The adoption of IFRS 9 will not significantly impact the other financial assets and liabilities which are currently measured at FVTPL or amortised cost in accordance with IAS 39, and will have no significant impact on profit.
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.
Following the sale of the UK and European insurance business, the Group has limited direct exposure to insurance contracts and contracts with discretionary participating features which will be impacted by the adoption of IFRS 17. However, the results of the Group’s insurance associates, Phoenix and HDFC Life, are expected to be significantly impacted by IFRS 17. The standard has not yet been endorsed by the EU.
The Group adopted IFRIC 23 on 1 January 2019. The clarifications set out in IFRIC 23 have not had a material impact on the Group’s financial statements.
There are no other new standards, interpretations and amendments to existing standards that have been published that are expected to have a significant impact on the consolidated financial statements of the Group.
Investments in associates Determining whether the investment in Phoenix should be classified as an associate 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
During the year to 31 December 2018 the following changes have been made to critical judgements in applying accounting policies:  We have identified critical judgements in applying accounting policies for investments in associates, for determining the cash-generating units to which goodwill acquired in a business combination should be allocated and for determining whether a provision should be recognised for separation costs
There are no other changes to critical judgements from the prior year. The areas where assumptions and other sources of estimation uncertainty at the end of the reporting period have a significant risk of resulting in a material adjustment to the carrying amounts of assets and liabilities within the next financial year are as follows: Financial statement area Critical accounting estimates and assumptions Related note Financial instruments at fair value through profit or loss
Determination of the fair value of contingent consideration assets and liabilities
 We have also identified the valuation of contingent consideration assets and liabilities relating to the disposal as a critical area of estimation uncertainty
 We have removed the critical estimates and assumptions related to the valuation of participating contracts, non-participating contracts and reinsurance contracts, investment property, level 3 private equity investments and debt securities, and the measurement of the provision for annuity sales practices. These assumptions and estimates have been removed as they primarily related to the UK and European insurance business.
Where the Group is considered to control an investment vehicle, such as an open-ended investment company, a unit trust or a limited partnership, and it is therefore consolidated, the interests of parties other than the Group are assessed to determine whether they should be classified as liabilities or as non-controlling interests. The liabilities are recognised in the third party interest in consolidated funds line in the consolidated statement of financial position and any movements are recognised in the consolidated income statement. The financial liability is designated at fair value through profit or loss (FVTPL) as it is implicitly managed on a fair value basis as its value is directly linked to the market value of the underlying portfolio of assets. The interests of parties other than the Group in all other types of entities are recorded as non-controlling interests.
The Group uses the acquisition method to account for acquisitions of businesses. At the acquisition date the assets and liabilities of the business acquired and any non-controlling interests are identified and initially measured at fair value on the consolidated statement of financial position.
Notes to the Group financial statements 1. Group structure (a) Composition The following diagram is an extract of the Group structure at 31 December 2018 and gives an overview of the composition of the Group.
Customer-related intangible assets 28 Receivables and other financial assets 1 Cash and cash equivalents 1 Total assets 30 Other financial liabilities 2 Total liabilities 2
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 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 2018 from the acquired ETF Securities business were £5m and £nil respectively. The profit contributed excludes amortisation of intangible assets acquired through business combinations. If the acquisition had occurred on 1 January 2018, the Group’s total revenue from contracts with customers for the period would have increased by £3m to £1,958m and the profit would have remained unchanged.
During the year, the Group’s UK wide financial advice business, 1825, completed the purchase of the entire share capital of Fraser Heath Financial Management Ltd and Cumberland Place Financial Management Ltd on 1 March 2018 and 6 April 2018 respectively. The combined assets under advice totalled £750m at the respective acquisition dates.
(c)(ii) Associates HDFC Asset Management Company Limited (HDFC AMC) Profit on disposal of interests in associates for the year ended 31 December 2018 of £185m includes £177m in relation to the HDFC AMC initial public offering (IPO).
HDFC AMC, the Group’s associate Indian asset management business announced in November 2017 that its board of directors had approved initiation of an IPO with the Group offering up a portion of the paid up capital of HDFC AMC. On 6 August 2018, HDFC AMC listed on the National Stock Exchange of India Limited and the Bombay Stock Exchange Limited following completion of the IPO. Through the IPO, the Group sold 16,864,585 equity shares in HDFC AMC for a total net consideration of Rs.16,212m (£180m). The Group’s shareholding in HDFC AMC at 31 December 2018 is 63,650,615 equity shares or 29.96% of the issued share capital of HDFC AMC. The gain on sale from the IPO of £177m (£156m after tax) was calculated using the weighted-average cost method. On disposal £2m was recycled from the translation reserve and was included in determining the gain on sale.
(c)(iii) Prior year disposal HDFC Life Insurance Company Limited (HDFC Life) Profit on disposal of interests in associates for the year ended 31 December 2017 of £319m includes £302m in relation to the HDFC Life IPO.
On 17 November 2017, HDFC Life listed on the National Stock Exchange of India Limited and the Bombay Stock Exchange Limited following completion of an IPO. Through the IPO, the Group sold 108,581,768 equity shares in HDFC Life for a total consideration of Rs 31,489m (£359m). The Group’s shareholding in HDFC Life at 31 December 2018 is 589,626,265 equity shares or 29.23% of the issued share capital of HDFC Life. The gain on sale of £302m was calculated using the weighted-average cost method. On disposal £2m was recycled from the translation reserve and was included in determining the gain on sale.
Comparative amounts for the 12 months ended 31 December 2017 have been prepared on the same basis as 31 December 2018 to allow more meaningful comparison.
Company Limited. 2 Amortisation and impairment of intangible assets acquired in business combinations and through the purchase of customer contracts includes £1,117m included in administrative expenses and set out in Note 14, and £38m relating to intangibles recognised on the part acquisition of associates and included in Share of profit from associates and joint ventures in the consolidated income statement.
Restructuring and corporate transaction expenses 8 (162) – (162) (11) – (173) Amortisation and impairment of intangible assets acquired in business combinations2 (125) (13) (138) – – (138) Provision for annuity sales practices 38 – – – (100) – (100) Profit on disposal of interests in associates 1 14 305 319 – – 319 Investment return variances and economic assumption changes 12 – – – 67 – 67
Tax on adjusting items 49 – 49 (7) – 42 Profit attributable to non-controlling interests (preference shares and perpetual notes) (8) – (8) – – (8) Profit for the year attributable to equity holders of Standard Life Aberdeen plc 64 338 402 297 – 699 Profit attributable to non-controlling interests
Ordinary shares – 25 25 Preference shares and perpetual notes 8 – 8
Limited. 2 Amortisation and impairment of intangible assets acquired in business combinations includes £125m included in Other administrative expenses and set out in Note 14, and £13m relating to intangibles recognised on the part acquisition of associates and included in Share of profit from associates and joint ventures in the consolidated income statement.
Total adjusted operating income and adjusted operating expenses as presented in the analysis of Group adjusted profit by segment from continuing operations 1,868 (1,395) 1,447 (1,084) Insurance and participating investment contract claims and change in liabilities 1 (1) 201 (201) Change in non-participating investment contract liabilities (78) 78 74 (74) Change in liability for third party interest in consolidated funds (5) 5 6 (6)
Adjusting items included in revenue and expenses 202 (1,355) 345 (328) Capital management (9) – 13 – Total income and expenses as presented in the IFRS consolidated income statement from continuing operations 2,131 (2,820) 2,165 (1,772)
The income of the operating businesses is allocated based on where the income is earned. The return on investment funds is allocated based on where funds are registered.
Europe, Middle East and Africa 2 771 Asia Pacific 6 3
Non-current non-financial assets for this purpose consist of investment property, property, plant and equipment and intangible assets (excluding deferred acquisition costs).
Interest income on financial instruments classified as available-for-sale or loans and receivables is separately recognised in the consolidated income statement using the effective interest rate method. The effective interest rate method allocates interest and other finance costs at a constant rate over the expected life of the financial instrument, or where appropriate a shorter period, by using as the interest rate the rate that exactly discounts the future cash receipts over the expected life to the net carrying value of the instrument.
Revenue from contracts with customers is recognised as services are provided and it is almost certain that the revenue will be received. Where revenue is received in advance (front-end fees), this income is deferred and recognised as a deferred income liability until the services have been provided (see Note 36).
Asset management Management fee income – Strategic insurance partners 370 274 Management fee income – Other clients 1,372 1,023 Performance fees 9 20
Revenue from contracts with customers for asset management 1,751 1,317 Fund platforms
Fee income 173 137 Other revenue from contracts with customers 31 32 Total revenue from contracts with customers from continuing operations 1,955 1,486
The revenue from the contracts with customers is reported within the Asset management and platforms segment. The following table provides a reconciliation of Revenue from contracts with customers as presented in the consolidated income statement to fee based revenue, as presented in the analysis of adjusted profit before tax for the Asset management and platforms segment.
Revenue from contracts with customers from continuing operations as presented in the consolidated income statement 1,955 1,486 Presentation differences
Fee based revenue from continuing operations as presented in the Asset management and platforms segment 1,868 1,447
Commission expenses are netted against fee based revenue in the segment reporting but are included within expenses in the consolidated income statement. Other presentation differences relates to amounts presented in a different income line item of the consolidated income statement and intra-group revenue which is eliminated in the consolidated income statement but grossed up for the purposes of segmental reporting.
(b) Contract receivables, assets and liabilities The Group has recognised the following receivables, assets and liabilities in relation to contracts with customers.
Amount receivable from contracts with customers 22 112 104 68 Accrued income from contracts with customers 22 214 249 67 Cost of obtaining customer contracts 14 80 11 –
Interest expense 5 – Commission expenses 105 49 Staff costs and other employee-related costs 673 616 Operating lease rentals 50 31 Auditors’ remuneration 8 5 Depreciation of property, plant and equipment 18 16 6 Amortisation of intangible assets 14 207 87 Impairment losses on intangible assets2 14 46 46 Impairment losses on disposal group classified as held for sale 24 2 24
Acquisition costs deferred during the year 15 (2) (4) Amortisation of deferred acquisition costs 15 2 3 Total other administrative expenses from continuing operations 1,746 1,295 1 Comparatives for 2017 have been restated to reflect the classification of the UK and European insurance business as discontinued operations. Refer Note 1. 2 Impairment losses on intangible assets excludes a goodwill impairment charge of £880m (2017: £nil) recognised separately as an individual item on the consolidated income statement. Refer note 14.
6. Staff costs and other employee-related costs The following table shows the staff costs and other employee-related costs aggregated for both continuing and discontinued operations.
The aggregate remuneration payable in respect of employees: Wages and salaries 655 633 Social security costs 68 75 Pension costs
Fees payable to the Company’s auditors for the audit of the Company’s individual and consolidated financial statements 1.1 0.9 Fees payable to the Company’s auditors for other services
The audit of the Company’s consolidated subsidiaries pursuant to legislation 3.6 4.8 Audit related assurance services 1.7 1.9
Total audit and audit related assurance fees 6.4 7.6 Other assurance services 1.6 0.3 Other non-audit fee services 0.2 0.1 Total non-audit fees 1.8 0.4 Total auditors’ remuneration 8.2 8.0
For the purposes of determining adjusted profit from continuing operations, an additional £8m was recognised in 2018 relating to our share of insurance associate restructuring and corporate transaction expenses (2017: £nil).
The Group’s tax expense comprises both current tax and deferred tax expense.
Deferred tax is recognised on temporary differences arising from investments in subsidiaries and associates unless the timing of the reversal is in our control and it is expected that the temporary difference will not reverse in the foreseeable future.
Adjustment to tax expense in respect of prior years 3 (1) Total current tax attributable to continuing operations 67 28
Deferred tax: Deferred tax (credit)/expense arising from the current year (12) (12) Adjustment to deferred tax in respect of prior years (12) 12 Total deferred tax attributable to continuing operations (24) – Total tax expense attributable to continuing operations 43 28 1 Comparatives for 2017 have been restated to reflect the classification of the UK and European insurance business as discontinued operations. Refer Note 1.
Permanent differences 21 (55) Tax effect of accounting for share of profit from associates and joint ventures (25) (8) Impairment losses on intangible assets 171 1 Impairment of investment in associate 43 – Different tax rates (16) (4) Adjustment to current tax expense in respect of prior years 3 (1) Recognition of previously unrecognised tax credit (4) (6) Deferred tax not recognised 10 6 Adjustment to deferred tax expense in respect of prior years (12) 12 Write down of deferred tax asset 4 (1) Non-taxable (profit)/loss on sale of subsidiaries and associates (2) – Total tax expense from continuing operations for the year 43 28 1 Comparatives for 2017 have been restated to reflect the classification of the UK and European insurance business as discontinued operations. Refer Note 1.
The accounting for certain items in the consolidated income statement results in certain reconciling items in the table above, the values of which vary from year to year depending upon the underlying accounting values: Details of significant reconciling items are as follows:  Permanent differences in 2018 include expenses and accounting losses which are not tax deductible for tax purposes. It also includes the difference between the tax basis and accounting value for employee share-based awards and non-deductible contributions to the Irish pension scheme. In 2017, there were a number of non-recurring items including non-taxable gains arising from the IPO of HDFC Life, a tax deductible donation made to Standard Life Foundation offset by expenses relating to the acquisition of Aberdeen which were not tax deductible.
The Group operates in a large number of territories and during the normal course of business will be subject to audit or enquiry by local tax authorities. At any point in time the Group will also be engaged in commercial transactions the tax outcome of which may be uncertain due to their complexity or uncertain application of tax law. Tax provisions, therefore, are subject to a level of estimation and judgement and may result in the Group recognising provisions for uncertain tax positions. Management will provide for uncertain tax positions where they judge that it is probable there will be a future outflow of economic benefits from the Group to settle the obligation. In assessing uncertain tax positions management considers each issue on its own merits using their judgement as to the estimate of the most likely outcome. Where the final outcome differs from the amount provided this difference will impact the tax charge in future periods. Management re-assesses provisions at each reporting date based upon latest available information.
(b) Tax relating to components of other comprehensive income Tax relating to components of other comprehensive income is as follows: restated1 £m £m
(c) Tax relating to items taken directly to equity 2018 2017
Deferred tax assets comprise: Actuarial liabilities – 5 Losses carried forward 27 11 Depreciable assets 9 12 Deferred income – 8 Employee benefits 24 37 Provisions and other temporary timing differences 2 2 Insurance related items – 5 Other – 4 Gross deferred tax assets 62 84 Less: Offset against deferred tax liabilities (1) (19) Deferred tax assets 61 65 Deferred tax liabilities comprise: Insurance related items – 4 Unrealised gains on investments 3 196 Deferred acquisition costs – 53 Employee benefits 2 – Temporary timing differences 1 – Deferred tax on intangible assets acquired through business combinations 92 130
A deferred tax asset of £27m (2017: £11m) for the Group has been recognised in respect of losses of various subsidiaries. Deferred tax assets are recognised to the extent that it is probable that the losses will be capable of being offset against taxable profits and gains in future periods. The value attributed to them takes into account the certainty or otherwise of their recoverability. Their recoverability is measured against the reversal of deferred tax liabilities and anticipated taxable profits and gains based on business plans.
(e) Unrecognised deferred tax Due to uncertainty regarding recoverability, deferred tax assets have not been recognised in respect of the following:  Cumulative losses carried forward of £74m in the UK and £268m overseas (2017: £90m, £293m respectively)  Tax reserves of the German branch of SLAL of £nil (2017: £102m)  Loss relating to Irish pension scheme deficit £nil (2017: £42m)
Income Investment return 2,350 12,536 Revenue from contracts with customers 117 185 Insurance and participating investment contract premium income 1,256 2,054 Profit on disposal of subsidiaries 1,780 – Other income 10 18 Total income from discontinued operations 5,513 14,793
Restructuring and corporate transaction expenses 8 264 14 Other administrative expenses 339 665
Total administrative expenses 603 679 Provision for annuity sales practices – 100 Change in liability for third party interest in consolidated funds (32) 1,118 Finance costs 35 54 Total expenses from discontinued operations 3,733 14,267
Net cash flows from operating activities 155 2,247 Net cash flows from financing activities (710) (1,309) Net cash flows from investing activities (7,537) (38) Total net cash flows (8,092) 900
Adjusted diluted earnings per share 17.8 4.7 22.5 15.1 14.8 29.9
As discussed in Note 26 the Company undertook a share consolidation during the year followed by a return of capital to shareholders. 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 due to the redemption of the B shares. As a result of the share consolidation and share buyback, earnings per share from continuing operations for the year ended 31 December 2018 is not directly comparable with the prior year.
Coupons payable on perpetual notes classified as non-controlling interests for which interest is accrued are included in adjusted profit before tax. For IFRS purposes, these are recognised directly in equity. This gave rise to an adjusting item in 2017, prior to the reclassification of such instruments to subordinated liabilities on 18 December 2017. Dividends payable on preference shares classified as non-controlling interests are excluded from adjusted profit in line with the treatment of ordinary shares. Similarly to preference shares, our share of interest payable on Tier 1 debt instruments held by associates, for which interest is only accounted for when paid, is excluded from adjusted profit.
Wholly owned insurance entities The Group’s UK and European insurance business was sold during the year and is classified as discontinued operations. The Group’s other wholly owned insurance business, SL Asia, is classified as held for sale (see Note 24).
For annuities this means that all fluctuations in liabilities and the assets backing those liabilities due to market interest rate (including credit risk) movements over the year are excluded from adjusted profit.
In respect of debt securities at fair value through profit or loss, the expected rate of return is determined based on the average prospective yields for the debt securities actually held.
Gains and losses on foreign exchange are deemed to represent investment return variances and economic assumption changes and thus are excluded from adjusted profit.
Investment return variances and economic assumption changes for the year ended 31 December 2018 and 31 December 2017 relate principally to the impact of interest rate changes on UK annuity liabilities and the assets backing those liabilities.
Associates and joint ventures insurance entities Where associates and joint ventures have a policy for determining investment return variances and economic assumption changes, the Group uses the policy of the associate or joint venture for including their results in the Group’s adjusted profit. This currently applies only to the Group’s investment in Phoenix. The Phoenix policy is similar to that used by the wholly owned insurance entities as described above. The main differences are as follows:  Phoenix investment return variances, including those relating to owners’ funds, include gains and losses on derivatives held to hedge life company Solvency II surplus positions. Such hedging positions were not previously held outside with profit funds by wholly owned insurance entities.
The final recommended dividend will be paid on 21 May 2019 to shareholders on the Company’s register as at 12 April 2019, subject to approval at the 2019 Annual General Meeting. After the current year final recommended dividend, the total dividend in respect of the year ended 31 December 2018 is 21.60p (2017: 21.30p).
Reclassified as held for sale during the year (18) – – (6) (311) (67) – (402)
Disposals and adjustments – – – (1) – 1 – –
Disposals and adjustments – – – – 1 – – 1
Reclassified as held for sale during the year – – – 6 204 46 – 256 Amortisation charge for the year 5 – (19) (143) (13) (16) – (16) (207)
Disposals and adjustments – – – – – – – – Other – – – – – – – –
Goodwill Goodwill of £3,209m was attributed to the Aberdeen Standard Investments group of cash-generating units in relation to the acquisition of Aberdeen. In attributing the goodwill relating to the acquisition of Aberdeen to a group of cash-generating units we considered the existing cashgenerating units which are expected to benefit from the synergies from the combination. As the benefit is expected to arise across Aberdeen Standard Investments (a combination of Aberdeen and Standard Life Investments now managed and reported together within the Asset management and platforms segment) we judged it was appropriate to allocate goodwill to this group of cash-generating units. This is the lowest level at which goodwill is monitored for internal management purposes.
The description of the three separate intangible assets including their estimated useful life at the acquisition date was as follows: Customer relationship intangible asset Description
Segregated and similar All other vehicle groups dominated by segregated mandates which represent 75% of this group.
Measuring the fair value of intangible assets acquired in business combinations required further assumptions and judgements. Customer relationships were valued using discounted cash flow projections. The key assumptions in measuring the fair value of the customer relationships at the acquisition date were as follows:  Net attrition – net attrition represents the expected rate of outflows of assets under management net of inflows from existing customers. This assumption is primarily based on recent experience.
Determination of the recoverable amount of goodwill and customer intangibles Goodwill is assessed for impairment at least annually by comparing the recoverable amount of each cash-generating-unit to which goodwill has been allocated with its carrying value. For all intangible assets, an assessment is made at each reporting date as to whether there is an indication that the goodwill or intangible asset has become impaired. If any indication of impairment exists and the carrying value exceeds the recoverable amount then the carrying value is written down to the recoverable amount.
The recoverable amount of this group of cash-generating-units, which is based on value in use, at 31 December 2018 is £4,111m. This was calculated using a terminal growth rate of 2.2% based on global GDP and a pre-tax discount rate of 11.1% based on the group cost of equity adjusted for forecasting risk. Cash flow projections for three years to end 2021 were based on management approved forecasts adjusted to market conditions at 31 December 2018. The impairment has been included within administrative expenses in the consolidated income statement. The recoverable amount in the prior year was based on fair value less costs of disposal.
Customer intangibles The recoverable amount for customer intangible assets is value in use. In assessing value in use, expected future cash flows are discounted to their present value using a pre-tax discount rate. Judgement is required in assessing both the expected cash flows and an appropriate discount rate which is based on current market assessments of the time value of money and the risks associated with the asset.
The 2018 impairment of £35m relates to the open-ended funds customer relationship intangible asset which is in the Asset management and platforms segment and which was recognised on the acquisition of Aberdeen. The impairment resulted from the impact of markets and flows on future earnings expectations. The recoverable amount of this asset which is its value in use is £138m and was calculated using a pre-tax discount rate of 13.1%. The remaining useful life as at 31 December 2018 is 9.7 years.
The carrying value of the life company customer relationships/contracts acquired through Ignis at 31 December 2018 is £42m (2017: £50m). The remaining amortisation period of the life contracts is 9.5 years. As at 31 December 2018, increasing the discount rate by 2%, decreasing the operating margin by 2.5% or decreasing the AUM by 10% would not result in an impairment loss and therefore would have no impact on carrying value.
In February 2018 Lloyds Banking Group (LBG) and Scottish Widows informed the Group that Scottish Widows and LBG's Wealth business intended to review their long term asset management arrangements including those services that are currently undertaken by certain legacy Aberdeen entities. The impairment of customer relationship and investment management contracts intangible assets in 2017 of £40m related to this announcement and was an impairment of the Lloyds Banking Group customer relationship intangible asset in the Asset management and platforms segment. The recoverable amount of this asset, which is its value in use, at 31 December 2017 was £26m and was calculated using a pre-tax discount rate of 13%. The remaining useful live was 1.1 years. The other key assumptions used to measure the value in use calculation as at 31 December 2017 were consistent with those used in the acquisition date valuation set out on page 148.
Determination of useful lives The determination of useful lives requires judgement in respect of the length of time that the Group expects to derive benefits from the asset and considers for example expected duration of customer relationships and when technology is expected to become obsolete for technology based assets. The amortisation period and method for each of the Group’s intangible asset categories is as follows:  Customer relationships acquired through business combinations – generally between 7 and 12 years, generally reducing balance method  Investment management contracts acquired through business combinations – between 10 and 17 years, straight-line  Brand acquired through business combinations – 5 years, straight-line  Technology acquired through business combinations – between 3 and 6 years, straight line  Internally developed software – between 2 and 6 years. Amortisation is on a straight-line basis and commences once the asset is available for use  Purchased software – between 2 and 6 years, straight-line  Costs of obtaining customer contracts - between 3 and 9 years, generally reducing balance method
Internally developed software The determination of amounts to be recognised as internally developed software requires judgement and assumptions in respect of whether assets are capable of being separated and the extent to which development costs form part of the separable asset. Additionally judgement is required to determine which costs have been incurred in relation to the research phase, which are not capitalised, and which have been incurred in relation to the development phase of a project, which are capitalised. We consider that costs are directly attributable to the software asset and can therefore be capitalised, where they would not have been incurred if the software development had not taken place.
The impairment of internally generated software recognised during the year to 31 December 2017 included £31m relating to discontinuation of part of an IT transformation project in the UK and European insurance segment classified as discontinued.
The Group incurs costs to obtain and process new business. These are accounted for as follows: Insurance and participating investment contracts Acquisition costs incurred in issuing insurance or participating investment contracts are not deferred where such costs are borne by a with profits fund that was subject to the Prudential Regulation Authority (PRA) realistic capital regime. For other participating investment contracts, incremental costs directly attributable to the issue of the contracts are deferred. For other insurance contracts both incremental acquisition costs and other indirect costs of acquiring and processing new business are deferred.
Deferred acquisition costs are amortised in proportion to projected margins over the period the relevant contracts are expected to remain inforce. After initial recognition, deferred acquisition costs are reviewed by category of business and written off to the extent that they are no longer considered to be recoverable.
Non-participating investment contracts Incremental costs directly attributable to securing rights to receive fees from non-participating investment contracts are deferred. Where such costs are borne by a with profits fund that was subject to the PRA’s realistic capital regime, deferral is limited to the level of any related deferred income.
Reclassified as held for sale during the year (606) (22) Additions during the year 2 49 Amortisation charge (2) (79) Foreign exchange adjustment – 13
The amount of deferred acquisition costs expected to be recovered after more than 12 months is £6m (2017: £536m).
Included in deferred acquisition costs above are costs deferred on investment contracts (deferred origination costs) amounting to £6m (2017: £356m) which relates to contracts with customers (see Note 4(b)). The amortisation charge for deferred origination costs relating to contracts with customers from continuing operations for the year was £2m (2017: £2m).
8. Group financial statements continued 16. Investments in associates and joint ventures
Where the Group has an investment in an associate, a portion of which is held by, or is held indirectly through, a mutual fund, unit trust or similar entity, including investment-linked insurance funds, that portion of the investment is measured at FVTPL.
During the year ended 31 December 2017 we changed our judgement in determining when the Group has significant influence over investment vehicles managed by the Group. In general, investment vehicles which are not subsidiaries are now considered to be associates where the Group holds more than 20% of the voting rights. Previously our judgement was that the Group had significant influence over all investment vehicles where, through its role as investment manager, it had power over the investment decisions of the vehicle. As a result previously the Group classified all Group managed investment vehicles which were not subsidiaries and in which the Group held an investment as associates. The reason for the change in accounting policy was to make the financial statements more relevant to users as it is more consistent with peers. This change in accounting policy only impacted the breakdown of ‘Equities and investments in pooled investment vehicles’, between amounts relating to investments in associates at FVTPL and other interests in pooled investment vehicles. This breakdown is disclosed in Note 40.
A full list of the Group’s associates and joint ventures is included in Note 49.
The level of future dividend payments and other transfers of funds to the Group from associates and joint ventures accounted for using the equity method could be restricted by the regulatory solvency and capital requirements of the associate or joint venture, and certain local foreign currency transaction restrictions.
(b) Investments in associates accounted for using the equity method The tables below provide summarised financial information for those associates which are considered to be material to the Group. The summarised financial information reflects the amounts presented in the financial statements or management accounts of the relevant associates amended to reflect adjustments made when using the equity method, including fair value adjustments on acquisition and not the Group’s share of those amounts.
Summarised financial information of associate: Revenue1 1,409 – 3,072 2,236 207 193 Profit after tax2 366 – 118 80 83 73 Other comprehensive income (76) – – – – – Total assets2,3 230,111 – 13,349 12,238 336 471 Total liabilities3 224,042 – 12,598 11,589 23 221 Net assets2 6,069 – 751 649 313 250
Attributable to NCI 788 – – – – – Attributable to investee’s shareholder 5,281 – 751 649 313 250
Interest held 19.98% – 29.23% 29.35% 29.96% 38.24% Share of net assets2 1,055 – 220 190 94 96
Associates accounted for using the equity method 812 – 329 304 110 90 9 10 1,260 404 Associates classified as held for sale – – – – – 33 – – – 33 Total amount recognised in consolidated statement of financial position 812 – 329 304 110 123 9 10 1,260 437 1 2017 revenue for HDFC Life has been restated to exclude investment income. 2 2017 profit after tax, total assets, net assets and share of net assets for HDFC Life have been restated to include intangible assets identified at the acquisition date of additional investments in HDFC Life acquired at fair value rather than book value and the related amortisation.
3 As a liquidity presentation is used by insurance companies when presenting their statement of financial position, an analysis of total assets and total liabilities between current and non-current has not been provided for Phoenix and HDFC Life. The majority of HDFC AMC’s assets and liabilities are current.
4 2018 dividend received from HDFC AMC includes £3m on interest that was classified as held for sale.
On 23 February 2018, the Group announced the proposed sale of the UK and European insurance business to Phoenix (the Sale), implemented by selling the entire issued share capital of Standard Life Assurance Limited (SLAL). Refer Note 1 for further details. Following the completion of the Sale in August 2018, as part of the total consideration, the Group was issued with new Phoenix shares representing 19.98% of the issued share capital of Phoenix. Our judgement was that taking into account our representation on Phoenix’s board and the significant transactions between the Group and Phoenix, Phoenix should be classified as an associate.
At acquisition the value of the Group’s share of Phoenix’s identifiable assets and liabilities was determined. This value was determined using the same valuation bases as required for a business combination under which most of the identifiable assets and liabilities of the enlarged Phoenix group (including SLAL) were measured at fair value. The most significant assets that were not measured at fair value were Phoenix’s defined benefit pension schemes which were measured at their IAS 19 value.
A key judgement was the identification, valuation and determination of useful lives, of the Group’s share of Phoenix’s intangible assets at the date of acquisition. The main intangible assets identified were the acquired present value of in-force business (AVIF) for both SLAL and other Phoenix entities. AVIF comprises the difference between the fair value and IFRS carrying value of insurance contracts together with the fair value of future profits expected to arise on investment contracts. The valuation of the AVIF has been determined using the application of present value techniques to the best estimate cash flows expected to arise from policies that were in-force at the acquisition date, adjusted to reflect the price of bearing the uncertainty inherent in those cash flows. This approach incorporates a number of judgements and assumptions which have impacted on the resultant valuation, the most significant of which are mortality rates, expected policy lapses, the expenses associated with servicing the policies, future investment returns, the discount rate and the risk adjustment for uncertainty, determined using a cost of capital approach. The Group’s share of profit after acquisition under the equity method reflects the amortisation of these intangible assets. This differs from the amortisation recognised in Phoenix’s own IFRS financial statements due to the revaluation of the existing Phoenix intangible assets at August 2018 for equity method purposes. The amortisation method reflects the expected emergence of economic benefits which results in higher amortisation in earlier periods.
The cost of the Group’s investment in Phoenix was equal to the fair value of its 19.98% interest at the date of acquisition, being £1,023m. The Group’s share of the value of the identifiable net assets of the enlarged Phoenix group exceeded the cost of the Group’s investment in Phoenix resulting in a bargain purchase gain of £15m which was offset by an impairment loss as described below.
The table below separately identifies financial assets with contractual cash flows that are solely payments of principal and interest (excluding those held for trading or managed on a fair value basis) and all other financial assets, measured at fair value through profit and loss.
Financial assets with contractual cash flows that are solely payments of principal and interest (SPPI) excluding those held for trading or managed on a fair value basis1 423 Financial assets other than those above2 204,154 Total 204,577 1 Financial assets that are SPPI are all short term deposits with highly rated external institutions. 2 The change in fair value, for four months ended 31 December 2018, of all other financial assets that are fair value through profit or loss, is a loss of £11,509m.
HDFC Life HDFC Life is one of India’s leading life insurance companies.
On 17 November 2017, HDFC Life listed on the National Stock Exchange of India Limited and the Bombay Stock Exchange Limited following completion of an IPO in which the Group reduced its interest to 29.3%. Refer Note 1 for further details.
The difference between the carrying value of this associate and the Group’s current share of net assets is due primarily to goodwill of £104m arising from additional investments being made at fair value rather than book value. (2017: £107m.)
At 31 March 2016 HDFC Life had significant insurance liabilities and its liabilities arising from contracts within the scope of IFRS 4 and liabilities connected with insurance were 97% of its total liabilities. Therefore HDFC Life was eligible to defer the implementation of IFRS 9 for equity accounting purposes.
The fair value of HDFC Life’s financial assets at 31 December 2018 that remain under IAS 39 for equity accounting purposes and the change in fair value during the year ended 31 December 2018 are as follows: Fair value as at 31 December £m
The year end date for HDFC AMC is 31 March which is different from the Group’s year end date of 31 December. For the purposes of the preparation of the Group’s consolidated financial statements, financial information as at and for the 12 months ended 30 September is used for HDFC AMC.
Summarised financial information of joint venture: Revenue1 361 293 Profit after tax 17 20 Other comprehensive income 1 7 Total assets 1,714 1,358 Total liabilities 1,347 1,160 Net assets 367 198 Interest held 50% 50% Current share of net assets 184 99 Carrying value of joint venture 184 99 Dividends received – – 1 2017 revenue for HASL has been restated to exclude investment income.
Reclassified as held for sale during the year (9,749) (225) Other reclassifications1 – (319) Additions – acquisitions – 270 Additions – subsequent expenditure – 143 Net fair value gains/(losses) – 485 Disposals – (525) Transferred to owner occupied property 18 – (17) Foreign exchange adjustment – 11 Other – (3) At 31 December – 9,749
There was no rental income arising from investment property or direct operating expenses (included within other administrative expenses) arising in respect of such rented property in relation to continuing operations in either year. All such income and expenses relates to discontinued operations (see Note 10).
Not later than one year – 470 Later than one year and no later than five years – 1,488 Later than five years – 3,392 Total operating lease receivables – 5,350 156 Standard Life Aberdeen 2018
Property, plant and equipment consists primarily of property owned and occupied by the Group and the computer equipment used to carry out the Group’s business and is initially recognised at cost.
Acquired through business combinations 2 16 18 Transferred from investment property 17 17 – 17 Reclassified as held for sale during the year (4) (2) (6) Disposals and adjustments1 – (3) (3)
Reclassified as held for sale during the year (79) (108) (187)
Disposals and adjustments1 – (4) (4) Foreign exchange adjustment – 3 3
1 For the year ended 31 December 2018 £nil (2017: £1m) of disposals and adjustments relates to equipment with net book value of £nil which is no longer in use.
If owner occupied property was measured using the cost model, the historical cost before impairment would be £2m (2017: £112m). As the expected residual value of owner occupied property is in line with the current fair value, no depreciation is currently charged.
Derivative financial assets 21 – 3,053 – – – 3,053 Equity securities and interests in pooled investment funds 39 99,020 – – – – 99,020
Fair value as at 31 December 2018 Change in Fair Value during 2018 £m £m
Financial assets with contractual cash flows that are solely payments of principal and interest (SPPI) excluding those held for trading or managed on a fair value basis 2,702 2 Financial assets other than those above 2,920 (150)
The credit exposure for the financial assets with contractual terms that give rise on specified dates to cash flows that are solely payments of principal and interest above is as follows: Receivables and other financial assets Debt securities Cash and cash equivalents Total Carrying amount Carrying amount Carrying amount Carrying amount1 2018 £m £m £m £m Low Credit Risk Assets AAA – 23 181 204
Internally rated/ not rated 700 – 8 708 1 Carrying amount applying IAS 39.
In addition, debt securities and cash and cash equivalents with fair value and carrying amount of £16m and £3m respectively at 31 December 2018 are rated below BBB.
Derivative assets of £13m (2017: £1,957m) are expected to be recovered after more than 12 months. Derivative liabilities of £nil (2017: £318m) are expected to be settled after more than 12 months.
(a) Cash flow hedges On 18 October 2017, the Group issued subordinated notes with a principal amount of US$750m. In order to manage the foreign exchange risk relating to the principal and coupons payable on these notes the Group entered into a cross-currency swap which is designated as a cash flow hedge. The cross-currency swap has a fair value asset position of £13m (2017: £33m liability). During the year ended 31 December 2018 fair value gains of £54m (2017: £33m losses) were recognised in other comprehensive income in relation to the cross-currency swap. Gains of £35m (2017: £13m losses) and £6m (2017: gains of less than £1m) were transferred from other comprehensive income to Investment return and Finance costs respectively in the consolidated income statement in relation to the cross-currency swap during the year.
Other derivatives: Inflation rate swaps 5 – – 5,464 39 49
Net derivative financial instruments cash inflows 11 24 54 – – – 89
Greater than 20 years Total 2017 £m £m £m £m £m £m £m Cash inflows Derivative financial assets 19,733 419 312 147 204 505 21,320
Net derivative financial instruments cash inflows 558 266 248 56 162 457 1,747
Greater than 20 years Total 2017 £m £m £m £m £m £m £m
Amounts receivable on direct insurance business – 71 Amounts receivable on reinsurance contracts – 2 Amounts receivable from contracts with customers 4(b) 112 104 Outstanding sales of investment securities 1 125 Accrued income 220 388 Cancellations of units awaiting settlement 191 219 Collateral pledged in respect of derivative contracts 39 8 46 Property related assets – 154 Contingent consideration asset 41 8 6
The amount of receivables and other financial assets expected to be recovered after more than 12 months is £10m (2017: £85m).
Accrued income includes £214m (2017: £249m) of accrued income from contracts with customers (see Note 4(b)).
The amount of other assets expected to be recovered after more than 12 months is £3m (2017: £7m).
At 31 December 2018, this disposal group was measured at fair value less cost to sell and comprised the following assets and liabilities: £m £m
Assets of operations held for sale Equity securities and interests in pooled investment funds 604 638 Cash and cash equivalents 33 31 Other assets 30 34 Total assets of operations held for sale 667 703 Liabilities of operations held for sale Non-participating insurance contract liabilities 574 603 Non-participating investment contract liabilities 52 62 Other liabilities 17 13 Total liabilities of operations held for sale 643 678 Net assets of operations held for sale 24 25
Net assets of operations held for sale are net of intercompany balances between Standard Life (Asia) Limited and the rest of the Group. The net assets of Standard Life (Asia) Limited on a gross basis as at 31 December 2018 are £18m (2017: £17m).
Cash and cash equivalents 1,140 10,226 Cash and cash equivalents classified as held for sale 24 33 31
Included in cash and cash equivalents and bank overdrafts are £566m (2017: £661m) and £216m (2017: £533m) relating to balances within a cash pooling facility in support of which cross guarantees are provided by certain subsidiary undertakings and interest is paid or received on the net balance. Included in cash and cash equivalents is an offsetting overdraft of £343m (2017: £118m) where the Group has a legally enforceable right to offset the recognised amounts, and there is an intention to settle on a net basis.
Cash and cash equivalents in respect of unit linked funds (including third party interests in consolidated funds) are held in separate bank accounts and are not available for general use by the Group. A breakdown of cash and cash equivalents by risk segment is provided in Note 39.
On 25 June 2018, a share buyback of up to £750m through on-market purchases was approved by shareholders. As at 31 December 2018, the Company has bought back and cancelled 82,593,085 shares for a consideration (including transaction costs) of £238m. This consideration has resulted in a reduction in retained earnings of £238m. An amount of £11m has been credited to the capital redemption reserve relating to the nominal value of the shares cancelled.
Shares issued in respect of business combinations during 2017 related solely to the Aberdeen merger as discussed in Note 1.
Shares issued in respect of share options 1 5 27. Shares held by trusts
The EST and EBT purchase shares in the Company for delivery to employees under employee incentive plans. Purchased shares are recognised as a deduction from equity at the price paid for them. Where new shares are issued to the EST or EBT the price paid is the nominal value of the shares. When shares are distributed from the trust their corresponding value is released to retained earnings.
In July 2006 Standard Life Group demutualised and former members of the mutual company were allocated shares in the new listed Company. Some former members were yet to claim their shares and the UAT held these on their behalf. There was an off-setting obligation to deliver these shares which was also recognised in the shares held by trust reserve. The shares and the off-setting obligation were both measured at £nil. The claim entitlement period for the UAT expired on 9 July 2016. Shares remaining in the UAT after 9 July 2016 continue to be measured at £nil.
The number of shares held by trusts at 31 December 2018 was as follows: Number of shares held by trusts Employee Share Trust 31,589,855 16,031,679 Aberdeen Asset Management Employee Benefit Trust 2003 20,327,295 23,704,305 Unclaimed Asset Trust 153,020 180,766
Capital redemption reserve: In August 2018, as part of the return of capital and share buyback (refer Note 26) the capital redemption reserve was created.
Capital redemption reserve Total 2018 Notes £m £m £m £m £m £m £m £m £m £m
Recognised in other comprehensive income Fair value losses on availablefor -sale financial assets – – – (9) – – – – – (9) Fair value gains on cash flow hedges – 54 – – – – – – – 54 Revaluation of owner occupied property 18 2 – – – – – – – – 2 Exchange differences on translating foreign operations – – 17 – – – – – – 17 With profits funds: Associated UDS movement recognised in other comprehensive income – – (5) – – – – – – (5) Items transferred to profit or loss from continuing operations 21 – (41) (2) – – – – – – (43) Items transferred to profit or loss on disposal of a subsidiary 1 – – (43) – – – – – – (43) Aggregate tax effect of items recognised in other comprehensive income – (2) – 1 – – – – – (1) Total items recognised in other comprehensive income 2 11 (33) (8) – – – – – (28) Recognised directly in equity Issue of B shares 26 – – – – (1,000) – – – – (1,000) Redemption of B shares 26 – – – – – – – – 1,000 1,000 Shares bought back on-market and cancelled 26 – – – – – – – – 11 11 Reserves credit for employee share-based payments – – – – – 36 – – – 36 Transfer to retained earnings for vested employee sharebased payments – – – – – (68) – – – (68) Transfer between reserves on disposal of subsidiaries 1 (3) – – – (1,290) – – 1,194 – (99) Transfer between reserves on impairment of subsidiaries – – – – (570) – – – – (570) Total items recognised directly within equity (3) – – – (2,860) (32) – 1,194 1,011 (690)
Non-controlling interests include preference shares. In addition, the perpetual notes issued by Standard Life Aberdeen plc and Aberdeen Asset Management PLC were classified as equity whilst no contractual obligation to deliver cash existed.
There were no protective rights of non-controlling interests which significantly restrict the Group’s ability to access or use the assets and settle the liabilities of the Group.
(b)(i) Preference shares The preference shares have no fixed redemption date, except at the sole discretion of the issuer after the fifth anniversary from issue. Preference share dividends are discretionary and where declared, are paid in arrears in two tranches at a rate of 5% per annum and are non-cumulative. No interest accrues on any cancelled or unpaid dividends. During the year ended 31 December 2018 preference share dividends of £5m (2017: £nil) were paid.
The preference shares can be converted irrevocably into a fixed number of ordinary shares of Aberdeen Asset Management PLC in the event of the conversion trigger. The conversion trigger occurs if Aberdeen Asset Management PLC’s Common Equity Tier 1 (‘CET1’) capital ratio falls below 5.125%. The CET1 ratio (unaudited) at 31 December 2018 was 34.4% (2017: 36.2%).
(b)(ii) Perpetual debt instruments 6.75% Sterling fixed rate perpetual subordinated guaranteed bonds and 6.546% Sterling fixed rate perpetual Mutual Assurance Capital Securities
Following a tender and mandatory redemption process which completed on 25 October 2018, the Company repurchased/redeemed the guaranteed bonds and MACS for £703m and £336m respectively (including accrued interest and fees). The difference between the carrying value of the guaranteed bonds and MACS and the cost of the repurchase and mandatory redemption of £21m (net of tax) was recognised directly as profit attributable to non-controlling interests.
Until 18 December 2017, the perpetual capital notes were classified as equity. On this date Aberdeen Asset Management PLC notified the trustees of the perpetual capital notes of its irrevocable intention to redeem the notes on the first call date, 1 March 2018. Following notification to the trustees the perpetual capital notes were reclassified as subordinated liabilities as an obligation to deliver cash was created. The liabilities were recognised at fair value of £380m on 18 December 2017 with fair value movements since acquisition of £17m being transferred to retained earnings at this date. On reclassification £2m in relation to tax allocated to non-controlling interests was also transferred to retained earnings. The perpetual capital notes were redeemed on 1 March 2018. Refer Note 34.
Claims payable include the direct costs of settlement. Reinsurance recoveries are accounted for in the same period as the related claim.
The WPBR is primarily based on the retrospective calculation of accumulated asset shares. The aggregate value of individual policy asset shares reflects the actual premium, expense and charge history of each policy. The net investment return credited to the asset shares is consistent with the return achieved on the assets notionally backing participating business. Any mortality deductions are based on published mortality tables adjusted where necessary for experience variations. For those asset shares on an expense basis, the allowance for expenses attributed to the asset share is, as far as practical, the appropriate share of the actual expenses incurred or charged to the fund. For those on a charges basis, the allowance is consistent with the charges for an equivalent unit linked policy. The FPRL comprises other components such as a market consistent stochastic valuation of the cost of options and guarantees.
Under the PRA realistic basis, the discounted value of expected future cash flows on participating contracts not reflected in the WPBR is included in FPRL (as a reduction in FPRL where future cash flows were expected to be positive). The discounted value of expected future cash flows on non-participating contracts not reflected in the measure on non-participating liabilities is recognised as a separate asset (where future cash flows are expected to be positive). The Scheme requirement to transfer future recourse cash flows out of the HWPF is recognised as an addition to FPRL. The discounted value of expected future cash flows on non-participating contracts can be apportioned between those included in the recourse cash flows and those retained in the HWPF for the benefit of policyholders.
As a result of the policies for measuring the HWPF’s assets and all its other recognised liabilities:  The UDS of the HWPF comprises the value of future recourse cash flows on participating contracts (but not the value of future recourse cash flows on non-participating contracts), the value of future additional expenses to be charged on Germany branch business and the effect of any measurement differences between the Realistic Balance Sheet value and IFRS accounting policy value of all assets and all liabilities other than participating contract liabilities recognised in the HWPF
(v) Measurement – non-participating insurance contract liabilities Measurement for UK business is based on a best estimate with a margin for prudence.
Claims and benefits paid 62 53 Claim recoveries from reinsurers (4) (1) Net insurance claims 58 52 Change in reinsurance assets and liabilities 31(d) 5 (7) Change in insurance contract liabilities 31(d) (62) 156 Insurance contract claims and change in liabilities from continuing operations 1 201 1 Comparatives for 2017 have been restated to reflect the classification of the UK and European insurance business as discontinued operations. Refer Note 1.
(d) Change in liabilities and reinsurance contracts The movement in insurance contract liabilities, participating investment contract liabilities and reinsurance contracts during the year was as follows: Participating insurance contract liabilities
Total insurance and participating contract liabilities Reinsurance contracts Net 2018 £m £m £m £m £m £m
Reclassified as held for sale during the year (14,659) (22,736) (15,313) (52,708) 4,811 (47,897) Change in contract liabilities recognised in the consolidated income statement1 – (1) – (1) – (1)
1 Total change in contract liabilities recognised in the consolidated income statement in the table above excludes (£61m) (2017: (£100m)) and £5m (2017: £7m) of insurance and participating contract liabilities and reinsurance contracts respectively relating to assets and liabilities held for sale.
Reclassified as held for sale during the year – (550) – (550) 7 (543) Change in contract liabilities recognised in the consolidated income statement Expected change (896) (898) (1,034) (2,828) 397 (2,431)
1 Total change in contract liabilities recognised in the consolidated income statement in the table above excludes (£100m) and £7m of insurance and participating contract liabilities and reinsurance contracts respectively relating to assets and liabilities held for sale.
Unit linked non-participating investment contracts are separated into two components being an investment management services component and a financial liability. All fees and related administrative expenses are deemed to be associated with the investment management services component (refer Note 4, Note 15 and Note 36). The financial liability component is designated at FVTPL as it is implicitly managed on a fair value basis as its value is directly linked to the market value of the underlying portfolio of assets.
Reclassified as held for sale during the year (104,174) (68) Acquired through business combinations – 1,411
Account balances paid on surrender and other terminations in the year (235) (15,903) Change in non-participating investment contract liabilities recognised in the consolidated income statement1 (72) 8,954 Recurring management charges (3) (490) Foreign exchange adjustment – 223 1 Change in non-participating investment contract liabilities recognised in the consolidated income statement in the table above excludes (£6m) (2017: £9m) in relation to nonparticipating investment contract liabilities classified as held for sale.
Financial liabilities measured at amortised cost Total 2017 Notes £m £m £m £m £m Non-participating investment contract liabilities 39 105,765 – – 4 105,769 Deposits received from reinsurers 39 – – – 4,633 4,633 Third party interest in consolidated funds 39 16,457 – – – 16,457 176 Standard Life Aberdeen 2018
Capital notes 7.0% US Dollar fixed rate perpetual – – $500m £377m
Subordinated notes 4.25% US Dollar fixed rate due 30 June 2028 $750m £581m $750m £556m 5.5% Sterling fixed rate due 4 December 2042 £500m £500m £500m £500m
Mutual Assurance Capital Securities 6.546% Sterling fixed rate perpetual – – £300m £318m Total subordinated liabilities 39 £1,081m £2,253m
Issue date 18 October 2017 18 October 2017 4 December 2012 Maturity date 30 June 2028 30 June 2048 4 December 2042
Not applicable 30 June 2028 and on every interest payment date (semi-annually)
thereafter 4 December 2022 and on every interest payment date (semiannually ) thereafter If not called by the Company interest will reset to
1 The cash flows arising from the US dollar subordinated notes give rise to foreign exchange exposure which the Group manages with a cross-currency swap designated as a cash flow hedge. Refer Note 21 for further details.
The difference between the fair value and carrying value of the subordinated liabilities is presented in Note 41. A reconciliation of movements in subordinated liabilities in the year is provided in Note 42.
The principal amount of all the subordinated liabilities is expected to be settled after more than 12 months. The accrued interest on the subordinated liabilities of £2m (2017: £44m) is expected to be settled within 12 months.
Issue date 1 March 2013 12 July 2002 4 November 2004 Maturity date Perpetual Perpetual Perpetual Callable at par at option of the Company from 1 March 2018 and on any interest payment date thereafter 12 July 2027 and on every fifth anniversary thereafter 6 January 2020 and on every anniversary thereafter
The 7% US Dollar fixed rate perpetual capital notes with a principal amount of $500m were redeemed on 1 March 2018. The capital notes had been reclassified from equity during the year ended 31 December 2017. Refer Note 30 for further details.
8. Group financial statements continued 35. Pension and other post-retirement benefit provisions
The transfer of employees to Phoenix, in connection with the sale of our UK and European insurance business, caused a curtailment in this plan that reduced plan liabilities by £42m. However, a plan amendment was agreed that reduced this fall in liabilities to £18m. These movements are recognised within past service cost, together with the associated movement in the asset ceiling.
The funding of the plan depends on the statutory valuation performed by the trustees, and the relevant employers, with the assistance of the scheme actuary – i.e. not the IAS 19 valuation. The funding valuation was last completed as at 31 December 2016, and measured plan assets and liabilities to be £4.9bn and £4.2bn respectively. This corresponds to a surplus of £0.7bn and funding level of 117%. As there is currently no deficit, no recovery plan is required.
The Group also operates two UK defined benefit plans as a result of the merger with Aberdeen. These plans are final salary based, with benefits depending on members’ length of service and salary prior to retirement. At the last statutory valuation date, these plans were in deficit and the Group agreed funding plans which aimed to eliminate the deficits, with the plans’ trustees. At 31 December 2018, one of the two schemes is now in surplus on an IAS 19 basis.
In December 2009 this plan closed to new membership and changed from a final salary basis to a career average revalued earnings (CARE) basis. Following the sale of the UK and European insurance business, there remains less than 10 employees that continue to accrue benefits under this plan.
The transfer of employees to Phoenix, in connection with the sale of our UK and European insurance business, caused a curtailment in this plan that reduced plan liabilities by £4m. This movement is recognised in past service cost.
Current service cost 67 46 Past service cost (15) – Net interest income (27) (28) Administrative expenses 2 3 Expense from continuing operations recognised in the consolidated income statement 27 21 1 Comparatives for 2017 have been restated to reflect the classification of the UK and European insurance business as discontinued operations. Refer Note 1.
(b) Analysis of amounts recognised in the consolidated statement of financial position 2018 2017
Present value of funded obligation (2,542) (311) (2,853) (2,839) (345) (3,184) Present value of unfunded obligation – (3) (3) – (9) (9) Fair value of plan assets 4,251 276 4,527 4,530 276 4,806 Effect of limit on plan surplus (598) – (598) (592) – (592)
Reclassified as held for sale during the year 8 – 8 – 8 Total expense
Change in effect of limit on plan surplus – – – 13 13
Remeasurement (losses)/gains recognised in other comprehensive income 211 (253) (42) 13 (29) Exchange differences (1) 1 – – –
Effect of limit on plan surpluses Total 2017 £m £m £m £m £m
Acquired through business combinations (221) 191 (30) – (30) Total expense
(d) Defined benefit plan assets Investment strategy is directed by the trustee boards (where relevant) who pursue different strategies according to the characteristics and maturity profile of each plan’s liabilities. Assets and liabilities are managed holistically to create a portfolio with the dual objectives of return generation and liability management. In the principal plan this is achieved through a diversified multi-asset absolute return strategy seeking consistent positive returns, and hedging techniques which protect liabilities against movements arising from changes in interest rates and inflation expectations. Derivative financial instruments support both of these objectives and may lead to increased or decreased exposures to the physical asset categories disclosed below.
To provide more information on the approach used to determine and measure the fair value of the plan assets, the fair value hierarchy has been used as defined in Note 41. Those assets which cannot be classified as level 1 have been presented together as level 2 or 3.
Assets measured at fair value based on level 1 inputs Derivatives 9 33 1 1 10 34 Equity securities 81 – – – 81 – Interests in pooled investment funds
Total assets measured at fair value based on level 2 or 3 inputs 808 712 58 75 866 787
Liability in respect of collateral held (300) (339) – – (300) (339)
Further information on risks is provided in Section (g) of this note. The £2,688m (2017: £2,949m) of debt securities includes £2,622m (2017: £2,858m) government bonds (including conventional and index-linked). Of the remaining £66m (2017: £91m) debt securities, £42m (2017: £75m) are investment grade corporate bonds or certificates of deposit.
In 2015, the trustees of one of the Aberdeen UK plans purchased an insurance policy to protect the plan against future investment and actuarial risks. The £64m (2017: £75m) qualifying insurance asset has been calculated by valuing the estimated benefits that will be paid by the insurer using the reporting date IAS 19 assumptions and the same approach used to value the year end liabilities. The other Aberdeen UK plan has a contract in place to hedge longevity risk for pensioners. The fair value of this derivative is £nil at 31 December 2018 (2017: £nil).
The principal plan uses both bonds and derivatives to hedge out yield risks on the plan’s funding basis, rather than the IAS 19 basis, which is expected to minimise the plan’s need to rely on support from the Group.
Increase/(decrease) in fair value of plan assets £m £m £m £m
Reclassified as held for sale during the year (157) (2) Additions during the year 78 11 Released to the consolidated income statement as fee income (3) (52) Foreign exchange adjustment – 2
Property related liabilities – 198 Contingent consideration liabilities 41 29 25
The amount of other financial liabilities expected to be settled after more than 12 months is £15m (2017: £141m).
Additional provisions – – 87 87 Release of unused provision – – (9) (9)
The provision for annuity sales practices related to the UK and European insurance business sold during 2018. See Note 41 for disclosures relating to the valuation of the related contingent consideration.
8. Group financial statements continued 39. Risk management (a) Overview (a)(i) Application of the Enterprise Risk Management (ERM) framework Effective risk management is an essential part of delivering our corporate strategy. Our approach is predicated on strong risk awareness and risk accountability across all lines of defence in our business. We believe that this delivers long-term value for our clients, customers and shareholders and protects their interests. We aim to ensure that:  Our decision making is attentive to both risk and reward in pursuit of our business plan objectives and strong client outcomes  Our responsibilities to clients and customers are prioritised  Capital is appropriately rewarded for the risks that are taken The ERM framework ensures that risk is assessed, monitored, controlled and appropriately governed based on a common taxonomy and methodology. The major components of the ERM framework can be grouped into four areas related to how we govern, assess, monitor and control risks. Most risks arise in the business (first line) and that is where they should be managed. The second line oversees business risk assessments and provides advice and challenge where necessary. For the purposes of managing risks to the Group’s financial assets and financial liabilities, the Group considers the following categories: Risk Definition Market The risk of financial loss as a result of adverse financial market movements. Credit The risk of financial loss as a result of the failure of a counterparty, issuer or borrower to meet their obligations or perform them in a timely manner. Liquidity The risk that the Group is unable to settle its financial obligations when they fall due, as a result of having insufficient liquid resources or being unable to realise investments and other assets other than at excessive costs. Operational The risk that people, processes, systems, or external events impede the Group’s ability to meet its strategic objectives. This risk is a function of internal controls, process efficiency, employee conduct, third party oversight, physical security, integrity of data and business resiliency. Operational risk also includes the breakdown of processes to comply with laws, regulations or directives.
Conduct The risk that through our behaviours, strategies, decisions and actions the Group delivers unfair outcomes to our customers/clients and/or poor market conduct.
Focus Solutions Group Ltd Standard Life (Asia) Limited (excluding unit linked funds)
SLAL – PBF unit linked funds SL Intl unit linked funds
UKSMWPF = UK Smoothed Managed With Profits Fund 1 Unit linked funds does not include cash flows arising from unit linked fund contracts or the liabilities for insurance features or financial guarantees contained within the unit linked fund contracts. Such cash flows and liabilities are included in shareholder business.
Credit The shareholder is directly exposed to credit risk from holding cash, debt securities, loans and derivative financial instruments.
Liquidity The shareholder is directly exposed to the liquidity risk from the shareholder business if it is unable to realise investments and other assets in order to settle its financial obligations when they fall due, or can do so only at excessive cost.
Equity securities and interests in pooled investment funds at FVTPL 501 331 – 10,327 1,353 80,099 176 8,263 2,030 99,020
Non-participating insurance contract liabilities 3 6,068 – 8,878 – 7,794 – – 3 22,740 Non-participating investment contract liabilities – 4 – – 1,468 105,765 – – 1,468 105,769 Participating insurance contract liabilities – – – 14,659 – – – – – 14,659 Participating investment contract liabilities – – – 15,313 – – – – – 15,313 Unallocated divisible surplus – – – 675 – – – – – 675 Deposits received from reinsurers – 12 – 4,621 – – – – – 4,633 Third party interest in consolidated funds – – – – – – 254 16,457 254 16,457
Shareholder business Market risk exposures in the Asset management and platforms segment primarily arise as a result of holdings in newly established investment vehicles which the Group has seeded. Seed capital is classified as held for sale when it is the intention to dispose of the vehicle in a single transaction and within one year. The shareholder balance sheet includes the following amounts in respect of seed capital.
Equity securities and interests in pooled investment funds at FVTPL 76 96 Debt securities 22 34 Assets held for sale 24 81 63
Seed capital is typically invested in quoted funds. The Group sets limits for investing in seed capital and co-investment activity and regularly monitors exposures arising from these investments. The Group will consider hedging its exposure to market and currency risk in respect of seed capital investments where it is appropriate and efficient to do so. The Group will also consider hedging its exposure to currency risk in respect of co-investments where it is appropriate and efficient to do so. Other market risks associated with co-investments are not hedged given the need for the Group’s economic interests to be aligned with those of the co-investors.
Belgium – 1 Denmark – 2 Finland – 1 France – 8 Germany – 7 Ireland – 1 Italy – 5 Japan – 1
Netherlands – 4 Russia – 1 Spain – 6 Sweden – 2 Switzerland – 4
(b)(i)(ii) Group exposure to interest rate risk Interest rate risk is the risk that arises from exposures to changes in the shape and level of yield curves which could result in losses due to the value of financial assets and liabilities, or the cash flows relating to these, fluctuating by different amounts.
The sensitivity of profit after tax to changes in interest rates for the shareholder business is included in the profit after tax sensitivity to market risk table, shown in Section (b)(ii).
(b)(ii) Sensitivity of financial instruments to market risk analysis The Group’s profit after tax and equity are sensitive to variations in respect of the Group’s market risk exposures and a sensitivity analysis is presented below. The analysis has been performed by calculating the sensitivity of profit after tax and equity to changes in equity security prices (price risk) and to changes in interest rates (interest rate risk) as at the reporting date applied to assets and liabilities other than those classified as held for sale. There is no impact in 2018 on profit after tax to changes in property prices.
The sensitivity analysis represents the impact on profit at year end that the changes in market conditions can have. The sensitivity will vary with time, both due to changes in market conditions and changes in the actual asset mix, and this mix is being actively managed. The results of the sensitivity analysis may also have been different from those illustrated had the sensitivity factors been applied at a date other than the reporting date.
1 A positive number for impact on profit after tax represents a credit to the consolidated income statement. 2 The interest rate sensitivity is a parallel shift subject to a floor of -30bps.
The Group’s financial instruments include certain debt securities classified as available-for-sale. These debt securities are measured at fair value. Interest is calculated using the effective interest method and recognised in the consolidated income statement. Other changes in fair value and the related tax are recognised in other comprehensive income. As a result, the sensitivity of the Group's equity to variations in interest rate risk exposures differs from the sensitivity of the Group's profit after tax to variations in interest rate risk exposures.
Individual business units are responsible for implementing processes to ensure that credit exposures are managed within any limits that have been established. Group Treasury perform central monitoring of exposures against limits and are responsible for the escalation of any limit breaches to the Chief Risk Officer.
The objective evidence that is taken into account in determining whether any impairment of debt securities has occurred includes:  A default against the terms of the instrument has occurred  The issuer is subject to bankruptcy proceedings or is seeking protection from creditors through bankruptcy, individual voluntary arrangements or similar process The following tables show the shareholder businesses’ exposure to credit risk from financial assets analysed by credit rating and country.
Receivables and other financial assets Cash and cash £m £m £m £m £m £m £m £m £m £m £m £m £m £m
Neither past due nor impaired: AAA – – – – – – 36 475 – – 162 612 198 1,087
An analysis of debt securities by country based on the ultimate parent country of risk is as follows: Government, provincial and municipal1 Banks Other financial institutions Other £m £m £m £m £m £m £m £m £m £m £m £m 1 Government, provincial and municipal includes debt securities which are issued by or explicitly guaranteed by the national government. 2 This balance primarily consists of securities held in supranationals.
Other than cash and cash equivalents disclosed in Note 25, the Group does not offset financial assets and liabilities on the consolidated statement of financial position, as there are no unconditional rights to set off. Consequently, the gross amount of other financial instruments presented on the consolidated statement of financial position is the net amount. The Group’s bilateral OTC derivatives are all subject to an International Swaps and Derivative Association (ISDA) master agreement. ISDA master agreements and reverse repurchase agreements entered into by the Group are considered master netting agreements as they provide a right of set off that is enforceable only in the event of default, insolvency, or bankruptcy.
Gross amounts of financial instruments as presented on the consolidated statement of financial position Financial instruments
Reverse repurchase agreements 900 – (899) 1 1 Only OTC derivatives subject to master netting agreements have been included above.
(c)(iv) Credit risk on financial liabilities designated as at fair value through profit or loss The Group has designated unit linked non-participating investment contract liabilities as at FVTPL. As the fair value of the liability is based on the value of the underlying portfolio of assets, the movement, during the period and cumulatively, in the fair value of the unit linked non-participating investment contract liabilities, is only attributable to market risk.
Business units employ risk management techniques relevant to their product types with the objective of mitigating exposures to liquidity risk. For the unit linked business, liquidity risk is primarily managed by holding a range of diversified instruments which are assessed against estimated cash flow and funding requirements.
For non-participating unit linked contracts, a core portfolio of assets is maintained and invested in accordance with the mandates of the relevant unit linked funds. Policyholder behaviour and the trading position of asset classes are actively monitored. The unit price and value of any associated contracts would reflect the proceeds of any sales of assets. If considered necessary, deferral terms within the policy conditions applying to the majority of the Group’s contracts are invoked.
(d)(i) Maturity analysis The analysis that follows presents the undiscounted cash flows payable by remaining contractual maturity at the reporting date for all financial liabilities, including non-participating investment contract liabilities. Given that unit linked policyholders can usually choose to surrender, in part or in full, their unit linked contracts at any time, the non-participating investment contract unit linked liabilities presented in the table below have been designated as payable within one year. Such surrenders would be matched in practice, if necessary, by sales of underlying assets. The Group can delay settling liabilities to unit linked policyholders to ensure fairness between those remaining in the fund and those leaving the fund. The length of any such delay is dependent on the underlying financial assets. In this analysis, the maturity within one year includes liabilities that are repayable on demand. Comparatives exclude financial liabilities of the participating business.
Shareholder business Non-participating investment contract liabilities – 4 – – – – – – – – – – – 4
(e) Operational risk The Group defines operational risk as the risk that people, processes, systems, or external events impede the Group’s ability to meet its strategic objectives.
The types of operational risk to which the Group is exposed are identified using the following operational risk categories:  Process execution and trade errors  People  Technology  Business resilience and continuity  Fraud and financial crime  Change management  Supplier risk  Financial management process Activities undertaken to ensure the practical operation of controls over financial risks, that is, market, credit and liquidity, are treated as an operational risk.
The assessment of operational risk exposures is performed on a qualitative basis using a combination of impact and likelihood, and on a quantitative basis using objective and verifiable measures. The maximum amount of operational risk the Group is willing to tolerate is defined using risk appetite statements and Board approved tolerances.
The Group has a single conduct and operational risk framework that utilises the tools, such as RCSAs, outlined under operational risk (e) to ensure the appropriate identification and management of conduct risk. Business units adopt the relevant minimum standards contained within the conduct risk policy and are required to manage risk in accordance with this and other policies that have an impact on the overall conduct risk, taking mitigating action as appropriate to operate within appetites.
Business units must have in place procedures to identify, report and analyse all regulatory compliance breaches to the relevant business unit compliance function. Additionally, business units are required to have procedures in place to identify, assess and monitor the impact of changes to laws, regulations and rules, prescribed practices and external regulatory events in jurisdictions where they choose to carry on regulated financial services activity.
A structured entity is an entity that is structured in such a way that voting or similar rights are not the dominant factor in deciding who controls the entity. The Group has interests in structured entities through investments in a range of investment vehicles including:  Pooled investment funds managed internally and externally, including OEICs, SICAVs, unit trusts and limited partnerships  Debt securitisation vehicles which issue asset-backed securities
(b) Unconsolidated structured entities As at 31 December 2018 and 31 December 2017, the Group has not provided any non-contractual financial or other support to any unconsolidated structured entities and there are no current intentions to do so.
(b)(i) Investments in unconsolidated structured entities The following table shows the carrying value of the Group’s investments in unconsolidated structured entities by line item in the consolidated statement of financial position and by risk segment as defined in Note 39.
Equity securities and interests in pooled investment funds 451 202 – 806 138 32,229 86 3,484 675 36,721 1 Third party interest in consolidated funds and non-controlling interests.
Equity securities and interests in pooled investment funds includes £610m (2017: £11,146m) of unconsolidated structured entities which are managed by the Group and in which the Group has a direct investment of which £34m (2017: £5,936m) relates to investments in associates measured at FVTPL. The asset value of these unconsolidated structured entities, net of cross holdings, is £21,020m (2017: £62,741m) of which £20m (2017: £19,219m) relates to investments in associates measured at FVTPL. The total fees recognised in respect of these assets under management during the year to 31 December 2018 were £44m (2017: £254m) of which £nil (2017: £31m) relates to structured entities where the Group’s holding is classified as an investment in an associate measured at FVTPL.
The Group’s maximum exposure to loss in respect of its investments in unconsolidated structured entities is the carrying value of the Group’s investment and, where the structured entity is managed by the Group, loss of future fees. As noted in Note 39, the shareholder is not exposed to market or credit risk in respect of investments held in the unit linked funds, and third party interest in consolidated funds and non-controlling interests risk segments.
Total assets under management of structured entities in which the Group has no direct investments but has other interests in are £136,047m at 31 December 2018 (2017: £80,454m). The fees recognised in respect of these assets under management during the year to 31 December 2018 were £813m (2017: £305m).
 Level 2: Fair values measured using inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices)
The valuations received from investment managers of the underlying funds are reviewed and where appropriate adjustments are made to reflect the impact of changes in market conditions between the date of the valuation and the end of the reporting period. The fair value of infrastructure funds is based on the phase of individual projects forming the overall investment and discounted cash flow techniques based on project earnings. The fair value of real estate funds is based on valuations provided by independent professional valuers. The valuation of these securities is therefore largely based on inputs that are not based on observable market data, and accordingly these instruments are categorised as level 3 instruments within the fair value hierarchy. Where appropriate, reference is made to observable market data.
 Commercial mortgages These instruments are valued using models. The models use a discount rate adjustment technique which is an income approach. The key inputs for the valuation models are contractual future cash flows, which are discounted using a discount rate that is determined by adding a spread to the current base rate. The spread is derived from a pricing matrix which incorporates data on current spreads for similar assets and which may include an internal underwriting rating. These inputs are generally observable with the exception of the spread adjustment arising from the internal underwriting rating. The classification of these instruments within the fair value hierarchy will be either level 2 or 3 depending on whether the spread is adjusted by an internal underwriting rating.
 Income strips Income strips are transactions where an owner-occupier of a property has sold a freehold or long leasehold interest to the Group, and has signed a long lease (typically 30-45 years) or a ground lease (typically 45-175 years) and retains the right to repurchase the property at the end of the lease for a nominal sum (usually £1).
Under the indemnity if SLAL suffers a loss in excess of the provision it recognised at 31 December 2017 of £248m in relation to annuity sales practices, the Group will pay the excess to Phoenix subject to a £120m cap. If that provision is not fully utilised Phoenix will pay the Group the unutilised amount. In addition SLAL shall pay to the Group any recovery received under the related insurance policies. SLAL had sought for up to £100m of the financial impact to be mitigated by insurance and an update is provided on this insurance recovery on page 205. If SLAL is subject to an FCA-levied financial penalty relating to the review, the Group shall pay an equivalent amount to Phoenix, subject to a £35m cap.
Persistency: If SLAL suffers adverse lapse experience relating to certain UK unit linked products (but excluding unit linked products written in a with profits fund) prior to 31 December 2019, the Group shall make a payment to Phoenix, based on the difference between expected and actual lapse experience, subject to a £75m cap.
The technique used to value this element of the contingent consideration determines the range of potential payments under the indemnity with possible outcomes weighted by the likelihood of the outcome.
Equity securities and interests in pooled investment vehicles 2,030 99,020 699 763 2,729 99,783 2,510 98,750 160 36 59 997
Total assets at fair value 3,784 173,474 712 988 4,496 174,462 2,689 124,970 1,737 37,004 70 12,488
Total liabilities at fair value 1,757 123,060 66 90 1,823 123,150 1 161 1,793 121,666 29 1,323
Reclassified to held for sale during the year (9,749) (225) (79) (4) (921) – (1,443) – 1,298 – Reclassification between investment property and debt securities1 – (319) – – – – – 319 – – Acquired through business combinations – – – 2 – 100 – – – – Total gains/(losses) recognised in the consolidated income statement – 485 – 4 5 72 – 35 – (57)
For the year ended 31 December 2018, gains of £6m from continuing operations (2017: gains of £3m) were recognised in the IFRS consolidated income statement in respect of assets and liabilities held at fair value classified as level 3 at the period end, excluding assets and liabilities held for sale. These amounts are recognised in investment return.
 Future lapse rates on relevant UK unit linked products of SLAL
The FCA thematic review noted that between 39% and 48% of customers who bought a standard annuity may potentially have been eligible for an enhanced annuity. The provision assumes 40% of customers were eligible for an enhanced annuity based on observed experience from SLAL’s review.
The costs of conducting the review relate to administrative expenses per case and wider project costs. The costs are based on SLAL’s project planning.
Percentage changed by +/-5 (e.g. 40% increased to 45%) +/- £18m
Percentage of eligible customers that did not receive sufficient information from SLAL about enhanced annuities Percentage changed by +/-5 +/- £9m Lost income per annum for an average annuity purchase of £25,000 +/- £50 +/- £28m Costs per case of conducting the review +/- 20% of the cost per case +/- £5m
Investment property and owner occupied property 68 Market comparison Estimated value per square metre
(e) Assets and liabilities not carried at fair value The table below presents estimated fair values by level of the fair value hierarchy of assets and liabilities whose carrying value does not approximate fair value. Fair values of assets and liabilities are based on observable market inputs where available, or are estimated using other valuation techniques.
Mutual Assurance Capital Securities 34 – 318 – 349 – – – 349 – –
Gain on sale of subsidiaries (1,780) – Profit on disposal of associates (185) (319) Loss on disposal of property, plant and equipment 1 1 Depreciation of property, plant and equipment 20 15 Amortisation of intangible assets 224 124 Impairment losses on intangible assets 926 77 Impairment of associates 228 – Impairment losses (reversed)/recognised on property, plant and equipment – (4) Impairment losses on disposal group held for sale 2 24 Equity settled share-based payments 36 39 Other interest cost 2 3 Finance costs 80 88 Share of profit from associates and joint ventures accounted for using the equity method (135) (45) Other non-cash and non-operating items (581) 3
Items transferred to profit or loss on disposal of subsidiaries 1 (43) Gain on sale 1 1,780 Transaction and separation costs 1 117 Deferred income recognised 78 Non-cash consideration – Phoenix shares (1,023) Contingent consideration asset recognised (8) Total cash consideration 1,971 Cash and cash equivalents disposed of (7,472) Cash outflow from disposal of subsidiary 1 (5,501)
There were no operations disposed of in the year ended 31 December 2017.
Third party interest in consolidated funds Total £m £m £m £m £m £m
Repayment of subordinated liabilities (363) – Proceeds of issue of subordinated liabilities (4) 565 Interest paid (117) (81)
In addition to the interest paid on subordinated liabilities of £117m (2017: £81m), interest paid in the consolidated statement of cash flows includes £nil (2017: £13m) in relation to interest paid on perpetual debt instruments classified as equity. In addition to the repayment of subordinated liabilities of £363m (2017: £nil), an additional £1,014m (2017 £nil) was redeemed from equity.
All Group leases are operating leases, being leases where the lessor retains substantially all the risks and rewards of the ownership of the leased asset.
The Group’s investment property was sold in the year so there are no capital commitments in respect of investment property as at 31 December 2018. As at 31 December 2017, capital expenditure that was authorised and contracted for, but not provided and incurred was £167m in respect of investment property and income strips (discussed in Note 41). Of this amount, £147m related to the contractual obligations to purchase, construct, or develop property and £20m related to repair, maintain or enhance property respectively.
(d) Customer contracts At 31 December 2017 the Group had contractual commitments in place to acquire Customer contracts for £74m. These acquisitions were completed in 2018.
Share options (i) Long-term incentive plans The Group operates the following long-term incentive plans.
Executives and senior management Service and performance conditions as set out in the Directors’ remuneration report
Executives and senior management Service and performance conditions as set out in the Directors’ remuneration report. There are no outstanding performance conditions.
Aberdeen Asset Management Deferred Share Plan 2009 (Aberdeen Asset Management DSP 2009)
Plan Recipients Conditions which must be met prior to vesting Aberdeen Asset Management USA Deferred Share Award Plan (Aberdeen Asset Management USA DSAP)
(a) Options granted The number, weighted average exercise price and weighted average remaining contractual life for options outstanding during the year are as follows: Long-term incentive plans (excluding
The exercise price for options granted under all long-term and deferred bonus schemes is nil. The fair value of options granted under the Group’s incentive schemes is determined using a relevant valuation technique, such as the Black Scholes option pricing model.
Options exercised during the year Share price at time of exercise1 354p 352p 310p 338p 1 Weighted average.
The options granted on deferred bonus plans also included 1,026,174 options which related to prior year awards which could only be granted in February 2018 due to market restrictions. The fair value of the awards was determined based on the share price at the date that the awards would have been made if the market restrictions had not been in place rather than the share price at the date the awards were granted. The weighted average fair value of these options was 404p with an option term of 3.75 years.
The following table shows the range of exercise prices of options outstanding at 31 December 2018. All options are exercisable for a period of six months after the vesting date except for the options under the Aberdeen Asset Management DSP 2009 which are exercisable up to 10 years after the grant date.
Long-term incentive plans £nil 62,264,963 58,567,339 172p – 542,526 Annual bonus deferred share options £nil 26,220,720 28,216,634
Number of share awards granted 285,500 562,261 955,823 529,277 Number of share awards replaced – – 573,099 – Share price at date of grant2 364p 336p 411p3 396p Fair value per granted instrument at grant date2 364p 336p 411p 396p 1 Included in the number of instruments granted are 5,898 (2017: 9,048) rights to shares granted to eligible employees in Germany and Austria. 2 Weighted average. 3 The fair value of share awards replaced under the Annual bonus deferred share awards in 2017 was calculated by reference to the share price on acquisition of Aberdeen adjusted for pre-combination service. The fair value of instruments granted is calculated by reference to the share price at grant date.
During the year, the Group recognised management fees from Group managed non-consolidated investment vehicles. These fees are disclosed in Note 40. It also recognised management fees of £4m (2017: £4m) from the Group’s defined benefit pension plans.
(b) Compensation of key management personnel In 2018 key management personnel includes Directors of Standard Life Aberdeen plc (since appointment) and the Chief Executive Officer Pensions and Savings for the period from 1 January 2018 until 31 August 2018 and from 1 September 2018 includes Directors of Standard Life Aberdeen plc and the members of the executive committee (since appointment). In 2017 key management personnel included Directors of Standard Life Aberdeen plc (since appointment) and the Chief Executive Officer Pensions and Savings. Detailed disclosures of Directors’ remuneration for the year and transactions in which the Directors are interested are contained within the audited section of the Directors’ remuneration report.
Salaries and other short-term employee benefits 6 9 Post-employment benefits – – Share-based payments 6 3 Termination benefits – 1 Total compensation of key management personnel 12 13
(c) Transactions with key management personnel and their close family members
The liquidity and capital management policy forms one element of the Group’s overall management framework. Most notably, it operates alongside and complements the strategic investment policy and the Group risk policies. Integrating policies in this way enables the Group to have a capital management framework that robustly links the process of capital allocation, value creation and risk management.
(b)(ii) Regulatory capital position (unaudited) 20181 £bn IFRS equity attributable to equity holders of Standard Life Aberdeen plc 7.4 Deductions for intangibles and defined benefit pension assets, net of related deferred tax liabilities (4.5) Deductions for significant investments in financial sector entities (1.3) Other deductions and adjustments, including provision for foreseeable dividend (0.5) Common Equity Tier 1 capital resources 1.1 Tier 2 capital resources 0.6 Total regulatory capital resources 1.7 Total regulatory capital requirements (1.1) Surplus regulatory capital 0.6 1 Based on 2018 draft regulatory returns.
48. Events after the reporting date On 11 March 2019, Standard Life (Mauritius Holdings) 2006 Limited informed the National Stock Exchange of India Limited and BSE Limited that it intends to Offer for Sale (‘OFS’) up to 70,000,000 shares in HDFC Life, with an option to additionally sell up to 29,500,000 shares through the OFS, at a floor price of Rs 357.5 per share. Collectively this represents 4.93% of the total paid up equity share capital of HDFC Life.
Following the sale (assuming full subscription), HDFC Life would remain an associate of the Group and the Group’s shareholding subsequent to the OFS would be 490,126,265 equity shares or 24.30% of the issued share capital of HDFC Life.
(b) Other subsidiaries, joint ventures, associates and other significant holdings Name of related undertaking Share class1 % interest held 21 Aberdeen Standard Investments Limited4 Ordinary shares 50% 6 SAS 1 Limited Ordinary shares 100% 6 SAS 2 Limited Ordinary shares 100% Aberdeen ACP LLP3 Limited Liability Partnership 100% Aberdeen Alternatives (Holdings) Limited3 Ordinary shares 100% Aberdeen Asia IV (General Partner) S.a.r.l.10 Ordinary shares 100% Aberdeen Asset Investment Group Limited4 Ordinary shares 100% Aberdeen Asset Investments Limited4 Ordinary shares 100% Aberdeen Asset Management Cayman Limited11 Ordinary shares 100% Aberdeen Asset Management Denmark A/S12 Ordinary shares 100% Aberdeen Asset Management Finland Oy13 Ordinary shares 100% Aberdeen Standard Investments Inc.14 Ordinary shares 100% Aberdeen Asset Management Life and Pensions Limited4 Ordinary shares 100% Aberdeen Asset Management Norway AS15 Ordinary shares 100% Aberdeen Asset Management Norway Holding AS15 Ordinary shares 100%
Name of related undertaking Share class1 % interest held Aberdeen Asset Management Operations AS15 Ordinary shares 100% Aberdeen Asset Management Sweden AB16 Ordinary shares 100% Aberdeen Asset Management US GP Control LLC17 Limited Liability Company 100% Aberdeen Asset Managers (Luxembourg) S.a.r.l. 18 Ordinary shares 100% Aberdeen Asset Managers Limited3 Ordinary shares 100% Aberdeen Asset Middle East Limited19 Ordinary shares 100% Aberdeen Capital Management LLC20 Limited Liability Company 100% Aberdeen Capital Managers GP LLC21 Limited Liability Company 100% Aberdeen Claims Administration, Inc. 14 Ordinary shares 100% Aberdeen Direct Property (Holding) Limited4 Ordinary shares 100% Aberdeen Diversified Growth Fund4 Unit trust 56% Aberdeen Diversified-Core Adventurous Fund4 Unit trust 49% Aberdeen Diversified-Core Cautious Fund4 Unit trust 62% Aberdeen Diversified-Core Conservative Fund4 Unit trust 66% Aberdeen do Brasil Gestao de Recursos Ltda22 Limited Liability Company 100% Aberdeen Emerging Capital Limited23 Ordinary shares 100% Aberdeen European Infrastructure Carry GP Limited3 Ordinary shares 100% Aberdeen European Infrastructure Carry Limited3 Ordinary shares 100% Aberdeen European Infrastructure GP Limited4 Ordinary shares 100% Aberdeen European Infrastructure GP II Limited4 Ordinary shares 100% Aberdeen European Infrastructure GP III Limited4 Ordinary shares 100% Aberdeen France S.A. 24 Ordinary shares 100% Aberdeen Fund Distributors LLC17 Limited Liability Company 100% Aberdeen Fund Management Ireland Limited25 Ordinary shares 100% Aberdeen Fund Management Norway AS15 Ordinary shares 100% Aberdeen Fund Management Oy13 Ordinary shares 100% Aberdeen Fund Management II Oy13 Ordinary shares 100% Aberdeen General Partner 1 Limited3 Ordinary shares 100% Aberdeen General Partner 2 Limited3 Ordinary shares 100% Aberdeen General Partner CAPELP Limited11 Ordinary shares 100% Aberdeen General Partner CGPLP Limited11 Ordinary shares 100% Aberdeen General Partner CMENAPELP Limited11 Ordinary shares 100% Aberdeen General Partner CPELP Limited11 Ordinary shares 100% Aberdeen General Partner CPELP II Limited11 Ordinary shares 100% Aberdeen Global - Asian Credit Bond Fund26 SICAV 41% Aberdeen Global - Emerging Markets Local Currency Corporate Bond Fund26 SICAV 84% Aberdeen Global - European Equity (ex-UK) Fund26 SICAV 33% Aberdeen Global - German Equity Fund26 SICAV 93% Aberdeen Global ex-Japan GP Limited11 Ordinary shares 100% Aberdeen Global Infrastructure Carry GP Limited3 Ordinary shares 100% Aberdeen Global Infrastructure GP Limited27 Ordinary shares 100% Aberdeen Global Infrastructure GP II Limited27 Ordinary shares 100% Aberdeen GP 1 LLP3 Limited Liability Partnership 100% Aberdeen GP 2 LLP3 Limited Liability Partnership 100% Aberdeen GP 3 LLP3 Limited Liability Partnership 100% Aberdeen Infrastructure Feeder GP Limited3 Ordinary shares 100% Aberdeen Infrastructure Finance GP Limited27 Ordinary shares 100% Aberdeen Infrastructure GP II Limited4 Ordinary shares 100% Aberdeen Investment Company Limited3 Ordinary shares 100% Aberdeen Investment Solutions Limited3 Ordinary shares 100% Aberdeen Investments Euro Limited4 Ordinary shares 100% Aberdeen Investments Jersey Limited28 Ordinary shares 100% Aberdeen Investments Limited4 Ordinary shares 100% Aberdeen Investments USD Limited4 Ordinary shares 100% Aberdeen Islamic Asia Pacific ex-Japan Equity Fund29 Unit trust 41% Aberdeen Liquidity Fund (Lux)
Seabury Sterling Liquidity 1 Fund26 OEIC 100% Aberdeen Pension Trustees Limited3 Ordinary shares 100%
Name of related undertaking Share class1 % interest held Aberdeen Pooling II GP AB16 Ordinary shares 100% Aberdeen Private Wealth Management Limited28 Ordinary shares 100% Aberdeen Property Fund Limited Partner Oy13 Ordinary shares 100% Aberdeen Property Fund Management (Jersey) Limited30 Ordinary shares 100% Aberdeen Property Fund Management AB16 Ordinary shares 100% Aberdeen Property Fund Management Estonia Ou31 Ordinary shares 100% Aberdeen Property Investors (General Partner) S.a.r.l.32 Ordinary shares 100% Aberdeen Property Investors Estonia Ou31 Ordinary shares 100% Aberdeen Property Investors France SAS24 Ordinary shares 100% Aberdeen Property Investors Limited Partner Oy13 Ordinary shares 100% Aberdeen Property Investors Sweden AB16 Ordinary shares 100% Aberdeen Property Investors The Netherlands BV33 Ordinary shares 100% Aberdeen Real Estate Investors Operations (UK) Limited23 Ordinary shares 100% Aberdeen Real Estate Operations Limited3 Ordinary shares 100% Aberdeen Residential JV Feeder Limited Partner Oy13 Ordinary shares 100% Aberdeen Secondaries II GP S.a.r.l.26 Ordinary shares 100% Aberdeen SP 2013 A/S12 Ordinary shares 100% Aberdeen Standard Asset Management (Shanghai) Co., Ltd.34 Ordinary shares 100% Aberdeen Standard Asset Management (Thailand) Limited35 Ordinary shares 100% Aberdeen Standard Asset Management Limited Ordinary shares 100% Aberdeen Standard Capital (CI) Limited36 Ordinary shares 100% Aberdeen Standard Capital International Limited36 Ordinary shares 100% Aberdeen Standard Capital Limited Ordinary shares 100% Aberdeen Standard Fund Managers Limited4 Ordinary shares 100% Aberdeen Standard Greater China Value Fund37 Investment Trust 92% Aberdeen Standard Group Limited Ordinary shares 100% Aberdeen Standard Indonesia Balanced Growth Fund38 Unit Trust 84% Aberdeen Standard Indonesia Government Bond fund38 Unit Trust 22% Aberdeen Standard Indonesia Money Market Fund38 Unit Trust 81% Aberdeen Standard Investment Management Limited Ordinary shares 100% Aberdeen Standard Investments (Asia) Limited39 Ordinary shares 100% Aberdeen Standard Investments (Canada) Limited40 Ordinary shares 100% Aberdeen Standard Investments (Holdings) Limited Ordinary shares 100% Aberdeen Standard Investments (Hong Kong) Limited41 Ordinary shares 100% Aberdeen Standard Investments (Japan) Limited42 Ordinary shares 100% Aberdeen Standard Investments (Malaysia) Sdn. Bhd43 Ordinary shares,
Name of related undertaking Share class1 % interest held Aberdeen Sterling Long Dated Corporate Bond Fund3 OEIC 53% Aberdeen Sterling Long Dated Government Bond Fund3 OEIC 34% Aberdeen Trust Limited3 Ordinary shares 100% Aberdeen UK Infrastructure Carry GP Limited3 Ordinary shares 100% Aberdeen UK Infrastructure Carry Limited3 Ordinary shares 100% Aberdeen UK Infrastructure GP Limited4 Ordinary shares 100% Aberdeen Unit Trust Managers Limited3 Ordinary shares 100% AEROF (Luxembourg) GP S.a.r.l. 26 Ordinary shares 100% AIPP Pooling I S.A.26 Ordinary shares 100% Airport Industrial GP Limited4 Ordinary shares 100% Amberia General Partner Oy13 Ordinary shares 100% Andean Social Infrastructure GP Limited11 Ordinary shares 100% Arden Asset Management (UK) Limited23 Ordinary shares 100% Arden Asset Management LLC21 Limited Liability Company 100% Arthur House (No.6) Limited4 Ordinary shares 100% Artio Global Investors Inc.14 Ordinary shares 100% Asander Investment Management Limited51 Ordinary shares 100% ASI (General Partner 2019 European PE B) Limited Ordinary shares 100% ASI (General Partner PE2) Limited Ordinary shares 100% ASI (General Partner PFF 2018) S.a.r.l32 Ordinary shares 100% ASI (General Partner SOF IV) Limited Ordinary shares 100% ASI Hark Capital I GP, LLC17 Limited Liability company 100% ASI Hark Capital II GP, LLC17 Limited Liability company 100% ASI Private Equity 2 GP LP Limited partnership 100% ASI REMM GP LLP3 Limited Liability Partnership 100% ASI Shin Global Investment GP Limited11 Ordinary shares 100% ASPER (Luxembourg) GP S.a.r.l 26 Ordinary shares 100% Baigrie Davies & Company Limited2 Ordinary shares 100% Baigrie Davies Holdings Limited2 Ordinary shares 100% Bedfont Lakes Business Park (GP2) Limited4 Ordinary shares 100% Castlepoint General Partner Limited52 Ordinary shares 100% Castlepoint Nominee Limited52 Ordinary shares 100% Cockspur Property (General Partner) Limited23 Ordinary shares 100% Cumberland Place Financial Management Limited2 Ordinary shares 100% DEGI Beteiligungs GmbH48 Limited Liability Company 94% Edinburgh Fund Managers Group Limited3 Ordinary shares 100% Edinburgh Fund Managers Plc53 Ordinary shares 100% Edinburgh Unit Trust Managers Limited3 Ordinary shares
Elevate Portfolio Services Limited2 Ordinary shares 100% FLAG Squadron Asia Pacific III GP LP11 Limited Partnership 100% Focus Business Solutions Limited5 Ordinary shares 100% Focus Holdings Limited5 Ordinary shares 100% Focus Software Limited5 Ordinary shares 100% Focus Solutions EBT Trustee Limited5 Ordinary shares 100% Fraser Health Financial Management Limited2 Ordinary shares 100% Griffin Nominees Limited4 Ordinary shares 100% HDFC Asset Management Company Limited54 Ordinary shares
Name of related undertaking Share class1 % interest held Murray Johnstone Holdings Limited3 Ordinary shares 100% Murray Johnstone Limited3 Ordinary shares 100% North East Trustees Limited57 Ordinary A shares,
Pace Financial Solutions Limited2 Ordinary A shares, Ordinary B shares, Ordinary C shares
Parmenion Capital Ltd51 Ordinary shares 100% Parmenion Capital Partners LLP51 Limited Liability Partnership 100% Parmenion Investment Management Ltd.51 Ordinary shares 100% Parmenion Nominees Limited51 Ordinary shares 100% Parnell Fisher Child & Co. Limited2 Ordinary shares 100% Parnell Fisher Child Holdings Limited2 Ordinary A shares,
Pearson Jones & Company (Trustees) Limited57 Ordinary shares 100% Pearson Jones Limited2 Ordinary A shares,
Self Directed Investments Ltd51 Ordinary shares 100% Serin Wealth Limited2 Ordinary shares 100% SL Capital Partners (US) Limited Ordinary shares 60% SL Capital Partners LLP Limited Liability Partnership 60% SLCP (Founder Partner Ignis Private Equity) Limited Ordinary shares 60% SLCP (Founder Partner Ignis Strategic Credit) Limited Ordinary shares 60% SLCP (General Partner 2016 Co-investment) Limited Ordinary shares 60% SLCP (General Partner CPP) Limited Ordinary shares 100% SLCP (General Partner EC) Limited Ordinary shares 100% SLCP (General Partner Edcastle) Limited Ordinary shares 100% SLCP (General Partner ESF I) Limited Ordinary shares 100% SLCP (General Partner ESF II) Limited Ordinary shares 100% SLCP (General Partner ESP 2004) Limited Ordinary shares 100% SLCP (General Partner ESP 2006) Limited Ordinary shares 100% SLCP (General Partner ESP 2008 Coinvestment) Limited Ordinary shares 100% SLCP (General Partner ESP 2008) Limited Ordinary shares 100% SLCP (General Partner ESP CAL) Limited Ordinary shares 100% SLCP (General Partner Europe VI) Limited Ordinary shares 100% SLCP (General Partner II) Limited Ordinary shares 100% SLCP (General Partner Infrastructure I) Limited Ordinary shares 100% SLCP (General Partner Infrastructure Secondary I) Limited Ordinary shares 100% SLCP (General Partner NASF I) Limited Ordinary shares 100% SLCP (General Partner NASP 2006) Limited Ordinary shares 100% SLCP (General Partner NASP 2008) Limited Ordinary shares 100% SLCP (General Partner Pearl Private Equity) Limited Ordinary shares 100% SLCP (General Partner Pearl Strategic Credit) Limited Ordinary shares 100% SLCP (General Partner SOF I) Limited Ordinary shares 100% SLCP (General Partner SOF II) Limited Ordinary shares 100%
Name of related undertaking Share class1 % interest held SLCP (General Partner SOF III) Limited Ordinary shares 100% SLCP (General Partner Tidal Reach) Limited Ordinary shares 100% SLCP (General Partner USA) Limited Ordinary shares 100% SLCP (General Partner) Limited Ordinary shares 100% SLCP (Holdings) Limited Ordinary shares 100% SLIPC (General Partner SCF 1) Ltd Ordinary shares 100% SLIPC (General Partner Infrastructure II LTP 2017) Limited Ordinary shares 100% SLIPC (General Partner Infrastructure II) S.a.r.l32 Ordinary shares 100% SLIPC (General Partner PMD Co-Invest 2017) Limited Ordinary shares 100% SLTM Limited Ordinary shares 100% Sorbin Systems Limited51 Ordinary shares 100% Squadron Capital Asia Pacific GP, LP11 Limited Partnership 100% Squadron Capital Asia Pacific II GP LP11 Limited Partnership 100% Squadron Capital Management Limited11 Limited Liability Company 100% Squadron Capital Partners Limited11 Limited Liability Company 100% Standard Aberdeen Asset Management Limited Ordinary shares 100% Standard Aberdeen Group Limited Ordinary shares 100% Standard Aberdeen Investment Management Limited Ordinary shares 100% Standard Aberdeen Investments Limited Ordinary shares 100% Standard Aberdeen Limited Ordinary shares 100% Standard Life (Asia) Limited58 Ordinary shares 100% Standard Life Aberdeen Asset Management Limited Ordinary shares 100% Standard Life Aberdeen Group Limited Ordinary shares 100% Standard Life Digital Solutions Limited Ordinary shares 100% Standard Life Investments - India Advantage Fund8 Ordinary shares 100% Standard Life Investments (Corporate Funds) Limited Ordinary shares 100% Standard Life Investments (France) SAS59 Ordinary shares 100% Standard Life Investments (General Partner CRED) Limited4 Ordinary shares 100% Standard Life Investments (General Partner EPGF) Limited Ordinary shares 100% Standard Life Investments (General Partner European Real Estate Club) Limited4 Ordinary shares 100% Standard Life Investments (General Partner European Real Estate Club II) Limited4 Ordinary shares 100% Standard Life Investments (General Partner European Real Estate Club III) Limited4 Ordinary shares 100% Standard Life Investments (General Partner GARS) Limited Ordinary shares 100% Standard Life Investments (General Partner GFS) Limited Ordinary shares 100% Standard Life Investments (General Partner Global Tactical Asset Allocation) Limited Ordinary shares 100% Standard Life Investments (General Partner MAC) Limited Ordinary shares 100% Standard Life Investments (General Partner PDFI) Limited Ordinary shares 100% Standard Life Investments (General Partner UK PDF) Limited Ordinary shares 100% Standard Life Investments (General Partner UK Shopping Centre Feeder Fund LP) Limited4 Ordinary shares 100% Standard Life Investments (Hong Kong) Limited60 Ordinary shares 100% Standard Life Investments (Jersey) Limited61 Ordinary shares 100% Standard Life Investments (Mutual Funds) Limited Ordinary shares 100% Standard Life Investments (PDF No. 1) Limited61 Ordinary shares 50% Standard Life Investments (Private Capital) Limited Ordinary shares 100% Standard Life Investments (Singapore) Pte. Ltd62 Ordinary shares 100% Standard Life Investments (USA) Limited Ordinary shares 100% Standard Life Investments Brent Cross General Partner Limited Ordinary shares 100% Standard Life Investments European RE Club (Offshore Feeder) Ltd11 Ordinary shares 100% Standard Life Investments European RE Club II (Offshore Feeder) Ltd11 Ordinary shares 100% Standard Life Investments Global Absolute Return Strategies Master Fund Limited 11 Ordinary shares 100% Standard Life Investments Global Absolute Return Strategies Offshore Feeder Fund Limited11 Ordinary shares 100% Standard Life Investments Global Focused Strategies Master Fund Limited11 Ordinary shares 100% Standard Life Investments Global Focused Strategies Offshore Feeder Fund Limited11 Ordinary shares 100% Standard Life Investments Global SICAV
Standard Life Investments Global SICAV II Enhanced-Diversification Multi Asset Fund63 SICAV 66% Standard Life Investments Global SICAV II Global Equity Impact Fund63 SICAV 55%
Standard Life Investments GTAA Company11 Ordinary shares 100% Standard Life Investments Limited Ordinary shares 100% Standard Life Investments Multi Asset Class Company11 Ordinary shares 100% Standard Life Investments Securities LLC14 Ordinary shares 100% Standard Life Investments UK Equity Impact – Employment Opportunities Fund OEIC 90% Standard Life Investments UK Shopping Centre Feeder Fund Company Limited4 Ordinary shares 100% Standard Life Portfolio Investments Limited Ordinary shares 100% Standard Life Portfolio Investments US Inc64 Ordinary shares 100% Standard Life Premises Services Limited Ordinary shares 100% Standard Life Savings Nominees Limited Ordinary shares 100% Tenet Group Limited65 Ordinary B shares 25% Tenon Nominees Limited3 Ordinary shares 100% The Coaching Platform Limited5 Ordinary shares 100% The Munro Partnership Ltd.66 Ordinary shares 100% Threesixty Partnerships Limited9 Ordinary shares 100% Touchstone Insurance Company Limited67 Ordinary shares 100% Two Rivers One Limited30 Ordinary shares 100% Two Rivers Two Limited30 Ordinary shares 100% UK PRS Opportunities General Partner Limited4 Ordinary shares 100% Waverley Healthcare Private Equity Limited3 Ordinary shares 100% Wealth Horizon Ltd51 Ordinary shares 100% Wise Trustee Limited51 Ordinary shares 100% 1 OEIC = Open-ended investment company
Town, KY1-1104, Cayman Islands 12 Tuborg Havnevej 15, 2nd Floor, DK-2900 Hellerup, Denmark 13 Kaivokatu 6, Helsinki, 00100, Finland 14 c/o Corporation Service Company, 2711 Centerville Road, Suite 400,
Wilmington, DE, 19808, USA 15 Henrik Ibsens gate 100, PO Box 2882 Solli, 0230 Oslo, Norway 16 Box 3039, Stockholm, 103 63, Sweden 17 c/o Corporation Service Company, 251 Little Falls Drive, Wilmington, DE, 19808, USA 18 80, Route d'Esch, L-1470 Luxembourg, Luxembourg 19 Office Unit 8, 6th Floor, Al Khatem Tower, Abu Dhabi Global Market Square, Al
Street, DE 19801 Wilmington, USA 22 Rua Joaquim Floriano, 913 – 7th floor – Cj. 71 São Paulo SP 04534-013, Brazil 23 1 More London Place, London, SE1 2AF 24 29 Rue De Berri, Paris, 75008, France 25 40 Upper Mount Street, Dublin 2, Republic of Ireland 26 35a Avenue John F. Kennedy, L-1855 Luxembourg, Luxembourg 27 State Street (Guernsey) Limited, First Floor Dorey Court, Admiral Park, St Peter
Port, Guernsey, GY1 6HJ 28 First Floor, Sir Walter Raleigh House, 48-50 Esplanade, St Helier, Jersey, JE2 3QB 29 Suite 26.3, Level 26, Menara IMC, Letter Box No.66, No. 8, Jalan Sultan Ismail, 50250 Kuala Lumpur, Malaysia 30 Lime Grove House,Green Street, St Helier, Jersey, JE1 2ST 31 Ahtri 6a, Tallinn, 10151, Estonia 32 2 Boulevard de la Foire, L-1528 Luxembourg, Luxembourg 33 WTC, H-Tower, 20th Floor, Zuiplein 166, 1077 XV Amsterdam, The
Netherlands 34 West Area, 2F, No.707 Zhangyang Road, China (Shanghai) Pilot Free Trade
Sathorn, Bangkok, 10120, Thailand 36 Liberte House, 19-23 La Molle Street, St Helier, Jersey, JE4 5RL 37 8F-1, No. 101, Songren Road, Taipei City, 110, Taiwan, Republic of China 38 16th Floor, Menara Dea Tower 2, Kawasan Mega Kuningan, Jl Mega Kuningan
Churchgate, Mumbai- 400 020, India 55 Lodha Excelus, 13th Floor, Apollo Mills Compound, N.M. Joshi Marg,
Assets Investments in subsidiaries A 6,467 9,425 Investments in associates and joint ventures B 1,018 134 Deferred tax assets N 22 – Loans to subsidiaries C 6 324 Derivative financial assets C 13 – Equity securities and interests in pooled investment funds C 197 – Debt securities C 854 857 Receivables and other financial assets C 57 76 Other assets F 35 27 Cash and cash equivalents C 17 7 Total assets 8,686 10,850
Total retained earnings 2,035 1,564 Other reserves J 4,505 6,390 Total equity 7,445 8,921
Liabilities Subordinated liabilities L 1,086 1,876 Derivative financial liabilities L – 33 Other financial liabilities L 69 19 Other liabilities P 86 1 Total liabilities 1,241 1,929 Total equity and liabilities 8,686 10,850
Company statement of changes in equity For the year ended 31 December 2018
Profit for the year – – – 461 – 461 28 489 Other comprehensive income for the year – – – – 11 11 – 11 Total comprehensive income for the year – – – 461 11 472 28 500 Issue of share capital G – – 1 – – 1 – 1 Issue of ‘B’ shares G 1,000 – – – (1,000) – – – Reclassification of perpetual debt instruments to equity K – – – – – – 1,005 1,005 Repurchase of perpetual debt instruments K – – – – – – (970) (970) Redemption of perpetual debt instruments K – – – – – – (44) (44) Dividends paid on ordinary shares – – – (634) – (634) – (634) Coupons paid on perpetual debt instruments – – – – – – (25) (25)
Other reserves Total equity 2017 Notes £m £m £m £m £m £m
Company accounting policies (a) Basis of preparation These separate financial statements are presented as required by the Companies Act 2006. The Company meets the definition of a qualifying entity under Financial Reporting Standard 100 (FRS 100) issued by the Financial Reporting Council (FRC). In the year ended 31 December 2018 the Company has adopted Financial Reporting Standard 101 Reduced Disclosure Framework (FRS 101) as issued by the FRC and has transitioned from reporting under International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) as endorsed by the European Union (EU) to FRS 101. Accordingly, these financial statements were prepared in accordance with FRS 101 incorporating the Amendments to FRS 101 issued by the FRC up to March 2018. This transition to FRS 101 had no impact on measurement or recognition in the financial statements. The financial statements have been prepared on a going concern basis and under the historical cost convention, as modified by the revaluation of financial assets and financial liabilities (including derivative instruments) at fair value through profit or loss (FVTPL).
As permitted by FRS 101, the Company has taken advantage of the following disclosure exemptions available under that standard:  A cash flow statement and related notes  Capital management  Effect of IFRSs issued but not effective  Related party transactions with wholly owned subsidiaries As equivalent disclosures are given in the consolidated financial statements, we have also applied the disclosure exemptions for share based payments and financial instruments.
The Company has taken advantage of the exemption in section 408 of the Companies Act 2006 not to present its own income statement in these financial statements. The auditors’ remuneration for audit and other services is disclosed in Note 5 to the consolidated financial statements. The Company has no employees.
(a)(i) Standards, interpretations and amendments to existing standards that have been adopted by the Company IFRS 9 Financial Instruments (effective for annual periods beginning on or after 1 January 2018)
Financial liabilities are measured at amortised cost using the effective interest method unless they are derivatives or they are designated as FVTPL.
An expected credit loss impairment model is applied to financial assets measured at amortised cost. Impairment losses representing the expected credit loss in the next 12 months are recognised unless there has been a significant increase in credit risk from initial recognition in which case lifetime expected losses are recognised.
Investments in subsidiaries Determining the cash-generating unit to be used in relation to the recoverable amount of investments in subsidiaries
The areas where assumptions and other sources of estimation uncertainty at the end of the reporting period have a significant risk of resulting in a material adjustment to the carrying amount of assets and liabilities within the next financial year are as follows: Financial statement area Critical accounting estimates and assumptions Related notes
Investments in subsidiaries measured at cost 6,249 9,092 Investments in subsidiaries measured at FVTPL C 218 333 Investments in subsidiaries 6,467 9,425 £m £m
Reclassified as operations held for sale during the year (2,312) – Investment into existing subsidiaries measured at cost 167 413 Acquisition of subsidiaries at cost 5 4,243 Acquisition of subsidiaries at cost via in specie dividend 374 – Disposal of subsidiaries measured at cost (2) (37) Repayment of loan to subsidiaries classified as equity investment (486) – Impairment of subsidiaries measured at cost (589) (20) Acquisition of subsidiaries at FVTPL 90 55 Reclassification of subsidiaries at FVTPL to interests in pooled investment funds (198) – (Losses)/gains on subsidiaries at FVTPL (7) 2
Details of the Company’s subsidiaries are given in Note 49 of the Group financial statements.
(b) Acquisitions During 2018, the Company made the following acquisitions of subsidiaries measured at cost:  On 8 August 2018, Standard Life Savings Limited, 1825 Financial Planning Limited and Standard Life Client Management Limited were acquired via dividends in specie from SLAL and recognised at amounts of £320m, £50m and £4m respectively
 On 11 May 2018 the Company increased its investment in Standard Life Oversea Holdings Limited through the purchase of 1,750,000 ordinary shares for a cash consideration of £2m
 On 16 August 2018 the Company acquired control of The Standard Life Assurance Company 2006 for a cash consideration of £5m  On 15 October 2018 the Company increased its investment in 1825 Financial Planning Limited through the purchase of 23,000,000 ordinary shares for a cash consideration of £11m and the capitalisation of a loan of £12m  On 21 December 2018 the Company increased its investment in Standard Life Employee Services Limited through the purchase of 21,386 ordinary shares for the capitalisation of the intercompany receivable due from its subsidiary of £21m During 2017, the Company made the following acquisitions of subsidiaries measured at cost:  On 14 August 2017 the Company acquired Aberdeen and was renamed Standard Life Aberdeen plc. The Company acquired 100% of the share capital of Aberdeen, and Aberdeen ordinary shareholders received 0.757 of a share in Standard Life Aberdeen plc on the completion date satisfied through newly issued shares. The cost of the investment in Aberdeen was £4,243m consisting of £4,098m based on the fair value of the equity consideration at the date of completion including £98m for shares issued to the Aberdeen Asset Management Employee Benefit Trust 2003, £89m for replacement employee share-based payments reflecting the fair value of the pre-acquisition service element of the awards and transaction costs of £56m. Further details are provided in Note 1 of the Group financial statements.
See Section (e) below for details on investments in subsidiaries at FVTPL.
During 2017, the Company made the following disposals of subsidiaries measured at cost:  On 22 November 2017 the Company reduced its investment in Standard Life (Mauritius Holdings) 2006 Limited through the disposal of 494,589.5 participating shares for a cash consideration of £37m, as a result of a share capital reduction by Standard Life (Mauritius Holdings) 2006 Limited
(d) Impairment The company holds investments in Aberdeen and Standard Life Investments (Holdings) Limited (SLIH). As Aberdeen and SLIH are managed and reported together within the Asset management and platforms segment, and the synergies from the merger of these entities are expected to benefit both entities, we judge that it is appropriate to consider the recoverable amount of these entities on a combined basis. The Company impaired its investments in Aberdeen and SLIH by £570m (2017: £nil). The recoverable amount was £5,508m which was its value in use and was determined using a pre-tax discount rate of 11.1%. The impairments are as a result of a decrease in projected future revenues of the entities. Following the impairment loss recognised in the period, the recoverable amount was equal to the carrying amount. Therefore any adverse movement in a key assumption would lead to further impairment. The sensitivity of the carrying value of the investments in Aberdeen and SLIH to changes in key assumptions is the same as the sensitivity of Aberdeen Standard Investments goodwill to changes in key assumptions provided in Note 14 of the Group financial statements.
Additionally in 2017, an impairment of £13m was recognised in relation to the Company’s investment in its subsidiary Standard Life Employee Services Limited. The recoverable amount was £30m which was its value in use and was determined using a discount rate of 9%.
The Company’s investments in associates are measured at cost less impairment. An impairment of £211m was recognised in relation to the company’s associate investment in Phoenix. The impairment resulted from the fall in the Phoenix share price between 31 August 2018 and 31 December 2018. The recoverable amount was £812m which is the fair value of the Company’s interest in Phoenix at 31 December 2018.
Investments in subsidiaries measured at FVTPL A 333 – – 333 Loans to subsidiaries – – 324 324 Debt securities – 857 – 857 Receivables and other financial assets E – – 76 76 Cash and cash equivalents – – 7 7
Derivative asset of £13m (2017: derivative liability of £33m) is expected to be settled after more than 12 months.
The maturity profile of the contractual undiscounted cash flows in relation to derivative financial instruments is as follows: Within 1 year 2-5 years 6-10 years 11-15 years Total 2018 £m £m £m £m £m
Net derivative financial instruments cash flows 7 24 54 – 85
Within 1 year 2-5 years 6-10 years 11-15 years Total 2017 £m £m £m £m £m
Cash inflows Cash flow hedges 28 94 118 566 806 Foreign exchange forwards 6 – – – 6
Net derivative financial instruments cash flows 6 21 27 (12) 42
F. Other assets Other assets of £35m (2017: £27m) comprise amounts due from related parties in respect of Group relief, which are expected to be recovered within 12 months.
G. Share capital and share premium Details of the Company’s share capital and share premium are given in Note 26 of the Group financial statements including details of the return of capital, the share consolidation and the share buyback.
Details of the dividends paid on the ordinary shares by the Company are provided in Note 13 of the Group financial statements. Note 13 also includes information regarding the final dividend proposed by the Directors for the year ended 31 December 2018.
I. Retained earnings The 2017 transfer for vested employee share-based payments included £32m in relation to replacement awards granted to employees of Aberdeen which vested before the acquisition date and were recognised directly in retained earnings on acquisition.
Effect of change in accounting policy to IFRS 9 – – – – (15) – (15)
Shares issued in respect of business combinations 3,972 – – – – 3,972 Fair value losses on cash flow hedges – – – – (33) (33) Realised losses on cash flow hedges transferred to income statement – – – – 13 13 Reserves credit for employee share-based payments – 96 – – – 96 Transfer to retained earnings for vested employee share-based payments – (54) – – – (54) Tax effect of items that may be reclassified subsequently to profit or loss – – – – 3 3
Following the impairment loss recognised in the period on the Company’s investments in Aberdeen and SLIH (refer to note A), £570m (2017:£nil) was transferred from the merger reserve to retained earnings.
For the year ended 31 December 2017 the reserves credit for employee share-based payments included £57m in relation to replacement awards granted to employees of Aberdeen which were unvested at the acquisition date.
K. Non shareholders’ equity On 30 August 2018, the Company’s subordinated guaranteed bonds and Mutual Assurance Capital Securities (MACS) were reclassified as non shareholders’ equity from subordinated liabilities. Following a tender and mandatory redemption process which completed on 25 October 2018, the Company repurchased/redeemed the guaranteed bonds and MACS. Further information is given in Note 30 of the Group financial statements.
Subordinated liabilities M – 1,876 1,876 Derivative financial liabilities D 33 – 33 Other financial liabilities O – 19 19
Subordinated guaranteed bonds: 6.75% Sterling fixed rate perpetual – – £500m £502m
Subordinated liabilities are considered current if the contractual re-pricing or maturity dates are within one year. The principal amount of all the subordinated liabilities is expected to be settled after more than 12 months. The accrued interest on the subordinated liabilities of £2m (2017: £42m) is expected to be settled within 12 months.
On 18 October 2017, the Company issued US Dollar subordinated notes with a principal amount of $750m. The subordinated notes of US$750m have been subject to renegotiation during the year which resulted in a modification loss of £4m. Further information including the terms and conditions of all subordinated liabilities is given in Note 34 of the Group financial statements.
The Company has surrendered the benefit of its tax losses to underlying subsidiaries for a consideration of £35m (2017: £27m).
Deferred tax assets comprise: Unused tax losses 21 – Unrealised losses on cash flow hedges 1 3 Deferred tax liabilities comprise: Unrealised gains on assets held as available-for-sale – (3) Net deferred tax assets 22 –
Movements in net deferred tax assets comprise: At 1 January – (3) Effect of change in accounting policy to IFRS 9 3 – Amounts credited to profit or loss 21 3 Amounts charged to other comprehensive income (2) – At 31 December 22 –
Other financial liabilities are expected to be settled within 12 months (2017: £19m).
We have presented below reconciliations from these APMs to the most appropriate measure prepared in accordance with IFRS. All APMs should be read together with the IFRS consolidated income statement, IFRS consolidated statement of financial position and IFRS consolidated statement of cash flows, which are presented in the Group financial statements section of this report.
 Profit or loss arising on the disposal of a subsidiary, joint venture or associate  Fair value movements in contingent consideration  Items which are one-off and, due to their size or nature, are not indicative of the long-term operating performance of the Group
Adjusted profit also excludes impacts arising from investment return variances (formerly called short-term fluctuations in investment return) and economic assumption changes in the Group’s insurance entities. It is calculated based on expected returns on investments backing equity holder funds, with consistent allowance for the corresponding expected movements in equity holder liabilities. Impacts arising from the difference between the expected return and actual return on investments, and the corresponding impact on equity holder liabilities except where they are directly related to a significant management action, are excluded from adjusted profit and are presented within profit before tax. The impact of certain changes in economic assumptions is also excluded from adjusted profit and is presented within profit before tax.
Adjusted cash generation Adjusted cash generation presents a shareholder view of cash generation. For the Aberdeen Standard Investments element of the Asset management and platforms segment, adjusted cash generation adjusts IFRS net cash flows from operating activities for restructuring and corporate transaction expenses paid. For the platforms and corporate centre elements of the Asset management and platforms segment, adjusted cash generation removes certain noncash items from adjusted profit before tax. Adjustments are made for deferred acquisition costs/deferred income reserve and fixed/intangible assets. Adjusted cash generation is stated net of current (cash) tax. IFRS net cash flows from operating activities is not used as the basis for these segments as it includes policyholder cash flows, and does not exclude adjusting items. For the Insurance associates and joint ventures segment, adjusted cash generation reflects dividends received in the period.
This APM presents a shareholder view of cash generation and removes adjusting items to make this cash metric more comparable to adjusted profit after tax.
The merger of Standard Life plc and Aberdeen completed on 14 August 2017, with the merger accounted for as an acquisition of Aberdeen by Standard Life plc on that date. The Reported basis results reflect this accounting treatment with Aberdeen results included from 14 August 2017 only. Therefore, Aberdeen is included from 14 August 2017 only in the 2017 results on a Reported basis. In our Strategic report we have also presented comparative results on a Pro forma basis to assist in explaining trends by showing performance for the combined Group as if Standard Life plc and Aberdeen had always been merged. The difference between the Reported results and Pro forma results is the results of Aberdeen in the period prior to completion of the merger.
Pro forma basis Remove Aberdeen results pre-merger completion Reported basis 2018 2017 2016 2018 2017 2016 2018 2017 2016 £m £m £m £m £m £m £m £m £m
Share of associates’ and joint ventures’ profit before tax 186 99 76 – – – 186 99 76 Adjusted profit before tax from continuing operations 650 660 694 – (185) (336) 650 475 358
Share of associates’ and joint ventures’ tax expense1 (40) (41) (13) Total adjusting items from continuing operations (1,397) 4 (83)
Profit before tax (787) 438 262 1 2018 Includes £3m (2017: £nil) relating to tax on adjusting items.
The table below provides a segmental breakdown of adjusted profit before tax on a continuing operations basis. Comparatives are shown on a pro forma basis: Asset management and platforms Insurance associates and joint £m £m £m £m £m £m £m £m £m
The table below provides a breakdown for the calculation of our share of adjusted profit before tax from Phoenix of £86m which is included in the Insurance associates and joint ventures total of £140m above. Phoenix use an operating profit alternative performance measure which is before finance costs, while the Group’s adjusted profit is after deducting finance costs.
Phoenix profitability for the four months ended 31 December 2018 £m £m
The table below provides a summarised reconciliation of adjusted profit before tax (split by continuing operations, discontinued operations and Total) to Profit before tax. Comparatives are shown on a Reported basis.
Continuing operations Discontinued operations Total 2018 2017 2016 2018 2017 2016 2018 2017 2016 £m £m £m £m £m £m £m £m £m
Share of associates’ and joint ventures’ tax expense (40) (41) (13) – – – (40) (41) (13)
Profit attributable to non-controlling interests – ordinary shares – – – 5 25 51 5 25 51 1 Discontinued operations shown as profit before tax expense attributable to equity holders.
Analysis of adjusting items The table below provides detail of the adjusting items made in the calculation of adjusted profit before tax: Continuing operations Discontinued operations Total 2018 2017 2016 2018 2017 2016 2018 2017 2016 £m £m £m £m £m £m £m £m £m
 Impairment of associates in 2018 of £228m relates to our investment in Phoenix and reflects the fall in the Phoenix share price between 31 August 2018 and 31 December 2018. This impairment will reverse in future periods if the Phoenix share price increases. The impairment of Phoenix is considered an item which is one-off and not indicative of the long-term operating performance of the Group and has therefore been excluded from adjusted profit to assist comparability of results period to period. More details are provided in Note 12 of the Group financial statements.
Adjusted profit after tax from discontinued operations 133 – 1,560 – – 5 1,698
Adjusted profit after tax 645 – 215 – 3 5 868 Profit for the year 1 Includes £228m loss on impairment of interest in associates.
Group adjusted profit (Reported basis) Presentation differences Adjusting items Capital management
Adjusted profit before tax from continuing operations 475 – 4 – (41) – 438 Profit before tax Tax on adjusted profit (77) – 49 – – – (28) Total tax expense Share of associates’ and joint ventures’ tax (41) – – – 41 – – N/A Adjusted profit after tax from continuing operations 357 – 53 – – – 410
This reconciliation includes a number of reconciling items which arise due to presentation differences between IFRS reporting requirements and the determination of adjusted operating income and adjusted operating expenses. Adjusted operating income and expenses exclude items which have an equal and opposite effect on IFRS income and IFRS expenses in the consolidated income statement. Other presentation differences also include Aberdeen Standard Investments commission expenses which are presented in expenses in the consolidated income statement but are netted against adjusted operating income in the analysis of Group adjusted profit by segment. Further details of presentation differences are included in Note 2(b)(ii) of the Group financial statements section of this report.
Adjusted cash generation from continuing operations Adjusted cash generation provides insight into our ability to generate cash that supports further investment in the business and the payment of dividends to shareholders. The IFRS consolidated statement of cash flows includes policyholder cash flows, and therefore does not present a shareholder view, and does not exclude adjusting items.
Analysis of adjusted cash generation (Comparatives shown on a Pro forma basis)
Further details of the calculation of adjusted cash generation for the Asset management and platforms segment are included below: Investment management Per Group financial statements £m £m
10.2 Financial ratios We also use a number of financial ratios to help assess our performance and these are also not defined under IFRS. Details of our main financial ratios and how they are calculated are presented below.
The fee revenue yield is calculated as annualised fee based revenue (excluding performance fees, SL Asia, 1825, Focus and Threesixty) divided by monthly average fee based AUM/AUA.
The average revenue yield on fee based business is a measure that illustrates the average margin being earned on the assets that we manage or administer.
Profit attributable to equity holders of the Company (835) N/A 402 1,665 N/A 297 830 N/A 699
Fee revenue yield (bps) from continuing operations Fee revenue yield Average AUMA (£bn) Fee based revenue (£m) Fee revenue yield (bps)
10.3 Assets under management and administration and flows Definition Purpose and changes
AUMA is a measure of the total assets we manage or administer on behalf of our clients and customers. It includes assets under management (AUM) and assets under administration (AUA). AUM is a measure of the total assets that we manage on behalf of individual customers and institutional clients. AUM also includes captive assets managed on behalf of the Group including assets managed for corporate purposes. AUA is a measure of the total assets we administer for customers through products such as platforms and ISAs.
Closing AUM at 31 Dec 2017 (Pro forma basis) £bn £bn £bn £bn £bn £bn £bn
Closing AUM at 31 Dec 2017 12 months ended 31 December 2017 (Pro forma basis) £bn £bn £bn £bn £bn £bn £bn 248 Standard Life Aberdeen 2018
Strategic insurance partners Total £bn £bn £bn £bn £bn £bn 1 Includes Wealth/Digital.
Contents 11. Glossary 252 12. Shareholder information 255 13. Contact us IBC
Adjusted cash generation Adjusted cash generation presents a shareholder view of cash generation. The calculation of this measure has been amended following the merger. For the Aberdeen Standard Investments element of the Asset management and platforms segment, adjusted cash generation adjusts IFRS net cash flows from operating activities for restructuring and corporate transaction expenses paid. For the platforms and corporate centre elements of the Asset management and platforms segment, adjusted cash generation removes certain non-cash items from adjusted profit before tax. Adjustments are made for deferred acquisition costs/deferred income reserve and fixed/intangible assets. Adjusted cash generation is stated net of current (cash) tax. IFRS net cash flows from operating activities is not used as the basis for these segments as it includes policyholder cash flows, and does not exclude adjusting items. For the Insurance associates and joint ventures segment, adjusted cash generation reflects dividends received in the period.
Adjusted operating income Adjusted operating income is a component of adjusted profit and consists of fee based revenue and spread/risk margin.
Coupons payable on perpetual notes classified as non-controlling interests for which interest is accrued are included in adjusted profit before tax. For IFRS purposes, these are recognised directly in equity. This gave rise to an adjusting item in 2017, prior to the reclassification of such instruments to subordinated liabilities on 18 December 2017. Dividends payable on preference shares classified as non-controlling interests are excluded from adjusted profit in line with the treatment of ordinary shares. Similarly to preference shares, our share of interest payable on Tier 1 debt instruments held by associates, which are only accounted for when paid (as if interest is not paid it is cancelled), is excluded from adjusted profit.
AUM is a measure of the total assets that Aberdeen Standard Investments manages on behalf of individual customers and institutional clients. AUM also includes assets managed for corporate purposes.
Company Standard Life Aberdeen plc. Prior to the merger, Standard Life plc.
Earnings per share (EPS) EPS is a commonly used financial metric which can be used to measure the profitability and strength of a company over time. EPS is calculated by dividing profit by the number of ordinary shares. Basic EPS uses the weighted average number of ordinary shares outstanding during the year. Diluted EPS adjusts the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares, such as share options awarded to employees.
Elevate Elevate adviser platform acquired through the purchase of the entire share capital of AXA Portfolio Services Limited, subsequently renamed Elevate Portfolio Services Limited.
Executive committee Responsible for supporting the Co-Chief Executives in the day-to-day running of the business and comprises: Co-Chief Executives and the functional/regional leaders for UK, Finance, Distribution, Americas, EMEA, Asia Pacific, People and Investment Management.
Forward looking statements This document may contain certain ‘forward-looking statements’ with respect to the financial condition, performance, results, strategy, objectives, plans, goals and expectations of the Company and its affiliates. These forward-looking statements can be identified by the fact that they do not relate only to historical or current facts. Forwardlooking statements are prospective in nature and are not based on historical facts, but rather on current expectations and projections of management about future events, and are therefore subject to risks and uncertainties which could cause actual results to differ materially from the future results expressed or implied by the forward-looking statements. For example, statements containing words such as ‘may’, ‘will’, ‘should’, ‘could’, ‘continue’, ‘aims’, ‘estimates’, ‘projects’, ‘believes’, ‘intends’, ‘expects’, ‘hopes’, ‘plans’, ‘pursues’, ‘seeks’, ‘targets’ and ‘anticipates’, and words of similar meaning, may be forward-looking. These statements are based on assumptions and assessments made by the Company in light of its experience and its perception of historical trends, current conditions, future developments and other factors it believes appropriate. By their nature, all forwardlooking statements involve risk and uncertainty because they are based on information available at the time they are made, including current expectations and assumptions, and relate to future events and depend on circumstances which may be or are beyond the Company’s control, including among other things: UK domestic and global political, economic and business conditions (such as the UK’s exit from the EU); market related risks such as fluctuations in interest rates and exchange rates, and the performance of financial markets generally; the impact of inflation and deflation; the impact of competition; the timing, impact and other uncertainties associated with future acquisitions, disposals or combinations undertaken by the Company or its affiliates and/or within relevant industries; the value of and earnings from Standard Life Aberdeen’s strategic investments and ongoing commercial relationships; default by counterparties; information technology or data security breaches; natural or manmade catastrophic events; the failure to attract or retain necessary key personnel; the policies and actions of regulatory authorities; and the impact of changes in capital, solvency or accounting standards, and tax and other legislation and regulations (including changes to the regulatory capital requirements that the Company is subject to) in the jurisdictions in which the Company and its affiliates operate. As a result, the Company’s actual future financial condition, performance and results may differ materially from the plans, goals, objectives and expectations set forth in the forward-looking statements. Persons receiving this document should not place undue reliance on forwardlooking statements. Neither the Company nor its affiliates assume any obligation to update or correct any of the forward-looking statements contained in this document or any other forward-looking statements it or they may make (whether as a result of new information, future events or otherwise), except as required by law. Past performance is not an indicator of future results and the results of the Company and its affiliates in this document may not be indicative of, and are not an estimate, forecast or projection of, the Company’s or its affiliates’ future results.
Investment performance Investment performance has been aggregated using a money weighted average of our assets under management which are outperforming their respective benchmarks on a gross of fees basis. Benchmarks differ by fund and are defined in each fund’s Investment Management Agreement (for example, the benchmark for our GARS unit trust fund is six-month GBP LIBOR). For total AUM, the investment performance calculation covers 81% of Aberdeen Standard Investments AUM, with certain assets excluded such as non-discretionary portfolios e.g. full replication tracker funds or funds where no applicable index is available such as Aberdeen Standard Capital funds.
Strategic insurance partners A measure of the assets managed on behalf of a number of strategic partners such as Lloyds Banking Group and Phoenix.
 Voting instructions for the Annual General Meeting will be sent to you electronically
Last date for DRIP elections for 2018 final dividend 01 May
We include financial measures below which have not been determined to be KPIs but we believe are integral to the Group’s performance.
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