Underlying UK professional indemnity insurance claim UK and Europe operating assumption changes £506m £604m 17.03 pence per share1
73 pence per share Return of value following sale of our Canadian business (subject to shareholder approval)
£503m IFRS profit after tax attributable to equity holders (up 8%)
If you want to know the definitions for these financial terms, you will find them in the glossary on pages 296 to 301.
We aim to grow AUA by developing propositions that help our customers achieve their �nancial ambition and increase the assets managed by Standard Life Investments. AUA from continuing operations was up by 38% to £296.6bn, mainly due to the acquisition of Ignis (£60.5bn) and favourable market movements.
Group operating pro�t is a key measure which provides an indication of our ability to deliver returns for our shareholders and of our dividend paying capability. This increased by 19% to £604m, due to continued growth in the UK business and Standard Life Investments, as well as bene�ting from the Ignis acquisition. Operating pro�t included bene�t from operating assumptions changes in the UK and Europe of £43m (2013: £44m). Group underlying performance from continuing operations increased by 21% to £561m and included the bene�t of a 14% increase in fee based revenue.
Continuing operations excludes our Canadian business which was sold on 30 January 2015 and our Dubai business, the closure of which was announced in November 2014.
The Chairman shares his views on our performance, the relevant issues affecting our business and how we operate. Page
A narrative review of the Group’s performance that includes an overview from the Chief Executive and Chief Financial Officer and details of our individual businesses. You can also find out about our approach to risk management and sustainability.
Chairman’s statement Transforming Standard Life In recent years, Standard Life has undergone a dramatic transformation. We have changed from being Europe’s largest mutual insurance company to one focused on providing investment solutions to customers and clients around the world. 2014 marked a major step in this transformation and is one of the most significant years in our company’s 190-year history. We bought Ignis Asset Management in the UK, agreed the sale of our long-standing Canadian business to Manulife, and we are in the process of returning around £1.75 billion to our shareholders. It’s been a busy year.
When Standard Life was floated on the Stock Market in 2006, our market value was around £4.6 billion. By the time the return of value is completed and this year’s dividend is paid, we will have distributed £4.6 billion to shareholders and yet our market value should still far exceed where we started. Our financial position is strong and will remain so once Solvency 2 is introduced. The world is an uncertain and increasingly fragmented place and our financial strength is a source of considerable competitive advantage for us. We intend to keep on growing the value of your company.
2014 was also the year in which the Scottish people voted to stay part of the United Kingdom. Our role was not to tell people how to vote, but we did feel that it was right for us to spell out what we would have to do to protect our customers’ and shareholders’ interests, if the areas of concern we highlighted about constitutional change were not addressed. Our comments were noticed, broadly remarked upon, and respected. We continue to monitor very closely the impact of the further powers that will be transferred to Scotland. We support practical changes which benefit Scotland and Scottish companies provided that the unity of the UK Single Market is retained. Almost 90% of our UK customers live in England, Wales and Northern Ireland whilst the majority of our people are based in Scotland, so this is very important to us.
1. Strategic report 1.1 Chief Executive’s overview Standard Life has continued to perform well driven by a focus on delivering value for money for our customers and clients. We have increased revenues, profits and cash generation and now have assets under administration of almost £300bn.
Although investment markets are unsettled and may affect the near-term pace of asset and revenue growth, we are very well placed for the future. We have an excellent track record of succeeding in evolving markets and have the products, experience and proven investment performance to help our customers and clients in all of our markets to save and invest, so that they can look forward to their financial futures with confidence.
Our purpose At Standard Life we're in the business of helping build a more prosperous world. We're dedicated to making sure that everything we do helps our customers to save and invest for their future, our industry to improve and our society to progress. These things have been important to us since we were established in Edinburgh in 1825. In the past 12 months we’ve worked with our people to help shape our purpose and the core beliefs which underpin it: Advancing ambition by listening and responding to our customers, clients and our people and continually examining, evaluating and, where possible, anticipating their needs and concerns Leading industry innovation and improvement is a desire to lead the increased transparency, flexibility, responsiveness and integrity in our industry Contributing to society’s progress by creating opportunities, providing support and offering our expertise for the benefit of both individuals and the diverse communities that we touch across the world. Our purpose sets the overarching context for our strategy.
Our business priorities for our strategy are to: • Increase Standard Life Investments’ global scale and strengthen our capabilities in creating diversified investment performance • Rapidly expand our institutional and wholesale investment distribution in the US and wider North American market, including through Manulife and John Hancock • Broaden and deepen our distribution presences in the workplace and retail markets of the UK, mainland Europe and Asia • Seek to increase our stake in HDFC Life in India and grow our Asian presence.
1 Reported on a continuing operations basis. Continuing operations excludes our Canadian business which was sold on 30 January 2015 and our Dubai business, the closure of which was announced in November 2014.
2 Operating expenses consists of acquisition expenses, maintenance expenses and group corporate centre costs and are expressed as a proportion of average AUA.
UK economy improving but remains fragile • Economic growth remains fragile despite the UK having one of the fastest growing economies in the developed world in 2014 • Fuel and food prices contributed to inflation falling to 0.5% in 2014, below the Bank of England's stated target of 2% and increasing investors’ desire for a source of sustainable earnings and growth opportunities • The average daily FTSE All-Share Index rose by 4% between 2013 and 2014 with volatility in H2 2014 caused by falling oil prices, political developments in Greece and currency uncertainty in Russia • UK unemployment rates decreased to 6% in 2014, however wage inflation remained subdued.
Proposed return of approximately £1.75bn to shareholders and subordinated liabilities of £0.3bn redeemed
Uncertainty in global markets • Under deflationary pressures in the Eurozone and with limited options to reduce interest rates further, the European Central
Legislation and public policy The regulatory environment in the UK long-term savings market continues to evolve and we remain well placed to benefit from these changes: • Auto enrolment has continued to influence the UK savings market in 2014, giving millions of people access to a pension for the first time. By 2018, all UK employers will need to provide a qualifying workplace pension for their eligible employees. • In March 2014, the Department for Work and Pensions announced a cap on charges for the default funds of workplace pension schemes • Changes announced in the 2014 UK Budget introduced new flexibility for customers accessing their savings and removed the requirement to purchase an annuity • The next phase of the Retail Distribution Review (RDR) brings new regulations mainly affecting platform service providers.
Customers will pay for platform services through transparent charges deducted from their investments and platform providers cannot receive payment for these services from fund managers.
Changes in the regulatory landscape have impacted on our businesses in Asia and Emerging Markets. We announced the closure of our business in Dubai in November 2014 and in Hong Kong we are actively developing propositions to ensure compliance with new regulations.
In addition, Solvency 2 will come into force on 1 January 2016 and is a major European regulatory change initiative which will bring consistency to the way in which EU insurers manage capital and risk, with the aim of enhancing protection for consumers. We continue to work with the regulators and have enhanced our controls, risk models, technology and processes to ensure that our business is well placed to implement the necessary changes.
Outlook Standard Life Investments remains focused on delivering excellent investment performance, expanding its investment capabilities, strengthening its distribution and increasing geographic reach. The integration of Ignis is progressing well and we remain on track to achieve £50m of planned annual cost savings and our EBITDA margin target of 45% by 2017.
Following changes announced in the Budget in March 2014, we have seen a significant reduction in demand for individual annuities and consequently expect a step down in the profitability of our spread/risk business in the coming years.
The investments we have made in our UK business in recent years leave us well positioned to benefit from evolving customer needs and regulatory changes. This, combined with our investment expertise and focus on providing value for our customers, continues to drive demand for our propositions across the retail, workplace, institutional and wholesale channels. Our fee business, including our leading income drawdown proposition, is well placed for future growth. As our business in Germany continues to accelerate its transition away from with profits to unit linked products, we expect the combined profit from our German and Irish savings businesses to remain stable over the medium term.
Although investment markets are unsettled and may affect the near-term pace of asset and revenue growth, we are very well placed for the future. We have the products, experience and proven investment performance to help our customers and clients in all of our markets to save and invest, so that they can look forward to their financial futures with confidence.
As a long-term investment savings business, assets under administration (AUA) and net flows are key drivers of shareholder value. We aim to grow AUA by developing propositions that help our customers achieve their financial ambition. • Group AUA from continuing operations increased by 38% or £81.9bn to £296.6bn, primarily due to the acquisition of Ignis (£60.5bn) and favourable market movements
Group underlying cash generation is a new performance measure, replacing EEV operating capital and cash generation. It reflects our ability to generate cash that supports the payment of dividends to our shareholders and further investment in the business. • Group underlying cash generation increased by 21% or £72m to £408m, mainly due to an increase of £37m in Standard Life Investments and £30m in Asia and Emerging Markets, reflecting strong growth in cash profits
• The growth in Group underlying cash generation and Group underlying performance are closely correlated.
Find out more about these measures in Section 1.3 – Chief Financial Officer’s overview and Section 1.7 – Basis of preparation.
1 Continuing operations excludes our Canadian business which was sold on 30 January 2015 and our Dubai business, the closure of which was announced in November 2014.
1.3 Chief Financial Officer’s overview Our financial results demonstrate our ability to deliver sustainable returns for our shareholders. Continuing operations excludes our Canadian business which was sold on 30 January 2015 and our Dubai business, the closure of which was announced in November 2014.
Group operating profit before tax from continuing operations1 £604m £506m 19%
Movements in Group operating profit before tax from continuing operations of £604m include: • Fee based revenue increased by 14% to £1,433m driven by a strong demand for our fee based products and from the acquisitions of Ignis and the private client division of Newton
• Maintenance expenses increased to £767m reflecting continued product development, investment in expanding the global reach of Standard Life Investments and the acquisitions of Ignis and Newton
The Group non-operating loss from continuing operations in 2014 was £159m (2013: loss £100m). Restructuring and corporate transaction expenses of £109m included £50m relating to the acquisition, restructuring and integration of Ignis and £15m for staff pension scheme restructuring1 and other business unit restructuring programmes. The non-operating loss also includes an impairment charge of £43m on the Ignis intangible assets acquired following outflows from the Ignis Absolute Return Government Bond Fund.
Fee based revenue 1,433 1,256 Spread/risk margin 183 162 Total income 1,616 1,418 Acquisition expenses (232) (243) Maintenance expenses (767) (633) Group corporate centre costs (54) (53) Capital management 2 (10) Share of associates’ and JVs’ PBT 39 27 Group operating profit before tax from continuing operations 604 506 Group operating profit before tax from discontinuing operations 131 245 Total Group operating profit before tax 735 751
Group underlying performance from continuing operations 561 462 Operating assumption and actuarial reserving changes (Spread/risk margin) 43 44 Group operating profit before tax from continuing operations 604 506
Short-term fluctuations in investment return and economic assumption changes 15 (22) Restructuring and corporate transaction expenses (109) (71) Impairment of intangible assets (43) - Other operating profit adjustments (22) (7) Group non-operating loss before tax from continuing operations (159) (100) Group non-operating profit/(loss) before tax from discontinued operations 35 (87) Total Group non-operating loss before tax (124) (187)
Group profitability including discontinued operations Group operating profit before tax including discontinued operations, which comprises our Canadian business and our operations in Dubai, reduced to £735m (2013: £751m). Operating profit before tax from the discontinued operations in Canada reduced to £136m (2013: £251m) as a result of lower management actions. The operating loss before tax for Dubai was £5m (2013: loss £6m). Find out more in Section 1.4.4 – Discontinued operations.
Group tax expense and total tax contribution from continuing operations The tax expense attributable to equity holders’ profits in 2014 was £42m (2013: £58m) of which £82m (2013: £77m) related to operating items and a credit of £40m (2013: credit £19m) to non-operating items. The decrease in the total tax expense reflects items in the UK business that are credited to shareholders arising from the mechanism of taxation of the life business and the recognition of deferred tax assets in our Europe business. The effective tax rate decreased from 14% in 2013 to 10% in 2014.
In 2014, our total tax contribution from continuing operations to tax authorities in all the jurisdictions in which we operated was £791m (2013: £608m) of which £565m (2013: £492m) related to the UK. Of the total, £331m (2013: £262m) was taxes borne by the Group whilst £460m (2013: £346m) represents tax collected by us on behalf of tax authorities. Taxes borne and tax collected are higher than 2013 mainly due to increased corporation tax borne on investments and increased VAT collected.
Return on equity measures our success in generating profit relative to our shareholder capital. Group operating return on equity (including discontinued operations) increased to 14.9% (2013: 14.7%) reflecting increased operating profit before tax from continuing operations offset by lower profitability from discontinued operations. We will continue to manage our capital position to ensure that we generate sustainable returns for our shareholders.
Assets under administration (AUA) from continuing operations increased by 38% to £296.6bn benefiting from the acquisition of Ignis (£60.5bn) and favourable market movements: • Fee business AUA increased to £268.6bn (2013: £190.7bn) representing 91% of total AUA • Spread/risk business AUA of £16.1bn (2013: £15.1bn) increased due to favourable market movements, offsetting scheduled annuity outflows and lower annuity sales in the UK business following the recent Budget announcements
• Total net inflows from continuing operations were £1.0bn. Strong net inflows of £5.2bn in Standard Life Investments wholesale and £2.1bn in the UK and Europe business were offset by £2.6bn net outflows from the Ignis Absolute Return Government Bond Fund (ARGBF) and £2.3bn of outflows from two low revenue margin mandates. There was also £1.6bn of expected net outflows in assets managed for Phoenix Group which is in natural run-off.
Total Group underlying cash generation from continuing operations of £408m is £72m (21%) higher than 2013, reflecting strong Group underlying performance partially offset by a higher current tax expense in the UK and Europe. A segmental analysis of Group underlying cash generation is included in the Supplementary information.
• Fixed and intangible assets are adjusted – replacing the accounting charge for depreciation and amortisation in operating profit with additions (capital expenditure) in the year.
Capital management 2014 2013 Movement IFRS equity attributable to equity holders of Standard Life plc £4,672m £4,227m 11% EEV £9,163m £8,423m 9% Group capital surplus1 £2.9bn £3.8bn (24%) 1 2014 based on draft regulatory returns. 2013 based on final regulatory returns.
We welcome the positive steps in the development of the Solvency 2 regime and expect our capital position to remain strong following implementation.
Fixed and intangible assets adjustment (20) (25) Group underlying cash generation from continuing operations 408 336
Reconciliation of key capital measures The following diagram illustrates the key differences between regulatory, IFRS and EEV capital measures at 31 December 2014.
Standard Life plc cash and liquid resources £657m £907m (28%) Full year dividend (Interim and Final) £358m £376m (5%)
Liquidity management Standard Life plc holds substantial cash and liquid resources. At 31 December 2014, Standard Life plc held £300m (2013: £574m) of cash and short-term debt securities and £357m (2013: £333m) of bonds. The reduction in total Standard Life plc cash and liquid resources at 31 December 2014 was due to the transfer of funds to Standard Life Investments (Holdings) Limited for the acquisition of Ignis, which completed on 1 July 2014.
We also maintain contingency funding plans across the Group to ensure that each business unit is prepared for a liquidity issue. As part of this contingency planning, Standard Life plc, the Group’s ultimate holding company, maintains a £500m revolving credit facility with a syndicate of banks which will mature in March 2018. The Group's revolving credit facility remained unutilised during 2014.
EEV per share (including discontinued operations) 381p 353p 8% EEV operating profit after tax from continuing operations1 £669m £414m 62% EEV profit after tax from continuing operations £542m £784m (31%) 1 EEV operating profit is now disclosed on an after tax basis, comparatives have been restated.
Group embedded value Group embedded value increased to £9,163m (2013: £8,423m) representing an EEV per share of 381p. EEV per share increased by 44p before dividend distributions of 16p per share. This included EEV operating profit after tax from continuing operations of £669m (28p per share) and EEV non-operating loss after tax from continuing operations of £127m (5p per share), including a decrease of £160m (7p per share) from the impact of UK regulations that put a cap on charges for the default funds of workplace pension schemes. Discontinued operations contributed an operating profit after tax of £218m and a non-operating profit after tax of £174m, a total EEV profit after tax of £392m (16p per share). Other and non-trading adjustments contributed 5p per share, of which the largest items were £272m from remeasurement gains on staff pension schemes and negative £78m from exchange differences on translating foreign operations.
Cash dividends paid to shareholders1 (386) (656) Additional cash investments in subsidiaries (431) (97) Additional cash investments in associates and joint ventures (14) (19)
Closing 31 December 657 907 1 2014 reflects the payment of the 2013 final dividend of £252m and the 2014 interim dividend of £134m. 2013 reflects the payment of the 2012 final dividend of £230m, the 2012 special dividend of £302m and the 2013 interim dividend of £124m.
EEV operating profit after tax from continuing operations of £669m increased by 62%. EEV operating profit after tax from experience variances and assumption changes from continuing operations of £169m (2013: £7m) included £46m of favourable experience variances in the UK and Europe and £116m of positive expenses assumption changes in the UK and Europe. A reduction in new business contribution was offset by increased in-force contribution and higher profits from non-covered business.
Further financial information – analysis of Group operating profit from continuing operations 1 From 1 January 2014, Standard Life Wealth is reported as part of Standard Life Investments, previously it was reported in UK and Europe. Comparatives have been restated.
Continuing operations excludes our Canadian business which was sold on 30 January 2015 and our Dubai business, the closure of which was announced in November 2014. Further details on our businesses, including discontinued operations are included in Section 1.4 – Business segment performance.
Fee based revenue2 686 514 802 795 53 54 - - (108) (107) 1,433 1,256 Spread/risk margin - - 183 162 - - - - - - 183 162 Total income2 686 514 985 957 53 54 - - (108) (107) 1,616 1,418 Acquisition expenses - - (229) (227) (3) (16) - - - - (232) (243) Maintenance expenses2 (450) (339) (376) (358) (49) (43) - - 108 107 (767) (633) Group corporate centre costs - - - - - - (54) (53) - - (54) (53) Capital management - - 10 3 - - (8) (13) - - 2 (10) Share of associates’ and JVs’ PBT 21 22 - - 18 5 - - - - 39 27 Group operating profit before tax from continuing operations 257 197 390 375 19 - (62) (66) - - 604 506
Business unit underlying performance from continuing operations 257 197 347 331 19 - - - - - 623 528 14 Standard Life
1.4 Business segment performance 1.4.1 Standard Life Investments Financial highlights from continuing operations1,2 2014 2013 Movement Operating profit before tax £257m £197m 30% Operating return on equity 36.7% 61.1% (24.4% points) Earnings before interest, tax, depreciation and amortisation (EBITDA)3 £266m £202m 32% EBITDA margin3 39% 39% - Third party assets under management4 (AUM) £117.5bn £89.8bn 31% Total assets under management £245.9bn £170.1bn 45% Third party net inflows4 £1.7bn £9.6bn (82%) 1 From 1 January 2014, Standard Life Wealth is reported as part of Standard Life Investments, previously it was reported in UK and Europe. Comparatives have been restated. Ignis Asset Management Limited (Ignis) was acquired on 1 July 2014 and is reported in the results for 2014 for the first time. 2 Figures exclude Standard Life Investments Inc (SLI Canada) which was sold on 30 January 2015. Comparatives have been restated. Results of discontinued operations are included in Section 1.4.4. 3 EBITDA and EBITDA margin are key performance metrics for the investment management industry. These have replaced EBIT and EBIT margin metrics as management believes they are more reflective of the day to day performance of the business. 4 Excludes strategic partner life business.
Standard Life Investments continued to leverage its investment expertise and work closely with the rest of the Standard Life Group. The inclusion of Standard Life Investments product capability within Group products has been successful. We continued to explore and capitalise on further global distribution opportunities with our strategic partners including HDFC in India, Sumitomo Mitsui Trust Bank in Japan, John Hancock in the US, and Phoenix Group in the UK. This has allowed us to extend our geographical footprint with ten new international offices opening or shortly opening in New York, Los Angeles, Toronto, Munich, Tokyo, Zurich, Stockholm, Brussels, Milan and Madrid, providing closer support to our clients.
On 1 July 2014 we successfully completed the acquisition of Ignis. This transaction deepens our investment capabilities, broadens our client base, and reinforces foundations for building a business in the rapidly developing liability aware market. As a result of the transaction we also entered into a strategic alliance with Phoenix Group through which we provide asset management services to Phoenix’s life company subsidiaries, including the potential to manage books of assets that Phoenix Group may acquire in the future.
As part of the Group’s announced sale of its Canadian business to Manulife, we entered into a collaboration agreement with Manulife which improves our access to global markets and North American markets in particular. Manulife will seek to distribute our funds in Canada, the United States and Asia, an agreement which further extends our global capabilities. This is expected to more than treble total assets under management distributed by the Manulife group within three years from approximately £4bn to £12bn, building on our existing, highly successful relationship with John Hancock, the US unit of Manulife.
EBITDA 266 202 1 Figures exclude Standard Life Investments Inc (SLI Canada) which was sold on 30 January 2015. Comparatives have been restated. Results of discontinued operations are included in Section 1.4.4. 2 Excludes amortisation and impairment of intangibles acquired in business combinations which is excluded from operating profit before tax.
Operating profit before tax increased by 30% to £257m. EBITDA, our key internal measure of profitability, increased by 32% to £266m with an EBITDA margin of 39% (2013: 39%).
Ignis contributed £37m to the EBITDA and £36m to the operating profit before tax figures, including £14m of performance fees. This result excludes costs associated with the integration of Ignis into the Standard Life Investments sub-group and the impairment of intangible assets which are classified as non-operating items.
• Maintenance expenses increased to £450m, with a significant factor being the increased scale of our business following the acquisitions of Ignis and Newton. The increase in expenses also reflects the investment in growing the business and diversifying our sources of revenue both geographically and by product category. We have expanded our global footprint and invested in our operational and technology infrastructure while maintaining control of our cost base. This is reflected in the number of employees based in our overseas offices, which increased by 13% compared to 2013.
• HDFC Asset Management, our associate business, remains the largest mutual fund provider in India and contributed £21m (2013: £22m) to operating profit before tax. This reduction is due to adverse foreign exchange movements.
Investment performance Strong growth in 2014 was underpinned by excellent money weighted average investment performance across Standard Life Investments funds. 69% of third party (excluding strategic partner life business and Ignis) AUM funds were ahead of benchmark in the year with 98% ahead over 3 years and 88% over 5 years. Fixed income funds continued to perform strongly, with 99% of funds ahead of benchmark at 3 years. Our suite of multi-asset funds have outperformed their cash benchmark over all longer term time periods since inception. For Ignis, 58% of funds were ahead of benchmark or peer group over 1 year with 84% ahead over 3 years and 77% over 5 years.
Assets under management and net flows from continuing operations We remain focused on meeting the needs of existing clients and securing new business backed by consistently strong investment performance, product innovation, high levels of client service and an expanding global distribution capability.
We have revised the way we report assets under management and net flows following changes to the composition of Standard Life Investments during 2014. Our focus remains on continuing to drive growth by expanding our third party business globally. However, we are also disclosing separately strategic partner life business, which following the acquisition of Ignis includes life books managed on behalf of the Phoenix Group. This business is in natural run-off and attracts a lower revenue yield than our third party book.
Third party1 AUM increased to a record £117.5bn (2013: £89.8bn) representing 48% of total AUM (2013: 53%). Strategic partner life business AUM increased to £128.4bn (2013: £80.3bn). As a result, total AUM reached a record £245.9bn (2013: £170.1bn).
Wholesale Our Wholesale business, where we sell our retail products through wholesale distributors, continued to perform well with net inflows in 2014 at £5.2bn (2013: £5.2bn). Flows have been strong in MyFolio, equities, real estate and multi-asset strategies. Demand for our mutual funds in the UK and for our SICAV funds in continental Europe and Asia Pacific remains strong.
Institutional Our institutional business, where we sell to institutions either directly or through intermediaries, has seen net inflows of £0.8bn in 2014 (2013: £3.9bn), despite £2.3bn of outflow from two low revenue margin mandates. Our pipeline of institutional business continues to see fixed income, real estate and multi-asset propositions attract considerable interest, increasingly from outside the UK.
Wealth Standard Life Wealth continues to develop and we expect it to gain momentum in the market place. The reduction in net inflows to £0.0bn in 2014 (2013: £0.5bn) was an initial consequence of the acquisition of Newton. Ignis Ignis third party1 business saw net outflows of £4.3bn, including £2.6bn from ARGBF, £1.0bn from volatile liquidity funds and £0.7bn from fixed income mandates. The ARGBF outflows followed the restructure of the absolute returns team within Ignis and these outflows impacted the valuation of the intangible asset recognised on acquisition of Ignis. As a result, an impairment charge of £43m has been recognised. Strategic partner life business Overall strategic partner life business net outflows increased to £4.0bn (2013: £3.2bn). Phoenix Group, the acquired Ignis life business had net outflows of £1.6bn. This business is in natural run-off and the outflow was in line with our expectations. Net outflows from Standard Life Group reduced to £2.4bn (2013: £3.2bn).
Assets under management and net flows from continuing operations Net flows AUM 2014 2013 2014 2013 £bn £bn £bn £bn
• AUM in our Global Equity Unconstrained Fund broke through the £100m mark. The Fund has produced top quartile performance in its sector over a one year period and top decile over three and five years.
Maximising revenue with continued shift in product mix towards higher margin propositions
• Continued to collaborate across the Group to maximise the Group’s share of the value chain, for example our market-leading range of MyFolio risk based funds, used extensively within the long-term savings and investments businesses, remain very popular with AUM of £5.9bn
• Short Duration Credit Fund was launched in 2014 to take advantage of investment demand for funds with less vulnerability to a rise in interest rates
Managing unit costs while investing to extend geographical footprint and support future growth
• Operating expenses expressed as a proportion of average total AUM were 22bps (2013: 21bps). This reflects the ongoing development of our investment capability and expanding distribution and geographic reach. This metric will continue to be closely managed as we move to deliver 45% EBITDA margin by 2017.
• Continued investment to extend our geographical footprint with ten new international offices opened or shortly opening in New York, Los Angeles, Toronto, Munich, Tokyo, Zurich, Stockholm, Brussels, Milan and Madrid, providing closer support to our clients
• Investment in core operational and technology infrastructure to support future growth • Sponsorship of the Ryder Cup extended the global reach and familiarity of our brand • Ongoing management of costs, combined with expansion in revenue margins, has resulted in a 20% compound annual growth in EBITDA over the last seven years.
Awards and recognitions • Standard Life Investments won the principal Large Investment Group award at the Investment Adviser 100 Club Awards for the second consecutive year. Also for the second year running, we completed a hat-trick of wins at the awards, having won the top awards in the UK equity income category, for our Standard Life Investments UK Equity Income Unconstrained Fund, and the Property category for the Standard Life Investments Property Income Trust Limited.
• Won the Multi-Asset Manager of the Year category at the Financial News 2014 Awards for Excellence • Standard Life Equity Income Trust won Best Investment Trust for Income at the What Investment Trust Awards • Multi-Asset Manager of the Year and Fixed Income Manager of the Year at the Professional Pensions awards 2014 • Global Absolute Return Strategies Fund won the award for the 2013 best Multi-Strategy UCITS absolute return fund at the 2013
UCITS Alternative Index (UAI) Awards. The award was based on the Fund’s three-year performance to 31 December 2013. • Celebrated success at the Moneywise Fund Awards 2014 winning the UK All Companies sector award for the second consecutive year for the consistently strong performance of our UK Equity Unconstrained Fund • Won the UK Equity Manager of the Year category at the Professional Pensions Investment Awards • Harry Nimmo, Head of the smaller companies’ investment team was named Fund Manager of the Decade at the Quoted
Company 10th anniversary awards. The shortlist was chosen from those who have achieved the highest ten-year total returns from investing in smaller UK companies. Consistency of performance, risk-adjusted returns and the success of each Investment Trust in beating its peer group and the market were all considered.
1.4.2 UK and Europe Financial highlights1 2014 2013 Movement Operating profit before tax2 £390m £375m 4% Operating return on equity2 21.8% 20.2% 1.6% points Assets under administration2 £145.9bn £135.1bn 8% Net flows2 £2.1bn £1.1bn 91% EEV operating profit after tax3 £569m £381m 49% 1 From 1 January 2014, Standard Life Wealth is reported as part of Standard Life Investments, previously it was reported in UK and Europe. Comparatives have been restated. 2 Institutional pensions managed by Standard Life Investments are now excluded from UK and Europe results. Comparatives have been restated. 3 EEV operating profit is now disclosed on an after tax basis, comparatives have been restated.
Strategic overview Our UK and Europe business is a leading provider of long-term saving and investment propositions including self-invested and workplace pensions, individual savings accounts, investment bonds and mutual funds. We have the clear objective of being our customers’ first choice for their life savings and we will achieve this by providing engaging, digital-led savings with the flexibility to adapt to customers’ needs over their lifetimes. We remain focused on offering our customers, advisers, employers and employee benefit consultants the support and choice to help them advance their ambitions and help build a more prosperous world. Our multi-channel approach, including our world-class investment products in collaboration with Standard Life Investments, allows us to engage with our customers across the value chain, benefiting our customers, our business and Standard Life Group as a whole.
These new pension flexibilities, along with the continued rise of defined contribution arrangements, will create a generation of individuals that will see advice as an essential service. We anticipate that demand for advice will outstrip supply. To help fill this gap we are building our own UK-wide advice service and will accelerate the growth of this business through the acquisition of progressive financial advice firms which align well with our operating model. We have entered into an agreement to acquire the established advice firm Pearson Jones plc, and expect to complete the acquisition in the second quarter of 2015.
In March 2014 the Department for Work and Pensions announced a cap on charges for the default funds of workplace pension schemes, as well as a ban on active member discounts. We will be ready to support employers and advisers to implement these changes by April 2015.
• Acquisition expenses reduced by £3m to £178m and maintenance expenses increased by £29m to £278m. A provision of £17m was included in maintenance expenses relating to the refund of historical payments from the Heritage With Profits Fund. Expressed as a proportion of average AUA, operating expenses decreased to 42bps (2013: 43bps) as we continue to benefit from the scalability of our business.
• Capital management increased to £11m (2013: £3m) including an improvement in the net cost of financing subordinated liabilities due to investment in higher yielding assets.
Fee based profit contribution increased by 5% to £370m (2013: £353m) with a continued benefit from scalability in our newer style retail propositions and a steady contribution from older style retail propositions and corporate.
Spread/risk contribution increased by 18% to £167m (2013: £142m) with the impact of decreased annuity new business sales as a result of the Budget announcements offset by ongoing asset and liability management and cost efficiencies.
UK Europe UK and Europe 2014 2013 2014 2013 2014 2013 £m £m £m £m £m £m
Analysis of UK and Europe operating profit before tax 2014 2013 £m £m
UK and Europe underlying performance 347 331 Operating assumption and actuarial reserving changes (Spread/risk margin) 43 44 UK and Europe operating profit before tax 390 375
UK operating profit before tax 350 330 1 Profit contribution reflects the income and expenses directly attributable to each of the UK lines of business. It differs from operating profit due to the exclusion of indirect expenses, such as overheads, and capital management.
EEV operating profit UK and Europe EEV operating profit after tax increased 49% to £569m (2013: £381m) due to improved non-economic assumption changes driven by lower renewal expense assumptions, offset by lower new business contribution from annuities and of Standard Life Investments’ institutional pensions. There was an EEV non-operating profit impact in the period arising from the £160m provision to reflect the future charge cap on qualifying workplace pension schemes announced by the Department for Work and Pensions. Operating return on equity UK and Europe operating return on equity increased to 21.8% (2013: 20.2%) reflecting a £19m increase in operating profit after tax to £347m (2013: £328m).
UK spread/risk AUA increased to £15.5bn (2013: £14.6bn), with positive market movements offset by an increase in net outflows to £0.9bn (2013: £0.7bn) as our new annuity sales were impacted by the changes to annuities regulations in the 2014 Budget. Many customers are choosing to defer their retirement decisions, while others have taken advantage of enhanced triviality limits. It will take some time for the long-term market trend to become clear, however we anticipate some customers will continue to value the certainty of retirement income provided by annuities which will remain a key component of our retirement proposition.
• Our corporate business continues to add new customers through auto enrolment and we have enrolled over 340,000 (2013: 220,000) new customers in 2014. Inflows from these customers are anticipated to increase when total auto enrolment contribution rates increase from the current minimum of 2% to 5% in October 2017, and 8% in October 2018.
• Our distribution agreement with RBS continues to attract assets to our Wrap products with AUA reaching £368m (2013: £203m) • Grew our fee based AUA in Germany to £8.8bn (2013: £7.4bn) and launched our new 50+ ParkAllee product making us one of the first savings providers to offer a flexible commission model fitting into the post Life Insurance Reform Law market.
Net flows AUA 2014 2013 2014 2013 £bn £bn £bn £bn
Corporate pensions 2.2 2.0 32.0 29.2 UK retail and corporate fee business 2.9 2.2
• We will be ready to deliver the flexibility and choice our customers expect when the 2014 Budget pension reforms come into effect in April 2015. We have contacted 450,000 customers aged over 50 to reassure them that, as the biggest drawdown provider in the UK, we are well placed to help when they need us.
• Continue to lead the way in customer engagement with our retirement communications and roadshows starting some 10 years before retirement. Our wide retirement proposition range, including SIPP, drawdown and annuities provide customers with the options required to meet their individual needs and lifestyles.
Lowering unit costs through automation and greater operational efficiency Through leveraging the use of technology and focusing on our customer operations, we have been able to deliver economies of scale along with improvements in customer experience. Examples of this include: • Our Good to Go service for auto enrolment secured over 1,100 schemes in 2014. Our ability to process schemes on the same day as application demonstrates the scalability of our business at a time when the industry is facing capacity constraints. • Direct to customer ISA launched this year which offers customers a simple online investment journey. 70% of cases are now written online using straight through processing compared to 28% of ISA cases in 2013. • New online customer journey which enables customers to consolidate and engage more with their savings. • Launched our new UK customer website to provide customers with a simple, helpful and engaging experience • Grew our customer email address database by 60% to over 1 million (2013: 610,000). Increased digital communication is enhancing our customer communications, generating process efficiencies and also benefiting the environment through reduced use of paper.
Awards and recognition • Platform of the Year 2014 at the Aberdeen Platform of the Year Awards • Best Large Platform Provider at the Aberdeen Platform of the Year Awards • Best SIPP Provider at the Shares Awards 2014 • Awarded the ‘Best Customer Insight and Feedback – A Different Perspective’ award for the cross-industry UK Customer
1.4.3 Asia and Emerging Markets Financial highlights from continuing operations1 2014 2013 Movement Operating profit before tax £19m - - Operating return on equity 9.2% 0.6% 8.6% points Assets under administration £2.5bn £1.9bn 32% Net flows £280m £307m (9%) EEV operating profit after tax2 £34m £18m 89% 1 Excludes our Dubai business, the closure of which was announced in November 2014. Comparatives have been restated. Results of discontinued operations are included in Section 1.4.4. 2 EEV operating profit is now disclosed on an after tax basis, comparatives have been restated.
Strategic overview Our Asia and Emerging Markets business consists of our life joint ventures in India and China and our wholly owned operations in Hong Kong and Singapore. Our wholly owned operation in Dubai, the closure of which was announced in November 2014, is included in Section 1.4.4 – Discontinued operations.
In October 2014, we signed a Memorandum of Understanding with the Industrial and Commercial Bank of China Limited (ICBC), agreeing to work together to identify opportunities of mutual benefit in the UK, China (including our joint venture, Heng An Standard Life) and Hong Kong. We will work with ICBC, one of the world’s largest banks and a key player in the Chinese savings market, to focus on developing broader co-operation in the areas of savings and investments solutions. The Asia Advisory Board, which we established in 2013, continues to provide guidance and support for all our business across Asia and will follow the developments of this agreement.
Changes in the regulatory landscape have impacted our operations in Hong Kong and Singapore. A key area of focus in Hong Kong is to develop new propositions to meet the needs of our wide range of customers, including those in mainland China, and ensure compliance with new regulations. This requires a refinement of our operational model beyond the current regulatory and market practice and is expected to promote further transparency and create a more sustainable business.
In China, the economy is showing signs of stabilising over recent months, however concerns of a slowdown continue. The life assurance sector has seen stable growth in premium sales in 2014. The local regulator issued guidelines in 2014 covering investment and bancassurance which aim to enhance customer protection and company risk management. Also, details on new solvency regulations for Chinese insurance companies were released during the second half of 2014, with the implementation date currently anticipated to be 1 January 2016. We believe that Heng An Standard Life is well placed to meet the challenges posed by the ongoing regulatory changes.
In Hong Kong, the Office of the Commissioner of Insurance issued a guidance note in relation to the underwriting of investment linked business comes into effect from 1 January 2015. In response to these changes, we have reviewed our propositions and have been successful in gaining regulatory approval for two new single premium investment products, Aspiration and Fortuity. Both products will be launched in Q1 2015. We continue to reassess our propositions to ensure they continue to meet the needs of the growing affluent and wealth segments in Hong Kong and cross-border from China.
The first phase of revised regulations in Singapore began in January 2015, with a second phase due mid-2015. Both phases will impact how we do business with Independent Financial Advisors (IFAs) and the propositions we can offer. We continue to review our response to these developments.
1. Strategic report continued 1.4 Business segment performance continued 1.4.3 Asia and Emerging Markets continued
EEV operating profit after tax Total EEV operating profit after tax increased by £16m to £34m. This comprises £35m (2013: £21m) from our joint venture businesses, due to positive impact of modelling and assumption changes, and a loss of £1m (2013: loss £3m) from our wholly owned operations. Operating return on equity Operating return on equity for our total Asia and Emerging Markets operations was 9.2% (2013: 0.6%) due to improved operating profit before tax.
Assets under administration and net flows Total AUA increased by 32% to £2.5bn, comprising a 31% increase for our joint venture businesses to £2.1bn (2013: £1.6bn) and £0.4bn (2013: £0.3bn) for our wholly owned operations. This was driven by continued good net inflows of £193m (2013: £231m) in India and China and net inflows of £87m (2013: £76m) in Hong Kong and Singapore.
• HDFC Life’s operating expense ratios continue to decline and compare very favourably among its peer group.
Insurance Awards 2014 • Our wholly owned business in Hong Kong was awarded Best for adviser support/customer service and Best online proposition in the Asia category of the International Adviser Life Awards 2014.
Asia and Emerging Markets operating profit before tax 19 - 1 Excludes our Dubai business, the closure of which was announced in
1.4.4 Discontinued operations Discontinued operations for segmental reporting comprise our Canadian business which was sold on 30 January 2015 and our Dubai business, the closure of which was announced in November 2014.
On 30 January 2015, we successfully concluded the sale of our Canadian business, comprising our Canadian long-term savings and retirement, individual and group insurance business (Canada) and Canadian investment management business (SLI Canada) to Manulife, for a fixed consideration of C$4.0bn (£2.2bn including related hedging derivative contracts). We expect the gain on the sale to be approximately £1.1bn and this will be reflected in our IFRS results in 2015. We have been present in Canada for over 180 years and our Canadian long-term savings business is one of the oldest and most successful in the country. We have successfully maintained our market-leading position in retail segregated funds net flows. In recent years, management has been pursuing a strategy to re-orientate the Canadian business towards a less capital intensive, fee-based revenue business, which has been consistent with our overall Group strategy. Whilst we recognise good progress had been made against this strategy, we believe that the corporate pensions and retail savings businesses in Canada are attractive but highly competitive. We believe that our sale to Manulife is more likely to maximise value for our shareholders than retaining the business and pursuing an independent strategy in Canada. The sale is consistent with our Group strategy and continued focus on growing fee based business and it reduces our exposure to spread/risk business. The expanded relationship with Manulife deepens Standard Life Investments’ ongoing access to Canadian, and wider global, distribution.
The key movements in operating profit were: • Fee based revenue increased by 6% (19% in constant currency) to £215m mainly from higher average AUA • Spread/risk margin decreased by 46% (39% in constant currency) to £191m as specific management actions were not pursued following the sale announcement (2013: £42m) and regular management actions, including investment yield enhancements, reduced to £25m (2013: £49m). In addition, one-off actuarial reserving changes generated a loss of £1m (2013: gain £24m) and overall adverse experience also impacted spread/risk margin.
Lowering unit costs 1.5 Principal risks and uncertainties Our strategic objectives and our performance against them are subject to a number of financial and non-financial risks, including conduct risk. The table below sets out the principal risks and uncertainties that affect our business model. Further detail on our risks and our management of these risks is included in Note 42 – Risk management. The framework that we use to manage our risks is set out in the Corporate governance section.
Find out more about some of the terms used in this report in the glossary.
Adverse fluctuations in financial markets impact our fee and spread based business and our optimisation of the balance sheet
• For all investment portfolios benchmarks are set appropriate to the liabilities. This includes consideration of appropriate diversification and quality of assets held.
• We use a combination of cash flow and duration matching techniques when determining the investment portfolios for spread business
• Hedging is used to reduce our sensitivity to fluctuations in financial markets. This includes managing the level of risk within the UK and German with profits funds, in line with the Principles and Practices of Financial Management and the need to treat policyholders fairly.
Changes in our principal risks and uncertainties The main principal risks and uncertainties are largely unchanged over 2014, although the size and source of some of these risks have been impacted by activities during the year. This includes the sale of our Canadian business to Manulife, the acquisition of Ignis and the significant reduction in German yields.
The vote against Scottish Independence has reduced political uncertainty but there remain a number of areas of political risk including in relation to further devolution within the UK and a potential referendum on the UK’s position within the EU.
Customer demand for our fee based propositions declines or fails to materialise
Adverse experience regarding our longevity assumptions impacts our spread based business
Some types of asset, for example debt securities, expose us to the credit risk that the counterparty to those assets defaults. Fee based business – Losses arising from counterparty failure will cause AUA to fall, potentially resulting in lower fee based revenue.
Spread business – Cash and cash equivalents, debt securities and commercial mortgages are held to back liabilities in respect of spread business. The business also uses derivative and reinsurance transactions. This exposes the business to the risk of loss from these counterparties.
Optimisation of the balance sheet – Cash is held for liquidity purposes, debt securities are held to back subordinated debt and derivatives are used for hedging purposes leading to exposure to losses from counterparty failure.
Risk from annuities arises due to the inherent uncertainties regarding the occurrence, amount and timing of cash flows to customers. Longevity risk, a type of demographic risk is the risk that mortality experience differs from that previously expected, there is more volatility in mortality experience than previously expected or the rate of mortality improvements is greater than expected. The impact of this risk could be positive or negative.
Adverse experience in these areas could result in our spread business having larger cash outflows or cash outflows that were not anticipated.
• Internal credit assessments are used to determine the credit-worthiness of money market and derivative counterparties
• Internal credit assessments are used to assess reinsurance counterparties that give rise to material credit exposures. Counterparty exposures are collateralised where appropriate.
• Where considered appropriate, the Group will put in place additional restrictions, for example on exposures arising from specific countries that give rise to credit concerns. Such restrictions were implemented in advance of and during the recent global financial crisis.
• We manage the risk that customer demand for our propositions declines or fails to materialise by being a customer focused business providing propositions that build trust and relationships with customers, using fair and transparent pricing and innovative communication
• We have reinsurance arrangements in place which reduce the risk and uncertainty in this area by transferring longevity risk to third party reinsurers
• The business actively monitors opportunities to implement further reinsurance or capital market transactions to reduce the risk arising in the back book
• We monitor emerging research and guidance on longevity, for example from the UK-based Office for National Statistics and the industry-wide Continuous Mortality Investigation. This activity allows the business to anticipate developing trends and allows consideration to be given to further back book management or pricing changes where new business is being written.
Impact The Group’s businesses are subject to conduct and prudential regulation and legislation applicable to the countries in which they operate.
Regulatory and legislative changes also have the capacity to impact on our business model through impacting customer demand and preferences for specific propositions, imposing requirements related to our ability to offer certain propositions, the attractiveness of our propositions and the fees we charge our customers for our propositions. These impacts can be both positive and negative.
The Group’s business model involves reliance on a number of outsourcing partners for the provision of key services including the outsourcing by Standard Life Investments of certain back office functions related to investment management.
The Group may also suffer delays in establishing the necessary processes to perform the activity in-house or in finding a replacement partner which leads to an inability to conduct business for a period of time.
• This meant that when the charge cap for workplace schemes in the UK was introduced in March 2014, we were well placed to help employers respond as we have been developing our pricing for workplace schemes over a number of years
• An example of legislative change expected to have a positive impact for us are the changes announced in the 2014 UK Budget. Whilst these changes have adversely impacted annuity sales, this is mitigated by our strategic focus on long-term savings and investments and our existing strength in drawdown propositions which are designed to meet the needs of customers in decumulation.
• The Group outsourcing policy defines the standards that the business must comply with to mitigate the risk of entering into inappropriate outsourced contracts and to implement sufficient controls to ensure risk is managed throughout the lifecycle of the arrangement. As part of the Group policy framework, the business is required to confirm and evidence compliance with the standards contained in this policy on a regular basis.
Failure to execute change adversely impacts our risk profile and delivery of our strategy
The systems and processes on which the Group is dependent to serve customers are designed to ensure that the operational risks associated with the Group’s activities are identified and addressed.
This may lead to the Group incurring increased costs in implementing responses to the IT security issues. In extreme circumstances it is possible that our ability to conduct business may be impacted for a period of time and customer confidence may be damaged.
The Group runs a significant change programme that seeks to ensure we create shareholder value through being a leading, customer centric business focused on longterm savings and investments.
It includes change initiatives that are driven by external factors such as customer demand, market conditions, competitor activity and regulatory and legislative changes.
Failure to successfully execute change may adversely impact our risk profile, for example through increased costs where changes have been ineffective or inefficient, and may mean we are unable to deliver our strategy.
The result of the Scottish independence referendum on 18 September 2014 in which the Scottish electorate voted to remain within the UK has reduced the level of political risk in relation to our business.
• The threat landscape continues to evolve with regard to the tools, techniques, procedures and focus of threat ‘actors’ (including organised crime, hactivists and hackers). The threat across industries was well documented in the media during 2014-15.
• We monitor changes to this threat, working with specialist third parties and information sharing partnerships to help us better understand how it affects Standard Life given an increased awareness of the group’s brand, pension reforms and the changing nature of our digital offering.
• We carry out change risk management as part of our operational risk management framework and change process. This provides a robust and established framework under which the business is required to identify, assess, control and monitor risks associated with change.
• We continue to closely monitor and constructively engage with the process of constitutional change across the UK in the best interests of our customers and other stakeholders
1. Strategic report continued 1.6 Our sustainable business overview Our Group’s purpose is to help build a more prosperous world. A big part of this is providing people from different backgrounds with ways to achieve their long-term ambitions – whether it’s through our products and services, the work we do in our communities, or the way we support our employees. It’s also about setting an example for our industry, such as through investing and managing money responsibly. Our commitment to being a sustainable business plays its part in each of these areas, and is a key driver in shaping our Group’s strategy. Our progress across our sustainability strategy’s five areas of focus can help us to create a positive outlook for our different stakeholder groups – and to continue growing responsibly as a long-term investment savings business.
Reviewing our sustainability strategy We take the time to regularly listen to our stakeholders to ensure that our sustainability approach continues to focus on the right things. In 2014, we carried out a review of our main sustainability priorities, talking to many different internal and external stakeholder groups about what’s important to them. These stakeholders included our customers, our people, shareholders, industry analysts, regulators and the media.
Creating a meaningful customer experience The rich insight we gather helps us to make improvements to our service – particularly what we provide online. We saw a number of examples of improvements during 2014: • We completely redeveloped our UK retail website – www.standardlife.co.uk – with each stage of development based on customer feedback • Customers can access some of our services via apps on mobile devices – and we launched new apps to help customers in
Supporting business to help people save for their future To help make it easier for companies to set up pension schemes for their employees, we’ve been working to make sure we can keep up with demand more quickly and efficiently. Our Good to Go proposition, for example, aims to help take the burden from smaller companies by letting them set up fully compliant workplace pension schemes online in just six minutes. Our work on Good to Go led to us winning Auto Enrolment Innovation of the Year at the 2014 UK Pensions Awards, for the second year in a row. Read more about the other awards we have won in Section 1.4 – Business segment performance.
Innovation and transparency in pricing From the feedback our stakeholders give us, an important area for our Group to focus on is making sure that we are transparent about our approach to pricing. We believe that this is an area where we can still do better, and we continue to work towards innovating and improving. We also look to build relationships with regulators in the places where we operate, working together to build a more prosperous world for our customers.
In April 2014, our Wrap platform became the UK’s first fully unbundled major adviser platform for both existing and new business. This means that all new platform business is done using clean (or unbundled) funds – where no commission or cash rebates are paid to fund groups or advisers, and charges are clearly disclosed. It’s also helped drive down the cost of investing. By doing this now, we are two years early in meeting the new platform regulations that the Financial Conduct Authority (FCA) has put in place. Our aim in working to this early deadline has been to help IFAs so they can get on with running successful, sustainable and profitable advice businesses.
Building relationships with our customers We launched a new programme in 2014 to pull together the data we hold on our UK and Ireland customers into a single, complete picture. This has helped us improve our data quality, governance and analytic capability to ensure we can talk to customers at the right time, and about the right things. Consequently, our communication capability has shifted significantly, with access to our customers by email increasing from 4% in 2013 to 30% in 2014. This resulted in an increase in the number of communications we have with our customers on topics that matter to them.
We believe we can strengthen our customer relationships by supporting positive change in our industry. One way we have done this recently is by sharing our knowledge on pension legislation. In September 2014, the UK Chancellor of the Exchequer announced the immediate scrapping of a 55% tax on inherited pensions – something that we had been actively lobbying for. We sent letters and emails with details of the changes to customers who were still within the period of time that they could choose to cancel the product they’d applied for with us. We wanted to help them make sure they had all the information they needed to make a decision that was right for them.
Our relationships with our customers extend to more than simply helping with financial matters. In Ireland we launched The New You, a guide to help customers approaching retirement plan for the next phase of their lives. It includes hints and tips on staying healthy, happy and financing life after retirement.
You can read more about each of these in Section 1.4 – Business segment performance.
Running a business responsibly also means staying alert to risks that could lie ahead in our markets, and what this could mean for everyone involved. An example of this was our monitoring of the constitutional debate around the Scottish independence referendum. Our main consideration was the interests of our customers, clients and shareholders, and whether these and the sustainability of our business would be put at risk by constitutional change. We made it clear that if we felt this would be the case, we would do whatever we considered necessary to protect their interests and our competitive position.
To help grow our business in a sustainable way, it’s important that we continually consider our overall competitiveness, which includes the prices we offer our customers and our operating costs. One area of focus in 2014 was making sure that the rewards and benefits we offer our people remain competitive and consistent. We proposed changes to the way we will provide employee pensions, one of our biggest costs – so that we can offer an attractive but more sustainable way of helping our people achieve their retirement ambitions. We understand that this could mean big changes for many of our people. As a result, we’ve worked to provide our people with all the information they need to understand what the changes would mean for them, and to answer the questions they have.
1. Strategic report continued 1.6 Our sustainable business overview continued Our influence and leadership Wherever we operate around the world, we believe we have an important role to play in using our influence to encourage positive change in society. For our customers, it’s about giving them the means to fulfil their ambitions through a positive financial future. We’ve seen some great examples of how we can give them the support they need in an engaging way, such as online: • Our portal for UK customers, offers expert perspectives and articles on saving for the future – and we’ve used its MoneyPlus blog, for example, to educate customers about the new rules on taking flexible pension withdrawals instead of annuities • Our Head of Customer Affairs became a guest author for external publications in the UK, offering tips for new parents on family finance • Through blogs and educational events we supported Good Money Week, a national campaign to raise awareness of sustainable, responsible and ethical finance. With our own people, we’ve used our expertise to make sure that they have the knowledge and confidence to take control of their financial future. We offer products and services at preferential prices for employees and their families, including pensions, savings, and investments and protection products. We’ve also offered information sessions to educate our people on other important elements of planning for their future.
We believe we have a responsibility to help the communities around us too. We’ve continued to play a leading role in our industry around our approach to employability, particularly in creating opportunities for young people. There’s more on this in the Our community section below.
We continued and expanded our work to offer young people opportunities to begin their working or academic lives. Across Standard Life Investments, we placed eight young people in a programme that offers a 12-month paid internship. We’ve also maintained our support of Edinburgh City Council’s Edinburgh Guarantee programme, offering 39 young people paid work experience for six months across our Edinburgh offices during 2014. With support from The Prince's Trust, we've been piloting a similar programme across the UK, offering a further two placements in our London offices and one in our Glasgow office. We placed three young people through our 12 month paid modern apprenticeship scheme, giving them a broad insight into our IT operations. We also supported Leonard Cheshire Disability’s Change 100 scheme, giving a paid internship to a graduate with a disability. Each of these initiatives has improved the number of employees we have in the UK who are under the age of 25 – from 0.5% of our employees in 2010 to 5.4% in 2014 – helping us to also widen the diversity and perspectives we have among our people.
We’ve also been supporting charitable initiatives that link schools and colleges with employers to help prepare young people for working life. Our support has involved offering a number of school pupils mentoring opportunities with some of our senior people.
We also supported Living Wage Week, a UK-wide initiative to raise awareness of the topic. For us this involved hosting a breakfast for business leaders, politicians and charities to raise awareness and promote thought leadership in this area. Our work to support the Living Wage resulted in us being shortlisted for the Living Wage Champion award, which recognises the contributions of accredited employers to communities and industries by implementing and celebrating the Living Wage.
Charities and fundraising Several charities are benefiting from our employability work, and our people take part in a vote to tell us which charities we should support. For the charity partners we chose for 2014-2015, we kept our focus on helping people achieve their potential and on improving prospects in our communities. In 2014, our people raised £156,080 for our charity partners (continuing operations only).
Supporting graduate development continues to play a key part in our future growth. Through our group-wide graduate programme for 2014, we hired candidates in the UK, Hong Kong and Canada. We took on our largest number of summer interns too, and we have continued to see a strong trend for interns progressing onto the full graduate programme. Our interns programme made the prestigious Top 100 list of best intern employers by Rate My Placement, a leading UK undergraduate work experience website.
We believe great performance should be rewarded and we aim to make the process to do that clear to everyone. We want all our people to plan and save for the future. Our approach continues to support our reward principles by linking pay to performance and ensuring our remuneration remains competitive in the markets in which we operate.
Engaging our people In 2014, 87% of our employees completed our employee engagement survey, InterAction. We’ve seen a definite and positive shift in the results and the positive themes that have been emerging – such as growing trust and confidence, and increasingly positive views about our products. Our areas of development include continuing to work on how to get things done, managing employee underperformance and career development. One of the immediate actions was our decision to focus on career development (see section above).
To promote a healthy work environment, we signed up for the Global Corporate Challenge healthy living initiative. For the third year running, we achieved a top ten finish out of the 1,200 organisations that took part – including the top position in our sector. This year we reviewed our policies to ensure we offer our people the best possible support when it comes to looking after their families. We extended the help we give to employees who are carers, in recognition of the particular challenges they and their families can face. This includes flexible working, unpaid leave arrangements and a new option of taking carers' leave.
Diversity and inclusion in the workplace We have always promoted a culture that embraces diversity, fairness and equality. Our approach remains consistent with both United Nations and International Labour Organisation standards.
We also launched a facility where our people could, voluntarily, give additional personal details about marital status, sexual orientation, ethnicity, religion or belief and disability on their secure online personal record. This initiative is still in its early days and our aim is to use the data – which we will keep anonymous – to identify improvements to processes, policies and help shape a more inclusive environment where our people can progress.
Our gender balance From the 8,697 people our Group employs (as at 31 December 2014), 50% (4,389) are female and 50% (4,308) are male – and our talent pipeline continues to reflect a balanced male/female mix as well.
While gender diversity is improving within our talent programmes, we still have some work to do to improve female representation at senior levels. Helping more females progress from our talent programmes to senior roles remains a strong focus for us.
Among the total of 107 senior managers in our Group (this includes the directors of our consolidated subsidiaries, members of our Executive job family and members of our Senior Leadership Group) as at 31 December 2014, 87 are male (81%) and 20 are female (19%) (2013: males 82%, females 18%).
5. Our environment Doing the best we can for the world around us also means managing our impact on the environment, which falls into four main areas. Two of these make up our biggest impact: the greenhouse gas emissions from the energy we consume in our buildings, and from the business travel we do (air and rail). The waste we produce and the paper we use are the two other main areas we focus on. This is because they are our most visible areas of impact, making them more meaningful to our people and our customers. We’ve continued an educational programme to help bring all of these aspects to life for our people, and to show them ways in which they can help us achieve our ambitious targets.
FTE / Tonnes CO2e ratio4 Ratio 3.28 3.68 (2%) (11%) 3.50 3.75 (2%) (7%)
% joining our graduate programme in 2014 55% 45% % joining our Emerging Leaders Development Support (ELDS) programme in 2014 42% 58% % joining our Accelerated Development Support (ADS) programme at Senior Leader level in 2014 58% 42% % of all people on ELDS and ADS programmes as at 31 December 2014 67% 33%
Measurement and targets In 2013 we began to develop a long-term set of high-level targets, which we would then work towards reaching by 2016. We now have plans in place to achieve them. For each of our material themes we are developing a number of commitments, and implementing measures to find out how we’re performing against these. We track our performance by looking at our direct and indirect impact on each topic area, as well as how we are influencing more widely on that topic. This plays an important part in being a leader in sustainability. This is something that we displayed in 2014 by maintaining a strong position in the FTSE4Good and the Dow Jones Sustainability Indices. These are external benchmarks that assess our sustainability each year, and performing well in these helps us to lead by example in our industry.
Through sustainability key performance indicators (KPIs), assured by independent experts PricewaterhouseCoopers LLP, we have begun to introduce these measures into our external sustainability reporting during 2014. We will continue to build on these KPIs during 2015: • Net Promoter Score • Customer complaints • Environment, social and governance engagements • Voting at shareholder meetings of investee companies • Total direct employed through employability programmes • Total funds raised by our people • Carbon footprint • Group capital surplus (IGD surplus) • Diversity in the talent pipeline • InterAction employee survey results.
1. Strategic report continued 1.7 Basis of preparation Overview Our Strategic report for the year to 31 December 2014 has been prepared in line with the Companies Act 2006 and the Disclosure and Transparency Rules (DTR) issued by the FCA. Under section 414 of the Companies Act 2006, DTR 4.1.8 and DTR 4.1.9, the Group is required to provide a fair, balanced and understandable review of the business and a description of the principal risks and uncertainties facing the Group. Principal risks and uncertainties are detailed in Section 1.5 – Principal risks and uncertainties and further information on these is contained in Note 42 – Risk management of the IFRS consolidated financial statements. To provide clear and helpful information, we have also considered the voluntary best practice principles of the Reporting statement: Operating and Financial Review issued by the Accounting Standards Board in 2006 and Guidance on the Strategic report issue by the Financial Reporting Council in 2014.
The most important non-GAAP measures in the Strategic report include operating profit, assets under administration and Group underlying cash generation. All non-GAAP measures should be read together with the Group’s IFRS consolidated income statement, consolidated statement of financial position and consolidated statement of cash flows, which are presented in the Group financial statements section of this report.
Kenneth A Gilmour, Group Company Secretary Standard Life plc (SC286832) 20 February 2015 36 Standard Life
Luke Savage Chief Financial Officer Age: 53 Tenure: appointed August 2014 Nationality: British
Qualifications: Electrical and Electronic Engineering degree (BEng), Imperial College, London. Member of the Institute of Chartered Accountants in England and Wales.
David Nish Chief Executive Age: 54 Tenure: 8 years Nationality: British
Our business is managed by our Board of Directors. Biographical details of the Directors as at 20 February 2015 are listed below. Board of Directors
Appointed Chairman in May 2007, having been deputy chairman since March 2006. He became a director of The Standard Life Assurance Company in July 2003. Sir Gerry is chairman of TheCityUK, the representative body for financial and related professional services in the UK, an independent, public interest, non-executive board member of Deloitte LLP and the lead non-executive at the Ministry of Defence. Other appointments include being a member of the shareholder executive board of the Department for Business, Innovation and Skills (BIS) and senior adviser to the board of the Abu Dhabi Commercial Bank. Previously, he held senior positions within the Department of Health and Social Security and HM Treasury. From 1986, he spent 13 years with Schroders plc in London, Hong Kong and New York. He was vice chairman of Schroders’ worldwide investment banking activities from 1998 to 1999. In the Queen’s Birthday Honours List, announced in June last year, Sir Gerry received a knighthood in recognition for his contribution to public service, particularly to defence and business. Sir Gerry is chairman of both the Nomination and Governance Committee and the Corporate Responsibility Committee.
Qualifications: BAcc, University of Glasgow. Member of the Institute of Chartered Accountants of Scotland.
Pierre Danon Non-executive Director Age: 58 Tenure: 3.5 years Nationality: French
Appointed Director in January 2007. Crawford is chairman of Scottish Enterprise and chairman of Control Risks Group Holdings Ltd. In July 2012, he was appointed as a nonexecutive director of MITIE Group PLC, and in May 2014, he was appointed as a non-executive director of Barclays PLC and is a member of its remuneration committee. He is also a member of the advisory board for the School for CEOs. Crawford spent 22 years with Bain & Company, Inc, the international management consultants, where he was managing director Europe. He was an independent member of the Department of Trade and Industry (DTI) management and strategy boards from 2002 to 2007, and chaired the DTI’s audit and risk committee from 2003 to 2007. Crawford is a member of the Risk and Capital Committee, the Nomination and Governance Committee and the Corporate Responsibility Committee.
David Grigson Non-executive Director Age: 60 Tenure: 5.5 years Nationality: British
Appointed Director in November 2009. David is chairman of Trinity Mirror plc and he is the senior independent director of Ocado Group plc. He also sits on the audit, remuneration and nomination committees of these companies. David is also chairman of Investis Limited. David spent much of his career in senior financial executive positions, first with Emap PLC, where he served as group finance director from 1989 to 2000, and more recently with Reuters Group PLC, where he was chief financial officer from 2000 to 2008, when Reuters Group became Thomson Reuters Limited. David is chairman of the Audit Committee and a member of the Risk and Capital Committee and the Nomination and Governance Committee. As announced, David will retire from the Board following the 2015 AGM.
Qualifications: MA (Hons) in Management Studies, University of Cambridge. Fellow of the Institute of Chartered Accountants in England and Wales.
Martin Pike Non-executive Director Age: 53 Tenure: 1.5 years Nationality: British
Appointed Director in September 2013. Martin joined R Watson & Sons in 1983 and progressed his career with the firm to partner level, carrying out a wide range of strategic consulting projects and M&A assignments. His senior roles included head of European insurance and financial services practice, Watson Wyatt from 2006 to 2009, vice president and global practice director, insurance and financial services, Watson Wyatt during 2009 and, latterly, managing director, risk consulting & software, EMEA, Towers Watson from 2010 to 2013. Martin is a member of the Remuneration Committee and will be appointed chairman of the Risk and Capital Committee following the 2015 AGM.
Lynne Peacock Non-executive Director Age: 61 Tenure: 3 years Nationality: British
Appointed Director in April 2012. Lynne is a non-executive director of Scottish Water, where she chairs its audit committee. She is a non-executive director of Nationwide Building Society and chairs its remuneration committee. She is also a member of its audit, risk and nomination committees. Lynne joined National Australia Bank Limited in 2003 and, from 2004 to 2011, she was chief executive officer, UK (Clydesdale Bank plc and Yorkshire Bank). Before that, Lynne was with Woolwich plc from 1983 to 2003, finishing her career there as chief executive officer. Lynne is chairman of the Remuneration Committee and is a member of the Corporate Responsibility Committee and the Audit Committee.
Directors’ report The Directors present their annual report on the affairs of the Standard Life group of companies (the Group), together with the audited International Financial Reporting Standards (IFRS) consolidated financial statements for the Group, European Embedded Value (EEV) financial information for the Group and financial statements for Standard Life plc (the Company) for the year ended 31 December 2014.
Reporting for the year ended 31 December 2014 The Company is the holding company of the Group. You can find out about the relevant activities of the Company’s principal subsidiary undertakings and their overseas branches in the Chief Financial Officer’s overview and Business segment performance sections of the Strategic report. During 2014, the Company’s principal undertakings operated branches in Bermuda, Canada, Dubai, Germany, Hong Kong, India, Ireland and Singapore.
Dividends The Board recommends paying a final dividend for 2014 of 11.43p per new ordinary share following the share consolidation. This will be paid on 19 May 2015 to shareholders whose names are on the register of members (the Register) at the close of business on 10 April 2015.
During the year, and until the date this report was signed, the Company received the following notification in respect of major shareholdings and major proportions of voting rights in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority (FCA).
In 2014, in accordance with the terms of the Standard Life Employee Trust Deed, the Trustees of the Standard Life Employee Trust waived all entitlements to current or future dividend payments for shares they hold under option on behalf of participants in the Company’s discretionary share plans between the grant and vest dates. Details of ordinary shares under option in respect of the Company’s discretionary share plans are shown in Note 48 to the Group financial statements.
The Board may decline to register the transfer of: • A share that is not fully paid • A certificated share, unless the instrument of transfer is duly stamped or duly certified and accompanied by the relevant share certificate or other evidence of the right to transfer, is in respect of only one class of share and is in favour of a sole transferee or no more than four joint transferees
• A certificated share by a person with a 0.25 per cent interest (as defined in the Articles) in the Company, if that person has been served with a restriction notice under the Articles, after failing to provide the Company with information about interests in those shares as set out in the Companies Act 2006 (unless the transfer is shown to the Board to be pursuant to an arm’s length sale under the Articles).
Power to purchase the Company’s own shares At the 2014 Annual General Meeting (AGM), shareholders granted the Directors limited powers to: • Allot ordinary shares in the Company up to a maximum aggregate amount of £79,222,684 • Disapply, up to a maximum total nominal amount of £11,883,402 or 5% of its issued ordinary share capital, shareholders’
(Lender) dated 5 March 2013 (the Facility), in the event that (i) any persons or group of persons acting in concert, gain control of the Company or (ii) Standard Life Assurance Limited ceases to be a member of the Group, then any Lender may elect within a prescribed time frame to cancel its outstanding commitment under the Facility and declare its participation in all outstanding loans, together with accrued interest and all amounts accrued immediately due and payable, whereupon the commitment of that Lender under the Facility will be cancelled and all such outstanding amounts will become immediately due and payable.
• Under a shareholders' agreement dated 15 January 2002 between The Standard Life Assurance Company (re-named The Standard Life Assurance Company 2006) and Housing Development Finance Corporation Limited (HDFC), pursuant to which the relevant Group company holds its interest in HDFC Standard Life Insurance Company Limited (HDFC Standard Life), upon a change of control of the Company, HDFC potentially has the right to terminate the joint venture and to purchase, or nominate a third party to purchase, the relevant Group company’s shares in HDFC Standard Life for a price determined in accordance with the agreement.
Directors and their interests The Directors who served throughout the year were: • Sir Gerry Grimstone (Chairman) • Colin Buchan (retired on 13 May 2014) • Pierre Danon • Crawford Gillies • David Grigson • Noel Harwerth • Isabel Hudson (appointed 15 October 2014) • David Nish (Chief Executive) • Kevin Parry (appointed 27 October 2014) • John Paynter • Lynne Peacock • Martin Pike • Luke Savage (Chief Financial Officer appointed 18 August 2014) • Keith Skeoch
Biographies of the Directors can be found on pages 37 to 39.
Copies of the following documents can be viewed at the Company’s registered office (details of which can be found in the Contact details section) during normal business hours (9am to 5pm Monday to Friday) and will be available for inspection at the Company’s AGM on 12 May 2015: • The Directors’ service contracts or letters of appointment • The Directors’ deeds of indemnity, entered into in connection with the indemnification of Directors provisions in the Articles • The rules of the Standard Life plc Executive Long Term Incentive Plan together with a copy incorporating the changes proposed in resolution 7, and • The Company’s Articles, together with a copy incorporating the changes proposed in resolution 15. Further information on these changes can be found in our AGM guide 2015 which will be available online at www.standardlife.com from 24 March 2015.
The UK Corporate Governance Code recommends that directors of FTSE 350 companies should stand for election every year. In line with this, all our Directors will retire at the AGM on 12 May 2015. Isabel Hudson, Kevin Parry and Luke Savage will stand for election and all remaining Directors who wish to continue in office will stand for re-election. As announced, David Grigson will retire from the Board at the conclusion of the 2015 AGM and, therefore, will not stand for re-election.
Our people We know that our people are central to delivering our strategy. You can read about our commitment to bring out the best in them in Section 1.6 of the Strategic report – Our sustainable business overview.
Despite a challenging year, we have maintained open and constructive relationships with the different staff representative bodies and a productive employee relations environment. In September 2014, we announced proposed changes to how our future employee pension would be provided. The consultation on these proposals, which involved many open and constructive conversations with our staff associations, concluded at the end of November 2014. The level of engagement was significant with all the feedback received listened to very carefully.
The Board approved the final changes to the future UK employee pension in December 2014 and these changes were announced to employees on 19 December 2014.
The key part of the final package of changes is that from 16 April 2016, pension scheme members will build up future pension in the scheme on a defined contribution basis rather than the current career average defined benefit basis.
As at 31 December 2014, approximately 65% of the Group's employees were shareholders through participation in the Standard Life (Employee) Share Plan (the Plan). The Plan allows employees to buy ordinary shares in the Company directly from their earnings up to a market value of £125 per month, or an equivalent sum in a relevant currency. These are called partnership shares. For each partnership share that an employee buys under the Plan, the Company matches the purchase by allocating them ordinary shares up to a maximum total value of £25 per month, or an equivalent sum in the relevant currency. As at 31 December 2014, 3,772 (63%) of eligible employees in the UK were making a monthly average contribution of £40. A similar tax approved plan is used in Ireland and has a 60% take up. Even though the Plan cannot be structured on a tax favourable basis in Germany or Austria, at the end of the year, more than 120 employees in these countries were buying shares on a monthly basis.
The Group also encourages share ownership in the Company in the UK and Ireland through the Standard Life Sharesave Plan which was launched in August 2011. In September 2014, we launched a fourth invitation to UK employees and at the same time made a third invitation to Irish employees. On 1 November 2014, the first of the Sharesave invitations matured and participating employees have the opportunity, until 1 May 2015, to buy Standard Life plc shares at a price of £1.57 per share with their accumulated savings.
Events after the reporting period On 3 September 2014, the Group announced its intention to sell its Canadian business to The Manufacturers Life Insurance Company (MLC), a subsidiary of Manulife Financial Corporation (Manulife). The sale of the Group’s Canadian long-term savings and retirement, individual and group insurance business (Standard Life Financial Inc.) and Canadian investment management business (Standard Life Investments Inc.) completed on 30 January 2015 for a fixed consideration of CA$4bn (£2.1bn). A further £0.1bn was received from the settlement of related hedging derivative contracts.
On 6 January 2015, the Company redeemed in full the Euro denominated 5.314% fixed/floating rate perpetual Mutual Assurance Capital Securities at their outstanding principal amount of €360,000,000.
For the purposes of LR 9.8.4C R, the information required to be disclosed by LR 9.8.4 R can be found in the following locations: Section Topic Location 1. Interest capitalised Not applicable 2. Publication of unaudited financial information Strategic report – Section 1.4.4 4. Details of long-term incentive schemes Directors’ remuneration report 5. Waiver of emoluments by a director Not applicable 6. Waiver of future emoluments by a director Not applicable 7. Non pre-emptive issues of equity for cash Not applicable 8. Item (7) in relation to major subsidiary undertakings Not applicable 9. Parent participation in a placing by a listed subsidiary Not applicable 10. Contracts of significance Not applicable 11. Provision of services by a controlling shareholder Not applicable 12. Shareholder waivers of dividends Directors’ report 13. Shareholder waivers of future dividends Directors’ report 14. Agreements with controlling shareholders Not applicable
Annual General Meeting This will be held at 2pm (UK time) on Tuesday, 12 May 2015 at the Edinburgh International Conference Centre, The Exchange, 150 Morrison Street, Edinburgh EH3 8EE, Scotland. Details of the meeting content can be found in our AGM guide 2015 which will be available online at www.standardlife.com from 24 March 2015.
Kenneth A Gilmour, Group Company Secretary Standard Life plc (SC286832) 20 February 2015 46 Standard Life
Directors’ responsibilities for preparing the financial statements The following statements should be read with the statement of auditors’ responsibilities included in the independent auditors’ reports. They are made to help shareholders distinguish between the responsibilities of the Directors and those of the auditors in relation to the financial statements for 2014.
The Directors are responsible for preparing the Annual report and accounts 2014. It is also their responsibility to state that they consider that the Annual report and accounts 2014, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company’s performance, business model and strategy. Under the Companies Act 2006, the Directors are required to prepare and approve financial statements for each financial year. The Directors must only approve the financial statements when they are satisfied that they give a true and fair view of how the Group and the Company have performed at the end of the financial year, and that they give a true and fair view of the profit of the Group and the Company for that year. The financial statements of the Group and, where relevant, the Company have been prepared in accordance with: • International Financial Reporting Standards (IFRS) as adopted by the European Union (EU) • The Companies Act 2006 • The Disclosure and Transparency Rules (DTR) issued by the Financial Conduct Authority (FCA) • Article 4 of the International Accounting Standards (IAS) Regulation.
In preparing these financial statements, the Directors are required to: • Select suitable accounting policies and then apply them consistently • Make judgements and accounting estimates that are reasonable and prudent • State whether applicable IFRS as adopted by the EU have been followed, subject to any material departures disclosed and explained in the financial statements • Prepare the financial statements on the basis that the Group is a going concern, unless it is inappropriate to presume that the
The Directors are also responsible for: • Safeguarding the assets of the Company and the Group • Taking reasonable steps to prevent and detect fraud and other irregularities • The maintenance and integrity of the Group’s website.
2. The Strategic report includes the information required by DTR 4.1.8 and DTR 4.1.9 – a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties it faces.
Sir Gerry Grimstone, Chairman Luke Savage, Chief Financial Officer 20 February 2015 20 February 2015
Introduction and report from the Chairman of the Nomination and Governance Committee “Your Board adheres to the highest standards of corporate governance and ethical behaviour in directing the Group’s affairs and in its accountability to you as shareholders. As Directors, we believe these commitments are key to understanding and managing our business effectively, providing engaged leadership, and delivering shareholder value over the longer term. Your Board takes the quality of its performance seriously and strives to improve performance through annual reviews and continuing self-assessment”. Sir Gerry Grimstone, Chairman and Chairman of the Nomination and Governance Committee.
Compliance Throughout 2014, the Company complied with all of the provisions set out in the Code issued by the Financial Reporting Council (FRC) in September 2012. This is available at www.frc.org.uk With regard to Code provision C.3.7, which requires external audit contracts to be put out to tender at least every ten years, and which was introduced with transitional provisions allowing the period for tender to extend to the end of the current engagement partner’s term of appointment, the Company last tendered in 2003 and will conduct a tender in accordance with the transitional provisions. The Audit Committee keeps under review the legislation on audit tendering and rotation from the EU and the Competition and Markets Authority and further details are provided in the Audit Committee report.
Together with the Directors’ remuneration report, this statement explains how our governance framework supports the way we apply the Code’s main principles of good governance.
The governance framework also ensures that all decisions which require or would benefit from it, receive the independent input of the non-executive Directors.
The Board regularly reviews reports from the Chief Executive and from the Chief Financial Officer on progress against approved strategies, plans and budgets, as well as updates from the Chief Executive of Standard Life Investments Limited on stock market and global economic conditions. There are also regular presentations from key business units and group corporate centre functions. The Chairman reports at each Board meeting on the activities he has undertaken on behalf of the Board and the Group since the previous meeting.
Roles of the Chairman and the Chief Executive The roles of the Chairman and the Chief Executive are separate. Each has clearly defined responsibilities, which are described in the Board Charter.
The heads of each business unit and the group corporate centre functions manage their teams within authorities set out in the Board Charter and within an approved scheme of delegation. This includes reporting to the Chief Executive on how they are complying with Group policies and performing against approved plans and budgets.
Board composition, balance and diversity The Board’s policy is to appoint and retain non-executive Directors who bring relevant expertise as well as a wide perspective to the Group and its decision-making framework. The Directors believe that at least half of the Board should be made up of independent non-executive Directors. As at 20 February 2015, the Board comprises the Chairman, nine independent nonexecutive Directors and three executive Directors. The Board is made up of 10 males (77%) and three females (23%) (2013: males 82%, females 18%). The Board continues to support its Diversity statement which states that it: • Believes in equal opportunities and supports the principle that due regard should be had for the benefits of diversity, including gender, when undertaking a search for candidates, both executive and non-executive • Recognises that diversity can bring insights and behaviours that may make a valuable contribution to its effectiveness • Believes that it should have a blend of skills, experience, independence, knowledge and gender amongst its individual members that is appropriate to its needs • Believes that it should be able to demonstrate with conviction that any new appointee can make a meaningful contribution to its deliberations • Is committed to maintaining its diverse composition • Supports the Chief Executive’s commitment to achieve and maintain a diverse workforce, both throughout the Group, and within his executive team.
The Board benefits from the diverse backgrounds of its members which enhance its collective business, operational and international strength. You can read more about our Directors in their biographies on pages 37 to 39.
Kevin Parry joined the Board on 27 October 2014 as a non-executive Director and became a member of the Audit Committee and the Risk and Capital Committee. After the conclusion of the 2015 Annual General Meeting (AGM), Kevin will be appointed chairman of the Audit Committee. His previous appointments include chief financial officer of Schroders plc and group chief executive of Management Consulting Group PLC. Kevin currently holds other non-executive directorships at Daily Mail and General Trust plc and at the Homes and Communities Agency. He is the senior independent director of Intermediate Capital Group plc and is the deputy chairman of the board of trustees and chairman of the finance and investment committee at the Royal National Children’s Foundation. Kevin is a Fellow of the Institute of Chartered Accountants in England and Wales. Kevin’s appointment reflects his strong financial background and experience.
Board appointment process, terms of service and role Taking account of the Group’s strategy, as well as industry and regulatory developments, the Nomination and Governance Committee evaluates the Board’s balance of skills, diversity, knowledge and experience, in the context of the time served by non-executive Directors. The Committee uses the results of its analysis to direct its recruitment activities and appointment recommendations and reviews all recommendations to appoint independent non-executive Directors to the boards of subsidiary companies.
Having identified the capabilities needed for Board roles, and the succession timeframe, the Nomination and Governance Committee considers the related role profile submitted to external search consultants along with the request to prepare a list of suitable candidates. The Group has used the services of JCA Group, Egon Zehnder and Odgers Berndtson to support its recent recruitment searches and Egon Zehnder has also provided executive development assessment support. These consultants have no other connection with the Group.
You can read more background information about the Directors including the reasons why the Chairman believes you should support their election or re-election, in our AGM guide 2015, which will be published online at www.standardlife.com from 24 March 2015, and in the Board of Directors summary on pages 37 to 39.
Sir Gerry Grimstone was Chairman of the Board throughout the year. He remained Chairman of TheCityUK but will be stepping down from that role late in 2015. He has also retained his non-executive positions with Deloitte LLP, the UK Government’s Ministry of Defence and his membership of the shareholder executive board of the Department for Business, Innovation and Skills. He is also senior adviser to the board of the Abu Dhabi Commercial Bank. The Board formally reviewed his performance and is satisfied that he has sufficient time to carry out his duties. John Paynter served as the Senior Independent Director (SID) throughout the period. In this role, he supports the Chairman, and often meets with him one-to-one. He is also available to talk with our shareholders about any concerns that they may not have been able to resolve through the channels of Chairman, Chief Executive or Chief Financial Officer, or where a shareholder considers these channels are inappropriate.
The Directors continued to review and authorise Board members’ actual and potential conflicts of interest on a regular and ad hoc basis in line with the authority granted to them in the Company’s articles of association (the Articles). As part of the process to approve the appointment of a new Director, the Board considers and, where appropriate, authorises his or her potential or actual conflicts. The Board also considers whether any new outside appointment of any current Director creates a potential or actual conflict before, where appropriate, authorising it. All appointments are approved in accordance with the Group’s Outside Appointments and Conflicts of Interest policies. In January 2015, the Board reviewed all previously authorised potential and actual conflicts of interest of the Directors and their connected persons, and concluded that the authorisations should remain in place until January 2016. Under the terms of the approval, conflicted Directors can be excluded from receiving information, taking part in discussions and making decisions that relate to the potential or actual conflict. The Board’s policy encourages executive Directors to take up one external non-executive director role. David Nish continued as a non-executive director of the UK Green Investment Bank plc and Keith Skeoch continued as a non-executive director of the Financial Reporting Council. You can read more about the Directors’ outside appointments in their biographies on pages 37 to 39.
As well as planning the 2014 review, the Committee also considered how the themes from the 2013 review had been taken forward. Risk reporting developed to introduce the “Views on Risk” from the Chief Risk Officer. In respect of engagement, the Board hosted a talent dinner where the Directors met and heard from participants in the leadership programmes and non-executive Directors took part in a new programme to support employees who take up board appointments outside the Group as part of their development. Executive Directors held regular interactive sessions open to all employees.
Niall reviewed the results of earlier board reviews and proposed some minor changes to the self-assessment questionnaires. In 2014, he also attended the Board and Committee meetings in June, the Board meeting in September and a further Committee meeting in October. After studying the individual responses to the questionnaires, he conducted 25 hours of one-to-one interviews with Board members, members of the senior executive team and Committee secretaries to discuss their ratings and comments, with a particular focus on identifying areas for improvement. His review was complemented by the annual online self-assessment process. Directors completed questionnaires about the Board, each Committee they sit on, the Chairman’s performance and their own individual performance. They were encouraged to provide open and honest feedback, explain the ratings they gave and suggest how the Board or Committee could improve.
Outcome Following the review process, two reports were produced. The Group Company Secretary analysed the self-assessment responses and prepared a summary report. Niall FitzGerald prepared a report with the findings from his meeting observations and interviews and a series of related points for possible action. Both reports were considered in detail by the Nomination and Governance Committee at its October meeting before being formally presented to the Board in December. Niall FitzGerald attended both meetings to present his report.
The Committee and the Board discussed these reports and the proposed recommendations and agreed an action plan. At the end of the exercise, the Board supported the conclusions and agreed to take forward actions including: • Refreshing the Board’s strategy-setting process to ensure it remained fit for purpose • Refreshing the content of the Group Performance Report • giving the Board continued opportunities to discuss its succession planning and talent development needs in light of the progressive re-shaping of the Group.
Chairman The review of the Chairman’s performance was led by the SID. It was based on feedback given in the confidential online questionnaires. The questions covered: 1. The Chairman’s role to lead the Board and encourage effective participation and consensus decision-making 2. How he informs the Board of stakeholders’ views 3. His relationship with both executive and non-executive Directors.
Before these meetings, the Directors assessed their own performance by completing a confidential online questionnaire, the results of which were shared with the Chairman. The questionnaires asked each Director to identify particular areas of the Group that they might want to visit or learn more about, as well as any technical knowledge they would like to develop.
Individual development and engagement plans were prepared to support each meeting. These plans built on the responses to particular questions and areas of interest and training needs identified by each Director. The meetings were designed to review whether each Director was contributing effectively to the Board and to the Board Committees, and whether they continued to have sufficient time to commit to the role. The meetings also considered individual training, development and engagement opportunities for each Director. These plans also summarised the internal and external continuing development the non-executive Directors had undertaken during the year and considered the extent to which each non-executive Director had implemented the points raised in the previous year’s review. Each Director takes forward the resulting actions, supported by the Chairman and the Company, using either internal or external resources.
Director induction and development The Chairman, supported by the Group Company Secretary, is responsible for arranging a comprehensive preparation and induction programme for all new Directors. The programme is tailored to their individual requirements and takes their background knowledge and experience into account. All Directors are also required to complete the Financial Conduct Authority’s (FCA) and Prudential Regulation Authority’s (PRA) Significant Influence Function Holder’s approval programme before they are appointed and to self-certify annually that they remain competent to carry out this aspect of their role. The formal preparation and induction programme includes: • Meetings with each executive Director, key members of senior management, the heads of the operating businesses and our group corporate centre functions • Focused technical meetings with internal and external experts on specific areas including Solvency 2, conduct risk, risk and capital management, and financial reporting • Visits to business units • Meetings with the external auditors and the FCA/PRA supervisory team • The Group’s corporate governance and risk management frameworks and the role of the Board and its Committees • Key Board materials and information, shareholder communications and financial reports • The Group’s organisational structure, strategy, business activities and operational plans • The Group’s key performance indicators, financial and operational measures and industry terminology • Their individual responsibilities both as Directors and as holders of a Significant Influence Function.
The induction programme provides the background knowledge new directors need to perform to a high level as soon as possible after joining the Board and to support them as they build their knowledge and strengthen their performance further. As mentioned above, during 2014, Luke Savage, Isabel Hudson and Kevin Parry were all appointed to the Board. Given the strength of each of their careers in the financial services industry, their induction programmes were tailored to complement this, recognising, for example, that Isabel had previously served as a member of Standard Life Assurance Limited’s With Profits Committee.
Succession planning and talent development The Board knows that comprehensive contingency and succession planning, and talent development, are key to our effective operation and long-term success. The Nomination and Governance Committee regularly reviews the results of succession planning activities, including key man and retention risk, and talent development programmes at all levels across the Group. In 2014, executive succession planning and the future talent pipeline were key areas of focus for the Committee. At its June, October and December meetings, the Committee discussed the future leadership and talent needs of the Group and how the programmes would be revised to take account of the skills and expertise required by the Board and senior management. The programmes recognise the changing shape of the Group, and also identified both the talent available within the Group and the need for external recruitment. The programmes are led by the Chief Operating Officer, with input from the Chief Executive and supported by the Group Talent and Organisation Development team. You can read about them in Section 1.6 – Our sustainable business overview.
The Board has a formal procedure for holding unscheduled meetings. This is used when, exceptionally, decisions on matters specifically reserved for the Board need to be taken urgently. Directors are required to attend all meetings of the Board and the Committees they serve on, and to devote enough time to the Company to perform their duties. Board and Committee papers are generally distributed before meetings. The Board sometimes needs to call or rearrange meetings at short notice and it may be difficult for all Directors to attend these meetings. If Directors are not able to attend a meeting because of conflicts in their schedules, they receive all the relevant papers and have the opportunity to submit their comments in advance to the Chairman or to the Group Company Secretary. If necessary, they can follow up with the Chairman of the meeting.
Financial reporting IFRS accounting policies, practices and areas of judgement The Committee reviewed the Group accounting policies and confirmed they were appropriate to be used for the 2014 Group financial statements. The Committee also focused on the valuation bases for the assets and liabilities, including the key assumptions used to measure the insurance and participating investment liabilities. The Committee reviewed the implications of the adoption of IFRS 10, 11 and IAS 28 consolidation standards and agreed with the approaches being applied.
The Committee discussed the significant accounting and actuarial matters affecting the 2014 Group financial statements and considered the areas below to contain the most significant levels of judgement: Acquisition of Ignis Asset Management The acquisition of Ignis Asset Management during 2014 required an assessment of the fair value of intangible assets relating to the customer contracts acquired, and consideration of the useful lives of these intangible assets. The fair value of these intangible assets were considered again at the year end taking into account post acquisition events. An impairment of £43m was required at the year end resulting from post acquisition outflows from the Ignis Absolute Return Government Bond Fund (the fair value of intangibles recognised at the date of acquisition was £208m). The Committee considered the valuation process relating to these intangibles, and challenged the key assumptions underlying the valuations, in particular the level of future fund flows. The Committee also considered sensitivities to the key assumptions. The Committee was satisfied that the fair values of the intangible assets and the level of the year end impairment were appropriate. Actuarial assumptions The Committee reviewed the key assumptions used in calculating the insurance and participating investment contract liabilities in the UK and Canada. The most significant judgements related to annuitant mortality and, in particular, the rate at which life expectancy is expected to improve in future years. The Committee was satisfied with management’s review of these assumptions. Note 34 of the Group financial statements provides further details on the actuarial assumptions used, and note 42(d)(ii) sets out the impact of longevity sensitivities.
• Sought information from the external auditors as to whether/how the external auditors had considered each of these areas and how any areas of significant audit focus had been reported in the external auditors’ report
• Reviewed the consistency of the views of management and the external auditors.
The key discussions on the non-GAAP measures were: • Ensuring that the allocation of items to operating profit and to underlying performance were in line with our established accounting policies and were consistent with previous practice. The Committee was satisfied with the consistency of the measures
• Transitioning some non-GAAP measures to reflect the changing shape of the Group, including the increased focus on fee based business as discussed in Section 1.2 of the Strategic report – Group key financial performance indicators. This resulted in the decision to cease reporting of EEV from 2015 and to change the definition of the cash generation metric so that it was more closely linked to underlying performance
The Committee also discussed the management information provided on: • The clarity of disclosures in the Group financial statements (including in relation to the sale of the Canadian business, the impairment of intangible assets relating to the acquisition of Ignis, and the adoption of IFRS 12 Disclosure of Interests in Other Entities) and EEV financial information, and agreed that the Strategic report, as a whole, contained a fair, balanced and understandable view of the Group’s business, a description of the risk and uncertainties facing the business, a balanced and comprehensive analysis of the development and performance of the Group’s business during the year and the position of the Group’s business at the end of the year
External audit The Committee monitors the external auditors’ performance. This includes reviewing how independent and objective the external audit team is and how the team maintains its professional scepticism, all in the context of regulatory requirements and professional standards. The Committee assesses the effectiveness of the external audit process and approves the terms of engagement and remuneration for audit services. As part of its ongoing review of the effectiveness of the external auditors, the Committee: • Assesses the team’s qualifications, independence, expertise and resources as well as its relationship with management and the executive Directors • Considers the scope and planning of the external audit of the Group • Reviews the audit findings with the external audit team and the overall effectiveness of the audit.
Non-audit services The Board has approved the Non-audit Services from External Audit policy (the Policy) and the Committee monitors the implementation of the Policy on behalf of the Board. The aim of the Policy, which is reviewed annually, is to support and safeguard the objectivity and independence of the external auditors. It does this by prohibiting the auditors from carrying out certain types of non-audit services to ensure that the audit services provided are not impaired. It also ensures that where fees for approved nonaudit services are significant, they are subject to the Committee’s prior approval. The services prohibited by the Policy include: • Book-keeping or other services related to the accounting records or financial statements • Financial information system design • Appraisal or valuation services where the results would be material to the financial statements • Internal audit outsourcing • Actuarial calculations • Management functions • Legal services • Forensic audit services • Temporary or permanent services as a director, officer or employee or performance of any decision-making, supervisory or monitoring function • Recruitment of senior management.
Depending on the level of the proposed fee, the Policy requires the approval of the Chairman or members of the Committee and/or the whole Committee before certain non-audit services are commissioned. You can find details of the fees paid to the external auditors for audit and non-audit work carried out during the year in Note 9 to the Group financial statements. Non-audit services carried out during 2014 included acting as reporting accountants in relation to the sale of the Canadian business, internal controls reporting services for Standard Life Investments, and assurance services relating to Solvency 2. The external auditors were considered the most suitable supplier for these services taking into account the alignment of these services to the external audit. Non audit services also included tax compliance and advisory services relating to German funds where the external audit firm’s skills and experience were considered in selection.
Financial crime and whistleblowing The Committee reviews the arrangements for Group employees to raise concerns, in confidence, about possible wrongdoing in financial reporting and other matters. At each meeting it receives reports on all calls to our dedicated Speak Up helpline. Any concerns are investigated and the Committee oversees the follow-up action taken. The Committee also receives updates at every meeting from the Group Head of Financial Crime who reports on compliance with the Group’s Anti-Financial Crime & Anti-Bribery policy, and any other activities associated with financial crime. Staff are trained how to detect and report the signs of possible fraudulent or improper activity and about the existence of the Speak Up helpline.
• Half year results 2014 • External audit results of Half year results review • External audit plan for 2014 for all audited entities • 2014 external audit engagement letter for all audited entities • Current material legal actions and litigation.
April to June October to December • Q1 Interim management statement • Completion of the 2013 external audit for all audited entities • 2013 external audit fee and the proposed 2014 fee for all audited entities.
annual plan • Effectiveness of the external auditors and their proposed reappointment at the 2015 AGM • Group Non-audit Services from External Audit policy • Effectiveness of the Committee • Preparedness for Solvency 2 reporting and assurance provision • Liaison with the Remuneration Committee on targets and measures.
After each meeting, the Chairman reports to the Board, summarising the key points from the Committee’s discussions.
Committee effectiveness The Committee reviews its remit and effectiveness annually. The 2014 review was carried out both via an internal self-assessment questionnaire and by an independent expert, Niall FitzGerald who was invited to observe one of the Committee meetings as part of his assessment. The review concluded that the Committee had: • Performed effectively during the year and should continue to liaise with the Risk and Capital Committee in terms of efficiency and coverage • Fulfilled its duties under its terms of reference, and kept its terms of reference up-to-date, recognising that in 2015 and 2016 its regulatory reporting duties will be expanded to cover Solvency 2 • Received sufficient, reliable and timely information from management and the external auditors to enable it to fulfil its responsibilities, recognising management’s continuing goal to reduce the volume of information presented in the face of increasing obligations
Report from the Chairman of the Risk and Capital Committee “The Risk and Capital Committee supports the Board in the effective oversight and challenge of risk management and the use of capital across the Group. Since its formation in April 2010, the Committee has continued to develop in its role, providing quality support and advice to the Board. I am pleased to present my report on the work and operation of the Committee during the past year”. Noel Harwerth, Chairman
The Committee members are Noel Harwerth, (Chairman), David Grigson, Pierre Danon, Crawford Gillies, Martin Pike, Isabel Hudson (appointed 15 October 2014) and Kevin Parry (appointed 27 October 2014) who are all considered by the Board to be independent non-executive Directors. During 2014, the Committee met seven times. As announced, Martin will succeed Noel as Chairman of the Committee at the conclusion of the 2015 AGM.
The Group’s strategy of being a global investment solutions business with a leading presence in investment management and in the UK long-term savings and investments market is subject to risks and uncertainties. The Group’s risk function seeks to understand and actively manage the sources and scale of these risks and uncertainties and reporting is provided to the Committee on these matters accordingly. The role of the Committee is to provide the Board with oversight, advice and, where needed, challenge regarding: • The Group’s current risk strategy, material risk exposures and future risk strategy and their impact on levels and allocation of capital • The structure and implementation of the Group’s Enterprise Risk Management (ERM) framework and its suitability to react to forward-looking issues and the changing nature of risks • Regulatory compliance across the Group • Material risk and capital matters affecting the Heritage With Profits Fund.
The Committee’s work in 2014 Risk exposures and risk strategy The Committee primarily discharged its duties regarding the Group’s current and future risk strategy and material risk exposures through reviewing the regular risk reporting from the Group Chief Risk Officer. This reporting has continued to evolve and focuses on matters affecting the customer, and on the economic, regulatory, conduct and policy agenda environments. It also highlights the Group’s risk and capital profile as well as forward looking actions and emerging risks. Decisions taken during the year to acquire Ignis Asset Management and dispose of the Group’s Canadian business were subject to scrutiny by the Committee. This included reviewing the business case and risk assessments relating to these transactions and considering the transactions in the context of the Group’s risk strategy, material risk exposures and allocation of capital. In discussing the proposed acquisition of Ignis Asset Management, the Committee paid particular attention to the content of the risk assessment. This considered the impact of the transaction on customers, the ability of the Group to manage the prudential, financial and operational risks arising from the transaction, the risks associated with the planned integration of the business as well as the overall impact on shareholder value.
• The strategic implications for the remaining Group businesses including on-going access to North American markets • The mitigating actions regarding key project risks including execution risk, currency risk, leak risk and regulatory and competitive risks • The overall sale price agreed, including the impact on material contracts in the Canadian business and reaching agreement regarding investments in joint ventures.
• Progress regarding key items on the Group’s change programme and their impact on delivering the Group’s strategy.
During the year, the Committee received proposals regarding changes to the Group’s Risk Appetite framework and risk limits. This included receiving proposals regarding the quantitative risk limits to be used to manage the business during 2015 accompanied by risk assessments of the business plan for 2015. Specific items discussed by the Committee in respect of the risk limit proposals included the use of judgement in developing the limit proposals and the expected behaviour of exposures relative to limits under adverse scenarios. During the year, the Committee also received proposals regarding the Group’s Capital Adequacy framework which outlines when it may be appropriate to take action to manage the Group’s risk profile. The Committee considered both sets of proposals and provided advice to the Board accordingly.
The Committee also received regular reports on the Group’s own risk and solvency assessment (ORSA). The ORSA process is a core element of the Group’s ERM framework and is a continuous process carried out by the risk function. The Committee received regular updates on this through the regular risk reporting from Group Chief Risk Officer, quarterly ORSA summary reports, ad-hoc risk reviews and a full ORSA report. The Committee determined that developments in the ORSA environment were well understood and any necessary actions were progressing appropriately. As a result, the Committee concluded, there was no need for the full ORSA report to be updated outside of the routine annual cycle. Enterprise Risk Management framework The Committee monitored the structure and implementation of the Group’s ERM framework primarily through the material contained in the Group Chief Risk Officer’s regular risk reporting and the quarterly and annual ORSA reports. The material reviewed included: • The status of compliance with group policies and the results of control self-assessment • Dashboard summaries of key risks • The Group Chief Internal Auditor’s assessment of the internal control environment related to the management of risk and capital • The minutes of the Group ERMC.
In line with the Committee’s duties, the Committee reviewed the key assumptions and bases underlying submissions regarding regulatory solvency and reviewed other major regulatory submissions. This included reviewing Group submissions to regulators on
Scrutiny of with profits risk and capital matters The Committee is advised of relevant updates on with profits risk and capital matters through material contained in the Group Chief Risk Officer’s regular risk reporting. In addition, mechanisms exist for the Chairman of the Standard Life Assurance Limited With Profits Committee to highlight specific matters to the Committee.
During the year, there were no specific matters that were highlighted to the Committee by the Chairman of the Standard Life Assurance Limited With Profits Committee. Furthermore, in performing scrutiny of with profits risk and capital matters, there were no specific items identified by the Committee during the year that were sufficiently material as to require the Committee to provide advice to the Board.
Committee effectiveness The Committee reviews its remit and effectiveness annually. The 2014 review was carried out both via an internal self-assessment questionnaire and by an independent expert, Niall FitzGerald, who was invited to observe one of the Committee meetings as part of his assessment. The review concluded that the Committee continued to make good progress and to evolve.
The Committee members are Lynne Peacock (Chairman), Pierre Danon, John Paynter and Martin Pike (appointed 13 May 2014) – all of whom are considered by the Board to be independent non-executive Directors. Previous chairman, Crawford Gillies, and Colin Buchan retired from the Committee on 13 May 2014.
During 2014, the Committee met ten times. The Committee’s role is to approve or make recommendations to the Board in respect of the overarching Group-wide remuneration policy, including: • Rewards for the executive Directors, senior executives and the Chairman • The design and targets related to any employee share plan • The design and targets for annual cash bonus plans below the executive level • Changes to employee benefits structures (including pensions) throughout the Group.
Report from the Chairman of the Corporate Responsibility Committee “The Corporate Responsibility Committee has provided oversight over sustainability issues and reported its findings and recommendations to the Board. I am pleased to present my report on the work and operation of the Committee during the year”. Sir Gerry Grimstone, Chairman
The Committee members are Sir Gerry Grimstone (Chairman), Crawford Gillies, Lynne Peacock and David Nish.
You can find more details about the Group’s sustainability activities in Section 1.6 of the Strategic report – Our sustainable business overview and on the Group’s website at www.standardlife.com/sustainability 62 Standard Life
During 2014, the Committee reviewed: • The cost charged to the Heritage With Profits Fund for annuities that arise on the vesting of certain pension policies • Management of with profits assets and, in particular, the setting of investment strategy • Management of bonus rates and fair payout bases.
Communicating with investors The Company continues to develop a dialogue with its shareholders. As part of this, our investor relations and group secretariat teams support communication with investors. During 2014, the Group continued its programme of domestic and international presentations and meetings between the executive Directors and institutional investors, fund managers and analysts. The wide range of relevant issues discussed, in a regulatory compliant way, at investor presentations and meetings covers business strategy, financial performance, operational activities and corporate governance. The Chairman has his own investor contact programme and brings relevant issues to the attention of the Board. The Remuneration Committee also consulted with major institutional investors regarding executive remuneration during the year. More information on the consultation can be found in the Directors’ remuneration report.
The Board is equally committed to the interests of the Company’s 1.3 million individual shareholders who hold approximately 54% of the Company’s issued shares. Given this large shareholder base, it is impractical to communicate with all shareholders using the same direct engagement model we follow for our institutional investors. The Company has continued to gather and respond to shareholders’ views on the services and means of communication available to them, mainly via the Shareholder Questions mailbox and surveys conducted with shareholders contacting the shareholder helpline. Their input has informed how the Company communicates with them - particularly online - and how the Annual report and accounts, the Strategic report and the AGM guide are produced. We believe that communicating electronically with our shareholders supports our sustainability strategy, and around 430,000 shareholders receive all communications electronically. We encourage shareholders to use our share portal to access information relating to their personal shareholding and dividend history and around 300,000 have signed up to this service. Share portal participants can also change their details and dividend mandates online and receive dividend tax vouchers electronically. We also encourage our individual shareholders to hold their shares in the Standard Life Share Account where shares are held electronically in a secure environment and 85% of individual shareholders hold their shares in this way.
To give all shareholders access to the Company’s announcements, all material information reported via the London Stock Exchange’s regulatory news service is published on the Company’s website. We have continued to host formal presentations to support the release of both the full year and half year financial results together with conference calls for our two Interim Management Statements. These results-related events are also made available live on the Group’s website, with the facility for all listeners to ask questions, as well as having a permanent replay facility.
We organise several short analyst and investor events designed to give deeper insight into particular areas of our business, have created a company profile which is intended to give a high level introduction to the Group and have also created divisional profiles to give further high level insights into our business.
We also publish a monthly newsletter which features articles from senior management, to keep investors up to date on matters which may be of interest to them. These are available on the Investors section of the Group’s website. We have also maintained our Investor Relations Twitter account @sl_invrelations
The Chairman’s statement and the Strategic report in the Annual report and accounts 2014 aim to provide a balanced overall assessment of the Group’s activities, performance and prospects. This information will be supported by a presentation at the 2015 AGM – an event that provides a valuable opportunity for the Board and shareholders to communicate. Shareholders will be invited to ask questions during the meeting and have an opportunity to talk with the Directors after the formal part of the meeting. The voting results will be published on our website at www.standardlife.com after the meeting. These will include the number of votes withheld.
The 2014 AGM was held at the Edinburgh International Conference Centre on 13 May 2014. Directors were available to answer shareholders’ questions. In accordance with best practice, all resolutions were considered on a poll which was conducted by our registrars and monitored by independent scrutineers. The results, along with proxy votes lodged prior to the meeting, were made available on our website the same day. 40% of the shares in issue were voted and all resolutions were passed.
Our role as an institutional investor Standard Life Investments, the Group’s principal asset management company, understands the importance of good governance and stewardship. As a major investor, it monitors the governance of the companies it invests in. It also holds regular meetings with their senior management representatives. Standard Life Investments maintains principles and policy guidelines on corporate governance, stewardship and voting. These guidelines are applicable on a global basis. The guidelines support Standard Life Investments’ approach to engaging and to voting at shareholder meetings. Standard Life Investments also makes voting reports available to clients and publishes summary information on its website. The policy guidelines are applied pragmatically, after all relevant information has been carefully considered. When assessing the Company’s compliance with the principles and provisions of the Code, the Nomination and Governance Committee also reviewed the Company’s compliance with these principles and policy guidelines. The Committee concluded that the Company complied with the guidelines during the year.
Standard Life Investments is a strong supporter of the principles of good stewardship that are set out in the Stewardship Code, believing that it is mutually beneficial for companies and long-term investors such as Standard Life Investments to have a relationship based on accountability, engagement and trust. Standard Life Investments has made public its processes to comply with the Stewardship Code’s seven best practice principles. In line with Principle 7 of the Stewardship Code, Standard Life Investments obtains appropriate independent assurance over the policies and procedures which underpin its stewardship policy statements. You can read more about this and its governance and stewardship annual review at www.standardlifeinvestments.com
Other information You can find details of the following, as required by DTR 7.2.6, in the Directors’ report and in the Directors’ remuneration report: Share capital • Significant direct or indirect holdings of the Company’s securities • Confirmation that there are no securities carrying special rights with regard to control of the Company • Confirmation that there are no restrictions on voting rights in normal circumstances • How the Articles can be amended • The powers of the Directors, including when they can issue or buy back shares. Directors • How the Company appoints and replaces Directors • Directors’ interests in shares.
Annual review of internal control The Directors have overall responsibility for the Group’s ERM framework and system of internal control and for the ongoing review of their effectiveness. The framework is designed to manage, rather than eliminate, risk and can only provide reasonable, not absolute, assurance against material misstatement or loss. The framework covers all of the Group’s risks as set out in the ERM framework section below. GIA regularly reviews the effectiveness of internal control and the ERM framework, and reports its findings to the Audit Committee and the Risk and Capital Committee. In particular, with regard to regular financial reporting and preparing consolidated accounts, Group Finance participates in the control self-assessment and policy compliance elements of the ERM framework.
In addition, Group Finance operates a number of internal process controls around the preparation and application of methodologies used in our Group financial results.
accounting policy and reporting issues to support consistent interpretation and application across the Group • Maintaining a Group IFRS Accounting manual which details the accounting treatment to be applied during the preparation of the financial results. Any changes to this manual are reviewed and approved by the TRC • Seeking approval from Group Finance committees, including the Financial Reporting Executive Review Group and EEV Basis
Group, for changes to certain reporting methodology, metrics and disclosures • Receiving assurance from business unit finance directors that all methodology changes have been complied with in the preparation of the business unit results • Reviewing and challenging submissions from business unit finance teams.
These reports were reviewed by the business unit chief risk officer, chief financial officer and chief executive or Group function executives as part of their certification. Reports combining the output from these certifications were then collated by Group Risk in order that this exercise could be undertaken by the Chief Financial Officer, Chief Risk Officer and Chief Executive. Completed certifications and supporting documentation were presented to the business unit and the Group Enterprise Risk Management Committees. The results of the output from this review were presented to the Audit Committee which subsequently reported its conclusions to the Board. The internal controls relating to the joint ventures are not covered by these reports but are managed through participation on the boards and audit committees of those companies.
The Group’s ERM framework enables a risk based approach to managing our business, allowing the risks of the Group to be identified, assessed, controlled and modelled consistently. Standard Life’s Risk Function is responsible for the design and implementation of the ERM framework.
Our approach • Group-wide risk awareness, deepening understanding of risk, ongoing embedding and change • The right structure, effectively implemented, with risk focused committees and pre-emptive and proactive risk management • The right people, in the right jobs, demonstrating the right behaviours with roles and responsibilities clearly defined.
ERM reporting The risk function reviews and challenges risk reporting across the Group to ensure that accurate and adequate information is delivered to the executive team and risk committees to support their risk management mandates.
Strategic risk management Strategic risk management forms an integral part of the strategic planning process and is directly linked to the Group’s corporate objectives. This process enhances the Group’s capability to assess strategic allocation of capital and the ability to identify, monitor and manage emerging risks.
Our approach • Putting risk at the heart of our business planning • Identifying and understanding our risks and strategy and making the right decisions • Effective strategic control and allocation of capital.
Quantitative risk limits Quantitative risk limits are used to support the qualitative risk appetite statements and allow regular objective reporting of exposures against risk limits. The quantitative risk limits used during 2014 have been based on the economic capital resources risk metric. Economic capital resources are a quantification of the capital available within the Group. They are a measure, based on an internal economic capital methodology, of the value of the Group's assets less liabilities. This metric supports management of the financial strength of the Group and delivery of long-term shareholder value. Under this metric, risk exposures are measured as the amount of capital that is needed to cover the risks taken by the Group, calibrated to withstand a defined risk event.
The policy framework and CSA modules require senior management to certify adherence with policy standards and key controls on a regular basis. The results of this exercise and risk event information are reported to Group and business unit ERMC meetings on a regular basis.
Our approach • Embedded and comprehensive policy framework covering financial and non-financial risks • Operational risk and control: integrated system, consistent application • Active control management: make the right things happen the first time, identify when things have not gone well and understand why, recover the position quickly when things have not gone well.
• Benchmarks: state how each business unit will demonstrate policy compliance through providing appropriate evidence for each policy standard, in terms of processes, controls and communications
The policy framework helps ensure that all of the Group’s businesses operate effectively, efficiently and comply with all applicable laws and regulations. Examples of how we use the policy framework in practice are set out three case studies below.
• Tax shall be managed and controlled within a commercial context so that all transactions and arrangements must have a business purpose and commercial rationale
• We shall lobby and seek to influence applicable industry bodies or associations, governments and other external bodies (such as the Organisation for Economic Co-operation and Development and the EU) in the interests of all our stakeholders including customers, shareholders and employees.
Environmental, social and governance risks Our sustainability strategy is fundamental to our strategic purpose of helping to build a more prosperous world. It helps us ensure we effectively manage the environmental, social and governance (ESG) risks and recognise the opportunities that may affect the Company’s short and long term value. Details of the strategy and how we measure our progress are included in Section 1.6 of the Strategic report - Our sustainable business overview. The strategy is underpinned by our code of business conduct and ERM and policy frameworks. The following details some of our main policies and activities that support this strategy: • Our Conduct Risk policy sets out the ways we help make sure that wherever in the world we operate, we treat our customers with consideration and fairness • Through our Tax Risk and Transfer Pricing policy, we set out our approach to managing tax risks including our disclosures, transparency and reputational impacts • We remain committed to minimising financial crime. We have an Anti-Financial Crime & Anti-Bribery policy to protect the
• Our Environment policy is in place to ensure that we minimise, as far as reasonably possible, the environmental impacts we have through our business activities. This includes minimising our greenhouse gas emissions, the waste we produce and the paper we use
Risk and capital models The risk and capital models section of the ERM framework covers the models that we use to measure our risk exposures and capital position and the work that we do to test and understand the sensitivity of these positions. The models and the insight that they provide are integral to managing the business.
Consistency of measurement The Group continually strives to enhance its internal risk and capital models. Our main objective is to improve the consistency of the quantitative measurement of risk and use of capital across all businesses.
Stress and scenario testing programme We carry out a group-wide programme of stress and scenario testing to ensure that the Board and senior management have a strong understanding of the risks that the Group is running and their potential impact, the consequent capital requirements, and appropriate potential mitigating actions. Considered as a whole, the stress and scenario testing programme within Standard Life gives a wide-ranging picture of the range of risks run by the Group and the consequent capital requirements. It aims to ensure that the Group would have sufficient assets to meet its liabilities even after a range of severe scenarios.
Our approach • Defined process for the identification of emerging risks • Supported by reverse stress testing of business plans • Raising awareness at executive level and across the Group.
Reverse Stress Testing Reverse stress testing and analysis is a key component of the emerging risk process. Reverse stress testing serves to enhance our risk processes by subjecting our business plans to a combination of stress events. This enables us to take a forward-looking view of risks driven by our business model along with any capital implication associated with these risks.
Directors’ remuneration report This report sets out the policies that will govern what and how we pay the Directors of Standard Life plc in the future and what we paid them in 2014. Where tables and charts in this report have been audited by PricewaterhouseCoopers LLP we have marked them as ‘audited’ for clarity.
Leading up to and during 2014 the key objective in relation to the sale of the Canadian business, was to seek to maximise shareholder value through aligning actions and decisions to support a possible sale. As a result, the Board determined that certain initiatives and activities which would have positively impacted the Canadian business operating profit, and would have been reflected in the assessment of performance in terms of the incentive plans, should not proceed, as these may have impacted the sales process or the shareholder value to be generated. As a consequence, compared to the Group LTIP target set in 2012, a significant reduction in operating profit for the Canadian business was expected in 2014, and a smaller although still significant reduction was also expected for the Canadian business compared to the 2014 annual bonus targets set in 2013.
Whilst the principal driver behind the restatement of the targets is the sale of the Canadian business, given the increasing importance of the Newton Private Client business acquisition (which is now part of Standard Life Wealth); the Ignis acquisition and the joint ventures in delivering our strategy as a global investment solutions provider, we considered it was appropriate to include these businesses in the restated targets at the same time. The restated targets for the 2012 and 2013 Group LTIP will include Ignis and Newton Private Client business. The 2014 Executive LTIP restated targets will include Ignis (the Newton Private Client business was already in the original target). The joint ventures will be included in the restated targets for the 2013 Group LTIP and 2014 Executive LTIP.
In summary, the adjustments made to the 2014 Group operating profit targets and results for the 2012 Group LTIP, which vests in March 2015, are as follows: • Removal of Canadian business, sold in January 2015 • Inclusion of Ignis, acquired in July 2014 • Inclusion of Newton Private Client business, acquired in September 2013 • Removal of interest income no longer receivable due to Canadian capital restructuring.
In relation to the 2014 Group annual bonus plan the following adjustments have been made to the targets and results: • Removal of Canadian business, sold in January 2015 • Inclusion of Ignis, acquired in July 2014.
As a result of the impact on the Standard Life Investments’ balance sheet of the acquisition of Ignis and transfer in of Standard Life Wealth the profit measure has been amended from EBIT to EBITDA as we believe this is more reflective of the day to day performance of the business.
The expected IFRS gain on the sale of the Canadian business will be reflected in non-operating profit and will therefore not be included in the performance assessment of any long-term incentive plan or annual bonus plan.
In determining the adjustments detailed above the Remuneration Committee considers that the restated performance targets will not be materially less difficult to satisfy than the original performance targets.
The Remuneration Committee values the opportunity to listen to our shareholders’ views and is committed to maintaining an open and transparent dialogue with shareholders on executive remuneration. We therefore undertook an extensive consultation exercise with our major institutional shareholders prior to determining the LTIP and bonus plan performance target restatements, involving a number of face to face meetings, to inform our approach.
During the consultation, investors recognised the significant value of the corporate actions undertaken by the Company. They were also largely supportive of the proposed approach to the restatement and acknowledged that other methods of restatement were more complicated and less transparent. There was also an understanding that these are exceptional circumstances in terms of the scale of corporate actions and their impact on targets and value creation for shareholders.
• As detailed above the Canadian business operating profit has been removed from the Group targets, due to the impact of the sale on the 2014 operating profit numbers. However the Remuneration Committee considered that as an individual business unit over the 3 years to 2014 the Canadian business has contributed aggregate operating profits which exceed the budgets set in 2011 for 2012 to 2014.
• The level of dividends and capital returns to shareholders which since 2010 has been £3.5bn (147p per share) made up of £1.5bn ordinary dividends paid, £0.3bn special dividend paid in 2013 and the approximate £1.75bn return of value proposed from the sale of the Canadian business
• The impact of the sale which is consistent with the Group’s strategic focus on investment solutions and brings a new distribution partnership with Manulife.
Having considered the above factors the Remuneration Committee determined these vesting levels appropriately reflected the performance of the Group, the overall shareholder value delivered to investors and the strategic value created by the sale of the Canadian business.
For purposes of transparency, the Remuneration Committee can confirm that an indicative vesting of approximately 28% would have been achieved for the 2012 Group LTIP based on the original targets, including Canadian business performance, but restated for the acquisitions of Ignis and Newton Private Client, and the Canadian capital restructuring. This indicative vesting level does not consider other factors which have impacted the Canadian results, including management actions and business opportunities which could have been executed in 2014 if the sale process had not commenced. Therefore, as explained above, due to the complexity and subjectivity involved in attempting to restate the targets as if the Canadian operations had not been sold, and the significant strategic shareholder value created by the sale, it was decided that the most appropriate methodology was to remove the 2014 operating profit of the Canadian business from both the target and the 2014 financial results used to determine the vesting of the 2012 award.
As detailed in the circular to shareholders we do not expect to make any adjustment to the number of shares over which participants have options or awards following the capital reorganisation and it is expected that the return of value and share capital consolidation will achieve a largely neutral position for holders of options.
In setting the salary for the CE, Standard Life Investments, the Remuneration Committee considered the significant increase in size, complexity and responsibilities of the role, specifically the following: • The role of Standard Life Investments in the development of a well-diversified global asset management business, which is one of the key growth engines for the group
• The inorganic growth of Standard Life Investments with the successful acquisitions of Ignis and the transfer in of Standard Life Wealth and Newton’s private client management businesses into Standard Life Investments which has resulted in the creation of private market, liquid-alternatives and high net worth capabilities alongside the active management platform
The Remuneration Committee considers that given the above, a base salary adjustment from £450,000 to £500,000 (11.1%) reflects the growth and transformation of Standard Life Investments that has already taken place as well as the increasing importance of Standard Life Investments within the Group.
During 2014 we have reviewed the remuneration policy as it relates specifically to the CE, Standard Life Investments. We are proposing the removal of the discretion for the Remuneration Committee to make an award in excess of the maximum bonus payable under the Standard Life Investments’ company bonus plan in the event that stretch targets are exceeded. We are also introducing additional bonus deferral which will apply to the Standard Life Investments’ personal and company bonuses. Details of the deferral, which will apply to bonuses paid from 2016 onwards, are provided in the Directors’ remuneration policy.
Increase in the maximum grant value In line with the Group’s move towards becoming a global investment solutions provider, the leadership population to be covered by the Executive LTIP may include current participants in the Standard Life Investments LTIP. Currently such participants may receive awards up to 500% of base salary under that plan. In order to accommodate all possible leadership roles within the Executive LTIP a rule change, to increase the maximum award opportunity under the Executive LTIP from 300% to 500%, is proposed. Standard Life Investments’ participants would continue to be subject to Standard Life Investments related performance conditions to maintain their alignment to the performance of that business. Subject to the rule change being approved it is the intention of the Remuneration Committee to grant one award under the Executive LTIP to the CE, Standard Life Investments, instead of the current 200% under each of the Executive LTIP and the Standard Life Investments LTIP. This will be for grants from 2016 onwards. Performance conditions related to the performance of Standard Life Investments will continue to apply to awards made to the CE, Standard Life Investments in addition to Group performance conditions.
The rule change is not intended to result in changes to the overall grant level to participants. We are not changing the quantum of awards made to executive Directors and will not do so without consulting with our major institutional investors.
Deferral into funds A rule change to allow for the ability to make awards in the form of Standard Life Investments’ funds as well as over Standard Life plc shares is proposed. The intention behind this rule change is to accommodate any future regulatory change which requires remuneration to be deferred into funds. For the executive Directors, shares will continue to be the preferred deferral vehicle.
At the same time as consulting on the restatement of the performance targets with our investors, we also consulted on the proposed rule changes. During the consultation, investors understood and were supportive of the proposed rule changes.
I hope you will support these resolutions, which require your approval to take effect, and also the resolution to approve the Directors’ remuneration report.
The Remuneration Committee sets base salaries taking into account a range of factors including: • The individual’s skills, performance and experience • Internal relativities and wider workforce salary levels • External benchmark data • The size and responsibility of the role • The complexity of the business and geographical scope • Economic indicators.
Whilst there is no maximum salary, any increases for executive Directors will normally be in line with the typical level of increases awarded to other employees at Standard Life and will be a reflection of their performance.
• Where there is a significant increase in the size and responsibilities of the executive Director’s role.
Benefits To provide market competitive monetary and nonmonetary benefits, in a cost effective manner, to assist employees in carrying out their duties efficiently.
In the event of recruitment or relocation additional benefits may be provided, such as: • Housing rental costs • Education allowance • Travel and accommodation costs • Relocation costs
Such benefits would be set at an appropriate level taking into account the individual’s circumstances and typical market practice.
The maximum opportunity is in line with all other employees and is as determined by the prevailing HMRC rules on maximum employee payment limits.
The level of company pension contribution and level of cash allowance are reviewed periodically taking into account: • External benchmark data • Pension legislation • Other elements of the remuneration package.
The Remuneration Committee exercises its judgement to determine awards at the end of the year to ensure that the outcome of the scorecard is fair in the context of overall Group performance, taking into account actual performance against Group scorecard targets, business performance and performance against personal goals. Normally, 50% of any bonus above 25% of salary is deferred into shares which vest after two years from the date of award (subject to the deferred amount being at least 10% of salary).
Deferred awards will accrue dividend equivalents over the deferral period. These will normally be paid in shares on a reinvested basis.
To support the delivery of Standard Life Investments’ annual business plan by rewarding Standard Life Investments’ employees for the delivery of individual performance objectives in the year and Standard Life Investments’ corporate and investment performance.
The bonus pool is determined by reference to Standard Life Investments’ financial performance.
Higher levels of deferral or longer deferral periods may apply at the Remuneration Committee’s discretion.
The Standard Life plc Executive Long Term Incentive Plan (Executive LTIP)
Awards are normally granted in the form of nil-cost options. These are usually in the form of shares but may be awarded in other forms, such as a unit, share or equivalent in a fund, or fund of funds managed by Standard Life Investments, if it is considered appropriate.
Unvested awards are subject to malus (details set out later in the report).
The Remuneration Committee may adjust and amend awards in accordance with the Executive LTIP rules.
The award level for the CE, Standard Life Investments in 2015 will be up to 200% of salary.
In 2016, it is anticipated that an award of up to 400% of salary will be made to the CE, Standard Life Investments with no award being made under the Standard Life Investments Long-Term Incentive plan from 2016 onwards.
The Remuneration Committee will normally consult with the Company’s largest institutional investors in advance of increasing award levels above the current grant levels.
• Cumulative Group net flows weighted at no more than 50% of the award (for 2015 this is 30%).
Vesting of a portion of the awards made from 2016 for the CE, Standard Life Investments will also be based on performance targets based on Standard Life Investments’ performance measures (currently consolidated cumulative three-year third party earnings before interest, tax, depreciation and amortisation. This measure is subject to an investment performance gateway which requires Standard Life Investments’ performance to be above the lower quartile of the money-weighted average of all assets under management (captive and third party assets) compared to other asset managers).
The split between the Group and Standard Life Investment performance measures for the CE, Standard Life Investments will be determined annually by the Remuneration Committee.
To reward the delivery of Standard Life Investments’ long-term strategy and the delivery of sustainable returns to the Group.
The Remuneration Committee may adjust and amend awards in accordance with the rules.
Notes to policy table The deferred element of the Group annual bonus plan, Executive LTIP and the Standard Life Investments Long-Term Incentive Plan (Standard Life Investments LTIP) shall be operated in accordance with the rules of the respective plans. The rules of the Executive LTIP were approved by shareholders in 2014. The rules of the Standard Life Investments LTIP were approved by shareholders in 2010.
All changes made to our policy as set out in the policy table are detailed in the remuneration policy section of the Remuneration Committee Chairman’s statement.
For these purposes payments include the Remuneration Committee satisfying awards of variable remuneration. In relation to an award over shares including awards granted in 2012 and 2013 under the Group LTIP, awards granted in 2012, 2013 and 2014 under the Standard Life Investments LTIP, and awards granted in 2014 under the Executive LTIP and any other share based plan operated by the Group. This means making payment in line with the terms that were agreed at the time the award was granted.
Under the malus and clawback provisions, the Remuneration Committee can reduce awards that have not yet vested (malus) and can require the repayment of an award (clawback).
The circumstances in which malus or clawback would apply are set out below: • Where there is a material mis-statement of the Group’s financial statements through information or assumptions that are found to be misleading prior to the date of vesting • Where there is fraud and/or any other material financial irregularity, or failure of risk management which results in material losses being incurred • Where there is serious misconduct by a participant or team.
The Remuneration Committee will address any performance issues through their oversight of the annual Group scorecard.
No other element of remuneration is subject to malus or clawback.
We aim to deliver target awards for good performance. By this we mean business outcomes are delivered consistently against agreed requirements and performance expectations in terms of both what has been delivered and how this level of performance has been achieved. Maximum awards will only be earned where the performance in the Group or Standard Life Investments has significantly exceeded expectations.
Rationale Measures chosen to support the delivery of financial performance as set out in the Group’s annual business plan.
Measures chosen may include, but are not limited to: • Group operating profit before tax • Operating return on equity.
Net flows are a measure of the assets that customers have invested with the Group during the year (premiums and deposits) minus the assets they’ve taken out (withdrawals, claims and annuity payments). This reflects the Group’s ability to win/retain business and is an indicative measure of customer satisfaction. As a result of the acquisition of Ignis and the inclusion of our overseas joint ventures in the targets, the definition of net flows has been reviewed for appropriateness and it will exclude flows arising from investment in money market and liquidity funds. These funds operate like bank accounts and customers can invest or disinvest cash with little notice and financial penalty which leads to significant volatility in the net flows and as such their inclusion is inappropriate for the purpose of rewarding growth in net flows. The net flows attributable to money market and liquidity funds will be reported each year in the Annual report and accounts.
Rationale Chosen measure of profitability which drives the growth of Standard Life Investments.
The measure has been amended to EBITDA from earnings before interest and tax (EBIT) as management believe this is more reflective of the day to day performance of the business.
Awards under the Standard Life Investments LTIP are also subject to an investment performance gateway which requires Standard Life Investments’ investment performance to be above the lower quartile of the money-weighted average of all assets under management (captive and third party assets) compared to other asset managers before the award vests. This benchmarks performance relative to other asset managers and prevents vesting for relative underperformance.
The scorecard used to determine annual bonuses for executive Directors is used in the determination of annual bonuses for all employees. Although the above principles apply throughout the Group, given the size of the Group and the scale of its operations, the way in which the remuneration policy is implemented varies by jurisdiction and seniority. For example participation in the Executive LTIP is at the Remuneration Committee’s discretion and is normally limited to senior management, and the Group’s defined contribution pension provision is graduated based on seniority.
Measures chosen may include, but are not limited to: • Operating profit before tax • Earnings before interest, tax, depreciation and amortisation (EBITDA)
Embeds a culture that places the customer at the heart of the Standard Life Investments’ business.
The chart below illustrates how much the current executive Directors could earn under different scenarios for 2015. This is based on the following assumptions: • Below threshold is based on fixed pay only which includes salary, pension allowance and taxable benefits • Target includes the potential value of annual and long-term incentives which would be payable for target performance (being 50% of maximum) • Maximum shows the total remuneration receivable for maximum performance under all incentive plans • A constant share price is assumed and dividend equivalents have been ignored.
Fees are set at a market rate with reference to the level of fees paid to other non-executive directors of FTSE 100 financial services companies.
The Chairman receives an aggregate fee which includes the chairmanship of any appropriate Board committee.
Principles In determining remuneration arrangements for new appointments to the Board (including internal promotions), the Remuneration Committee applies the following principles: • The Remuneration Committee takes into consideration all relevant factors, including the calibre of the individual, local market practice and existing arrangements for other executive Directors, adhering to the underlying principle that any arrangements should reflect the best interests of the Group and its shareholders
• Remuneration arrangements for new appointments will typically align with the remuneration policy presented above • In the case of internal promotions, the Remuneration Committee will honour existing commitments entered into before promotion • The Remuneration Committee will explain to shareholders the rationale for the relevant arrangements in the following year’s
Components and approach The remuneration package offered to new appointments may include any element of remuneration included in the remuneration policy set out in this report, or any other element which the Remuneration Committee considers is appropriate given the particular circumstances but not exceeding the maximum level of bonus and long-term incentive awards detailed above. In considering which elements to include, and in determining the approach for all relevant elements, the Remuneration Committee will take into account a number of different factors, including (but not limited to) typical market practice, existing arrangements for other executive Directors and internal relativities, and market positioning.
Appointment of non-executive Directors If a new Chairman or non-executive Director is appointed, remuneration arrangements will normally be in line with those detailed in the remuneration policy for non-executive Directors set out above.
The executive Directors' terms and conditions of employment are detailed in individuals’ executive service contracts. In these contracts, the Remuneration Committee aims to strike the right balance between the Company's interests and those of the executive Directors, while ensuring that the contracts comply with best practice, legislation and the agreed remuneration principles. Contracts are not for a fixed term, but set out notice periods in line with the executive Director's role.
The terms and provisions that relate to remuneration in each of the executive Director’s contracts (that are not set out elsewhere in this report) are set out below. It is intended that the terms for any new appointment would be in line with these: Provision Policy
Contract dates David Nish 31 October 20061 Keith Skeoch 3 April 2006 Luke Savage 24 April 20142 1 David Nish signed a new contract in October 2009, reflecting his appointment to Chief Executive from 1 January 2010. 2 Luke Savage’s contract was effective from 18 August 2014.
Non-executive Directors The non-executive Directors, including the Chairman, have letters of appointment that set out their duties and responsibilities. The key terms are: Provision Policy Period of appointment
Remuneration Fees as set out on page 100 Reimbursement of travel and other reasonable expenses incurred in the performance of their duties. No pension, annual bonus or other incentive payment permitted.
The service agreements / letters of appointment for Directors are available to shareholders to view on request from the Group Company Secretary at the Company’s registered address (details of which can be found in the Contact details on page 302 and at the 2015 AGM).
The remuneration policy for loss of office for executive Directors is as follows: • Any payment in lieu of notice will be up to 12 months' salary, pension contributions and the value of other contractual benefits • There is a duty to mitigate any termination payments • The payment may be made in phased instalments and the policy is to do this for notice periods of over six months • Rights under all-employee share plans, to bonus awards and to long-term incentive awards are governed by the rules of the respective plans • Awards under all-employee share plans vest in accordance with their terms, under which good leavers are entitled to shares on or shortly after cessation. Other leavers would usually forfeit awards. • Typically, for good leavers, rights to annual bonus and long-term incentive awards will be pro-rated for time in service to termination as a proportion of the performance period and will, subject to performance, be paid at the usual time (which in the case of the Executive LTIP will normally include the holding period). Outstanding deferred share awards will typically vest in full at the date of termination.
In the event of a change of control, executive Directors may receive a cash bonus in respect of the year in which the change of control occurs which, unless the Remuneration Committee determines otherwise, will be time pro-rated by reference to the bonus year. Outstanding deferred share awards will typically vest in full. Long-term incentives will normally vest early, taking into account the extent to which any relevant performance conditions have been met and, unless the Remuneration Committee determines otherwise, the time that has elapsed from the beginning of the relevant performance period. If the Company undergoes a winding up or is subject to a demerger, delisting, special dividend or other event which in the opinion of the Remuneration Committee may affect the current or future share price, the Remuneration Committee may allow awards to vest on the same basis as for a change of control.
Considering conditions elsewhere in the Group When setting the policy for executive Directors’ remuneration, the Committee takes into account the pay and employment conditions elsewhere within the Group, recognising international variance and jurisdictional differences, where appropriate. The Remuneration Committee is informed about the approach on salary increases, group-wide benefit offerings including pensions, the structure of incentive arrangements and distribution of outcomes throughout the wider organisation, as well as the take-up of all-employee share plans, employee engagement survey results and staff morale.
Consideration of shareholder views The Remuneration Committee values the opportunity to listen to the Company’s shareholders. As explained in the Remuneration Committee Chairman’s statement, major institutional shareholders were consulted in respect of the amendments proposed to the Executive LTIP rules and restatement of targets for the outstanding Group and Executive LTIP awards.
Annual remuneration report - what we did in 2014 Single total figure of remuneration - executive Directors (audited) The following table sets out the single total figure of remuneration for each of the executive Directors who served as director at any time during the financial year ending 31 December 2014.
Total remuneration for the year £000s 1 This includes the taxable value of all benefits paid in respect of the year ended 31 December 2014. For executive Directors this includes car allowances of £16,585 for David Nish and £5,963 for Luke Savage (car allowance was pro-rated for the period in employment). Luke Savage also received £33,913 in respect of a travel allowance payable at a rate of £7,500 per month for a maximum period of 6 months. Also included is private health cover - this amount is not significant.
The figure reported for long-term incentives in 2013 has been restated as the actual market values at the date of vesting of the Group LTIP and Standard Life Investments LTIP, unknown at the date of publication of the 2013 Annual report and accounts, are now known. The estimates provided in last year’s report were: David Nish £1,970k, Keith Skeoch £2,108k.
Luke Savage - £600,0001 £226,087 1 Luke Savage was appointed a Director on 18 August 2014 and salary shown is annual base salary from that date.
Luke Savage1 25% £56,522 1 Luke Savage was appointed a Director on 18 August 2014 and the cash allowance shown was paid from that date.
Luke Savage1 65% 150% 1 Luke Savage was appointed a Director on 18 August 2014 and the bonus payable will be pro-rated accordingly.
The bonus award is based on Group performance and personal performance. The relative weightings are 90% based on Group performance and 10% on personal performance for David Nish and Keith Skeoch. Luke Savage’s award is based 80% on Group performance and 20% on personal performance.
The scorecard weightings, key achievements and overall score for 2014 are shown in the following table: • The scorecard is based on a scale of 1 to 5 with 5 reflecting maximum, 3 on target and 1 unsatisfactory performance • More information on the Group’s financial key performance indicators can be found in Section 1.2 of the Strategic report • Before approving the level of performance in 2014, the Remuneration Committee sought the views of the Group Chief Risk
As explained in the Remuneration Committee Chairman’s statement, adjustments have been made to the 2014 financial targets to reflect the impact of the corporate actions undertaken during the year. • Removal of target and actual contribution from Canadian business, sold in January 2015 • Inclusion of target and actual contribution from Ignis, acquired in July 2014.
European Embedded Value operating profit after tax (EVOP) (excluding our discontinued Canadian business and life joint ventures).1
Operating return on equity (RoE) (excluding our discontinued Canadian business and life joint ventures).1
Strong financial performance from operations including • Group operating profit before tax (excluding our discontinued
• Proposed sale of Canadian business and global collaboration agreement with Manulife (completed 30 January 2015) with associated capital return.
We have also continued to deliver on our strategy at a time of unprecedented market and regulatory change: • Produced strong investment performance • Launched new ‘good-to-go’ UK auto-enrolment solution and 88 Standard Life
DWP command papers which materially impacted the retirement, annuity and workplace pensions markets
• Significantly increased the number of retail customers across Standard Life Investments with the acquisition of Ignis Asset Management, the integration of Standard Life Wealth and the migration of the Sigma investment platform. A dedicated Client Council has been set up to provide effective oversight of these customers and to enable focused customer insight to be undertaken.
• Received accreditation as a UK Living Wage employer and retained our position on a number of key sustainability indices, including the Dow Jones Sustainability Indices (DJSI) World and Europe and the FTSE 350 Climate Disclosure Leadership Index (CDLI)
• Developing powerful and consistent leadership, identifying and growing tomorrow’s leaders
• Ran our pay and performance across the globe on a single platform clearly linking pay and performance and continuing to develop our culture of transparency and openness.
Based on performance against each of the four Group performance elements and considering the performance of the Group as a whole, the Remuneration Committee approved a rating of 4.8 out of 5 for performance against the Group scorecard during 2014.
As a result of the ratings approved by the Remuneration Committee, the Group annual bonus outcome as approved by the Remuneration Committee for 2014 is: Bonus opportunity based on Group performance as a % of total bonus
Total bonus payable as a % of base salary1 Total bonus
If the bonus payable amounts to more than 25% of salary, then half of the amount above 25% of salary is deferred for two years into an award over Standard Life plc shares. The deferral is not made if the amount to be deferred is less than 10% of salary.
2013 Group annual bonus – disclosure of financial targets The financial targets used in the determination of the 2013 Group annual bonuses paid in March 2014, and not previously disclosed, are shown in the following table: Performance Target Below Threshold Threshold Maximum Group operating profit before tax (excluding life joint ventures)1 <£620m £620m £732m European Embedded Value operating profit before tax (excluding life joint ventures)1 <£865m £865m £1,267m Operating return on equity (excluding life joint ventures)1 <12.4% 12.4% 14.6%
The determination of annual bonuses at Standard Life Investments is subject to two levels of control. First, the board of Standard Life Investments (Holdings) Limited reviews its financial results, and, after taking into account the level of overall performance and risk, its remuneration committee proposes the level of bonus payments. The second level of control is when this is referred to the Remuneration Committee which reviews these recommendations and determines the bonuses to be paid to the most senior employees within Standard Life Investments.
Summary of bonus outcomes (audited) The following table shows the total bonus awards made in respect of 2014: Group cash bonus Group deferred bonus
Original targets 2014 performance level Below threshold Threshold Target Maximum 2014 Group operating profit before tax (excluding life joint ventures)1 <£675m £675m £750m £825m 1 Life joint ventures refers to HDFC Standard Life Insurance Company Limited and Heng An Standard Life Insurance Company Limited.
Standard Life Investments Long-Term Incentive Plan (Standard Life Investments LTIP) In 2012, in addition to the Group LTIP, Keith Skeoch participated in the Standard Life Investments LTIP. Under the Standard Life Investments LTIP, awards will only begin to vest if Standard Life Investments’ investment performance (three-year moneyweighted average) is above the lower quartile of the money-weighted average of all assets under management (both captive and third party assets) compared to other asset managers. The level of vesting is then subject to consolidated cumulative third-party EBITDA performance as shown in the table below. The actual EBITDA targets will not be disclosed as the Board deems that this is commercially sensitive information and, if disclosed, could seriously prejudice the Group’s business. As noted in the Remuneration Committee Chairman’s statement, the performance targets and results for the 2012 award have been adjusted to reflect: • Removal of Canadian business, sold in January 2015 • Inclusion of Ignis, acquired in July 2014 • EBITDA , rather than EBIT as the appropriate profit metric • Inclusion of the business of Standard Life Wealth, accounted for within Standard Life Investments’ business from January 2014.
2012 Standard Life Investments LTIP awards vesting in respect of performance periods ending in 2014 In line with the above, Keith Skeoch received an award under this plan in March 2012 equivalent to 200% of salary (at maximum vesting). No other executive Director received an award under this plan.
Insurance Company Limited • Inclusion of expected interest on proceeds of the sale of the Canadian business less the planned equity return.
The table below shows the original performance targets for the Executive LTIP: 2016 performance level Below threshold Threshold Maximum Original performance range: 2016 cumulative Group operating profit before tax (excluding life joint ventures)1 <£2,165m £2,165m £2,585m 2016 cumulative Group net flows (excluding life joint ventures)1 <£21.2bn £21.2bn £33.4bn 1 Life joint ventures refers to HDFC Standard Life Insurance Company Limited and Heng An Standard Life Insurance Company Limited.
Basis of award (% of salary and face value at grant)1
% of award vesting at restated threshold and restated threshold performance levels
% of award vesting at restated maximum and performance required for maximum vest 2014 Executive LTIP award, vests on 20 May 2019 Nil-cost option
Maximum: 140% of third party EBITDA target 1 The number of shares awarded is calculated based on the average share price for the five days preceding the grant which was £3.88 for the awards granted to David Nish and Keith Skeoch on 20 May 2014 and £4.07 for the award granted to Luke Savage on 10 September 2014.
All of the above awards are subject to an additional personal performance underpin whereby, if an executive Director performs at an unsatisfactory level in any year during the three-year performance period, their original award would be reduced by one-third, unless the Chief Executive, or the Remuneration Committee in the case of the Chief Executive, recommends otherwise.
As a result of the corporate actions during 2014 the following target adjustments have been made to the 2013 LTIP targets: • Removal of Canadian business, sold in January 2015 • Inclusion of Ignis, acquired in July 2014 • Inclusion of Newton Private Client business, acquired in September 2013 • Inclusion of India and China life joint ventures - HDFC Standard Life Insurance Company Limited and Heng An Standard Life
At threshold or below threshold performance no awards vest. At maximum performance 100% of the awards vest. Between threshold and maximum performance vesting is on an incremental basis using predetermined milestones.
Share ownership A share holding requirement was implemented in 2014 and we continue to require executive Directors and senior management to maintain a material long-term investment in Standard Life plc shares.
• Shares currently held which were obtained from the exercise of awards and which contributed to satisfying the previous shareholder guidelines.
Executive Directors will be required to retain shares held in respect of the requirement for a period of one year following their departure from the Group. The Remuneration Committee reviews progress against the requirements annually and retains discretion to require executive Directors to purchase shares to meet the requirement.
The table below shows, in relation to each executive Director, the total number of share options with and without performance conditions held at 31 December 2014: Options with performance measures1
The Chairman continues to be subject to a guideline holding of 100% of the value of his annual fee in Standard Life plc shares within four years of appointment. Sir Gerry Grimstone, as Chairman, fully met this requirement in 2014 with the value of his shares at the end of the year being 289% of his fees.
The closing market price of Standard Life plc shares at 31 December 2014 was 400.1p and the range for the year was 354.0p to 426.3p.
3 The 2011 Group LTIP vested at 64% and the Standard Life Investments’ LTIP at 60.1%.The Standard Life Investments’ LTIP was previously disclosed as vesting at 60.9% but was amended post publication of the 2013 Annual report and accounts.
Total value on exercise date David Nish 29/03/12 29/03/14 209,667 - 21,194 230,861 - - £2.015 £3.9453 3/04/14 £910,816 28/03/13 28/03/15 153,751 - 17,594 - - 171,345 £3.326 - - - 28/03/14 28/03/16 - 121,991 5,103 - - 127,094 £3.448 - - - 363,418 121,991 43,891 230,861 - 298,439 Keith Skeoch 29/03/12 29/03/14 23,813 - 2,405 26,218 - - £2.015 £3.8529 2/4/2014 £101,014 28/03/13 28/03/15 18,907 - 2,162 - - 21,069 £3.326 - - - 28/03/14 28/03/16 - 14,503 605 - - 15,108 £3.448 - - - 42,720 14,503 5,172 26,218 - 36,177 1 All deferred share awards lapse six months after the expected first date of exercise. 2 The Remuneration Committee has invoked the power within the bonus plan for the deferred share awards to carry a right to receive rolled-up dividends, but only to the extent that the awards vest. As such, these awards include shares equivalent to the level of dividends announced between 29 March 2012 and 31 December 2014 or the date of vesting if earlier.
The Standard Life Sharesave Plan David Nish was granted options over 9,669 Standard Life plc shares exercisable from 1 November 2016 under the Sharesave Plan on 15 September 2011. The exercise price for these options is £1.5746.
Executive Directors’ external appointments Subject to the Board’s approval, executive Directors are able to accept a limited number of external appointments to the boards of other organisations and can retain any fees paid for these services. Significant executive Director appointments held during the year are shown below.
Deputy chairman of the board of the Association of British Insurers (ABI)1 Member of the Financial Services advisory board Member of the advisory council of TheCityUK Non-executive director of the UK Green Investment Bank plc £30,000
Long-term incentive plan vesting rates against maximum opportunity (%) 2014 David Nish 5,473 95 100 2013 David Nish 4,206 75 64 2012 David Nish 5,5641 88 100 2011 David Nish 2,601 77 63.5 2010 David Nish 1,971 83 -2 2009 Sir Sandy Crombie3 2,175 67 49.67 1 The increase in the CE single figure for 2012 reflects David Nish’s promotion to CE in 2010 and the correspondingly higher Group LTIP award granted, and also the impact of the increase in the Standard Life plc share price which moved from £1.86 at the award date to £3.46 on the first possible date of exercise and which drives the value outcome of the Group LTIP plan.
Relative importance of spend on pay The following table compares what the Group spent on employee remuneration to what is paid in the form of dividends to the Company’s shareholders. Also shown is the Group’s operating profit before tax from continuing operations which is provided for context: Remuneration payable to all Group employees (£m)
Implementation of policy in 2015 Base salary The Remuneration Committee considered it appropriate to award increases as follows: Increase to base salary Base salary effective from 16 March
Bonus The executive Directors will participate in the Group annual bonus plan. Target and maximum award opportunities are: Target Maximum opportunity
For David Nish and Keith Skeoch, 90% of the award will be based on Group performance and 10% on personal performance. For Luke Savage, 80% of the award will be based on Group performance and 20% on personal performance. Keith Skeoch will continue to participate in the Standard Life Investments’ personal and company bonus plans. The maximum awards under these plans are 105% of salary and 200% of salary respectively.
Vesting :100% of award Cumulative Group operating profit before tax Maximum:£2,040m
Total number of shares owned at 31 December 2014 or date of cessation if earlier1
Following a review of non-executive Director fees in 2014, the Board (and the Remuneration Committee in respect of the Chairman) considered it appropriate to increase the Chairman’s fees by £20,000 (5.7%) to £370,000 and the fees for committee chairman by £4,500 (17.6%) to £30,000.
3 For non-executive Directors, individual fees are constructed by taking a base fee and adding extra fees for chairing subsidiaries’ boards and committees where a greater responsibility and time commitment is required.
During 2014, the Remuneration Committee was made up of independent non-executive Directors: Crawford Gillies (Chairman until 13 May 2014 when he stepped down from the Committee), Lynne Peacock (Chairman from 13 May 2014), Colin Buchan (until 13 May 2014), Martin Pike (from 13 May 2014), Pierre Danon, and John Paynter.
Our role To consider and make recommendations to the Board in respect of the total remuneration policy across the Group, including: • rewards for the executive Directors, senior employees and the Chairman • the design and targets for any employee share plan • the design and targets for annual cash bonus plans throughout the Group • changes to employee benefit structures (including pensions) throughout the Group.
If you would like a copy of the Remuneration Committee’s terms of reference these can be found in the Board Charter which you can obtain from www.standardlife.com/about/board_committees or request a copy from the Group Company Secretary.
During the year, the Remuneration Committee also took advice from Deloitte LLP, who were appointed as external advisors to the Remuneration Committee from October 2011. Deloitte is a member of the Remuneration Consultants’ Group, which is responsible for the stewardship and development of the voluntary code of conduct in relation to executive remuneration consulting in the UK.
Fees paid to Deloitte LLP during 2014 for professional advice to the Committee were £132,295.
Where appropriate, the Remuneration Committee receives input from the Chairman, Chief Executive, Chief Financial Officer, Group Operations Officer, Group Reward and Employment Policy Director, Group Chief Risk Officer and the Head of Corporate Governance at Standard Life Investments. This input never relates to their own remuneration.
The Committee reviews its remit and effectiveness annually. The 2014 review was carried out both via an internal self-assessment questionnaire and by an independent expert, Niall FitzGerald who was invited to observe one of the Committee meetings as part of his assessment. The review concluded that the Committee continued to: • recognise how the evolution of the Group impacted on remuneration policies and reward design proposals • focus on aligning remuneration structures across the Group.
April to June • Confirmation of the remuneration package for the appointment of the CFO • Code staff - review of population and remuneration • Disposal of the Canadian business.
The following tables sets out actual voting on the remuneration policy and 2013 Directors remuneration report presented at the 2014 AGM on 13 May 2014: For Against Withheld
Promoting all-employee share ownership We believe that share ownership by our employees helps them to understand the interests of the Company’s shareholders. On 31 December 2014, 65% of our employees were Standard Life plc shareholders through participation in our share plans. We promote employee share ownership with a range of initiatives: • The Standard Life (Employee) Share Plan which allows employees to buy Standard Life plc shares directly from their earnings.
At 31 December 2014, 3,772 employees (65% of those eligible in the UK) were making a monthly average contribution of £40. A similar tax-approved plan is used in Ireland and has a 60% take-up. Even though the plan cannot be structured on a taxfavourable basis in Germany and Austria, more than 120 employees in these countries are buying shares each month.
• The Standard Life Sharesave Plan which allows UK tax resident employees to save towards the exercise of options over Standard Life plc shares with the option price set at the beginning of the savings period at a discount of up to 20% of the market price. Sharesave invitations have been made annually since 2011 to UK employees and, as at 31 December 2014, just over 3,000 employees in the UK had accepted one or more of the Sharesave offers.
Share dilution limits The Executive LTIP, the previous Group LTIP, the Standard Life Investments LTIP, the Standard Life (Employee) Share Plan, the Standard Life Sharesave Plan and the Standard Life Ireland Sharesave Plan contain dilution limits that comply with the guidelines produced by The Investment Association (IA). On 31 December 2014, the Company’s standing against these dilution limits was: • 2.98% where the guideline is no more than 5% in any 10 years under all discretionary share plans in which the executive