Short-term fluctuations in investment return and economic assumption changes 67 13 (54) Restructuring and corporate transaction expenses (173) (67) (115) Amortisation and impairment of intangible assets acquired in business combinations (138) (38) (27) Provision for annuity sales practices (100) (175) – Coupons payable on perpetual notes classified as equity 10 – – Profit on disposal of interests in associates 319 – –
 Amortisation and impairment of intangible assets acquired in business combinations is included as an adjusting item. This is consistent with the vast majority of peers and therefore excluding these items aids comparability. Highlighting this as an adjusting item aims to give a fuller understanding of these accounting impacts which arise where businesses have been acquired but do not arise where businesses have grown organically.
 Profits on the disposal of a subsidiary, joint venture or associate are also removed to assist comparability of results period on period.  Details on items classified as ‘Other’ in the table above are provided in Note 12 of the Group financial statements. In 2017 this balance primarily relates to the impairment of a disposal group classified as held for sale. This is similar to a loss on disposal of a subsidiary, discussed above, but arises prior to the sale completing.
Restructuring and corporate transaction expenses used to determine adjusted profit before tax on a Pro forma basis were £215m (2016: £86m), compared to the Reported basis of £173m (2016: £67m). The Pro forma basis in 2017 includes merger related costs of £42m incurred by Aberdeen in the period 1 January 2017 to 13 August 2017.
We have not disclosed amortisation of intangible assets on a Pro forma basis as we do not consider this to provide meaningful information. Assuming that the merger took place at an earlier date would lead to a change to the amortisation of intangibles in the post-merger period which we consider would not be useful to users of the accounts.
Other major categories of adjusting items (that is short-term fluctuations in investment return and economic assumption changes, provision for annuity sales practices, and profit on disposal of associates) are the same on a Pro forma basis as on a Reported basis.
Reconciliation to previously published financial information The tables below provide a reconciliation of 2016 and 2015 adjusted profit on a Pro forma basis to the operating profit and underlying profit financial information previously disclosed by Standard Life plc and Aberdeen Asset Management PLC.
Share of associates’ and joint ventures’ profit before tax 76 – – – – 76
4 Following the completion of the merger, the Group has changed the calculation of adjusted profit (previously named operating profit). Short-term fluctuations in investment return and economic assumption changes will now only be adjusted for insurance entities. Previously these adjustments also applied to non-insurance entities. For the period ended 31 December 2016, this has resulted in an £8m reduction (2015: £9m) to the adjusted profit of the Other segment within capital management, and a £3m (2015: nil) increase to the adjusted profit of the Standard Life Investments segment within operating expenses.
Adjusted operating income 2,276 14,176 331 6 – 166 25 16,980 Total revenue Adjusted operating expenses (1,527) (14,176) (358) – – – – (16,061) Total expenses Capital management 6 – – (6) – – – – N/A Share of associates’ and joint ventures’ profit before tax 99 – (13) – (41) – – 45
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 revenue and IFRS expenses in the consolidated income statement, such as investment returns which are for the account of policyholders. Other presentation differences generally relate to items included in administrative expenses which are borne by policyholders, for example investment property management expenses, or are directly related to fee income. Other presentation differences also include Aberdeen Standard Investment’s 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 Note 2(b)(ii) of the Group financial statements section of this report.
Reconciliation of fee income and fee based revenue The following table provides a reconciliation of fee income as presented in the consolidated income statement to fee based revenue, as presented in the analysis of adjusted profit before tax by segment.
Aberdeen Standard Investments funds Asset Management Charges (AMC) and commission expenses 263 294 Earned premium on German insurance business 158 125 Policyholder differences (131) (85)
The reconciling items are as follows:  The recourse cash flow is a payment from the Heritage With Profits Fund to the shareholder business. The element relating to fee based business is included in fee based revenue in determining adjusted profit, but arises in insurance and participating contract claims and change in liabilities in the consolidated income statement.
 Presentation differences mainly relate to AMCs earned by Aberdeen Standard Investments on the management of consolidated funds. These are eliminated on consolidation in the IFRS income statement and are therefore not included in fee income. The financial statements include the investment return and external expenses of the funds. In addition, commission expenses are netted against fee based revenue but are included within expenses in the consolidated income statement.
Aberdeen Standard Investments (a) 551 643 Standard Life Pensions and Savings (b) 332 267 India and China life 10 8
(i) Current tax adjustment The current tax adjustment adjusts current tax for the Standard Life Pensions and Savings segment and Other to exclude tax on adjusting items and current tax attributable to policyholders.
(ii) Deferred acquisition costs (DAC)/ Deferred income reserve (DIR) adjustment The DAC/DIR non-cash adjustment adds back existing business DAC/DIR amortisation included in adjusted profit for the period and deducts the equivalent new business DAC/DIR additions for the period. The following table reconciles DAC/DIR movements in the Group financial statements to the DAC/DIR adjustment used for Standard Life Pensions and Savings.
Amortisation of deferred acquisition costs 15 79 96 Acquisition costs deferred during the period 15 (49) (51) Amortisation of deferred income 36 (52) (61) Fee income deferred during the period 36 11 15 Adjustments for Heritage With Profits Fund and German With Profits Fund DAC/DIR not included in shareholder view 5 (1) Adjustment to remove India and China life DAC/DIR – (6) DAC/DIR adjustment – Standard Life Pensions and Savings (6) (8)
Additions of intangible assets acquired through business combinations (not amortised through adjusted profit) 4,074 4,074 – – 28 – 28 – Fixed and intangible assets adjustment (12) (43) 10 21 (11) (7) (30) 26
Reconciliation to previously published financial information The table below provides a reconciliation of adjusted cash generation on a pro forma basis to the financial information previously disclosed by Standard Life plc and Aberdeen Asset Management PLC.
Group. Core cash generated from operating activities was on a pre-tax basis and included adjustments for short-term timing differences on open end fund settlements and net interest received. Adjusted cash generation is on a post-tax basis and is not adjusted for short-term timing differences on open end fund settlements or net interest received.
4 For the Aberdeen Standard Investments segment, the Standard Life Investments component of underlying cash generation was previously derived from operating profit but is now derived from net cash flows from operating activities in the IFRS statement of cash flows. For the Standard Life Pensions and Savings segment and Other, adjusted cash generation is impacted by the changes to adjusted profit as set out in the reconciliation of 2016 adjusted profit above, and no longer includes an underlying adjustment to remove spread/risk operating assumption changes. For the India and China life segment, adjusted cash generation reflects dividends received in the period and therefore no longer includes any contribution from the wholly owned Hong Kong business.
10. Supplementary Information continued 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.
Certain financial ratios that we use were revised following the merger with Aberdeen to reflect the increased asset management focus of the Group as described further below. Operating return on equity and EBITDA margin which were previously used by Standard Life plc are no longer reported following this review.
This is an efficiency measure that is calculated as adjusted operating expenses divided by adjusted operating income, and includes the share of associates’ and joint ventures’ profit before tax.
The fee revenue yield is calculated as annualised fee based revenue (excluding performance fees) divided by monthly average fee based AUM/AUA (excluding HDFC AMC).
Share of associates’ and joint ventures’ profit before tax (£m) 99 76 56 99 76 56 Total adjusted operating income and share of associates’ and joint ventures’ profit before tax (£m) 3,027 2,896 2,887 2,375 1,861 1,780 1 2015 from continuing operations.
Profit attributable to equity holders of the Company N/A N/A 699 368
Standard Life Group N/A N/A N/A N/A N/A N/A Third party strategic partner life business N/A N/A N/A N/A N/A N/A
10.3.1 Assets under management and administration 12 months ended 31 December 2017
A be rd ee n St an da rd In ve st m en ts
Standard Life Pensions and Savings 83.1 3.5 (5.6) (2.1) 9.2 – 90.2
Third party strategic partner life business 169.1 12.9 (24.4) (11.5) 23.7 – 181.3
Standard Life Pensions and Savings mature 56.8 1.5 (5.9) (4.4) 8.1 – 60.5 10.3.3 Quarterly net flows 3 Months to 3 Months to 3 Months to £bn £bn £bn £bn £bn
Standard Life Pensions and Savings (0.6) (0.7) (0.7) (0.7) (0.8) Third Party strategic partner life business (2.9) (3.6) (3.1) (2.9) (1.9)
10.4 Aberdeen Standard Investments assets under management and net flows (Pro forma basis) 10.4.1 Growth AUM detailed asset class split and total AUM by channel
Closing AUM at 31 Dec 2016 Breakdown of growth channel asset classes £bn £bn £bn £bn £bn £bn £bn
Closing AUM at 31 Dec 2016 12 months ended 31 December 2016 £bn £bn £bn £bn £bn £bn £bn
10.4.2 Aberdeen Standard Investments growth assets under management by geography 12 months ended 31 December 2017 2016 £bn £bn
Growth Mature Total Growth Mature Total £bn £bn £bn £bn £bn £bn 10.5 Assets under management and administration – reconciliation to previously disclosed information (Pro forma basis) 12 months ended 31 December 2016
Closing AUMA at 31 Dec 2016 £bn £bn £bn £bn £bn £bn £bn
The AUMA impact of the stake increase in HDFC Life in April 2016 and the purchase of Elevate in October 2016 are both corporate actions and have been reallocated out of Market and other movements.
Contents 11. Glossary 300 12. Shareholder information 304 13. Contact us IBC
Adjusted profit also excludes the impact of the following items:  Restructuring costs and corporate transaction expenses. Restructuring includes the impact of major regulatory change.
 Impairment and amortisation of intangible assets acquired in business combinations
Coupons payable on perpetual notes classified as non-controlling interests are included in adjusted profit before tax. For IFRS purposes, these are recognised directly in equity. This gives rise to an adjusting item relating to ‘coupons payable on perpetual notes classified as equity’. Dividends payable on preference shares classified as noncontrolling interests are excluded from adjusted profit in line with the treatment of ordinary dividends.
Annuity A periodic payment made for an agreed period of time (usually up to the death of the recipient) in return for a cash sum. The cash sum can be paid as one amount or as a series of premiums. If the annuity commences immediately after the payment of the sum, it is called an immediate annuity. If it commences at some future date, it is called a deferred annuity.
AUM is a measure of the total assets that Aberdeen Standard Investments manages on behalf of individual customers and institutional clients. AUM also includes captive assets managed on behalf of Standard Life Aberdeen Group including assets managed for corporate purposes. These corporate assets are eliminated from Group AUMA.
AUA is a measure of the total assets we administer for customers through products such as pensions, platforms and ISAs, as well as assets backing our Spread/risk products such as annuities. Certain items previously included in AUA for Standard Life plc are now no longer included. These items are other corporate assets and assets which do not generate revenue from products. Comparatives have been restated.
Auto enrolment The UK Government introduced auto enrolment to help people save for their retirement. Employers have to automatically enrol eligible employees into a qualifying workplace pension scheme. This pension scheme needs to meet the standards set by the Pensions Regulator.
Capital management Capital management is a component of adjusted profit and relates to the return from the net assets of the shareholder business, net of costs of financing. This includes the net assets in defined benefit staff pension plans and net assets relating to the financing of subordinated liabilities. Coupons payable on perpetual notes classified as noncontrolling interests are recognised in capital management. For IFRS purposes, these are directly recognised in equity. Capital management excludes short-term fluctuations in investment return in the Group’s wholly owned insurance entities.
Company Standard Life Aberdeen plc. Prior to the merger Standard Life plc.
Fee revenue yield (bps) The average revenue yield on fee based business is a measure that illustrates the average margin being earned on the assets that we manage or administer. It is calculated as annualised fee based revenue (excluding performance fees) divided by monthly average fee based assets under administration.
Global absolute return strategies (GARS) A discretionary multi-asset fund provided under several regulated pooled and segregated structures globally by Aberdeen Standard Investments. The investment objective is to target a level of return over a rolling three-year period equivalent to cash plus 5% a year (gross of fees), and to do so with as little risk as possible.
International Financial Reporting Standards (IFRS) International Financial Reporting Standards are accounting standards issued by the International Accounting Standards Board (IASB). The Group’s consolidated financial statements are prepared in accordance with IFRS as endorsed by the EU.
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 83% of Aberdeen Standard Investments AUM, with certain assets excluded such as our share of AUM from HDFC AMC where we do not directly manage the assets, non-discretionary portfolios or funds where no suitable benchmark is available.
Investor view The investor view of Solvency II adjusts the regulatory position for the impact from unrecognised capital and with profit funds/defined benefit pension plans.
Liability aware Liability aware is a framework for proactively managing the various liability risks and requirements that are faced by defined benefit pension plans and insurance companies.
Own funds Under Solvency II, the capital resources available to meet solvency capital requirements are called own funds.
Regular premium A regular premium contract (as opposed to a single premium contract) is one where the policyholder agrees at inception to make regular payments throughout the term of the contract.
Reported basis The merger of Standard Life plc and Aberdeen completed on 14 August 2017, with the merger accounted for as an acquisition of Aberdeen by Standard Life plc on that date. The financial statements have been prepared on this basis, with Aberdeen results included only from the date of merger onwards. This is being referred to as the Reported basis. A reconciliation between profitability on a Pro forma basis and the Reported results is included on page 282.
Single premium A single premium contract (as opposed to a regular premium contract), which involves the payment of one premium at inception with no obligation for the policyholder to make subsequent additional payments.
Solvency capital requirement (SCR) Under Solvency II, insurers are required to identify their key risks – for example that equity markets fall – and hold sufficient capital to withstand adverse outcomes from those risks. This amount of capital is referred to as the Solvency capital requirement or SCR.
Solvency cover Solvency II Own funds divided by the Solvency capital requirement.
Standard Life The brand name for our Pensions and Savings business, operating in the UK and Europe.
UK Workplace UK Workplace pensions, savings and benefits to UK employers and employees. These are sold through corporate benefit consultants, independent financial advisers, or directly to employers.
Unit linked policy A policy where the benefits are determined by reference to the investment performance of a specified pool of assets referred to as the unit linked fund.
Registered office Standard Life House 30 Lothian Road Edinburgh EH1 2DH Scotland
Last date for DRIP elections for 2017 final dividend 09 May
Last date for DRIP elections for 2018 interim dividend 05 September
# These figures include the Company-sponsored nominee – the Standard Life
Aberdeen Share Account – which had 1,039,617 participants holding 736,555,571 shares.
Designed by Black Sun Plc (Strategic report) and Standard Life Aberdeen plc (rest of Annual report and accounts)
Standard Life Aberdeen plc is registered in Scotland (SC286832) at Standard Life House, 30 Lothian Road, Edinburgh EH1 2DH.
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