Please remember that the value of shares can go down as well as up and you may not get back the full amount invested or any income from it. All figures and share price information have been calculated as at 31 December 2018 (unless otherwise indicated). This document has been published by Standard Life Aberdeen plc for information only. It is based on our understanding as at March 2019 and does not provide financial or legal advice.
IFRS profit after tax attributable to equity holders (including discontinued operations)
KPI Gold rating for service Wrap and Elevate 5 star rating for discretionary portfolio services Aberdeen Standard Capital and Parmenion
R Measure is a key input to a metric used for executive remuneration. See page 86 for more information.
1 Continuing operations excludes the UK and European insurance business. The sale of this business to Phoenix completed on 31 August 2018. 2 This report includes results for comparative periods on both a Reported basis and a Pro forma basis. See page 1 for details. 3 In accordance with IAS 33, earnings per share have not been restated following the share consolidation as there was an overall corresponding change in resources. As a result of the share consolidation and share buyback earnings per share from continuing operations for the year ended 31 December 2018 is not directly comparable with the prior year. Refer to Note 11 of the Group financial statements for information relating to the calculation of diluted earnings per share.
Canada phone 1‑866‑982‑9939 email questions@standardlifeaberdeenshares.com email fragen@standardlifeaberdeenshares.de email questions@standardlifeaberdeenshares.ca visit www.standardlifeaberdeenshares.com visit www.standardlifeaberdeenshares.com visit www.standardlifeaberdeenshares.com mail Standard Life Aberdeen Shareholder Services 34 Beckenham Road Beckenham Kent BR3 4TU
Our aim is to build a world-class investment company. We develop products and services for evolving client needs and create meaningful relationships with all of our stakeholders.
Governance 2. Board of Directors 52 3. Corporate governance statement 54 5. Directors’ remuneration report 81 6. Statement of Directors’ responsibilities 103
Integrating environmental, social and governance (ESG) factors The integration of ESG factors is fundamental to us both operationally and within our investment process. Details of our approach to ESG are integrated throughout this report, and in our Corporate sustainability report 2018 which can be found at www.standardlifeaberdeen.com/annualreport
Reported and Pro forma results The merger of Standard Life plc and Aberdeen Asset Management PLC (Aberdeen) completed on 14 August 2017, with the merger accounted for as an acquisition of Aberdeen by Standard Life plc on that date. Pro forma results for the Group are prepared as if Standard Life Group and Aberdeen had always been merged and are included for comparative periods to assist in explaining trends in financial performance by showing a full 12 months performance for the combined Group for all years. The difference between the Reported results and Pro forma results is the results of Aberdeen prior to completion of the merger.
Our results for 2018 includes our 19.98% share of the Phoenix results for the four months ended 31 December 2018. Comparative periods have not been restated and therefore Phoenix is not included prior to 31 August 2018 in either Reported or Pro forma results.
That opportunity is truly global. Our company is one of the world’s leading investment companies, with a strong presence in the UK, Europe and Asia Pacific, and importantly, developing capabilities in the Americas. There are, I believe, considerable opportunities and significant potential for future growth in all our markets, in particular in the UK and Asia Pacific. We are well positioned and I am confident that we can, through successful delivery of our strategy, capitalise on these opportunities going forward.
We have all the capabilities needed to recover from these setbacks, notably in research, in investment talent, through the depth and breadth of our product range, the diversity of our geographic footprint and most of all, our brand. The sale of our UK and European insurance business has also given us the capital strength to make significant capital returns to shareholders, invest in our businesses while we complete our transition, as well as providing capacity to maintain our dividend while this process completes. This capacity will be further augmented by the recently announced sale of shares in HDFC Life to facilitate achieving the Minimum Public Shareholding required in India.
Governance Over the past year, much has been done to reshape the Board, to ensure we have the right skills and experience to take our transformed business forward. In addition to the retirement of Sir Gerry Grimstone, we said goodbye to Kevin Parry OBE and Gerhard Fusenig, who both also stepped down from the Board at the end of last year. On behalf of the Board and shareholders I want to thank them both for their considerable contributions over many years.
This is a great company, with a great future, which I am proud to now be a part of. With a challenging year ahead, our priorities are improved investment performance, transformation and growth. I am confident that we have the talented people, the resources and the expertise to deliver on our potential. Sir Douglas Flint
Transformation and transition I would like to pay tribute to my predecessor, Sir Gerry Grimstone, who stepped down at the end of 2018. Over the last 11 years he led the Company through one of the most significant transformations in its near-200 year history. Taking on the Chairmanship a year after the company’s demutualisation, he steered the company successfully through the global financial crisis, constitutional change and largescale reforms to the UK pensions and savings markets. Beyond this, he led the re-shaping of the business through major acquisitions and disposals to create Standard Life Aberdeen as it is today. The merger with Aberdeen Asset Management and the sale of the UK and European insurance business to Phoenix in the last two years marked the culmination of the transformation to a capital-light, broad based, investment company.
Shareholder value is, of course, an important topic which I know is concerning to all of us. Our share price has not been where we would have wanted over the past year. Clearly there have been sectoral factors, outside our control, which impacted investor sentiment and therefore investment flows. This was driven in large part by geopolitical risks, including uncertainty over the form Brexit would take and trade tensions between the US and China. These factors contributed to the write-off of a portion of the goodwill recognised on the combination of Standard Life with Aberdeen Asset Management which is referred to in more detail on page 36. There have also been factors specific to ourselves, most notably investment performance in some of our larger strategies, which has led to significant outflows, as well as the notice given of termination of our asset management agreement with Lloyds Banking Group and Scottish Widows, which we have challenged.
Proposed dividend Having reflected on all the above, your Board is proposing a final dividend of 14.3p, the same amount as was paid at this stage last year. Assuming shareholders vote to approve this at the upcoming Annual General Meeting (AGM), this would give a total dividend for 2018 of 21.6p, up 1.4% on the year. It is the Board’s current intention that the total annual dividend per share should be held at this level while the business is transformed, cost synergies are delivered and future financial performance confirms the sustainability of this level of distribution and provides line of sight to its future growth.
Brexit and other geopolitical uncertainties This report is being delivered shortly ahead of the UK’s scheduled departure from the EU. We have two significant angles of interest in the Brexit outcome. First, in relation to the ability of our own business to continue seamless service to our clients and customers in any foreseeable scenario; and second, how the shape of Brexit will impact markets and the individual underlying stocks and debt instruments in which we are invested on behalf of the ultimate beneficiaries. We have accordingly been planning across the full range of scenarios under which the UK could leave the EU – including the possibility of leaving without a deal. So far as we are able, we have put in place measures intended to mitigate the impacts on our customers, clients and operations. In particular we have structured the activities and responsibilities of our Dublin and Luxembourg operations to allow us to continue to serve clients across Europe who require such services to be delivered from within the EU.
Stephanie Bruce is a highly experienced financial services practitioner with over 25 years sector knowledge of technical, reporting and commercial practices. She has been a partner in PwC since 2002 and a member of the Assurance Executive since 2016, leading the Financial Services practice for Assurance in the UK. We are delighted she is joining us.
As we continue work on our transformation it’s been a priority for us to focus on our culture. The success of our business is about our people, so we want to ensure the environment we work in is innovative, collaborative and inclusive; a place where people can flourish. This will help us set the foundation for delivering what our clients and customers need from us – today, tomorrow and for the longer term.
Q | How do you account for weaker investment performance? It's been a disappointing year for our investment performance, and our long-term investment approach is being tested by the market environment. More information on markets can be found on pages 24 to 25 and on our investment approach on page 19.
We received cash proceeds of £2.3bn from the sale (including a dividend from SLAL of £0.3bn) and generated an IFRS gain on disposal of £1.8bn. The proceeds enabled us to announce the substantial return of capital to shareholders of up to £1.75bn. We returned £1bn to shareholders by way of a ‘B’ share scheme in November 2018, and have made good progress on our share buyback programme, with £235m completed by the end of 2018.
The transaction also strengthens our existing strategic partnership with Phoenix. We’ve put in place long-term arrangements that allow us to collaborate across a number of areas, and under which we will be Phoenix’s asset manager of choice. The partnerships we choose are based on shared values and play a vital role in allowing us to reach clients across different markets. We believe that the enhanced partnership will continue to generate financial benefits for both ourselves and Phoenix.
Q | What is the role of asset managers in society? Finance is indispensable within a modern society. It provides funds to borrowers like businesses, start-ups and governments, and provides a way for savers to accumulate wealth and provide for their future. Asset managers are at the centre of this.
Q | Tackling climate change is a growing issue, how are you addressing the issue? We have been working to reduce our greenhouse gas emissions for many years, through tracking our consumption, improvements in building management, and encouraging our people to reconsider the need for air travel through technology solutions. Our greatest impact, however, is through how we invest our customers’ and clients’ money.
In support of the Taskforce for Climate-related Financial Disclosures (TCFD) recommendations, we’ve launched two Climate Change working groups. One group is focused on our investment approach across asset classes. The second group focuses on our operations such as our greenhouse gas emissions, reduction activities and TCFD implementation, and how we integrate these considerations into our risk processes.
We’ve also made commitments to renewable electricity. Operationally, we will procure 100% of our electricity in our global offices from renewable sources by 2020, and the real estate Aberdeen Standard Investments manages in the UK will be powered by 100% renewable electricity by 2020.
Q | How do you retain and attract talented people through change? The amount of change we have seen as a business can be unsettling for our people – and they are our greatest asset. So we’re working hard to create an inclusive culture and environment that enables them to work together effectively. With this motivation in mind, we asked our people to have their say in helping define our values and culture. The values we developed are central to how we will think and act as a business. They are outlined on page 9 and reflected throughout this report.
Q | What are your priorities for the business over the next year? We have three key priorities; improving investment performance, which I have touched on, growth which Martin discusses over the page, and transformation. Our transformation includes the merger integration, embedding our new operating model and separation activity.
Integration continues to move forward at pace, with delivery of synergies ahead of the original schedule. On the investment side, we have made considerable progress with our fund rationalisation – we have closed 14 funds, 3 umbrella funds and over 100 share classes in ongoing funds. We have returned over £11m of seed investment to enable new product launches and are harmonising features and suppliers across our fund ranges.
We’re focused on building our brand around the world. In 2018, we launched the first Aberdeen Standard Investments global marketing campaign, highlighting our investment capabilities across asset classes. We produced dedicated material and content in 11 languages to support our local teams. Aberdeen Standard Investments was also the global partner for the Ryder Cup in Paris, with an estimated 660 million households watching the TV coverage of this prestigious event.
Q | It’s been over a year since the merger, how has the company developed since then? There is still work to do to reshape our business but we are making good progress. We’ve co-located over 4,000 employees across 18 offices worldwide. Our people are central to our success so I’m pleased that we have retained talented colleagues through the integration and they understand the journey we are on.
The work we have done to combine our investment and distribution teams ensures they are well placed to manage and promote our diverse investment solutions, our adviser platforms and advice businesses. We've increased our global scale and are seeing the benefits through a more diverse pipeline of new business across the 27 countries where we operate.
Q | What has caused the high level of outflows in 2018? Net flows have been disappointing in a tough market but redemptions were concentrated in equities and multi-asset. Net outflows in equities reflected investment sentiment towards emerging markets and equity markets more generally, and both multi-asset and equities were also impacted by weaker investment performance.
Q | Can you provide an update on the dispute with Lloyds Banking Group/Scottish Widows? On 15 February 2018, we announced that Lloyds Banking Group (LBG) and Scottish Widows had sent Standard Life Aberdeen (SLA) a notice on 14 February to terminate the long-term asset management arrangements between them (IMAs) covering, in aggregate, around £109bn of AUM at the end of a 12 month notice period.
However, as a result of the merger and through the action we’ve taken to reshape our business, we believe that the Company is well placed to benefit from our broader range of capabilities.
Q | What are ‘new active’ investments and why are they central to the growth strategy? ‘New active’ strategies typically invest in private markets, alternatives, active specialities and solutions, and are designed with a focus on meeting clients’ evolving needs. The main difference between ‘new active’ and traditional active asset management is the focus on outcomes instead of benchmarks. It’s also about looking at where the opportunities are – beyond ‘core’ classes like equities and fixed income and into more specialist sectors like infrastructure.
The size of this sector has more than doubled in just ten years so the demand is there. To be successful though, does take significant expertise and insight. That’s where I believe we have a competitive advantage and why it’s core to our strategy, because we have the talent to design and deliver compelling propositions and the scale to market them effectively around the world.
Q | What are your plans for growing the company? In the UK, we want to keep growing assets through our leading adviser platforms – Wrap, Elevate and Parmenion, which continue to benefit from changes in pensions legislation, and our 1825 advice business.
We also continue to broaden our capabilities across our global networks. Our new joint venture with Investcorp will target social and core infrastructure investment projects in Gulf Cooperation Countries and our acquisition of Orion Partners will expand our direct real estate capabilities into Asia.
In the UK savings market we have three leading adviser platform businesses: Wrap and Elevate which are Standard Life branded, and the Parmenion digital platform. These platforms give us important access to retail customers. Following the Phoenix transaction, Wrap and Elevate remain part of our business and we maintain the relationships with advisers, while certain products on these platforms are now provided by Phoenix. Parmenion provides integrated discretionary investment management, platform services and intuitive technology to financial advisers.
We have important strategic investments in leading companies in two of the world’s most dynamic markets: India and China. These businesses represent substantial potential and provide valuable insight. In India, our stakes in HDFC Asset Management and HDFC Life represent a foothold in one of the world’s fastest growing markets. Our joint venture in China, Heng An Standard Life (HASL), gives us potential access to one of the biggest pools of financial assets globally and the possibility of playing a significant role as the pension market develops.
A modern, dynamic global business which has the talent, scale and high-performing investment solutions to compete against the leading asset management companies across the world.
Enhancing our operations Helping our people be more productive, simplifying our ways of working and managing our costs effectively enables us to invest for growth.
Innovating for the future Investing in leading edge capabilities helps us attract clients and customers, enhance relationships and develop smarter ways of working.
Aberdeen Standard Investments products and innovative solutions are offered across a diverse range of asset classes, either directly to institutional clients, or to wholesale clients such as private banks and third party investment platforms. It is a global brand that brings us close to our clients and the markets in which we invest. As an investment house, we are truly diversified and committed to active management. Our wealth business, Aberdeen Standard Capital, provides discretionary investment management to high net worth individuals. Further detail on our investment capabilities and asset management distribution is included on pages 18 to 19.
1825, our financial advice business, has continued to build a national presence across the UK and offers customers a full financial planning and personal tax advice service. We are also developing a digital capability to provide planning and advice in areas of the market where people do not already have easy access to advice.
We do it to make a difference. To our clients, the lives of our customers, our people and our shareholders.
Deliver what matters We relentlessly focus on delivering outcomes that truly matter to our clients and customers. We build trusted relationships.
Client and customer centricity Our primary focus is delivering for our clients and customers – this means working to understand and meet their needs while building lasting partnerships.
Read more about our strategic objectives which have been revised to reflect the new shape of our business and our priorities for the future on pages 26 to 27.
We aim to deliver innovative solutions and achieve better long-term investment outcomes for our clients and customers, through a combination of local market knowledge and global oversight. Our capabilities span a broad range of markets, asset classes and strategies.
Our ability to deliver for clients relies on having people with the right skills and knowledge, drawn from diverse backgrounds and experiences, and encouraging a collaborative approach to getting results. As well as ensuring our people are engaged and rewarded appropriately, we offer a range of personal development opportunities to help progress their skills, knowledge and careers.
Our UK savings business includes our Wrap, Elevate and Parmenion adviser platform businesses, and our financial advice business 1825.
We believe that we can generate attractive returns for shareholders through the development of deeper relationships and the growth potential of these businesses.
We aim to grow assets by offering investment capabilities, products and solutions that meet the needs of new and existing clients.
Our investment performance and market movements also impact our level of assets.
Revenue is primarily generated from the management and administration fees we charge based on the value of the assets we look after for clients and customers.
Increasing assets, growing revenue and lowering unit costs enables us to drive our profit and cash flow that allow us to further invest in growing our business.
Our simple business model is designed to create value and deliver long–term sustainable benefits to all our stakeholders – including our clients, our people and also to wider society.
One of our priorities in taking the right actions for our business is listening to our people’s views – particularly in light of the changes that we’ve made to our company since 2017. We create opportunities for dialogue, both face to face and through the use of technology, connecting employees across the globe, providing input to a range of strategic and operational initiatives.
Our clients and customers come from diverse backgrounds and have different cultural and societal experiences. In order to meet their needs, we need to reflect this diversity. That is why we focus on being an inclusive workplace – we believe that celebrating the diversity in our business brings us closer to our clients and customers and each other.
Read more about our people and culture on pages 28 to 29.
…across the globe We have operations in the world’s financial capitals as well as in important regional centres. This brings us closer to our clients and customers, and provides invaluable knowledge and insight to share with colleagues around the globe.
Market opportunities The size of the combined retail, wholesale and institutional markets in the UK is estimated at around £5.1trn. In the retail market, our longterm strategic partnership provides potential access to the enlarged Phoenix Group’s c10 million customers. We will invest in our products and services to meet demand and maximise the potential of such a large market. We will also focus on offering investors access to lowcost multi-asset solutions, supported by the launch of our MyFolio Index range.
2018 highlights • Secured a regulatory licence in Ireland to operate as an EU MiFID
investment firm responsible for eight branches in Europe – our team in Dublin is responsible for this activity
• The top three mandate wins by the EMEA sales team during the year were in Emerging Market Equities, Credit and European Real Estate, totalling £1.3bn
Overview We offer a diverse range of solutions and our Aberdeen Standard Investments brand has one of the broadest footprints compared to its competitors across the region.
We expanded our teams in Japan and China, which are two of our target markets. We promoted our enhanced broader range of skills across the territories where we operate. In early 2019, we announced two strategic investments. The first, a minority stake investment in Singapore Life, the first fully digital life insurer in Singapore and, second, the acquisition of Orion Partners, a real estate manager with an enviable track record in three of Asia’s most developed markets.
Overview We saw continued demand for our investment solutions in this region during the year. As a non-domestic brand, this is a positive sign of how well the Aberdeen Standard Investments brand is viewed. As part of our integration work in the region, teams worked across functions to increase the levels of co-operation and collaboration, share best practice and optimise the use of our client management technology to drive insight and actions.
• Significant work to reorganise US team to better serve clients
UK 78% Europe, Middle East and Africa 10% Asia Pacific 3% Americas 9%
In 2018, we accelerated the pace of innovation with the launch of 32 funds (2017: 22 funds). In addition, we currently have around 20 funds that are in the later stages of development. For example, we’re developing two new products for our ‘Liability Aware’ programme which are due to launch in 2019. This is a continuous programme of development between various asset class and product teams, to provide a range of options that suit small to mediumsized pension fund clients.
Adapting effectively, operating efficiently As well as seeking new, diverse investment opportunities, we aim to make sure that our business continues to adapt to make the most of these.
We believe digital advice is key to the future of retirement planning, especially in the UK, where the percentage of those reaching age 65 is expected to continue to rise. We are developing a dedicated digital advice proposition to develop new, efficient ways to meet our customers’ retirement planning needs.
To achieve this, we draw on our talented people, deep knowledge of local markets and coordinated global oversight – combined with a commitment to embedding Environmental, Social and Governance (ESG) factors across each asset class.
Equities Disciplined, high-conviction, fundamental investment aims to deliver superior outcomes for clients
• Active engagement and effective analysis of ESG issues mitigate risks and identify companies most likely to outperform over the longer term > 140 investment professionals 10 countries Global team presence Two complementary investment approaches
• Long track record of delivering targeted and local solutions to meet specific client goals and objectives > 140 investment professionals 11 countries Global team presence Client driven outcomes
• Scale and experience to provide a multi-asset solution to meet a range of client needs and priorities
Fixed income Our approach is based on research-driven, team-based active management
• One of the top 10 largest managers of private markets assets globally (includes real estate assets)
• Long track record of managing private markets portfolios > 105 investment professionals 10 countries Global team presence Top 10 – Global private markets ranking 1 Excludes strategic insurance partners.
Our distribution Through our global network of offices, the role of our distribution team is to access potential investors and develop trusted, longterm relationships founded on high-quality client service. We have a targeted approach to growth by concentrating on distributing Aberdeen Standard Investments’ products in the markets where we have a strong track record. Distribution of our products is supported by the promotion of the Aberdeen Standard Investments brand through a co-ordinated series of local and regional brand awareness initiatives and sponsorship opportunities.
In the institutional market, we are a chosen investment partner of pension funds, insurers, sovereign wealth funds, governments and local authorities, charities and financial institutions, providing both pooled and segregated investment management.
In the wholesale investment market, we support wealth managers, private banks and financial advisers, as well as making our investment products available directly to private investors. We also offer investment solutions to private investors via our wealth management channel.
• Outcome orientated portfolios that use a disciplined and proven research-driven investment process
• Well established and long-term track record with demonstrated ability of adapting to ever changing market conditions > 270 investment professionals 11 countries Global team presence Leading global rankings in real estate sustainability benchmark
• Provide clients with products and solutions that are customised to their needs
• Open-innovation approach focuses on collaboration with world-class partners > 30 investment professionals Experienced team formed in 2005 Multifactor investment approach to drive improved returns
Cash/liquidity We offer bespoke solutions to meet specific client liquidity and yield objectives
> 10 investment professionals Portfolio managers in Edinburgh, London and Philadelphia Key player in the liquidity market
Our process enhancement plans aim to improve performance while remaining true to our investment style. They focus on idea generation, capture and implementation. Actions we have taken include: • Investment in new talent and enhanced risk analytics tools
• Creation of a new Performance and Investment Review Committee to strengthen review processes
• Establishment of our research platform with appointed heads of research, and creation of a research institute to inform our macro and longer-term thematic house views
In addition, five of our real estate funds were awarded ‘five star’ status by the global sustainability benchmark GRESB for reaching significant environmental targets, placing us in the top 20% of our peers. Three of our funds achieved the highest ESG performance of their peer group.
Understanding our clients and customers We develop relationships with our clients and customers based on mutual trust and our ability to effectively meet their needs. We focus on understanding what they want and put that at the centre of our decision making.
We also continue to engage with our adviser platform users and regularly monitor customer satisfaction. Our Board receives regular updates on both satisfaction and complaints data.
How we engage In November 2018, we conducted a company-wide employee survey. 69% of our people responded, giving us their views on our strategic direction, the impact of transformation, and confidence in our leaders. The survey results are discussed on page 28.
We ran company-wide workshops in 2018 to ask our people to help shape our culture and values.
Understanding our role in wider society As a global investment company we have a responsibility in terms of the influence we can have on our industry, our supply chain and wider society. We take these responsibilities seriously and we are proud to serve the communities in which we operate.
We actively engage with all material suppliers and take part in regular oversight, monitoring and feedback with them, up to and including at chief executive level. We aim to ensure all suppliers are paid promptly.
Stakeholder interests at the heart of the SLAL sale and our strategic partnership with Phoenix
For it to be a success, we knew that the sale and our partnership would need to work for all our stakeholders.
In the long term, we considered that the deal would be good for transferred and retained employees, as the partnership offered new and exciting opportunities going forward. However, we recognise that it has and will create shorter-term uncertainty.
The enhanced partnership with Phoenix and sale of SLAL facilitated our new operating model and we expect this to enable significant cost savings. The sale also enabled the delivery of the significant capital return to shareholders.
The Directors are fully aware of their responsibilities to promote the success of the company in accordance with s172 of the Companies Act. The content on stakeholder engagement on pages 22 to 23 and business practices on pages 48 to 49 highlight key actions in this area.
Understanding our shareholders The support and engagement of our shareholders is imperative to the future success of our business. We have a productive ongoing dialogue with both large investors and retail shareholders. Our aim is to provide best-in-class service and relevant, timely communications. We believe that maintaining our reputation for high standards of conduct is not just doing the right thing, but something that builds value for our shareholders.
How we engage We are in touch with our shareholders at least three times a year with information about shareholder meetings, dividend payments, and financial results.
Shareholders can view and manage their holdings using our online share portal, and can also download the Standard Life Aberdeen investor app for share price information, press releases and regulatory news.
We have a programme of regular meetings with institutional investors and analysts around the world, to understand their views and address any concerns.
• Strong track record of reacting and adapting to changes in our markets
• Ability to respond through innovation in key areas of growing client demand
• Scale to meet expected growth in demand for advice and platforms in the UK
• Formal plans in place to improve investment performance for absolute return and equities, with recent improvement seen in emerging market equities
• Track record of product innovation across a broad range of asset classes
• Strong pipeline of innovative ideas across region, channel, asset class and outcome
• Market-leading UK adviser platform business with over £59bn of assets under administration
• Expanding national financial planning and advice business 1825, acquiring two IFA firms in 2018
• Targeting annualised cost efficiencies of at least £350m to be achieved by end of 2020 with £175m already implemented. 2018 results benefited by c£120m with further benefit to come
• Announced a simplified operating model, providing platform for growth and increased efficiency
A year of challenging market conditions Across global markets, some of the positive drivers from 2017 reversed and a number of potential risks we had identified at the start of last year did become reality. The US equity market outperformed most other developed markets, assisted by above-trend growth in the US economy and tax cuts, however December was an exceptionally poor month. There was rotation within equity markets in terms of which sectors performed best. Defensive sectors like healthcare and utilities took the lead, while energy and financials were the hardest hit. Large technology stocks faced a perfect storm of stretched valuations, slower subscriber/revenue growth, data breaches and increased regulatory scrutiny. Credit markets in the US and Europe – in lower-risk investment grade bonds and higher-risk high yield bonds – achieved negative annual returns. Despite risk aversion, over the year as a whole only a few sovereign bond markets, such as Germany, achieved positive returns.
Barriers to market growth Rising US interest rates and a strong dollar, accompanied by rising oil prices and geopolitical factors, were significant barriers to emerging market growth. China, a key global driver in recent years, signalled a transition in its growth as it embarked on a deleveraging campaign to reduce debt. This, combined with US tariffs, caused negative sentiment in Chinese equity markets which spread to other emerging markets.
Responding to the changing investment landscape Despite the challenges we faced in 2018, we are a resilient business, committed to our purpose. We remain well-positioned to continue benefiting from the trends that shape the global savings and investments landscape.
Our response Our focus on active investment management helps us to meet the growing demand for outcome-oriented products. Following the sale of our UK and European insurance business to Phoenix, we have retained our fast-growing, market-leading adviser platforms, as well as our wholly-owned financial advice business, 1825, to meet the growing demand for financial advice from individuals. These channels will remain important to our retail growth strategy in the UK. Our shareholding in Phoenix means we also retain a significant presence in the UK pensions and savings market.
Our response As long-term investors we take our stewardship responsibilities very seriously. We engage with businesses, governments and regulators to improve the efficiency and relevance of capital markets and the sustainability of returns they deliver. We completed a programme of work to meet the requirements of MiFID II – a 2018 EU directive that aims to improve transparency in how financial market participants operate. The processes put in place are now part of our business as usual operations.
We offer investment strategies that aim to provide a social as well as a capital return, by reflecting society’s concerns about issues like fair employment, environment, inequality and sustainability. A practical example of this is our Global Equity Impact Fund, which invests in companies that aim to generate measurable positive social and environmental impact alongside financial returns.
Our response Our ability to innovate is crucial to ensuring that we can continue to meet customer and client needs. We’ve put in place a Collective Investment Technology Solutions team to support how we deliver to retail, wholesale and institutional clients globally. Artificial intelligence processes are also helping us to identify sources of potential returns within our investment portfolios, and to develop our digital advice capabilities in the UK.
Managing cyber security is about more than having the right IT systems and software in place. As part of our Cyber Awareness Week, we highlighted to employees their responsibilities and steps they can take to be more secure, resilient and vigilant in this area.
Our response ‘New active’ is likely to play a major role in building long-term relationships with clients and meeting their growing demands for more variety and choice. We are already one of the leading companies in private markets/alternatives globally and we continue to make significant investment in designing innovative outcome focused funds.
Our primary focus is on delivering for our clients and customers. It means working to understand their evolving needs, and using that knowledge to innovate and improve our products and services. We continually look to develop new relationships across the globe, to provide trusted expertise and build lasting partnerships.
• Investment performance was mixed in 2018 – see the Chief Financial Officer’s overview on page 33 for details
• Refreshed our distribution strategies, bringing more consistency and discipline to our relationship and client teams globally
We’re helping our people be more productive, by simplifying and improving our ways of working and creating a collaborative, insight-driven culture to ensure we deliver a world-class service. Through enhanced technology our business will be more agile, flexible and scalable. The systems, processes and external service providers we use will be efficient and help us manage costs, allowing us to invest for growth.
• Sale of our UK and European insurance business to Phoenix completed transformation to a fee based, capitallight business
• Delivered further annualised cost savings bringing total delivered to £175m with actions including
– Over 4,000 of our people co-located as part of our estate optimisation
The ways in which people invest and save continues to evolve. Clients and customers want a diverse range of products that meet their needs and generate positive investment outcomes through a modern technology-enabled experience. Investing in innovative, leading edge capabilities gives us the potential to attract a wider range of investors, enhance existing relationships and develop smarter, more effective ways of engaging with them.
• Completed IPO of HDFC Asset Management in August 2018, generating approximately £180m from the sale of part of our stake, supporting further reinvestment in our business
• Extended and enhanced strategic partnership with Phoenix, providing further opportunity for future growth
• New advertising campaign for Standard Life in the UK targeting improved brand sentiment and product association 26 Standard Life Aberdeen 2018
2018 Defaqto Gold rating for service Wrap and Elevate 2018 Defaqto 5 star rating for discretionary portfolio services Aberdeen Standard Capital and Parmenion
• Develop our private markets offering by working with clients, delivering innovative solutions and generating performance through diversified and connected capabilities
• Leverage strategic partnership with Phoenix to grow retail business and access new customers
• Launch of proposed joint venture with Virgin Money, anticipated Q2 2019 • Pursue our structured programme to seek further opportunities to grow and diversify our business, including by selective bolt-on acquisitions • Drive accelerated growth and increase flows through our platform business through our new Professional Portfolio Manager capability, the launch of auto-tailoring Individually Managed Accounts and the competitive repositioning of Elevate 1 Percentage of AUM ahead of benchmark. 2 KPI. 3 From Continuing operations.
We offer three days’ paid leave to each employee to encourage our people to volunteer in their local communities – making a difference and learning new skills. 15,118 hours of volunteering took place in 2018. As part of our global volunteering day in 2018, over 400 employees around the world took part in activities to support initiatives in the communities we operate in. In Scotland, we are supporting and funding The Big Issue Invest ‘Power Up Scotland’ programme to help early stage social enterprises tackling issues, like homelessness, food poverty, unemployment and care for the elderly. A number of our people have been involved in coaching social enterprises for a period of three months, providing expertise to help develop their business models. In the UK, we also partner with the charity Career Ready, which connects young people with the world of work.
Amanda Young, Global Head of ESG Research and Craig Macdonald, Global Head of Fixed Income join John Montague, Managing Director at Big Issue Invest and Ben Macpherson MSP for the launch of Power Up Scotland.
Defining our desired culture There has been a significant amount of work across the organisation to identify the best attributes of our existing culture and to understand what we need our culture to be in order to realise our vision and to deliver our strategy.
An important aspect of nurturing our culture is articulating our values. Around 1,800 of our people took the opportunity to co-create and shape our values using several feedback channels. Their input was an essential part in defining values that underpin our strategy and help us deliver great outcomes for clients and customers.
Measuring employee engagement In 2018 we ran a full engagement survey for all employees, to help us understand how it currently feels to work for us, how our people would like this to feel in the future, and what action our company needs to take. 69% of our employees responded to the survey. The results reflect that recent company change has been difficult for colleagues – but provide an important baseline from which to build and improve, and help us to identify the main areas we need to focus on.
The responses gave us an overall engagement score of 56%. This represents the average score that employees gave for questions measuring advocacy, pride, motivation and job satisfaction. The main themes that emerged from the survey included the need to improve how we communicate our strategic direction to employees, and how we minimise the factors that can prevent people from doing their jobs as effectively as possible. Positive views centred on how our managers lead through change, colleagues feeling able to be themselves at work and our continued focus on inclusion.
Our gender pay gap remains high but we know that improving our gender balance and reducing our gap will take time and enduring focus. Through increased transparency and communication since our publication of Year 1 gender pay and bonus information, we are building momentum for change across the organisation.
A strategic approach to improving inclusion Building a diverse talent pipeline and understanding our people's needs help us respond to changing client demands, deliver valuable insights, and fulfil our strategic objectives.
Putting inclusion into action During 2018, we made good progress in a number of important areas that contribute to creating a more inclusive workplace.
We were one of the founding signatories of the Race at Work Charter which commits organisations to tackling barriers that ethnic minority people face in recruitment and progression. As part of delivering on our commitments we launched our ethnic diversity action plan, and continued our work with external organisations that help to provide employment opportunities to ethnic minority young people. These include the Taylor Bennett Foundation, The Prince’s Trust, and Sponsors for Educational Opportunity (SEO) London.
We partner with a number of charities to open up employment and internship opportunities for young people from all backgrounds. These include The Prince’s Trust, Investment 2020 and Career Ready. We have also signed up to the Social Mobility Pledge, a cross-party campaign to improve social mobility across the UK.
The gender pay gap This is the first year we have reported a Standard Life Aberdeen gender pay gap. As at April 2018, our mean gender pay gap was 40% and our mean gender bonus gap was 69%. Last year we shared separate data sets for Standard Life and Aberdeen Asset Management, as these were calculated before the merger. However, even without being able to compare directly to last year, there is little material change in our gender pay gap for this year.
Our pay gap is primarily the result of our workforce structure, with a higher number of men in senior roles – the roles that attract higher salary and bonus potential – and a higher number of women in junior, lower paid roles.
You can read our full gender pay gap disclosure, analysis and what we are doing to tackle our gender pay gap in our report on our website www.standardlifeaberdeen.com/annualreport
To demonstrate progress in developing our talent pipeline we will continue to track the gender balance in our succession pool, for those ready for our most senior roles within the next three to five years. At January 2019, women made up 56% of named individuals on the succession list for these roles.
Our results for 2018 includes our 19.98% share of the Phoenix results for the four months ended 31 December 2018. Comparative periods have not been restated and therefore our share of Phoenix is not included prior to 31 August 2018 in either Reported or Pro forma results.
We have delivered a resilient performance against a challenging industry backdrop and weak investor sentiment.
Cost/income ratio1 68% 71% 70% Assets under management and administration (AUMA)1 £551.5bn £608.1bn Gross inflows1 £75.2bn £72.4bn Net outflows1 (£40.9bn) (£32.9bn) Investment performance – 3 years3 50% 63% Full year dividend per share 21.6p 21.3p
IFRS (loss)/profit before tax1 (£787m) £438m IFRS profit after tax attributable to equity holders £830m £699m Diluted earnings per share2 29.1p 29.6p 1 Continuing operations excludes the UK and European insurance business. The sale of this business to Phoenix completed on 31 August 2018.
2 In accordance with IAS 33, earnings per share have not been restated following the share consolidation as there was an overall corresponding change in resources. As a result of the share consolidation and share buyback earnings per share from continuing operations for the year ended 31 December 2018 is not directly comparable with the prior year. Refer to Note 11 of the Group financial statements for information relating to the calculation of diluted earnings per share.
IFRS profit after tax attributable to equity holders of Standard Life Aberdeen plc increased by 19% to £830m mainly as a result of the £1,780m gain on sale of the UK and European insurance business. Partially offsetting the gain on sale is an £880m impairment of the Aberdeen Standard Investments goodwill, which reflects an appraisal of the asset based on the prevailing market conditions at 31 December 2018 and excludes future merger synergy benefits.
Assets under management and administration (AUMA) and net flows We have the scale and global reach to offer a broad range of investment capabilities with total AUMA of over £550bn. AUMA fell 9% in 2018 due to net outflows and adverse market movements.
Institutional 166.7 192.5 Wholesale 72.5 86.6 Wealth/Digital 10.9 11.2 Strategic insurance partners 255.0 271.8 Total assets under management 505.1 562.1 Retail – Wrap and Elevate 54.2 54.0 Eliminations (7.8) (8.0) Total AUMA 551.5 608.1 1 Following the sale of the UK and European insurance business, AUMA has been restated to exclude associates, joint ventures and SL Asia and is only presented on a continuing operations basis. Comparatives shown on a Pro forma basis.
AUMA decreased by 9% to £551.5bn (2017: £608.1bn) as a result of asset management net outflows and adverse market movements.
AUM managed for our strategic insurance partners, which includes Phoenix, decreased by 6% to £255.0bn (2017: £271.8bn) mainly due to adverse market movements of £11.3bn.
Retail – Wrap and Elevate Retail comprises our Wrap and Elevate platforms. Assets under administration remained flat in 2018 at £54.2bn (2017: £54.0bn), with net inflows of £4.2bn (2017: £7.0bn) largely offset by adverse market movements of £4.0bn.
These platforms offer customers access to a wide range of investment capabilities including over 5,000 in-house and third party mutual funds. Of Wrap and Elevate assets, 14% are managed by Aberdeen Standard Investments.
Building our advice capability Assets under advice in 1825 increased to £4.0bn (2017: £3.6bn) during the year as we continue to build scale and aim for nationwide coverage in the UK. Following completion of a further two acquisitions this year, we now have 80 financial planners across 14 locations providing face-to-face and over the phone advice to in excess of 9,000 clients. Only the proportion of assets under advice that are held on our platforms are included in Retail assets under administration above.
Total asset management 69.0 64.4 (44.9) (39.4) Retail – Wrap and Elevate 8.5 10.7 4.2 7.0 Eliminations (2.3) (2.7) (0.2) (0.5) Total 75.2 72.4 (40.9) (32.9) 1 Following the sale of the UK and European insurance business, AUMA has been restated to exclude associates, joint ventures and SL Asia and is only presented on a continuing operations basis. Comparatives shown on a Pro forma basis.
Our strategic insurance partners gross inflows increased by 83% to £28.6bn as we benefited from additional assets secured from Phoenix under our enhanced strategic partnership, including two fixed income bulk annuity mandates. Strategic insurance partners net outflows reduced by £9.7bn to £5.5bn (2017: £15.2bn) reflecting redemptions from maturing insurance business in long-term run-off, partially offset by the higher gross flows.
The investment performance calculation covers 81% of total AUM. Further details about the calculation of investment performance are included in the Glossary.
The performance results of our investment capabilities and their underlying investment processes are actively monitored and independently evaluated by our Investment Governance and Oversight team.
Fee based revenue 1,868 2,099 1,447 Adjusted operating expenses (1,395) (1,551) (1,084) Adjusted operating profit 473 548 363 Capital management (9) 13 13 Share of associates’ and joint ventures’ profit before tax 186 99 99 Adjusted profit before tax from continuing operations 650 660 475 Adjusted profit before tax from discontinued operations 210 379 379 Adjusted profit before tax 860 1,039 854 Total adjusting items 122 (40) Share of associates’ and joint ventures’ tax expense (40) (41) Profit attributable to non-controlling interests (preference shares and perpetual notes) (33) (8) Tax expense (79) (66) Profit for the year attributable to equity holders of Standard Life Aberdeen plc 830 699
Profitability Adjusted profit before tax from continuing operations of £650m was 2% lower than 2017 on a Pro forma basis and included the benefit of our share of Phoenix adjusted profits from 1 September 2018. IFRS profit attributable to equity holders of Standard Life Aberdeen plc increased by 19% to £830m mainly as a result of the £1,780m gain on sale of the UK and European insurance business, partially offset by an £880m impairment of the Aberdeen Standard Investments goodwill intangible asset.
Adjusted profit before tax from continuing operations Analysis of adjusted profit before tax from continuing operations
Asset management and platforms 510 602 417 Insurance associates and joint ventures 140 58 58 Adjusted profit before tax 650 660 475
On a Reported basis, adjusted profit before tax in the Asset management and platforms segment increased by £93m compared to 2017 primarily due to the inclusion of a full year’s profit from Aberdeen in 2018 compared to four months profit in 2017.
Asset management and platforms includes the results of HDFC Asset Management, our associate asset management business in India. Our share of adjusted profit increased to £46m (2017: £41m) and the value of our shareholding in this business at 11 March 2019 was approximately £1.0bn. Our percentage ownership at 31 December 2018 was 29.96% (2017: 38.24%).
Based on the closing share price at 11 March 2019, the approximate value of our shareholding in Phoenix was £1.0bn and in HDFC Life £2.5bn (based on the value of our shareholding prior to announcement of the offer for sale described above). Combined with HDFC Asset Management, this gives a total value of our shareholdings in listed associates of approximately £4.5bn.
Equities 86.3 98.1 578 666 66.9 67.9 Fixed income 46.9 49.0 130 144 27.7 29.4 Multi-asset 65.4 74.7 350 432 53.6 57.7 Private markets 15.8 16.7 68 84 43.1 50.7 Alternatives 10.5 7.1 18 12 17.4 16.9 Real estate 28.9 29.2 154 159 53.2 54.4 Quantitative 2.1 2.2 3 3 12.2 12.1 Cash/Liquidity 17.3 19.1 14 14 8.0 7.4 Institutional/Wholesale1 273.2 296.1 1,315 1,514 48.1 51.1 Strategic insurance partners 265.0 271.1 347 372 13.1 13.7 Retail – Wrap and Elevate 55.6 49.2 142 129 25.6 26.2 Eliminations (7.9) (7.2) N/A N/A N/A N/A Group fee revenue yield 585.9 609.2 1,804 2,015 30.8 33.1 SL Asia 12 12 Retail advice and other2 43 46 Performance fees 9 26 Group fee based revenue 1,868 2,099 1 Includes Wealth/Digital. 2 Includes 1825, Focus and Threesixty.
Fee based revenue Fee based revenue reduced by 11% to £1,868m (2017: £2,099m) reflecting the impact of net outflows in 2017 and net outflows and adverse market movements in 2018. In the asset management business the reduction in revenue was concentrated in the equities and multi-asset asset classes. Performance fees represent less than 1% of total revenue at £9m (2017: £26m).
The cost/income ratio, which includes our share of associates’ and joint ventures’ profit, improved to 68% (2017: 71%) including the benefit from our share of Phoenix profit in 2018.
Total implementation costs incurred since the completion of the merger are £222m and we expect these to remain in line with the previous estimates of approximately £430m in aggregate to deliver the £350m annualised cost savings.
Capital management Capital management resulted in a loss of £9m (2017: profit £13m) mainly due to the impact of markets on pooled investment fund holdings. The net interest credit on the UK pension scheme surplus was £29m (2017: £30m). Interest expense on debt was £45m (2017: £59m) reflecting the $750m debt issued in October 2017 and the redemption of a more expensive $500m bond in March 2018.
IFRS profit (2017 on a Reported basis) IFRS profit attributable to equity holders of Standard Life Aberdeen plc increased by 19% to £830m mainly as a result of the £1,780m gain on sale of the UK and European insurance business.
IFRS loss before tax from continuing operations was £787m (2017: profit £438m) mainly due to a £1,397m loss from adjusting items (2017: profit £4m). This was partly offset by the inclusion of a full year’s adjusted profit from Aberdeen in 2018.
The profit on disposal of interests in associates of £185m includes £177m relating to the IPO of HDFC Asset Management which completed on 6 August 2018. As part of the IPO we reduced our holding from c38% to c30% for a total net consideration of £180m. 2017 included £302m from the sale of 5.4% of the shares in HDFC Life as part of its IPO in November 2017.
Restructuring and corporate transaction expenses were £239m (2017: £162m), mainly comprised of integration and merger related costs of £191m (2017: £109m). Further details on restructuring and corporate transaction expenses are provided in the Supplementary information section.
The amortisation and impairment of intangible assets acquired in business combinations and through the purchase of customer contracts increased to £1,155m (2017: £138m) mainly due to the £880m impairment of the Aberdeen Standard Investments goodwill intangible asset. This reflects future cash flows which assume that the lower market levels seen at 31 December 2018 prevail for the longer term and which, as required by IAS 36, exclude future merger synergy benefits. Further details are provided in Note 14. 2018 also includes a full year’s amortisation charge on the intangible assets recognised as a result of the merger. 2017 included an impairment charge of £40m relating to the Lloyds Banking Group customer relationship intangible asset with no further charge in 2018.
Investment return variances and economic assumption changes of £54m relates to our share of Phoenix adjusting items. Refer to Note 12 of the Group financial statements.
See pages 119 and 145 for further details on adjusted profit and reconciliation of adjusted profit to IFRS profit.
Adjusted cash generation from continuing operations (2017 on a Pro forma basis) This measure provides insight into our ability to generate cash that supports further investment in the business and the payment of dividends to our shareholders. Adjusted cash generation decreased to £453m (2017: £505m), due to the impact of lower asset management profits, partly offset by a dividend of £33m received from Phoenix in 2018.
Profit from discontinued operations Discontinued operations relates to the UK and European insurance business which comprised Spread/risk, Europe, Workplace and nonplatform elements of our Retail business. We successfully concluded the sale of this business to Phoenix on 31 August 2018 and recognised a gain on sale of £1,780m. Profitability in 2018 therefore only includes the result for the 8 months to 31 August 2018.
IFRS profit after tax attributable to equity holders from discontinued operations was £1,665m (2017: £297m). The result benefited from adjusting items of £1,519m (2017: loss £44m) which primarily related to the gain on sale of £1,780m. 2018 also benefited from a held for sale accounting adjustment of £44m relating to the amortisation of intangible assets (primarily deferred acquisition costs) and depreciation of tangible assets. Following the classification of the UK and European insurance business as held for sale on the announcement of the transaction on 23 February 2018, no further amortisation or depreciation was recognised. This increase to profit was classified as an adjusting item. These positive adjusting items were partially offset by £198m (2017: £nil) relating to the redemption of our tier 1 subordinated bonds, separation costs of £53m and losses from investment return variances and economic assumption changes of £41m (2017: profit £67m), primarily relating to credit spread widening in 2018 compared to narrowing in 2017.
Further details on adjusting items from discontinued operations are provided in the Supplementary information section.
Tax expense from continuing operations (2017 on a Reported basis) The total IFRS tax expense attributable to the profit for the year from continuing operations was £43m (2017: £28m) including a credit of £52m (2017: credit £49m) relating to adjusting items. The effective tax rate on total IFRS profit is (5.5%) (2017: 6.4%). The main factors that have caused there to be a tax expense whilst there is an IFRS loss before tax are: • Impairment losses on intangible assets are not tax deductible • Loss on impairment of interest in associates is not tax deductible • Costs which are not deductible for tax purposes • Deferred tax assets have not been recognised on tax losses in some jurisdictions in which we operate
Total tax contribution from continuing operations Total tax contribution is a measure of all the taxes the Group pays to and collects on behalf of governments in the territories in which we operate. Our total tax contribution for continuing business was £538m. Of the total £218m was borne by Standard Life Aberdeen Group whilst £320m represents tax collected by us on behalf of the tax authorities. Taxes borne by the Group mainly consist of corporation tax, employer’s national insurance contributions and irrecoverable VAT. The taxes collected figure is mainly comprised of pay-as-you-earn (PAYE) deductions from employee payroll payments, employee’s national insurance contributions, VAT collected and income tax collected on behalf of HMRC on platform pensions business.
Tax policy Understanding tax risk, how to manage it, and how it impacts all our stakeholders are important elements of running our business responsibly and as a responsible business we recognise the contribution the taxes we pay and collect make to wider society. The tax environment is also dynamic and to ensure we meet our responsibilities we employ an in-house tax team to oversee the tax affairs of the Group and have a tax risk management policy that is approved annually by the Board.
You can read our tax strategy on our website www.standardlifeaberdeen.com/annualreport 37Standard Life Aberdeen 2018
Financial strength and liquidity CRD IV Following the sale of the UK and European insurance business, the Group is classified as an investment group for prudential supervision and is subject to regulation under CRD IV. Previously, the Group was regulated as an insurance group subject to Solvency II. This has resulted in a significant reduction in the Group’s total capital requirements. The Group’s regulatory resources comprise shareholders’ equity reduced by a number of deductions (including deductions for intangible assets, defined benefit pension plan surpluses and significant investments in associates). Capital requirements take into account the impact of the ICAAP process. The Group remains strongly capitalised. At 31 December 2018, the Group’s regulatory capital position was as follows: CRD IV Group regulatory capital position
Common Equity Tier 1 capital resources 1.1 Tier 2 capital resources 0.6 Total capital resources 1.7 Total capital requirements (1.1) Surplus regulatory capital 0.6
The above position includes a deduction to allow for the proposed final 2018 dividend which will be paid in May 2019.
Intangible assets of £3.4bn (2017: £4.5bn) primarily relate to goodwill, customer relationships, technology and brands from acquired businesses. Further details are provided in Note 14.
Subordinated liabilities reduced to £1.1bn (2017: £2.3bn) as we completed the redemption of our outstanding tier 1 subordinated bonds on 25 October 2018, primarily funded by cash returned from the UK and European insurance business prior to sale. In November 2018 we obtained consent from bondholders to convert our $750m subordinated debt to CRD IV capital resources (Tier 2), as shown in the section above. Further details are provided in Note 34.
On 22 October 2018 in conjunction with the £1bn ‘B’ share scheme capital return, we undertook a share consolidation of the Company’s share capital. The Company issued 7 new ordinary shares for each holding of 8 existing ordinary shares resulting in the number of shares in issue reducing from 2,942m to 2,574m. Refer to Note 26.
Liquidity management Group cash and liquid resources were £2.6bn as at 31 December 2018 and includes those of the holding company detailed below.
Standard Life Aberdeen plc, the group holding company, holds substantial cash and liquid resources. At 31 December 2018 Standard Life Aberdeen plc held £1.3bn (2017: £1.2bn) of cash and liquid resources, comprises £789m (2017: £693m) of cash and shortterm debt securities, £285m (2017: £298m) of bonds and £197m (2017: £204m) of holdings in pooled investment funds.
Dividends received from subsidiaries/associates consisted of £312m (2017: £180m) from Standard Life Assurance Limited, £346m (2017: £285m) from Aberdeen Standard Investments entities, £33m (2017: £nil) from Phoenix and £7m relating to dividends from HDFC Life (2017: £367m net remittance following IPO). Capital injections of £218m include £100m to Aberdeen Asset Management PLC as funding for acquisitions and £72m to support HASL growth. The remainder relates to funding for 1825 growth and support for other subsidiaries. Cash paid for the tender and conversion of subordinated debt instruments of £1.0bn were offset by £0.8bn of internal loan repayments by Standard Life Assurance Limited prior to the disposal.
The Board is recommending a final dividend for 2018 of 14.3p (2017: 14.3p) per share. Subject to shareholder approval, this will be paid on 21 May 2019 to shareholders on the register at close of business on 12 April 2019. The 2018 final dividend and future dividends will be paid on the lower number of ordinary shares following the share consolidation and buyback.
Opening 1 January 1,195 900 SLAL sale proceeds 1,971 – Return of capital (1,235) – Dividends received 698 832 Cash dividends paid to shareholders (634) (469) Cash investments in subsidiaries, associates and joint ventures (218) (413) Debt redemptions/issue (207) 565 Expenses (including SLAL sale related) (163) (128) Acquisition of shares by Employee Share Trust (75) (79) Other (61) (13) Closing 31 December1 1,271 1,195 38 Standard Life Aberdeen 2018
How the dividend is funded External dividends are funded from the cumulative dividend income that Standard Life Aberdeen plc receives from its subsidiaries and associates. To provide some protection against fluctuations in these dividends, Standard Life Aberdeen plc holds a buffer of distributable cash and liquid resources. This buffer is dynamic and takes into account expected future subsidiary and associate dividend flows and the risks to those dividends. Further information on the principal risks and uncertainties that may affect the business and therefore dividends is provided in the Risk management section of this Strategic report.
Viability: We consider that three years is an appropriate period for this viability assessment. This is in line with our business planning horizon and is the period over which strategic actions, such as the launch of new investment propositions, are typically delivered. It also reflects the timescale over which changes to major regulations and the external landscape affecting our business typically take place. The key processes used by the Board to assess viability are set out below. We consider that the severe scenarios assessed as part of our reverse stress testing are appropriate over this three-year period.
Under the most severe combined scenario impacting markets, persistency and expenses, the platforms business would have required a capital injection of £20m in order to maintain a regulatory capital surplus in the absence of any other actions being taken.
A capital injection of this magnitude would be affordable for Standard Life Aberdeen without threatening viability. For all other scenarios the asset management and platforms businesses maintained sufficient regulatory capital.
Reverse stress testing gives a quantitative and qualitative understanding of plausible but severe risk scenarios which could threaten business model viability. In 2018, reverse stress testing was carried out by both the asset management and platforms businesses. This analysis explored the following scenarios: the rise of populism and protectionism; the breakdown of relationships with strategic partnerships and clients; the failure of multiple key projects; the failure of key third party service providers within the platforms business; and various Brexit scenarios. The reverse stress testing results highlighted the potential customer and cost impacts for the platforms business in the event of the complete failure of its key third party outsourced service provider. Although this would represent a significant stress for the platforms business it would not threaten the viability of Standard Life Aberdeen. The businesses were resilient under all other reverse stress tests.
Longer-term prospects: The Group’s prospects are primarily assessed through the strategic and business planning process which considers our business model and how this is designed to be sustainable and resilient in the long term as described on pages 9, 10, 11 and 25 of this report. The Directors’ assessment of prospects also takes into account: (i) the Group’s current capital and liquidity position, as set out on page 38, which shows a regulatory capital surplus of £0.6bn, (ii) the substantial cash and liquid resources held by Standard Life Aberdeen plc, (iii) the Group’s holdings in strategic investments.
Interim Final 19.82p 18.36p 21.60p 13.35p 12.34p 14.30p 6.47p6.02p 7.30p7.00p 14.30p 21.30p 39Standard Life Aberdeen 2018
Enterprise Risk Management framework As part of our corporate transformation, we have taken the opportunity to refresh our ERM framework. This also ensures that we continue to raise standards in risk management as we build a world-class investment company. Specifically, we have made changes across all the key building blocks of our framework so that they better support the management of risk in our transformed business.
The ERM framework ensures that risk is assessed, monitored, controlled and appropriately governed based on a common taxonomy and methodology. The major components of the ERM framework can be grouped into four areas related to how we govern, assess, monitor and control risks. Most risks arise in the business (first line), that is where they should be managed. The second line oversees business risk assessments and provides advice and challenge where necessary.
• Risk governance: Our governance drives how we make decisions on current and future risks drawing on our assessment, monitoring and control processes. We seek to ensure that risk decisions are taken at the right level. Most risk decisions are taken in our business units but certain decisions will be taken in senior executive committees or at Board level.
• Risk control: We operate processes so that risk is mitigated using controls with clearly identified control-owners. The effectiveness of controls is reviewed on a regular basis.
• Accountability for the management of risks • The appetite to accept these risks and how we manage them • The assessment of capital requirements with respect to the risks • A forward-looking assessment of the risk and capital strength of
Business risk environment The delivery of good investment performance and our ability to innovate to respond to changing clients’ needs is fundamental to the Group’s ongoing success as is our ability to effectively distribute our investment solutions. Following the sale of the UK and European insurance business, and the diversification of revenues it previously provided, these key aspects of asset management delivery become even more fundamental to the success of the Group. We recognise that investment performance remains mixed with challenges across key funds and asset classes such as absolute return and equities. This weakened performance has impacted on overall net flows but gross inflows have been encouraging and are spread across a diverse range of capabilities.
The sale of the UK and European insurance business to Phoenix has significantly simplified the risk profile of the Group (though we still have indirect exposure to insurance risks through the 19.98% holding of Phoenix). As well as our core investment business, the financial success of the Group is materially influenced by holdings in our insurance and asset management associates and joint ventures in the UK, India and China which we oversee through a dedicated function to ensure we maximise value for shareholders.
Operational stretch continues to exist within the business as work is underway to integrate and transform the Group in line with its new focus. This brings with it operational risks including the retention of talent and the engagement of our people. We have undertaken careful resource planning with executive ownership and accountability for delivery of our integration and transformation programmes alongside delivery of our business as usual activities for the benefit of our customers, clients and ultimately our shareholders.
In view of the corporate transformation over the last two years, the business remains well positioned to benefit from the trends which are shaping the investment landscape. However, there remains unavoidable uncertainty due to Brexit, and in particular, a no-deal Brexit. The Group has well established plans for an orderly Brexit however there are impacts of a no-deal Brexit that are difficult to plan for and which could be disruptive. The degree of market disruption, and hence volatility, as a result of a no-deal Brexit is difficult to predict but our teams have processes in place to support the smooth and orderly governance of our funds should there be a disruption to pricing or liquidity of underlying assets.
In light of the multilateral memorandum of understandings which the European Securities and Markets Authority has co-ordinated on behalf of EU-27 securities regulators to allow supervisory cooperation with the UK FCA, we have analysed and planned for the residual risk that delegation arrangements between our Luxembourg and Irish subsidiaries and our UK offices may not be permitted. A no-deal Brexit could also threaten the Group’s operations, as they could for many other industries and companies. Our Brexit preparations cover all areas of business including ensuring that our staff can continue to perform roles, maintaining continuity of personal data flows and addressing areas of concern with key suppliers. Our platform businesses are also preparing for the consequences of market disruption which could see markets, and hence platform funds, become illiquid and also high trade volumes as our customers and clients react to the evolving market conditions.
Cyber security has continued to be a major issue facing all large corporates and we are no exception especially given our global footprint and renewed focus on digital transformation. Dedicated teams of internal experts, augmented by external expert input, help to ensure we actively manage this continually evolving risk.
We have a strong proactive relationship with our regulators and seek opportunities to engage both directly and indirectly through trade associations to contribute to the regulatory agenda and ensure that our knowledge and experience are considered in the decisions taken.
The regulatory agenda continues to evolve with increasing focus from UK and EU regulators on value for money and competition and the FCA Asset Management Market Study and Investment Platforms Market Study have continued to remain important areas of our work.
Our principal risks and uncertainties The specific risks we face as a business are driven by what we choose to do and how we do it, as well as the wider environment in which we operate. We group these under 12 principal risks which form the basis of our detailed risk taxonomy. This risk taxonomy sets the framework for assessing, monitoring, controlling and governing the risks of the business. Our principal risks were subject to robust assessment by the Board and are described in the following pages.
◄ ►Stable  Decrease Client centricity Enhancing our operations Innovating for the future
Risk appetite statement: The Company maintains a number of significant business and operational processes. We have no appetite for significant process, operations and trade errors that are detrimental to our clients or customers or compromise our financial strength or our reputation. We will maintain a strong and well established risk management framework as a foundation for the effective management of process risk across the business.
• Clearly defined three lines of defence risk management model where accountability and awareness are central to managing risks in the first line
• Effective deployment of our Operational Risk team to effectively oversee and challenge process controls
• Launch of a new risk management system to facilitate use of management intelligence and effective reporting
• Evolution of our ERM framework to reflect our changing business will ensure that these risks are managed effectively across our business
Risk appetite statement: Our people are crucial to the success of the Company and efforts will focus on maintaining a skilled and highly motivated workforce. We will accept a level of staff turnover provided that resource gaps are not detrimental to achieving strategic objectives. We seek to uphold our corporate values and we will take necessary action to eliminate individual and institutional discrimination and to make equality, diversity and inclusion core issues in the development and implementation of policies and initiatives and in the way we manage our staff. We accept that our international footprint and profile presents new challenges and we operate in some countries that maintain different values to our own. We will respect local laws, we will not knowingly expose our people to personal risk, and we will use our influence to contribute to development in our local operating context and maximise our positive impact as we operate around the world.
Our people drive the success of our business. We must retain, attract and develop a skilled and diverse workforce with the right experience to meet our strategic goals. With the creation of the Standard Life Aberdeen Group and sale of our UK and European insurance business our people are more clearly aligned to achieving our strategic objectives. Increased challenges in an uncertain business and political environment have the potential to impact our ability to attract and retain staff globally. In addition, our complex corporate change activity has been challenging for our people.
• We are committed to driving inclusion and diversity • Employee networks are used to support our people ensuring their voices are heard. These include: Carers’ Network, Mind Matters (mental health), Young Persons Development Network, Balance (gender), Unity (BAME), Armed Forces, Lighthouse (LGBT+)
• We are committed to the Women in Finance Charter and meeting the targets by 2020
Risk appetite statement: We are committed to identifying the threats, interruptions and potential impacts to the Company, and building the resilience and capability required to provide an effective response. We have no appetite for reoccurring or prolonged interruption to our critical business operations and systems, including those undertaken by our outsourced partners, that could result in significant operational loss, material reputational damage or that impacts on client or customer service. Business resiliency planning and execution must be proactive, consistent and aligned with strategic objectives.
• We are engaged with our key third party suppliers to ensure we have resilient operations. This is achieved through assurance activities and ongoing supplier management.
• We utilise layered controls and engagement in both change and business as usual activities
• Our business invests in enhancing and developing controls in IT infrastructure
• Continued engagement with our clients and with our regulators concerning technology risks
We are vigilant to potential instances of fraud, both internal and external, financial crime or bribery and actively work to deter and prevent such behaviour. We have a number of supplier partnerships which increase our risk and we have controls in place to manage them. Risk detection methods are used to ensure we are able to protect clients and customers and our business.
• Our integrated Risk and Compliance function ensures that our controls are effective in combating financial crime and fraud
• Our major change projects are centrally managed with clear governance processes and consolidation of our change workload
Risk appetite statement: The Company has no appetite for unfair customer outcomes or poor market conduct, whether through deliberate or negligent actions. Consistent with our values, where unfair outcomes arise, the Company will put it right in a fair and prompt manner.
Our business relies on our ability to ensure fair client and customer outcomes. Failure to achieve these outcomes poses significant reputational damage and likely financial losses for our business. We are fully supportive of our regulators driving better customer outcomes and mindful that in a changing landscape we need to remain agile to change. Our ambition remains to become an industry leader in conduct governance and the delivery of fair client and customer outcomes.
• Seeking good customer and client outcomes is an essential aspect of our corporate values and our franchise
• Our Global Code of Conduct contains the standards required of our people. Along with our mandatory training modules we embed a strong conduct aware culture across our business.
Risk appetite statement: The Company recognises that to achieve certain objectives and improve efficiency the use of suppliers is required and we have a number of outsourced supplier relationships as part of our business model, particularly in relation to fund administration, custody and transfer agency services, and retail platforms. We recognise that some suppliers may fail, but we have no appetite for our critical suppliers to fail to fulfil their obligations or provide inadequate service. Our supplier relationships will be governed and overseen, on a risk based approach, against the standards set within our procurement and supplier risk framework.
We have a number of supplier relationships in operation to allow us to deliver our strategy such as, BNP Paribas and Citigroup for our asset management business, FNZ for our platform business and Phoenix for some of our IT services. The failure of any of our outsourcing providers could instigate a resilience and business continuity event disrupting our operations. Adding new outsourcers increases our exposure to our risk culture, framework and business performance.
• We have oversight and policies over our third parties as their changing business models affect our risk profile
Standard Life Aberdeen has established financial management processes and controls. Our business decision making is based on accurate and timely financial information. Provision of inaccurate or incomplete information could result in poor strategic decision making and negatively impact our business planning processes.
• Our Audit Committee challenges our reporting as part of financial planning and control processes
• Our Risk function provides second line challenge of our business plan to support decision making
• The Policy Framework sets out the compliance standards for our business
• Our internal legal team supports our senior management on relevant areas across our business
• Our first and second line investment risk teams provide multiple levels of oversight and challenge to our investment function
• Our Board and executives are responsible for our strategy and its execution, with our Co-CEOs responsible for the development and promotion of our strategy and overall monitoring of its operational performance
Risk appetite statement: The Company has no appetite to fail to maintain sufficient resources to meet its contractual, business and regulatory obligations. We will ensure it can do so under both normal conditions and an appropriate range of company and market stressed scenarios. The Company has an appetite for market and credit risk exposures where these are required in pursuit of its business objectives. Exposures must be controlled to manage capital and liquidity requirements, concentration risk and the risk of financial loss.
• Counterparty exposures are proactively monitored with mitigation action taken where necessary
• We ensure we have appropriate capital to support and optimise our balance sheet
• We monitor our current and projected liquidity position to identify where any management actions may be required
Human rights policy Our policy summarises our approach to identifying and upholding the human rights of our people, customers and clients, community and those impacted by our suppliers, partners and the companies we invest in. As an investor we consider ESG factors, including human rights, when evaluating companies. We assess the management of human rights impacts and engage when appropriate to highlight issues and promote good practice. We publish the outcomes of our ESG engagements with investee companies in a quarterly summary available on our website.
Managing our environmental impact Our greatest environmental impact is through the investments we hold. You can read more about our approach to integrating environmental considerations into our investment activity on our website.
Our operational environmental impact is mostly comprised of the energy we use in our buildings and air travel. To reduce our impact in these areas we track our consumption, pursue ongoing improvements in building management, and encourage our people to reconsider the need for air travel by offering technology solutions. This year we have pledged to procure 100% renewable electricity for our globally operated offices by 2020. We have also had a significant focus on supporting biodiversity, and have pledged to remove all single-use plastics in our globally operated offices where practical by 2020. Our 2018 greenhouse gas emissions (GHG) data is our new baseline year and we will be developing GHG reduction targets in 2019.
Climate change is an investment risk we consider across all asset classes, so we have been actively supporting efforts to promote more transparency on the climate risks that companies may be facing and how they are tackling them. We have publicly declared our support for the G20’s Task Force on Climate-related Financial Disclosures. To enable us to meet the recommendations, we initiated two working groups on climate change in 2018 – one focused on our investment approach, and the other looking at our operations and stakeholder interactions.
Tonnes CO2e/FTE ratio 5.21 4.71 Greenhouse gas emissions (tonnes CO2e) including discontinuing business
Tonnes CO2e/FTE ratio 3.89 2.89 3.20 1 Data prepared in accordance with our reporting methodology and the KPI is within KPMG’s limited assurance scope. Both KPMG’s limited assurance report and our reporting methodology can be found at www.standardlifeaberdeen.com/annualreport 2 Emissions have been calculated using renewable energy contracts, residual mix emissions factors for European sites, and grid mix emissions factors for all other sites. Note: Emissions associated with real estate investment assets owned by Standard Life Assurance Limited for the 8 months prior to the sale on 31 August 2018 are 6,480 tonnes CO2e.
You can read more on these topics and also find our Corporate sustainability report 2018 on our website www.standardlifeaberdeen.com/annualreport 48 Standard Life Aberdeen 2018
T Non-financial information statement Standard Life Aberdeen aims to comply with the Non-Financial Reporting requirements contained in sections 414CA and 414CB of the Companies Act 2006.This information is intended to help stakeholders better understand how we address key non-financial matters. This aligns with the work we already do in support of Carbon Disclosure Project, UN Global Compact and UN Sustainable Development Goals. Further details of the activities we undertake in supporting these frameworks is available in our Corporate sustainability report. Details of our principal risks and how we manage those risks are included in the Risk management section.
Forward-looking statements Details of forward-looking statements are included in the Glossary on page 253.
G o ver n an c e 51Standard Life Aberdeen 2018
Contents 2. Board of Directors 52 3. Corporate governance statement 54 4. Directors’ report 75 5. Directors’ remuneration report 81 6. Statement of Directors’ responsibilities 103
Nationality: British Age: 63 Shares: 50,374 Nationality: British Age: 62 Shares: 2,472,605*
Appointed to the Board: August 2017 Appointed to the Board: August 2017
Nationality: British Age: 60 Shares: 1,851,706* Nationality: Danish Age: 60 Shares: 8,750
6 Rod Paris – Chief Investment Officer 10 Martin Pike – Non-executive Director RC A
Appointed to the Board: August 2017 Appointed to the Board: September 2013
Nationality: British Age: 59 Shares: 671,881 Nationality: British Age: 57 Shares: 69,476
Martin was appointed Director on 27 September 2013. He is also chairman and non-executive director of Faraday Underwriting Limited. He joined R Watson & Sons in 1983, and progressed his career with the firm to partner level. His senior roles included head of European insurance and financial services practice, Watson Wyatt from 2006 to 2009, vice-president and global practice director, insurance and financial services, Watson Wyatt during 2009 and, latterly, managing director, risk consulting & software, EMEA, Towers Watson from 2010 to 2013.
Cathleen was appointed Director on 1 August 2018. She is also a nonexecutive director of Federal Home Loan Bank of New York and managing partner of Hamilton White Group, LLC and Soho Venture Partners Inc. Previously, Cathleen was lead director of E*Trade Financial Corporation, non-executive director of Kapitall Holdings, LLC and president and chief executive officer of ProAct Technologies Corporation.
Appointed to the Board: July 2016 Appointed to the Board: August 2017
Nationality: British Age: 60 Shares: 28,399 Nationality: British Age: 57 Shares: 90,116
Richard was appointed Director on 14 August 2017, having been a nonexecutive director of Aberdeen Asset Management PLC since April 2012. Richard is also deputy chairman of alstria office REIT-AG, chairman of Great Portland Estates plc, senior adviser to TPG Real Estate (Europe) and director of Starr Street Limited. Previously, Richard spent much of his career in financial services as an investment banker and was the cofounder and managing partner of Grove International Partners LLP.
Dear Shareholder One of my core responsibilities is to ensure effective corporate governance throughout the Group and so I am pleased to introduce the 2018 Corporate governance statement and Nomination and Governance Committee report. Recognising that I only took up my role as Chair of the Group and the Committee on 1 January 2019, I want, up front, to recognise the strength of the extant governance framework overseen by my predecessor, Sir Gerry, and confirm my commitment to continuing his robust work in this area.
 Oversight of our transition and transformation programmes, including assessment of the evolution of the firm’s culture to align with our purpose, values and strategy
 Supporting the externally facilitated Board effectiveness review and ensuring feedback was fully considered
Keith Skeoch and Martin Gilbert, in their Co-Chief Executive roles, were invited to Committee meetings to discuss relevant topics, such as the role and membership of key executive management committees, talent development and management succession.
In this statement you can read about the Committee’s role, both in the context of business as usual activities including integration, separation and transformation, and in the Sale discussions, in relation to:  Identifying and recommending Directors to be appointed to the Board
 Appointment of subsidiary Board members  Considered the Diversity and Inclusion action plan  Discussed the revised UK Corporate Governance
The Committee’s work in 2018 An indicative breakdown as to how the Committee spent its time is shown below: Committee effectiveness The Committee reviews its remit and effectiveness each year. The 2018 review was carried out via an external review and Independent Board Evaluation (IBE) was appointed as the external facilitator. The review concluded that the Committee members had debated issues well and had dealt with several complex matters appropriately. While the Committee’s main activities during 2018 related to Board nonexecutive membership, going forward, the Committee should find time to discuss fully senior succession planning, talent management, and gender, diversity and inclusion activities as well as the skills and experience needed by the Board in the future to support its strategy. The Committee’s workplan for 2019 increases its coverage of these matters. The Committee will also report fully to the Board on the progress of its discussions.
Sale and the agreement of the level of provision in respect of past annuity sales practices
Governance and organisational design framework Board and committee composition Culture, diversity and inclusion Succession planning
 Ensures Board members receive accurate, timely and clear information on the Group and its activities
 Leads the performance assessments and identification of training needs for the Board and individual Directors
The Co-Chief Executives During 2018, the Co-Chief Executives, within authorities delegated by the Board:  Develop strategic plans and structures for presentation to the Board  Make and implement operational decisions  Lead the other executive Directors and the executive team in the day-to-day running of the Group  Report to the Board with relevant and timely information  Develop appropriate capital, corporate, management and succession structures to support the Group’s objectives  Together with the Chair, represent the Group to external stakeholders, including shareholders, customers, suppliers, regulatory and governmental authorities, and the local and wider communities
 Keith Skeoch has individual accountability for the day-to-day running of the fabric of the business including responsibility for Investments, the Indian associates and the China Insurance Joint Venture, Operations, Finance, HR, Risk and Regulatory Culture, as well as the Legal and Secretariat functions
Together with the Directors’ remuneration report, this statement explains how our governance framework supports the way we apply the Code’s principles of good governance.
During 2018, the Committee has closely followed the development of the revised Code to ensure that the Group is well placed to implement and comply with its requirements for 2019.
You can read the Board Charter on our website at www.standardlifeaberdeen.com/annualreport
The governance framework sets out the Board’s relationship with the boards of the principal subsidiaries in the Group. In particular, it specifies the matters which these subsidiaries are required to refer to the Board or to a Committee of the Board for approval. It also ensures that all decisions which require or would benefit from it, receive the independent input of the non-executive Directors.
 Believes that it should have a blend of skills, experience, independence, knowledge, ethnicity and gender amongst its individual members that is appropriate to its needs 56 Standard Life Aberdeen 2018
 Is committed to maintaining its diverse composition  Supports the Co-Chief Executives’ commitment to achieve and maintain a diverse workforce and an inclusive workplace, both throughout the Group, and within the executive team
Retirements Julie Chakraverty, Akira Suzuki and Lynne Peacock retired from the Board on 29 May 2018. Gerhard Fusenig, Kevin Parry and Sir Gerry Grimstone retired from the Board on 31 December 2018. It is intended that Simon Troughton and Richard Mully will retire from the Board at the conclusion of the 2019 AGM and Bill Rattray will retire from the Board on 31 May 2019.
The letter of appointment confirms that the amount of time we expect each non-executive Director to commit to each year which, once they have met all of the approval and induction requirements, is around 35 days. The service agreements/letters of appointment for Directors are available to shareholders to view on request from the Company Secretary at the Company’s registered address (which can be found in the Shareholder information section) and at the 2019 AGM. Nonexecutive Directors are required to confirm that they can allocate sufficient time to carry out their duties and responsibilities effectively. You can read more about the induction and development programme later in this section.
You can read more background information about the Directors, including the reasons why the Chair believes you should support their election or re-election, in our AGM guide 2019, which will be published online at www.standardlifeaberdeen.com in advance of this year’s AGM, and in Section 2.
G o ver n an c e 57Standard Life Aberdeen 2018
Director independence, external activities and conflicts of interest The Board carries out a formal review of the independence of nonexecutive Directors annually. The review considers relevant issues including the number and nature of their other appointments, any other positions they hold within the Group, any potential conflicts of interest they have identified and their length of service. Their individual circumstances are also assessed against independence criteria, including those in the Code. Following this review, the Board has concluded that all the current non-executive Directors are independent and consequently, the Board continues to comprise a majority of independent non-executive Directors. The Board recognised that Simon Troughton’s cumulative term of service as a Director on the Standard Life Aberdeen and Aberdeen Asset Management Boards reached nine years in July 2018 and after consideration, agreed that this did not compromise his independence. Before his retiral on 29 May 2018, the Board determined that Akira Suzuki, as a representative of a shareholder, was not independent.
Kevin Parry was Senior Independent Director (SID) throughout 2018. In this role, Kevin supported the Chair, and often met with him one-toone. He was also available to talk with our shareholders about any concerns that they may not have been able to resolve through the channels of Chair, the Co-Chief Executives or Chief Financial Officer, or where a shareholder considered these channels as inappropriate.
The Board’s policy encourages executive Directors to take up one external non-executive director role. Keith Skeoch continued as a nonexecutive director of the Financial Reporting Council. Martin Gilbert is a non-executive director at Glencore plc, a position from which he took a leave of absence during the period from 16 May to 9 October. He was previously a non-executive director at Sky plc having resigned on 9 October 2018. Bill Rattray is a non-executive director at Curtis Banks Group PLC.
Advice Directors may sometimes need external professional advice to carry out their responsibilities. The Board’s policy is to allow them to seek this where appropriate and at the Group’s expense. Directors also have access to the advice and services of the Company Secretary, whose appointment and removal is a matter for the Board. No Directors sought external advice in 2018.
In accordance with the Code, the Board commissions externally facilitated reviews regularly. As announced in the 2017 ARA, the externally facilitated review which was due in 2017 was rescheduled to 2018 to allow some time for the post merger Board to come together. Also as announced at that time, IBE was appointed as the external facilitator and carried out the 2018 review. IBE does not have any other connection with the Group.
Outcome Overall the report recognised that this has been a time of significant change and challenge for the Board. The necessary focus on the major structural transactions in the past two years has minimised the opportunities for consolidation and relationship-forming and has not yet allowed the Board members as much time as they would like, ideally, to focus on other key matters. As a consequence, the Board’s most valuable contribution over the short to medium term would be to support the executive team in:  Identifying and delivering priorities  Attracting and retaining key talent  Establishing the appropriate culture for the transformed business  Continuing to develop strategy
 Board Information: continue to challenge the quality and context of Board and Committee papers so that they fully support effective decision-making 58 Standard Life Aberdeen 2018
The feedback was summarised into a report which was reviewed by the SID and distributed to all Board members, except Sir Gerry. The Directors, led by Kevin Parry and without Sir Gerry being present, met to consider the report. They concluded that during 2018, Sir Gerry had performed his role effectively, shown strong leadership of the Board, continued to devote significant time to the Group and continued to have sufficient time to carry out his duties. Kevin Parry met with Sir Gerry to pass feedback from the review directly to him.
Directors As part of their review, IBE prepared an individual evaluation of the performance of the members of the Board. The purpose was two-fold: to support the Chair’s annual round of feedback to Directors and to assist the Nomination and Governance Committee in its ongoing succession planning activities. Sir Gerry discussed the individual results with each Director. These discussions also considered individual training, development and engagement opportunities.
Succession and talent management activities The Nomination and Governance Committee regularly reviews the results of succession planning activities, including key person and retention risk, and talent development programmes at all levels across the Group.
Also during 2018, the non-executive Directors held specific discussions on Board and executive succession, the results of which fed into the overall plan.
Chair’s Succession As disclosed in the ARA 2017, Sir Gerry Grimstone indicated his intention to step down from his role by the end of 2019. In February 2018, the Nomination and Governance Committee considered and agreed the appropriate arrangements to oversee the governance of the succession process. As a result an Appointments Committee was established, chaired jointly by Simon Troughton and Melanie Gee and comprising all of the non-executive Directors other than those who indicated they wished to be considered as internal candidates. Sir Gerry was not a member. The key tasks of the Appointments Committee were:  To agree the candidate and role profile for the Chair  To receive presentations from potential external search consultants, and following these presentations, to appoint MWM to support the search
 To review the long-list of potential candidates against the agreed criteria
 To work with MWM to revise the long-list  To assess the revised list against agreed criteria
Following the completion of the process, the Board accepted the Appointments Committee’s recommendation that Sir Douglas Flint should be appointed as a NED and Chair designate on 1 November 2018, and should then succeed Sir Gerry as Chair on 1 January 2019. MWM’s other services provided to the Group in 2018 were to support the senior management search for the Chief People Officer role.
Annual review of internal control The Directors have overall responsibility for the governance structures and systems of the Group, which includes the Enterprise Risk Management (ERM) framework and system of internal control, and for the ongoing review of their effectiveness. The framework is designed to manage, rather than eliminate, risk and can only provide reasonable, not absolute, assurance against material misstatement or loss. The framework covers all of the risks as set out in the risk management section of the Strategic report.
In line with the requirements of the Code, the Board has reviewed the effectiveness of the system of internal control. The system was in place throughout the year and up to the date of approval of the Annual report and accounts 2018.
With regard to regular financial reporting and preparing consolidated accounts, the Finance function participates in the risk and control selfassessment and policy compliance elements of the ERM framework. The Finance function sets formal requirements for financial reporting, defines the process and detailed controls for the IFRS consolidation, reviews and challenges submissions and receives formal sign-off on financial reporting from business unit finance heads. In addition, the Finance function runs the Technical Review Committee and the Financial Reporting Executive Review Group which review external technical developments and detailed reporting disclosure and accounting policy issues.
Communicating with investors The Company continues to maintain and further develop a dialogue with its shareholders. As part of this, our investor relations and Group secretariat teams support communication with investors. During 2018, the Group continued its programme of domestic and international presentations and meetings between Directors and institutional investors, fund managers and analysts. As well as the Sale, the wide range of relevant issues discussed, in compliance with regulations, at investor presentations and meetings, included integration, separation and transformation, business strategy, financial performance, operational activities and corporate governance. The Chair has his own investor contact programme and brings relevant issues to the attention of the Board. The Remuneration Committee also consulted with major institutional investors regarding executive remuneration plans during the year. More information on this consultation can be found in the Directors’ remuneration report.
The Board is equally committed to the interests of the Company’s 1.1 million individual shareholders who hold approximately one third of the Company’s issued shares. Given this large shareholder base, it is impractical to communicate with all shareholders using the same direct engagement model we follow for our institutional investors. The Company has continued to gather and respond to shareholders’ views on the services and means of communication available to them, mainly through shareholders contacting the shareholder helpline. Around 430,000 shareholders receive all communications electronically helping to reduce our environmental impact. We encourage shareholders to use our share portal to access information relating to their personal shareholding over 400,000 have signed up to this service. Share portal participants can also change their personal details online and view and download their tax documents and statements. Most of our shareholders hold their shares in the Standard Life Aberdeen Share Account where shares are held electronically. 90% of individual shareholders hold their shares in this way.
We publish Company profiles to provide a high level introduction to the Group and its divisions. We also distribute a quarterly newsletter featuring articles designed to give investors deeper insight into particular areas of our business including our sustainability strategy. Copies of our Company profiles and newsletters are available on the Investors section of the Group’s website.
The Chair’s statement and the Strategic report in the Annual report and accounts aim to provide a balanced overall assessment of the Group’s activities, performance and prospects. This information will be supported by a presentation at the 2019 AGM. Shareholders will be invited to ask questions during the meeting and have an opportunity to talk with the Directors after the formal part of the meeting. The voting results will be published on our website at www.standardlifeaberdeen.com after the meeting. These will include the number of votes withheld.
In addition, a General Meeting was held on 25 June 2018 at which shareholders were asked to consider the resolutions recommended by the Board, to approve the Sale, the issue and allotment of new shares and an amended remuneration policy 50% of the shares in issue were voted and the resolutions were passed.
Our role as an institutional investor Standard Life Investments and Aberdeen Asset Management (together Aberdeen Standard Investments) are signatories to and supporters of 23 stewardship codes around the globe including the UK Stewardship Code and the United Nations Principles for Responsible Investment. Both companies promote the importance of 60 Standard Life Aberdeen 2018
good governance and stewardship including the management of broader aspects of risk relating to the environment, society and governance (ESG).
In addition to holding to account the boards of the companies in which we invest, through our ongoing engagement and voting at general meetings, we will work to encourage the high levels of governance and management of environmental and societal risks in the markets around the world in which we invest on behalf of our clients. We believe that it is important for us to transparently report on our activities so that our clients can, in turn, hold us to account for the delivery of the very highest standards.
Aberdeen Standard Investments’ role, as an institutional investor that invests its clients’ savings in a responsible manner, is key to Standard Life Aberdeen behaving as a responsible business. Its influence over the companies in which it invests, provides the Group with the ability to encourage others to act similarly.
When assessing the Company’s compliance with the principles and provisions of the Code, the Nomination and Governance Committee also reviewed the Company’s compliance with the Standard Life Investments ESG investment principles and policy guidelines, and with the Aberdeen Asset Management holistic risk and assessment criteria. The Committee concluded that the Company complied with the guidelines and fulfilled the criteria during the year.
Executive Directors Keith Skeoch 10/10 Martin Gilbert 10/10 Bill Rattray 10/10 Rod Paris 10/10
Non-executive Directors John Devine 10/10 Melanie Gee 10/10 Richard Mully 10/10 Martin Pike 10/10 Cathleen Raffaeli 4/4 Jutta af Rosenborg 10/10 Simon Troughton 9/10
Committee reports This statement includes reports from the Chairs of the Audit Committee and the Risk and Capital Committee. The report on the responsibilities and activities of the Remuneration Committee can be found in the Directors’ remuneration report following this statement.
Dear Shareholder I am pleased to present my report as Audit Committee Chair.
A major role of the Audit Committee in 2018 related to the Sale. In advance of this, the Audit Committee’s specific focus was on the work to support the relevant financial disclosures in the Sale Circular. Post Sale, this focus switched to the impact on the group financial reporting of the Sale including the carrying value of the group’s strategic holding in the Phoenix Group, along with the treatment of separation costs. During the year the Committee also:  Considered the carrying value of intangible assets, in particular customer relationship intangibles relating to the Aberdeen merger and goodwill
Company’s annual Solvency II reporting, and then reviewed CRD IV reporting following the change in the prudential supervision of the Group
The Committee continued to focus on the quality of financial reporting. In November 2018 we received a letter from the FRC informing us that they had carried out a review of our Annual report and accounts 2017. I am pleased to report that the FRC letter noted that there were no questions or queries they wished to raise with us at this stage, and did not require a substantive response to their letter. The FRC asked us to make clear the inherent limitations of their review, which we have set out in the financial reporting section of this report.
Our report to you is structured in four parts: 1. Governance 2. Report on the year 3. Internal audit 4. External audit
John Devine Chair, Audit Committee 3.2.1 Governance Membership All members of the Audit Committee are independent non-executive Directors. The table below reflects the composition of the Committee and the members’ attendance: Member Attendance
The Committee schedules six meetings per annum, four of which are co-ordinated with external reporting timetables. In 2018, there were four additional meetings, which were focused on the Sale and related financial reporting matters.
Key responsibilities The Committee’s responsibilities are to oversee and report to the Board on:  The appropriateness of the Group’s accounting and accounting policies, including the going concern presumption and viability
 Its view of the ‘fair, balanced and understandable’ reporting obligation
 The findings of its review of key Group prudential returns and disclosures
 While the Committee’s work has been very thorough, it may now benefit from a better sense of proportionality, with more being delegated to the management team, in the interests of allowing the Committee to reflect for longer on the key issues
 Regular refreshes and updates to the Internal audit plan  Results of the monitoring of financial crime, fraud risk assessments and whistleblowing including calls to our dedicated Speak Up helpline
 Circular relating to the Sale, including working capital and Financial Position and Prospects Procedures reporting
 Initial findings from the 2018 year end work  The Internal audit plan  Effectiveness of the External auditors  Group non-audit services provided by External auditors
Financial Reporting External Audit Internal Audit Other controls (including CASS controls) Regulatory Reporting 64 Standard Life Aberdeen 2018
The Committee reviewed the Group accounting policies and confirmed they were appropriate to be used for the 2018 Group financial statements. The Committee noted, in particular, that there was no significant impact on the timing of revenue recognition from the adoption of IFRS 15 Revenue from Contracts with Customers. This new standard did, however, introduce a number of new disclosure requirements.
The Committee reviewed the Annual report and accounts 2017 and the Half year results 2018. For the half year it received written and/or oral reports from the Chief Financial Officer, subsidiary audit committee chairs or boards, the Company Secretary, the Chief Internal Auditor and the External auditors. In addition, for the 2017 year end it received a report from the Head of Group Actuarial. The Committee used these reports to aid its understanding of the composition of the financial statements, to confirm verification and compliance with reporting standards and to justify accounting judgements and estimates. Following its reviews, the Committee was able to recommend the approval of each of the reports to the Board, being satisfied that the annual and half year financial statements complied with laws and regulations and had been appropriately compiled.
We received a letter from the FRC in November 2018 informing us that they had carried out a review of our Annual report and accounts 2017 and that there were no questions or queries they wished to raise with us at this stage. The FRC asked us to note that their letter provides no assurance that our report and accounts are correct in all material respects, and that the FRC’s role is not to verify the information provided but to consider compliance with reporting requirements. The FRC noted that their review is based on our report and accounts and does not benefit from detailed knowledge of our business or an understanding of the underlying transactions entered into.
The Aberdeen merger in 2017 was accounted for under IFRS as an acquisition by Standard Life plc of Aberdeen Asset Management PLC. This resulted in the recognition of significant intangible assets. The year end impairment review of the Aberdeen Standard Investments goodwill resulted in the recognition of an impairment of £880m. The Committee spent time at two meetings reviewing and challenging assumptions relating to future cash flow projections, the discount rate and long term growth rates. The Committee agreed it was appropriate to base the cash flow projections on the lower market levels at 31 December 2018. The Committee considered, in particular, the margin for forecasting risk in the discount rate and concluded that this was appropriate. See Note 14 for further details. The Committee also considered the Aberdeen customer relationship intangibles and concluded that for one of these intangibles an impairment of £35m was appropriate.
The Committee spent significant time discussing financial reporting issues arising from the Sale. Estimation was required in relation to the valuation of certain indemnities relating to the sale. This particularly included indemnities relating to the SLAL review of past sales practices of annuities, where the main financial risks (both positive and negative) continue to be with the Group. The Committee considered key assumptions and sensitivities to these assumptions and was satisfied that the fair value of the indemnity was appropriate at this time. Further details are disclosed in Note 41.
Also in relation to the Sale, the Group considered accounting for the 19.98% stake acquired in Phoenix. The Committee concluded that Phoenix should be considered an associate and be subject to equity accounting, notwithstanding that the holding was less than 20%. See Note 16. Acquisition accounting for this stake in Phoenix requires significant judgement and was an area of focus for the Committee in the second half of 2018. The key judgements related to the recognition and valuation of intangibles, in particular the Acquired Value of In-force business (AVIF). The Committee reviewed and challenged the assumptions, including useful lives, and concluded that these assumptions were reasonable. See Note 16. Further, the carrying value of the investment in Phoenix at 31 December 2018 was higher than the market value. Accordingly, the Committee considered whether an impairment in the investment should be recognised and concluded that, in accordance with International Accounting Standard IAS 28, this investment should be stated at its market value at
Fair, balanced and understandable The Committee supported the financial reporting team’s continued review of the Annual report and accounts. A focus in 2018 was ensuring that the Strategic report appropriately explained financial performance and the implications of the Sale.
 The narrative contained in the report is honest and accurate
Activities  An Internal Review Group (IRG) is in place which reviews the
 We provided fair, balanced and understandable guidance to all key stakeholders involved in the Annual report and accounts production process
Standard Life Investments variable remuneration schemes, the Committee specifically reviewed the proposed treatments and ensured that the Supplementary Information section provided appropriate disclosures.
Prudential reporting During 2018 the Group published its second Solvency and financial condition report (for the year ended 31 December 2017) in April, and submitted full annual Solvency II reporting to the PRA. The Committee continued to adopt a compliance approach to Solvency II reporting, drawing on work undertaken by management, Group Risk, Internal audit and the External auditors. The procedures are designed to give the Audit Committee a high degree of comfort that returns have been properly prepared. The Committee also reviewed a final draft of the Solvency and financial condition report, and following due consideration agreed to recommend the Solvency and financial condition report to the Board for approval.
Following the Sale, the Group is classified as an investment group for prudential supervision and is subject to CRD IV and the Capital Requirements Regulation. The Committee considered the results of CRD IV group reporting at a number of meetings and reviewed disclosures relating to CRD IV results included in the Strategic report section of the Annual report and accounts 2018, together with related assurance over these disclosures.
Internal audit regularly reviews the effectiveness of internal controls and reports to the Committee and the Risk and Capital Committee.
Financial crime and whistleblowing Staff are trained to detect the signs of possible fraudulent or improper activity and how to report concerns either directly or via our independent whistleblowing hotline. The Committee receives regular updates from the Head of Financial Crime who reports on compliance with the Group’s Anti-Financial Crime and Anti-Bribery policy, and any other activities associated with financial crime, including fraud risk.
3.2.3 Internal audit The Group has an Internal audit function comprising of approximately 60 people, spread across Standard Life Aberdeen’s global footprint, supported by PwC as primary co-source provider. The Chief Internal Auditor reports to the Committee Chair. During the year, regular dialogue takes place, at least monthly, between the Committee Chair and the Chief Internal Auditor.
During 2018, approximately 100 internal audit engagements were completed. The Committee considered the following reports to be particularly insightful and contributed to the strengthening of Standard Life Aberdeen’s control environment:  Key regulatory change projects such as the Markets in Financial Instruments Directive II (MiFID II), the General Data Protection Regulation (GDPR) and the Senior Manager and Certification Regime (SMCR)
 On-boarding and integration of acquisitions in the Americas  CASS
The Committee considers the effectiveness of Internal audit as a function annually, monitoring its independence, objectivity and resourcing in the context of the Chartered Institute of Internal Auditors’ professional standards. During the year, Internal audit carried out its own internal effectiveness review as well as a comprehensive quality
3.2.4 External auditors The appointment The Committee has responsibility for making recommendations to the Board on the reappointment of the External auditors, determining their independence from the Group and its management and agreeing the scope and fee for the audit. Following its review of KPMG’s performance, the Committee concluded that there should be a resolution to shareholders to recommend the reappointment of KPMG at the 2019 AGM.
 Services that involve playing any part in the management of decision-making of the audited entity
 Services linked to the financing, capital structure and allocation and investment strategy of the audited entity, except providing assurance services in relation to the financial statements, such as the issuing of comfort letters in connection with prospectuses
controls reports)  Consultations concerning financial accounting and reporting standards not relating to the audit of the Group’s financial statements
Non-audit fees amounted to £1.8m (2017: £0.4m) of which £1.6m (2017: £0.3m) related to other assurance services. Other assurance services in 2018 primarily relate to control assurance reports (£0.7m), in particular those provided to Aberdeen Standard Investments’ clients, which are closely associated with audit work, reporting accountant fees relating to the Sale (£0.5m), and assurance reporting relating to fund mergers where KPMG are the auditors of the relevant funds (£0.3m). The External auditors were considered the most suitable supplier for these services taking into account the alignment of these services to the work undertaken by external audit and the firm’s skill sets. The Committee also monitors audit and non-audit 68 Standard Life Aberdeen 2018
services provided to non-consolidated funds and were satisfied fees for those services did not impact auditor independence.
Further details of the fees paid to the External auditors for audit and non-audit work carried out during the year are set out in Note 7 of the Group financial statements.
The ratio of non-audit fees to audit and audit related assurance fees is 28% (2017: 5%). The total of audit related assurance fees (£1.7m) and non-audit fees (£1.8m) is £3.5m, and the ratio of these audit related assurance fees and non-audit fees to audit fees is 75% (2017: 40%). As noted above the audit related assurance fees are primarily fees in relation to required regulatory reporting, where it is normal practice for the work to be performed by the external auditor.
The Committee is satisfied that the non-audit fees do not impair KPMG’s independence.
 The Committee reviewed the annual findings of the Audit Quality Review (AQR) team of the FRC in respect of KPMG’s audits. We requested a formal report from KPMG of the applicability of the findings to Standard Life Aberdeen both in respect of generally identified failings and failings specific to individual audits. The Chair of KPMG presented to the Committee in person. The AQR team also provided a report following its inspection of KPMG’s audit of Standard Life Aberdeen for the year ended 31 December 2017. The Committee Chair discussed the specific findings of the AQR team with KPMG. We were satisfied that the KPMG audit was effective overall and that any identified areas for further improvement had been addressed or had appropriate action plans in place.
 There was a detailed interview by the Committee Chair with our lead audit partner on the subject of the work undertaken to support their opinion on the financial statements and the consistency of the remainder of the Annual report and accounts with their work
Dear Shareholder I am pleased to present my report as Chair of the Risk and Capital Committee.
Activities related to the Sale formed a significant part of the Committee’s work this year. In overall terms, this transaction has significantly reduced the risk profile and therefore the capital requirements of the Group, but the transaction itself was also risky in terms of the amount of work required to separate the business and the transitional arrangements. The Committee therefore assessed the transaction from a risk and capital perspective to advise the Board on the impact of the transaction. This involved the Committee providing regular review and challenge of the key risks and capital implications associated with the transaction and included reviewing assessments:  In advance of announcing externally the intention to sell the UK and European insurance business
 To support disclosure of the Risk Factors in the Circular  On the anticipated operational readiness of the business on ‘Day
 The documentation of the first Internal Capital Adequacy Assessment Process (ICAAP) for the combined asset management business which operates under the brand Aberdeen Standard Investments
Membership All members of the Risk and Capital Committee are independent nonexecutive Directors. The table below reflects the composition of the Committee and the members’ attendance both pre and post the merger: Member Attendance
Key responsibilities Our vision to build a world-class investment company results in exposure to a range of risks and uncertainties. Understanding and actively managing the sources and scale of these risks and uncertainties are key to fulfilling this vision.
Further detail on the work performed in each of these areas is set out in the report below. In carrying out its duties, the Committee is authorised by the Board to obtain any information it needs from any Director or employee of the 70 Standard Life Aberdeen 2018
The Committee’s work in 2018 An indicative breakdown as to how the Committee spent its time is shown below: The Committee operates a rolling agenda and uses each meeting to consider a range of recurring items as well as other items that are more ad hoc and/or more forward-looking in nature.
One of the recurring items that is reviewed and discussed at each meeting is the Views on Risk report which provides a holistic assessment from the Chief Risk Officer of the key risks and uncertainties faced by the Group’s businesses and the actions being taken to manage these. In 2018 this report provided the Committee with a comprehensive view of the key risks and uncertainties and allowed the Committee to review and challenge risks including those relating to flows and performance, the delivery of change, liquidity and capital, operational risk, conduct risk and regulatory compliance.
Regular reporting was also presented to the Committee during the year regarding the Group’s internal risk and capital assessment. This covered the ICAAP performed in connection with the requirements of the Capital Requirements Directive following the Sale and, prior to this, the Group’s Own Risk and Solvency Assessment (ORSA) performed in connection with Solvency II requirements. This supported the Committee in understanding changes to the Group’s risk profile and capital position over the course of the year and allowed the Committee to challenge management’s assessment of risks and to oversee key actions being taken to manage these risks.
 Plans for testing, assurance reviews, business risk reviews and validation activity to be performed in 2018
 The state of compliance on implementation of GDPR  The semi-annual update on cyber risk and security  Currency risks and the strategy followed in managing and monitoring these risks  The operation of activities related to the investment process and performance  Planned enhancements to the framework for escalating risk items to the Remuneration Committee  Actions taken to enhance the conduct risk framework
 Risk assessment of the Sale, the Transitional Services Agreement and the proposed ongoing relationship with Phoenix
Risk appetites, exposures and capital The risk appetite framework provides a common framework to enable stakeholders to communicate, understand and control the types and levels of risk that the Board is willing to accept in pursuing its strategy and business plan objectives and the capital that is required in this regard.
The Views on Risk report also includes dashboards covering financial crime and regulatory risk. These provide the Committee with status updates on the financial crime framework, addressing risks related to money laundering, terrorist financing, market abuse, fraud and bribery and corruption, and the regulatory outlook. Environmental, social and governance risks are actively managed within the business and updates on this are also included within the report. Using this material, the Committee is able to oversee, challenge and advise the Board on the Group’s risk appetite, material risk exposures and the impact of these on the levels and allocation of capital.
Key items that the Committee discussed during the year in this context included:  The Sale and the change in the Group’s capital requirements moving from the Solvency II to CRD IV regime
 Risks associated with outflows and investment performance  Risks relating to the status of the Group’s Brexit preparations and the possibility of a disorderly exit from the EU  The ICAAP report produced for the combined ASI business  Enhancements to the Risk and Compliance function through the transformation programme As highlighted in the table on page 71, we received a number of oneoff reports during the year which directly supported the Committee in our oversight of risk appetites, exposures and capital.
 Reverse stress testing – considering circumstances or severe events, including as a result of operational, conduct or reputational risks, that have the potential to cause the business to become unviable
The Committee reviewed the results of the stress testing and scenario analysis that was performed. This included reviewing the results of three scenarios which were explored as part of the reverse stress testing exercise: the breakdown of strategic partnerships and client relationships; the failure of multiple key projects; and the rise of populism and protectionism. The latter scenario was globally focused but included consideration of both a ‘hard’ Brexit and a ‘no-deal’ Brexit. At the time of the exercise, although a ‘no-deal’ Brexit was considered an unlikely outcome, the work performed prompted an increased focus on understanding the risks to the business of such a scenario and the options available to mitigate these risks.
The Committee also reviewed the results of the tail risk analysis performed for two scenarios. The scenarios considered were a successful cyber-attack on a critical third party supplier and the failure of IT software which meant the business was unable to operate within normal timeframes and resulted in reputational damage as the business was unable to provide the usual functions expected by clients and customers.
Based on the results of the stress testing and scenario analysis, the Committee concluded there was no requirement for the business to reduce its risk exposures and that the business was resilient to extreme events as a result of the robust controls, monitoring and triggers in place to identify events quickly and the range of management actions available to help mitigate their effects.
The Committee also provided oversight of risk exposures and projected capital requirements in the context of the business planning and reforecasting process. This included reviewing reporting produced as part of the mid-year reforecasting exercise and reporting produced in December as part of the annual business planning process.
The Committee specifically monitors risk control processes through reviewing the results of quarterly policy compliance reporting and updates regarding action plans raised in response to risk events which are included within the Views on Risk report.
The business has once again faced a busy regulatory agenda in 2018 which included responding to the introduction of new regulations as a result of MiFID II and GDPR. In light of the significance of these regulations, the Committee received regular updates on the state of business readiness in advance of these regulations being implemented.
As a Committee we have closely monitored regulatory developments to understand and anticipate potential implications for the Group and the wider financial services sector. This included monitoring regulatory developments regarding statements from the European Securities and Markets Authority, the FCA and other European regulators in advance of Brexit. In particular the Committee paid close attention to statements regarding plans for the FCA and European regulators to put in place Memorandums of Understanding that would mitigate the risk of the Group’s EU subsidiaries being unable to delegate asset management services to the UK in the event of a ‘no-deal’ Brexit.
The Committee’s monitoring of regulatory developments also included monitoring the FCA’s announcements in connection with their Asset Management Market Study, in particular the potential impacts this could have on fund charging across the industry.
In 2018 the Committee’s activities included reviewing risk assessments produced in advance of the announcement of the Sale. Based on the assessments presented, the Committee was satisfied that the degree of risk presented by the proposed transaction was acceptable and that the transaction was expected to result in derisking the Group. As part of the advice provided to the Board, the Committee highlighted the key risks associated with the transaction and the possible impacts of Brexit on the transaction.
The Committee subsequently considered the proposed content to be included in the Risk Factors that were disclosed in the Circular produced to support the Sale and related reporting provided to the PRA on risks arising from the transformation programme.
During the year the Committee also reviewed assessments relating to the proposed acquisition of ETF Securities (US) LLC and its US affiliates. This included considering the due diligence that had been performed and the key risks associated with the transaction.
The Committee also received reports (previously called Business Risk Reviews) on other aspects of corporate and strategic risk. These reports provided the Committee with an independent assessment from the Risk and Compliance function of aspects of the business that could have a material impact on long-term profitability or delivery of strategy, or that could introduce a material new risk. One such report presented to the Committee in 2018 concerned the product development process in the asset management business, recognising the importance of this process in delivering long-term value for clients. In particular this supported the Committee in understanding the process around prioritising activity, the management of seed capital and resourcing in the context of the implementation of strategic innovation.
Reporting for the year ended 31 December 2018 The Company is the holding company of the Group. You can find out about the relevant activities of the Company’s principal subsidiary undertakings and their overseas branches in the Strategic report. During 2018, the Company’s principal undertakings operated branches in Europe, together with Hong Kong and India.
Using the IFRS basis, the results of the Group are presented in the Group financial statements. A detailed description of the basis of preparation of the IFRS results (including adjusted profit) is set out in the Group financial statements section. More information about the Group’s use of derivative financial instruments and related financial risk management matters can be found in Note 21 and Note 39 to the Group financial statements.
The total payment is estimated at £345m for the final dividend and together with the interim dividend of 7.30p per share totalling £214m paid on 25 September 2018, the total dividend for 2018 will be 21.60p per share (2017: 21.30p) totalling £559m (2017: £627m).
Share capital You can find full details of the Company’s share capital, including movements in the Company’s issued ordinary share capital during the year, in Note 26 to the Group financial statements. You can also find an analysis of registered shareholdings by size, as at 31 December 2018, in the Shareholder information section.
In May 2018 a Circular was published, giving details of the proposed sale of Standard Life Assurance Limited to Phoenix Group. The Circular also gave details of a proposed return of capital to shareholders via a B Share Scheme, and a share buyback programme. Following completion, approval was given to return up to £1.75 billion in aggregate to shareholders, with the first £1.0 billion to be returned by way of the B Share Scheme and the remaining up to £750 million to be returned by way of the share buyback programme. Authority for the Company to purchase its own shares had previously been granted at the Annual General Meeting (AGM) but was superseded by the authority granted at the general meeting.
On 9 August 2018 the Company announced the commencement of an initial share repurchase programme of the Company’s ordinary shares up to a maximum aggregate consideration of £175m. This was followed by an announcement on 20 November 2018 of a further share repurchase programme up to a maximum aggregate consideration of £200m. The purpose of this programme is to reduce the share capital of the Company. All shares purchased have been cancelled.
As at 31 December 2018, there were 2,529,412,224 ordinary shares in issue held by 101,181 registered members. The Standard Life Aberdeen Share Account (the Company-sponsored nominee) held 648,081,141 of those shares on behalf of 1,022,001 participants. No person has any special rights of control over the Company’s share capital and all issued shares are fully paid.
During the year, and until the date this report was signed, the Company received the following notifications in respect of major shareholdings and major proportions of voting rights in accordance with the Disclosure Guidance and Transparency Rules of the Financial Conduct Authority (FCA). The companies detailed below notified their positions.
Lloyds Banking Group plc 8 June 2018 (pre share consolidation)Disposal – Below 3%
Similarly, in accordance with the terms of The Aberdeen Asset Management Employee Benefit Trust 2003, the trustees waived all entitlements to current or future dividend payments for shares they hold other than dividends payable on any shares held by the trustee as nominee for any other person.
The trustees of the Standard Life Aberdeen (Employee) Share Plan voted the appropriate shares in accordance with any instructions received from participants in the plan.
G o ver n an c e 75Standard Life Aberdeen 2018
 An uncertificated share, in the circumstances set out in the uncertificated securities rules (as defined in the Articles) and, in the case of a transfer to joint holders, where the number of joint holders to whom the share is to be transferred does not exceed four
Every member and duly appointed proxy present at a general meeting or class meeting has one vote on a show of hands, provided that where a proxy is appointed by more than one shareholder entitled to vote on a resolution and is instructed by one shareholder to vote ‘for’ the resolution and by another shareholder to vote ‘against’ the resolution, then the proxy will be allowed two votes on a show of hands – one vote ‘for’ and one vote ‘against’. On a poll, every member present in person or by proxy has one vote for every share they hold. For joint shareholders, the vote of the senior joint shareholder who tenders a vote, in person or by proxy, will be accepted and will exclude the votes of the other joint shareholders. For this purpose, seniority is determined by the order that the names appear on the Register for joint shareholders.
Power to purchase the Company’s own shares At the 2018 Annual General Meeting (AGM), shareholders granted the Directors limited powers to:  Allot ordinary shares in the Company up to a maximum aggregate amount of £121,370,072
 Disapply, up to a maximum total nominal amount of £18,205,510 of its issued ordinary share capital, shareholders’ pre-emption rights in respect of new ordinary shares issued for cash
As noted earlier in this share capital section, this authority was subsequently superseded by the authority granted at the general meeting held on 25 June 2018. Under the buyback programme, the Company purchased 37,983,529 of its ordinary shares of 12 2/9 pence each, paying an aggregate amount of £119,860,054. As at the time of the share capital consolidation in October, the percentage of share capital represented by the purchased shares was approximately 1.29%. Following the share consolidation, the Company purchased 44,609,556 of its ordinary shares of 13 61/63 pence, paying an aggregate amount of £115,040,275. As at 31 December 2018, the percentage of share capital represented by the purchased shares was approximately 1.8%.
Credit Facility – under a £400m revolving credit facility between the Company and the banks and financial institutions named therein as lenders (Lender) dated 22 May 2015 (the Facility), in the event that (i) any persons or group of persons acting in concert, gain control of the Company, then any Lender may elect within a prescribed time frame to cancel its outstanding commitment under the Facility and declare its participation in all outstanding loans, together with accrued interest and all amounts accrued immediately due and payable, whereupon the commitment of that Lender under the Facility will be cancelled and all such outstanding amounts will become immediately due and payable.
The UK Corporate Governance Code recommends that directors of FTSE 350 companies should stand for election every year. During the year, Julie Chakraverty, Akira Suzuki and Lynne Peacock retired as Directors on 29 May 2018, and on 31 December 2018 Gerhard Fusenig and Kevin Parry resigned as Directors and Sir Gerry Grimstone resigned as Chairman and Director. Simon Troughton and Richard Mully will stand down as Directors at the conclusion of the 2019 AGM and Bill Rattray will stand down on 31 May 2019.
The powers of the Directors can also be found in the Articles.
Directors and their interests The Directors who served during the year were: Sir Douglas Flint1 (Chairman) Gerhard Fusenig2 Sir Gerry Grimstone2 Melanie Gee Keith Skeoch Richard Mully Martin Gilbert Lynne Peacock3 Bill Rattray Martin Pike Rod Paris Cathleen Raffaeli4 Kevin Parry2 Jutta af Rosenborg Julie Chakraverty3 Akira Suzuki3 John Devine Simon Troughton 1 Appointed 1 November 2018. 2 Resigned 31 December 2018. 3 Retired 29 May 2018. 4 Appointed 1 August 2018.
Biographies of the current Directors can be found on pages 52 to 53.
You can read more on our people strategy, including diversity and inclusion, in the Strategic report section of this report.
We consider diversity in the broadest sense – in our backgrounds, experiences, strengths and thinking. To begin extending our areas of focus, we have recently run focus groups to understand how we can better support our ageing workforce and disabled employees. We treat those with disabilities fairly in relation to job applications, training, promotion and career development. Reasonable adjustments are made to train and enable employees who become disabled while working at Standard Life Aberdeen to allow them to continue and progress in their career.
Achieving a better gender balance at all levels is a priority for us. Last year we published our year one gender pay gap figures, refreshed our Women in Finance Charter targets following the merger, and published our first gender action plan. Following this, our Co-Chief Executives undertook a series of conversations to better understand the experiences of our people across all levels, locations and divisions of our business. This included focus groups on gender diversity to partner on creating our refreshed gender action plan, which was published in October.
We know we have more to do to improve representation of women at our Board and Executive levels. At Board level, we remain committed to our 33% target by June 2020, in line with our pledge to the 30% Club. We welcome the progress reported against our targets, with an improvement at our CEO-1 and CEO-2 levels from 27% at the same point last year to 34% as at 31 December 2018. The actions we have in place to improve representation of women at all levels in our organisation are stretching, benchmarked and sponsored by our CoChief Executives. Increasing women in our senior roles will also improve our gender pay gap, which is heavily influenced by the significant number of men in senior and most highly remunerated roles, and by the larger number of women in more junior roles. Our actions are making a difference and our strong gender pool balanced pipeline continues to grow, particularly at CEO-2 level; however we know that we have more to do at Board and Executive team level.
This year we were delighted to be one of the inaugural signatories to the Race at Work Charter launched by Business in the Community in partnership with the government. This commits organisations to tackling barriers that ethnic minority people face in recruitment and progression. As part of delivering on our commitments, we published our first ethnicity action plan and provided diverse employment opportunities to ethnic minority and socially mobile young people through the Taylor Bennett Foundation, The Prince’s Trust and our inclusive employment strategy.
We continued our strategic partnership with Career Ready throughout 2018, aligning 34 students with internal mentors as well as providing a four week internship in Edinburgh, London or Aberdeen, paid at the Living Wage. Standard Life Aberdeen is also one of six Scottish-based Financial Services firms piloting an approach to increase school students’ awareness, and understanding, of the diversity of careers in our industry.
We are proud to be recognised for our commitment to early career talent. Feedback from our 2018 intern cohort saw us feature in the Top 100 Undergraduate Employers for 2018. (Our 2019 ranking will be confirmed in Q1.) In May, our early careers and employer brand team won Bronze at the Employer Brand Management Awards for Best Employer Brand Management Programme following a merger or acquisition.
We are committed to talent progressing at every career stage. We promote a philosophy of individual-driven development linked to business need: learning in real-life and real-time backed by a range of open-access learning opportunities available to all colleagues. Our Board and Executive Committee are highly engaged in our talent and succession agenda and in mentoring future talent. Succession Benchstrength Reviews, including Talent Reviews and profiling of individual talent, are executed regularly within the organisation to ensure that a strong pipeline of ‘expertise talent’ as well as leadership talent is being developed both to fuel our growth agenda and to assure our clients of seamless transitions in the event of natural individual movement. Where gaps in our pipeline are identified, we are proactive in identifying external talent who are additive to our organisation and culture.
and has created a baseline to build on. In addition, there are employee representation arrangements across the organisation aimed at providing ongoing insights from our people to help the Company understand the employee perspective.
 Attend an innovation Panel meeting  Attend several senior talent NED engagement dinners  Report back to the Board on a regular basis on the output from her workforce engagement activities  Prepare a report for the 2019 Annual Report and Accounts on the impact of her workforce engagement activities
Developing our People Throughout 2018 we have continued to strengthen our approach to supporting the development of our people.
Our drive to be effective is reflected in the launch of a range of personal effectiveness and business skills courses, to support personal career growth. We make full use of digital learning channels to promote regular and ongoing learning and development in the workplace to all employees. During our recent digital learning campaign, The Leading Edge Challenge Series, over 50,000 learning resources were accessed by employees and the campaign has been shortlisted for two industry awards.
As outlined above, developing world-class early careers talent is a priority. Our new Graduate Development framework enables graduates to develop key skills and capabilities that we have identified as critical to their personal and professional development, ranging from resilience to commercial awareness.
In 2018, 59 students participated in our Intern Development Programme supporting their transition into the workplace. In addition to developing a range of skills, the programme also showcased our support for social causes, raising money in aid of a high profile charity (Chest, Heart and Stroke Scotland).
We believe that when our employees own shares in the Company they understand better the interests of the Company’s shareholders.
Sustainability The commercial aims of our business are linked to our environmental, social and governance responsibilities. You can find out more about how we run our business sustainably throughout the Strategic report. Our non-financial information statement on page 49 summarises where you can find key information on our approach. For details of our greenhouse gas emissions, please see page 48.
G o ver n an c e 79Standard Life Aberdeen 2018
Political donations We have a long-standing policy of not making political donations. The Company has limited authorisation from shareholders to make political donations and incur political expenditure (Resolution 10, 2018 AGM). We request this as a precaution against any inadvertent breach of political donations legislation. While Standard Life Aberdeen has regular interaction with government and elected politicians in the UK and other jurisdictions in which we operate, we are strictly apolitical.
Annual General Meeting Details of the meeting content can be found in our AGM guide 2019. Currently, AGMs are held in Edinburgh and London in alternate years. The AGM will be held in Edinburgh in 2019. The AGM guide and other materials will be published online at www.standardlifeaberdeen.com in advance of this year’s AGM.
Post balance sheet events On 11 March 2019, Standard Life (Mauritius Holdings) 2006 Limited informed the National Stock Exchange of India Limited and BSE Limited that it intends to Offer for Sale (‘OFS’) up to 70,000,000 shares in HDFC Life, with an option to additionally sell up to 29,500,000 shares through the OFS, at a floor price of Rs 357.5 per share. Collectively this represents 4.93% of the total paid up equity share capital of HDFC Life.
Interest capitalised x Publication of unaudited financial information in a class 1 circular or in a prospectus, other than in accordance with Annexes 1 and 2 of the FCA’s Prospectus Rules x Details of long-term incentive schemes x Waiver of emoluments by a director x Waiver of future emoluments by a director x Non pre-emptive issues of equity for cash x Non pre-emptive issues of equity for cash in relation to major subsidiary undertakings x Parent participation in a placing by a listed subsidiary x Contracts of significance x Provision of services by a controlling shareholder x Shareholder waivers of dividends x Shareholder waivers of future dividends x Agreements with controlling shareholders x
 Summary, which sets out an overview of the remuneration policy, how it will be implemented in 2019 and key reward decisions in respect of 2018
Approval The Directors’ remuneration report was approved by the Board and signed on its behalf by
Dear Shareholder 2018 Events On behalf of the Board I am pleased to present the Remuneration Committee’s report on Directors’ remuneration for the year ended 31 December 2018.
2018 was a year of change for Standard Life Aberdeen. There has been a significant amount of work behind the scenes and I would like to thank the People team who, under Kerry Christie’s leadership, have helped deliver on critical projects. From an executive remuneration perspective, the new Directors’ Remuneration Policy was submitted at the 2018 AGM and approved by shareholders with 98% of the vote. I would like to thank shareholders for the strong level of support given to the policy and their continued dialogue on remuneration matters. The policy was designed to clearly align the remuneration for executive Directors with company performance, taking into account an assessment of financial, non-financial and personal performance and supports our objective of having a simple and transparent structure for executive remuneration with a focus on sustainable long-term performance.
Business context and remuneration outcomes As set out in the Chairman’s statement, it is clear that 2018 has been a challenging year for our business with investment performance having fallen below historic levels, particularly within our absolute return strategies and weaknesses within a number of other equity classes. Significant outflows have materialised as a result of both investment performance in those areas and general investor sentiment in challenging market conditions. Conversely, performance for Fixed Income, Cash/Liquidity and Alternatives remains strong over 3 and 5 years, and we have maintained capital strength which has enabled us to sustain strong dividend payments.
Executive Incentive Plan (‘EIP’) outcomes The financial performance indicated above has rightly impacted executive reward with the outcome of the Executive Incentive Plan (‘EIP’) scorecard being heavily weighted (80%) towards financial outcomes. However, the Committee did acknowledge that achievements from the perspective of strategic and personal performance also need to be taken into account when determining overall remuneration outcomes for our executive Directors.
To consider whether the awards generated by the scorecard were fair in the broader performance context the Committee considered the following factors:  The outcome from the perspective of overall company performance  The shareholder experience during 2018  The context of the incentive funding position across our workforce
As a result, taking a holistic view of these factors, the Committee decided to apply a discretionary reduction to the EIP outcome for the co-CEOs in recognition of the disappointing outturn in 2018, reducing the awards to 50% of the calculated outcome. In addition, the Committee decided that the awards should be deferred in full, with vesting determined by performance against underpins which link the awards to future performance (details of which can be found on page 91). In the Committee’s view, the outcomes for the co-CEOs set out above best balance disappointing financial results and shareholder outcomes with appropriate recognition for the contribution made by the co-CEOs to manage the Company’s performance in a challenging marketplace and to continue to move forward on the Company’s strategic agenda as articulated to, and strongly supported by, our shareholders. The overall outcome of the scorecard and the discretionary adjustment for the co-CEOs is set out in the table below.
Further details on EIP outcomes for all executive Directors can be found on pages 88-91.
Further details of the LTIP performance assessment, including how these performance conditions were restated to reflect various transactions during the year, can be found on page 91.
Corporate Governance Code Alongside the above work, the Committee noted the publication of the 2018 Corporate Governance Code in July 2018. I am pleased to confirm that Standard Life Aberdeen had already introduced a number of the measures proposed, such as a shareholding requirement post-cessation, which was adopted as part of the Directors’ Remuneration Policy at the 2018 AGM, and the publication of the CEO pay ratio.
The Committee also took steps to strengthen the terms under which malus and clawback operate, clarifying additional scenarios under which the Committee could apply either as appropriate. The enhanced circumstances include material corporate failure, and where the grant or vesting of award is based on an error in information, assumptions or erroneous or misleading data.
How we will implement the policy in 2019 Base Salary The Committee has determined that no increases to salaries would be made for any of the executive Directors. Salaries will therefore remain in line with 2018 (see page 85).
EIP The Committee remains comfortable that the overall EIP mechanism remains fit for purpose and, as shown in the 2018 outcomes, appropriately aligns executive remuneration with the interests of the Group and its shareholders. It also allows the Committee an appropriate level of flexibility to apply discretion to ensure that remuneration outcomes are reflective of a holistic view of overall performance.
The Committee did, however, review the individual metrics which make up the financial element of the scorecard. In particular the Committee decided to make the following minor adjustments to metrics for 2019:  Replace Adjusted Profit (20%) with Adjusted Diluted EPS (20%). In line with the conversations with major shareholders in 2018, the adjusted profit metric will be replaced with an EPS metric to further align the management team with the shareholder experience. EPS was not introduced in 2018 given the intended corporate activity in 2018. In line with the current adjusted profit metric, EPS will continue to be based on a look back period increasing to three years over the life of the policy. The 2018 base year EPS has therefore been taken from the same operating plan as the original adjusted profit target to maintain the integrity of the plan.
 Update the approach to measurement of net new flows. Given the volatility in setting net flows targets, and the relative size of fund flow, the Committee has revised the approach to determining the net flows target range to be based on the differential between gross inflows and gross redemptions. The revised approach is considered to provide a more robust assessment of performance.
Details of the proposed targets for 2019 can be found on page 86.
Martin’s base salary will remain as £600,000 and he will continue to participate in the EIP, although his maximum bonus opportunity will reduce from the current level of 600% to 350% of base salary with effect from the date of his appointment to his new role. There will be no changes to Keith’s remuneration as a result of this change.
Stephanie will be appointed on a base salary of £525,000 and she will receive a cash allowance in lieu of pension of 20% of salary in line with the executive remuneration policy. She will be eligible to participate in the EIP on the same basis as other executive Directors with a maximum opportunity of 350% of salary. As set out in the shareholder announcement, to reflect the change in the profile of her remuneration arrangements on leaving PwC, where partners have relatively stable earnings expectations with the full payment made in cash through the year, to joining Standard Life Aberdeen where there is significantly greater variability in out-turns and a significant proportion of awards are deferred for the longer-term, the Remuneration Committee has agreed to grant Stephanie a one-off award over Standard Life Aberdeen plc shares in connection with her appointment as CFO. The award, with a face value of £750,000 at the date of grant, will be over Standard Life Aberdeen shares and will vest in equal tranches in June 2020, June 2021 and June 2022.
Bill Rattray will retire from the Board on 31 May 2019 and will be given notice of cessation of his employment (12 months) at that date. It is intended that Bill will remain employed, to support transition to Stephanie, until 31 December 2019 during which time he will receive salary, benefits and will continue to accrue an award under the EIP. Following that date, in line with his contractual entitlements, Bill will receive salary and benefits for the remainder of his notice period.
As you wilI be aware from the announcement of 13 March, I have decided to retire from the Board at the 2019 AGM. It has been a pleasure to serve on the Board and I have much appreciated the open and constructive dialogue on remuneration matters that I have been able to enjoy with shareholders during my time as Chair of the Remuneration Committee. Although my successor has yet to be confirmed, I wish them every success and that they are able to enjoy the strong levels of support and engagement that you have afforded me.
For a full overview of our remuneration policy please see the Annual report and accounts 2017 on our website www.standardlifeaberdeen.com/annualreport
G o ver n an c e 83Standard Life Aberdeen 2018
 A balance of non-financial measures forms part of our scorecard for reward which includes a customer and client metric as well as measures on risk, compliance and conduct
 These will be assessed in determining reward outcomes to ensure that our culture and values have been adhered to in achieving results delivered
Helping people be more productive, simplifying our ways of working and managing our costs effectively, enabling us to invest for growth
 Non-financial scorecard includes customer and client as well as strategic measures
 Investment performance is measured over three and five years and flows over three years. Both metrics also form part of the underpin measures post-award for a further three years.
Competitive, flexible retirement benefit delivered in a way that does not create an unacceptable level of financial risk or cost to the Group.
Pension allowance for each executive Director set at 20% of base salary.
Performance is measured both on annual, and where appropriate, trailing performance of up to three years.
Awards are delivered as follows:  25% in the form of cash  75% in the form of a deferred award
Subject to performance against the underpins, deferred awards vest in equal tranches on the third, fourth and fifth anniversaries of the grant date. Vested awards are subject to a holding period until the fifth anniversary of the grant date.
Maximum opportunities for 2019:  Co-CEOs: 600% of salary  CIO: 600% of salary  CFO: 350% of salary 80% of the award will be based on financial metrics, with the remainder based on nonfinancial (10%) and personal (10%) performance.
Underpin metrics for deferred variable pay awards are solely financial in nature.
Executive Directors are required to build up substantial interests in the Group.
Shares to the value of the share ownership guidelines must be held for 12 months following departure from the Group.
Fees for the Chairman and non-executive Directors are set at an appropriate level to reflect the time commitment, responsibility and duties of the position and the contribution that is expected.
The Board annually sets the fees for the non-executive Directors, other than the fee for the Chairman of the Company which is set by the Remuneration Committee.
Details on non-executive Director fees in respect of 2019 can be found on page 98.
Scorecard for the 2019 EIP The following table sets out the performance scorecard to be used to determine 2019 EIP awards: Performance metrics Measurement period Weighting Threshold
Strategic Annual 2.5% Remuneration Committee assessment at year end Customer and client Annual 2.5% Remuneration Committee assessment at year end People Annual 2.5% Remuneration Committee assessment at year end Risk, compliance, conduct Annual 2.5% Remuneration Committee assessment at year end Personal Annual 10% Remuneration Committee assessment at year end 1 Includes eight months of discontinued business. 2 Flows exclude investments in cash and liquidity funds. 3 Definition aligns to the previous terminology of ‘growth’ flows.
As set out in further detail in the Chairman’s statement, the Committee exercised its discretion to reduce the pay-out to the co-CEOs by 50% to reflect the overall performance of the Group over the 2018 performance period. In addition, for the co-CEOs, the full award (rather than 75%) will be delivered in the form of deferred shares. Deferred share awards vest over a five-year deferral period (tranche vesting between years three and five, with a holding period such that no shares are capable of being sold until the fifth anniversary of grant) and are subject to underpin performance conditions measured over three years. Details of the underpin conditions for 2018 deferred awards are set out on page 91.
Long-term incentive plan awards The table below shows the outcome of the executive Directors’ participation in legacy LTIP awards, during the three-year performance period ending on 31 December 2018. Further details on the adjustments made to the performance targets as a result of the sale of Standard Life Aberdeen’s UK and European insurance business and additional commentary on performance from the Remuneration Committee can be found on pages 90-91.
Salary, pension, benefits and other payments EIP paid in cash EIP deferred Long-term incentive plan: Legacy long-term incentives
G o ver n an c e 87Standard Life Aberdeen 2018
5. Directors’ remuneration report continued 5.3 Annual remuneration report – what we did in 2018 for executive Directors Single total figure of remuneration – executive Directors (audited) The following table sets out the single total figure of remuneration for each of the executive Directors who served as a Director at any time during the financial year ending 31 December 2018: Executive Directors
Total remuneration for the year £000s 1 This includes the taxable value of all benefits paid in respect of the year ended 31 December 2018. Included for Keith Skeoch and Rod Paris is private health cover at a cost to the Group of £518 per annum per employee and medical insurance for Martin Gilbert (£1,717) and Bill Rattray (£1,408). 2 For prior years this figure shows the annual cash bonus paid in respect of the year 3 As set out in the Chairman’s statement, the Remuneration Committee decided that, for the co-CEOs, the full amount of the EIP award should be deferred in shares vesting over years 3, 4 and 5 and will be subject to the underpin mechanism detailed on page 91. For the CIO and the CFO, 75% of the EIP award is deferred under the same mechanism in line with the Directors’ Remuneration Policy. In the event that all, or part, of the award fails to satisfy the underpin and subsequently lapses, the single figure outcome will be restated in the following Annual report and accounts.
7 Keith Skeoch, Martin Gilbert and Rod Paris, participate in the Standard Life Sharesave Plan. Keith Skeoch and Rod Paris participate in the Standard Life (Employee) Share Plan – the maximum annual award of matching shares in 2018 was £600.
Pension (audited) All executive Directors received a cash allowance in lieu of pension contributions of 20%.
 Addition of Phoenix profit share from 1 September 2018  Removal of targets as a result of the change in share of HDFC AMC following the IPO and inclusion of interest on the sales proceeds  Removal of flows relating to India & China life and HDFC AMC (as set out in the Strategic report, this information is no longer available)
The table on the following page contains the original and adjusted targets and shows the outcome of the executive Directors’ participation in the EIP plan for the period 1 January 2018 to 31 December 2018 against each of the elements of the EIP scorecard.
 SLA Transformation Portfolio progressing well – on track to deliver the targeted annual efficiency savings of over £350m by 2020
People 2.5%  Achieved Women in Finance executive target, up 6% from 2017  A full talent and succession review of Executive pipelines and other critical roles  Baseline employee engagement survey completed with 69% response rate, but with a score below industry average. However, responses have highlighted key areas for focus and action plans have been developed.
 Voluntary turnover within the group remains ahead of the benchmark
 Implemented system for consistent tracking of customer metrics showing customer service and satisfaction across 16 key investment drivers. 13 of 16 metrics trending positively.
Keith Skeoch 10%  Leadership role in the evolving regulatory environment via role with Financial Reporting Council, HM Treasury taskforce and Asset Management CEO meetings. Strong focus on promoting good conduct internally and incorporating effective control structures.
 Complaint rate below target of less than 1 per 1,000 policies, with no material impact felt as a result of the sale of the UK and European insurance business. Transactional Net Promoter Score above target.
 Led the creation of a single global research platform across asset classes  Introduced Process Enhancement Plans for underperforming asset classes  Promoted our ESG programme and ensured integration into investment processes  Helped deliver a record number of new funds for clients
 The associated restructuring of the balance sheet to maintain capital strength  Oversight and management of the capital return through both a share buy-back and the B share scheme  Continued engagement with the institutional investor and analyst communities
1 EIP deferred awards are subject to performance underpins measured over three years as set out in the following section.
The following table sets out each of the performance underpins: Performance measure Weighting Underpin level
 Net new business flows underpin3 (12.5%) approved target of £40.6bn is based on the 2019 budget sum of the differential between gross inflows and gross redemptions for the three year period 2019-2021 reduced by the mid-point between Threshold and Target applied to 2019 in the EIP.
Long-term incentives In line with the arrangements in place prior to the merger of Standard Life plc and Aberdeen Asset Management PLC, Keith Skeoch and Rod Paris have outstanding awards under the Standard Life Executive LTIP and Rod Paris also has outstanding awards under the Standard Life Investments LTIP. The following section sets out the level of vesting of outstanding awards due to vest based on performance to the end of 2018.
2016 Executive LTIP award vesting in respect of performance ending in 2018 (audited) The awards granted in 2016 under the Executive LTIP have two performance conditions. The outcome is based 70% on cumulative Group adjusted profit before tax and 30% on cumulative Group net flows.
The awards are also subject to two underpins when assessing the Group performance. The first requires the Risk and Capital Committee to be satisfied that performance obtained has been achieved within acceptable defined risk parameters. The second requires the Remuneration Committee to be satisfied that performance against the plan metrics appropriately reflects overall Group performance.
G o ver n an c e 91Standard Life Aberdeen 2018
 Addition of Phoenix profit share post 31 August 2018  Removal of targets related to the change in share of HDFC AMC following the IPO and inclusion of interest on the sales proceeds
The underlying principle to the adjustments made was that the adjusted targets should not be easier / more challenging than the original targets.
In line with the above results, it was determined the performance conditions were not met and the award lapsed in full.
When awarded, the vesting outcome was subject to a consolidated cumulative three-year third party EBITDA performance and this measure was used to capture vesting outcomes up to the end of 2017. As a consequence of the merger the awards became based on an adjusted profit before tax performance target for Aberdeen Standard Investments for the 2018 performance year. The actual profit targets are not disclosed as Aberdeen Standard Investments is a subsidiary business of Standard Life Aberdeen plc and the Board deems that this is commercially sensitive information which, if disclosed, could seriously prejudice the Group’s business.
Rod Paris, who was not a Director at the time of grant in March 2016, received an award with a maximum value of 500% of salary with the performance period ending in 2018.
Adjusted profit before tax performance target <70% of target 70% of target 100% of target 130% of target Actual performance 72.4% of target Vesting outcome 6.35% of target
Keith Skeoch Nil-cost option Deferred Bonus £413,000 97,541 Not applicable Not applicable Rod Paris Nil-cost option Deferred Bonus £224,483 53,017 Not applicable Not applicable
Martin Gilbert Nil-cost option Deferred Bonus £3,076,827 742,908 Not applicable Not applicable Bill Rattray Nil-cost option Deferred Bonus £636,943 153,786 Not applicable Not applicable 1 Executive LTIP share price used was 367.68 p. 2 Under the 2017 Group annual bonus plan and Standard Life Investments bonus plan, 50% of bonuses in excess of 25% of salary were deferred for three years into Standard
3 Under the Aberdeen variable pay plans, deferred bonus awards in the form of nil-cost options were granted to Martin Gilbert and Bill Rattray. As disclosed in the Annual report and accounts 2017, of the above awards £837,827 (Martin Gilbert); £172,943 (Bill Rattray) relate to the period post completion of the merger (i.e. 14 August 2017 to 31 December 2017). These awards will vest in equal tranches between 5 March 2019 to 5 March 2023 (share price on award 368.88 pence which was the average Standard Life Aberdeen plc share price for the 5 days prior to the 5 March grant). The balancing figures £2,239,000 (Martin Gilbert); £464,000 (Bill Rattray) relate to the period prior to the completion of the merger (i.e. 1 October 2016 to 13 August 2017). These awards will vest in equal tranches between 14 August 2018 to 14 August 2022 (share price on award 328.08 pence, being the average Aberdeen Asset Management share price for the five days prior to grant, i.e. 14 August 2017).
The underlying principle to the adjustments made was that the adjusted targets should not be easier/ more challenging than the original targets.
The table below sets out the adjusted performance targets for Executive LTIP awards granted in 2018: Performance condition
Cumulative Group adjusted profit before tax (excluding spread/risk margin) 1 January 2018 -
Directors’ interests in shares (audited) A shareholding requirement was implemented in 2014 and amended in 2018. We continue to require executive Directors and senior management to maintain a material long-term investment in Standard Life Aberdeen plc shares. The Remuneration Committee reviews progress against the requirement annually and retains discretion to require executive Directors to purchase shares to meet the requirement. Personal investment strategies (such as hedging arrangements) are not permitted. For the purpose of the shareholding requirement, awards qualifying include 50% of the value of deferred awards held by the executive Directors that have vested but not been exercised and 50% of the value of long-term incentive awards that are no longer subject to a performance condition but have not been exercised. As illustrated in the tables below, all executive Directors have complied with the current requirement as at 31 December 2018.
Executive Directors’ external appointments Subject to the Board’s approval, executive Directors are able to accept a limited number of external appointments to the boards of other organisations and can retain any fees paid for these services. Significant executive Director appointments held during the year are shown below: Executive Director Role and organisation 2018 Fees
Percentage change in remuneration of the Director in the position of Chief Executive Officer The table below shows the percentage year-on-year change in salary, benefits and annual bonus earned between the year ended 31 December 2017 and the year ended 31 December 2018 for Martin Gilbert and Keith Skeoch as Co-Chief Executive Officers compared to the average UKbased Group employee. The Remuneration Committee considers these appropriate comparators as the Co-Chief Executive Officers are UKbased and the largest number of Group employees are based in the UK.
% change in base salary % change in EIP outcome/bonus % change in benefits1
Total shareholder return of Standard Life Aberdeen plc compared to the
Relative importance of spend on pay The following table compares what the Group spent on employee remuneration to what is paid in the form of dividends to the Company’s shareholders. Also shown is the Group’s adjusted profit before tax which is provided for context as it is one of our key performance measures: Remuneration payable to all Group employees (£m)1 772 (1%) 781 Dividends paid in respect of financial year (£m) 559 (11%) 626 Share buybacks and return on capital (£m) 1,235 n/a –
Dec-2008 Dec-2009 Dec-2010 Dec-2011 Dec-2012 Dec-2013 Dec-2014 Dec-2015 Dec-2016 Dec-2017 Dec-2018
Akira Suzuki3,5 2018 – – – 2017 – – – 1 Sir Gerry Grimstone received an allowance of £20,000 towards his business related accommodation costs in Edinburgh in addition to his Chairman’s fees. Other amounts reported relate to expenses such as travel and accommodation expenditure incurred on Group business. While these payments are the reimbursement of expenses and not benefits, they are included as being a payment which is subject to tax.
The service agreements/letters of appointment for Directors are available to shareholders to view on request from the Company Secretary at the Company’s registered address (details of which can be found in Section 12) and at the 2019 AGM.
Sir Douglas Flint3 1 November 2018 Gerhard Fusenig 14 August 2017 AGM 2018
Jutta af Rosenborg 14 August 2017 AGM 2018 1 Appointment as Chairman. 2 Appointment as Deputy Chairman. 3 Appointed Chairman with effect from 1 January 2019.
Deputy Chairman’s Fees2 £200,000 £200,000 Non-executive Director fee4 £73,500 £73,500 Additional fees: Senior Independent Director £25,000 £25,000 Chairman of the Audit Committee £30,000 £30,000 Chairman of the Risk and Capital Committee £30,000 £30,000 Chairman of the Remuneration Committee £30,000 £30,000 Committee membership (Audit, Risk and Capital, Remuneration and Nomination Committees) £10,000 £10,000 1 The core fee of £73,500 paid to each non-executive Director (including the Chairman and Deputy Chairman) is expected to total £588k for 2019 (2018: £775k). This is within the maximum £1,000,000 permitted under Article 87 of Standard Life Aberdeen plc’s articles of association. Total fees including additional duties are expected to amount to £1,131k for 2019 (2018: £1,599k).
2 The Chairman’s and Deputy Chairman’s fees are inclusive of the non-executive Directors’ core fee and no additional fees are paid to the Chairman or Deputy Chairman where they chair, or are members of, other committees/boards.
Total number of shares owned at 19 October 2018 or date of cessation if earlier
Sir Gerry Grimstone, as Chairman, was subject to a shareholder guideline holding of 100% of the value of his annual fee in Standard Life Aberdeen plc shares to be reached within four years of appointment. Sir Gerry Grimstone fully met this requirement in 2018 with the value of his shares at the end of the year being 122% of his fees.
5. Directors’ remuneration report continued 5.5 The Remuneration Committee Membership During 2018 the Remuneration Committee was made up of independent non-executive Directors: Richard Mully, John Devine, Gerhard Fusenig, Kevin Parry, Cathleen Raffaeli (from 1 August 2018), and Jutta af Rosenberg. A number of meetings during the year were called at short notice which resulted in some members being unable to attend due to prior commitments. All members had the opportunity to review papers and pass comments to the Chairman in advance of the meeting.
Committee effectiveness The Committee reviews its remit and effectiveness annually. In 2018 an independent externally facilitated review was conducted by IBE. This included observation of a meeting, review of papers and interviews with Committee members. The key points arising from the review were:  The Committee had worked hard to bring together the remuneration structures of the two heritage companies
 Principally through its Chair, the Committee had engaged well with investors throughout the consultation period and responded to their views to gain consensus
 Mid-year review of performance against target for annual bonus and LTIP awards  Remuneration outcomes as a result of the sale of Standard Life Aberdeen’s UK and European insurance business  Review of senior individual appointments and termination agreements
 Update on the regulatory position of Standard Life Aberdeen  Review CEO pay ratio data  Update on the external environment
As is normal practice, there are employee trusts that operate in conjunction with the Executive LTIP, Standard Life Investments LTIP, the Restricted Stock Plan, the deferred elements of the Standard Life annual bonus plan and the Aberdeen Asset Management deferred plans. On 31 December 2018 the trusts held 51,917,150 shares acquired to satisfy these awards. Of these shares 9,836,865 are committed to satisfying vested but unexercised awards. The percentage of share capital held by the employee trusts is 2.05% – well within the 5% best practice limit endorsed by the IA.
(% of total votes) 97.91% 2.09% (No. of votes cast) 1,412,472,135 30,105,977 15,014,089
(% of total votes) 97.36% 2.64% (No. of votes cast) 1,416,364,330 38,430,826 2,795,153 102 Standard Life Aberdeen 2018
The Directors are responsible for preparing the Annual report and accounts and the Group and Company financial statements in accordance with applicable law and regulations.
7. Independent auditors’ report to the members of Standard Life Aberdeen plc 1. Our opinion is unmodified We have audited the financial statements of Standard Life Aberdeen plc (‘the Company’) for the year ended 31 December 2018 which comprise the Consolidated income statement; Consolidated statement of comprehensive income; Consolidated statement of financial position; Consolidated statement of changes in equity; Consolidated statement of cash flows; Company statement of financial position; Company statement of changes in equity and the related notes, including the reconciliation of consolidated adjusted profit before tax to IFRS profit for the year and the accounting policies in Note 1.
• The Group financial statements have been properly prepared in accordance with International Financial Reporting Standards as adopted by the European Union
• The parent Company financial statements have been properly prepared in accordance with UK accounting standards, including FRS 101 Reduced Disclosure Framework
Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (‘ISAs (UK)’) and applicable law. Our responsibilities are described below.
We believe that the audit evidence we have obtained is a sufficient and appropriate basis for our opinion. Our audit opinion is consistent with our report to the group audit committee.
We were first appointed as auditor by the shareholders on 16 May 2017. The period of total uninterrupted engagement is for the two financial years ended 31 December 2018. We have fulfilled our ethical responsibilities under, and we remain independent of the Group in accordance with, UK ethical requirements including the FRC Ethical Standard as applied to listed public interest entities. No non-audit services prohibited by that standard were provided.
Overview Materiality: group financial statements as a whole £32m (2017: £38m) 4.8% (2017: 4.5%) of normalised profit before tax
Event Driven New: The impact of uncertainties due to the UK exiting the European Union on our audit
Event Driven New: Accounting for the obligations arising out of the disposal of Standard Life Assurance Limited (‘SLAL’) and investment In Phoenix
Brexit is one of the most significant economic events for the UK and at the date of this report its effects are subject to unprecedented levels of uncertainty of outcomes, with the full range of possible effects unknown.
We developed a standardised firm-wide approach to the consideration of the uncertainties arising from Brexit in planning and performing our audits. Our procedures included: Our Brexit knowledge – We considered the directors’ assessment of Brexit-related sources of risk for the group’s business and financial resources compared with our own understanding of the risks. We considered the directors’ plans to take action to mitigate the risks.
Assessing transparency – As well as assessing individual disclosures as part of our procedures on recoverability of group goodwill, the parent’s investment in subsidiaries, the valuation of the defined benefit pension scheme obligation and the carrying value of the investment in Phoenix below, we considered all of the Brexit related disclosures together, including those in the strategic report, comparing the overall picture against our understanding of the risks.
Our results: As reported under the recoverability of group goodwill, the parent’s investment in subsidiaries, the valuation of the defined benefit pension scheme obligation and the carrying value of the investment in Phoenix below, we found the resulting estimates and related disclosures and disclosures in relation to going concern to be acceptable. However, no audit should be expected to predict the unknowable factors or all possible future implications for a company and this is particularly the case in relation to Brexit.
(Company: Investments in subsidiaries, Impairment of subsidiaries: £589m (2017: 20 m))
Sensitivity analysis: We performed our own sensitivity analysis which included assessing the effect of reasonably possible reductions in growth rates and forecast cash flows to evaluate the impact on current headroom and/or investment in subsidiaries valuation.
Assessing transparency: We assessed whether the group’s disclosures about the sensitivity of the outcome of the impairment assessment to changes in key assumptions reflected the risks inherent in the valuation of goodwill and the recoverability of investment in subsidiaries.
Our results: We found the group’s assessment of the carrying value of goodwill in the group and the parent company’s investment in subsidiaries to be acceptable (2017: acceptable).
On investment, SLA's share of the fair value of the identifiable assets and liabilities of Phoenix was assessed and compared to the cost of the investment. In doing this, the principle area of risk relates to the valuation of the acquired value of in-force business (‘AVIF’), the valuation of insurance contract liabilities and the valuation of level 3 assets. This assessment of fair value was made by the Directors of SLA and involves complex and significant judgements over a number of subjective assumptions.
Our procedures included: Assessing principles: We assessed the nature of the relationship with Phoenix by reviewing the terms in the sale and purchase agreement (SPA) and evaluated these against the criteria in IAS 28 to re-perform the significant influence assessment.
Assessing transparency: We assessed whether the group’s disclosure of the valuation of the investment in Phoenix adequately disclose the key judgements and potential estimation uncertainty in deriving the opening investment valuation.
Refer to page 63 (Audit Committee Report), page 127, (accounting policy) and page 130 and 202 (financial disclosures).
The calculation of the provision for separation costs arising out of the disposal of SLAL requires the Directors to determine a number of key inputs. The determination of these is judgemental and requires the Directors to consider a range of information connected to the Separation Plan. The most significant input of which is the costs that are estimated to relate to separating the business and which do not relate to costs related to SLA's ongoing business, including development of new systems. The risk is that the provision is misstated and includes future costs from which the group will derive ongoing benefit.
The effect of these matters is that, as part of our risk assessment, we determined that the provision for separation costs has a high degree of estimation uncertainty, with a potential range of reasonable outcomes greater than our materiality for the financial statements as a whole, and possibly many times that amount. The financial statements (note 38) disclose the range estimated by the Group.
Our procedures included: Test of details: For a sample of indemnities, we reviewed the legal documents to assess the obligations arising out of the indemnity. We obtained evidence to support the valuation calculations made by management.
Test of details: We assessed the judgements made in determining key assumptions such as eligibility rates, failure rates and average redress used to calculate the annuity sales provision and hence the contingent consideration.
Our procedures included: Test of details: We assessed the terms in the SPA and other documents to confirm that SLA has a legal obligation to pay for separation costs.
Assessing transparency: We assessed whether the group’s disclosures detailing separation costs to be incurred adequately disclose the potential expense for the Group, including the range of costs and potential estimation uncertainty.
7. Independent auditors’ report to the members of Standard Life Aberdeen plc continued
The valuation of these intangible assets is subjective and requires the use of assumptions relating to future cash flows and the use of valuation models. In addition, management need to make subjective judgements when assessing whether there are any indicators of impairment to these intangible assets.
The effect of these matters is that, as part of our risk assessment, we determined that the value in use of these assets has a high degree of estimation uncertainty, with a potential range of reasonable outcomes greater than our materiality for the financial statements as a whole and possibly many times that amount. The financial statements (Note 14) disclose the sensitivity estimated by the Group.
Our sector experience: Where there was an indicator of impairment, we evaluated the appropriateness of assumptions applied in key inputs such as revenue from contracts with customers, operating costs and discount rates.
Assessing transparency: We considered whether the Group’s disclosures in relation to the assumptions used in the valuation of management contract and customer relationship intangible assets appropriately represent the sensitivities of the asset valuations to the use of alternative assumptions.
Subjective Valuation: The present value of the Group’s funded obligation for the UK defined benefit pension scheme is an area that involves significant judgement over the uncertain future settlement value. The Group is required to use judgment in the selection of key assumptions covering both operating assumptions and economic assumptions.
Our results We found the valuation of the UK defined benefit pension scheme obligation to be acceptable (2017: acceptable).
We continue to perform procedures over the valuation of internally generated software assets not yet available for use and the valuation of level 3 financial instruments and investment property. However, following the groups disposal of its UK and Europe insurance business, SLAL, in the period, we have not assessed either of these areas as one of the most significant risks in our current year audit and, therefore, they are not separately identified in our report.
Non-Participating insurance contract liabilities and the provision for annuity sales practice were both balances within the SLAL entity. The disposal has resulted in these being transferred to Phoenix and therefore neither are identified as individual key audit matters within our report this year. They are however both identified areas of significant risk within the accounting for the obligations arising out of the disposal of SLAL and investment in Phoenix.
We agreed to report to the Audit Committee any corrected or uncorrected identified misstatements exceeding £1.6m, in addition to other identified misstatements that warranted reporting on qualitative grounds.
Of the group’s 75 (2017: 227, of which 160 were consolidated funds) continuing reporting components, we subjected 6 (2017: 19) to full scope audits for group purposes and 3 (2017: 13) to specified riskfocused audit procedures. The latter were not individually financially significant enough to require a full scope audit for group purposes, but did present specific individual risks that needed to be addressed. We conducted a review of financial information for one non-significant component (2017:1).
The work on 8 of the 9 continuing components (2017: 32 of the 33 components) was performed by component auditors and the rest, including the audit of the parent company, was performed by the Group team. The group team performed procedures on the items excluded from normalised group profit before tax.
Full scope for group audit purposes 2018 Specific risk-focused audit procedures 2018 Discontinued operations Residual components
In our evaluation of the Directors’ conclusions, we considered the inherent risks to the Group’s and Company’s business model and analysed how those risks might affect the Group’s and Company’s financial resources or ability to continue operations over the going concern period. The risks that we considered most likely to adversely affect the Group’s and Company’s available financial resources over this period were: • Movements in investment markets and assets under management • The impact of Brexit on the Group’s revenues
As these were risks that could potentially cast significant doubt on the Group’s and the Company's ability to continue as a going concern, we considered sensitivities over the level of available financial resources indicated by the Group’s financial forecasts taking account of reasonably possible (but not unrealistic) adverse effects that could arise from these risks individually and collectively and evaluated the achievability of the actions the Directors consider they would take to improve the position should the risks materialise. We also considered less predictable but realistic second order impacts, such as the impact of Brexit, which could result in a rapid reduction of available financial resources.
We have nothing to report in these respects, and we did not identify going concern as a key audit matter.
Our responsibility is to read the other information and, in doing so, consider whether, based on our financial statements audit work, the information therein is materially misstated or inconsistent with the financial statements or our audit knowledge.
Strategic report and directors’ report Based solely on our work on the other information
• In our opinion those reports have been prepared in accordance with the Companies Act 2006
Under the Listing Rules we are required to review the Viability Statement. We have nothing to report in this respect.
Our work is limited to assessing these matters in the context of only the knowledge acquired during our financial statements audit. As we cannot predict all future events or conditions and as subsequent events may result in outcomes that are inconsistent with judgments that were reasonable at the time they were made, the absence of anything to report on these statements is not a guarantee as to the Group's and Company’s longer-term viability.