Certain measures, such as fee based revenue, cost/income ratio and adjusted profit before tax are not defined under International Financial Reporting Standards (IFRS) and are therefore termed alternative performance measures (APMs). Further details on APMs are included in Supplementary information in Section 9.
Metric used for executive remuneration in the proposed 2020 remuneration policy. Gross inflows and net flows were metrics under the 2019 remuneration policy but are not included in the proposed 2020 remuneration policy.
Clients and customers 2020 Defaqto ratings • Gold rating for service
Wrap, Elevate and Parmenion • 5 star rating for bespoke portfolio management and managed portfolio service Aberdeen Standard Capital 2019 Financial News Asset Management Awards • Asset Management Innovation of the Year
Best performing trusts/funds of 2019 • Standard Life UK Smaller Companies and
Aberdeen Smaller Companies (both top 10 trusts) • ASI UK Impact Employment Opportunities
Employee engagement survey • Actions in place to address feedback from 2018 survey – See page 20
Hampton-Alexander Review 2019 – FTSE100 gender representation • 10th position and most improved company
The integration of environmental, social and governance (ESG) factors is fundamental to us both operationally and within our investment process. Details of our approach to ESG are integrated throughout this report, and in our Corporate sustainability report 2019 which can be found at www.standardlifeaberdeen.com/annualreport 1. Strategic report Our business at a glance ............................................................. 2 Message from the Chairman ....................................................... 4 Chief Executive’s review and strategic drivers ............................. 6 Our stakeholders and business model ...................................... 10 Our clients and customers ......................................................... 12 Our people .................................................................................. 18 Our role in society ....................................................................... 22 Our shareholders ........................................................................ 28 Chief Financial Officer’s overview .............................................. 34 Risk management ...................................................................... 44
Governance 2. Board of Directors ...................................................................... 52 3. Corporate governance statement .............................................. 56 3.1 Audit Committee report ....................................................... 65 3.2 Risk and Capital Committee report ..................................... 72 3.3 Nomination and Governance Committee report ................ 76 3.4 Directors’ remuneration report ............................................ 78 4. Directors’ report ....................................................................... 105 5. Statement of Directors’ responsibilities .................................. 111
• For our employees, it means creating an environment where everyone can thrive
• For society, it means promoting positive change through how we operate and invest
• For our shareholders, it means turning opportunities into sustainable long-term returns
Our business We meet the evolving needs of investors and savers. We do this by building lasting relationships and developing innovative products and services. We offer: • Active asset management to institutional, wholesale and strategic insurance clients
I am pleased to report that the work we have done to improve investment performance for our clients and customers has made good progress. Equally important, I am proud of the culture we are building with our people and, through all of the above, our positive role in society and the communities of which we are a vital part.
To enable us to build on where we are, we have continued our progress in transforming our organisation to ensure that we are ready to embrace the challenges and opportunities of today and tomorrow. Nowhere is this more important than contributing to the transition to a lower carbon future and, as an active manager, we take our engagement responsibilities in this regard very seriously. Already we do a great deal, but we can and will do more. We look forward to COP26, the United Nations Climate Change Conference, in Glasgow later this year, at which we hope to demonstrate leadership in the discussions as to what more the investment industry can do.
I am pleased to report that investment performance has shown marked improvement; Keith will cover this in more detail. As regards integration, we made solid progress and while completion will now take a bit longer and cost more to deliver, the synergy benefits targeted have also increased; this is covered in detail in the financial review. Finally, we have been investing to grow our business and further diversify sources of revenue. This includes focusing on building our capabilities and assigning resources to markets where we see the most growth potential, and in the UK bringing together the proven capabilities in our Platforms and Wealth channel.
In October we announced that Martin Gilbert will not seek re-election at the upcoming AGM and will retire from the Group at the end of September this year. This is a significant moment of transition for our business. As I said at the time, it is impossible to overstate Martin’s achievement in building Aberdeen Asset Management over 37 years from virtually nothing into a truly global and widely respected investment firm. His foresight in recognising the factors that would reshape the industry and the opportunities that could be delivered from combining with Standard Life, led to the creation of Standard Life Aberdeen in 2017. We owe him a huge debt of gratitude and accept the significant responsibility to build on his legacy.
In more traditional areas of concern, it is clear that the trade and diplomatic relationship between the United States and China will remain a source of friction for some time, particularly in the technology arena.
Board activity Since we reported in August we have announced a number of important changes as we refresh and augment the skills and experience on the Board.
We started to see evidence of progress in the second half of the year as flows improved. Our progress was also recognised by the industry as we received external recognition for investment performance, the quality of our platforms, our innovation and HR practices.
We also took advantage of favourable market conditions to monetise some of the value of our listed investments in India, in order to extend our share buyback programme and improve our financial resilience.
Our focus, of course, is on meeting the needs of our clients and customers, wherever they are in the world. To this end, as well as improving investment performance, we have maintained our commitment to innovation. We have developed and launched 36 products and 48 funds globally during the year, including our first tactical Emerging Markets Bond Fixed Maturity Product and our China OEIC and China Bond fund. We also launched new and highly innovative technology on our Wrap platform, which allows for greater client portfolio personalisation.
Leadership, culture and strategy Sustaining our performance, and meeting our ambitions, requires that our people are united – working together towards a common purpose with a shared culture. This starts with leadership. Over the last year we have made a significant investment in our people and have taken major steps forward in building the culture that will enable us to deliver our strategy.
Our purpose is that together we invest for a better future. Importantly we do this as a single cohesive team and with the interests of all our stakeholders at the heart of our decision-making.
Sustainable return for long-term shareholders Through this period of transformation, we are focused on reshaping our cost base to match our transformed business, while also investing to build a business fit for the future. Our financial stability is supported by our strong balance sheet, including our valuable listed investments in successful third party businesses including HDFC Life, HDFC Asset Management and Phoenix.
At the start of 2020, many of these themes hold true, though we face the added challenge of dealing with the COVID-19 coronavirus and its potential impact on the world’s economy and supply chains. We continue to see weak economic growth and little inflation. Meanwhile, interest rates look set to remain at the current very low levels. In this environment, and given more stretched valuations, we can expect more moderate returns for the year ahead. It continues to be an environment where careful diversification of portfolios is likely to be rewarded.
Innovation, technology and digitalisation Successful innovation is a key driver of value and the next generation of savers will expect a seamless digital customer experience. In 2019, we invested in new capabilities for our award-winning adviser platforms and launched 36 products and 48 new funds. One example is our new index of hedge funds which is a pioneering product in the market and has been one of the most successful UCITS fund launches in 2019.
Understanding our market 2019 was unusual for financial markets, with both ‘growth’ and ‘defensive’ assets producing strong positive returns. Investors entered the year expecting rising interest rates, but rates actually fell. This, and a flood of central bank liquidity, lifted asset classes across the market.
That said, the central bank assistance was principally driven by disappointing economic data. Economies struggled to shake off the hangover from the financial crisis of 2008. So while the global economy did grow, it was at lower levels than most expected.
A rapidly changing market Our actions over the course of 2019 ensure we are in a strong position in a global market that continues to be volatile. The pace of change remains relentless and the coming year will naturally bring its own challenges. The outbreak of the COVID-19 coronavirus brings a unique set of risks for global businesses to deal with.
Importantly, we now have a government with a sizeable majority. This will bring political stability but also the ability to define and deliver its own economic and social agenda beyond Brexit.
needs, investing in our culture and championing positive change for society and the environment. We remain financially strong and resilient, delivering sustainable value for shareholders.
Looking ahead Our strong financial position, capital generation potential and focus on operational efficiency enables us to invest in the business to drive profitable revenue growth and shareholder return.
The outlook for the markets and our industry in 2020 is turbulent with the additional complexity of COVID-19. We are focused on what we can control, namely: delivering for our clients, customers, colleagues and shareholders; diversifying our revenues; investing for the future, and maintaining financial discipline. By doing this we will build a business that is fit for the future and well positioned to manage through the uncertainties ahead.
We focus on delivering outcomes that truly matter to our clients and customers, and are committed to active asset management. We draw on expertise and insight from our teams around the world to deliver long-term investment performance. Our platforms and wealth management services help us respond to increasing demand for financial advice and guidance, and provide advisers with technology to support their customers effectively.
We aim to provide a market-leading proposition for our people. We have made significant steps in developing new UK terms and conditions and harmonised policies that are fair and consistent. We are committed to investing in attracting, retaining and developing talent at every career stage and we offer development opportunities that link to our business needs. Our aim is to understand our people’s diverse perspectives and reflect their views in how we operate, through an inclusive and unifying culture.
Client and customer relationships We focus on relationships with our clients and customers based on mutual trust and our ability to effectively meet their needs.
High quality customer service is a key focus for our operations teams.
In addition, we have important brands that we continue to invest in.
Investment capabilities We aim to deliver innovative solutions and achieve better long-term investment outcomes for our clients and customers, through a combination of local market knowledge and global oversight. Our capabilities span a broad range of markets, asset classes and strategies which create diversification of our services.
We actively manage our balance sheet to ensure we hold enough capital to allow us to invest for future business growth and deliver returns to shareholders.
Controlling costs We control expenses and invest strategically to improve both the scalability and efficiency of our business. Our cost base has a high proportion of fixed costs and we remain focused on reducing and altering our cost base as we reshape our business to respond to the changing external environment.
Delivering profit and shareholder returns Generating revenue and controlling costs enables us to drive our profit and cash flow that allow us to invest in our business and deliver returns to shareholders. Cash generation for our Asset management and Platforms and Wealth activity is closely aligned with profit.
How we engage with our clients and customers We operate across the world, building and evolving relationships with over 12,000 institutional and wholesale clients globally, and over 500,000 customers through our platforms and wealth activity in the UK.
Wholesale We support private banks, wealth managers, and financial advisers, as well as making our products available directly to their underlying customers.
Platforms and Wealth We provide wealth management, financial planning and advice services, both directly to customers and through financial advisers.
We also have relationships with asset managers in some of the world’s largest economies. We benefit from local expertise and together we are able to help drive product innovation and generate greater insights and active opportunities for clients and customers.
As an active asset manager, we look for ways to deepen our understanding of clients and customers to meet and exceed their expectations, wherever they are in the world. To do this we offer products and innovative solutions across a diverse range of asset classes.
Equities One of the world’s largest active asset managers offering wide ranging equity strategies.
Disciplined, research-driven and team-based approach, enabling us to target repeatable outcomes for clients.
Enhanced scale and resources providing a clear information advantage across global bond markets, allowing us to identify the best investment opportunities for client portfolios.
Private markets One of the top ten largest managers of private markets (including real estate) assets globally.
Largest real estate manager in the UK and in the top three in Europe.
Highly experienced team in alternative investing supported by global research coverage.
How we consider clients and customers in strategic decisions: bringing together private markets
As global markets evolve, we are seeing a greater number of investors shifting assets from public to private markets. Access to private markets is increasingly considered essential to diversifying investors’ portfolios, in order to benefit from areas of market growth.
More information about our commitment to responsible investing, and the role our company plays in supporting positive change in society, is on pages 22 to 27.
We work with our clients and customers to understand what they want from us and put this at the centre of the solutions we develop. Our ability to innovate and connect our different capabilities helps us to deliver better outcomes. This is what has driven our decision to take a fully integrated approach to private markets.
Responsible investing For over two decades, we have led the way in embedding environmental, social and governance (ESG) considerations throughout our investment activities.
Our research process helps us to understand how well investee companies are managing ESG risks and opportunities alongside financial metrics and then whether the market has priced them accordingly. This insight allows us to make better investment decisions, leading to better outcomes for our clients.
• We provide financial advisers with intuitive technology to help them run their businesses effectively and efficiently. We innovate and develop platforms and services to keep pace with the changing lives of UK customers, and to help advisers deliver good quality advice in response. This means developing sustainable and scalable solutions that support them to meet their customers’ savings goals.
Parmenion integrates discretionary investment management, a range of platform services and intuitive technology. It is well suited to advisers who seek to outsource investment decisions and focus on core financial planning. It is intended that Parmenion will also provide the platform to support customers through our joint venture with Virgin Money.
We focus on continually innovating and improving the functionality across our platforms, all with the intent of making them easier for advisers to use. During 2019 we made progress in a number of areas: • We repriced our Wrap and Elevate platforms and launched our drawdown price lock on Wrap – which allows advisers to lock their customers charges at their lowest level, with customers benefiting from reduced fees throughout their retirement.
During 2019, we completed two acquisitions that accelerated our growth plans and strengthened our UK-wide presence: • In July, we completed the acquisition of BDO Northern Ireland’s wealth management business
Combined, these deals resulted in a £1.8bn increase in assets under advice to a total of £5.7bn. 1825 now has over 110 financial planners and increased reach across the UK.
Aberdeen Standard Capital manages investment portfolios for private clients, intermediaries acting for clients, charities and trustees, who can use these services either directly or through a professional adviser.
For professional advisers, there is also a managed portfolio service, available via a variety of well-known platforms.
In the UK, our people are represented by an Employee Forum which engages with the leadership team on key decisions. Globally, our people can join one of our diverse employee networks or regional inclusion committees.
In 2019 we continued the development of our digital workplace programme. Due to launch in 2020, it represents a modern and intuitive digital interface for our people across the world. Employees’ insight is central to the work which will help foster the culture of the business while providing a seamless experience for our workforce.
We recognise each of our colleagues is unique and our workforce is drawn from a variety of age groups, family circumstances and career aspirations.
Building an inclusive culture is central to how we operate and our efforts are recognised by our people. We undertook a survey in 2019 to seek views on our inclusive culture. The chart opposite shows the responses from 1,071 of our people. We will reflect their responses in our inclusion activities.
In my team we make sure our ways of working are inclusive of everyone
In 2019, employees accessed 66,000 leadership, management and personal development resources.
Our success depends on our ability to retain and attract the right talent to drive business performance. Our employee proposition In 2019 we undertook significant work to develop our employment proposition in the UK, where the majority of our employees are based, that will enable our people to drive our business forward. It has been the foundation for a new, unified set of UK terms and conditions, which has also been a significant step on our journey towards full integration. We also moved all of our people onto a single HR system for the first time.
Through this piece of work we considered our employment proposition and supporting policies and how to balance our overall offer. Comparisons with our competitors helped us decide where we would choose to be market-leading.
A set of key principles underpinned the detailed development of the new UK terms and conditions and our harmonised policies. As an example it was important that they were fair and consistent, irrespective of how long someone has worked here.
The main themes that emerged from the survey included the need to improve how we communicate our strategy to colleagues, and how we minimise factors that can prevent people from doing their jobs as effectively as possible.
Positive feedback centred on how our managers lead through change, people feeling able to be themselves at work and our continued focus on all aspects of inclusion.
Our new market-leading parent policy From 1 January 2020, all of our employees in the UK welcoming a child into their family are entitled to: • 52 weeks’ leave in total • 40 weeks of full paid leave • The option to take these 52 weeks as one, two or three periods of leave, during the two years following the birth or placement
The policy means that the primary caregiver does not have to share their entitlement and end their leave early. The policy applies whether the mother gives birth to the baby, the baby is born via surrogacy, or if the child is adopted. All new parents are eligible, regardless of gender, family set-up or how long they have been at the company.
Simple Easy to understand and administer 20 Standard Life Aberdeen 2019
Employee voice at the Board table The UK Corporate Governance Code has established new requirements for Boards of UK listed companies to set out how employees’ views have been considered in Board discussions and decision-making. Melanie Gee is our non-executive Director responsible for leading this work.
In 2019 she set up a Board Employee Engagement Group, which met twice in 2019 and will continue to meet in 2020. The group includes representatives from our UK employee forum, our global employee networks, and our HR function.
Melanie has implemented a programme of face-to-face activity with non-executive Directors, which has included ‘Meet the Board’ sessions in Edinburgh, London and Philadelphia.
In tandem, Melanie initiated a series of deep-dive surveys on issues of interest to employees. In 2019 we undertook two surveys focused on ESG and diversity. 1,021 employees responded to the first survey on ESG issues. Climate change came out as the most important issue for our people. You can find out about our response to climate change on page 25.
Gender representation Balanced representation of men and women is vital to building an inclusive culture and effective business. As part of our HM Treasury Women in Finance Charter pledge, we have set targets for representation of women.
This is the second year we have disclosed a gender pay gap. Progress has been slow and this pace of change does not meet our aspirations. We are carrying out in-depth analysis to understand where we should be prioritising efforts to make a sustainable and significant change.
Aberdeen plc Board Charter and not classified above as Board Directors or CEO-1 or CEO-2.
Mean pay gap Median pay gap Mean bonus gap Median bonus gap
Our full pay gap disclosure and more information about our work on gender equality can be found in our Gender Report www.standardlifeaberdeen.com/annualreport
• We also engage with and support communities and charitable causes – for example, by running programmes that help to promote fair employment and social inclusion
• To protect stakeholder interests, and understand material risks and opportunities we need to address, we collaborate with initiatives both within our industry and more widely
• We worked with an external organisation to gather views of our stakeholders, including our employees and charities, to review our approach to charitable giving. We also carried out a materiality survey to understand the ESG topics that are most important to our stakeholders.
Shareholder meetings 2019 – environmental and social topics we voted on
Active stewards and owners As an active steward of our customers’ and clients’ capital, we support the principles of good stewardship set out in the UK Stewardship Code. As part of our regular interactions with investee companies, we seek to provide constructive challenge to management and boards.
Unlike certain passive investment strategies, where research may be limited, we review proposed resolutions and where appropriate engage with stakeholders, including proxy advisors, investee companies and the proponents of resolutions, before reaching a decision.
We conduct independent internal research to ensure we are comfortable with our voting positions rather than outsource decisions and simply follow a proxy voting service’s recommendations.
E nvironm ental R eporting or R enew able E nergy
• Long-term responsible investing is important for all investment managers in order to fulfil their fiduciary duties
• There is no trade-off in terms of financial return • Funds with strong ESG characteristics, and effective management of material ESG risks, typically are at lower risk of suffering losses
This is consistent with our investment approach in looking to generate sustainable, consistent and positive risk-adjusted returns for clients and customers over the long term.
Active engagement We engage actively with investee companies for two core reasons: • To understand more about company management, which enables us to learn more about a company’s strategy and performance
We expect the companies in which we invest to be good corporate citizens. Where we believe we need to encourage change we do so through constructive dialogue, engagement, voting, and other stewardship tools depending on the asset class.
We participate in a number of influential committees, including the Investment Association’s committees on Stewardship and on Sustainable and Responsible Investment. Through our membership of the Stewardship, Market Integrity & ESG investment standing committee – which is part of the European Fund and Asset Management Association – we take an active role in monitoring and seeking to influence European policy developments.
We have also been involved in several policy consultations that have provided opportunities to share information and collaborate within our industry. The purpose of these is to promote the best interests of our clients: • In the UK, for example, we contributed to consultations in 2019 by the Department for Business, Energy & Industrial Strategy, aiming to improve quality and competition in the audit market
Scope 1 1,784 1,784 6,420 2,667 2,667 10,201 Scope 2 4,807 2,147 17,109 7,069 4,376 24,908 Scope 3 13,078 12,870 – 22,482 22,106 – Greenhouse gas emissions Total 19,669 16,801 23,529 32,218 29,149 35,109 Tonnes CO2e/FTE ratio 3.2 2.7 3.8 5.2 4.7 5.7 1 2019 emissions data have been independently assured by Bureau Veritas. Bureau Veritas assurance can be found at www.standardlifeaberdeen.com/annualreport 2 Emissions have been calculated using renewable energy contracts, residual mix emissions factors for European sites, and grid mix emissions factors for all other sites.
The Taskforce on Climate-Related Financial Disclosures (TCFD) encourages company disclosure of material climate-related risks and opportunities. We are fully supportive of the recommendations and have published our first TCFD report, detailing our approach.
Risk and opportunity management We monitor risks and opportunities related to climate change and align these with the TCFD framework. For our investments, we assess the financial materiality of transition and physical risks across regions, sectors and companies. Our aim is to influence and assess which companies will perform well in a low-carbon world, so stewardship and engagement are critical.
Active investors have a critical role to play in accelerating the transition to a low-carbon economy. We do not have much time. Keith Skeoch, Chief Executive
Metrics and targets We have been measuring our operational carbon footprint since 2006. It is mostly comprised of the energy we use in our buildings and air travel, and the data is independently assured. From a baseline year of 2018, we aim to reduce emissions from our fleet of cars and from energy use in our buildings by 50% by 2030, and our energy use in Megawatt hours (MWh) by 30% by 2030. We also pledge to procure 100% renewable electricity at the offices we operate across the globe by the end of 2020.
Our total greenhouse gas emissions are down 39% in comparison to 2018. Greenhouse gas emissions from our fleet and energy use are down 32%, and energy use (MWh) is down by 33%.
Living Hours Our company is one of four organisations piloting the Living Wage Foundation’s ‘Living Hours’ programme. Living Hours provides a new standard for ensuring more certainty over working hours, and more predictable work patterns and pay. It calls on employers to provide the right to fair notice periods, and contracts offering guaranteed minimum hours of work unless the worker requests otherwise.
We collaborate with Big Issue Invest, the social investment arm of The Big Issue, and an example of our work with them is our UK Impact Employment Opportunities Equity Fund. The fund aims to promote ‘decent jobs’ – stable employment, with wages that enable people to live at a socially acceptable standard, and opportunities for learning and progression – particularly in the UK’s most deprived communities.
Read more in our Corporate sustainability report, available on our website www.standardlifeaberdeen.com/annualreport
• Primary school breakfast clubs in the UK and MANNA, a nutrition services provider in the USA – which help to support wellbeing and social inclusion
• AbleChildAfrica, a UK charity that works with local partners in Africa to improve the lives of children with disabilities.
Non-financial information statement Standard Life Aberdeen aims to comply with the Non-Financial Reporting requirements contained in sections 414CA and 414CB of the Companies Act 2006. This information is intended to help stakeholders better understand how we address key non-financial matters. This aligns with the work we already do in support of the Taskforce on Climate-Related Financial Disclosures, UN Global Compact and UN Sustainable Development Goals. Further details of the activities we undertake in supporting these frameworks is available in our Corporate sustainability report. Details of our principal risks and how we manage those risks are included in the Risk management section.
Modern slavery statement1 Our role in society (page 27) Social matters Our impact through charitable giving Our role in society (page 26)
In 2019, 100% of employees confirmed they understand and will comply with the code. Reminders are sent to individuals who have not completed the confirmation and these are escalated through line management. A six-monthly report is presented to our Conduct and Conflicts Committee. If employees have any concerns relating to issues covered by the code such as bribery and corruption, environmental or human rights issues, we encourage them to speak to their manager in the first instance. If they feel they cannot raise their concern in this way, or wish to raise it anonymously, we provide an independent and confidential hotline that they can use.
We also recognise the importance of prompt payment. Our organisation has gone through significant change and bringing together two businesses has meant operating two finance systems. Whilst in general our payment turnaround times have been maintained within Prompt Payment Code requirements, for one of our entities we have fallen short of the standards we committed to. We have put actions in place to put this back on track. We are moving to one combined payment system with well-defined supplier terms. This will include a renewed commitment to our policy of prompt payment.
Human rights policy Our policy summarises our approach to identifying and upholding the human rights of our people, clients and customers, community and those impacted by our suppliers, partners and the companies we invest in. As an investor, we assess the management of human rights impacts and engage when appropriate to highlight issues and promote good practice. We publish the outcomes of our ESG engagements with investee companies in a quarterly summary available on our website.
We are equally committed to the interests of our one million individual retail shareholders, engaging through a variety of channels including regular direct communications, the information that we publish on our website and a dedicated shareholder phone line.
Read more about how we engage with shareholders on page 59.
Investing in the business: Continuing returns to shareholders: • Growing our platforms and wealth proposition • Enhancing our investment capabilities and global coverage • Attracting, retaining and developing talented people
Interim dividend Final dividend (announced) ‘B’ share scheme Share buyback £173m£214m£206m £322m£345m£420m £515m £1,000m £235m £626m £1,794m £1,010m 29Standard Life Aberdeen 2019
We have significant and valuable investments in leading companies in the UK, India and China. As well as representing substantial potential for future growth and giving insight into important markets, these investments are a source of earnings and dividends, further strengthen our balance sheet and provide a strong source of value for shareholders.
• Approval obtained in Q1 2019 to form a pensions company • Potential collaboration opportunity to use our investment expertise with HASL
• Consistently ranked in top three private life insurers in India • Sale of 14.49% for £1.5bn in 2019 • Intention to monetise holding over time – 9% of holding locked-up until end March 2021; 5.73% unrestricted
Realising the value of our listed investments The successful public listings of HDFC Life in 2017 and HDFC Asset Management in 2018, resulted in greater transparency of the value of these investments.
Transforming today, investing for tomorrow We are transforming our business and continue to invest for future growth.
This will allow us to drive growth in future earnings and cash generation. Combined with our strong balance sheet, with potential for further stake sales of listed associates – supports ongoing investment in innovation, technology and our people. This is aligned with our strategic priorities for growth and to generate sustainable dividends and returns to shareholders.
Drivers of our business We believe that we are well positioned for future growth.
• Gained industry recognition for our investment capabilities, including winning Asset Management Innovation of the Year at the 2019 Financial News Asset Management Awards
• Launched innovative new technology on Wrap platform – Individually Managed Accounts
• Partnered with Asian Infrastructure Investment Bank to drive ESG investing and develop sustainable debt capital markets in emerging Asia
• Developed our global ESG offering by more deeply embedding it into our proposition to meet client and customer demand
• Lower fee based revenue in 2019 reflected continued net outflows which were impacted by investor sentiment, as well as weaker 2018 investment performance in both Equities and Multi-asset
• Established joint venture with Virgin Money, which will aim to serve UK retail customers by combining a unique mix of Virgin Money’s brand, scale and retail distribution expertise with our market-leading investment solutions
• Significantly strengthened our private markets and real estate franchise globally • Refreshed the 1825 visual identity to create a closer association with the valuable Standard Life brand, strengthening 1825’s brand positioning in the marketplace
• Collaborated across our EMEA business to put robust arrangements in place to mitigate any impact of Brexit on our clients, customers and operations
• Heng An Standard Life was granted approval to establish and develop a pensions business in China
• Continued to expand our 1825 advice business with two further acquisitions completed in 2019
• Introduced a new price lock on the Wrap platform, an innovative approach for customers utilising income drawdown
• Continue to develop trusted client relationships at a local level through our investment centres worldwide
• Complete integration and platform activity, and progress Phoenix separation activity to ensure that we are ‘fit for growth’
• Focus on operational efficiency and cost control through the implementation of our simplified global operating model
• Further expand our capabilities, including next generation fixed income, sustainable development equity funds and enhancements to our quantitative and systematic investing franchise
• Leverage UK strategic partnerships to grow retail business and access new customers
• Further develop modern working practices to enhance efficiency and the work environment
• We are seeing growth in new services and from past investments • We have continued to progress with the transformation activity, which incorporates both the aspects arising from the corporate transactions in 2017/18, and the development of the business in line with our strategic priorities for success in these more volatile market conditions
• We have realised value from our listed investments in India which has benefited our balance sheet
We continue to focus on financial discipline through a period of change internally and as a result of the impact of ongoing external pressures. We have intensified our focus on profitable growth to ensure the business is fit for our future strategies.
2019 has been a busy year across the business: • The focus on delivering value for clients has generated much improved investment performance across one, three and five-year benchmarks and we have enhanced our focus on client and customer service. These have contributed to the improving trend in the pattern of flows into and from the business.
1 Percentage of AUM above benchmark. Calculated on a Pro forma basis and gross of fees. A full definition is included in the Glossary on page 257. 2 The Group has initially applied IFRS 9 and IFRS 16 at 1 January 2019. Under the transition methods chosen, comparative information is not restated. Refer to the basis of preparation section of the Group financial statements. 3 In accordance with IAS 33, earnings per share has not been restated following the share consolidation as there was an overall corresponding change in resources. As a result of the share consolidation and share buyback earnings per share from continuing operations for the year ended 31 December 2019 is not directly comparable with the prior year. Refer to Note 12 of the Group financial statements for information relating to the calculation of diluted earnings per share.
• Continued net outflows are disappointing, however the trend is improving. In 2019, net outflows reflect the expected LBG tranche withdrawal of £41bn. Excluding this item, net outflows reduced by 57% on 2018 to £17bn and H2 2019 net outflows of £1.5bn was an improvement of 91% on H1 2019 of £15.9bn. This trend includes the benefit of both the continued strengthening of investment performance, albeit there is a time lag until such improvements are reflected in flows, and the continued high levels of client and customer service we provide. Stronger investment performance also contributed to an increase in revenue from performance fees to £37m (2018: £9m).
• On margins, the overall average revenue yield has decreased to 27.9bps (2018: 31.1bps) which principally reflects the lower proportion of assets that we manage for our clients in Equities and Multi-asset
• Fee based revenue, particularly in relation to equities, benefited from positive market movements. The average daily MSCI World Index was 2% higher in 2019 than 2018.
With the proposed final dividend of 14.3p, the full year dividend per share will be the same as 2018. This is aligned with the Board’s stated intention for the period of transformation.
Fee based revenue 1,634 1,868 Adjusted operating expenses (1,333) (1,395) Adjusted operating profit 301 473 Capital management 37 (9) Asset management associates and joint ventures 57 46 Asset management, Platforms and Wealth 395 510 Insurance associates and joint ventures 189 140 Adjusted profit before tax 584 650 £650m (£234m)
Fee revenue2 1,585 1,847 27.9 31.1 SL Asia 12 12 Performance fees 37 9 Fee based revenue 1,634 1,868 1 Wealth fee revenue yield calculation excludes revenue of £13m (2018: £16m) for which there are no attributable assets. 2 Restated to include revenue and assets under advice relating to our 1825 advice business. Previously AUMA excluded assets under advice.
Performance fees, which primarily relate to Institutional and Wholesale, increased to £37m (2018: £9m) reflecting improved investment performance and included £12m in relation to maturing Real estate funds.
Strategic insurance partners Revenue from Strategic insurance partners reduced to £317m (2018: £347m) as a result of net outflows, in particular the £41bn LBG tranche withdrawals.
Adjusted operating expenses decreased by 4% to £1,333m (2018: £1,395m) mainly due to further synergies of £114m which included lower staff, premises and infrastructure costs arising through the ongoing integration process. In addition we realised further efficiencies of £62m from investing in transforming our business, from improving the efficiency of how we work and enhancing our infrastructure.
Cost inflation of £68m includes wage inflation as well as investment in enhanced capabilities. There were also £16m of higher costs following acquisitions in our 1825 advice business, acquisitions in the US and Asia during 2018 and early 2019, and expenses relating to our new partnership with Virgin Money.
The cost/income ratio, which includes our share of associates’ and joint ventures’ profit, was 71% (2018: 68%) reflecting principally the fall in revenue. Excluding our share of associates’ and joint ventures’ profit, the cost/income ratio was 82% (2018: 75%).
We remain focused on financial discipline and actions are underway to align our cost base to the current revenue outlook. This includes completion of the integration activity and modernising and improving the efficiency and scalability of our Platforms and Wealth business.
Further information on the fee revenue yield is included in the Supplementary information section of this report.
Synergies We have made solid progress with the integration and we are advanced in implementing our simplified operating model. We now expect to deliver £400m of annual synergies, £350m by end of 2020 and an additional £50m during 2021.
However, the integration of our investment platform is proving more complex and is now expected to take until 2021 to complete due to additional complexity resulting from the separation of technology infrastructures required following the sale of our UK and European insurance business to Phoenix.
As at 31 December 2019, actions have been taken which will deliver £283m of annualised synergies, benefiting 2019 operating expenses by £234m (2018: £120m) with further benefits to come in 2020 and 2021. Cost synergies have been realised from a reduction in staff costs, rationalisation of premises, and efficiencies in supplier spend.
The related implementation costs, which are included in restructuring expenses, incurred to date are £436m, of which £214m were incurred in 2019. We expect that the total costs to deliver the £400m of annualised synergies will be £555m, compared to the previous estimate of £430m to deliver £350m of synergies, reflecting additional costs relating to the investment platform integration.
Adjusted profit before tax 584 650 Adjusting items (333) (1,397) Share of associates’ and joint ventures’ tax expense1 (8) (40) Profit/(loss) before tax from continuing operations 243 (787) Tax expense (28) (43) Profit/(loss) for the year from continuing operations 215 (830) Profit attributable to non-controlling interests (5) (5) Profit/(loss) for the year from continuing operations attributable to equity shareholders of Standard Life Aberdeen plc 210 (835) IFRS profit from discontinued operations 56 1,665 Profit for the year attributable to equity shareholders of Standard Life Aberdeen plc 266 830 1 2019 includes £38m (2018: £3m) relating to a tax credit on adjusting items.
Restructuring and corporate transaction expenses were £407m (2018: £239m) primarily reflecting ongoing transformation costs for integration, separation from Phoenix, and implementing our simplified operating model. 2019 also included £49m relating to the repurchase of subordinated debt. Further details on restructuring and corporate transaction expenses are provided in the Supplementary information section.
The amortisation and impairment of intangible assets acquired in business combinations and through the purchase of customer contracts increased to £1,844m (2018: £1,155m) mainly due to the £1,569m (2018: £880m) impairment of the asset management goodwill intangible asset in 2019. The impairment reflects the impact of 2019 net outflows, market conditions and competitive pricing on future revenue projections and excludes expected significant benefits from planned future expense savings. Further details are provided in Note 15 of the Group financial statements.
The reversal of impairment of associates of £243m relates to our investment in Phoenix. The Phoenix share price has recovered in 2019 and the impairment recognised in 2018 has therefore been reversed. Further details are provided in Note 16.
Other adjusting items of £158m include £140m relating to the settlement of arbitration with LBG. Restructuring and corporate transaction costs above include £20m of variable compensation funded from the settlement.
Settlement of arbitration with Lloyds Banking Group/ Scottish Widows On 24 July 2019, the Group announced that it had agreed a final settlement with LBG in relation to the arbitration proceedings concerning LBG’s attempt to terminate investment management arrangements with the Group.
Tax expense from continuing operations The total IFRS tax expense attributable to the profit for the year was £28m (2018: £43m) including a credit of £41m (2018: credit £52m) relating to adjusting items. The effective tax rate on total IFRS profit is 11.5% (2018: negative 5.5%). The main factors that have caused the effective tax rate to be below the UK rate of corporation tax of 19% are: • The gains arising from the sales of shares in HDFC Life did not give rise to taxable gains due to reliefs available under India’s tax legislation and its international tax treaties, and the long-term capital gain arising from the sale of shares in HDFC Asset Management was subject to tax in India at a lower rate than the UK corporation tax rate
• The reversal of the loss on the impairment of investments in associates is not taxable and our share of profit from our associate and joint venture holdings is already included on a net of tax basis and so no further amount is included in the tax expense
Equities 59 40 31 31 31 29 Fixed income 83 50 86 76 72 64 Multi-asset 68 20 46 35 61 62 Alternatives 89 77 98 82 100 79 Real estate 39 71 48 56 36 61 Quantitative 44 69 52 59 58 67 Cash/Liquidity 91 81 88 81 88 82 Total 74 47 60 50 67 62 1 Investment performance excludes non-discretionary portfolios and funds, where no applicable index is available. Includes strategic insurance partners.
Our investment teams have a continuous improvement philosophy, with the initiatives identified over the past two years supporting the improved investment outcomes across a range of strategies.
We are encouraged by additional strategies receiving positive ratings from investment consultants, bringing the total to 46 strategies. The new ratings were in liability driven investments, Alternatives/Private markets and Fixed income.
Gross and net flows Institutional and Wholesale Institutional gross inflows improved significantly in 2019 to £27.1bn (2018: £19.3bn) with a higher level of inflows in Quantitatives, Fixed income and Alternatives, which benefited from a win of £5.5bn in Q4 of a lower margin US advisory mandate. Wholesale gross inflows increased to £20.2bn (2018: £18.4bn).
Strategic insurance partners Gross inflows of £26.9bn (2018: £28.6bn) continued to benefit from additional assets from our strategic partnership with Phoenix and included £10.6bn (2018: £8.5bn) from LBG. Net outflows were £3.4bn (2018: £5.5bn) reflecting redemptions from maturing insurance business in long-term run-off, partly offset by the gross inflows.
Tranche withdrawals of LBG funds were £41bn (£27bn in Q3 2019 and £14bn in Q4 2019).
AUMA has benefited from positive market movements supported by robust investment performance, primarily within Equities and Multi-asset.
Corporate actions include £1.8bn of assets under advice following 1825’s acquisition of Grant Thornton’s wealth advisory business and BDO Northern Ireland’s wealth management business. These acquisitions increase Wealth assets and help to drive forward our advice capability in alignment with the strategic ambitions for our financial planning and advice business in the UK.
Institutional 160.6 166.7 Wholesale 72.4 72.5 Strategic insurance partners 235.8 255.0 Platforms and Wealth
Further information on AUMA and net flows are included in the Supplementary information section of this report.
Subordinated liabilities reduced to £0.7bn (2018: £1.1bn) reflecting the repurchase of debt in March 2019. Further details are provided in Note 33.
Surplus regulatory capital Capital resources comprise shareholders’ equity reduced by a number of deductions (including deductions for intangible assets, defined benefit pension plan surpluses and significant investments in certain associates). Under regulatory rules, the vast majority of the value of our shareholdings in listed associates is not recognised in capital resources. At 31 December 2019, the indicative regulatory capital position was as follows: The £1.7bn capital surplus above includes a deduction to allow for the proposed final dividend in 2019 which will be paid in May 2020. Capital resources includes c£0.3bn from holdings in insurance associates and JVs that will no longer be eligible following changes to the capital regime during 2021. The position is also shown before a deduction for the further share buyback of up to £400m announced in February 2020.
Opening 1 January 0.6 Adjusted capital generation 0.3 HDFC Life and HDFC Asset Management sale proceeds 1.7 Restructuring and corporate transaction expenses (net of tax) (0.3) Dividends (0.5) Remainder of £750m share buyback programme (0.4) Other 0.3 Closing 31 December 1.7 £551.5bn (£17.4bn) (£41.0bn) £49.0bn £2.5bn £544.6bn 2018 Net flows LBG tranches
Financial strength and liquidity Strong balance sheet and capital generation to support investment and shareholder returns. Shareholder equity IFRS equity attributable to equity holders of Standard Life Aberdeen plc decreased to £6.6bn (2018: £7.4bn) mainly due to distributions to shareholders including the return of capital. This was partly offset by profitability in the year which included the gain on sale of shares in both HDFC Life and HDFC Asset Management.
Capital generation Our strong capital position supports ongoing investment in the business and delivering shareholder returns.
Adjusted capital generation reduced to £333m (2018: £395m) as a result of the lower revenue in 2019. The increase in dividends was primarily due to holding our Phoenix associate for a full year.
Net movement in surplus regulatory capital In addition to the adjusted capital generation, significant capital was generated in 2019 through the £1.7bn of proceeds from the sale of shares in HDFC Life and HDFC Asset Management.
The primary uses of capital in 2019 related to £0.5bn for the payment of the interim and final dividends to shareholders and £0.4bn for funding the remainder of the £750m share buyback programme which commenced in 2018.
Adjusted profit after tax 469 512 Remove staff pension scheme returns (29) (21) Remove associates’ and joint ventures’ adjusted profit after tax (200) (143) Add associates’ and joint ventures’ dividends received 93 47 Adjusted capital generation 333 395
1 In accordance with IAS 33, earnings per share have not been restated following the share consolidation as there was an overall corresponding change in resources. As a result of the share consolidation and share buyback earnings per share from continuing operations for the year ended 31 December 2019 is not directly comparable with the prior year. Refer to Note 12 of the Group financial statements for information relating to the calculation of diluted earnings per share.
Net cash inflows from operating activities were £201m which includes outflows from restructuring costs, net of tax, of £242m and the LBG settlement inflow, net of tax, of £113m.
Adjusted diluted earnings per share was 19.3p and diluted earnings per share from continuing operations was 8.8p. This reflects our focus on financial discipline and a 22% reduction in our share count arising from the £1.75bn capital return to shareholders via the ‘B’ share scheme and related share consolidation, and share buyback programme.
Proposed dividend The Board is recommending a final dividend for 2019 of 14.3p (2018: 14.3p) per share. Subject to shareholder approval, this will be paid on 19 May 2020 to shareholders on the register at close of business on 3 April 2020.
The final dividend, combined with the 2019 interim dividend of 7.3p, brings the total dividend for the year to 21.6p. Adjusted capital generation for 2019 was £333m, with a further £1,698m of capital generated from HDFC stake sales.
Return of capital The general meeting on 25 June 2018 approved a return of capital of £1bn via a ‘B’ share scheme, and a return of up to £750m by a share buyback programme. The ‘B’ share scheme return took place in November 2018 and the £750m share buyback was completed in December 2019. A total of 273m shares have been repurchased in 2018 and 2019 at an average price of £2.75 per share.
Following the sale of shares in HDFC Asset Management in December 2019, we announced that we intended to undertake a further share buyback programme. On 7 February 2020 we announced a further share buyback of up to £400m and expect that it will complete in the second half of 2020.
The key processes used by the Board to assess viability are set out below.
The business planning process includes the projection of Group profitability, regulatory capital and liquidity over a three year period, under a range of scenarios. The most severe economic scenario assumes a significant global recession in 2020 with a sharp fall in global equity markets of around 45% before recovering by 15% in 2021 and by 15% in 2022; bond yields fall and remain at lower levels throughout the forecast period. Viability was not threatened under any of the scenarios explored.
The most onerous scenario incorporated the severe economic scenario with flows being 20% worse than experienced in 2018 and transformation stalling resulting in transformation costs increasing by 50% and the cost-savings anticipated from this activity being deferred by 12 months.
In 2019 we explored three scenarios which were: • A market shock with adverse impacts on our joint ventures and listed associates: this work highlighted that viability was only threatened under a specific set of assumptions and the likelihood of this scenario occurring was considered very remote.
The Group’s prospects are primarily assessed through the strategic and business planning process which considers our business model and how this is designed to be sustainable and resilient in the long term as described on pages 10 to 11 and 13 to 17 of this report.
The Directors’ assessment of prospects also takes into account: • The Group’s strong surplus regulatory capital, as set out on page 41
Assessment of prospects Based on the above, the Directors consider the Group’s focus on operational and strategic delivery, including the completion of transformation activity, will deliver the environment, capability and focus to grow revenue sources and manage the cost base. The Group’s financial position and business model are considered to support the assumptions within the business plan regarding maintaining a strong capital position and the dividend policy described on the previous page.
Three lines of defence We operate 'three lines of defence' in the management of risk so that there are clearly defined roles and responsibilities within our ERM framework: • First line: Day-to-day risk management, including identification and mitigation of risks and maintaining appropriate controls • Second line: Risk oversight is provided by the Risk and
• Completing the roll-out of our risk system, Shield, so that it can be used by all our people
• Strengthening our risk appetite framework by introducing new risk tolerances to support governance and risk management
• Continuing the programme to refresh risk-control self-assessments across our global functions
Business risk environment Our commercial risk profile improved in 2019. Investment performance strengthened in contrast to a particularly challenging year in 2018. Gross inflows strengthened across a range of asset classes. However, net flows have remained negative and revenue margins across the industry continue to be under pressure. We have strengthened our capital and liquidity positions while also returning capital to our shareholders through our buyback programme. In the near-term, operational stretch continues to exist as work is progressing to transform the business. It is proving complex to undertake the separation activity and associated consequences and will require further cost to do so. Ongoing actions are in place to retain talent and support staff engagement. We have undertaken careful resource planning with executive ownership and accountability for delivery of our transformation programmes, alongside delivery of our business as usual activities. Following the ratification of the EU/UK Withdrawal Agreement in January, the Brexit process has entered a transition period up to 31 December 2020. We will closely monitor developments in relation to the negotiations for the UK’s future relationship with the EU and actively engage with industry groups such as the Investment Association. This phase of Brexit presents the prospect of further political and commercial uncertainty in the UK. We maintain a heightened level of vigilance to risks to our operations from cyber intrusion. Dedicated teams of internal experts, augmented by external expert input, help to ensure we actively manage this continually evolving risk. We are managing the impact of COVID-19 coronavirus, utilising business continuity and resilience processes where appropriate. Its spread could begin to materially impact the global economy and delivery of our business plan. Our joint venture in China, HASL, is similarly managing its operations given its exposure to risks impacting the wider Chinese market. We continue to strengthen our conduct risk framework and ensure that we bring the interests of our clients and customers to every conversation. We are committed to managing our direct impact on climate change and are very mindful of the positive influence we can have as a global active fund manager, for example, to encourage positive change by companies in which we choose to invest. You can read more about our approach to tackling climate change on page 25.
• Brexit planning has refocused to consider the operational impacts of the outcome of UK/EU negotiations in advance of the end of the transition period
• Actively involved with ESG from an investment and operating perspective and the TCFD (page 25)
The Chief Executive’s review (pages 6-9) outlines how this risk has evolved across the drivers of investment performance, flows, ESG (climate risk in particular), Brexit and geopolitical uncertainty more generally.
Risks to our business Our approach to managing these risks Strategic driver
• Capital is held against our risks and we review these risks on an ongoing basis
• Stress testing assesses our financial resilience to market risk, operational risk and business risk
• We maintain external liquidity facilities as part of a wider liquidity management framework
• Management of fees and costs in relation to our proposition
The cost/income ratio has risen due to falls in revenue which have only been partially offset by reductions in our costs. The loss of the LBG mandates was compensated by a one-off gain arising from the settlement with LBG. Targeted disposals of shares in our Indian associates generated value that strengthens our capital base and increases strategic optionality for the future.
The risk that through our behaviours, strategies, decisions and actions we fail to meet customer/client expectations, and/or deliver unfair outcomes, and/or have poor market conduct. Our business relies on our ability to ensure fair client and customer outcomes. Failure to achieve these outcomes poses significant reputational damage and likely financial losses for our business.
• A Global Code of Conduct which is applicable for all of our people
• Regular conduct risk agenda items at the Risk and Capital Committee
• Legal team support for our senior management in relevant areas across our business
Delivery of certain regulatory projects was challenged by tight implementation deadlines. The complexity of MiFID II highlighted some prior implementation challenges which needed to be remediated.
Operational risks (5-12) 5 Process execution and trade errors ◄ ►
The risk that people, processes, systems or external events impede our ability to meet our strategic objectives. Risks arising from process execution and trade errors are inherent in our business and we seek to minimise the incidence and impact of these through our controls and management actions. Our transformation programme will deliver simpler and more reliable processes, however while this programme is being implemented this principal risk will be elevated.
• Well-established incident management processes for dealing with system outages that impact important processes that might cause harm to customers or clients
While there has been a rise in risk events that warrant investigation and remediation, this has not led to any material adverse impact on our customers or clients, or breached our risk appetite. Outages of important systems were successfully dealt with through our incident management processes.
• Significant progress in 2019 in building stronger staff cohesion and commenced the roll-out of refreshed values and purpose, improving communication and harmonising UK employees’ terms and conditions
• Actively seek to be a leading employer with a strong employer proposition
High impact intelligence Connections without borders Future fit How has this risk evolved in 2019
The risk of the failure of technology systems to adapt to changing business needs and from unwanted actions of unauthorised users including through cyber-attacks. Our current IT estate is complex and will remain so until separation from Phoenix is complete. Our dependence on third party outsource firms also adds a level of risk that needs to be managed in a dedicated way. Our business is exposed to a wide range of threats which can impact its resilience and continuity, e.g. weather events, internal failure, external intrusion or supplier failure.
• Ongoing benchmarking of our IT systems environment to identify areas for improvement
• Outsourcing some critical IT processes to Cognizant with a view to enabling these services to be delivered and developed by a specialist third party
The risk of business interruptions from a range of internal and external incidents or threats including environmental and climatic issues, terrorism, economic instabilities, pandemic and operational incidents. Our business is exposed to a wide range of threats which can impact its resilience and continuity.
• Business continuity and contingency planning processes which are regularly reviewed and tested
• Continued investment in systems and process to improve our monitoring of fraud and financial crime risks
We continue to experience very low levels of fraud and have sound processes in place to identify customer and client activity linked with financial crime globally.
• Defined roles for second and third lines in overseeing the progress of change activities
• Maintaining close oversight of our key suppliers and their impact on the risk profile of the business
• Improvements to our operational resilience framework include actions to better manage the risks from our suppliers
Cognizant became a key supplier of IT support services in 2019. We actively engaged with our key suppliers in relation to their Brexit preparations throughout 2019 so as to mitigate the impact of disruption to their services were a no-deal Brexit to arise. We are closely monitoring the negotiations between the UK and EU during the transition period.
• Financial reporting is aligned to external reporting standards and industry best practices
• Our Audit Committee challenges reporting as part of financial planning and control processes
In other current roles, Sir Douglas is chairman of IP Group plc, and serves as HM Treasury’s special envoy to China’s Belt and Road Initiative.
Stephanie is a council member of the Institute of Chartered Accountants of Scotland and the chair of the audit committee for the Institute. Stephanie is also an associate of the Association of Corporate Treasurers.
Key to Board committees Remuneration Committee Risk and Capital Committee Audit Committee Nomination and Governance Committee Committee Chair * Shares include qualifying awards as described on page 88 of the Directors’ remuneration report 2019.
He holds a BAcc (Hons) from the University of Glasgow, a PMD from Harvard Business School and is a Member of the Institute of Chartered Accountants of Scotland.
Martin Gilbert – Vice Chairman Standard Life Aberdeen and Chairman Aberdeen Standard Investments
Martin brings significant entrepreneurial and executive leadership experience, with a particular focus on global client engagement and business development. He is co-founder and former chief executive of Aberdeen Asset Management and was a director from 1983. In March 2019 he was appointed Vice Chairman, Standard Life Aberdeen and Chairman, Aberdeen Standard Investments.
A chartered accountant, Martin holds an MA in Accounting and a Bachelor of Laws (LL.B) from the University of Aberdeen. He is Adjunct Professor of Finance at Imperial College Business School and, in 2014 he was awarded a Doctorate of Letters from Heriot-Watt University. Martin also has two honorary degrees for services to business and entrepreneurship from University of Aberdeen and Robert Gordon University.
In October 2019 Martin advised that he will not seek re-election at the Standard Life Aberdeen 2020 Annual General Meeting, and will retire from the Company on 30 September 2020.
In his executive career Jonathan worked at Morgan Grenfell for 18 years, rising to become group finance director of Morgan Grenfell Group, before going on to take the roles of chief financial officer and chief operating officer at Deutsche Morgan Grenfell. From 2002 to 2008 he was a director of Schroders, during which time he was chief financial officer and later executive vice chairman.
He is non-executive chairman of Credit Suisse International, Credit Suisse Securities (Europe) Limited and a non-executive director of Citco Custody Limited and Citco Custody (UK) Limited.
He holds a BA (Hons) from Preston Polytechnic and is a Fellow of the Chartered Institute of Public Finance and Accounting.
Melanie brings to the Board significant executive experience in creating successful businesses and leading teams of bankers in various roles. This experience was derived from her career in financial services, where she has specialised in advisory and corporate finance work. She has also had a particular focus on the evolution of cultures and working practices, and is able to draw on these insights as our designated nonexecutive Director for employee engagement.
Melanie was appointed as a Director of Standard Life plc in November 2015. She is a non-executive director and chair of the healthcare company Syncona Limited, a FTSE 250 company. She is also chair of Ridgeway Partners Holdings Ltd and of its wholly-owned subsidiary Ridgeway Partners Limited. Melanie was appointed a managing director of Lazard and Co. Limited in 2008 and became a senior adviser in 2012.
Cathi has strong experience in the financial technology sector and background in the platforms sector, as well as international board experience. She brings these insights to her role as non-executive chairman of the boards of Elevate Portfolio Services Limited and Standard Life Savings Limited. This role provides a direct link between the Board and the platform businesses that help us connect with customers and their advisers.
Cathi is a non-executive director of Federal Home Loan Bank of New York, where she is vice chair of the compensation and human resources committee and of the technology committee. She is also a member of the executive committee. She is managing partner of Hamilton White Group, LLC which offers advisory services, including business development, to companies in financial services growth markets. In addition, she is managing partner of Soho Venture Partners Inc, which offers third party business advisory services.
Previously, Cathi was lead director of E*Trade Financial Corporation, nonexecutive director of Kapitall Holdings, LLC and president and chief executive officer of ProAct Technologies Corporation.
Cecilia brings great insight from operating in leadership positions in international financial markets. Her direct experience of risk management and her knowledge of the investment process are of great benefit to the work of the Board.
Cecilia started her career at Credit Suisse, following which she held senior positions at ING Barings, latterly as head of risk analysis, asset management. She is also the founder of Pioneer Management Services GmbH which seeks to develop a non-profit social enterprise.
She holds a BSc from Ateneo de Manila University, an MBA from the University of Hawaii and a PhD (Finance) from the London Business School, University of London.
Jutta was appointed a non-executive director of Aberdeen Asset Management PLC in January 2013. She is a nonexecutive director of JPMorgan European Investment Trust plc and chair of its audit committee. In addition, she is a nonexecutive director of NKT A/S and Nilfisk Holding A/S, and chairs the audit and remuneration committees of both organisations. She is also a member of the supervisory board of BBGI SICAV S.A, where she chairs the audit committee.
Letter from the Chairman I am pleased to introduce the 2019 Corporate governance statement which reflects the work of both myself and the Board during my first year as Chairman of the Group and of the Nomination and Governance Committee.
Evaluation once again facilitated this review and you can read about the process and its outcomes on pages 61.
Culture Continuing to build on the integration and transformation work across the business, the Board has discussed the Group’s culture and considered the executive leadership team’s (ELT) initiatives to embed it throughout the organisation. One of my operating principles is to operate in a culture of openness and debate, and show the Board leading in promoting the desired cultural outcomes throughout the organisation. You can read more about the activities to oversee culture in this statement and in the Strategic report.
Board developments and diversity Continuing our focus on building a Board with the best skills and diversity mix to lead the Group, we have welcomed new Directors and said farewell to long-serving Directors over the year. I am particularly pleased to have welcomed Jonathan Asquith, Cecilia Reyes and Stephanie Bruce to the Board and to thank Bill Rattray, Richard Mully and Simon Troughton for their many years of service. Rod Paris stood down from the Board on 31 December 2019 but remains our Chief Investment Officer and we also announced that Martin Gilbert will retire from the Board at the conclusion of the 2020 Annual General Meeting. In addition, I look forward to welcoming Brian McBride who will join the Board on 1 May 2020. You can read more about the Board changes and our wider work on diversity and inclusion on pages 76 and 77. The Board continues to emphasise the importance of strong governance and I look forward to updating you on this in future reports.
1. Board leadership and company purpose Governance framework The Group’s governance framework is approved by the Board and documented in the Board Charter, which is reviewed annually and updated as appropriate.
 Capital and management structures including capital allocation and how it supports the Group’s long-term sustainable growth
 Succession planning  Significant corporate and other transactions which during 2019 included public offerings of shares in our Indian life assurance and asset management associate businesses, preparation for the sale of our Hong Kong insurance subsidiary and commencing joint ventures with Virgin Money and Investcorp
 Significant external communications  The work of the Board Committees  Appointments to the Board and to Board Committees  Matters escalated from subsidiary boards to the Board for approval
Chairman  Leads the Board and ensures that its principles and processes are maintained
Board  Make and implement operational decisions  Lead the other executive Directors and the ELT in the day-today running of the Group  Report to the Board with relevant and timely information  Develop appropriate capital, corporate, management and succession structures to support the Group’s objectives  Together with the Chairman, represent the Group to external stakeholders, including shareholders, customers, suppliers, regulatory and governmental authorities, and the local and wider communities
Nomination and Governance Committee (N&G) Board and Committee composition Succession planning Board appointments Governance framework
Enterprise Risk Management Committee Support the CE in the first line management of risk.
The governance framework also sets out the Board’s relationship with the boards of the principal subsidiaries (as defined in the Board Charter) in the Group. In particular, it specifies the matters which these subsidiaries refer to the Board or to a Committee of the Board for approval.
During 2019, there were two all-employee surveys – the first on Environmental, Social and Governance (ESG) from the point of view of the Group as both an investor and an operating company, and the second on diversity and inclusion. For how we operate as a company, the top three ESG themes important to employees were climate change, wellbeing and ethical conduct. For how we invest/develop products, the top three ESG themes were climate change, ethical conduct and poverty & inequality. From the diversity and inclusion (D&I) survey, the key areas where staff thought progress had been made were the strength of the culture, the parental leave policy and the commitment to diversity and inclusion.
The BEE group met twice in 2019 and will meet regularly in 2020. On a rotating basis, employees attending these meetings include:  The UK employee representative forum  Representatives of the employee networks (Unity, YPDN,
 The Sustainability team, to consider how operational ESG and climate change initiatives are being taken forward
Melanie has also implemented a programme of NED engagement dinners, which are attended by several of the NEDs, and which take employee engagement as their theme.
Stakeholder engagement The Board recognises that the long-term success of our business is dependent on the way it interacts with a large number of stakeholders. The table below sets out the Board’s focus on our key relationships and shows how the relevant stakeholder engagement is reported up to the Board or Board Committees.
How does the Board engage with them/understand their views indirectly (via information from management)?
 Global Head of Distribution reports at each Board meeting on key client engagement, support programmes and client strategies
 Reasons for client wins/losses reported  Results of client perceptions survey/customer sentiment index reported
 Engagement supported the development of the key client management process, the Wealth business, and initiatives such as the ‘students of clients’ programme
 Updates from Melanie Gee on a wide range of employee engagement activities
 Risk and Capital Committee review the number of suppliers and how they are managed
 Audit Committee leads on assessment of external audit performance and service provision
 COO attends each Board meeting and reports on key supplier relationships
 Supplier surveys undertaken  Tendering process include smaller level firms  Access and audit rights in place to key suppliers  Modern slavery compliance process in place  Procurement/payment principles in place  Certain key suppliers regularly discussed at
 The Platforms strategy, IT and transformation discussions have included a focus on the quality, service provision, availability and costs of relevant suppliers
 Review of charitable giving strategy  ESG presentations to the Board
 Considered as input to the Group’s culture and strategic drivers
 ‘Dear Board/CE’ letters  Relevant CE engagement with regulators in overseas territories (MAS, CSSF, CBI, SEC)
 CE on Board of HDFC Asset Management and CFO on Board of HDFC Life
 The development of our business through our relationships with Strategic partners is an important element of the Board’s strategy
3. Corporate governance statement continued 2. Division of responsibilities The roles of the Chairman and the CE are separate and are summarised on page 57. Each has clearly defined responsibilities, which are described in the Board Charter.
The heads of each business function and each region manage their teams within the scheme of delegation. This includes reporting to the CE on how they are performing against approved plans and budgets.
 Recognises that diversity can bring insights and behaviours that make a valuable contribution to its effectiveness
You can read more about our diversity activities and current targets in the Our people section of the Strategic report and in our stand alone Sustainability report. We are committed to working to make the Group as inclusive a place to work as possible. Our activities and targets are published in the Strategic report and in the Sustainability report. You can find our gender pay gap disclosure statement on page 60. The Nomination and Governance Committee continues to follow the development of, and the Group’s participation in, significant diversity reviews, including the Hampton-Alexander Review and the Parker Review, and we were one of the initial signatories to the Women in Finance Charter. We became one of the founding members of the UK Government Race at Work Charter. The Nomination and Governance Committee supports our commitments under these charters and continues to oversee our progress against these, which we report publically on an annual basis.
Board appointment process, terms of service and role Board appointments are overseen by the Nomination and Governance Committee.
Each non-executive Director is appointed for a three-year fixed term and shareholders vote on whether to elect/re-elect him or her at every AGM. Once a three-year term has ended, a non-executive Director can continue for further terms if the Board is satisfied with the nonexecutive Director’s performance, independence and ongoing time commitment. There is no specified limit to the number of terms that a non-executive Director can serve. Taking account of their appointment dates to the predecessor boards, the current average length of service of the non-executive Directors is 3 years. For those NEDs who have served two three-year terms, the Nomination and Governance Committee considers any factors which might reflect on their independence or time commitment prior to making any recommendation to the Board.
Director election and re-election At the 2020 AGM, all of the current Directors will retire. Jonathan Asquith, Stephanie Bruce. Cecilia Reyes and Brian McBride, having been appointed since the previous AGM, will retire and stand for election. All the others with the exception of Martin Gilbert will stand for re-election.
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 Directors continued to review and authorise Board members’ actual and potential conflicts of interest on a regular and ad hoc basis in line with the authority granted to them in the Company’s articles of associations (the Articles). As part of the process to approve the appointment of a new Director, the Board considers and, where appropriate, authorises his or her potential or actual conflicts. The Board also considers whether any new outside appointment of any current Director creates a potential or actual conflict before, where appropriate, authorising it. All appointments are approved in accordance with the Group’s Outside Appointments and Conflicts of Interest policies.
In February 2020, the Board reviewed all previously authorised potential and actual conflicts of interest of the Directors and their connected persons, and concluded that the authorisations should remain in place until February 2022. Under the terms of the approval, conflicted Directors can be excluded from receiving information, taking part in discussions and making decisions that relate to the potential or actual conflict. The Board and relevant Committees follow this process when appropriate.
Board effectiveness Review process In accordance with the Code, the Board commissions externally facilitated reviews regularly. Following the 2018 externally facilitated review, it was agreed that it would be appropriate to commission a further externally facilitated review for 2019 to follow-up on the findings of the 2018 review. As a result, Independent Board Evaluation (IBE) was appointed as the external facilitator and carried out the 2019 review. IBE does not have any other connection with the Group.
To carry out the review, a senior representative of IBE was in attendance and observed a Board meeting and a meeting of each
Outcome The review recognised that amid a changing landscape, with the Board still settling down after overseeing two major transactions in two years, the review’s principal purpose was to check the direction of travel for the Board, take early-stage soundings on the new chairmanship and to help induct and assimilate new Board members. The tone of the feedback was positive overall, with the Board particularly recognising the strengths of its composition, and the processes to select and induct new members and support the Board and its Committees. The Directors also reported solid performance on their work on culture, as well as shareholder and stakeholder accountability. The key conclusions and recommendations from the review included
 Reviewing the Board skills matrix to add more sector experience over time
 Continuing the drive for more effective Board and Committee papers by reinforcing limits on paper lengths, imposing a standard template and an absolute deadline for issuing papers
The induction programme provides the background knowledge new Directors need to perform to a high level as soon as possible after joining the Board and its Committees and to support them as they build their knowledge and strengthen their performance further.
When Directors are appointed to the Board, they make a commitment to broaden their understanding of the Group’s business. Our corporate centre monitors relevant external governance and financial and regulatory developments and keeps the ongoing Board training and information programme up to date. During 2019 specific Board awareness and deep-dive sessions took place on:  Transformation  Investments capabilities, covering: – Investment governance and investments oversight – Quantitative investment strategies and investment innovation – Private markets and real estate – Embedding ESG
 The Internal Capital Adequacy Assessment Process (ICAAP)  Portfolio dimensionality  Investments capabilities covering: – Active equities – Solutions and multi-manager strategies
4. Audit, risk and internal control The Directors retain the responsibility to state that they consider the Annual report and accounts, taken as a whole, is fair, balanced and understandable as well as the responsibility to establish procedures to manage risk and oversee the internal control framework. The reports from the Audit Committee and the Risk and Capital Committee Chairmen show how they have supported the Board in meeting these.
Annual review of internal control The Directors have overall responsibility for the governance structures and systems of the group, which includes the ERM framework and system of internal control, and for the ongoing review of their effectiveness. The framework is designed to manage, rather than eliminate, risk and can only provide reasonable, not absolute, assurance against material misstatement or loss. The framework covers all of the risks as set out in the risk management section of the Strategic report.
Following this review the Board concluded that the system of internal control was effective, and that there had been no significant failings or weaknesses during the period.
5. Remuneration The Directors’ remuneration report on pages 78 to 104 sets out the work of the Remuneration Committee and its activities during the year, the levels of Directors’ remuneration and the proposed new remuneration policy.
Communicating with investors The Company continues to maintain a dialogue with its shareholders. As part of this, our Investor Relations and Secretariat teams support communication with investors. During 2019, the Company continued its programme of domestic and international presentations and meetings between Directors and investors, fund managers and analysts. The wide range of relevant issues discussed, in compliance with regulations, at investor presentations and meetings included transformation, business strategy, financial performance, operational activities and corporate governance. The Chairman has his own investor contact programme and brings relevant issues to the attention of the Board. The Remuneration Committee Chairman has also consulted with major institutional investors regarding executive remuneration plans during the year. More information on this consultation can be found below and in the Directors’ remuneration report.
To give all shareholders access to the Company’s announcements, all information reported via the London Stock Exchange’s regulatory news service is published on the Company’s website. We have continued to host formal presentations to support the release of both the full year and half year financial results. At the 2020 AGM, shareholders will be invited to ask questions during the meeting and have an opportunity to talk with the Directors after the formal part of the meeting. The voting results will be published on our website at www.standardlifeaberdeen.com after the meeting. These will include the number of votes withheld.
Directors are required to attend all meetings of the Board and the Committees they serve on, and to devote enough time to the Company to perform their duties. Board and Committee papers are distributed before meetings other than, by exception, urgent papers which may need to be tabled at the meeting. The Board sometimes needs to call or rearrange meetings at short notice and it may be difficult for all Directors to attend these meetings. If Directors are not able to attend a meeting because of conflicts in their schedules, they receive all the relevant papers and have the opportunity to submit their comments in advance to the Chairman or to the Company Secretary. If necessary, they can follow up with the Chairman of the meeting. The Board has established the Standing Committee as a formal procedure for holding unscheduled meetings. The Standing Committee meets when, exceptionally, decisions on matters specifically reserved for the Board need to be taken urgently. All Directors are invited to attend Standing Committee meetings. The Standing Committee met 4 times during 2019.
Executive Directors Keith Skeoch 9/9 Martin Gilbert 9/9 Stephanie Bruce 5/5 Rod Paris (stood down 31/12/2019) 9/9
Former members Bill Rattray 4/4 Richard Mully 4/4 Simon Troughton 4/4
The Board has established Committees that oversee, consider and make recommendations to the Board on important issues of policy and governance. At each Board meeting, the Committee Chairmen provide reports of the key issues considered at recent Committee meetings, and minutes of Committee meetings are circulated to the appropriate Board members. This includes reporting from the Chairman of the Audit Committee on any whistleblowing incidents which have been escalated to him. The Committees operate within specific terms of reference approved by the Board and kept under review by the Nomination and Governance Committee.
The Committee Chairmen are happy to engage with you on their reports. Please contact them via questions@standardlifeaberdeenshares.com
During the year the Committee also:  Considered the carrying value of intangible assets, in particular asset management goodwill
The Committee also continued to focus on the quality of financial reporting, including the impact of Code changes and other guidance on the Strategic report.
John Devine Chair, Audit Committee 3.1.1 Governance Membership All members of the Audit Committee are independent non-executive Directors. The table below reflects the composition of the Committee and the members’ attendance: Member Attendance
Invitations to attend Committee meetings are extended on a regular basis to the Chairman, the Chief Executive, the Chief Financial Officer, the Group Financial Controller, the Chief Internal Auditor and the Group Chief Risk Officer.
 In line with feedback on the Board pack, the Committee papers can be too lengthy and may benefit from a sharper focus on key points
 While the Committee’s work has been very thorough, it may now benefit from reconsidering the amount of time it spends on reviewing the technical detail of financial reporting matters as this would allow the members to reflect on the wider context
The Board’s review similarly confirmed its satisfaction with the performance of the Committee and its Chairman.
 Findings from Internal audit reports and how high priority findings are being followed up by management
The Committee reviewed the Group accounting policies and confirmed they were appropriate to be used for the 2019 Group financial statements. The Committee noted, in particular, the impact on accounting policies from the adoption of IFRS 9 Financial Instruments and IFRS 16 Leases. IFRS 9 had a small effect on the reported results but does result in new classifications and disclosures. IFRS 16 had a significant effect on the Statement of Financial Position through the recognition of right of use assets and lease liabilities, but only a small effect on the income statement, and also results in substantial new disclosures.
In addition, the Committee considered the form of the viability statement and in particular whether the three-year period remained appropriate and concluded that it did. This reflects both our internal planning cycle and the timescale over which changes to major regulations and the external landscape affecting our business typically take place. In formulating the statement, the Committee considered the result of stress testing and reverse stress testing presented to the Risk and Capital Committee. The Committee recommended the viability statement to the Board.
Intangible assets including goodwill An annual recoverable amount assessment is required for goodwill. In particular, the most significant judgements relate to goodwill for the asset management cash generating unit. Goodwill and intangibles primarily relate to the 2017 transaction which was accounted for under IFRS as an acquisition of Aberdeen Asset Management PLC, creating a goodwill asset.
Estimation was required in relation to the valuation of certain indemnities and other contingent assets and liabilities relating to the Phoenix transaction in 2018. This included indemnities relating to the Standard Life Assurance Limited review of past sales practices for annuities, where the main financial risks (both positive and negative) continue to be with the Group, and indemnities relating to lapse experience.
For the UK defined benefit pension plan, the Committee reviewed the assumptions for mortality, discount rate and inflation.
The Committee considered the proposed assumptions taking into account market data and information from pension scheme advisors. In relation to inflation the Committee considered the long-term gap between the Retail Price Index (RPI) and the Consumer Price Index (CPI), as pensions in payment are generally linked to CPI, taking into account uncertainties relating to RPI from government announcements.
The Committee also considered reporting from the External auditors and related benchmarking of the pension scheme assumptions.
In relation to Phoenix the Committee considered that the increase in the market value of Phoenix was an indicator that the previous impairment should be reversed. See Note 16 for further information.
Provision for separation costs The Group expects to incur significant costs in future periods relating to the separation of the UK and European insurance business. Last year the Committee concluded that a provision should only be recognised for costs for which the Group does not expect to derive ongoing benefits, such as those relating to de-coupling and decommissioning of systems and data.
Standard Life Aberdeen’s principles To create clarity around what Standard Life Aberdeen means when it talks of being fair, balanced and understandable, a set of principles were developed, which can also act as an organisational definition for each aspect: Fair ‘We are being open and honest in the way we present our discussions and analysis, and are providing what we believe to be an accurate assessment of business and economic realities’
 The key messages in the narrative in the Strategic report and Governance sections of the Annual report and accounts reflect the financial reporting contained in the financial statements
 The level of prominence we give to successes in the year versus challenges faced is appropriate
 The narrative and analysis contained in the Annual report and accounts effectively balances the information needs and interests of each of our key stakeholder groups
 There is a clear and easy to understand framework to the Annual report and accounts
Annual report and accounts specifically from a fair, balanced and understandable perspective and provides feedback to our financial reporting team on whether it conforms to our standards. The members of the IRG are independent of the financial reporting team and include colleagues from Investor Relations, Communications and Strategy.
 We, as an Audit Committee, reviewed the messaging in the Annual report and accounts, taking into account material received and Board discussions during the year
The Committee also reviewed the use and presentation of APMs which complement the statutory IFRS results. This review considered guidelines issued by the European Securities and Markets Authority in 2016 and the thematic reviews by the Financial Reporting Council (FRC) during 2017 and 2018. A Supplementary information section is included in the Annual report and accounts to explain why we use these metrics and to provide reconciliations of these metrics to IFRS measures where relevant. This section also provides increased transparency over the calculation of reported financial ratios.
The Finance function sets formal requirements for financial reporting which apply to the Group as a whole, defines the processes and detailed controls for the consolidation process and reviews and challenges reporting submissions. Further, the Finance function runs a technical review committee and is responsible for monitoring external technical developments.
Financial crime and whistleblowing Our people are trained to detect the signs of possible fraudulent or improper activity and how to report concerns either directly or via our independent whistleblowing hotline. The Committee receives regular updates from the Head of Financial Crime who reports on compliance with the Group’s Anti-Financial Crime and Anti-Bribery policy, and any other activities associated with financial crime, including fraud risk.
The Committee Chairman is the designated whistleblower’s champion and the Committee receives regular updates on the operation of the whistleblowing procedures from the Conduct and Conflicts Oversight Manager. The anonymised reports include a summary of the incidents raised as whistleblowing, and information on developments of the arrangements in place, to ensure concerns can be raised in confidence about possible malpractice, wrongdoing and other matters.
3.1.3 Internal audit The role and mandate of the Internal audit function is set-out on in its Charter, which is reviewed and approved by the Committee annually. An exercise was undertaken during the year to benchmark Internal audit resources, with increased consideration of how audit assurance activity across the Group is aligned and coordinated, avoiding gaps and overlaps. Whilst Internal audit maintains a relationship with the External auditors, in accordance with relevant independence standards, the External auditors do not place reliance on the work of Internal audit.
The audit function continued to progress its own functional transformation over 2019, with a move to agile auditing, increasing efficiency and effectiveness; whilst also continuing to invest in data and analytics capability.
Auditor independence The Board has an established policy (the Policy) setting out which non-audit services can be purchased from the firm appointed as External auditors. The Committee monitors the implementation of the Policy on behalf of the Board. The aim of the Policy, which is reviewed annually, is to support and safeguard the objectivity and independence of the External auditors and to comply with the revised FRC Ethical standards for auditors (Ethical Standards). It does this by prohibiting the auditors from carrying out certain types of non-audit services to ensure that the audit services provided are not impaired. It also ensures that where fees for approved non-audit services are significant, they are subject to the Committee’s prior approval. KPMG has implemented its own policy preventing the provision by KPMG of non-audit services to FTSE 350 companies which are audit clients.
The services prohibited by the Policy are in line with the Ethical Standards and include:  Tax services, other than in exceptional circumstances and subject to specific Audit Committee approval in line with ethical standards
 The majority of legal services  Services related to the audited entity's Internal audit function  Services linked to the financing, capital structure and allocation and investment strategy of the audited entity, except providing assurance services in relation to the financial statements, such as the issuing of comfort letters in connection with prospectuses
The Policy permits non-audit services to be purchased, following approval, when they are closely aligned to the External audit function and when the External audit firm’s skills and experience make it the most suitable supplier.
These include:  Audit related services, such as regulatory reporting  Accounting consultations and audits in connection with proposed transactions  Investment circular reporting accountant engagements  Attesting to services not required by statute or regulation (e.g.
controls reports)  Consultations concerning financial accounting and reporting standards not relating to the audit of the Group’s financial statements 70 Standard Life Aberdeen 2019
KPMG has reviewed its own independence in line with these criteria and its own ethical guideline standards. KPMG has confirmed to the Committee that following its review it is satisfied that it has acted in accordance with relevant regulatory and professional requirements and that its objectivity is not impaired.
Audit and non-audit fees The Group audit fee payable to KPMG in respect of 2019 was £4.8m (2018: KPMG £4.7m). In addition £2.1m (2018: £1.7m) was incurred on audit related assurance services. Fees for audit related assurance services are primarily in respect of client money reporting and the half year review. The Committee is satisfied that the audit fee is commensurate with permitting KPMG to provide a quality audit and monitors regularly the level of audit and non-audit fees. Non-audit work can only be undertaken if the fees have been approved in advance in accordance with the Policy for non-audit fees. Unless fees are small (which we have defined as less than £75,000), the approval of the whole Committee is now required.
The ratio of non-audit fees to audit and audit related assurance fees is 17% (2018: 28%). The total of audit related assurance fees (£2.1m) and non-audit fees (£1.2m) is £3.3m, and the ratio of these audit related assurance fees and non-audit fees to audit fees is 69% (2018: 75%). As noted above the audit related assurance fees are primarily fees in relation to required regulatory reporting, where it is normal practice for the work to be performed by the External auditor.
 The Committee Chairman had at least monthly meetings with our lead audit partner to discuss Group developments
We have discussed the accuracy of financial reporting (known as materiality) with KPMG both as regards accounting errors that will be brought to the Committee’s attention and as regards amounts that would need to be adjusted so that the financial statements give a true and fair view. Differences can arise for many reasons ranging from deliberate errors (fraud etc.) to good estimates that were made at a point in time that, with the benefit of more time, could have been more accurately measured. Overall audit materiality has been set at £31m (2018: £32m). This equates to approximately 4.4% of normalised profit before tax (as set out in the KPMG independent auditors’ report) and 5% of adjusted profit before tax. This is within the range in which audit opinions are conventionally thought to be reliable. To manage the risk that aggregate uncorrected differences become material, we supported that audit testing would be performed to a lower materiality threshold for individual reporting units. Further, KPMG agreed to draw the Committee’s attention to all identified uncorrected misstatements greater than £1.6m (2018: £1.6m). The aggregated net difference between the reported pre-tax profit and the auditor’s judgement of pretax profit was less than £8m which was significantly less than audit materiality. The gross differences were attributable to various individual components of the consolidated income statement and balance sheet. No audit difference was material to any line item in either the income statement or the balance sheet. Accordingly, the Committee did not require any adjustment to be made to the financial statements as a result of the audit differences reported by the External auditors.
I am pleased to present my report as Chairman of the Risk and Capital Committee.
 Considering aspects of the Group’s ICAAP and reviewing the documentation of the first Standard Life Aberdeen wide ICAAP document following the sale of the UK and European insurance business to Phoenix in 2018 (the Sale). This included teach-in sessions on specific elements of the ICAAP
Further details on this and other activities carried out by the Committee during the year can be found in the report that follows.
The Committee meetings are attended by the Chief Risk Officer. Others invited to attend on a regular basis include the Chief Executive, the Chief Financial Officer, the Chief Investment Officer, Chief Operating Officer, Group General Counsel and the Chief Internal Auditor as well as the External auditors.
The role of the Committee is to provide the oversight and advice to the Board, and where appropriate, the board of each relevant Group company on:  The Group’s current risk strategy, material risk exposures and their impact on the levels and allocations of capital
 The structure and implementation of the Group’s ERM framework and its suitability to react to forward-looking issues and the changing nature of risks
The Committee’s work in 2019 Overview The Committee operates a rolling agenda and uses each meeting to consider a range of recurring items as well as other items that are more ad hoc and/or more forward-looking in nature. An indicative breakdown as to how the Committee spent its time is shown below: The key recurring items considered by the Committee are:  The Views on Risk report which provides a holistic assessment from the Chief Risk Officer of the key risks and uncertainties faced by the Group’s businesses and the actions being taken to manage these
 Performance of the Group’s ICAAP processes in accordance with the Capital Requirements Directive. The ICAAP supports the Committee in understanding changes to the risk profile of the Group and the capital position over the course of the year
In addition to reviewing these recurring items the Committee provided oversight of a broad range of topics in 2019. This included consideration of:  Advice provided to the Remuneration Committee regarding the delivery of performance in 2018 relative to risk appetites
 Risk and compliance organisational design update  Update on Standard Life Aberdeen’s preparations for a disorderly Brexit  Plans for testing, assurance reviews, and validation activity to be performed in 2019  Monitoring of risks related to overall transformation and integration activities
 The Standard Life Aberdeen ICAAP report  Results from the 2019 stress and scenario testing programme  Annual review of risk policies  Monitoring and oversight regional plans for 2020  The combined second and third line assurance plan  Review of the risk assessment of the business plan
The Committee has received regular reporting through the Views on Risk report on each of the 12 principal risks. The Views on Risk report includes relevant dashboards on the risks, commentaries and associated management information. Through reviewing this reporting the Committee has monitored risks relative to applicable risk appetites and the resilience of the capital position under current and stressed conditions. Environmental, social and governance risks are actively managed within the business and updates on this are also included within the report. Using this material, the Committee is able to oversee, challenge and advise the Board on the Group’s risk appetite, material risk exposures and the impact of these on the levels and allocation of capital.
ERM Framework including risk policies and appetites Operational risks Conduct and compliance risks Capital adequacy Other controls (including transaction risk assessments)
 Risks associated with the delivery of the business plan  Enhancements to components of the Group’s risk appetite framework  The ICAAP report produced for Standard Life Aberdeen  The management of cyber risk across the Group  Approach to management of the Group’s liquidity risk framework
 Combined stress scenarios – looking at simultaneous stresses impacting on economic conditions, flows and idiosyncratic factors specific to the Group
 Reverse stress testing – considering extreme but plausible events, including as a result of operational, conduct or reputational risks, that have the potential to cause the business to become unviable
The Committee reviewed the results of the stress testing and scenario analysis that was performed. This included reviewing the results of three scenarios which were explored as part of the reverse stress testing exercise: a market shock with adverse impacts on our strategic investments; a significant breakdown in a key strategic relationship and the outage of a key payment mechanism.
Based on the results of the stress testing and scenario analysis, the Committee concluded there was no requirement for the business to reduce its risk exposures and that the business was resilient to extreme events as a result of the robust controls, monitoring and triggers in place to identify events quickly and the range of management actions available to help mitigate their effects. The Committee also provided oversight of the risk and capital implications of the financial reforecasts produced during the year and the strategic business plan produced in December 2019.
Regulatory compliance and reporting The Committee reviews and assesses regulatory compliance plans detailing the planned schedule of monitoring activities to be performed by the Risk and Compliance function to ensure there is appropriate coverage. Regular updates on key findings from regulatory compliance activity and progress against the plan were reported to the Committee through the Views on Risk report.
As a Committee we have closely monitored regulatory developments to understand and anticipate potential implications for the Group and the wider financial services sector. This included monitoring regulatory developments regarding statements from the European Securities and Markets Authority, the FCA and other European regulators. In particular the Committee paid close attention to developments in connection to Operational Resilience, remedies arising from the FCA’s Asset Management Market Study and Liquidity Management.
Governance arrangements The Committee has continued to rely on the work of those risk committees comprising non-executives operating in subsidiary companies to provide oversight and challenge of risks within those subsidiaries. This has included the risk committees in place for Aberdeen Standard Investments Life and Pensions Limited, Standard Life Savings Limited, Elevate Portfolio Services Limited and Standard Life (Asia) Limited.
The Committee receives updates and minutes from these committees in order to maintain awareness and oversight of risks across the Group. The Committee also reviews the terms of reference for these committees in order to ensure their remit is suitably aligned. In addition to the Committee reviewing reporting from the subsidiary risk committees, arrangements also exist for the Committee’s Chairman to attend those subsidiary risk committees.
During the year the Committee provided advice to the Remuneration Committee regarding the delivery of performance in the context of incentive packages. In particular, the Committee considered whether performance had been delivered in a manner that was consistent with the Group’s strategy, risk appetite and tolerances, and capital position. The provision of this advice helps ensure the Group’s overall remuneration practices are aligned to the business strategy, objectives, culture and long-term interests of the Group and that individual remuneration is consistent with, and promotes, effective risk management.
 Some Committee members commented that there was still a tendency for the Committee to spend a lot of its time discussing details, and it would benefit from keeping its focus on the bigger picture
Sir Douglas Flint 3.3 Nomination and Governance Committee report Following on from my introductory letter to the Corporate Governance statement, and together with the other relevant parts of the statement, this section covers the specific work of the Nomination and Governance Committee as it supports the Board in providing effective oversight and challenge of the governance framework.
The Committee’s work in 2019 An indicative breakdown as to how the Committee spent its time is shown below:  Supported the Chairman transition arrangements  Recommended the co-CE transition arrangements  Reviewed compliance with the UK Corporate
 Reviewed Board and Committee composition  Reviewed the SID succession process  Culture, Diversity and Inclusion action plans update  Reviewed the process for stakeholder engagement  Recommended the appointment of two NED Board members  Reviewed ELT succession planning  Reviewed ELT development activities
 Culture, Diversity and Inclusion action plans update  Supported the selection of the external facilitator for the
 Oversight of our transformation programme from the perspective of the evolution of the firm’s culture, strategic drivers and behaviours
 Reviewing employee feedback from the Viewpoints survey on our purpose, values and culture and executive management’s response
The Committee regularly reviews the Group’s corporate governance framework against relevant directors’ duties, generally accepted standards, guidance and best practice, and, as appropriate, recommends to the Board changes to the Board Charter.
Board appointments When seeking to make Board appointments, the Committee identifies the skills, experience and capabilities needed for particular Board roles. This recognises the need to secure a pipeline of potential successors to be able to chair the Board Committees, and also the need to plan ahead to take account of the length of time served on the Board by the current independent NEDs. In addition, it also recognises the skills which the Board will need as it moves forward to oversee the implementation of its approved strategy, such as digital experience, and takes account of the Group’s commitments to achieve and maintain its Board diversity target (33% by 2020).
Succession planning and talent management activities The Committee regularly reviews the results of succession planning activities, including key person and retention risk, and talent development programmes across the Group.
Board evaluation The Committee has a key role in supporting the Board evaluation process. You can read about the 2019 review on page 61. The Committee oversaw the process to select IBE as the external facilitator and also reviews the progress to implement the recommendations of the 2018 review.
Diversity and inclusion The Board’s diversity statement is on page 60. The Committee has a key role in supporting this through its oversight of diversity and inclusion activities. In the Directors’ report you can read about our inclusion direction, progress against which is monitored by the Committee. In the Strategic report you can read about our Gender representation, and the progress against the targets we have set. In addition, in the Sustainability report, you can read the Diversity and Inclusion section. The Global Head of Diversity and Inclusion attends the Committee at least twice a year to report on progress on delivering against our action plans and initiatives.
 In particular the Committee was keen to continue its consideration of how to make the most appropriate use of the information it receives through the NED Board employee engagement channel
 The Committee was also keen to continue to maintain its focus on supporting the delivery of action on the people issues within its remit
Overall, Board members have confidence in the effectiveness of the Committee and the way in which it performs its duties.
 An overview of the 2019 remuneration outcomes and the proposed remuneration policy and how it will be implemented in 2020
 The annual remuneration report, which sets out in detail how the remuneration policy was implemented in 2019
At a glance – 2019 Remuneration outcomes 81 At a glance – proposed Remuneration policy and 2020 implementation
This is my first report to shareholders, having been appointed to the Board and as Remuneration Committee Chair in September 2019. I would like to thank Richard Mully who served as the previous Committee Chairman, the Board, and my fellow Committee members for their support.
Changes to the executive leadership team (ELT) and Board succession during 2019 In March 2019, it was confirmed that Keith Skeoch had been appointed as the sole CE, with Martin Gilbert remaining on the Board in his new role as Vice Chairman. Subsequently, it was announced in October 2019 that Martin would leave the Company on 30 September 2020. He relinquished his executive reports with effect from the date of that announcement. His time reduced to 4 days per week from 1 January 2020, with his remuneration (fixed and variable opportunity) pro-rated accordingly from that date. He will not seek re-election as a Director at the 2020 AGM.
It was also announced on 17 December 2019 that Rod Paris would step down from the Board with effect from 31 December 2019, while continuing his valuable work as CIO of the Company. His remuneration for the 2019 performance year, as well as the vesting and release of deferred awards granted in his capacity as an executive Director, will be delivered in accordance with existing policy. In line with this, his shareholding requirement under the current policy will remain in-force until the end of 2020.
1 Outcome (% of annual salary) has been prorated to reflect the period of time spent on the Board.
Financial performance Performance against financial metrics accounts for 80% of the bonus opportunity for executive Directors. As set out in the Chairman’s review, investment performance for our clients and customers improved in the year, with positive effects on their returns. Despite this improving background, the balance of financial metrics in the EIP scorecard landed below target. This has given rise to a final assessment of 8.33% of maximum on financial measures.
 Considerable progress on our people agenda including the formation of a new leadership team
The Remuneration Committee concluded that there were no grounds for exercising its discretion to amend the outcome of the process.
 Stephanie Bruce’s one-off deferred award with a face value of £750,000 which was the subject of the performance condition referred to above
Stephanie Bruce was considered a critical addition to the Board to deliver our strategic plan and her recruitment from outside the financial sector presented particular challenges. As a partner at PricewaterhouseCoopers LLP, her annual emoluments were exclusively in cash and included a share of partnership profits which were relatively dependable, while not guaranteed. On leaving the partnership, she forfeited the right to these payments and transitioned to a pay model with a higher proportion of pay truly at risk. In compensation for her loss of partnership earnings going forward, the Committee felt it was appropriate to grant her a one-off deferred award, to which the performance conditions set out on page 89 were subsequently attached. Shareholders made it clear that they had not expected the Company to use its general discretions in the remuneration policy to grant an award of this kind. On behalf of the Committee I acknowledged their concerns and agreed that prior consultation with key investors would be considered should a similar issue arise in the future. I also confirmed that assessment of performance against the targets for Stephanie Bruce’s one-off award would be separately verified, noting that the first performance assessment is due to take place in June 2020 on the anniversary of her appointment. I also took the opportunity during my shareholder meetings to discuss our thinking regarding remuneration arrangements and solicited views on the future shape and direction of executive remuneration at the Company. The encouragement received from shareholders and their representatives to consider alternative approaches and the points that they raised informed the decision by the Remuneration Committee to propose the new remuneration policy set out below.
Changes to remuneration for 2020 As outlined in both the Chairman’s message and the Chief Executive’s review, 2019 was a pivotal year for both our industry and our business. Looking forward we need to position our Company for 2020 and beyond to ensure we are ready to meet the turbulent challenges facing markets and our industry. This demands a remuneration policy and package for our executive Directors that motivates and incentivises delivery against our plan, whilst aligning their long-term interests with those of shareholders.
 The Phoenix transaction provides the Company with the opportunity to reorganise its capital structure via the realisation of value in non-core assets and the return of excess capital to shareholders. Since this process has little impact on Adjusted Earnings, it again falls outside the scope of the EIP.
Shareholder consultation As we reported in an RNS announcement in November, the Committee consulted extensively with shareholders and their representatives in the development of this policy and their views have helped us to shape our final proposals. The shareholders that we consulted were supportive of the proposed approach going forward, and in particular:  Increased alignment to shareholders through the introduction of an LTIP
Shareholders and their representative bodies also provided helpful commentary which have guided the implementation of the new policy for our executives in 2020. I thank them for both their time and contribution.
To help you navigate the report effectively, I would like to draw your attention to the ‘At a glance’ sections between pages 81 and 84 which summarise both the outcomes for 2019 and also the proposed new remuneration policy and its implementation in 2020. Further detailed information is then set out in the rear sections of the report for your reference as required.
On behalf of the Board, I invite you to read our remuneration report and welcome your feedback.
2019 Remuneration outcomes This chart shows the outcome for each executive Director based on 2019 performance compared to the maximum opportunity.
1 The figure for Stephanie Bruce has been pro-rated to reflect her appointment to the Board on 1 June 2019. 2 The EIP opportunity for Martin Gilbert has been pro-rated to reflect the change in his opportunity as a result of his change in role on 13 March 2019. 3 Bill Rattray retired from the Board on 31 May 2019. The EIP outcome and opportunity shown above has been pro-rated to reflect the period of time spent on the Board.
Both Keith Skeoch (Executive LTIP) and Rod Paris (SLI LTIP) were granted LTIP awards in 2017, prior to the merger with a performance period ending 31 December 2019. The Committee reviewed the performance conditions attached to these awards and assessed that performance had not met the minimum threshold required to vest. The awards will lapse in full. More detail on the performance conditions can be found on page 88.
EIP deferred and subject to underpin performance All figures in £000s
The 2019 EIP scorecard outcome In determining the final outcome for the EIP, the Remuneration Committee took advice from the Risk and Capital Committee and the Audit Committee, while also considering culture and conduct, the shareholder experience and pay for the wider workforce. As a result of this, the Committee concluded that there would be no further discretion applied to the scorecard outcome. The following table sets out the final outcome for the 2019 EIP, including the personal performance assessment. The table also details the final value derived for each individual.
Salary: Core reward for undertaking the role, normally reviewed annually. Pension and Benefits: Provides market competitive cost-effective benefits.
Executive Incentive Plan: A single incentive plan designed to reward the delivery of the Company’s business plan in a range of financial and non-financial areas. Performance assessed against a range of key financial, non-financial and personal performance measures. Performance is measured both on annual and, where appropriate, trailing performance of up to three years. Awards are delivered as follows:  25% in the form of cash  75% in the form of a deferred award (subject to Underpin conditions which are measured over three years from award)
Shareholding guidelines: Executive Directors are required to build up substantial interests in the Company. The shareholding requirement for the Chief Executive is 500% of salary, and 300% of salary for other directors. Executive Directors are required to hold shares to the value of the shareholding requirement for one year post-cessation.
Financial metrics (maximum 80% of outcome) Non-financial metrics (maximum 10% of outcome)
At a glance – proposed remuneration policy and 2020 implementation This section sets out our proposed 2020 remuneration policy (and compares this to our current policy), 2020 implementation of this policy (including a comparison to 2019) and the 2020 performance measures and targets that will be used to determine outcomes.
Key elements of our proposed policy (full policy set out on page 96) As referred to in the Chairman’s statement, a new policy has been proposed for implementation in 2020. The tables below summarise the key elements and implementation of the policy. Details of how our proposed policy supports the delivery of our strategy can be found on page 99. The policy for Chairman and non-executive Director fees remains unchanged and is set out on page 104.
Salary: Core reward for undertaking the role, normally reviewed annually. Change from current policy: No change
Long-Term Incentive Plan (LTIP): Designed to incentivise and reward long-term performance and shareholder value creation.
 Performance measures will include an absolute and relative measure  Awards are subject to a three-year performance period with vested awards subject to a further two-year holding period  Awards are subject to malus and clawback  The first LTIP award will be made following the 2020 AGM, subject to the policy’s approval
Shareholding guidelines: Executive Directors are required to build up substantial interests in the Company. The shareholding requirement for executive Directors remains at 500% of salary for the CE and 300% of salary for the CFO. Executive Directors are required to hold shares to the value of the shareholding requirement for two years following departure from the Board. Martin Gilbert will be subject to the policy in place at the time of the announcement of his departure, i.e. one year post-cessation of employment with the Company.
Change from current policy: Increase from current post employment shareholding requirement of 12 months to 24 months.
Positioning for growth 45% Investment performance, Fee based revenue, Cost/income ratio Delivering for our shareholders 30% Profitability and delivery of key strategic initiatives Investing in our people and our customer experience 20% Performance against key people objectives (including people engagement and diversity) and key customer objectives (including customer advocacy) Individual objectives 5% Key individual deliverables
The 2020 LTIP award The first award under the LTIP plan will be made following the 2020 AGM, subject to the approval of the remuneration policy. Targets for the award will be measured for the three-year period ended 31 December 2022 and are set as follows: Performance measure Weighting Threshold performance (25% vesting) Stretch performance (100% vesting)1
Adjusted diluted EPS Compound Annual Growth Rate (CAGR) 50% 5% 15%
Relative TSR2 50% Equal to the median company Equal to, or in excess of, the upper quartile company 1 Straight line vesting occurs between threshold and maximum. 2 Relative TSR will be calculated using a 90-day average share price, both at the beginning and at the end of the performance period. The 90-day averaging will commence 45 days prior to the beginning and also 45 days prior to the end of the performance period. The calculation will be performed on a local currency basis.
Single total figure of remuneration – executive Directors (audited) The following table sets out the single total figure of remuneration for each of the executive Directors who served as a Director at any time during the financial year ending 31 December 2019: Executive Directors
2 Keith Skeoch, Martin Gilbert and Rod Paris participate in the Standard Life Sharesave Plan. Keith Skeoch and Rod Paris participate in the Standard Life (Employee) Share Plan – the maximum annual award of matching shares in 2019 was £600.
6 For 2019, both the Executive and Standard Life Investments LTIPs failed to achieve threshold performance and will vest at 0%. 7 Appointed 1 June 2019 – all figures reflect amounts paid/awarded since the date of appointment. 8 Stepped down from the Board on 31 May 2019. The values shown represent the emoluments paid for the period spent on the Board.
Pension (audited) During 2019, all executive Directors received a cash allowance in lieu of pension contributions of 20% of base salary.
Executive Incentive Plan The following section contains details on the targets and the Remuneration Committee’s assessment of outcomes for the period 1 January 2019 to 31 December 2019 against each of the elements of the EIP scorecard.
– Enabling execution of planned HDFC Life/ Asset Management share sales, delivering above target outcomes – £3bn gross AUM added from new products, significantly ahead of target of £2bn – Development of a cohesive and ambitious plan for the Group’s Wealth and Platforms business – Transformation objectives assessed as being on track but behind stretch targets
– Transformation of leadership team completed during 2019, with the ELT and Global Leadership Group established, providing continued development for future succession pool
– Voluntary turnover within the Company remains ahead of the benchmark at 9.7% – Implementation of an integrated HR system
– Leading role in strategic planning and execution of HDFC Life /AMC sales considerably enhancing value of retained shareholdings, and in planning and executing share buyback activity
– Leading consultant recognition for improved investment performance which reflects a multi-strategy approach – Strong focus on the people agenda and development of a talented leadership team – Leadership of an improved planning and budgeting process through final stage of transition – Progress with Phoenix on exiting from elements of the Transitional Service Agreement and developing the strategic relationship had been slower than expected – Further transformation synergies identified, however with additional costs and some delay
– Strong management of the development plans for strategic clients and distribution and marketing agenda – Continuing participation in leading investor conferences to project the Aberdeen Standard Investments brand
Rod Paris – Improvement of investment performance as a result of strong leadership on the integration of the investment teams and capabilities
– Completing transition of the target operating model and management succession planning in core areas – Reinforcing focus on stewardship and environmental, social and governance activities across the company and introducing a more proactive and public engagement policy
– Strong impact in first 6 months of taking over leadership of the finance function, including improved efficiency in the delivery of results reporting and target setting for our business plan
– Effective management of our strong capital position to support strategic investments to grow the business and maintain our dividend policy
Before approving the level of performance in 2019, the Remuneration Committee sought the views of the Audit Committee on material accounting, reporting and disclosure matters that it considered during the year and the Risk and Capital Committee on the management of risk within the business. When reflecting on whether the formulaic outcome could be considered fair in the context of the overall results, they took into account the feedback received as well as items including culture and conduct, shareholder experience and pay for the wider workforce.
Underpin conditions to be applied to the EIP deferred awards to be granted in 2020 Awards will be subject to performance Underpins, measured over a three-year period. Subject to performance against the Underpins, awards will vest pro-rata over years three, four and five following grant. Awards will not be released to participants until the fifth anniversary of grant.
– Measured based on a blend of three-year and five-year investment performance. – Requires average results of the three years to be at or above 55% of AUM by value to be outperforming benchmark
– Rewards efficient profit generation – Average performance between 2020 – 2022 to be 17% or higher – Return on equity is calculated as adjusted profit before tax divided by adjusted IFRS equity
As disclosed in the 2018 Directors’ remuneration report, in accordance with the terms of his letter of appointment, in 2019 Sir Gerry Grimstone received fees of £190,000 and an allowance of £10,000 in respect of his six month notice period.
Shareholdings and outstanding share awards This section reports our Directors’ interests in shares.
Vesting of the 2017 Executive LTIP and Standard Life Investments Long-Term Incentive Plan (SLI LTIP) Keith Skeoch participated in the 2017 Executive LTIP, the outcome of which was dependent on the achievement of stretching performance conditions by reference to adjusted profit and net flows targets. On assessment of performance against these conditions, it was determined that the award did not meet the required thresholds against either of these measures and the award lapsed in full.
Cumulative adjusted profit performance 70% of target 100% of target 130% of target 59% of target 0%
Total qualifying holding (shares held from table above) and 50% of qualifying awards Value1 of holding Shareholding requirement
Under the proposed remuneration policy set out on page 96, which is subject to approval at the 2020 AGM, an executive Director will have to hold shares up to the value of their shareholding requirement for 24 months post departure from the Board. The previous policy required shares up to the value of the requirement to be held for 12 months post departure. Bill Rattray continues to hold more than 300% of his salary in shares, which must be held until 31 December 2020. In line with the policy which was in place at the time of the announcement relating to his departure, Martin Gilbert will be required to hold 300% of his pro-rated salary in shares until 30 September 2021.
This table shows the total number of share options with and without performance conditions held at 31 December 2019: Unvested options with performance measures1
Vested but unexercised options at 31 December3 Exercised during the year4
As is normal practice, there are employee trusts that operate in conjunction with the Executive LTIP, Standard Life Investments LTIP, the Restricted Stock Plan, the deferred elements of the Standard Life annual bonus plan and the Aberdeen Asset Management deferred plans. On 31 December 2019 the trusts held 52,644,135 shares acquired to satisfy these awards. Of these shares, 10,909,928 are committed to satisfying vested but unexercised awards. The percentage of share capital held by the employee trusts is 2.25% of the issued share capital of the Company – within the 5% best practice limit endorsed by the IA.
Relative importance of spend on pay The following table compares what the Company spent on employee remuneration to what is paid in the form of dividends to the Company’s shareholders. Also shown is the Company’s adjusted profit before tax which is provided for context as it is one of our key performance measures: Remuneration payable to all Group employees (£m)1 646 (16.3%) 772 Dividends paid in respect of financial year (£m) 495 (11.4%) 559 Share buybacks and return of capital (£m) 515 (58.3%) 1,235
Adjusted profit before tax (£m)1 584 (32.1%) 860 1 Includes discontinued operations in respect of the year ended 31 December 2018.
The ratio has increased from 2018, which reflects the outcome paid to the CE under the EIP, due to the Committee’s assessment of performance in each of the relevant years.
How pay was set across the wider workforce in 2019 Our principles for setting pay across the wider workforce are the same as for our executives, with arrangements varying in respect of proportion of the package which is linked to performance increasing for more senior roles within the Company as responsibility and accountability increases. In the data set out above, individuals received different pension contributions and benefits depending on the terms and conditions they were eligible for at the time of the merger, however bonus payments were made under the same plan. A project to harmonise terms and conditions was undertaken following a comprehensive employee consultation and engagement program. UK employees (below executive Director) are, as of 1 January 2020, subject to the same pension and benefits structures for the first time since the merger. Base salaries are targeted at an appropriate level in the relevant markets in which the Group competes for talent. The Committee considers the base salary percentage increases for the Group's broader UK and international employee populations when determining any annual salary increases for the executive Directors.
In 2019, all employees were eligible to be considered for performance related variable remuneration. This has been designed to reward delivery of results over appropriate time horizons and includes deferred variable compensation at a suitable level for the employee’s role. Variable remuneration for employees, including executive Directors, is determined as a total pool.
Remuneration for non-executive Directors and the Chairman Single total figure of remuneration – non-executive Directors (audited) The following table sets out the single total figure of remuneration for each of the non-executive Directors who served as a Director at any time during the financial year ending 31 December 2019. Non-executive Directors do not participate in bonus or long-term incentive plans and do not receive pension funding: Non-executive Directors
The non-executive Directors, including the Chairman, have letters of appointment that set out their duties and responsibilities. The key terms are set out in the remuneration policy, and can be found on page 104.
3 For non-executive Directors, individual fees are constructed by taking a base fee and adding extra fees for being the Senior Independent Director, chairman or member of committees and/or subsidiary boards where a greater responsibility and time commitment is required.
Non-executive Directors’ interests in shares (audited) The following table shows the total number of Standard Life Aberdeen plc shares held by each of the non-executive Directors and their connected persons: Total number of shares owned at 1 January 2019 or date of appointment if later
Jonathan Asquith (Chair since 1 September 2019) 2/2 John Devine (acting Chair between 14 May and 1 September) 8/8 Cathleen Raffaeli 8/8 Jutta af Rosenborg 8/8 Cecilia Reyes (since 1 October 2019) 2/2 Richard Mully (Chair until 14 May 2019) 4/4
The role of the Remuneration Committee To consider and make recommendations to the Board in respect of the total remuneration policy across the Company, including:  Rewards for the executive Directors, senior employees and the Chairman  The design and targets for any employee share plan  The design and targets for annual cash bonus plans throughout the Company  Changes to employee benefit structures (including pensions) throughout the Company
 Update on the external environment and feedback from AGM  Remuneration decisions for the ELT and other senior employees within Remuneration Committee’s remit  Review of the Employee Sharesave Plan
A representative from Deloitte LLP attends, by invitation, all Remuneration Committee meetings to provide information and updates on external developments affecting remuneration as well as specific matters raised by the Remuneration Committee. Outside of the meetings, the Remuneration Committee’s Chairman seeks advice on remuneration matters on an ongoing basis. As well as advising the Remuneration Committee, Deloitte LLP also provided tax, risk management and consultancy services to the Company during the year. Deloitte Total Rewards and Benefits is an investment adviser to the trustees of the Standard Life Staff Pension Scheme.
Fees paid to Deloitte LLP during 2019 for professional advice to the Remuneration Committee were £294,486.
Where appropriate, the Remuneration Committee receives input from the Chairman, Chief Executive, Chief Financial Officer, Chief HR Officer, Global Head of Reward, Chief Risk Officer, and the Head of Stewardship and ESG Investments. This input never relates to their own remuneration. The Remuneration Committee also receives input from the Risk and Capital Committee and Audit Committee.
In determining the new remuneration policy, the Committee followed a robust process which included detailed discussions on the content of the policy at multiple Committee meetings. The Committee considered input from management (although decisions were taken by the Committee alone to avoid conflicts of interest), shareholders and its independent advisers.
Whilst no maximum is set, when considering annual incremental increases the Remuneration Committee is guided by the general increase for the broader employee population.
Operation Normally reviewed annually, taking into account a range of factors including: (i) the individual's skills, performance and experience; (ii) increases for the broader employee population; (iii) external market data and other relevant external factors; (iv) the size and responsibility of the role; and (v) the complexity of the business and geographical scope.
Purpose and link to strategy To provide a competitive, flexible retirement benefit in a way that does not create an unacceptable level of financial risk or cost to the Company.
Maximum contributions under ‘all-employee’ share plans will be set in line with other employees and within the limits set by the relevant tax authority.
Specific benefit provision may be subject to change from time to time. Additional benefits may be provided on recruitment or to support relocation with the Remuneration Committee’s agreement.
Purpose and link to strategy To reward the delivery of the Company’s business plan in a range of financial and non-financial areas and to align executives’ interests to those of shareholders and our customers and clients.
Operation An annual incentive programme in respect of which the performance measures, and their respective weightings and targets, are normally set annually by the Remuneration Committee.
Normally 50% of the award will be paid in cash. No less than 50% will be deferred into shares vesting in equal tranches over a three-year period. A retention period may be applied, as required by regulation.
Deferred awards may include the right to receive (in cash or shares) the value of the dividends that would have accrued during the vesting period.
Performance metrics Performance is assessed against a range of key financial, nonfinancial and personal performance measures.
At least 75% will be based on financial performance measures and no more than 10% will be based on personal performance measures.
Maximum opportunity The maximum award opportunity in respect of any financial year is based on role and is up to 500% of salary.
Operation An annual award of performance shares, normally subject to a three-year performance period, with a subsequent two-year holding period.
Awards may include the right to receive (in cash or shares) the value of the dividends that would have accrued over the performance and holding period.
The Remuneration Committee may adjust and amend awards in accordance with the LTIP rules.
LTIP awards are subject to at least two performance metrics, with at least one being absolute in nature (e.g. an earnings based metric) and one being a relative metric (e.g. a shareholder return based metric)
The shareholding requirement for executive Directors remains at 500% of salary for the CE and 300% of salary for other executive Directors. The Committee retains the discretion to reduce this requirement for new joiners to align it with the higher of their maximum LTIP opportunity or 200% of salary.
The post cessation of employment share ownership policy for executive Directors in place after the close of this year’s AGM will require shares up to the value of the shareholding requirement to be held for a period of two years following departure from the Board.
 Personal and people metrics are considered as part of the annual assessment of award outcomes. This rewards game changing innovation and contribution to our success.
Enduring relationships Deepen our understanding of customers and clients to ensure we exceed their expectations and build relationships that last.
 Our remuneration structure is weighted to long-term success, ensuring that executive Directors are incentivised to focus on sustainable outcomes
 Long-term investment performance is considered as part of the financial assessment of annual award outcomes
 Employee engagement metrics form a part of the non-financial metrics under the Annual Bonus Plan
 The focus on long-term outcomes via the LTIP incentivises and rewards future sustainable success and the creation of shareholder value
 Our new remuneration structure is transparent for executive Directors and shareholders. This enables the package to attract and retain key talent providing clear alignment between performance and reward outcomes for all our stakeholders.
The remuneration framework appropriately addresses the following principles as set out in the 2018 Corporate Governance Code.
Remuneration arrangements are simple, comprising the following key elements:  Fixed element: comprises base salary, benefits and pension, which are aligned to those offered to the majority of the workforce
 Short-term incentive: annual bonus which incentivises the delivery of financial, non-financial and individual performance metrics aligned to the Plan for the year agreed with the Board. Half of the bonus is paid in cash with the balance deferred over a period of three years.
The Remuneration Committee retains the flexibility to review and amend formulaic outcomes to ensure that they are appropriate in the context of overall performance of the Company, including adherence to risk appetite limits. The Remuneration Committee takes advice from the Risk and Capital Committee and Audit Committee as part of this review.
 Delivering for our shareholders (30%): Profitability and delivery of key strategic initiatives may be used to focus management on strategic priorities, delivery of shareholder value and drive improved performance in future years
 Individual objectives (5%): Key individual deliverables will be used to focus executives on specific projects related to their leadership role which they can influence in order to drive improved performance in future years
Adjusted diluted earnings per share Relative total shareholder return Chosen measure of profitability and a key performance indicator for the Company. Targets the Company’s ability to deliver incremental returns to the Company’s shareholders and provides an indication of the Company’s dividend paying capability.
The remuneration policy at Standard Life Aberdeen has been set to be appropriate for the nature, size and complexity of the Company, recognising variances in markets and geographies. It has been designed to support the delivery of the Company’s key strategic priorities and is in the best interests of the Company and its stakeholders, as set out on page 99. A shared culture and values by employees of the Company is critical to delivery of the Company’s strategic priorities. This is recognised through alignment of the remuneration policy with the wider workforce whenever possible.
The key terms of the executive Directors legacy plans are set out below. All awards are subject to malus and clawback provisions.
 Awards vest in equal tranches on the third, fourth and fifth anniversary of the grant date and are subject to a holding period until the end of the fifth anniversary of the grant date
 Awards (in the form of nil-cost options) granted to executive Directors under the Executive LTIP are subject to the achievement of cumulative Company operating profit before tax and cumulative Company net flows performance over three-year performance periods. Awards are subject to a two-year holding period after the end of the performance period.
 The Remuneration Committee has the discretion to amend the final vesting levels of these awards if it does not consider that they reflect the overall performance of the Company and individuals. Awards are also subject to review by the Risk and Capital Committee at the end of the performance period to confirm that vesting of the award is appropriate. These awards accrue dividend equivalents over the vesting period which will normally be paid in shares on a reinvested basis.
 Pre-merger awards – under the terms of the merger, existing awards granted to employees of Aberdeen under the Aberdeen Deferred Share Plan 2009 or the Aberdeen USA Deferred Share Award Plan prior to completion were exchanged for equivalent awards over shares in the Company
Remuneration Committee discretion in relation to future operation of the remuneration policy The Committee will operate variable remuneration plans according to the respective rules of the plans. The Committee will retain flexibility in a number of areas regarding the operation and administration of these plans, including (but not limited to): change of control, changes in regulatory requirements, variation of share capital, demerger, special dividend, fund merger, winding up or similar events.
The Committee also retains the discretion within the remuneration policy to adjust targets and/or set different measures and weightings if events happen that cause it to determine that the original targets or conditions are no longer appropriate and that amendment is required so that the targets or conditions achieve their original purpose. Revised targets/measures will be, in the opinion of the Committee, no less difficult to satisfy than the original conditions.
Share awards, under the Company’s share plans, may be granted as conditional share awards, nil cost options or forfeitable shares at the discretion of the Committee. Awards may at the Committee’s discretion be settled in cash (for example, where required for local legal/regulatory purposes).
 Remuneration arrangements for new appointments will typically align with the remuneration policy  In the case of internal promotions, the Committee will honour existing commitments entered into before promotion
In considering which elements to include, and in determining the approach for all relevant elements, the Committee will take into account a number of different factors, including (but not limited to) typical market practice and existing arrangements for other executive Directors and internal relativities.
Any payment in lieu of notice will be made up of up to 12 months’ salary, pension contributions and the value of other contractual benefits. The payment may be made in phased instalments (this will be standard policy for notice periods of over six months). A duty to mitigate applies.
Other payments The Committee reserves the right to make any other payments (including appropriate legal fees) in connection with an executive Director’s cessation of office or employment where the payments are made in good faith in discharge of an existing legal obligation (or by way of damages for breach of such an obligation) or by way of settlement of any claim arising in connection with the cessation of that executive Director’s office or employment.
Outstanding awards will be treated in line with the terms of the respective plans.
Scenario charts The following chart illustrates how much the current executive Directors could receive under a range of different scenarios along with a comparison to our current policy: Outcomes for the 2020 scenario chart are based on the following:  Minimum – fixed pay, consisting of salary and pension effective 1 April 2020 (18% of salary), and benefits (the value of taxable benefits are as shown in the Single Total Figure of Remuneration table for 2019 on page 85)
 The remuneration policy for non-executive Directors is to pay: (i) Board membership fees; and (ii) further fees for additional Board duties such as chairmanship or membership of a committee, the Senior Independent Director, and the chairman of subsidiary boards, in each case to take into account the additional responsibilities and time commitments of the roles. Additional fees may be paid in the exceptional event that non-executive Directors are required to commit substantial additional time above that normally expected for the role.
 Notice periods: Six months for the Chairman. No notice period for other non-executive Directors.  Termination payment: There is no provision for compensation payments for loss of office for non-executive Directors
Remuneration arrangements throughout the Company When setting the policy for executive Directors’ remuneration, the Committee takes into account the pay and employment conditions elsewhere in the Company, recognising international variance and jurisdictional differences, where appropriate. The Committee is informed about the approach to salary increases, Company-wide benefits offerings including pensions, the structure of incentive arrangements and distribution of outcomes throughout the wider organisation, as well as the take-up of all-employee share plans, employee engagement survey results and employee morale, although it does not directly consult employees in the Company on the remuneration policy for executive Directors.
The Company applies a consistent remuneration philosophy for employees. The remuneration philosophy is reviewed at least annually by the Remuneration Committee and may be updated to ensure that this remains aligned to business strategy and regulatory requirements as well as being appropriately structured to attract, retain and incentivise our employees.
Consideration of shareholder views The Remuneration Committee values the opportunity to engage in meaningful dialogue with its investors.
The Directors present their annual report on the affairs of the Standard Life Aberdeen group of companies (the Group), together with the audited International Financial Reporting Standards (IFRS) consolidated financial statements for the Group, financial information for the Group and financial statements for Standard Life Aberdeen plc (the Company) for the year ended 31 December 2019.
The main trends and factors likely to affect the future development, performance and position of the Group are outlined in the Chief Executive’s overview section of the Strategic report. Reviews of the operating and financial performance of the Group for the year ended 31 December 2019 are given in the Strategic report.
This report was prepared by the executive leadership team together with the Board and forms part of the management report.
The total payment is estimated at £322m for the final dividend and together with the interim dividend of 7.30p per share totalling £173m paid on 24 September 2019, the total dividend for 2019 will be 21.60p per share (2018: 21.60p) totalling £495m (2018: £559m).
On 25 June 2018, shareholders voted at a general meeting for a return of capital of up to £750 million to be returned by way of a share buyback programme.
On 9 August 2018 the Company announced the commencement of an initial share buyback programme of the Company’s ordinary shares up to a maximum aggregate consideration of £175m. This was followed by announcements on 20 November 2018, 1 April 2019 and 16 August 2019 of the commencement of further tranches of the share buyback programme up to a maximum aggregate consideration of £200m, £175m and £200m respectively. The final tranche of this programme completed on 27 December 2019. The purpose of this programme was to reduce the share capital of the Company. All shares purchased have been cancelled. In total, 273,282,699 shares were cancelled through this programme, of which 190,689,614 were purchased and cancelled between 1 January 2019 and 31 December 2019.
The Board may decline to register the transfer of:  A share that is not fully paid  A certificated share, unless the instrument of transfer is duly stamped or duly certified and accompanied by the relevant share certificate or other evidence of the right to transfer, is in respect of only one class of share and is in favour of a sole transferee or no more than four joint transferees
4. Directors’ report continued provide the Company with information about interests in those shares as set out in the Companies Act 2006 (unless the transfer is shown to the Board to be pursuant to an arm’s length sale under the Articles)
The Company may, by ordinary resolution, declare dividends up to the amount recommended by the Board. Subject to the Companies Act 2006, the Board may also pay an interim dividend, and any fixed rate dividend, whenever the financial position of the Company, in the opinion of the Board, justifies its payment. If the Board acts in good faith, it is not liable to holders of shares with preferred or ‘pari passu’ rights for losses that arise from paying interim or fixed dividends on other shares.
Details of the Directors’ interests in the Company’s ordinary shares, the Standard Life (Employee) Share Plan, the Standard Life Sharesave Plan and the share-based discretionary plans are set out in the Directors’ remuneration report together with details of the executive Directors’ service contracts and non-executive Directors’ appointment letters.
Plan  The rules of the Standard Life Aberdeen plc Deferred Share Plan  The Company’s Articles
You can read more on our people strategy in the Strategic report section of this report.
Reward We have developed our employment proposition in the UK, where the majority of our people are based, and this has provided the foundation for a new, unified, set of UK terms and conditions of employment. These were designed to be fair and consistent, and to help us continue to attract and retain talented people.
Since these changes included pensions, we formally consulted with employees and their representatives for more than the required minimum of 60 days (under Regulation 6 of the Occupational and Personal Pension Schemes 2006). We also opted to engage with employee representatives on all the other proposed changes to terms and conditions and they had an opportunity to help shape them.
As a result, UK employees now have consistent and competitive benefits, including pension, life assurance, group income protection and healthcare. Our new My Benefits platform gives our people information at their fingertips, as well as seamless access to provider sites.
As well as the harmonisation of benefits, we have also focused on education to ensure employees fully understand their benefits. We have delivered a large number of educational communications throughout 2019 and will continue with this financial, health and wellbeing education and engagement programme through 2020 and beyond.
We believe that when our employees own shares in the Company it increases their understanding of the interests of our shareholders.
As at 31 December 2019, 2,188 individuals were shareholders through participation in the Standard Life Aberdeen (Employee) Share Plan. This is now available to a greater number of our people – as a result of the harmonisation of terms and conditions – and we expect participation to increase in 2020. Participation allows employees to buy ordinary shares in the Company directly from their earnings up to a market value of £150 per month (UK) or €175 (Ireland) per month. We match the shares purchased by employees, matching up to £50 per month in the UK and €70 per month in Ireland.
In addition, during 2019 we took action on the key themes which emerged from the engagement survey we ran in Q4 2018. That survey provided an overall engagement score of 56% with some obvious areas of focus for us to consider. These included the need for further clarity on our strategic direction, more leadership visibility, as well as minimising barriers to delivery. Positive feelings centred on our managers leading through change, employees feeling able to be themselves and our continued focus on inclusion.
As part of our commitment to understanding how people feel about working in Standard Life Aberdeen, we will conduct a short ‘pulse’ survey in the first quarter of 2020, and all employees globally will have an opportunity to participate. The survey will provide us with further organisational insight, allow us to track progress against the key organisational themes and give us an updated measurement of employee engagement.
Continuing our focus on Early Careers talent, in the last 12 months we have hired a total of 151 employees – comprising university graduates, interns and school leavers - into our Early Careers programmes in the UK, Europe, Asia and the U.S. Our Early Careers programmes are a major component of our broader commitment to hiring a diverse global workforce. In 2019, we set up a one year development programme for school leavers which is open to any school leaver, regardless of their background or qualification level. We hire people with the attitude and skills to help our business succeed. In 2019 we hired 20 individuals into this programme and they are working in the Investments, Distribution and Operations functions with plans to track their progress and hire an additional 22 individuals into the programme in 2020.
Our programmes, alongside other sustainability work, have received external recognition: we were ranked 21st amongst the top 75 employers in the UK Social Mobility index. We have also maintained our presence in the Top 100 UK Undergraduate Employers for 2019 (ranked 77th at the National Undergraduate Employer Awards) based on participant feedback.
Our People Management Academy is central to developing the skills and capability of our people managers. In 2019, over 700 line managers attended courses across the globe, focusing on topics such as Inclusive Leadership, Coaching and Great Conversations. We recently communicated our new People Manager Commitments, highlighting what we expect from people managers and supported this with bite-sized workshops that included a selection of the support tools available. People Management Academy content in 2020 will be curated to address the expectations laid out in the People Manager Commitments.
All employees can benefit from the courses in our Learning Academy and in 2019 over 900 of our people attended a diverse range of courses, including technology skills, industry-specific training, and personal effectiveness solutions.
Our efforts have been recognised at the Learning and Performance Institute’s Learning Awards where we won a Bronze Award for our digital learning initiative, The Leading Edge Challenge Series, which saw over 50,000 learning resources consumed across the campaign.
We have an inclusion direction, which was co-created with our people, and which defines our priorities over the next two to four years. Progress against this is reviewed by the Nomination and Governance Committee bi-annually. This year we have worked with our most senior leaders to create and publish action plans relevant to their business areas and regions, which will build more inclusive workplaces. Transparency is key to how we talk about and report our inclusion and diversity progress and our transparency was recognised again this year by Bloomberg, who included us for the second time in their Gender Equality Index.
We empower people to take individual and collective action as we all have a role to play in creating an inclusive environment. For example, our six employee network groups and three regional inclusion forums support members and allies of the diverse groups they represent, and raise awareness of issues that affect them. With over 1,700 members, our networks continue to expand their global reach, and focus on gender, LGBT+, ethnicity, mental health, young people, and armed forces. In addition to supporting these groups, we treat those with disabilities fairly in relation to job applications, training, promotion and career development. Reasonable adjustments are made to train and enable employees who become disabled while working at Standard Life Aberdeen to allow them to continue and progress in their career. Our commitment to support people with disabilities is included within our internal Global Diversity and Inclusion Policy, published in 2019.
Political donations We have a long-standing policy of not making political donations. The Company has limited authorisation from shareholders to make political donations and incur political expenditure (Resolution 8, 2019 AGM). We request this as a precaution against any inadvertent breach of political donations legislation. While Standard Life Aberdeen has regular interaction with government and elected politicians in the UK and other jurisdictions in which we operate, we are strictly apolitical.
Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and parent company and of their profit or loss for that period. In preparing each of the Group and parent company financial statements, the Directors are required to:  Select suitable accounting policies and then apply them consistently  Make judgements and estimates that are reasonable, relevant, reliable and prudent  For the Group financial statements, state whether they have been prepared in accordance with IFRSs as adopted by the EU  Assess the Group’s and Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern  Use the going concern basis of accounting unless they either intend to liquidate the Group or the Company or to cease operations, or have no realistic alternative but to do so
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the parent company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that its financial statements comply with the Companies Act 2006. They are responsible for such internal controls as they determine are necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities.
 The Directors’ report and Strategic report include a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face
Note 11. Discontinued operations .................................. 149 Note 12. earnings per share .......................................... 151 Note 13. Adjusted profit and adjusting items ................. 152 Note 14. Dividends on ordinary shares .......................... 153 Note 15. Intangible assets ............................................. 154 Note 16. Investments in associates and joint ventures .. 158 Note 17. Property, plant and equipment ........................ 164
Note 19. Financial assets .............................................. 168 Note 20. Derivative financial instruments ...................... 169 Note 21. Receivables and other financial assets ........... 172 Note 22. other assets .................................................... 172 Note 23. Assets and liabilities held for sale ................... 173 Note 24. Cash and cash equivalents ............................. 174
Note 44. employee share-based payments and deferred fund awards ...................................... 214 Note 45. Related party transactions .............................. 218 Note 46. Capital management ....................................... 218 Note 47. events after the reporting date ........................ 219 Note 48. Related undertakings ...................................... 220
In our opinion:  The financial statements give a true and fair view of the state of the
Group's and of the parent company's affairs as at 31 December 2019 and of the Group's profit for the year then ended
 The Group financial statements have been properly prepared in accordance with International Financial Reporting Standards as adopted by the European Union
 The parent company financial statements have been properly prepared in accordance with UK accounting standards, including FRS 101 Reduced Disclosure Framework
 The financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation
We were first appointed as auditor by the shareholders on 16 May 2017. The period of total uninterrupted engagement is for the three financial years ended 31 December 2019. We have fulfilled our ethical responsibilities under, and we remain independent of the Group in accordance with, UK ethical requirements including the FRC Ethical Standard as applied to listed public interest entities. No non-audit services prohibited by that standard were provided.
Recurring risk Recoverability of Group goodwill and of parent’s investment in subsidiaries
(Group Goodwill: £1,000m; (2018: £2,532m); Goodwill impairment losses recognised: £1,569m (2018: £891m)
Refer to page 67 (Audit Committee Report), page 154 (accounting policy) and page 156 (financial disclosures).
Subjective estimate: Goodwill in the Group and the carrying amount of certain of the parent company’s investments in subsidiaries are significant and at risk of irrecoverability due to reductions in assets under management or a change in the mix of the assets under management which would impact revenues. The estimated recoverable amount of these balances is subjective due to the inherent uncertainty involved in forecasting and discounting future cash flows. In the current year, goodwill in the Group was impaired by £1,569m and the parent company’s investments in subsidiaries were impaired by £795m.
The effect of these matters is that, as part of our risk assessment, we determined that both the carrying amount of goodwill and of certain investments in subsidiaries has a high degree of estimation uncertainty, with a potential range of reasonable outcomes greater than our materiality for the financial statements as a whole.
Assessing transparency: We assessed whether the Group’s disclosures about the sensitivity of the outcome of the impairment assessment to changes in key assumptions reflected the risks inherent in the valuation of goodwill and the recoverability of investment in subsidiaries.
Our findings: We found the estimates of the recoverable amount of Group goodwill and of the parent company’s investment in subsidiaries to be balanced (2018: balanced) with proportionate (2018: proportionate) disclosures of the related assumptions and sensitivities.
Refer to page 68 (Audit Committee Report), page 194 (accounting policy) and page 195 (financial disclosures).
Carrying value of investment in Phoenix – share of Phoenix profit
The effect of these matters is that, as part of our risk assessment, we determined that the share of Phoenix profit and hence the carrying value of the investment in Phoenix has a high degree of estimation uncertainty, with a potential range of reasonable outcomes greater than our materiality for the financial statements as a whole and possibly many times that amount.
Our actuarial experience: We used our own actuarial specialists to review and challenge the rationale for key assumptions adopted.
Valuation of the UK defined benefit pension scheme present value of funded obligation
Refer to page 68 (Audit Committee Report), page 187 (accounting policy) and page 189 (financial disclosures).
Test of detail and our sector experience: We considered the appropriateness of the base mortality assumption by reference to scheme and industry data on historical mortality experience.
Our findings: We found the estimated valuation of the UK defined benefit pension scheme obligation to be balanced (2018: balanced) with proportionate (2018: proportionate) disclosures of the related assumptions and sensitivities.
For the purposes of our audit for the period ended 31 December 2018, we recognised a key audit matter in association with the accounting for the obligations arising out of the disposal of SLAL and investment in Phoenix. One element of this risk related to a subjective estimate around the provision for separation costs. We continue to recognise this as a key audit matter above. The two other elements of this risk were in relation to the subjective valuation of the initial investment into Phoenix and the subjective estimate of the fair valuation of indemnities within the SPA. The valuation of the initial investment was a one-off and therefore does not recur for the audit for the year to 31 December 2019. The indemnities fair valuation has materially reduced in the period as a result of the finalisation of certain matters which determined the value of these and therefore we no longer recognise it as an element of the key audit matter.
We also previously recognised a key audit matter in relation to the carrying value of the investment in Phoenix. This risk was focused on the year end valuation given the market valuation was significantly below the carrying value. This year, as the market value is above the carrying value, the risk is now focused on the share of Phoenix profit that the Company has recognised within the carrying value of the investment in Phoenix.
We also reported a key audit matter in respect of the impact of uncertainties due to the UK exiting the European Union. As a result of developments since the prior year report, including the Group’s own preparation, the relative significance of this matter on our audit work has reduced. Accordingly, we no longer consider this a key audit matter.
6. Independent auditors’ report to the members of Standard Life Aberdeen plc continued 3. Our application of materiality and an overview of the scope of our audit Materiality for the Group financial statements as a whole was set at £31m (2018: £32m), determined as 5% of our estimate of Group profit before tax made at the planning stage, normalised for our expectation of the level of adjusting items including impairment, restructuring costs and the profits arising on disposal of associate shareholdings. This equates to 4.4% of reported Group profit normalised on a consistent basis and to 12.7% of Group profit before tax from continuing operations of £243m. Prior year materiality represented 4.8% of our assessed normalised Group profit before tax.
Of the Group’s 28 (2018:75) continuing reporting components, we subjected 8 (2018: 6) to full scope audits for Group purposes and 2 (2018:3) to specified risk-focused audit procedures. The latter were not individually financially significant enough to require a full scope audit for Group purposes, but did present specific individual risks that needed to be addressed.
The Group team instructed component auditors as to the significant areas to be covered, including the relevant risks detailed above and the information to be reported back. The Group team approved the component materialities, which ranged from £3.1m to £26m, having regard to the mix of size and risk profile of the Group across the components.
4. We have nothing to report on going concern The Directors have prepared the financial statements on the going concern basis as they do not intend to liquidate the Company or the Group or to cease their operations and as they have concluded that the Company’s and the Group’s financial position means that this is realistic. They have also concluded that there are no material uncertainties that could have cast significant doubt over their ability to continue as a going concern for at least a year from the date of approval of the financial statements (the going concern period).
In our evaluation of the Directors’ conclusions, we considered the inherent risks to the Group’s and Company’s business model and analysed how those risks might affect the Group’s and Company’s financial resources or ability to continue operations over the going concern period. The risk that we considered most likely to adversely affect the Group’s and Company’s available financial resources over this period was movements in investment markets and assets under management.
As these were risks that could potentially cast significant doubt on the Group’s and the Company's ability to continue as a going concern, we considered sensitivities over the level of available financial resources indicated by the Group’s financial forecasts taking account of reasonably possible (but not unrealistic) adverse effects that could arise from these risks individually and collectively and evaluated the achievability of the actions the Directors consider they would take to improve the position should the risks materialise.
Based on this work, we are required to report to you if:  We have anything material to add or draw attention to in relation to the directors’ statement in Note 1 to the financial statements on the use of the going concern basis of accounting with no material uncertainties that may cast significant doubt over the Group and Company’s use of that basis for a period of at least 12 months from the date of approval of the financial statements
Strategic report and directors’ report Based solely on our work on the other information:  We have not identified material misstatements in the strategic report and the directors’ report
 In our opinion those reports have been prepared in accordance with the Companies Act 2006
 The Principal Risks disclosures describing these risks and explaining how they are being managed and mitigated
Corporate governance disclosures We are required to report to you if:  We have identified material inconsistencies between the knowledge we acquired during our financial statements audit and the directors' statement that they consider that the Annual Report and financial statements taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group's position and performance, business model and strategy
7. Respective responsibilities Directors' responsibilities As explained more fully in their statement set out on page 111, the Directors are responsible for: the preparation of the financial statements including being satisfied that they give a true and fair view; such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error; assessing the Group and parent company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and using the going concern basis of accounting unless they either intend to liquidate the Group or the parent company or to cease operations, or have no realistic alternative but to do so.
Auditor's responsibilities Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or other irregularities (see below), or error, and to issue our opinion in an auditor's report. Reasonable assurance is a high level of assurance, but does not guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud, other irregularities or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements. A fuller description of our responsibilities is provided on the FRC’s website at: www.frc.org.uk/auditorsresponsibilities
Firstly, the Group is subject to laws and regulations that directly affect the financial statements including financial reporting legislation (including related companies legislation), distributable profits legislation, taxation legislation and pension’s regulations and we assessed the extent of compliance with these laws and regulations as part of our procedures on the related financial statement items. Secondly, the Group is subject to many other laws and regulations where the consequences of non-compliance could have a material effect on amounts or disclosures in the financial statements, for instance through the imposition of fines or litigation. We identified the following areas as those most likely to have such an effect: specific areas of regulatory capital and liquidity, conduct including Client Assets, money laundering, market abuse regulations and certain aspects of company legislation recognising the financial and regulated nature of the Group’s activities. Auditing standards limit the required audit procedures to identify non-compliance with these laws and regulations to enquiry of the directors and other management and inspection of regulatory and legal correspondence, if any. Through these procedures, we became aware of actual or suspected noncompliance and considered the effect as part of our procedures on the related financial statement items. The identified actual or suspected non-compliance was not sufficiently significant to our audit to result in our response being identified as a key audit matter.
Income Investment return 3 464 (116) Revenue from contracts with customers 4 1,743 1,955 Insurance contract premium income 31 66 73 Profit on disposal of interests in associates 1 1,542 185
Expenses Insurance contract claims and change in liabilities 31 156 1 Change in non-participating investment contract liabilities 25 265 (78) Administrative expenses
Restructuring and corporate transaction expenses 9 374 231 Impairment of goodwill – asset management 15 1,569 880 Other administrative expenses 6 1,651 1,746
Total administrative expenses 3,594 2,857 Change in liability for third party interest in consolidated funds 21 (5) Finance costs 36 45 Total expenses from continuing operations 4,072 2,820
Profit/(loss) before tax from continuing operations 243 (787) Tax expense attributable to continuing operations 10 28 43 Profit/(loss) for the year from continuing operations 215 (830) Profit for the year from discontinued operations 11 56 1,698 Profit for the year 271 868
Equity shareholders of Standard Life Aberdeen plc 266 830 Other equity holders
From discontinued operations – perpetual notes2 30 – 28 Non-controlling interests
Earnings per share from continuing operations Basic (pence per share) 12 8.9 (29.3) Diluted (pence per share) 12 8.8 (29.3) Earnings per share Basic (pence per share) 12 11.2 29.1 Diluted (pence per share) 12 11.1 29.1 1 The Group has initially applied IFRS 9 and IFRS 16 at 1 January 2019. Under the transition methods chosen, comparative information is not restated. Refer Basis of preparation. 2 The presentation of amounts attributable to certain perpetual debt instruments in 2018 has been restated to show these amounts separately as related to other equity holders rather than as part of non-controlling interests. Refer Note 30.
Consolidated statement of comprehensive income For the year ended 31 December 2019
Items that may be reclassified subsequently to profit or loss: Fair value (losses)/gains on cash flow hedges 20 (10) 54 Fair value losses on available-for-sale financial assets 29 – (9) Exchange differences on translating foreign operations (46) 14 Share of other comprehensive income of associates and joint ventures 16 7 – Items transferred to the consolidated income statement
Fair value losses/(gains) on cash flow hedges 20 22 (41) Realised foreign exchange gains – (2)
Restructuring and corporate transaction expenses 9 (407) – (407) (239) (264) (503) Amortisation and impairment of intangible assets acquired in business combinations and through the purchase of customer contracts 2 (1,844) – (1,844) (1,155) – (1,155) Profit on disposal of subsidiaries 1 – – – – 1,780 1,780 Profit on disposal of interests in associates 1 1,542 – 1,542 185 – 185 Reversal of/(loss on) impairment of associates 16 243 – 243 (228) – (228) Investment return variances and economic assumption changes 13 (25) – (25) 54 (41) 13
Receivables and other financial assets 19 560 697 Current tax recoverable 10 9 6
Assets held for sale 23 767 762 Cash and cash equivalents 19 1,615 1,110
Deferred tax liabilities 10 87 100 Current tax liabilities 10 19 22 Derivative financial liabilities 20 3 4 Other financial liabilities 32 1,315 1,161
Investment contract liabilities 1,152 1,468 Third party interest in consolidated funds 416 228 Other unit linked liabilities 14 4
Total liabilities 4,756 4,978 Equity Share capital 26 327 353 Shares held by trusts 27 (134) (115) Share premium reserve 26 640 640
Equity attributable to equity shareholders of Standard Life Aberdeen plc 6,564 7,438 Non-controlling interests
The consolidated financial statements on pages 121 to 231 were approved by the Board and signed on its behalf by the following Directors: Sir Douglas Flint Stephanie Bruce Chairman, 10 March 2020 Chief Financial Officer, 10 March 2020 125Standard Life Aberdeen 2019
Profit for the year from continuing operations – – – 210 – 210 – 5 215 Profit for the year from discontinued operations – – – 56 – 56 – – 56 Other comprehensive income for the year from continuing operations – – – (33) (36) (69) – – (69) Other comprehensive income for the year from discontinued operations – – – – – – – – – Total comprehensive income for the year 28,29 – – – 233 (36) 197 – 5 202 Issue of share capital 26 – – – – – – – – – Dividends paid on ordinary shares 14 – – – (518) – (518) – – (518) Dividends paid on preference shares – – – – – – – (5) (5) Shares bought back on-market and cancelled
Consolidated statement of cash flows For the year ended 31 December 2019
Cash flows from investing activities Purchase of property, plant and equipment 17 (28) (28) Proceeds from sale of property, plant and equipment 2 1 Acquisition of subsidiaries and unincorporated businesses net of cash acquired (40) (33) Disposal of subsidiaries net of cash disposed of 41 – (5,501) Acquisition of investments in associates and joint ventures 16 (51) (72) Proceeds from contingent consideration assets 40 63 – Payments of contingent consideration liabilities 40 (18) – Disposal of investments in associates and joint ventures 1 1,720 201 Taxation paid on disposal of investments in associates and joint ventures3 (22) (21) Purchase of financial investments (590) (55) Proceeds from sale or redemption of financial investments 800 51 Purchase of intangible assets (15) (128) Net cash flows from investing activities 1,821 (5,585) Cash flows from financing activities Repayment of other borrowings – (2) Repayment of subordinated liabilities and perpetual notes (455) (1,377) Payment of lease liabilities (32) – Shares acquired by trusts (50) (100) Proceeds from issue of shares 26 – 1 Interest paid (39) (117) Return of cash to shareholders under B share scheme 26 – (983) Shares bought back on-market and cancelled 26 (516) (238) Preference dividends paid (5) (5) Ordinary dividends paid 14 (518) (634) Net cash flows from financing activities (1,615) (3,455) Net increase/(decrease) in cash and cash equivalents 407 (8,790) Cash and cash equivalents at the beginning of the year 957 9,715 Effects of exchange rate changes on cash and cash equivalents (17) 32 Cash and cash equivalents at the end of the year 24 1,347 957 Supplemental disclosures on cash flows from operating activities Interest paid 5 6 Interest received 34 1,118 Dividends received 143 1,545 Rental income received on investment property 3 329 1 The Group has initially applied IFRS 16 at 1 January 2019. Under the transition methods chosen, comparative information is not restated. Refer Basis of preparation. 2 Restated. The Group has changed the classification of certain cash flows following the disposal of the UK and European insurance business in 2018. The reason for the changes is to make the financial statements more relevant to users as it is more consistent with asset management peers. Refer Basis of preparation (a)(iii). 3 Total taxation paid was £56m in 2019 (2018: £245m).
Changes in fair value of all financial instruments classified as FVTPL and derivative instruments are recognised in profit or loss except for derivative instruments that are designated as a hedging instrument in a cash flow hedge or net investment hedge.
Interest is credited to profit or loss using the effective interest rate method for financial instruments measured at amortised cost.
The Group has elected to continue applying the hedge accounting requirements of IAS 39.
Transition As permitted by IFRS 9 comparatives have not been restated. The impact of adopting IFRS 9 is recognised in retained earnings at 1 January 2019.
Accounting policies The updated accounting policies for financial assets, derivatives and financial liabilities are included in Notes 19, 20 and 32 respectively.
Financial assets backing unit linked liabilities Designated at FVTPL (IAS 39) Financial investments 1,659 – – 1,659 At FVTPL (IFRS 9) 1,659 At amortised cost (IAS 39) Receivables and other financial liabilities 11 – – 11 Cash and cash equivalent 30 – – 30 At amortised cost (IFRS 9) 41
Financial liabilities backing unit linked liabilities Designated at FVTPL (IAS 39) Investment contract liabilities (1,468) – – (1,468) Third party interest in consolidated funds (228) – – (228) Designated at FVTPL (IFRS 9) (1,696) At amortised cost (IAS 39) Other financial liabilities (3) – – (3) At amortised cost (IFRS 9) (3)
Change in deferred tax liability 1 Total net impact of transition from IAS 39 to IFRS 9 (12)
Disclosure The adoption of IFRS 9 has also resulted in a number of new disclosure requirements under IFRS 7 Financial Instruments: Disclosure. These include new disclosures in relation to:  Classification of financial assets and liabilities including disclosure of those that are mandatorily classified as FVTPL and those designated as such along with details of any significant reclassifications in the year
These disclosures are provided in Notes 19 (financial assets), 20 (derivatives), 32 (financial liabilities) and 38 (financial instruments risk management), where relevant.
IFRS 16 Leases On 1 January 2019 the Group adopted IFRS 16 Leases. IFRS 16 replaces IAS 17 Leases and introduces a new single accounting approach for lessees for all leases (with limited exceptions). As a result there is no longer a distinction between operating leases and finance leases, and lessees will recognise a liability to make lease payments and an asset representing the right to use the underlying asset during the lease term. The accounting for leases by lessors remains largely unchanged. However, a number of the Group’s subleases which were operating leases under IAS 17 now qualify as finance leases under IFRS 16.
Practical expedients The Group has used the following practical expedients permitted under IFRS 16:  To apply the new standard solely to leases previously identified in accordance with IAS 17 and IFRIC 4 Determining whether an Arrangement Contains a Lease
 To not recognise leases with a low value or short-term leases including those whose term ends within 12 months at 1 January 2019  To apply a single discount rate to leases with similar characteristics
Exemptions for low value leases and leases whose term ends within 12 months at 1 January 2019 (4) Extension options reasonably certain to be exercised 6 Lease commitments for operations held for sale (5) Other 3
Disclosure IFRS 16 introduces new disclosure requirements for lessees and lessors which are provided in Note 18. The objective of the disclosures is for lessees and lessors to disclose information in the notes that, together with the information provided in the statement of financial position, statement of profit or loss and statement of cash flows, gives a basis for users of financial statements to assess the effect that leases have on the financial position, financial performance and cash flows.
Interpretations and amendments to other standards  IFRIC 23: Uncertainty over Income Tax Treatments  Amendments to IFRS 9 Prepayment Features with Negative Compensation  Amendments to IAS 19 Amendment, Curtailment or Settlement  Amendments to IAS 28 Long-term interests in associates and joint ventures  Annual Improvements 2015-2017 cycle
(a)(ii) Standards, interpretations and amendments to existing standards that are not yet effective and have not been early adopted by the Group Certain new standards, interpretations and amendments to existing standards have been published that are mandatory for the Group’s annual accounting periods beginning after 1 January 2019. The Group has not early adopted the standards, amendments and interpretations described below: IFRS 17 Insurance Contracts (effective for annual periods beginning on or after 1 January 2021, expected to be amended to 1 January 2022) IFRS 17 was issued in May 2017 and will replace IFRS 4 Insurance Contracts. IFRS 4 is an interim standard which permits the continued application of accounting policies, for insurance contracts and contracts with discretionary participation features, which were being used at transition to IFRS except where a change satisfies criteria set out in IFRS 4. IFRS 17 introduces new required measurement and presentation accounting policies for such contracts which reflect the view that these contracts combine features of a financial instrument and a service contract.
Investments in associates Determining whether the investments in Phoenix and HDFC Life should continue to be classified as associates Identification, valuation and determination of useful lives for equity accounting purposes, of the Group’s share of its associate’s intangible assets at the date of acquisition of an investment in the associate
There are no other changes to critical judgements from the prior year.
Intangible assets Determination of the recoverable amount in relation to impairment assessment of asset management goodwill
Investments in associates Determination of the recoverable amount in relation to the impairment assessment of investments in associates
The determination of the recoverable amount in relation to customer relationships and investment management contract intangibles is no longer considered a critical estimate as a result of amortisation and market movements. All other critical accounting estimates and assumptions are the same as the prior year.
(b) Acquisitions (b)(i) Subsidiaries On 29 November 2019, 1825 Financial Planning and Advice Limited (a subsidiary of 1825 Financial Planning Limited) purchased the wealth advisory business of Grant Thornton UK LLP through a business acquisition agreement under which the majority of the clients and employees of the wealth advisory business transferred to 1825 Financial Planning and Advice Limited. The assets under advice at the acquisition date were £1.6bn. The acquisition significantly expands 1825’s advice capability and national client reach.
At the acquisition date the consideration, net assets acquired from Grant Thornton UK LLP and resulting goodwill were as follows: Cash 40
Goodwill 35 1 The fair value of the contingent consideration of £5m has been calculated by reference to assets under advice growth and could range from £nil to £5m.
Customer-related intangible assets relate to the existing customer relationships in place at the acquisition date. The full amount of the goodwill is expected to be non-deductible for tax purposes.
The amounts of revenue from contracts with customers and profit contributed to the Group’s consolidated income statement for the year ended 31 December 2019 from the acquired wealth advisory business were £1m and £nil respectively. The profit contributed excludes amortisation of intangible assets acquired through business combinations. If the acquisition had occurred on 1 January 2019, the Group’s total revenue from contracts with customers for the period would have increased by £10m to £1,753m and the profit would have increased by £2m to £273m.
In addition, the following acquisitions were made in the year but are not considered to be material.
(b)(ii) Joint ventures On 31 July 2019, as part of the Group’s strategic joint venture with Virgin Money, AAM PLC completed the acquisition of 50% (less one share) of Virgin Money Unit Trust Managers Limited (VMUTM) for an upfront cash payment of £40m plus 50% of the capital in the business and certain other costs.