Jones & Company (Trustees) Limited75 Ordinary shares 100% Pearson Jones Nominees Limited75 Ordinary shares 100% PGB European Buy-out Fund I SCSp4 Limited partnership 0% Phoenix Group Holdings plc7 Ordinary shares 20% PT Aberdeen Standard Investments Indonesia42 Limited liability company 99% PURetail Luxembourg Management Company S.a.r.l.18 Class A shares 50% Regent Property Partners (Retail Parks) Limited5 Ordinary shares 100% Self Directed Holdings Ltd.74 Ordinary A shares
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%. .
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
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,
Brought forward retained earnings 2,035 1,564 Profit for the year attributable to equity shareholders of Standard Life Aberdeen plc 1,020 461 Other movements in retained earnings (122) 10
Total retained earnings 2,933 2,035 Other reserves J 3,621 4,505 Total equity 7,402 7,445
Other liabilities P 4 6 Total liabilities 761 1,241 Total equity and liabilities 8,163 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 Stephanie Bruce Chairman Chief Financial Officer 10 March 2020 10 March 2020
Share premium reserve Retained earnings Other reserves Total equity 2019 Notes £m £m £m £m £m £m
Reserves credit for employee share-based payment J – – – – 43 43 Transfer to retained earnings for vested employee share-based payment J – – – 57 (57) – Transfer between reserves on impairment of investment in subsidiaries J – – – 780 (780) – Shares acquired by employee trusts – (76) – – – (76) Shares distributed by employee and other trusts and related dividend equivalents – 45 – (52) – (7) Transfer from the Standard Life Unclaimed Asset Trust – – – 1 – 1
Shares bought back on-market and cancelled G (11) – – (238) 11 (238) – (238) Reserves credit for employee share-based payment J – – – – 36 36 – 36 Transfer to retained earnings for vested employee sharebased payment J – – – 68 (68) – – – Transfer between reserves on disposal of investment in subsidiaries J – – – 1,290 (1,290) – – – Transfer between reserves on impairment of investment in subsidiaries J – – – 570 (570) – – – Shares acquired by employee trusts – (101) – – – (101) – (101) Shares distributed by employee and other trusts and related dividend equivalents – 40 – (44) – (4) – (4) Aggregate tax effect of items recognised directly in equity – – – – – – 6 6
The Notes on pages 235 to 242 are an integral part of these financial statements.
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).
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.
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.
Reclassified as operations held for sale during the year – (2,312) Investment into existing subsidiaries measured at cost 150 167 Acquisition of subsidiaries at cost – 5 Acquisition of subsidiaries at cost via in specie dividend – 374 Disposal of subsidiaries measured at cost (139) (2) Repayment of loan to subsidiaries classified as equity investment – (486) Impairment of subsidiaries measured at cost (795) (589) Acquisition of subsidiaries at FVTPL 344 90 Reclassification of subsidiaries at FVTPL to interests in pooled investment funds – (198) (Losses)/gains on subsidiaries at FVTPL – (7)
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 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 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 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
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.
(d) Impairment 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).
Investment in associates measured at cost 1,033 822 Investment in joint venture measured at cost 196 196 Investments in associates and joint ventures 1,229 1,018 237Standard Life Aberdeen 2019
(b) Investment in joint venture 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.
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.
The derivative asset of £3m (2018: derivative asset of £13m) is expected to be settled after more than 12 months.
Cash inflows Cash flow hedges 24 96 650 – 770 Foreign exchange forwards 57 – – – 57
Cash outflows Cash flow hedges (18) (64) (660) – (742) Foreign exchange forwards (6) – – – (6)
Amounts due from related parties 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.
Further details of these trusts are provided in Note 27 of the Group financial statements.
I. Retained earnings 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.
Fair value losses on cash flow hedges – – – – (10) (10) Realised losses on cash flow hedges transferred to income statement – – – – 22 22 Shares bought back on-market and cancelled – – (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 investment in subsidiaries (780) – – – – (780) Tax effect of items that may be reclassified subsequently to profit or loss – – – – (2) (2)
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.
Deferred tax assets comprise: Unused tax losses 36 21 Unrealised losses on cash flow hedges – 1 Gross deferred tax assets 36 22 Less: Offset against deferred tax liabilities (1) – Deferred tax assets 35 22 Deferred tax liabilities comprise: Unrealised gains on investments 1 – Gross deferred tax liabilities 1 – Less: Offset against deferred tax assets (1) – Deferred tax liabilities – – Net deferred tax asset at 31 December 35 22 Movements in net deferred tax assets comprise: At 1 January 22 – Effect of change in accounting policy to IFRS 9 – 3 Amounts credited to profit or loss 15 21 Amounts charged to other comprehensive income (2) (2)
(b) Indemnities and guarantees 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).
New KPIs for FY 2019 No longer reported as a KPI
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.
R Metric used for executive remuneration in the proposed 2020 remuneration policy. See pages 83 to 84 for more information.
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.
 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.
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.
IFRS IFRS term 2019 £m £m £m £m £m £m £m
Fee based revenue 1,868 70 202 (9) – 2,131 Total income Adjusted operating expenses (1,395) (70) (1,355) – – (2,820) Total expenses Capital management (9) – – 9 – – – N/A Share of associates’ and joint ventures’ profit before tax 186 – (244) – (40) – (98)
Adjusted profit before tax from continuing operations 650 – (1,397) – (40) (787) Profit before tax Tax on adjusted profit (95) – 52 – – – (43) Total tax expense Share of associates’ and joint ventures’ tax (43) – – – 43 – – N/A Adjusted profit after tax from continuing operations 512 – (1,345) – 3 – (830)
Adjusted profit after tax 645 – 215 – 3 5 868 Profit for the year 2 Includes £228m loss on impairment of interest in associates.
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.
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.
Continuing operations Discontinued operations Total 2019 2018 2017 2019 2018 2017 2019 2018 2017 £m £m £m £m £m £m £m £m £m
Restructuring and corporate transaction expenses (407) (239) (162) – (264) (11) (407) (503) (173) Amortisation and impairment of intangible assets acquired in business combinations and through the purchase of customer contracts (1,844) (1,155) (138) – – – (1,844) (1,155) (138) Provision for annuity sales practices – – – – – (100) – – (100) Profit on disposal of subsidiaries – – – – 1,780 – – 1,780 – Profit on disposal of interests in associates 1,542 185 319 – – – 1,542 185 319 Reversal of/(loss on) impairment of associates 243 (228) – – – – 243 (228) – Investment return variances and economic assumption changes (25) 54 – – (41) 67 (25) 13 67
 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.
 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.
Adjusted profit before tax (Standard Life Aberdeen APM) 683 136 428 86 1 Four months ended 31 December 2018.
Adjusted profit after tax 469 512 Remove staff pension scheme returns (29) (21) Remove associates’ and joint ventures’ adjusted profit after tax (200) (143)
Total income recognised in the consolidated income statement per Note 34 (c) of the Group financial statements 40 36 Past service costs (included in adjusting items) (13) (15) Remove IFRS charge relating to schemes in deficit 2 –
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) 246 186
Share of associates’ and joint ventures’ adjusted tax expense – Note 2 (b)(i) (46) (43)
Share of associates’ and joint ventures’ adjusted profit after tax 200 143
Associates’ and joint ventures’ dividends received This information is disclosed in Note 16 of the Group financial statements. An analysis is provided below.
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.
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.
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.
9. Supplementary information continued 9.4 Assets under management and administration and flows Definition Purpose and changes
Closing AUMA at 31 Dec 2018 12 months ended 31 December 2018 £bn £bn £bn £bn £bn £bn £bn
9.4.2 Quarterly net flows by channel 3 months to 3 months to 3 months to 3 months to 15 months ended 31 December 2019 £bn £bn £bn £bn £bn
Private credit and solutions – – (0.1) (0.1) 0.1 – –
Closing AUM at 31 Dec 2018 12 months ended 31 December 2018 £bn £bn £bn £bn £bn £bn £bn
9.7 Analysis of total AUM 9.7.1 AUM by geography 31 Dec 2019 31 Dec 2018
Strategic insurance partners Wealth Total £bn £bn £bn £bn £bn £bn £bn £bn 1 Excludes assets under advice of £5.7bn at 31 December 2019.
 Amortisation and impairment of intangible assets acquired in business combinations and through the purchase of customer contracts
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.