8. The purpose of our audit work and to whom we owe our responsibilities This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and the terms of our engagement by the Company. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report, and the further matters we are required to state to them in accordance with the terms agreed with the Company, and for no other purpose, and the further matters we are required to state to them in accordance with terms agreed with the Company, and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members, as a body, for our audit work, for this report, or for the opinions we have formed.
Jonathan Mills (Senior Statutory Auditor) for and on behalf of KPMG LLP, Statutory Auditor Chartered Accountants Saltire Court 20 Castle Terrace Edinburgh EH1 2EG
Share of profit from associates and joint ventures 16 79 130 Reversal of/(loss on) impairment of interest in associates 16 243 (228)
From continuing operations – preference shares 30 5 5 From discontinued operations – ordinary shares 30 – 5
Profit for the year 271 868 Less: profit from discontinued operations 11 (56) (1,698) Profit/(loss) from continuing operations 215 (830) Items that will not be reclassified subsequently to profit or loss: Remeasurement losses on defined benefit pension plans 34 (23) (29) Share of other comprehensive income of associates and joint ventures 16 (17) (15) Equity holder tax effect of items that will not be reclassified subsequently to profit or loss 10 – – Total items that will not be reclassified subsequently to profit or loss (40) (44)
Equity holder tax effect of items that may be reclassified subsequently to profit or loss 10 (2) (1) Total items that may be reclassified subsequently to profit or loss (29) 15 Other comprehensive income for the year from continuing operations (69) (29) Total comprehensive income for the year from continuing operations 146 (859)
Profit from discontinued operations 11 56 1,698 Other comprehensive income from discontinued operations 11 – (43) Total comprehensive income for the year from discontinued operations 56 1,655 Total comprehensive income for the year 202 796
Share of associates’ and joint ventures’ tax expense 2 (8) – (8) (40) – (40) Profit attributable to non-controlling interests – ordinary shares 2 – – – – 5 5 Profit/(loss) before tax expense4 243 56 299 (787) 1,734 947 Tax (expense)/credit attributable to
Profit/(loss) for the year 215 56 271 (830) 1,698 868 1 The Group has initially applied IFRS 9 and IFRS 16 at 1 January 2019. Under the transition methods chosen, comparative information is not restated. Refer Basis of preparation. 2 The Asset management, platforms and wealth segment was previously named Asset management and platforms. Refer Note 2. 3 The Other adjusting item in 2019 relating to continuing operations includes £140m received in relation to the settlement of arbitration with Lloyds Banking Group/ Scottish
Widows (LBG). Refer Note 5. 4 For discontinued operations profit before tax expense attributable to equity holders consists of profit before tax of £56m (2018: £1,780m) less tax expense attributable to policyholders’ returns of £nil (2018: £46m).
Notes £m £m Assets Intangible assets 15 1,707 3,404 Pension and other post-retirement benefit assets 34 1,163 1,111 Investments in associates and joint ventures accounted for using the equity method 16 1,509 1,444 Property, plant and equipment 17 266 61 Deferred tax assets 10 74 61
Financial investments 1,528 1,659 Receivables and other financial assets 10 11 Cash and cash equivalents 44 30
Total assets 11,422 12,517 1 The Group has initially applied IFRS 9 and IFRS 16 at 1 January 2019. Under the transition methods chosen, comparative information is not restated. Refer Basis of preparation. 2 The Group has made a presentational change to show its unit linked liabilities and the assets backing these liabilities separately. Refer Note 25.
Total equity 6,666 7,539 Total equity and liabilities 11,422 12,517 1 The Group has initially applied IFRS 9 and IFRS 16 at 1 January 2019. Under the transition methods chosen, comparative information is not restated. Refer Basis of preparation. 2 The Group has made a presentational change to show its unit linked liabilities and the assets backing these liabilities separately. Refer Note 25.
The Notes on pages 129 to 231 are an integral part of these consolidated financial statements.
Effect of change in accounting policy to IFRS 91 – – – (5) (7) (12) – – (12) Effect of change in accounting policy to IFRS 161 – – – (12) – (12) – – (12)
Transfer to retained earnings for vested employee share-based payments 28,29 – – – 57 (57) – – – – Transfer between reserves on impairment of subsidiaries 28,29 – – – 780 (780) – – – – Shares acquired by employee trusts – (50) – – – (50) – – (50) Shares distributed by employee and other trusts and related dividend equivalents 28 – 31 – (38) – (7) – – (7) Transfer from the Standard Life Unclaimed Asset Trust 27,28 – – – 1 – 1 – – 1 1 The Group has initially applied IFRS 9 and IFRS 16 at 1 January 2019. Under the transition methods chosen, comparative information is not restated and the cumulative effect of initially applying these standards is recognised in retained earnings at the date of initial application. Refer Basis of preparation.
(Loss)/profit for the year from continuing operations – – – (835) – (835) – – 5 (830) Profit for the year from discontinued operations – – – 1,665 – 1,665 28 5 – 1,698 Other comprehensive income for the year from continuing operations – – – (44) 15 (29) – – – (29) Other comprehensive income for the year from discontinued operations – – – – (43) (43) – – – (43) Total comprehensive income for the year 28,29 – – – 786 (28) 758 28 5 5 796 Issue of share capital 26 – – 1 – – 1 – – – 1 Issue of B shares 26,29 1,000 – – – (1,000) – – – – – Reclassification of perpetual debt instruments to equity 30 – – – – – – 1,005 – – 1,005 Repurchase of perpetual debt instruments 30 – – – – – – (970) – – (970) Redemption of perpetual debt instruments 30 – – – – – – (44) – – (44) Dividends paid on ordinary shares 14 – – – (634) – (634) – – – (634) Dividends paid on preference shares – – – – – – – – (5) (5) Coupons paid on perpetual debt instruments – – – – – – (25) – – (25)
Other movements in noncontrolling interests in the year – – – – – – – (292) – (292) Reserves credit for employee share-based payments 29 – – – – 36 36 – – – 36 Transfer to retained earnings for vested employee share-based payments 28,29 – – – 68 (68) – – – – – Transfer between reserves on disposal of subsidiaries 1 – – – 99 (99) – – – – – Transfer between reserves on impairment of subsidiaries 28,29 – – – 570 (570) – – – – – Shares acquired by employee trusts – (100) – – – (100) – – – (100) Shares distributed by employee and other trusts and related dividend equivalents 28 – 29 – (33) – (4) – – – (4) Aggregate tax effect of items recognised directly in equity 10 – – – – – – 6 – – 6 1 The presentation of amounts attributable to certain perpetual debt instruments in 2018 has been corrected to show these amounts separately as related to other equity holders rather than as part of non-controlling interests. Refer Note 30.
Cash flows from operating activities Profit/(loss) before tax from continuing operations 243 (787) Profit before tax from discontinued operations 11 56 1,780
Change in operating assets 41 158 3,273 Change in operating liabilities 41 (291) (3,127) Adjustment for non-cash movements in investment income 4 (80) Change in unallocated divisible surplus – (48) Other non-cash and non-operating items 41 (28) (581) Dividends received from associates and joint ventures 16 93 44 Taxation paid3 (34) (224) Net cash flows from operating activities 201 250
The Group’s significant accounting policies are included at the beginning of the relevant notes to the consolidated financial statements. This section sets out the basis of preparation, a summary of the Group’s critical accounting estimates and judgements in applying accounting policies, and other significant accounting policies which have been applied to the financial statements as a whole.
(a) Basis of preparation These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) as endorsed by the European Union (EU), with interpretations issued by the IFRS Interpretations Committee (IFRICs), and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS. The consolidated financial statements have been prepared on a going concern basis and under the historical cost convention, as modified by the revaluation of owner occupied property, derivative instruments and other financial assets and financial liabilities at fair value through profit or loss (FVTPL).
The principal accounting policies set out in these consolidated financial statements have been consistently applied to all financial reporting periods presented except as described below.
(a)(i) New standards, interpretations and amendments to existing standards that have been adopted by the Group The Group has adopted the following new IFRS, interpretations and amendments to existing standards, which are effective by EU endorsement for annual periods beginning on or after 1 January 2019 and IFRS 9 whose adoption has previously been deferred (see the Group’s Annual report and accounts for the year ended 31 December 2018 for further details).
IFRS 9 Financial Instruments On 1 January 2019 the Group adopted IFRS 9 Financial Instruments. Financial assets are classified at initial recognition based on whether their contractual cash flows are solely payments of principal and interest (SPPI) and the nature of the business model they are managed under. This has resulted in the Group’s equity securities and interests in pooled investment funds and certain debt securities being classified as FVTPL and the Group’s receivables, other financial assets, cash and other debt securities being measured at amortised cost. Derivative instruments are measured at fair value.
The classification of financial liabilities is unchanged from that applied under IAS 39. Financial liabilities are measured at amortised cost using the effective interest method unless they are derivatives or are designated at FVTPL.
An expected credit loss impairment model is applied to financial assets measured at amortised cost. Impairment losses representing the expected credit loss in the next 12 months are recognised unless there has been a significant increase in credit risk from initial recognition or they relate to trade receivables or contract assets recognised under IFRS 15 Revenue from Contracts with Customers or lease receivables recognised under IFRS 16 Leases in which case lifetime expected losses are recognised.
Impact of transition The table below sets out the impact of adopting IFRS 9 on 1 January 2019 on the Group’s financial assets and liabilities.
Financial assets – excluding those backing unit linked liabilities Designated at FVTPL (IAS 39) Equity securities and interests in pooled investment funds 509 – – 509 Debt securities 725 – – 725 Receivables and other 8 – – 8 Held for trading (IAS 39) Derivative financial assets 6 – – 6 At FVTPL (IFRS 9) 1,248 Cash flow hedge (IAS 39) Derivative financial assets 13 – – 13 Cash flow hedge (IFRS 9) 13 Available for Sale (IAS 39) Debt securities 862 (862) – – Loans and receivables (IAS 39) Debt securities – 862 (8) 854 Receivables and other financial assets 689 – – 689 Cash and Cash equivalents 1,110 – – 1,110 At amortised cost (IFRS 9) 2,653
Financial liabilities – excluding those backing unit linked liabilities Designated at FVTPL (IAS 39) Third party interest in consolidated funds (26) – – (26) Other financial liabilities (29) – – (29) Held for trading (IAS 39) Derivative financial liabilities (4) – – (4) Designated at FVTPL (IFRS 9) (59) At amortised cost (IAS 39) Subordinated liabilities (1,081) – (5) (1,086) Other financial liabilities (1,132) – – (1,132) At amortised cost (IFRS 9) (2,218)
The main impacts of adopting IFRS 9 are as follows:  The Group’s debt securities which were previously classified as available-for-sale (AFS) and therefore measured at fair value are now measured at amortised cost. At 31 December 2018 the fair value of AFS securities was £862m with a corresponding AFS financial assets reserve balance of £7m and deferred tax liability of £1m. On reclassification, the Group’s debt securities were recognised at 1 January 2019 at their amortised cost (less expected credit losses) of £854m. The AFS financial assets reserve balance and the related deferred tax liability were no longer recognised. The expected credit losses at 1 January 2019 were less than £1m.
 At 31 December 2018, the Group had subordinated liabilities of £1,081m. Under IFRS 9, where the terms of a financial liability are modified and the modification does not result in the derecognition of the liability, the liability is adjusted to the net present value of the future cash flows less transaction costs with a modification gain or loss recognised in the income statement. During the year ended 31 December 2018, the terms of the 4.25% US Dollar fixed rate subordinated notes were modified. Consequently, on adoption of IFRS 9, these subordinated liabilities have been recognised at 1 January 2019 at a revised amortised cost of £1,086m. The impact on retained earnings was £5m.
 The Group’s loans and receivables were reclassified as financial assets measured at amortised cost. This had no impact on their initial recognition or subsequent measurement.
 All the Group’s financial liabilities that were designated as FVTPL under IAS 39 at 31 December 2018 remain designated as FVTPL under IFRS 9. All the Group’s financial assets that were designated as FVTPL under IAS 39 at 31 December 2018 are mandatorily classified as FVTPL under IFRS 9.
In addition, as at 31 December 2018 the Group recognised an onerous lease provision of £12m under IAS 37 Provisions, Contingent Liabilities and Contingent Assets. The Group has applied the practical expedient to utilise the assessment that the lease was onerous under IAS 37 and therefore adjust the right of use asset at the date of initial application by the onerous lease provision rather than conduct an impairment test.
Impact of transition The impact on opening retained earnings at 1 January 2019 is summarised below: £m Recognised under IFRS 16 Right-of-use assets (within property, plant and equipment)1
Net investment in finance leases (within Receivables and other financial assets) 7 Lease liabilities (within Other financial liabilities)1 (227) Derecognised on application of IFRS 16 Onerous lease provisions 12 Accruals for lease incentives (within Other financial liabilities) 16 Net liabilities recognised before tax (13) Deferred tax 1 Reduction in opening retained earnings (12) 1 Additional right-of-use assets of £5m and additional lease liabilities for £5m were recognised within Assets held for sale and Liabilities of operations held for sale respectively.
Operating lease commitments at 31 December 2018 as disclosed in the Group’s Annual report and accounts for the year ended 31 December 2018 250
Discounted value of operating lease commitments at 31 December 2018 227
The Group’s accounting policies have been updated to reflect these. Management considers the implementation of the above interpretations and amendments to existing standards has had no significant impact on the Group’s financial statements.
(a)(iii) Statement of cash flows: Classification changes In 2019, following the disposal of the UK and European insurance business in 2018, the Group’s operating cash flows no longer predominantly relate to insurance business. From 1 January 2019 the Group has changed the classification of capital flows arising to/from third party interests in consolidated funds from cash flows arising from financing activities to cash flows arising from operating activities. The reason for this change is to make the financial statements more relevant to users as it is more consistent with asset management peers. Comparative amounts have been restated. The impact of the restatement is to reclassify the 2018 capital flows to third party interests in consolidated funds of £507m and the 2018 distributions paid to third party interests in consolidated funds of £69m which were previously presented as cash flows arising from financing activities. These capital outflows have been reclassified in the 2018 comparative balances and presented as changes in operating liabilities cash flows arising from operating activities. The change in the amounts previously presented is as summarised in the table below.
Net cash flows from operating activities 826 (576) 250 Net cash flows from financing activities (4,031) 576 (3,455)
(a)(iv) Critical accounting estimates and judgements in applying accounting policies The preparation of financial statements requires management to exercise judgements in applying accounting policies and make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses arising during the year. Judgements and sources of estimation uncertainty are continually evaluated and based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.
Intangible assets Identification and valuation of intangible assets arising from business combinations and the determination of useful lives Determining the group of cash-generating units to which goodwill acquired in a business combination should be allocated
During the year to 31 December 2019 the following changes have been made to critical judgements in applying accounting policies:  As a result of the part disposal of our investment in HDFC Life, we have identified its classification as an associate as a critical judgement
The areas where assumptions and other sources of estimation uncertainty at the end of the reporting period have a significant risk of resulting in a material adjustment to the carrying amounts of assets and liabilities within the next financial year are as follows: Financial statement area Critical accounting estimates and assumptions Related note Financial instruments at fair value through profit or loss
Determination of the fair value of contingent consideration assets and liabilities relating to the sale of the UK and European insurance business to Phoenix
Foreign currency transactions are translated into the functional currency at the exchange rate prevailing at the date of the transaction. Gains and losses arising from such transactions and from the translation at year end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the relevant line in the consolidated income statement.
Notes to the Group financial statements 1. Group structure (a) Composition The following diagram is an extract of the Group structure at 31 December 2019 and gives an overview of the composition of the Group.
On 1 July 2019, 1825 Financial Planning and Advice Limited purchased the wealth management business of BDO Northern Ireland through a similar business acquisition agreement. The assets under advice at the acquisition date were £0.2bn.
On 15 February 2019, Aberdeen Asset Management PLC (AAM PLC) completed the purchase of the entire share capital of Orion Partners Holding Limited and Orion Partner Services Inc. The assets under management were US$0.9bn (£0.7bn) at the acquisition date.
(b)(iii) Prior year acquisitions On 27 April 2018, Aberdeen Asset Management Inc. purchased the US business of specialist commodity exchange traded product provider ETF Securities by purchasing the entire members’ interests of ETF Securities USA LLC, ETF Securities (US) LLC and ETF Securities Advisers LLC. In addition, 1825 Financial Planning Limited completed the purchase of the entire share capital of Fraser Heath Financial Management Ltd and Cumberland Place Financial Management Ltd on 1 March 2018 and 6 April 2018 respectively.
(c)(i)(i)HDFC Life Insurance Company Limited (HDFC Life) During the year, the Group completed the following sales of equity shares in HDFC Life on the National Stock Exchange of India Limited and BSE Limited:  92,181,992 equity shares in HDFC Life sold through an Offer for Sale on 12 and 13 March 2019  33,032,381 equity shares in HDFC Life sold through an Offer for Sale from 3 to 6 May 2019  67,100,000 equity shares in HDFC Life sold through a Bulk Sale on 14 August 2019  100,000,000 equity shares in HDFC Life sold through a Bulk Sale on 30 October 2019
In total, 14.49% of the issued equity share capital of HDFC Life was sold for a combined consideration net of taxes and expenses of Rs 135,994m (£1,503m). The combined gain on sale of £1,337m was calculated using the weighted-average cost method. The Group’s shareholding in HDFC Life at 31 December 2019 is 297,311,894 equity shares or 14.73% of the issued equity share capital of HDFC Life.
Under the transaction the following businesses were retained by the Group:  UK retail platforms, including Wrap and Elevate  1825, our financial advice business
In addition, the assets and liabilities of both the UK and Ireland Standard Life staff defined benefit pension plans were retained by the Group.
Following the announcement on 23 February 2018 the UK and European insurance business was classified as held for sale and measured at its carrying amount. The results of the UK and European insurance business to 31 August 2018 were classified as discontinued operations.
(c)(iii) Associates (c)(iii)(i) HDFC Asset Management Profit on disposal of interests in associates for the year ended 31 December 2018 of £185m includes £177m in relation to the HDFC Asset Management initial public offering (IPO) which completed on 6 August 2018 with HDFC Asset Management listing on the National Stock Exchange of India Limited and the Bombay Stock Exchange Limited. Through the IPO, the Group sold 16,864,585 equity shares in HDFC Asset Management for a total net consideration of Rs.16,212m (£180m). The gain on sale from the IPO of £177m (£156m after tax) was calculated using the weighted-average cost method. On disposal £2m was recycled from the translation reserve and was included in determining the gain on sale.
This segment primarily relates to our Asset management, Platforms and Wealth businesses. Our Asset management subsidiaries and our Asset management associate in India, HDFC Asset Management, provide a range of investment products and services for individuals and institutional customers through a number of different investment vehicles. Our Platforms comprise the Standard Life branded Wrap and Elevate platforms which provide administration services to advisers. Our Wealth activity primarily relates to: Aberdeen Standard Capital which manages assets for private clients, intermediaries acting for clients, charities and trustees; Parmenion, our digital platform; 1825, our financial planning and advice business; and our strategic joint venture with Virgin Money. The segment also includes other wholly owned activities of the Group including the corporate centre and related activities and the UK and Ireland Standard Life staff defined benefit pension plans.
Profit for the year 215 56 271 1 Share of associates’ and joint ventures’ profit before tax comprises the Group’s share of results of HDFC Life, HDFC Asset Management, Phoenix, HASL and VMUTM. 2 Amortisation and impairment of intangible assets acquired in business combinations and through the purchase of customer contracts includes £1,733m included in administrative expenses and set out in Note 15, and £111m relating to intangibles recognised on the part acquisition of associates and included in Share of profit from associates and joint ventures in the consolidated income statement.
Restructuring and corporate transaction expenses 9 (231) (8) (239) (264) – (503) Amortisation and impairment of intangible assets acquired in business combinations and through the purchase of customer contracts2 (1,117) (38) (1,155) – – (1,155) Profit on disposal of subsidiaries 1 – – – 1,780 – 1,780 Profit on disposal of interests in associates 1 183 2 185 – – 185 Impairment of associates – (228) (228) – – (228) Investment return variances and economic assumption changes 13 – 54 54 (41) – 13
Adjusting items included in income and expenses 1,703 (2,120) 202 (1,355) Capital management 37 – (9) – Total income and expenses as presented in the IFRS consolidated income statement from continuing operations 3,993 (4,072) 2,131 (2,820)
(d) Non-current non-financial assets by geographical location 2019 2018 £m £m
Interest income on financial instruments measured at amortised cost is separately recognised in the consolidated income statement using the effective interest rate method. The effective interest rate method allocates interest and other finance costs at a constant rate over the expected life of the financial instrument, or where appropriate a shorter period, by using as the interest rate the rate that exactly discounts the future cash receipts over the expected life to the net carrying value of the instrument.
Interest and similar income Cash and cash equivalents 18 18 Debt securities measured at amortised cost 10 – Available-for-sale debt securities – 11
Dividend income 52 49 Gains/(losses) on financial instruments at amortised cost 1 – Foreign exchange (losses)/gains on financial instruments other than those at fair value through profit or loss (4) 5 Investment return from continuing operations 464 (116)
Included in investment return from continuing operations of £464m (2018: (£116m)) is £392m (2018: (£139m)) in relation to unit linked business including £107m (2018: (£65m)) relating to operations held for sale. Investment returns relating to unit linked business are for the account of policyholders and are excluded from adjusted operating income as they have an equal and opposite effect on IFRS income and IFRS expenses in the consolidated income statement.
Revenue from contracts with customers is recognised as services are provided i.e. as the performance obligation is satisfied and it is almost certain that the revenue will be received. Where revenue is received in advance (front-end fees), this income is deferred and recognised as a deferred income liability until the services have been provided (refer Note 35).
Revenue from contracts with customers excludes premium written and earned on insurance and participating investment contracts (Refer Note 31).
Asset management Management fee income – Strategic insurance partners1 312 370 Management fee income – Other clients1 1,122 1,372 Performance fees 37 9
Revenue from contracts with customers from continuing operations as presented in the consolidated income statement 1,743 1,955 Presentation differences
Commission expenses and other costs of sales are netted against fee based revenue in the segment reporting but are included within expenses in the consolidated income statement. Other presentation differences relate to amounts presented in a different income line item of the consolidated income statement and charges made to third parties for expenses incurred by the Group.
Amount receivable from contracts with customers 21 130 112 104 Accrued income from contracts with customers 21 227 214 249 Cost of obtaining customer contracts 15 60 80 11
In its decision of March 2019, the arbitral tribunal found that LBG was not entitled to terminate these investment management contracts. The Group had continued to manage approximately £104bn (as at 30 June 2019) of assets under management (AUM) for LBG entities during the period of the dispute.
 In addition, the Group received an upfront payment of £140m from LBG as final settlement to compensate for loss of profit in relation to the transferring AUM
Interest expense 5 5 Commission expenses 89 105 Other cost of sales 26 8 Staff costs and other employee-related costs 646 673 Operating lease rentals 2 50
Acquisition costs deferred during the year (2) (2) Amortisation of deferred acquisition costs 2 2 Total other administrative expenses from continuing operations 1,651 1,746 1 Impairment losses on intangible assets excludes a goodwill impairment charge of £1,569m (2018: £880m) recognised separately as an individual item on the consolidated income statement. Refer Note 15. 2 The Group has initially applied IFRS 16 at 1 January 2019. Under the transition methods chosen, comparative information is not restated and the cumulative effect of initially applying these standards is recognised in retained earnings at the date of initial application. Refer Basis of preparation.
7. Staff costs and other employee-related costs The following table shows the staff costs and other employee-related costs aggregated for both continuing and discontinued operations.
The aggregate remuneration payable in respect of employees: Wages and salaries 531 655 Social security costs 63 68 Pension costs
Total audit and audit related assurance fees 6.9 6.4 Other assurance services 1.2 1.6 Other non-audit fee services – 0.2 Total non-audit fees 1.2 1.8 Total auditors’ remuneration 8.1 8.2
During the year ended 31 December 2019 no audit fees were payable in respect of defined benefit plans to the Group’s principal auditor (2018: £nil).
For more information on non-audit services, refer to the Audit Committee report in Section 3 – Corporate governance statement.
9. Restructuring and corporate transaction expenses Total restructuring and corporate transaction expenses incurred from continuing operations during the year were £374m (2018: £231m). The 2019 expenses mainly relate to merger integration, implementing our global simplified operating model, separation costs following the sale of the UK and European insurance business and £49m in respect of the repurchase of subordinated liabilities (refer Note 33). Deal costs relating to acquisitions included in restructuring and corporate transaction expenses for the year ended 31 December 2019 were £2m (2018: £1m).
For the purposes of determining adjusted profit from continuing operations, an additional £33m was recognised in 2019 relating to our share of asset management joint venture and insurance associate restructuring and corporate transaction expenses (2018: £8m).
7. Group financial statements continued 10. Taxation The Group’s tax expense comprises both current tax and deferred tax expense.
Current tax and deferred tax is recognised in the consolidated income statement except when it relates to items recognised in other comprehensive income or directly in equity, in which case it is credited or charged to other comprehensive income or directly to equity respectively.
Current tax recoverable and current tax liabilities at 31 December 2019 were £9m (2018: £6m) and £19m (2018: £22m) respectively. In addition current tax recoverable and current tax liabilities in relation to unit linked business were £nil (2018: £nil) and £2m (2018: £1m) respectively. Current tax assets and liabilities at 31 December 2019 and 31 December 2018 are expected to be recoverable or payable in less than 12 months.
Permanent differences (4) 21 Tax effect of accounting for share of profit from associates and joint ventures (15) (25) Impairment losses on intangible assets 298 171 (Reversal of)/impairment of investment in associate (46) 43 Different tax rates (15) (16) Adjustment to current tax expense in respect of prior years (1) 3 Recognition of previously unrecognised tax credit (1) (4) Deferred tax not recognised 13 10 Adjustment to deferred tax expense in respect of prior years – (12) Write down of deferred tax asset 6 4 Non-taxable profit on sale of subsidiaries and associates (254) (2) Other 1 – Total tax expense from continuing operations for the year 28 43 146 Standard Life Aberdeen 2019
The standard UK corporation tax rate for the accounting period is 19%. As at 31 December 2019 the standard UK corporation tax rate is due to fall to 17% from 1 April 2020 under legislation which had been substantively enacted at the reporting date. This change has, therefore, been taken into account in the calculation of UK deferred tax balances. The UK government has indicated that it will legislate to repeal the reduction in the standard UK corporation tax rate and maintain it at 19%.
Tax relating to defined benefit pension plan deficits – – Equity holder tax effect relating to items that will not be reclassified subsequently to profit or loss – – Deferred tax on net change in financial assets designated as available-for-sale1 – (1) Tax relating to fair value losses recognised on cash flow hedges (2) 9 Tax relating to cash flow hedge losses transferred to consolidated income statement 4 (7) Equity holder tax effect relating to items that may be reclassified subsequently to profit or loss 2 1 Tax relating to other comprehensive income from continuing operations 2 1 1 Debt securities that were previously held at fair value as available-for-sale under IAS 39 are held under IFRS 9 at amortised cost from 1 January 2019.
(c) Tax relating to items taken directly to equity 2019 2018
Net deferred tax liability at 31 December (13) (39) 1 The Group has initially applied IFRS 9 and IFRS 16 at 1 January 2019. Under the transition methods chosen, comparative information is not restated. Refer Basis of preparation.
Gross deferred tax liabilities 88 101 Less: Offset against deferred tax assets (1) (1) Deferred tax liabilities 87 100 Net deferred tax liability at 31 December (13) (39)
A deferred tax asset of £40m (2018: £27m) for the Group has been recognised in respect of losses of various subsidiaries. Deferred tax assets are recognised to the extent that it is probable that the losses will be capable of being offset against taxable profits and gains in future periods. The value attributed to them takes into account the certainty or otherwise of their recoverability. Their recoverability is measured against the reversal of deferred tax liabilities and anticipated taxable profits and gains based on business plans.
The Group classifies as discontinued operations areas of business which have been disposed of or are classified as held for sale at the year end and which either, represent a separate major line of business or geographical area, or are part of a plan to dispose of one. The results of discontinued operations are shown separately on the face of the consolidated income statement from the results of the remaining (continuing) parts of the Group’s business.
Discontinued operations relate solely to the UK and European insurance business. The sale completed on 31 August 2018 (refer Note 1).
For the year ended 31 December 2019, the profit from discontinued operations of £56m reflects a change in the value of the contingent consideration relating to the sale of the UK and European insurance business to Phoenix. For the year ended 31 December 2019, net cash flows from discontinued operations of £63m are included in net cash flows from investing activities.
Restructuring and corporate transaction expenses 9 264 Other administrative expenses 339
The Group provides additional disclosure in relation to the total tax expense for discontinued operations. Certain products are subject to tax on policyholders’ investment returns. This tax ‘policyholder tax’, is accounted for as an element of income tax. To make the tax expense disclosures more meaningful, policyholder tax and tax payable on equity holder’s profit are disclosed separately. The policyholder tax expense is the amount payable in the period plus the movement of amounts expected to be payable in future periods by policyholders on their investment return. The remainder of the tax expense is attributed to equity holders as tax payable on equity holders’ profit.
Other comprehensive income £m Items that will not be reclassified subsequently to profit or loss: Revaluation of owner occupied property 2 Total items that will not be reclassified subsequently to profit or loss 2
Cash flows £m Net cash flows from operating activities (519) Net cash flows from financing activities (36) Net cash flows from investing activities (7,537) Total net cash flows (8,092) 1 Restated. The Group has changed the classification of certain cash flows following the disposal of the UK and European insurance business in 2018. The reason for the changes is to make the financial statements more relevant to users as it is more consistent with asset management peers. Refer Basis of preparation (a)(iii).
The net cash flows from investing activities for the year ended 31 December 2018 did not include cash consideration received from the disposal of the UK and European insurance business of £1,971m but included the cash and cash equivalents of £7,472m at the date of disposal.
Share of associates’ and joint ventures’ tax expense (46) – (46) (43) – (43)
Weighted average number of ordinary shares outstanding 2,374 2,848 Dilutive effect of share options and awards 32 29 Weighted average number of diluted ordinary shares outstanding 2,406 2,877
Adjusted profit also excludes impacts arising from investment return variances and economic assumption changes in the Group's insurance entities. It is calculated based on expected returns on investments backing equity holder funds, with consistent allowance for the corresponding expected movements in equity holder liabilities. Impacts arising from the difference between the expected return and actual return on investments, and the corresponding impact on equity holder liabilities except where they are directly related to a significant management action, are excluded from adjusted profit and are presented within profit before tax. The impact of certain changes in economic assumptions is also excluded from adjusted profit and is presented within profit before tax.
(a) Investment return variances and economic assumptions changes – insurance entities Wholly owned insurance entities The Group’s UK and European insurance business was sold during the year ended 31 December 2018 and was classified as discontinued operations in 2018. The Group’s other wholly owned insurance business, SL Asia, is classified as held for sale (refer Note 23).
In respect of debt securities at fair value through profit or loss, the expected rate of return was determined based on the average prospective yields for the debt securities actually held.
Investment return variances and economic assumption changes for the year ended 31 December 2018 related principally to the impact of interest rate changes on UK annuity liabilities and the assets backing those liabilities.
 Phoenix recognise charges on unit linked business based on expected investment returns, whereas wholly owned insurance entities use actual investment returns
Current year final recommended dividend 14.30 322 14.30 345 1 Estimated for current year final recommended dividend.
In addition to intangible assets acquired through business combinations, the Group recognises as intangible assets software which has been developed internally and other purchased technology which is used in managing and executing our business. Costs to develop software internally are capitalised after the research phase and when it has been established that the project is technically feasible and the Group has both the intention and ability to use the completed asset.
Intangible assets are recognised at cost and amortisation is charged to the income statement over the length of time the Group expects to derive benefits from the asset. The allocation of the income statement charge to each reporting period is dependent on the expected pattern over which future benefits are expected to be derived. Where this pattern cannot be determined reliably the charge is allocated on a straightline basis.
The Group also recognises the cost of obtaining customer contracts (refer Note 4) as an intangible asset. For the cost of obtaining customer contracts, the intangible asset is amortised on the same basis as the transfer to the customer of the services to which the intangible asset relates.
Accumulated amortisation and impairment At 1 January 2018 (15) (7) (208) (34) (247) (46) – (557) Reclassified as held for sale during the year – – – 6 204 46 – 256 Amortisation charge for the year – (19) (143) (13) (16) – (16) (207) Impairment losses recognised2 (891) – (35) – – – – (926)
Amortisation charge for the year 6 – (19) (111) (13) (20) (1) (20) (184)
1 Included in the internally developed software of £51m (2018: £62m) is £6m (2018: £13m) relating to intangible assets not yet ready for use. 2 Included in the 2019 goodwill impairment losses recognised of £1,569m (2018: £891m) is an impairment of £1,569m (2018: £880m) recognised on asset management goodwill and shown separately in the consolidated income statement and £nil (2018: £11m) included in other administrative expenses in Note 6.
The Group’s goodwill has been acquired through a series of business combinations. Of the Group’s goodwill of £1,000m (2018: £2,532m) at 31 December 2019, £915m (2018: £2,483m) is attributed to the asset management group of cash-generating units, which comprises the Group’s asset management business excluding HDFC Asset Management, in the Asset management, platforms and wealth segment. The remaining goodwill of £85m (2018: £49m) is attributable to a number of smaller cash-generating units in the Asset management, platforms and wealth segment.
Customer relationships The customer relationships acquired through AAM PLC were grouped where the customer groups have similar economic characteristics and similar useful economic lives. This gave rise to three separate intangible assets which we have termed Lloyds Banking Group, open ended funds, and segregated and similar.
Open ended funds Separate vehicle group – open ended investment vehicles.
Measuring the fair value of intangible assets acquired in business combinations required further assumptions and judgements. Customer relationships were valued using discounted cash flow projections. The key assumptions in measuring the fair value of the customer relationships at the acquisition date were as follows:  Net attrition – net attrition represents the expected rate of outflows of assets under management net of inflows from existing customers. This assumption was primarily based on recent experience.
 Market growth – a market growth adjustment was applied based on the asset class  Operating margin – this assumption was consistent with forecast margins and included the impact of synergies that would be expected by any market participant and impacted the Aberdeen customer relationship cash flows  Discount rate – this assumption was based on the internal rate of return (IRR) of the transaction and is consistent with a market participant discount rate
The above assumptions, and in particular the net attrition assumption, were also used to determine the useful economic life at the acquisition date of each asset used for amortisation. The reducing balance method of amortisation is considered appropriate for these intangibles, consistent with the attrition pattern on customer relationships which means that the economic benefits delivered from the existing customer base will reduce disproportionately over time.
In assessing value in use, expected future cash flows are discounted to their present value using a pre-tax discount rate. Judgement is required in assessing both the expected cash flows and an appropriate discount rate which is based on current market assessments of the time value of money and the risks associated with the asset.
Goodwill The impairment of goodwill in 2019 of £1,569m relates to an impairment of asset management goodwill (2018: £880m), the group of cashgenerating units for which is our asset management business excluding HDFC Asset Management. The impairment charge is in the Asset management, platforms and wealth segment. The impairment resulted from the impact of 2019 net outflows, market conditions and competitive pricing on future revenue projections. Further details relating to 2019 net outflows, fee based revenue and fee revenue yield are included in the Chief Financial Officer’s overview in the Strategic report. The impairment has been included within administrative expenses in the consolidated income statement.
The recoverable amount of this group of cash-generating units, which is based on value in use (VIU) at 31 December 2019, is £2,603m (2018: £4,111m). This is also the carrying value at the year end. The key assumptions are discount rate, growth rate and forecast cash flows.
The VIU calculation uses a pre-tax discount rate of 11.9% (2018: 11.1%). This is based on the Group/ peer companies cost of equity adjusted for forecasting risk. The risk free rate used in determining the cost of equity is based on 20-year gilts. The increase in the discount rate compared to 2018 reflects increased risk in variation of cash flows due to inherently uncertain market and sector conditions, and takes into account that future revenue projections are now significantly lower than previously forecast and used in the prior year impairment review. The VIU calculation uses a terminal growth rate of 2.2% (2018: 2.2%) based on global GDP growth and inflation.
The VIU calculation used cash flow projections for three years to end 2022 which were based on management approved profit forecasts adjusted to market conditions at 31 December 2019, with the terminal growth rate used for subsequent years. Three years of projections is in line with our business planning process. Profits were adjusted to a cash flow basis, e.g. amortisation and depreciation removed.
Goodwill £m Reduction in terminal growth rate of 0.2% 61 Discount rate increased by 1% 284 Forecast cash flows reduced by 20% 550
Customer relationship and investment management contract intangibles The recoverable amount for customer intangible assets is value in use. In assessing value in use, expected future cash flows are discounted to their present value using a pre-tax discount rate. Judgement is required in assessing both the expected cash flows and an appropriate discount rate which is based on current market assessments of the time value of money and the risks associated with the asset.
In 2019, no indicators of impairment have been identified in relation to customer intangible assets reflecting the impact of higher market levels 156 Standard Life Aberdeen 2019
There have been no previous impairment charges recognised on the segregated and similar customer relationship intangible asset recognised on the acquisition of Aberdeen.
7. Group financial statements continued 16. Investments in associates and joint ventures
Dilution gains – – – 7 – 7 Reversal of impairment/ (impairment) 243 – 243 (228) – (228)
Summarised financial information of associate: Revenue 4,182 1,409 3,617 3,072 276 207 Profit after tax (all from continuing operations) 28 366 128 118 170 83 Other comprehensive income (110) (76) – – – – Total comprehensive income (82) 290 128 118 170 83 Total assets2 242,666 230,111 14,607 13,349 388 336 Total liabilities2 237,043 224,042 13,818 12,598 27 23 Net assets 5,623 6,069 789 751 361 313
Attributable to NCI and other equity holders 808 788 – – – – Attributable to investee’s shareholder 4,815 5,281 789 751 361 313
Interest held 19.97% 19.98% 14.73% 29.23% 26.91% 29.96% Share of net assets 962 1,055 116 220 97 94
Share of (loss)/profit after tax (5) 65 26 31 42 26 – (1) 63 121 1 Revenue and profit after tax for HDFC Asset Management presented are for the 15 months to 31 December 2019 (2018: 12 months to September 2018). Total assets and total liabilities presented are as at 30 September 2019 (2018: 30 September 2018) as the statement of financial position at 31 December 2019 was not made publicly available. (Refer below for details of accounting period alignment).
3 2018 dividend received from HDFC Asset Management includes £3m on interest that was classified as held for sale.
The determination that market value should be used as the value in use is an area of judgement. If the recoverable amount falls below the carrying value in a future period this will result in a future impairment.
The financial assets with contractual cash flows that are solely payments of principal and interest (excluding those held for trading or managed on a fair value basis) are set out below together with all other financial assets, measured at fair value through profit and loss.
Financial assets with contractual cash flows that are solely payments of principal and interest (SPPI) excluding those held for trading or managed on a fair value basis 6,197 6,526 Financial assets other than those above2 218,355 204,398 1 Comparative figures have been restated by Phoenix to ensure a consistent presentation for all similar items across all Phoenix subsidiaries following the acquisition of the UK
HDFC Life HDFC Life is one of India’s leading life insurance companies. The investment in HDFC Life allows the Group to benefit from the life insurance market in one of the world’s fastest growing economies.
During 2019 the Group reduced its interest in HDFC Life to 14.73%. Refer Note 1 for further details. Whilst the Group’s remaining interest is less than 20%, being the threshold where significant influence is presumed, our judgement is that HDFC Life should continue to be classified as an associate. This judgement takes into account other key indicators of significant influence including the Group’s representation on the Board of HDFC Life and the Group’s ability to participate in policy-making processes including decisions about dividends or other distributions that require unanimous Board approval under the articles of association.
The difference between the carrying value of this associate and the Group’s current share of net assets is due primarily to goodwill of £49m arising from additional investments being made at fair value rather than book value. (2018: £104m.)
The year end date for HDFC Life is 31 March which is different from the Group’s year end date of 31 December. For the purposes of the preparation of the Group’s consolidated financial statements, financial information as at and for the 12 months ended 31 December is used for HDFC Life.
At 31 March 2016 HDFC Life had significant insurance liabilities and its liabilities arising from contracts within the scope of IFRS 4 and liabilities connected with insurance were over 90% of its total liabilities. Therefore HDFC Life was eligible to defer the implementation of IFRS 9 for equity accounting purposes.
2 The change in fair value in the year to 31 December 2019 for financial assets that are SPPI (excluding those held for trading or managed on a fair value basis) is a gain of £758m (2018: £385m). The change in fair value for all other financial assets is a gain of £727m (2018: £116m).
The difference between the carrying value of this associate and the Group’s share of net assets is due primarily to goodwill arising on the buyback of shares by HDFC Asset Management from employees.
The year end date of HDFC Asset Management is 31 March which is different from the Group’s year end date of 31 December. For the purposes of the preparation of the Group’s consolidated financial statements, financial information for the period to 31 December is used for HDFC Asset Management. In previous years, financial information for the 12 months to 30 September was used for HDFC Asset Management. The Group’s share of HDFC Asset Management’s profits for the 15 months to 31 December 2019, being £42m which includes £7m related to the 3 months to 31 December 2018 (£12m net of tax of £5m), has been recognised in the consolidated income statement. Profits for the 3 months to 31 December 2018 have been excluded from adjusted profit (Refer Note 13).
The table below provides summarised financial information for HASL, the joint venture which is considered to be material to the Group. The summarised financial information reflects the amounts presented in the financial statements of HASL amended to reflect adjustments made when using the equity method.
Financial assets with contractual cash flows that are solely payments of principal and interest (SPPI) excluding those held for trading or managed on a fair value basis1,2 1,344 1,338 Financial assets other than those above2 598 365 1 Financial assets that are SPPI (excluding those held for trading or managed on a fair value basis) are predominantly AAA debt instruments. Their carrying value at 31
(d) Investments in associates measured at FVTPL The aggregate fair value of associates accounted for at FVTPL included in equity securities and interests in pooled investment funds (refer Note 19) at 31 December 2019 is £45m (2018: £34m) none of which are considered individually material to the Group.
Property, plant and equipment consists primarily of property owned and occupied by the Group and the computer equipment used to carry out the Group’s business along with right-of-use assets for leased property and equipment. Owner occupied property: Owner occupied property is initially recognised at cost and subsequently revalued to fair value at each reporting date. Depreciation, being the difference between the carrying amount and the residual value of each significant part of a building, is charged to the consolidated income statement over its useful life. The useful life of each significant part of a building is estimated as being between 30 and 50 years. A revaluation surplus is recognised in other comprehensive income unless it reverses a revaluation deficit which has been recognised in the consolidated income statement. Equipment: Equipment is initially recognised at cost and subsequently measured at cost less depreciation. Depreciation is charged to the income statement over 2 to 15 years depending on the length of time the Group expects to derive benefit from the asset. Right-of-use asset: Refer Note 18 below for the accounting policies for right-of-use assets.
Cost or valuation At 1 January 2018 81 182 – – 263 Reclassified as held for sale during the year (79) (108) – – (187)
Depreciation charge for the year 6 – (18) (28) (1) (47) Disposals and adjustments2 – 1 3 – 4 Derecognition of right-of-use assets relating to subleases classified as finance leases – – 8 – 8
Foreign exchange adjustment – – 2 – 2 1 The Group has initially applied IFRS 16 at 1 January 2019. Under the transition methods chosen, comparative information is not restated and the cumulative effect of initially applying these standards is recognised in retained earnings at the date of initial application. Refer Basis of preparation. 2 For the year ended 31 December 2019 £nil (2018: £nil) of disposals and adjustments relates to equipment with net book value of £nil which is no longer in use.
Further details on the leases under which the Group’s right-of-use assets are recognised are provided in Note 18 below.
As the Group has not restated comparative information, the classification and measurement of leases at 31 December 2019 is in accordance with IFRS 16 while the classification and measurement of leases at 31 December 2018 is in accordance with IAS 17.
Right-of-use assets are measured at cost less accumulated depreciation and impairment losses and are presented in property, plant and equipment (refer Note 17). The Group does not revalue its right-of-use assets. This applies to all right-of-use assets, including those that are assessed as meeting the definition of investment property. The cost comprises the amount of the initial measurement of the lease liability plus any initial direct costs and expected restoration costs not relating to wear and tear. Costs relating to wear and tear are expensed over the term of the lease. Depreciation is charged on right-of-use assets on a straight line basis from the lease commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term. The Group assesses right-of-use assets for impairment when such indicators exist, and where required, reduces the value of the right-of-use asset accordingly.
Any difference between the initial value of the net investment in finance leases and the right-of-use asset derecognised is recognised in the consolidated income statement (within other income or expenses). Interest is calculated on the net investment in finance lease using the discount rate and is recognised in the consolidated income statement as interest income.
The Group does not recognise right-of-use assets and lease liabilities for short-term leases (less than 1 year from inception) and leases where the underlying asset is of low value.
(a) Leases where the Group is lessee The Group leases various offices and equipment used to carry out its business. Leases are generally for fixed periods but may be subject to extensions or early termination clauses. The remaining periods for current leases range from less than 1 year to 19 years. A number of leases which are due to end in 2031 contain options that would allow the Group to extend the lease term. The Group reviews its property use on an ongoing basis and these extensions have not been included in the right-of-use asset or lease liability calculations.
The Group has recognised the following assets and liabilities in relation to these leases where the Group is a lessee: 2019 £m
Prior to the implementation of IFRS 16, the Group accounted for all leases where the Group was the lessee as operating leases and recorded an operating lease rental expense of £50m for the year ended 31 December 2018. The Group’s commitment under operating leases was £250m at 31 December 2018. Refer to Basis of preparation for the reconciliation of this lease commitment on a discounted basis to the opening lease liabilities on implementation of IFRS 16 at 1 January 2019.
(b) Leases where the Group is lessor (subleases) Where the Group no longer requires a leased property, the property may be sublet to a third party. The sublease may be for the full remaining term of the Group’s lease or only part of the remaining term.
(b)(i) Finance leases During the year ended 31 December 2019, the Group received finance income on the net investment in finance leases asset of less than £1m. The Group recorded an initial gain of £4m in relation to new sub-leases entered into during the year ended 31 December 2019.
Less than 1 year 2 Greater than or equal to 1 year and less than 2 years 2 Greater than or equal to 2 years and less than 3 years 2 Greater than or equal to 3 years and less than 4 years 1 Greater than or equal to 4 years and less than 5 years 1 Greater than or equal to 5 years and less than 10 years 7 Greater than or equal to 10 years and less than 15 years 2 Total contractual undiscounted cash flows under finance leases 17 Unearned finance income (2) Total net investment in finance leases 15
The following table provides a maturity analysis of the future contractual undiscounted cash flows for subleases classified as operating leases: 2019 20181 £m £m
Less than 1 year 3 4 Greater than or equal to 1 year and less than 2 years 3 3 Greater than or equal to 2 years and less than 3 years 2 3 Greater than or equal to 3 years and less than 4 years – 3 Greater than or equal to 4 years and less than 5 years – 1 Greater than or equal to 5 years and less than 10 years – 5 Greater than or equal to 10 years and less than 15 years – 1 Total contractual undiscounted cash flows under operating leases 8 20 1 Subleases classified as operating leases under IAS 17.
The subsequent measurement of debt instruments depends on whether their cash flows are solely payments of principal and interest and the nature of the business model they are held in as follows: SPPI1 test satisfied? Business model IFRS 9 classification Yes A: Objective is to hold to collect contractual cash flows Amortised cost2 Yes
Classification and measurement in accordance with IAS 39 in respect of prior periods Management determined the classification of financial investments at initial recognition. Financial investments which were not derivatives and were not designated at FVTPL were classified as either available-for-sale (AFS) or loans and receivables.
Derivatives were measured at fair value. Derivatives were classified as held for trading except for derivatives that were designated as hedging instruments in cash flow or net investment hedges. Changes in the fair value of held for trading derivatives were recognised in investment return in the consolidated income statement. The classification of derivatives and the accounting treatment of derivatives designated as a hedging instrument are set out in Note 20.
Loans and receivables which included cash and cash equivalents were measured at amortised cost calculated using the effective interest rate method.
Loans and receivables Total 20181 Notes £m £m £m £m £m £m
Receivables and other financial assets 21 8 – – – 689 697 Cash and cash equivalents 24 – – – – 1,110 1,110 1 Comparatives for 2018 have been represented to exclude assets backing unit linked liabilities. Refer Notes 20 and 25.
The amount of debt securities expected to be recovered or settled after more than 12 months is £273m (2018: £287m). Due to the nature of equity securities and interests in pooled investment funds, there is no fixed term associated with these securities.
Under IAS 39, all derivative instruments were classified as held for trading except those designated as part of a hedging relationship. Held for trading derivatives were also measured at fair value with changes in fair value recognised in the consolidated income statement.
Derivative financial instruments backing unit linked liabilities 25 669 5 6 295 2 2
Derivative assets of £4m (2018: £13m) are expected to be recovered after more than 12 months. Derivative liabilities of £1m (2018: £nil) are expected to be settled after more than 12 months.
(a) Hedging strategy During 2019 the Group reaffirmed its strategy for hedging foreign currency risks, providing a consistent approach to managing these risks. The Group generally does not hedge the currency exposure relating to revenue and expenditure, nor does it hedge translation of overseas profits in the income statement. Where appropriate, the Group may use derivative contracts to reduce or eliminate currency risk arising from individual transactions or seed capital and co-investment activity.
(a)(iii) FVTPL/Held for trading Derivative financial instruments classified as FVTPL/held for trading include those that the Group holds as economic hedges of financial instruments that are measured at fair value. FVTPL/held for trading derivative financial instruments are also held by the Group to match contractual liabilities that are measured at fair value or to achieve efficient portfolio management in respect of instruments measured at fair value.
Total return swaps 29 – 1 – – – Bond derivatives: Futures 1 – – – – – Interest rate derivatives: Swaps 153 – 2 37 – – Futures – – – 15 – –
Other derivatives: Inflation rate swaps 14 1 – 5 – –
(b) Maturity profile The maturity profile of the contractual undiscounted cash flows in relation to derivative financial instruments is as follows: Within 1 year years years years
Greater than 20 years Total 2019 £m £m £m £m £m £m £m Cash inflows Derivative financial assets 411 99 651 – – 1 1,162 Derivative financial liabilities 281 – – – – – 281
Included in the above maturity profile are the following cash flows in relation to cash flow hedge assets: Within 1 year years years years
Net cash flow hedge cash inflows 7 24 54 – – – 85 21. Receivables and other financial assets 2019 20181
Receivables and other financial assets 560 697 1 Comparatives for 2018 have been represented to exclude assets backing unit linked liabilities. Refer Note 25.
Accrued income includes £227m (2018: £214m) of accrued income from contracts with customers (refer Note 4(b)).
All deferred acquisition costs above are costs deferred on investment contracts (deferred origination costs) which relate to contracts with customers (refer Note 4(b)). The amortisation charge for deferred origination costs relating to contracts with customers from continuing operations for the year was £2m (2018: £2m).
Assets and liabilities held for sale are presented separately in the consolidated statement of financial position and consist of operations and individual non-current assets whose carrying amount will be recovered principally through a sale transaction (expected within one year) and not through continuing use.
Certain amounts seeded into funds are classified as interests in pooled investment funds. Investment property and owner occupied property held for sale relates to property for which contracts have been exchanged but the sale had not completed during the current financial year. Interests in pooled investment funds and investment property held for sale continue to be measured based on the accounting policies that applied before they were classified as held for sale.
Assets held for sale 767 762 Liabilities of operations held for sale
Assets of operations held for sale Equity securities and interests in pooled investment funds 674 604 Cash and cash equivalents 26 33 Other assets 65 30 Total assets of operations held for sale 765 667 Liabilities of operations held for sale Non-participating insurance contract liabilities 647 574 Non-participating investment contract liabilities 49 52 Other liabilities 51 17 Total liabilities of operations held for sale 747 643 Net assets of operations held for sale 18 24
Cash and cash equivalents include cash at bank, money at call and short notice with banks, and any highly liquid investments with less than three months to maturity from the date of acquisition. For the purposes of the consolidated statement of cash flows, cash and cash equivalents also include bank overdrafts which are included in other financial liabilities on the consolidated statement of financial position.
Where the Group has a legally enforceable right of set off and intention to settle on a net basis, cash and overdrafts are offset in the consolidated statement of financial position.
Cash at bank and in hand 852 658 Money at call, term deposits and debt instruments with less than three months to maturity from acquisition 763 452 Cash and cash equivalents 1,615 1,110
Cash and cash equivalents 1,615 1,110 Cash and cash equivalents backing unit linked liabilities 25 44 30 Cash and cash equivalents classified as held for sale 23 26 33
Total cash and cash equivalents for consolidated statement of cash flows 1,347 957 1 Comparatives for 2018 have been represented to exclude assets backing unit linked liabilities. Refer Note 25.
Included in cash and cash equivalents and bank overdrafts are £592m (2018: £566m) and £338m (2018: £216m) relating to balances within a cash pooling facility in support of which cross guarantees are provided by certain subsidiary undertakings and interest is paid or received on the net balance. Included in cash and cash equivalents is an offsetting overdraft of £219m (2018: £343m) where the Group has a legally enforceable right to offset the recognised amounts, and there is an intention to settle on a net basis.
Withdrawals paid out to policyholders on non-participating investment contracts and to third party interest in consolidated funds are treated as a reduction to deposits and not recognised as expenses in the consolidated income statement.
Investment return and related benefits credited in respect of non-participating investment contracts and third party interest in consolidated funds are recognised in the consolidated income statement as changes in investment contract liabilities and changes in liability for third party interest in consolidated funds respectively.
(a) Financial instrument risk management The shareholder is not directly exposed to market risk or credit risk in relation to the financial assets backing unit linked liabilities. The shareholder’s exposure to market risk on these assets is limited to variations in the value of future fee based revenue as fees are based on a percentage of fund value.
Classified as held for sale1 Total 2019 £m £m £m £m £m £m
The financial investments backing unit linked liabilities comprise equity securities and interests in pooled investment funds of £1,338m (2018: £1,521m), debt securities of £185m (2018: £136m) and derivative financial assets of £5m (2018: £2m). In addition to unit linked financial liabilities shown above there is a current tax liability of £2m (2018: £1m) included in unit linked liabilities.
The fair value of financial instruments not held at fair value approximates to their carrying value at 31 December 2019 and 31 December 2018.
There were no financial instruments transferred from level 1 to level 2 in the year (2018: none). There were no movements in level 3 financial assets and liabilities (2018: none).
(d) Derivatives The treatment of collateral accepted and pledged in respect of financial instruments and the Group’s approach to offsetting financial assets and liabilities is described in Note 38. The following table presents the impact of master netting agreements and similar arrangements for derivatives backing unit linked liabilities.
As at 31 December 2018 £m £m £m £m Financial assets Derivatives1 2 – – 2 Total financial assets 2 – – 2 Financial liabilities Derivatives1 (2) – – (2) Total financial liabilities (2) – – (2) 1 Only OTC derivatives subject to master netting agreements have been included above.
Shares are classified as equity instruments when there is no contractual obligation to deliver cash or other assets to another entity on terms that may be unfavourable. The Company’s share capital consists of the number of ordinary shares in issue multiplied by their nominal value. The difference between the proceeds received on issue of the shares and the nominal value of the shares issued is recorded in share premium.
On 22 October 2018, the Company undertook a share consolidation of the Company’s share capital. 7 new ordinary shares of 13 61/63 pence each were issued for each holding of 8 existing ordinary shares of 12 2/9 pence each. As a result, the number of shares in issue reduced from 2,941,738,848 to 2,574,021,492.
On 25 June 2018, a share buyback of up to £750m through on-market purchases was approved by shareholders. During the year ended 31 December 2019, the Company has bought back and cancelled 190,689,614 shares (2018: 82,593,085 shares). The total consideration was £516m (2018: £238m) which includes transaction costs and any unsettled purchases of shares. At 31 December 2019, there were no unsettled purchases of shares (2018: 792,527 shares).
This consideration has resulted in a reduction in retained earnings of £390m (2018: £238m) and in the special reserve of £126m (2018: £nil). An amount of £26m (2018: £11m) has been credited to the capital redemption reserve relating to the nominal value of the shares cancelled.
Shares issued in respect of share options – 1 27. Shares held by trusts
In July 2006 Standard Life Group demutualised and former members of the mutual company were allocated shares in the new listed Company. Some former members had not claimed their shares and the UAT was established to hold these shares on their behalf. The claim entitlement period for the UAT expired on 9 July 2016 and all remaining claims have now been concluded. On 13 December 2019, Standard Life Aberdeen plc instructed the Trustees of the UAT to return all remaining unclaimed shares and other assets held and to formally close the UAT. All assets in the UAT were transferred to Standard Life Aberdeen plc on 20 December 2019 and £1m was credited to the retained earnings of the Company (see Note 28). Prior to Standard Life Aberdeen plc issuing its closure instruction to the Trustees, the shares remaining in the UAT after 9 July 2016 had been measured at £nil.
Number of shares held by trusts Standard Life Aberdeen Employee Benefit Trust 15,378,831 – Standard Life Employee Trust 26,685,390 31,589,855 Aberdeen Asset Management Employee Benefit Trust 2003 10,579,914 20,327,295 Standard Life Unclaimed Asset Trust – 153,020 28. Retained earnings The following table shows movements in retained earnings during the year. The movements are aggregated for both continuing and discontinued operations.
Opening balance carried forward 2,778 3,162 Effect of change in accounting policy to IFRS 91 (12) – Effect of change in accounting policy to IFRS 161 (5) – Opening balance at 1 January 2,761 3,162
Recognised directly in equity Dividends paid on ordinary shares (518) (634) Redemption of B shares 26 – (1,002) Shares bought back on-market and cancelled 26 (390) (238) Transfer from other reserves on disposal of subsidiaries 1 – 99 Transfer between reserves on impairment of subsidiaries 29 780 570 Transfer for vested employee share-based payments 57 68 Transfer from the Standard Life Unclaimed Asset Trust 27 1 – Shares distributed by employee and other trusts (38) (33) Total items recognised directly in equity (108) (1,170)
1 The Group has initially applied IFRS 9 and IFRS 16 at 1 January 2019. Under the transition methods chosen, comparative information is not restated and the cumulative effect of initially applying these standards is recognised in retained earnings at the date of initial application. Refer Basis of preparation.
Merger reserve: the merger reserve consists of two components. Firstly at demutualisation in July 2006 the Company issued shares to former members of the mutual company. The difference between the nominal value of these shares and their issue value was recognised in the merger reserve. The reserve includes components attaching to each subsidiary that was transferred to the Company at demutualisation based on their fair value at that date. Secondly following the completion of the merger of Standard Life plc and AAM PLC on 14 August 2017, an additional amount was recognised in the merger reserve representing the difference between the nominal value of shares issued to shareholders of AAM PLC and their fair value at that date. On disposal or impairment of a subsidiary any related component of the merger reserve is released to retained earnings.
Effect of change in accounting policy to IFRS 91 – – (7) – – – – – (7)
1 The Group has initially applied IFRS 9 at 1 January 2019. Under the transition method chosen, comparative information is not restated and the cumulative effect of initially applying this standard is recognised in retained earnings at the date of initial application. Refer Basis of preparation.
Recognised in other comprehensive income Fair value losses on available-for-sale financial assets – – – (9) – – – – – (9) Fair value gains on cash flow hedges – 54 – – – – – – – 54 Revaluation of owner occupied property 2 – – – – – – – – 2 Exchange differences on translating foreign operations – – 17 – – – – – – 17 With profits funds: Associated UDS movement recognised in other comprehensive income – – (5) – – – – – – (5) Items transferred to profit or loss from continuing operations – (41) (2) – – – – – – (43) Items transferred to profit or loss on disposal of a subsidiary 1 – – (43) – – – – – – (43) Aggregate tax effect of items recognised in other comprehensive income – (2) – 1 – – – – – (1) Total items recognised in other comprehensive income 2 11 (33) (8) – – – – – (28) Recognised directly in equity Issue of B shares 26 – – – – (1,000) – – – – (1,000) Redemption of B shares 26 – – – – – – – – 1,000 1,000 Shares bought back on-market and cancelled 26 – – – – – – – – 11 11 Reserves credit for employee share-based payments – – – – – 36 – – – 36 Transfer to retained earnings for vested employee share-based payments – – – – – (68) – – – (68) Transfer between reserves on disposal of subsidiaries 1 (3) – – – (1,290) – – 1,194 – (99) Transfer between reserves on impairment of subsidiaries – – – – (570) – – – – (570) Total items recognised directly within equity (3) – – – (2,860) (32) – 1,194 1,011 (690)
(a) Non-controlling interests – ordinary shares Non-controlling interests – ordinary shares of £3m were held at 31 December 2019 (2018: £2m). The profit attributable to non-controlling interests from discontinued operations for the year ended 31 December 2018 comprised £5m in respect of ordinary shares.
(b) Non-controlling interests – preference shares 2019 2018 £m £m 5% 2015 Non-voting perpetual non-cumulative redeemable preference shares 99 99
The Group recognises preference shares issued by AAM PLC as non-controlling interests. The profit attributable to these non-controlling interests from continuing operations for the year ended 31 December 2019 was £5m (2018: £5m).
Following a tender and redemption process which completed on 25 October 2018, the Company repurchased/redeemed the guaranteed bonds and MACS for £703m and £336m respectively (including accrued interest and fees). The difference between the carrying value of the guaranteed bonds and MACS and the cost of the repurchase and mandatory redemption of £21m (net of tax) was recognised directly as profit attributable to other equity during the year ended 31 December 2018.
The guaranteed bonds bore interest on their principal amount at 6.75% per annum payable annually in arrears on 12 July. The MACS bore interest on their principal amount at 6.546% per annum payable annually in arrears on 4 November. The coupons payable on the guaranteed bonds and MACS were tax deductible. During the year ended 31 December 2018, £7m (net of tax) was recognised directly in equity as profit attributable to other equity in relation to the coupons payable on the guaranteed bonds and MACS.
The total amount in respect of the year ended 31 December 2018 recognised as profit attributable to other equity holders in relation to perpetual debt instruments was therefore £28m. The presentation of amounts attributable to these perpetual debt instruments in the consolidated income statement, consolidated statement of comprehensive income and consolidated statement of changes in equity has been corrected in 2019 to show these amounts separately as related to other equity holders rather than as part of non-controlling interests.
Insurance contracts, participating investment contracts and reinsurance contracts relate to the UK and European insurance business sold in 2018, Standard Life (Asia) Limited classified as held for sale, and insurance associates in the UK, India and China.
Insurance contracts A contract is classified as an insurance contract only if it transfers significant insurance risk. Insurance risk is significant if an insured event could cause an insurer to pay significant additional benefits to those payable if no insured event occurred, excluding scenarios that lack commercial substance. Our judgement is that where death benefits exceed maturity benefits by 10% or more a contract is classified as an insurance contract, by 5% or less it is not an insurance contract. There are no material contracts within the 5% to 10% range. A contract that is classified as an insurance contract remains an insurance contract until all rights and obligations are extinguished or expire.
(iv) Measurement – participating contract liabilities Participating contract liabilities are analysed into the following components:  Participating insurance contract liabilities  Participating investment contract liabilities  Present value of future profits on non-participating contracts, which is treated as a deduction from gross participating contract liabilities  Unallocated divisible surplus
The participating contracts held in the HWPF were issued by a with profits fund that fell within the scope of the PRA realistic capital regime. Under the Scheme of Demutualisation (the Scheme), the residual estate of the HWPF exists to meet amounts which may be charged to the HWPF under the Scheme. However, to the extent that SLAL’s board is satisfied that there is an excess residual estate, it shall be distributed over time as an enhancement to final bonuses payable on the remaining eligible policies invested in the HWPF. This planned enhancement to the benefits under with profits contracts held in the HWPF is included in the FPRL under the PRA realistic basis, resulting in a realistic surplus of nil. Applying the policy noted above, this planned enhancement is therefore included within the measurement of participating contract liabilities.
The Scheme provides that certain defined cash flows (recourse cash flows) arising in the HWPF on specified blocks of UK and Ireland business, both participating and non-participating, may be transferred out of that fund when they emerge, being transferred to the Shareholder Fund (SHF) or the Proprietary Business Fund (PBF) of SLAL, and thus accrue to the ultimate benefit of equity holders of the company. Under the Scheme, such transfers are subject to certain constraints in order to protect policyholders. The Scheme also provides for additional expenses to be charged by the PBF to the HWPF in respect of Germany branch business in SLAL.
Standard Life (Asia) Limited The Group’s policy for measuring liabilities for non-participating insurance contracts issued by overseas subsidiaries is to apply the valuation technique used in the issuing entity’s local statutory or regulatory reporting.
(b) Insurance contract claims and change in liabilities 2019 2018 £m £m
On 1 January 2019, the Group adopted IFRS 9 Financial Instruments. Refer Basis of preparation for details of the transition from the previous financial instruments standard, IAS 39 to IFRS 9.
Management determines the classification of financial liabilities at initial recognition. Financial liabilities which are managed and whose performance is evaluated on a fair value basis are designated as at fair value through profit or loss. Changes in the fair value of these financial liabilities are recognised in the consolidated income statement.
At amortised cost Total 20181 Notes £m £m £m £m £m Third party interest in consolidated funds 26 – – – 26
Derivative financial liabilities 20 – 4 – – 4 1 Comparatives for 2018 have been represented to exclude unit linked liabilities. Refer Note 25.
Subordinated liabilities are debt instruments issued by the Company which rank below its other obligations in the event of liquidation but above the share capital. Subordinated liabilities are initially recognised at the value of proceeds received after deduction of issue expenses. Subsequent measurement is at amortised cost using the effective interest rate method.
The principal amount of all the subordinated liabilities is expected to be settled after more than 12 months. The accrued interest on the subordinated liabilities of £nil (2018: £2m) is expected to be settled within 12 months.
During the year to 31 December 2018, the Group redeemed/repurchased subordinated liabilities with the following key features: 7% US Dollar fixed rate 6.75% Sterling fixed rate 6.546% Sterling fixed rate Principal amount $500m £500m £300m Issue date 1 March 2013 12 July 2002 4 November 2004 Maturity date Perpetual Perpetual Perpetual Callable at par at option of the Company from 1 March 2018 and on any interest payment date thereafter 12 July 2027 and on every fifth anniversary thereafter 6 January 2020 and on every anniversary thereafter
Not applicable 2.85% over the gross redemption yield on the appropriate five-year benchmark gilt rate 2.7% over the gross redemption yield on the appropriate one-year benchmark gilt rate
The 7% US Dollar fixed rate perpetual capital notes with a principal amount of $500m were redeemed on 1 March 2018.
 Defined contribution plans where the Group makes contributions to a member’s pension plan but has no further payment obligations once the contributions have been paid
Following a High Court ruling against a third party’s pension scheme, that required that scheme to address the inequalities in the statutory benefits paid to men and women, an allowance for assumed equalisation was introduced for our principal defined benefit plan at 31 December 2018. The estimated impact was recognised as a past service cost in 2018, though was not material.
The funding of the plan depends on the statutory valuation performed by the trustees, and the relevant employers, with the assistance of the scheme actuary – i.e. not the IAS 19 valuation. The funding valuation was last completed as at 31 December 2016, and measured plan assets and liabilities to be £4.9bn and £4.2bn respectively. This corresponds to a surplus of £0.7bn and funding level of 117%. As there is currently no deficit, no recovery plan is required. The funding valuation as at 31 December 2019 is currently being completed.
At the last funding valuation, effective 1 January 2019, the plan was 72% funded on an ongoing basis.
Plan regulations The plans are administered according to local laws and regulations in each country. Responsibility for the governance of the plans rests with the relevant trustee boards (or equivalent).
(a) Analysis of amounts recognised in the consolidated income statement The amounts recognised in the consolidated income statement for defined contribution and defined benefit plans are as follows: £m £m
Present value of funded obligation (2,852) (339) (3,191) (2,542) (311) (2,853) Present value of unfunded obligation – (3) (3) – (3) (3) Fair value of plan assets 4,609 308 4,917 4,251 276 4,527 Effect of limit on plan surplus (615) – (615) (598) – (598)
Effect of limit on plan surpluses Total 2019 £m £m £m £m £m
Current service cost (2) – (2) – (2) Past service cost 13 – 13 – 13
Total (expense)/income recognised in consolidated income statement (70) 127 57 (17) 40 Remeasurements
Return on plan assets, excluding amounts included in interest income – (253) (253) – (253) Gain from change in financial assumptions 224 – 224 – 224
Remeasurement gains/(losses) recognised in other comprehensive income 211 (253) (42) 13 (29) Exchange differences (1) 1 – – –
Liability in respect of collateral held (426) (300) – – (426) (300)
Included in the qualifying insurance policy asset of £77m (2018: £69m) is an insurance policy purchased by the trustees of one of the Other UK defined benefit plans to protect the plan against future investment and actuarial risks. It has been valued at £64m (2018: £56m) with reference to the estimated benefits that will be paid by the insurer using the same assumptions and approach used to value the present value of the funded obligation covered by the policy.
One Other UK plan has a contract in place to hedge longevity risk for pensioners. The fair value of this derivative is £nil at 31 December 2019 (2018: £nil).
(e) Estimates and assumptions Determination of the valuation of principal plan liabilities is a key estimate as a result of the assumptions made relating to both economic and non-economic factors. The key economic assumptions for the principal plan, which are based in part on current market conditions, are shown below: Discount rate 2.05 2.85 Rates of inflation
Consumer Price Index (CPI) 2.00 2.20 Retail Price Index (RPI) 2.90 3.20
The most significant non-economic assumption for the principal plan is post-retirement longevity which is inherently uncertain. The assumptions (along with sample expectations of life) are illustrated below: Normal Retirement Age (NRA)
Advanced parameterisation of CMI 2013 mortality improvements model – adjusted to assume that improvements continue to increase in the short term before declining toward an ultimate long-term rate of 1.375%
Expectation of life from NRA Male age today Female age today 2018 Table Improvements NRA 40 NRA 40
Life expectancy Increases in life expectancy beyond those currently assumed will lead to an increase in plan liabilities. Regular reviews of longevity assumptions are performed to ensure assumptions remain appropriate.
Yield/discount rate Decrease by 1% (e.g. from 2.05% to 1.05%) (846) 1,522 (729) 1,534
Reclassified as held for sale during the year – (157) Additions during the year – 78 Released to the consolidated income statement as revenue from contracts with customers (8) (3)
Other financial liabilities 1,315 1,161 1 Comparatives for 2018 have been represented to exclude unit linked liabilities. Refer Note 25.
Accruals includes £3m (2018: £5m) relating to contracts with customers (refer Note 4(b)).
Provisions are obligations of the Group which are of uncertain timing or amount. They are recognised when the Group has a present obligation as a result of a past event, it is probable that a loss will be incurred in settling the obligation and a reliable estimate of the amount can be made.
Charged/(credited) to the consolidated income statement Additional provisions – 19 19 Release of unused provision – (7) (7)
1 The Group has initially applied IFRS 16 at 1 January 2019. Under the transition method chosen, comparative information is not restated and the cumulative effect of initially applying this standard is recognised in retained earnings at the date of initial application. Refer Basis of preparation.
The provision for separation costs of £77m (2018: £80m) is for costs expected to be incurred following the sale of the UK and European insurance business to Phoenix. Refer Note 1 for further details. We announced in the Sale Circular on 30 May 2018 that we expected to incur one-off costs relating to the separation of the business sold of approximately £250m. As our work has progressed we have encountered additional complexity resulting from the separation of the technology infrastructure and as a result we now expect these one-off separation costs to be £310m. Our judgement is that a provision should be recognised for costs for which the Group will not derive ongoing benefits such as those relating to the de-coupling and decommissioning of systems and data but that a provision should not be recognised for costs related to the development of replacement systems and services as these will give future benefits. No additional provision has been recognised in the year ended 31 December 2019 for the additional £60m of estimated costs as it is judged to relate to expenditure from which the Group will derive future benefits. The costs covered by the provision are expected to be incurred in the next two years.
The amount of provisions expected to be settled after more than 12 months is £34m (2018: £72m).
38. Financial instruments risk management (a) Overview The principal risks and uncertainties that affect the Group’s business model and the Group’s approach to risk management are set out in the Risk management section of the Strategic report.
The Group’s exposure to financial instrument risk is derived from the financial instruments that it holds directly, the assets and liabilities of the unit linked funds of the life operations of the Group and the Group’s defined benefit pension plans. In addition due to the nature of the business, the Group’s secondary exposure extends to the impact on investment management and other fees that are determined on the basis of a percentage of AUM and are therefore impacted by financial risks borne by third party investors. In this note exposures and sensitivities provided relate to the financial instrument assets and liabilities, in scope of IFRS 7, to which the shareholder is directly exposed.
Under IFRS 7 the following financial instruments are excluded from scope:  Interests in subsidiaries, associates and joint ventures  Rights and obligations arising from employee benefit plans  Insurance contracts as defined by IFRS 4  Share-based payment transactions 195Standard Life Aberdeen 2019
For the purposes of managing risks to the Group’s financial instrument assets and liabilities, the Group considers the following categories: Risk Definition and exposure Market The risk of financial loss as a result of adverse financial market movements. The shareholder is directly exposed to the impact of movements in equity prices, interest rates and foreign exchange rates on the value of assets held by the shareholder business.
(b) Market risk Market risk exposures in the Asset management, platforms and wealth segment primarily arise as a result of holdings in newly established investment vehicles which the Group has seeded and co-investments in property and infrastructure funds. Seed capital is classified as held for sale when it is the intention to dispose of the vehicle in a single transaction and within one year. Co-investments are typically held for a longer term and align the Group’s economic interests with those of property, private equity and infrastructure fund co-investors. The consolidated statement of financial position includes the following amounts in respect of seed capital and co-investments.
Equity securities and interests in pooled investment funds at FVTPL 84 37 Total co-investments 84 37
The Group sets limits for investing in seed capital and co-investment activity and regularly monitors exposures arising from these investments. The Group will consider hedging its exposure to market and currency risk in respect of seed capital investments where it is appropriate and efficient to do so. The Group will also consider hedging its exposure to currency risk in respect of co-investments where it is appropriate and efficient to do so. Other market risks associated with co-investments are not hedged given the need for the Group’s economic interests to be aligned with those of the co-investors.
Market risk exposure also arises to the extent that the market value of assets held to back debt issued does not move in line with the market value of the liabilities being backed. This risk is controlled through having robust processes in place to limit the use of proceeds from debt issuance and includes the use of investment constraints and portfolio limits.
The shareholder exposure of £458m (2018: £464m) to interests in pooled investment funds primarily relates to:  Corporate funds held in absolute return funds which are not consolidated of £210m (2018: £197m)  Co-investment holdings in property and infrastructure funds of £84m (2018: £37m)  Seed capital in funds which are not consolidated of £77m (2018: £57m)  Investments in certain managed funds to hedge against liabilities from variable pay awards that are deferred and settled in cash by reference to the share price of those funds of £44m (2018: £53m)  Holdings in cash funds which are not consolidated of £5m (2018: £5m)  Interest in pooled funds held by the Standard Life Foundation of £35m (2018: £81m)
The sensitivity of profit after tax to changes in equity security prices for the shareholder business is included in the profit after tax sensitivity to market risk table, shown in Section (b)(ii).
The table below summarises the financial instrument exposure to foreign currency risks in UK Sterling. The table excludes inter-segment assets and liabilities.
Other currencies include assets of £12m (2018: £13m) and liabilities of £nil (2018: £3m) in relation to the fair value of derivatives used to manage currency risk.
In addition to financial instruments analysed above, the principal source of foreign currency risk for shareholders arises from the Group's investments in overseas subsidiaries and associates and joint ventures accounted for using the equity method.
Debt securities The Group’s policy is to set exposure limits by name of issuer, sector and credit rating. Other financial instruments Appropriate limits are set for other financial instruments to which the Group may have exposure at certain times.
– Significant increase in credit risk since initial recognition, – Trade receivables or contract assets with no significant financing component – Trade receivables or contract assets with significant financing component, or lease receivables for which lifetime ECL measurement has been elected Changes in Lifetime ECL – Credit-impaired at initial recognition
In determining if a significant increase in the risk of default occurring has arisen since initial recognition the Group considers a range of factors including whether a default has taken place, deterioration in credit quality of a counterparty and knowledge of specific events which could influence a counterparty’s ability to pay.
(c)(i) Credit exposure The following table presents an analysis of the credit quality of shareholder financial assets and the maximum exposure to credit risk without taking into account any collateral held: Amortised cost Fair value through profit or loss
Loans and receivables Total 2018 £m £m £m £m £m £m Neither past due nor impaired: AAA – – – 36 162 198
Receivables and other financial assets 8 – – – 687 695 Cash and cash equivalents – – – – 1,110 1,110
In the table above debt securities exclude debt securities relating to third party interests in consolidated funds of £44m (2018: £17m). Cash and cash equivalents exclude cash and cash equivalents relating to third party interests in consolidated funds of £6m (2018: £nil). Derivative financial assets exclude derivative financial assets relating to third party interests in consolidated funds of £nil (2018: £1m). Receivables and other financial assets exclude receivables and other financial assets relating to third party interests in consolidated funds of £nil (2018: £2m). The shareholder is not exposed to the credit risk in respect of third party interests in consolidated funds since the financial risk of the assets are borne by third parties.
Gross amounts of financial instruments as presented on the consolidated statement of financial position
During the year, the Group refined its processes for managing liquidity risk through the operation of its liquidity risk framework. This framework ensures that liquidity risks are identified and also identifies which entities in the Group have this exposure. Stress testing of these risks is performed to understand the quantum of risk under stress conditions. This then informs the level of liquid resources that need to be maintained. Where appropriate, this is enhanced with external credit facilities and the Group has a syndicated revolving credit facility of £400m which was undrawn at 31 December 2019.
The Group also had unrecognised commitments in respect of financial instruments as at 31 December 2019 with a contractual maturity of within one year and between one and five years of £2m and £39m respectively (2018: £9m and £28m).
The Group consolidates structured entities which it controls. Where the Group has an investment in, but not control over these types of entities, the investment is classified as an investment in associate when the Group has significant influence. Investments in associates at FVTPL are included in equity securities and pooled investment funds in the analysis of financial investments.
The following table shows the carrying value of the Group’s interests in unconsolidated structured entities by line item in the consolidated statement of financial position.
(b)(i) Investments in unconsolidated structured entities Equity securities and interests in pooled investment funds includes £650m (2018: £610m) of unconsolidated structured entities which are managed by the Group and in which the Group has a direct investment. At 31 December 2019 the asset value of these unconsolidated structured entities is £22,795m (2018: £21,020m). The total fees recognised in respect of these assets under management during the year to 31 December 2019 were £137m (2018: £44m).
The total issuance balance relating to unconsolidated structured debt securitisation vehicles in which the Group has an investment is £1,000m (2018: £1,000m).
Total assets under management of structured entities in which the Group has no direct investments but has other interests in are £102,558m at 31 December 2019 (2018: £136,047m). The fees recognised in respect of these assets under management during the year to 31 December 2019 were £581m (2018: £813m).
(b) Financial assets and financial liabilities An analysis of the Group’s financial assets and financial liabilities in accordance with the categories of financial instrument set out in IFRS 9 Financial Instruments is presented in Notes 19, 25 and 32 and includes those financial assets and liabilities held at fair value.
(c) Methods and assumptions used to determine fair value of assets and liabilities including those held for sale Information on the methods and assumptions used to determine fair values for each major category of instrument measured at fair value is given below. These methods and assumptions include those used to fair value assets and liabilities held for sale, including the individual assets and liabilities of operations held for sale.
Where pooled investment funds have been seeded and the investment in the funds have been classified as held for sale, the costs to sell are assumed to be negligible. The fair value of pooled investment funds held for sale is calculated as equal to the observable unit price.
Contingent consideration assets and contingent consideration liabilities Contingent consideration assets and liabilities have been recognised in respect of acquisitions and disposals. Generally valuations are based on unobservable assumptions regarding the probability weighted cash flows and, where relevant, discount rate and therefore the assets and liabilities are classified as level 3 in the fair value hierarchy. Significant contingent consideration arises under the terms of the sale of SLAL to Phoenix in August 2018. The terms include a number of indemnities that give rise to contingent consideration. The indemnities that have the most significant impact on the fair value of this contingent consideration are as follows:  Annuity sales practices The annuity sales practices indemnity primarily relates to enhanced annuities. At the request of the FCA, SLAL has been conducting a review of non-advised annuity sales (with a purchase price above a minimum threshold) to customers eligible to receive an enhanced annuity from 1 July 2008 until 31 May 2016. The purpose of this review is to identify whether these customers received sufficient information about enhanced annuities to make the right decisions about their purchase, and, where appropriate, provide redress to customers who have suffered loss as a result of not having received sufficient information. SLAL has been working with the FCA regarding the process for conducting this past business review. The review is now substantially complete.
In addition, the Group is currently engaged in ongoing discussions with Phoenix in respect of disagreements over the operation of certain aspects of the agreements that were entered into at the time of the sale of SLAL to Phoenix and which impact the value of the indemnities and other payments under the transaction terms. Whilst the Group and Phoenix are currently seeking a commercial resolution in respect of such disagreements, it is possible that all or some of these matters (and any other disagreements which may arise from time to time in respect of these agreements) could be escalated to a dispute resolution process provided for in the relevant agreements, which could result, if the Group and Phoenix fail to reach agreement, in either party commencing legal proceedings. Management’s estimate of the impact of these discussions on the value of the arrangements entered into with Phoenix at the time of the sale of SLAL to Phoenix has been taken into account in the fair value of the contingent consideration.
Transfers from level 1 to level 2 and from level 2 to level 1 during the year ended 31 December 2019 were £7m (2018: £nil) and £6m (2018: £nil) respectively. These transfers relate to assets where changes in the frequency of observable market transactions resulted in a change in whether the market was considered active. Transfers are deemed to have occurred at the end of the calendar quarter in which they arose. Refer Note 40(c)(iii) for details of movements in level 3.
There were no significant transfers between levels 1 and 2 during the year (2018: none). Refer Note 40(c)(iii) for details of movements in level 3.
(c)(iii) Reconciliation of movements in level 3 instruments The movements during the year of level 3 assets and liabilities held at fair value, excluding unit linked assets and liabilities and assets and liabilities held for sale, are analysed below.
Transfers in to level 31 – – – – 6 – – – – –
Statistical distribution used in the Group’s Solvency II internal model at 31 December 2017
(21) Unobservable inputs relate to probability weighted cash flows and, where relevant, discount rates. The most significant unobservable inputs relate to assumptions used to value the contingent consideration related to the sale of SLAL to Phoenix, in particular those related to: – SLAL’s annuity sales practices provision (including the likelihood and value of annuity sales practices insurance recoveries and any FCA-levied penalty)
Estimates and assumptions at 31 December 2019 At 31 December 2019 the contingent consideration relating to the indemnity covering future lapse rates on relevant UK unit linked products of SLAL is considered a source of estimation uncertainty with a significant risk of resulting in a material adjustment to the carrying amount of assets and liabilities within the next financial year. Other elements of contingent consideration are not considered to be a critical accounting estimate at 31 December 2019.
The technique used to value the indemnity covering future lapses on relevant UK unit linked products of SLAL is based on a statistical model used for the Group’s Solvency II reporting at 31 December 2017 (prior to the sale of the SLAL business to Phoenix), with each possible outcome weighted by the likelihood of the outcome. Unobservable inputs are the statistical distribution of potential lapses over the indemnity period based on past experience. The most likely amount payable is £nil and the range of possible impacts on the contingent consideration asset valuation from reasonably possible alternative assumptions is -£50m to +£25m.
Estimates and assumptions at 31 December 2018 The contingent consideration related to the annuity sales practices indemnity was considered to be an item for which assumptions and other sources of estimation uncertainty within the valuation technique at the end of the reporting period had a significant risk of resulting in a material adjustment to the carrying amounts of assets and liabilities within the next financial year.
The costs of conducting the review relate to administrative expenses per case and wider project costs. The costs were based on SLAL’s project planning.
In addition, the fair value of the contingent consideration took into account that substantially all of the £100m being sought by SLAL under insurance policies to mitigate the financial impact was received by the Group in January 2019 and was based on an assessment of the likelihood of a financial penalty and the FCA’s methodology for calculating such penalties.
(d) Assets and liabilities not carried at fair value The table below presents estimated fair values by level of the fair value hierarchy of non-unit linked financial assets and liabilities whose carrying value does not approximate fair value. Fair values of assets and liabilities are based on observable market inputs where available, or are estimated using other valuation techniques.
The carrying value of all other financial assets and liabilities measured at amortised cost approximates their fair value.
41. Statement of cash flows The Group classifies cash flows in the consolidated statement of cash flows as arising from operating, investing or financing activities.
From 1 January 2019 the Group has changed the classification of capital flows arising to/from, and distributions paid to, third party interest in consolidated funds from cash flows arising from financing activities to cash flows arising from operating activities. Comparatives have been restated. Refer basis of preparation.
Other financial liabilities, provisions and other liabilities (230) 1,260 Deposits received from reinsurers – (397) Pension and other post-retirement benefit provisions (60) (7) Deferred income (8) 57 Insurance contract liabilities – (586) Investment contract liabilities (316) (2,756) Change in liability for third party interest in consolidated funds 197 (622) Liabilities held for sale 126 (76) Change in operating liabilities (291) (3,127)
Gain on sale of subsidiaries – (1,780) Profit on disposal of associates (1,542) (185) Loss on disposal of property, plant and equipment – 1 Depreciation of property, plant and equipment 47 20 Amortisation of intangible assets 184 224 Impairment losses on intangible assets 1,571 926 (Reversal of)/loss on impairment of associates (243) 228 Impairment losses recognised on property, plant and equipment 16 – Impairment losses on disposal group held for sale – 2 Movement in contingent consideration asset/liability (61) – Equity settled share-based payments 43 36 Other interest cost – 2 Finance costs 36 80 Share of profit from associates and joint ventures accounted for using the equity method (79) (135) Other non-cash and non-operating items (28) (581)
Notes £m Deferred acquisition costs 622 Investment property 10,068 Reinsurance assets 4,474 Derivative financial assets 2,969 Equity securities and interests in pooled investment funds 96,351 Debt securities 56,712 Receivables and other financial assets 1,162 Other assets of operations disposed of excluding cash and cash equivalents 8,086 Non-participating insurance contract liabilities (22,207) Non-participating investment contract liabilities (102,216) Participating contract liabilities (30,244) Deposits received from reinsurers (4,236) Derivative financial liabilities (957) Third party interest in consolidated funds (15,581) Other financial liabilities (2,861) Other liabilities of operations disposed of (790) Non-controlling interests – ordinary shares (282) Net assets disposed of 1,070
Opening balance carried forward – Effect of change in accounting policy to IFRS 161 227 Opening balance at 1 January 227
Payment of lease liabilities (32) Cash flows from financing activities (32) Non-cash items
(a) Unrecognised financial instruments As at 31 December 2019, the Group has committed to investing an additional £46m (2018: £37m) into funds in which it holds a co-investment interest.
(b) Capital commitments As at 31 December 2019, the Group has no capital commitments other than in relation to financial instruments (2018: none).
The Group’s investment property was sold in the year ended 31 December 2018 so there are no capital commitments in respect of investment property as at 31 December 2019 and 31 December 2018.
For equity-settled share-based payment transactions, the fair value of services received is measured by reference to the fair value of the equity instruments at the grant date. The fair value of the number of instruments expected to vest is charged to the income statement over the vesting period with a corresponding credit to the equity compensation reserve in equity.
(i) Deferred and discretionary share plans The Group operates the following deferred and discretionary plans.
(ii) Sharesave (Save-as-you-earn) The Group operates Save-as-you-earn (SAYE) plans, which allow eligible employees in the UK and Ireland the opportunity to save a monthly amount from their salaries, over either a three or five year period, which can be used to purchase shares in the Company. The shares can be purchased at the end of the savings period at a predetermined price. Employees are granted a predetermined number of options based on the monthly savings amount and duration of their contract. The conditions attached to the options are that the employee remains in employment for three years after the grant date of the options and that the employee satisfies the monthly savings requirement. Settlement is made in the form of shares.
(iii) Long-term incentive plans The Group operates the following long-term incentive plans which awarded share options prior to the introduction of the Standard Life Aberdeen plc Deferred Share and Discretionary Share Plans.
(iv) Annual bonus deferred share options The Group operates the following deferred bonus plans which awarded share options prior to the introduction of the Standard Life Aberdeen plc Deferred Share and Discretionary Share Plans.
Executives and senior management Service conditions of one, two and three years after the date of the award (one to five years for executive management). There are no outstanding performance conditions.
(a) Options granted The number, weighted average exercise price and weighted average remaining contractual life for options outstanding during the year are as follows: Deferred and discretionary share plans
The exercise price for options granted under the deferred and discretionary share plans, the long-term incentive plans (including RSP) and the annual bonus deferred share option schemes is nil. The fair value of options granted under the Group’s incentive schemes is determined using a relevant valuation technique, such as the Black Scholes option pricing model.
Deferred and discretionary share plans Sharesave Options granted during the year Grant date Throughout, main grant date 15 April 2019 16 October 2019 Share price at grant date1 272p 285p Fair value at grant date1 272p 54p Exercise price Nil 192p-199p Dividends The plans include the entitlement to the receipt of dividends in respect of awards that ultimately vest between the date of grant and the vesting date
The following table shows the share price at exercise of options exercised during the year.
The following table shows the range of exercise prices of options outstanding at 31 December 2019. Options under the Standard Life Aberdeen plc Deferred Share and Standard Life Aberdeen plc Discretionary Share Plans and the Aberdeen Asset Management DSP 2009 are exercisable up to 10 years after the grant date. All other options are exercisable for a period of six months after the vesting date.
Deferred and discretionary share plans £nil 22,956,158 – Long-term incentive plans £nil 38,409,699 62,264,963 Annual bonus deferred share options £nil 15,469,459 26,220,720 Sharesave 192p-199p 5,442,217 –
Number of share awards granted 4,283,186 348,461 285,500 562,261 Share price at date of grant3 272p 277p 364p 336p Fair value per granted instrument at grant date3 272p 277p 364p 336p 1 Conditional share awards made under the Aberdeen Asset Management USA DSAP. 2 The share incentive plan awards in the year ended 31 December 2018 included 5,898 rights to shares granted to eligible employees in Germany and Austria. 3 Weighted average.
No conditional share awards were made under the Aberdeen Asset Management USA DSAP in the year ended 31 December 2019.
(c) Employee share-based payment expense and deferred fund awards The amounts recognised as an expense for equity-settled share-based payment transactions and deferred fund awards with employees are as follows: £m £m
Included in the expense above is £19m (2018: £31m) of share-based payment expenses which are included in restructuring and corporate transaction expenses in the consolidated income statement.
The liability for cash-settled share-based payments outstanding at 31 December 2019 is £nil (2018: £2m).
During the year, the Group recognised management fees from Group managed non-consolidated investment vehicles. These fees are disclosed in Note 39. It also recognised management fees of £4m (2018: £4m) from the Group’s defined benefit pension plans.
In the year ended 31 December 2019, for associates accounted for using the equity method, the Group recognised sales primarily in relation to management fees of £145m (2018: £89m) and purchases in relation to services received of £49m (2018: £28m).
(b) Compensation of key management personnel On 24 May 2019 the executive committee was replaced by the executive leadership team. For 2019 key management personnel therefore includes Directors of Standard Life Aberdeen plc (since appointment) and the executive committee (since appointment) for the period from 1 January 2019 until 23 May 2019 and from 24 May 2019 includes Directors of Standard Life Aberdeen plc (since appointment) and the members of the executive leadership team (since appointment).
(b) Regulatory capital (b)(i) Regulatory capital framework From 31 August 2018, following the sale of the UK and European insurance business to Phoenix, the Group is supervised under the CRD IV regulatory regime for group prudential supervisory purposes and therefore measures and monitors its capital on that basis. Previously, the Group was subject to the Solvency II (SII) regulatory regime. The Group’s regulatory capital position under CRD IV is determined by consolidating the eligible capital and reserves of the Group (subject to a number of deductions) to derive regulatory capital resources, and comparing this to the Group’s regulatory capital requirements.
47. Events after the reporting date On 7 February 2020, the Company announced a share buyback of up to £400m through on-market purchases commencing on 10 February 2020 and ending no later than 30 September 2020. As at 6 March 2020, the Company had repurchased 20,214,403 shares for a consideration of £60m.
In early 2020, the existence of a new coronavirus, now known as COVID-19, was confirmed and since this time COVID-19 has spread across China and to a significant number of other countries. COVID-19 has caused disruption to businesses and economic activity which has been reflected in recent fluctuations in global stock markets. The Group considers the emergence and spread of COVID-19 to be a non-adjusting post balance sheet event. Given the inherent uncertainties, it is not practicable at this time to determine the impact of COVID-19 on the Group or to provide a quantitative estimate of this impact.
The ability of subsidiaries to transfer cash or other assets within the Group for example through payment of cash dividends is generally restricted only by local laws and regulations, and solvency requirements. Included in equity attributable to equity holders of Standard Life Aberdeen plc at 31 December 2019 is £88m (2018: £81m) related to the Standard Life Foundation, a subsidiary undertaking of the Group. The assets of the Standard Life Foundation are restricted to be used for charitable purposes. Additionally dividends payable on Aberdeen’s preference shares rank ahead of any dividends paid on Aberdeen’s ordinary shares.
Seabury Sterling Liquidity 1 Fund26 SICAV 100% Aberdeen Pension Trustees Limited4 Ordinary shares 100% Aberdeen Pooling II GP AB16 Ordinary shares 100% Aberdeen Property Fund Finland I Feeder Ky15 Limited partnership 0% Aberdeen Property Fund Finland LP (APFF)15 Limited partnership 0% Aberdeen Property Fund Limited Partner Oy15 Ordinary shares 100% Aberdeen Property Fund Management (Jersey) Limited32 Ordinary shares 100% Aberdeen Property Fund Management Estonia Ou33 Ordinary shares 100% Aberdeen Property Investors (General Partner) S.a.r.l.34 Ordinary shares 100% Aberdeen Property Investors Estonia Ou33 Ordinary shares 100% Aberdeen Property Investors France SAS27 Ordinary shares 100% Aberdeen Property Investors Limited Partner Oy15 Ordinary shares 100% Aberdeen Property Investors The Netherlands BV35 Ordinary shares 100% Aberdeen Property Secondaries Partners II26 Limited partnership 1% Aberdeen Property UK Retail Parks Partnership5 Limited partnership 0% Aberdeen Real Estate Fund Finland LP (AREFF)36 Limited partnership 5% Aberdeen Real Estate Investors Operations (UK) Limited24 Ordinary shares 100% Aberdeen Real Estate Operations Limited4 Ordinary shares 100% Aberdeen Residential JV Feeder Limited Partner Oy15 Ordinary shares 100% Aberdeen Secondaries II GP S.a.r.l.26 Ordinary shares 100% Aberdeen Sidecar LP Inc30 Limited partnership 0% Aberdeen SP 2013 A/S14 Ordinary shares 100% Aberdeen Standard 2019 European PE A Carry LP Limited partnership 100% Aberdeen Standard 2019 European PE B Carry LP Limited partnership 100% Aberdeen Standard Asset Management (Shanghai) Co., Ltd.37 Ordinary shares 100% Aberdeen Standard Asset Management (Thailand) Limited38 Ordinary shares 100% Aberdeen Standard Asset Management Limited Ordinary shares 100% Aberdeen Standard Bloomberg WTI Crude Oil Strategy K-1 Free ETF25 ETF 67% Aberdeen Standard Capital (CI) Limited39 Ordinary shares 100% Aberdeen Standard Capital International Limited39 Ordinary shares 100% Aberdeen Standard Capital Limited Ordinary shares 100% Aberdeen Standard Carlsbad GP Limited29 Ordinary shares 100% Aberdeen Standard Carlsbad LP4 Limited partnership 0% Aberdeen Standard Diversified Fixed Income Fund40 OEIC 22% Aberdeen Standard ECF II Carry Limited Partnership Limited partnership 100% Aberdeen Standard Emerging Market Local Currency Debt Fund40 OEIC 41% Aberdeen Standard European Co-Investment II SCSp26 Limited partnership 0% Aberdeen Standard Fund Managers Limited5 Ordinary shares 100%
Aberdeen Standard Investments Nominees Services (HK) Limited49 Ordinary shares 100% Aberdeen Standard Investments Norway AS48 Ordinary shares 100% Aberdeen Standard Investments Norway Holding AS48 Ordinary shares 100% Aberdeen Standard Investments Operations AS48 Ordinary shares 100% Aberdeen Standard Investments (Switzerland) AG54 Ordinary shares 100% Aberdeen Standard Investments Taiwan Limited41 Ordinary shares 100% Aberdeen Standard Islamic Asia Pacific Ex Japan Equity Fund55 Unit trust 49% Aberdeen Standard Islamic Investments (Malaysia) Sdn. Bhd.53 Ordinary shares 100% Aberdeen Standard Life Asset Management Limited Ordinary shares 100% Aberdeen Standard Life Group Limited Ordinary shares 100% Aberdeen Standard Life Investments Limited Ordinary shares 100% Aberdeen Standard Life Limited Ordinary shares 100% Aberdeen Standard Limited Ordinary shares 100% Aberdeen Standard Multi-Sector Private Credit Fund SCSp26 Limited partnership 0% Aberdeen Standard OEIC I
Aberdeen Standard OEIC III ASI MyFolio Index I Fund5 OEIC 84% ASI MyFolio Index II Fund5 OEIC 21% ASI MyFolio Index V Fund5 OEIC 39%
Aberdeen Standard OEIC IV ASI American Equity Tracker Fund5 OEIC 43% ASI Asia Pacific ex Japan Equity Tracker Fund5 OEIC 100% ASI Emerging Markets Equity Tracker Fund5 OEIC 76%
Aberdeen Standard Opportunistic Core China Bond No. 1 Investment Private Fund56 Private commingled fund 100% Aberdeen Standard Overseas Investment Fund Management (Shanghai) Co., Ltd.37 Ordinary shares 100% Aberdeen Standard Pan European Residential Property Fund SICAV-RAIF26 Limited partnership 1% Aberdeen Standard Private Real Assets Co-investment Fund I GP, LP25 Limited partnership 79% Aberdeen Standard Private Real Assets Co-Investment Fund I, L.P.25 Limited partnership 1% Aberdeen Standard SICAV I
Aberdeen Standard SICAV I – Asian Credit Bond Fund26 SICAV 51% Aberdeen Standard SICAV I – Emerging Markets Local Currency Corporate Bond Fund26 SICAV 84% Aberdeen Standard SICAV I – European Equity (ex-UK) Fund26 SICAV 29% Aberdeen Standard SICAV I – German Equity Fund26 SICAV 53%
Aberdeen Standard SOF Evergreen GP LP Limited partnership 100% Aberdeen Standard SOF Evergreen LP Limited partnership 0% Aberdeen Standard SOF IV Feeder LP Limited partnership 0% Aberdeen Standard SOF IV GP LP Limited partnership 100% Aberdeen Standard SOF IV LP Limited partnership 0% Aberdeen Standard Syariah Asia Pacific Equity USD Fund42 Unit trust 29% Aberdeen Standard Unit Trust 1
Artio Global Investors Inc.22 Ordinary shares 100% ASI Core Private Equity Fund L.P.25 Limited partnership 0% ASI (General Partner 2019 European PE B) Limited Ordinary shares 100% ASI (General Partner 2019 European PE A Carry) Limited Ordinary shares 100% ASI (General Partner 2019 European PE A) S.a.r.l.26 Ordinary shares 100% ASI (General Partner ECF II) Limited Ordinary shares 100% ASI (General Partner PE2) Limited Ordinary shares 100% ASI (General Partner PFF 2018) S.a.r.l.34 Ordinary shares 100% ASI (General Partner SOF IV) Limited Ordinary shares 100% ASI (SOF E GP) Limited Ordinary shares 100% ASI Direct RE GP LLP Limited liability partnership 100% ASI European Long Income RE Fund SCSp26 Limited partnership 0% ASI European Private Equity 2019 B LP Limited partnership 0% ASI Han Co-Investment LP Limited partnership 0% ASI Hark Capital I GP, LLC17 Limited liability company 100% ASI Hark Capital II GP, LLC17 Limited liability company 100% ASI Korea GP 2 Pte. Ltd.61 Ordinary shares 100% ASI Korea Separate Account 2 LP61 Limited partnership 1% ASI Little Mill Carry LP4 Limited partnership 100% ASI Little Mill LP4 Limited partnership 0% ASI Mid Market Fund 1 LP26 Limited partnership 0% ASI Mid-Market 1 LP4 Limited partnership 0% ASI MM Executive Co Investment LP4 Limited partnership 0% ASI PE 1 Carry LP4 Limited partnership 40% ASI Phoenix Fund Financing SCSp26 Limited partnership 0% ASI Private Equity 1 LP4 Limited partnership 0% ASI Private Equity 2 GP LP Limited partnership 100% ASI Private Equity 2 LP Limited partnership 0% ASI REMM GP LLP4 Limited liability partnership 100% ASI Shin Co-Investment LP4 Limited partnership 0% ASI Shin Global Investment GP Limited13 Ordinary shares 100% ASPER (Luxembourg) GP S.a.r.l.26 Ordinary shares 100% Baigrie Davies & Company Limited3 Ordinary shares 100% Baigrie Davies Holdings Limited3 Ordinary shares 100% BoS Mezzanine Partners Fund L.P.62 Limited partnership 0% BOSEMP Feeder LP4 Limited partnership 0% Bosera-Standard Life Investment Opportunities Market Debt Fund63 Unit trust 44% Castlepoint General Partner Limited64 Ordinary shares 100% Castlepoint LP64 Limited partnership 0% Castlepoint Nominee Limited64 Ordinary shares 100% C.C. U.S. Private Equity Fund GP, LLC25 Limited liability company 81% C.C. U.S. Private Equity Fund, L.P.25 Limited partnership 0% Coutts Asian Private Equity Limited Partnership13 Limited partnership 0% Coutts Global Property Limited Partnership13 Limited partnership 0% Coutts Middle East and North Africa Private Equity Limited Partnership13 Limited partnership 0% Coutts Private Equity Limited Partnership13 Limited partnership 0% Coutts Private Equity Limited Partnership II13 Limited partnership 0% CPP General Partner Limited Partnership Limited partnership 20% Cumberland Place Financial Management Limited3 Ordinary shares 100% Edinburgh Fund Managers Group Limited4 Ordinary shares 100% Edinburgh Fund Managers Plc Ordinary shares 100% Edinburgh Unit Trust Managers Limited4 Ordinary shares
Deferred shares 100% Elevate Portfolio Services Limited3 Ordinary shares 100% ESF I Executive Co Investment Limited Partnership64 Limited partnership 0% ESP 2004 Co Investment Limited Partnership64 Limited partnership 0% ESP 2004 Conduit LP Limited partnership 0% ESP 2004 General Partner Limited Partnership Limited partnership 0%
HDFC Life Insurance Company Limited66 Ordinary shares 15% Healthcare Private Equity Limited Partnership5 Limited partnership 0% Healthcare Private Equity LP58 Limited partnership 0% Heng An Standard Life Insurance Company Limited67 Ordinary shares 50% Ignis Asset Management Limited Ordinary shares 100% Ignis Cayman GP2 Limited13 Ordinary shares 100% Ignis Cayman GP3 Limited13 Ordinary shares 100% Ignis Fund Managers Limited Ordinary shares 100% Ignis Investment Services Limited Ordinary shares 100% Jones Sheridan Financial Consulting Limited3 Ordinary shares 100% Jones Sheridan Holdings Limited3 Ordinary shares 100% Lothian Thirty L.P. Limited partnership 0% Murray Johnstone Holdings Limited4 Ordinary shares 100% Murray Johnstone Limited4 Ordinary shares 100% NASP 2006 General Partner Limited Partnership Limited partnership 5%
Origo Services Limited70 Ordinary shares 19% Orion Partners Holdings Limited71 Ordinary shares 100% Orion Partners Korea Inc.52 Ordinary shares 100% Orion Partners Mgmt (Singapore) Pte. Ltd.60 Ordinary shares 100% Orion Partners Services Inc.72 Ordinary shares 100% Ostara China RE Fund LP Limited partnership 0% Ostara China Real Estate Fund L.P.72 Limited partnership 0% Ostara Japan Fund 3 LP72 Limited partnership 0% Ostara Korea GP 2 Pte. Ltd.60 Ordinary shares 100% Ostara Korea Separate Account LP60 Limited partnership 0% Ostara Partners CLP Inc.72 Ordinary shares 100% Ostara Partners Inc. China72 Ordinary shares 100% Ostara Partners Inc. Japan 372 Ordinary shares 100% P25 Limited Partnership Incorporated73 Limited partnership 0% Pace Financial Solutions Limited3 Ordinary A shares
Parmenion Capital Ltd74 Ordinary shares 100% Parmenion Capital Partners LLP74 Limited liability partnership 100% Parmenion Nominees Limited74 Ordinary shares 100% Parnell Fisher Child & Co. Limited3 Ordinary shares 100% Parnell Fisher Child Holdings Limited3 Ordinary A shares
SL Capital ECF GP LP Limited partnership 4% SL Capital ESF I GP LP Limited partnership 0% SL Capital ESF I LP Limited partnership 1% SL Capital European Co-Investment B LP Limited partnership 0% SL Capital European Co-Investment LP Limited partnership 0% SL Capital Ignis Private Equity Founder LP Limited partnership 65% SL Capital Ignis Strategic Credit Founder LP Limited partnership 0% SL Capital Infrastructure I GP LP Limited partnership 100% SL Capital Infrastructure I LP Limited partnership 0% SL Capital Infrastructure II LTP LP Limited partnership 100% SL Capital Infrastructure II SCSp34 Limited partnership 0% SL Capital Infrastructure Secondary I GP LP Limited partnership 100% SL Capital Infrastructure Secondary I LP Limited partnership 0% SL Capital NASF I LP Limited partnership 0% SL Capital NASF I A LP Limited partnership 2% SL Capital NASF I Carry LP Limited partnership 0% SL Capital NASF I GP LP Limited partnership 0% SL Capital Partners (US) Limited Ordinary shares 100% SL Capital Partners LLP Limited liability partnership 100% SL Capital Pearl Private Equity GP LP Limited partnership 0% SL Capital Pearl Strategic Credit GP LP Limited partnership 1% SL Capital SOF I Feeder LP Limited partnership 0% SL Capital SOF I GP LP Limited partnership 0% SL Capital SOF I LP Limited partnership 0% SL Capital SOF II Feeder LP Limited partnership 0% SL Capital SOF II GP LP Limited partnership 0% SL Capital SOF II LP Limited partnership 0% SL Capital SOF III Feeder LP Limited partnership 0% SL Capital SOF III GP LP Limited partnership 0% SL Capital SOF III LP Limited partnership 0% SLC EC Executive Co Investment Limited Partnership Limited partnership 0% SLCI (Infrastructure 2018 A) Co-Invest LP Limited partnership 0% SLCI I Executive Co Investment Limited Partnership Limited partnership 0% SLCI Rail Co-Invest LP Limited partnership 0% SLCP (Founder Partner Ignis Private Equity) Limited Ordinary shares 100% SLCP (Founder Partner Ignis Strategic Credit) Limited Ordinary shares 100% SLCP (General Partner 2016 Co-investment) Limited Ordinary shares 100% SLCP (General Partner CPP) Limited Ordinary shares 100% SLCP (General Partner EC) Limited Ordinary shares 100% SLCP (General Partner Edcastle) Limited Ordinary shares 100% SLCP (General Partner ESF I) Limited Ordinary shares 100% SLCP (General Partner ESF II) Limited Ordinary shares 100% SLCP (General Partner ESP 2004) Limited Ordinary shares 100% SLCP (General Partner ESP 2006) Limited Ordinary shares 100% SLCP (General Partner ESP 2008 Coinvestment) Limited Ordinary shares 100% SLCP (General Partner ESP 2008) Limited Ordinary shares 100% SLCP (General Partner ESP CAL) Limited Ordinary shares 100% SLCP (General Partner Europe VI) Limited Ordinary shares 100% SLCP (General Partner II) Limited Ordinary shares 100% SLCP (General Partner Infrastructure I) Limited Ordinary shares 100% SLCP (General Partner Infrastructure Secondary I) Limited Ordinary shares 100% SLCP (General Partner NASF I) Limited Ordinary shares 100% SLCP (General Partner NASP 2006) Limited Ordinary shares 100% SLCP (General Partner NASP 2008) Limited Ordinary shares 100% SLCP (General Partner Pearl Private Equity) Limited Ordinary shares 100% SLCP (General Partner Pearl Strategic Credit) Limited Ordinary shares 100% SLCP (General Partner SOF I) Limited Ordinary shares 100% SLCP (General Partner SOF II) Limited Ordinary shares 100%
SLCP (General Partner SOF III) Limited Ordinary shares 100% SLCP (General Partner Tidal Reach) Limited Ordinary shares 100% SLCP (General Partner USA) Limited Ordinary shares 100% SLCP (General Partner) Limited Ordinary shares 100% SLCP (Holdings) Limited Ordinary shares 100% SLIF Property Investment LP Limited partnership 0% SLIPC (General Partner Infrastructure II LTP 2017) Limited Ordinary shares 100% SLIPC (General Partner Infrastructure II) S.a.r.l34 Ordinary shares 100% SLIPC (General Partner PMD Co-Invest 2017) Limited Ordinary shares 100% SLIPC (General Partner SCF 1) Ltd Ordinary shares 100% SLIPC PMD Co-Invest 2017 LP Limited partnership 0% SLTM Limited Ordinary shares 100% SOF I Executive Co Investment Limited Partnership64 Limited partnership 0% SOF II Executive Co Investment Limited Partnership64 Limited partnership 0% SOF III Executive Co Investment Limited Partnership Limited partnership 0% Squadron Capital Asia Pacific GP, LP13 Limited partnership 100% Squadron Capital Asia Pacific II GP LP13 Limited partnership 100% Squadron Capital Management Limited13 Ordinary shares 100% Squadron Capital Partners Limited13 Ordinary shares 100% Standard Aberdeen Asset Management Limited Ordinary shares 100% Standard Aberdeen Group Limited Ordinary shares 100% Standard Aberdeen Investment Management Limited Ordinary shares 100% Standard Aberdeen Investments Limited Ordinary shares 100% Standard Aberdeen Limited Ordinary shares 100% Standard Life (Asia) Limited76 Ordinary shares 100% Standard Life Aberdeen Asset Management Limited Ordinary shares 100% Standard Life Aberdeen Group Limited Ordinary shares 100% Standard Life Digital Solutions Limited Ordinary shares 100% Standard Life Investments Brent Cross General Partner Limited Ordinary shares 100% Standard Life investments Brent Cross LP Limited partnership 0% Standard Life Investments Commercial Real Estate Debt LP5 Limited partnership 0% Standard Life Investments (Corporate Funds) Limited Ordinary shares 100% Standard Life Investments European Property Growth Fund L.P.5 Limited partnership 0% Standard Life Investments European RE Club (Offshore Feeder) Ltd13 Ordinary shares 100% Standard Life Investments European RE Club II (Offshore Feeder) Ltd13 Ordinary shares 100% Standard Life Investments European Real Estate Club II LP5 Limited partnership 1% Standard Life Investments European Real Estate Club II LP Feeder Fund13 Limited partnership 0% Standard Life Investments European Real Estate Club III LP5 Limited partnership 2% Standard Life investments European Real Estate Club LP5 Limited partnership 2% Standard Life Investments European Real Estate Club LP Feeder Fund13 Limited partnership 0% Standard Life Investments (France) SAS77 Ordinary shares 100% Standard Life Investments (General Partner CRED) Limited5 Ordinary shares 100% Standard Life Investments (General Partner ELIREF) S.a.r.l.26 Ordinary shares 100% Standard Life Investments (General Partner EPGF) Limited Ordinary shares 100% Standard Life Investments (General Partner European Real Estate Club II) Limited5 Ordinary shares 100% Standard Life Investments (General Partner European Real Estate Club III) Limited5 Ordinary shares 100% Standard Life Investments (General Partner European Real Estate Club) Limited5 Ordinary shares 100% Standard Life Investments (General Partner GARS) Limited Ordinary shares 100% Standard Life Investments (General Partner GFS) Limited Ordinary shares 100% Standard Life Investments (General Partner Global Tactical Asset Allocation) Limited Ordinary shares 100% Standard Life Investments (General Partner MAC) Limited Ordinary shares 100% Standard Life Investments (General Partner PDFI) Limited Ordinary shares 100% Standard Life Investments (General Partner UK PDF) Limited Ordinary shares 100% Standard Life Investments (General Partner UK Shopping Centre Feeder Fund LP) Limited5 Ordinary shares 100% Standard Life Investments Global Absolute Return Strategies Master Fund Limited13 Ordinary shares 100% Standard Life Investments Global Absolute Return Strategies Offshore Feeder Fund Limited13 Ordinary shares 100%
Standard Life Investments Global Absolute Return Strategies Onshore Feeder Fund, L.P. Limited partnership 0% Standard Life Investments Global Focused Strategies Master Fund Limited13 Ordinary shares 100% Standard Life Investments Global Focused Strategies Offshore Feeder Fund Limited13 Ordinary shares 100% Standard Life Investments Global SICAV
Standard Life Investments Global SICAV Global Equities Unconstrained Fund78 SICAV 64% Standard Life Investments Global SICAV II
Standard Life Investments Global SICAV II Emerging Market Debt Sustainable & Responsible Investment Fund78 SICAV 100% Standard Life Investments Global SICAV II Global Equity Impact Fund78 SICAV 39% Standard Life Investments Global SICAV II MyFolio Multi-Manager I Fund78 SICAV 34% Standard Life Investments Global SICAV II MyFolio Multi-Manager II Fund78 SICAV 22% Standard Life Investments Global SICAV II MyFolio Multi-Manager III Fund78 SICAV 27% Standard Life Investments Global SICAV II MyFolio Multi-Manager IV Fund78 SICAV 32% Standard Life Investments Global SICAV II MyFolio Multi-Manager V Fund78 SICAV 43%
Standard Life Investments Global SICAV Macro Systematic Dimensions Fund78 SICAV 45% Standard Life Investments GTAA Company13 Ordinary shares 100% Standard Life Investments (Hong Kong) Limited79 Ordinary shares 100% Standard Life Investments (Jersey) Limited80 Ordinary shares 100% Standard Life Investments Limited Ordinary shares 100% Standard Life Investments (Mutual Funds) Limited Ordinary shares 100% Standard Life Investments (PDF No. 1) Limited80 Ordinary shares 50% Standard Life Investments (Private Capital) Limited Ordinary shares 100% Standard Life Investments Secure Credit LP Limited partnership 0% Standard Life Investments Securities LLC22 Limited liability company 100% Standard Life Investments (Singapore) Pte. Ltd81 Ordinary shares 100% Standard Life Investments (SLIPIT) Limited Partnership5 Limited partnership 0% Standard Life Investments UK Shopping Centre Feeder Fund Company Limited5 Ordinary shares 100% Standard Life Investments UK shopping Centre Feeder Fund Limited Partnership5 Limited partnership 0% Standard Life Investments (USA) Limited Ordinary shares 100% Standard Life Portfolio Investments Limited Ordinary shares 100% Standard Life Portfolio Investments US Inc.25 Ordinary shares 100% Standard Life Premises Services Limited Ordinary shares 100% Standard Life Savings Nominees Limited Ordinary shares 100% Tenet Group Limited82 Ordinary B shares 25% Tenon Nominees Limited4 Ordinary shares 100% The Coaching Platform Limited6 Ordinary shares 100% The Munro Partnership Ltd.83 Ordinary shares 100% Threesixty Partnerships Limited10 Ordinary shares 100% Touchstone Insurance Company Limited84 Ordinary shares 100% Two Rivers Limited Partnership5 Limited partnership 0% Two Rivers One Limited32 Ordinary shares 100% Two Rivers Two Limited32 Ordinary shares 100% UK PRS Opportunities General Partner Limited5 Ordinary shares 100% UK PRS Opportunities LP5 Limited partnership 0% Virgin Money Unit Trust Managers Limited85 Ordinary shares 50% VZWL Private Equity GmbH & Co geschlossene Investment KG44 Limited partnership 0% Waverley Healthcare Private Equity Limited4 Ordinary shares 100% Wealth Horizon Ltd74 Ordinary shares 100% Wise Trustee Limited74 Ordinary shares 100% 1 OEIC = Open-ended investment company
Town, KY1-1104, Cayman Islands 14 Tuborg Havnevej 15, 2nd Floor, DK-2900 Hellerup, Denmark 15 Kaivokatu 6, Helsinki, 00100, Finland 16 Box 3039, Stockholm, 103 63, Sweden 17 c/o Corporation Service Company, 251 Little Falls Drive, Wilmington, DE, 19808, USA 18 80, Route d'Esch, L-1470 Luxembourg, Luxembourg 19 Office Unit 8, 6th Floor, Al Khatem Tower, Abu Dhabi Global Market Square, Al
Marya Island, PO Box 764605, Abu Dhabi, United Arab Emirates 20 1266 East Main Street, 5th Floor, Stamford, CT 06902, USA 21 c/o The Corporation Trust Company, Corporation Trust Center, 1209 Orange
Street, DE 19801 Wilmington, USA 22 c/o Corporation Service Company, 2711 Centerville Road, Suite 400,
Canada 46 AC 82 NO. 10 60 P 5 Bogota DC, Columbia 47 712 5th Ave, New York, NY 10019, USA 48 Henrik Ibsens gate 100, PO Box 2882 Solli, 0230 Oslo, Norway 49 6th Floor, Alexandra House, 18 Chater Road, Central, Hong Kong 50 24 Merrion Row, Dublin 2, Republic of Ireland 51 Otemachi Financial City Grand Cube 9F, 1-9-2 Otemachi, Chiyoda-ku, 1000004, Tokyo, Japan 52 13th Fl., B Tower (Seocho-dong, Kyobo Tower Building), 465, Gangnam-daero,
Shanghai 20020. China 57 PO Box 219534, Kansas City, MO 64121-9534, USA 58 Edinburgh One, Morrison Street, Edinburgh, EH3 8BE 59 Sveavägen 24, 111 57 Stockholm, Sweden 60 80 Robinson Road, #02-00, 068898, Singapore 61 7 Melville Crescent, Edinburgh, EH3 7JA 62 Suite 4109, Jardine House, One Connaught Place, Central, Hong Kong 63 11th Floor, Two Snowhill, Birmingham, B4 6WR 64 16 Charlotte Square, Edinburgh, EH2 4DF 65 HDFC House, 2nd floor, H.T. Parekh Marg, 165-166, Backbay Reclamation,
Churchgate, Mumbai – 400 020, India 66 Lodha Excelus, 13th Floor, Apollo Mills Compound, N.M. Joshi Marg,
Mahalaxmi, Mumbai – 400 011, Maharashtra, India 67 18F, Tower II, The Exchange, 189 Nanjing Road, Heping District, Tianjin,
People’s Republic of China, 300051 68 1 Rodney Square 10th Fl, 10 & King St, Wilmington, DE 19801, USA 69 Clayton Wood Close, West Park Ring Road, Leeds, LS16 6QE 70 7 Lochside View, Edinburgh, EH12 9DH 71 28th and 30th Floor, LHT Tower, 31 Queen's Road Central, Hong Kong 72 Campbells Corporate Services Limited, 4th Floor, Willow House, Cricket
Singapore 82 5 Lister Hill, Horsforth, Leeds, LS18 5AZ 83 Citadel House, 6 Citadel Place, Ayr, KA7 1JN 84 c/o Aon, PO Box 33, Maison Trinity, Trinity Square, St Peter Port, Guernsey
Assets Investments in subsidiaries A 6,027 6,467 Investments in associates and joint ventures B 1,229 1,018 Deferred tax assets N 35 22 Loans to subsidiaries C – 6 Derivative financial assets C 3 13 Equity securities and interests in pooled investment funds C 218 197 Debt securities C 603 854 Receivables and other financial assets C 15 57 Other assets F 14 35 Cash and cash equivalents C 19 17 Total assets 8,163 8,686
Equity Share capital G 327 353 Shares held by trusts H (119) (88) Share premium reserve G 640 640 Retained earnings I
Liabilities Subordinated liabilities L 655 1,086 Other financial liabilities L 25 69
Profit for the year – – – 1,020 – 1,020 Other comprehensive income for the year – – – – 10 10 Total comprehensive income for the year – – – 1,020 10 1,030 Dividends paid on ordinary shares – – – (518) – (518) Shares bought back on-
Standard Life Aberdeen plc Other equity Total equity 2018 Notes £m £m £m £m £m £m £m £m
As permitted by FRS 101, the Company has taken advantage of the following disclosure exemptions available under that standard:  A cash flow statement and related notes  Capital management  Effect of IFRSs issued but not effective  Related party transactions with wholly owned subsidiaries
Investments in subsidiaries measured at cost 5,465 6,249 Investments in subsidiaries measured at FVTPL C 562 218 Investments in subsidiaries 6,027 6,467 £m £m
 On 26 March 2019 the Company increased its investment in 1825 Financial Planning Limited through the purchase of 17,600,000 ordinary shares for a cash consideration of £17.6m
 On 17June 2019 the Company increased its investment in 1825 Financial Planning Limited through the purchase of 46,000,000 ordinary shares for a cash consideration of £46m
 On 19 November 2019 the Company increased its investment in AAM PLC through the purchase of 3,098,779 ordinary shares for a cash consideration of £9.9m
During 2018, the Company made the following acquisitions of subsidiaries measured at cost:  On 8 August 2018, Standard Life Savings Limited, 1825 Financial Planning Limited and Standard Life Client Management Limited were acquired via dividends in specie from Standard Life Assurance Limited (SLAL) and recognised at amounts of £320m, £50m and £4m respectively
 On 16 August 2018 the Company acquired control of The Standard Life Assurance Company 2006 for a cash consideration of £5m 236 Standard Life Aberdeen 2019
(b) Disposals During 2019, the Company made the following disposals of subsidiaries measured at cost:  On 20 March 2019, 13 May 2019, 21 August 2019 and 5 November 2019 the Company redeemed £40.6m, £16.3m, £34.2m and £47.9m of equity capital in Standard Life (Mauritius Holdings) 2006 Limited through the cancellation of 535,985.12, 211,759.58, 415,221.68 and 616,080.94 Participating shares respectively
During 2018, the Company made the following disposals of subsidiaries measured at cost:  On 30 August 2018, SLAL repaid a loan from the Company with the principal amount of £500m. This bond had been classified as an equity investment in SLAL and its repayment reduced the Company’s investment in SLAL by £486m.
 On 19 April 2018 the Company redeemed £2m of equity capital in Standard Life (Mauritius Holdings) 2006 Limited through the cancellation of 30,000 Participating shares
(c) Operations held for sale On 23 February 2018, the Company’s investments in SLAL, excluding the loan to SLAL classified as an equity investment, and Vebnet (Holdings) Limited (Vebnet) were classified as held for sale and measured at their carrying amount following the Group’s announcement of the proposed sale of the UK and European insurance business to Phoenix Group Holdings (the Sale).
B. Investments in associates and joint ventures 2019 2018 £m £m
(a) Investment in associates Following the completion of the Sale in August 2018, as part of the total consideration, the Company was issued with new Phoenix shares representing 19.98% of the issued share capital of Phoenix, a company incorporated in England and Wales (refer Note 1 and Note 16 of the Group financial statements). The cost of this investment was considered to be the fair value of the shares issued at 31 August 2018.
The Company’s investments in associates are measured at cost less impairment. At 31 December 2018 an impairment of £211m was recognised in relation to the Company’s associate investment in Phoenix. The impairment resulted from the fall in the Phoenix share price between 31 August 2018 and 31 December 2018. The recoverable amount was £812m which is the fair value of the Company’s interest in Phoenix at 31 December 2018. At 31 December 2019 the fair value of the Company’s interest in Phoenix was £1,079m, on this basis a reversal of the impairment recognised in 2018 of £211m has been recognised.
The Company has an interest of 25.3% (2018: 25.3%) in Tenet Group Limited, a company incorporated in England and Wales. The year end date for Tenet Group Limited is 30 September which is different from the Company’s year end date of 31 December. For the purposes of the preparation of the Company’s financial statements, financial information for the year ended 31 December is used.
Derivative financial instruments used for hedging Amortised cost Total 2019 Notes £m £m £m £m
Investments in subsidiaries measured at FVTPL A 562 – – 562 Derivative financial assets D – 3 – 3 Equity securities and interests in pooled investment funds 218 – – 218 Debt securities – – 603 603 Receivables and other financial assets E 1 – 14 15 Cash and cash equivalents – – 19 19
Derivative financial instruments used for hedging Amortised cost Total 2018 Notes £m £m £m £m
The maturity profile of the contractual undiscounted cash flows in relation to derivative financial instruments is as follows: Within 1 year 2-5 years 11-15 years Total 2019 £m £m £m £m £m
Net derivative financial instruments cash flows 7 23 18 – 48
Within 1 year 2-5 years 11-15 years Total 2018 £m £m £m £m £m
Cash inflows Cash flow hedges 25 88 714 – 827 Foreign exchange forwards 6 – – – 6
F. Other assets Other assets of £14m (2018: £35m) comprise amounts due from related parties in respect of Group relief, which are expected to be recovered within 12 months.
H. Shares held by trusts Shares held by trusts relates to shares in Standard Life Aberdeen plc that are held by the Standard Life Aberdeen Employee Benefit Trust (SLA EBT), Standard Life Employee Trust (ET) and Standard Life Unclaimed Asset Trust (UAT). The SLA EBT was established on 28 March 2019. On 13 December 2019 the Group instructed the Trustees to formally close the UAT and all assets in the UAT were transferred to Standard Life Aberdeen Plc on 20 December 2019.
J. Movements in other reserves The following tables show the movements in other reserves during the year: Merger reserve
Available-forsale financial assets Cash flow hedges Total 2018 £m £m £m £m £m £m £m
Fair value losses on cash flow hedges – – – – – 54 54 Realised losses on cash flow hedges transferred to income statement – – – – – (41) (41) Issue/redemption of ‘B’ shares (1,000) – – 1,000 – – – Shares bought back on-market and cancelled – – – 11 – – 11 Reserves credit for employee share-based payments – 36 – – – – 36 Transfer to retained earnings for vested employee share-based payments – (68) – – – – (68) Transfer between reserves on disposal of investment in subsidiaries (1,290) – – – – – (1,290) Transfer between reserves on impairment of investment in subsidiaries (570) – – – – – (570) Tax effect of items that may be reclassified subsequently to profit or loss – – – – – (2) (2)
Following the impairment loss recognised in the period on the Company’s investments in AAM PLC and SLIH (refer Note A), £780m (2018: £570m) was transferred from the merger reserve to retained earnings.
K. Other equity On 30 August 2018, the Company’s subordinated guaranteed bonds and Mutual Assurance Capital Securities (MACS) were reclassified as other equity from subordinated liabilities. Following a tender and mandatory redemption process which completed on 25 October 2018, the Company repurchased/redeemed the guaranteed bonds and MACS. Further information is given in Note 30 of the Group financial statements.
Subordinated liabilities M 655 655 Other financial liabilities O 25 25
Subordinated notes: 4.25% US Dollar fixed rate due 30 June 2028 $750m £563m $750m £586m 5.5% Sterling fixed rate due 4 December 2042 £92m £92m £500m £500m Total subordinated liabilities £655m £1,086m
Subordinated liabilities are considered current if the contractual re-pricing or maturity dates are within one year. The principal amount of all the subordinated liabilities is expected to be settled after more than 12 months. The accrued interest on the subordinated liabilities of £nil (2018: £2m) is expected to be settled within 12 months.
On 26 March 2019, the Company repurchased 5.5% Sterling fixed rate subordinated notes with a principal amount of £408m (out of a total principal amount of £500m).
The Company has surrendered the benefit of its tax losses to underlying subsidiaries for a consideration of £14m (2018: £35m).
Amounts due to related parties 2 38 Collateral held in respect of derivative contracts 13 21
Other financial liabilities are expected to be settled within 12 months (2018: £69m).
P. Provisions and other liabilities Of Provisions of £77m (2018: £80m), £48m are expected to be settled within 12 months (2018: £80m). Of Other liabilities of £4m (2018: £6m), £4m are expected to be settled within 12 months (2018: £6m). The provisions in 2019 and 2018 relate to separation costs. Refer Note 37 of the Group financial statements for further information and details of the provisions.
Q. Contingent liabilities, contingent assets, indemnities and guarantees (a) Legal proceedings and regulations The Company, like other financial organisations, is subject to legal proceedings and complaints in the normal course of its business. All such material matters are periodically reassessed, with the assistance of external professional advisers where appropriate, to determine the likelihood of the Company incurring a liability. Where it is concluded that it is more likely than not that a material outflow will be made a provision is established based on management’s best estimate of the amount that will be payable. In some cases it will not be possible to form a view, for example because the facts are unclear or because further time is needed to properly investigate, and no provisions are held for such matters. It is not possible to predict with certainty the extent and timing of the financial impact of legal proceedings, complaints and related regulatory matters.
9. Supplementary information 9.1 Key performance indicators Key performance indicators (KPIs) are defined as the measures by which the development, performance or position of the business can be measured effectively. The KPIs that we use may not be directly comparable with similarly named measures used by other companies. We have reviewed our KPIs in 2019 and made the following changes.
We have increased our focus on revenue quality, rather than the volume of new business, in 2019. This is the reason for the inclusion of the Fee based revenue KPI and the removal of the KPIs relating to flows and AUMA. We have also added IFRS profit before tax as a KPI – this KPI includes key items such as restructuring costs and profits on disposal of interests in associates. IFRS profit before tax is the closest IFRS equivalent to adjusted profit before tax.
9.2 Alternative performance measures We assess our performance using a variety of measures that are not defined under IFRS and are therefore termed alternative performance measures (APMs). The APMs that we use may not be directly comparable with similarly named measures used by other companies.
We have presented below reconciliations from these APMs to the most appropriate measure prepared in accordance with IFRS. All APMs should be read together with the IFRS consolidated income statement, IFRS consolidated statement of financial position and IFRS consolidated statement of cash flows, which are presented in the Group financial statements section of this report. Ratios are presented in Section 9.3.
Fee based revenue is a component of adjusted profit and includes revenue we generate from asset management charges (AMCs), platform charges and other transactional charges. Fee based revenue is shown net of fees, costs of sale, commissions and similar charges. Refer to Note 4 of the Group financial statements.
Adjusted profit reporting provides further analysis of the results reported under IFRS and the Directors believe it helps to give shareholders a fuller understanding of the performance of the business by identifying and analysing adjusting items. Adjusted profit before tax is consistent with the way that financial performance is measured by management and reported to the Board and executive leadership team. Adjusted profit before tax is also a key input to the adjusted earnings per share measure which is used to assess performance for remuneration purposes. Fee based revenue is shown net of commission, costs of sale and similar charges so as to show the net charges received on AUMA and provides the basis for reporting of the fee revenue yield financial ratio.
Adjusted capital generation is part of the analysis of movements in CRDIV regulatory capital. Adjusted capital generation is calculated as adjusted profit after tax less returns relating to pension schemes in surplus, which do not benefit regulatory capital. It also excludes the Group’s share of associates and joint ventures profit after tax which is replaced by dividends received from these entities.
Adjusted capital generation is a new APM introduced in 2019. This measure aims to show how adjusted profit contributes to regulatory capital, and therefore provides insight into our ability to generate capital to support the payment of dividends to shareholders.
KPI R 1,634 619 1,703 37 – – 3,993 Total income Adjusted operating expenses (1,333) (619) (2,120) – – – (4,072) Total expenses Capital management 37 – – (37) – – – N/A Share of associates’ and joint ventures’ profit before tax 246 – 84 – (8) – 322
Adjusted profit after tax from discontinued operations – – 56 – – – 56
Adjusted profit after tax 469 – (236) – 38 – 271 Profit for the year 1 Includes £243m reversal of impairment of interest in associates.
The table below provides a summarised reconciliation of adjusted profit before tax (split by continuing operations, discontinued operations and Total) to Profit before tax
Share of associates’ and joint ventures’ tax expense (8) (40) (41) – – – (8) (40) (41)
Analysis of adjusting items The table below provides detail of the adjusting items made in the calculation of adjusted profit before tax: Continuing operations Discontinued operations Total 2019 2018 2017 2019 2018 2017 2019 2018 2017 £m £m £m £m £m £m £m £m £m
An explanation for why individual items are excluded from adjusted profit is set out below:  Restructuring and corporate transaction expenses are excluded from adjusted profit. Restructuring includes the impact of major regulatory change. By highlighting and excluding these costs we aim to give shareholders a fuller understanding of the performance of the business. Restructuring and corporate transaction expenses include costs relating to the integration of businesses acquired. Other restructuring costs excluded from adjusted profit relate to projects which have a significant impact on the way the Group operates. Costs are only excluded from adjusted profit where they are outwith business as usual activities and the costs would not have been incurred had the restructuring project not taken place. For headcount related costs, where duplicate posts are identified as a result of an integration or transformation plan, the duplicated cost will be treated as a restructuring cost from the beginning of the process which eliminates the duplicate cost. For continuing operations, the 2019 expenses included costs relating to integration and the implementation of our simplified operating model of £214m (2018: £175m), £37m (2018: £133m included in discontinued operations) in respect of separation costs following the sale of the UK and European insurance business, and £41m of other transformation related restructuring costs. 2019 also included £49m relating to the repurchase of subordinated debt and £33m relating to our share of the restructuring costs of joint ventures and associates (primarily Phoenix). An additional £20m has been included in restructuring expenses related to variable compensation that was linked to the receipt of the £140m LBG compensation. This expense has been treated as an adjusting item in line with the receipt of the income (included in ‘Other’ below).
 Amortisation and impairment of intangible assets acquired in business combinations and through the purchase of customer contracts is included as an adjusting item. This is consistent with peers and therefore excluding these items aids comparability. Highlighting this as an adjusting item aims to give a fuller understanding of these accounting impacts which arise where businesses have been acquired but do not arise where businesses have grown organically. Further details are provided in Note 15 of the Group financial statements.
 Profits on the disposal of a subsidiary, joint venture or associate are also removed to assist comparability of results period on period. Profit on disposal of interests in associates in 2019 of £1,542m includes £1,337m in relation to the sale of 14.49% of shares in HDFC Life and £204m in relation to the sale of 3.02% of shares in HDFC Asset Management. Details are provided in Note 1 of the Group financial statements.
 Investment return variances and economic assumption changes in the Group’s insurance entities are excluded from adjusted profit. The Group’s UK and European insurance business was sold during 2018 and classified as discontinued operations in 2018. The Group’s other wholly owned insurance business, SL Asia, is classified as held for sale. For annuities, all fluctuations in liabilities and the assets backing those liabilities due to market interest rate (including credit risk) movements over the period are excluded from adjusted profit. Removing these investment return variances and economic assumption changes is consistent with many of our insurance peers and aims to ensure that adjusted profit reflects a long-term view aligned to the maturity profile and economic matching of the corresponding assets and liabilities. Where associates and joint ventures have a policy for determining investment return variances and economic assumption changes, the Group uses the policy of the associate or joint venture for including their results in the Group’s adjusted profit. This currently applies only to the Group’s investment in Phoenix. The Phoenix policy is similar to that used by the wholly owned insurance entities. Details of the main differences are included in Note 13 of the Group financial statements.
Adjusted capital generation The table below provides a reconciliation of movements between adjusted profit after tax and adjusted capital generation. A reconciliation of adjusted profit after tax to IFRS profit for the year is included earlier in this section.
Staff pension scheme returns Staff pension scheme returns are the contribution to adjusted profit before tax from defined benefit pension schemes which are in surplus and reconciled below.
Associates’ and joint ventures’ dividends received 93 47 247Standard Life Aberdeen 2019
9. Supplementary information continued 9.3 Financial ratios We also use a number of financial ratios to help assess our performance and these are also not defined under IFRS. Details of our main financial ratios and how they are calculated are presented below.
This is an efficiency measure that is calculated as adjusted operating expenses divided by fee based revenue in the period, and includes the share of associates’ and joint ventures’ profit before tax.
This ratio is used by management to assess efficiency and reported to the Board and executive leadership team. This ratio is also a measure used to assess performance for remuneration purposes.
Fee revenue yield has been restated to include revenue and assets under advice relating to our 1825 advice business.
Fee based revenue (£m) 1,634 1,868 Share of associates’ and joint ventures’ profit before tax (£m) 246 186 Total adjusted operating income and share of associates’ and joint ventures’ profit before tax (£m) 1,880 2,054
Cost/income ratio excluding our share of associates’ and joint ventures’ profit before tax (%) 82 75 248 Standard Life Aberdeen 2019
Analysis of Institutional and Wholesale by asset class Average AUM (£bn) Fee based revenue (£m) Fee revenue yield (bps)
AUA is a measure of the total assets we administer for customers through platform products such as ISAs and SIPPs.
Closing AUMA at 31 Dec 2019 12 months ended 31 December 2019 £bn £bn £bn £bn £bn £bn £bn
Platforms and Wealth 1 Wealth channel market and other movements include 1825 opening assets under advice of £4.0bn. 2 Corporate actions in the Wholesale channel relate to the acquisition of Orion Partners (£0.7bn). Wealth channel corporate actions include £1.8bn of assets under advice following 1825’s acquisition of Grant Thornton’s wealth advisory business and BDO Northern Ireland’s wealth management business. 3 Corporate actions relate to the acquisition of £4.8bn of AUM in transactions with Alpine Woods, ETF Securities and Hark Capital.
Private credit and solutions 0.3 0.2 (0.2) – (0.3) – –
Closing AUM at 31 Dec 2019 12 months ended 31 December 2019 £bn £bn £bn £bn £bn £bn £bn
Closing AUMA at 12 months ended 31 December 2018 £bn £bn £bn £bn £bn £bn £bn 252 Standard Life Aberdeen 2019
Europe, Middle East and Africa (EMEA) 55.8 – – 55.8 57.1 – – 57.1 9.7.2 Total AUM by asset class 31 Dec 2019 31 Dec 2018
Other information Contents 12. Forward-looking statements .............................................................................................................................................. 259 13. Contact us ......................................................................................................................................................................... IBC
Adjusted profit Adjusted profit before tax is the Group’s key alternative performance measure. Adjusted profit excludes the impact of the following items:  Restructuring costs and corporate transaction expenses. Restructuring includes the impact of major regulatory change.
 Profit or loss arising on the disposal of a subsidiary, joint venture or associate
 Fair value movements in contingent consideration  Items which are one-off and, due to their size or nature, are not indicative of the long-term operating performance of the Group
Cost/income ratio This is an efficiency measure that is calculated as adjusted operating expenses divided by adjusted operating income, and includes the share of associates’ and joint ventures’ profit before tax.
Executive leadership team Responsible for providing overall leadership of the business and comprises: Chief Executive, General Counsel, Chief Financial Officer, Global Head of Distribution, Head of EMEA, Chief of Staff, Chief Investment Officer, Chief HR Officer, Chief Operating Officer, Chief Corporate Affairs Officer, Head of Americas and Head of Asia Pacific.
Fee based revenue Fee based revenue is a component of adjusted profit and includes revenue we generate from asset management charges (AMCs), platform charges and other transactional charges. AMCs are earned on products such as mutual funds, and are calculated as a percentage fee based on the assets held. Investment risk on these products rests principally with the customer, with our major indirect exposure to rising or falling markets coming from higher or lower AMCs. Fee based revenue is shown net of fees, costs of sale, commissions and similar charges. Costs of sale include revenue from fund platforms which is passed to the product provider.
Pillar 1 Under CRD IV, Pillar 1 focuses on fixed overhead requirements and the Group’s exposure to credit and market risks in respect of riskweighted assets, and sets a minimum requirement for capital based on these measures.
Pillar 3 This complements Pillar 1 and Pillar 2 with the aim of improving market discipline by requiring companies to publish certain details of their risks, capital and risk management. The Group’s Pillar 3 disclosures will be published on the Group’s website at www.standardlifeaberdeen.com/annualreport before 30 June 2020.
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Last date for DRIP elections for 2019 final dividend 29 April
Forward-looking statements are prospective in nature and are not based on historical or current facts, but rather on current expectations, assumptions and projections of management about future events, and are therefore subject to risks and uncertainties which could cause actual results to differ materially from the future results expressed or implied by the forward-looking statements. For example but without limitation, statements containing words such as ‘may’, ‘will’, ‘should’, ‘could’, ‘continue’, ‘aims’, ‘estimates’, ‘projects’, ‘believes’, ‘intends’, ‘expects’, ‘hopes’, ‘plans’, ‘pursues’, ‘ensure’, ‘seeks’, ‘targets’ and ‘anticipates’, and words of similar meaning (including the negative of these terms), may be forward-looking. These statements are based on assumptions and assessments made by the Company in light of its experience and its perception of historical trends, current conditions, future developments and other factors it believes appropriate.
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