Group operating pro�t before tax including discontinued operations reduced to £735m (2013: £751m) as a result of lower pro�t in Canada as speci�c management actions were not pursued following the sale announcement.
Group underlying cash generation is a new performance measure, replacing EEV operating capital and cash generation. Group underlying cash generation re�ects our ability to generate cash which enables the payment of dividends to our shareholders and �rther investment in the business. This increased by 21% to £408m mainly due to an increase of £37m in Standard Life Investments and £30m in Asia and Emerging Markets, re�ecting strong growth in cash pro�ts.
• Acquisition expenses decreased to £232m primarily due to lower commission payments in Hong Kong
IFRS profit IFRS profit after tax attributable to equity holders, which also includes the results of the discontinued operations, increased by 8% to £503m (2013: £466m). Excluding the discontinued Canadian business, IFRS profit after tax attributable to equity holders increased by 12% to £376m (2013: £335m).
1 Operating profit is IFRS profit before tax adjusted to remove the impact of short-term market driven fluctuations in investment return and economic assumptions, restructuring costs, impairment of intangible assets, amortisation of intangible assets acquired in business combinations, profit or loss on the sale of a subsidiary, associate or joint venture and other significant one-off items outside the control of management and not indicative of the long-term operating performance of the Group. The impact of the restructuring of the UK staff pension scheme has been adjusted for so that 2014 operating profit is based on the expected long-term pension expense, which results in a £15m increase to 2014 operating profit before tax and a corresponding increase to 2014 non-operating restructuring and corporate transaction expenses – Refer to Note 10 of the Group financial statements for further information.
The Group non-operating loss including discontinued operations in 2014 was £124m (2013: loss £187m). The non-operating gain from discontinued operations of £35m (2013: loss £87m) included favourable short-term fluctuations on investment return in Canada of £73m offset by £38m restructuring and other non-operating expenses in relation to the sale of our Canadian business and the closure of Dubai.
Reconciliation of Group underlying performance to Group underlying cash generation from continuing operations
Europe operating profit reduced by 11% to £40m (2013: £45m). Adverse foreign exchange movements in 2014 impacted operating profit by £2m, reducing fee revenue and expenses by £9m and £7m respectively. Operating profit reduced in our German business as the 2013 result benefited from a reduction in actuarial reserves due to modelling improvements. Operating profit increased in Ireland as a result of higher AUA which boosted fee based revenue. UK profit contribution1 Overall UK profit contribution increased by 8% to £537m (2013: £495m).
Assets under administration and net flows UK and Europe AUA increased by 8% to £145.9bn. Fee based AUA, which accounts for 84% of total AUA, increased by 7% to £122.1bn due to a combination of net inflows and favourable market movements.
• Increased Wrap platform assets by 26% to £20.9bn (2013: £16.6bn) with the highest net sales in the advised platform market over the first three quarters of 2014
• Named Best SIPP Provider for the second year running at the Shares Awards 2014 and have achieved SIPP AUA of £26.2bn (2013: £23.2bn) with £11.5bn (2013: £10.2bn) of assets invested in our market-leading drawdown proposition
EEV operating profit after tax EEV operating profit after tax for the Canadian business decreased to £225m (2013: £273m) primarily due to the benefit of non-recurring actuarial modelling gains in the prior year.
Impact Market risk can have the following impacts: Fee based business – A core part of our strategy is to increase AUA. Adverse fluctuations in financial markets which cause AUA to fall will potentially result in lower fee based revenue.
Looking ahead, we expect high levels of regulatory and legislative change to continue.
• As part of our stress and scenario testing programme we consider a wide range of scenarios including potential legislative changes. We maintain up-to-date contingency plans and these are regularly reviewed to ensure that they reflect emerging themes and changes to the business and political environment.
To help shape public policy in a way that benefits our customers and contributes to wider society’s progress, we’ve kept up a programme of public affairs and policy engagement. We initiate meetings and events with policy makers and wider opinion formers on long-term savings and investments issues, and we have a presence at the major UK party conferences to make our views on this known.
We keep up active engagement with the companies in which we are, or may become, a shareholder in. Through the responsible investment team at Standard Life Investments, we carry out research and analysis on how investee companies address their environmental, social and governance issues, which lets us identify any risks or opportunities we want to discuss with them. We follow this process with investee companies across the world, and we use guidelines such as the United Nations (UN) Global Compact to inform how we evaluate the approaches that they take. This includes reviewing and encouraging best practice in areas such as the environment, employee relations, human rights and business ethics. In 2014, in collaboration with almost 350 investors, we lent our support to a statement calling on governments worldwide to provide more economically meaningful charges for carbon emissions. The statement was released ahead of the UN Climate Summit, convened by the UN Secretary-General.
You can visit www.standardlife.com/sustainability to find out how we measure up against our KPIs, and to read our full sustainability report. This tells you more about the progress we’ve been making in each area of our sustainability strategy.
Every member and duly appointed proxy present at a general meeting or class meeting has one vote on a show of hands. On a poll, every member present in person or by proxy has one vote for every share they hold. For joint shareholders, the vote of the senior joint shareholder who tenders a vote, in person or by proxy, will be accepted and will exclude the votes of the other joint shareholders. For this purpose, seniority is determined by the order that the names appear on the Register for joint shareholders.
We know that positive employee relations are vital in engaging our people and achieving business goals. Constructive staff representation provides an essential means of informing the Group’s strategy through the views and insights of our people. There are separate staff representation arrangements across different jurisdictions in the Group. In the UK, most employees are represented through partnership agreements with the Group's staff associations, VIVO and Bridge. In Ireland, there is an established agreement with Unite, and a works council was established in Germany in 2008.
Committee effectiveness The Committee reviews its remit and effectiveness each year. The 2014 review was carried out via an internal self-assessment questionnaire and by an independent expert, Niall FitzGerald, who was invited to observe one of the Committee meetings as part of his assessment. The review concluded that the Committee: • Continued to focus Director recruitment on the skills and experience required by the Board • Saw continued progress in the succession, talent and development, diversity and leadership programmes across the Group • Continued to support the Board and the other Directors in their governance responsibilities.
The governance framework also sets out the Board’s relationship with the boards of the principal subsidiaries in the Group. In particular, it identifies the matters which these subsidiaries require to refer to the Board or to a Committee of the Board for approval.
Board changes during the period Appointments Luke Savage joined the Board on 18 August 2014 as Director and Chief Financial Officer. Luke joined from Lloyd's of London where he was director of finance and operations. Luke previously held senior finance roles at Deutsche Bank (UK) where he was global chief financial officer of equities, Morgan Stanley & Company (UK) where he was financial controller, and Lloyds Bank plc in the corporate banking and treasury department. He is a member of the Institute of Chartered Accountants in England and Wales and is a member of the governing body of Queen Mary University of London.
Isabel Hudson joined the Board on 15 October 2014 as a non-executive Director and became a member of the Audit Committee and the Risk and Capital Committee. Isabel currently holds other non-executive directorships at BT Group plc and Phoenix Group Holdings. She is also chairman of the National House Building Council. Isabel previously held the positions of chief executive officer at Synesis Life, executive director at Prudential UK and chief financial officer of Eureko. She also held non-executive director appointments at QBE Insurance Group Ltd, the Pensions Regulator and MGM Advantage and was a member of the Standard Life Assurance Limited With Profits Committee. Her appointment reflects her strong knowledge of the UK life insurance and pensions market. Prior to her appointment the Board considered fully her role as a non-executive director of Phoenix Group Holdings and concluded that this relationship did not impact her independence.
The role of our non-executive Directors is to participate fully in the Board’s decision-making work – advising, supporting and challenging management as appropriate. You can see our standard letter of appointment on our website at www.standardlife.com/about/board or by writing to the Group Company Secretary. The letter of appointment confirms that the amount of time we expect each non-executive Director to commit to each year, once they have met all of the approval and induction requirements, is 30 to 35 days. Non-executive Directors are required to confirm that they can allocate sufficient time to carry out their duties and responsibilities effectively. You can read more about the induction and development programme later in this section.
During the year, the Committee also received updates on how the programmes at graduate and emerging leader levels, as well as the accelerated programme for senior leaders, and the overseas placements, have operated. They received an analysis of how the Group’s executive job family had changed over recent years, evidencing the Group’s balance of actively managing performance as well as developing talent. In addition, they received updates on the specific individual development programmes in place for executive team members and their potential successors. The Board members are keen to interact with the members of the development schemes and have met with, and had presentations from, key talent across the Group. Directors have been able to join the completion events for several of the talent programmes.
Sale of Canadian business Following the sale announcement in 2014, the Canadian business has been treated as a discontinued operation, with assets and liabilities shown as ‘Held for sale’. The Committee considered the accounting implications of the sale, and the presentation and disclosure of the Canadian business in the Annual report and accounts 2014. The Committee was satisfied that the accounting, presentation and disclosure were appropriate. The Committee also discussed the year end governance processes relating to the reporting of the Canadian business results and was satisfied that these were appropriate.
The Committee is also responsible for making a recommendation to the Board each year on the appointment, reappointment or removal of the external auditors. The current audit firm was appointed for the 1994 financial year. The external audit was put out to tender in 2003, following which the auditors were reappointed for the financial year beginning 1 January 2004. The audit engagement partner rotates every five years in accordance with Auditing Practices Board ethical guidelines and 2014 is the third year for the current partner. The Committee believes that the present auditors’ performance and reappointment should be considered every year rather than only when a tender is due. Therefore, there is a standing annual agenda item to review the auditors’ performance in detail against the relevant duties in the Committee’s terms of reference and taking into account all other appropriate factors, governance standards and guidance. As part of this review, the Committee considers the way the audit engagement partner reports to, and interacts with, the Committee and the quality and succession planning of the audit engagement partner and the senior audit team, and how the audit team has reacted to any events and issues which arose during the year. The Committee also seeks the views of the senior members of the Group Finance team who work most closely with the audit team. The Committee considers the quality of the regular and ad hoc reports received from the audit team on the output of audit activities, considering whether this is consistent with the reports from management, and the updates about independence, internal quality processes and technical knowledge. In particular, the Committee looks for evidence that the external auditors have maintained a high level of professional scepticism, have brought a high level of professional challenge to management, and have reported transparently and comprehensively to the Committee.
For the sale of the Canadian business, the Committee provided review and challenge of key areas including: • The impact on the Group’s capital position and residual risk profile following the sale, including the reduction in the overall risk exposures of the Group, the extent to which the Group retained a balanced risk profile despite reduced risk diversification and the expected reduction in volatility of the Group’s balance sheet and profitability
Report from the Chairman of the With Profits Committee of Standard Life Assurance Limited “Whilst the management of its with profits business is the direct responsibility of the Board of Standard Life Assurance Limited (SLAL), FCA regulations require that a with profits firm’s governance arrangements should make provision for independent judgement and advice. The SLAL Board has established a With Profits Committee (WPC) for this purpose. I am pleased to present my report on the work and operation of the Committee during 2014”. Niall Franklin, Chairman The Committee members are Niall Franklin (Chairman), Graham Aslet, Clifton Melvin and Ross Ainslie. The members are appointed by the SLAL Board on the recommendation of the Nomination and Governance Committee. During 2014, the WPC met seven times. Directors of the Standard Life plc and SLAL Boards and senior actuaries, in particular the UK & Europe Chief Risk Officer, the With Profits Actuary and the Actuarial Function Holder, routinely attend these meetings. SLAL has had a WPC since demutualisation. Its role is to monitor and advise the SLAL Board on the management of with profits business, providing independent judgement on the fair treatment of with profits policyholders, and to take a proactive role in raising any issues that merit further consideration. The Committee reviews all proposals that are material to the interests of SLAL’s with profits policyholders. The Committee has the authority to engage external advisers and engages with an actuary from Milliman LLP to routinely provide the members with advice. The Chairman has a right of access at all times to the Chairman of the Risk and Capital Committee but there was no requirement during the year for this right to be exercised. The Committee’s routine formal interaction with the SLAL Board is by the minutes of its meetings and by an annual report to the SLAL Board in which it reviews the management of with profits business having regard to SLAL’s duty to treat its with profits policyholders fairly and to meet their reasonable benefit expectations. The Committee has authority to make a report to the with profits policyholders. It did not do so during 2014 and would not expect to do so unless it disagreed materially with SLAL’s own annual report to its with profits policyholders (which is required by FCA regulations) on the management of the with profits business. The directors of SLAL and of the Company have an open invitation to attend any of the Committee meetings. Minutes of the Committee meetings are submitted to the Board and, in May 2014, the Committee Chairman attended a meeting of the Board at which with profits matters were discussed.
In order to support these statements, business unit risk teams completed a schedule identifying the control processes supporting each of the six elements of the system of governance. Subject matter experts and process owners assessed whether the control processes were fit for purpose with output provided to business unit risk teams for review. The conclusion of these reviews was summarised in a report which was used to support the certifications. In order to support further the certifications the business unit risk teams produced reports documenting the most significant control issues during the year and the assurance activity conducted in relation to the system of internal control during the year.
The Group continues to meet Group and individual entity capital requirements, and day-to-day liquidity needs through the Group’s available credit facilities. The Company’s revolving credit facility of £500 million was renewed on 5 March 2013 and is due to mature in March 2018. The Group has considerable financial resources together with a diversified business model, with a spread of business and geographical reach. As a consequence, the Directors believe that the Group is well placed to manage its business risks successfully.
Our risk function supports the operation of these risk committees (the RCC, the Group ERMC and the Group Credit Risk Committee) and provides assurance, assistance and advice to them as required. It is also responsible for providing assurance that the financial and non-financial risks inherent in business activities are identified and managed in accordance with the appetite and limits approved by the Board and relevant subsidiary boards. The function is also responsible for producing risk management information for use within the business units and for aggregation across the Group.
The strategic, capital and business planning process links together performance management targets, capital management, and the setting of risk appetites and limits, taking into account available capital and financial strength targets to ensure our growth and projected returns reflect our risk preference.
Risk appetite framework The Group’s risk appetite framework defines the key principles under which the Group should take risks. It has eight elements - our risk strategy, risk principles, risk definitions, risk preferences, qualitative risk appetite statements, risk metrics, quantitative risk limits (setting, monitoring and managing) and roles and responsibilities. Two key elements of the framework - qualitative risk appetites and quantitative risk limits - are discussed in more detail below.
Company and our customers’ information and assets, which also promotes a ‘zero tolerance’ approach to financial crime, bribery and corruption
Before confirming the levels of vesting the Remuneration Committee considered whether it believed that these vesting levels reflected the underlying performance of the Group. As part of these discussions the Remuneration Committee took into account the following indicators of underlying Group performance: • The strong performance of the remaining portfolio of businesses, principally the UK business and Standard Life Investments, which have delivered against the stretch targets, adjusted as detailed above, which were set for them 3 years ago with significant outperformance of Standard Life Investments against the targets
A resolution to approve the amended plan rules will be put forward at the 2015 AGM. As a consequence our remuneration policy has been amended and is also subject to a resolution for approval.
Focuses management on growing customer volumes through winning new customers and growing revenue from our existing customers which will ultimately lead, through growth in assets under management and quality revenue flows, to increasing profitability and increased shareholder value.
Fees for the Chairman and non-executive Directors are set at an appropriate level to reflect the time commitment, responsibility and duties of the position and the contribution that is expected from non-executive Directors.
Three-year term which can be extended by mutual consent and is subject to re-election by shareholders in line with the Company’s articles of association and the UK Corporate Governance Code.
Colin Buchan 27 November 2007 (continuation 25 January 2011 and 17 December 2013)2 Pierre Danon 28 November 2011 (continuation 6 October 2014) Crawford Gillies 7 December 2006 (continuation 11 January 2010 and 3 December 2012) David Grigson 26 October 2009 (continuation 30 October 2012) Noel Harwerth 18 July 2012 Isabel Hudson 15 October 20143 Kevin Parry 27 October 20143 John Paynter 21 December 20114(continuation 2 December 2014) Lynne Peacock 13 March 2012 Martin Pike 27 September 2013 1 Initially appointed as a director of The Standard Life Assurance Company and appointed as a Director of Standard Life plc effective from 30 March 2006. 2 Retired from the Board on 13 May 2014. 3 Appointment effective from date of letter of appointment. 4 Appointed Senior Independent Director with effect from 25 May 2012 for a three-year term. Letter of appointment dated 24 May 2012.
There is no provision for compensation payments for loss of office for non-executive Directors.
• Embedding our remuneration and performance management strategy to encourage high performance and the delivery of our business objectives.
Revised targets and performance outcome 2014 performance level Below threshold Threshold Target Maximum Restated 2014 Group operating profit before tax (excluding life joint ventures)1 <£460m £460m £510m £560m
Performance Consolidated cumulative three-year third party EBITDA % of target award of shares that vest1
The following adjustments have been made to the cumulative Group operating profit target and cumulative net flows target: • Removal of Canadian business, sold January 2015 • Inclusion of Ignis, acquired in July 2014 • Inclusion of India and China life joint ventures - HDFC Standard Life Insurance Company Limited and Heng An Standard Life
The following adjustment have been made to Standard Life Investments targets for awards granted in 2014 • Removal of Canadian business, sold January 2015 • Inclusion of Ignis, acquired in July 2014 • EBITDA, rather than EBIT as the appropriate profit metric • Inclusion of the business of Standard Life Wealth, transferred to Standard Life Investments’ business in January 2014.
2 This award was granted on 10 September 2014 and vests on 10 September 2019. 3 Cumulative Group operating profit before tax includes life joint ventures which refer to HDFC Standard Life Insurance Company Limited and Heng An Standard Life
Total number of shares owned at the earlier of 1 January 2014 or date of appointment
Keith Skeoch Director of the Investment Association Member of the advisory board of Reform Scotland2 Non-executive director of the Financial Reporting Council (FRC) £nil3
Valuation of life insurance contract liabilities Refer to page 56 (Audit Committee Report), page120 (Critical accounting estimates and judgement), pages 129 to 131 (Accounting policies) and page 178 to 184 (notes). The Directors’ valuation of the life insurance contract liabilities involves complex judgements about future events, both internal and external to the business, for which small changes in assumptions can result in material impacts to the valuation of these liabilities.
• Standard Life plc’s assumptions in the UK were also included in PwC’s independent benchmarking survey, which included 25 of the largest life insurers in the UK. This allowed us to compare the assumptions used relative to the Group’s industry peers.
In addition to the above, our audit work in respect of annuitant mortality assumptions included: • Testing of the process by which the assumptions were set, including evaluating the controls in place over the assumption setting process
We considered that, based on our testing: • The assumptions used in the valuation of customer contracts were appropriate to the circumstances and plans of the Group at the acquisition date and within a reasonable range
• Assessing the completeness and accuracy of the disclosure of discontinued operations against the disclosure requirements of IFRS 5
• The statement given by the Directors on page 47, in accordance with provision C.1.1 of the UK Corporate Governance Code (’the Code’), that they consider the Annual report taken as a whole to be fair, balanced and understandable and provides the information necessary for members to assess the Group’s performance, business model and strategy is materially inconsistent with our knowledge of the Group acquired in the course of performing our audit.
Revenue Gross earned premium 2,404 2,649 Premium ceded to reinsurers (61) (47) Net earned premium 2,343 2,602 Investment return 4 13,179 13,334 Fee and commission income 5 985 816 Other income 81 64 Total revenue 16,588 16,816
Total items that will not be reclassified subsequently to profit or loss 293 71
Share of other comprehensive income of joint ventures 31 4 (3)
Effects of exchange rate changes on cash and cash equivalents (140) (13)
The amendments allow the fair value measurement of subsidiaries of associates or joint ventures to be retained in applying the equity method of accounting for interests in associates or joint ventures that are investment entities.
Not yet endorsed 1 For annual periods beginning on or after.
Profit for the year 496 - - - 496 (131) 365 Other comprehensive income for the year 27 - - - 27 18 45 Total comprehensive income for the year 523 - - - 523 (113) 410
(a)(iv) Critical accounting estimates and judgement in applying accounting policies The preparation of financial statements requires management to make estimates and assumptions and exercise judgements in applying the accounting policies that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses arising during the year. Estimates and judgements 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. The areas where judgements, estimates and assumptions have the most significant effect on the amounts recognised in the consolidated financial statements are as follows: Financial statement area Critical accounting judgements, estimates or assumptions Related accounting policies and notes
(h) Expense recognition (h)(i) Deposit accounting for non-participating investment contracts Withdrawals paid out to policyholders on non-participating investment contracts are treated as a reduction to policyholder deposits and not recognised as expenses in the consolidated income statement.
Group accounting policies continued (h) Expense recognition continued (h)(ii) Claims and benefits paid
Intangible assets are carried at initial cost less accumulated amortisation and any accumulated impairment losses. Amortisation is charged to the consolidated income statement on a straight-line basis over the estimated useful life of the intangible asset. The estimated useful life of the Group’s classes of intangible assets is as follows: • Intangible assets acquired through business combinations – between six and seventeen years • Internally developed software – between two and ten years 124 Standard Life
Loans classified as loans and receivables are initially measured at fair value plus directly attributable transaction costs. Subsequently, they are measured at amortised cost, using the effective interest rate (EIR) method, less any impairment losses. Revenue from financial assets classified as loans is recognised in the consolidated income statement on an EIR basis.
(q) Equity securities, debt securities and derivatives Management determines the classification of equity securities, debt securities and derivatives at initial recognition.
(t)(ii) Merger reserve If the Company issues shares at a premium in connection with the acquisition of an equity holding in another entity and the conditions for merger relief under section 612 of the Companies Act 2006 are met, which permits the difference between the issue value and nominal value of the shares issued to be transferred to a reserve other than the share premium account, such differences are transferred to the merger reserve. A component of the merger reserve attached to the acquisition of an entity is released to retained earnings on disposal, part disposal or impairment of the interest in that entity.
The Group’s principal with profits fund is the Heritage With Profits Fund (HWPF) operated by Standard Life Assurance Limited (SLAL). The participating contracts held in the HWPF were issued by a with profits fund falling 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.
(aa) Pension costs and other post-retirement benefits The Group operates a number of defined benefit and defined contribution plans, the assets of which are held in separate trustee-administered funds. The pension plans are funded by payments from employees and by the relevant Group companies, determined by periodic actuarial calculations.
An operation classified as held for sale is measured at the lower of its aggregate carrying amount and its aggregate fair value, less the estimated incremental costs that are directly attributable to the disposal (excluding finance costs and income tax expense). No depreciation or amortisation is charged on assets of an operation once it has been classified as held for sale. Any impairment charge arising is recognised firstly against assets of the operation other than financial assets, investment property, assets arising under insurance contracts, assets arising from employee benefits or deferred tax assets.
(gg) Employee share-based payments The Group operates share incentive plans for all employees, share-based long-term incentive plans and restricted stock plans for senior employees and may award annual performance shares or options to all eligible employees when the Group’s profit exceeds certain targets. Further details of the schemes are set out in Note 48 – Employee share-based payments. For share-based payment employee transactions, services received are measured at fair value.
3. Financial information – Notes to the Group financial statements continued 1. Group structure continued (a) Composition continued The ability of subsidiaries to transfer cash or other assets within the Group for example through payment of cash dividends are restricted only by local laws and regulations, and solvency requirements. These are not considered significant restrictions on the Group’s ability to access or use the assets and settle the liabilities of the Group. The Group also has investments in Qualifying Limited Partnerships which are consolidated in these financial statements. For the Qualifying Limited Partnerships, North American Strategic Partners (Feeder) 2006 Limited Partnership and North American Strategic Partners (Feeder) 2008 Limited Partnership an exemption from filing annual accounts with Companies House has been taken in accordance with the Partnership Accounting Regulations (2008).
The goodwill is attributable mainly to the significant synergies expected to arise as a result of the acquisition as well as the value of the workforce of the acquired business. None of the goodwill recognised is expected to be deductible for income tax purposes.
• On 5 November 2014, the Group announced the closure of the Dubai business. The results of this business are included as discontinued operations for segmental reporting purposes as this is reflective of the presentation of information provided to the Chief Operating Decision Maker. Dubai was previously included in Asia and Emerging Markets. Under IFRS 5, Dubai does not constitute a discontinued operation and is included under continuing operations in the consolidated income statement. Therefore the segmental analysis disclosures include the reclassification of Dubai results between discontinued and continuing operations.
Operating profit/(loss) after tax 149 328 - (55) - 422 180 602 Adjusted for the following items
restated1 £m £m Acquisition expenses 232 243 Maintenance expenses 767 633 Group corporate centre costs 54 53 Total operating expenses from continuing operations as presented in the analysis of Group operating profit by segment 1,053 929 Dubai included in discontinued operations segment2 26 6 Consolidation adjustments 125 228 Net insurance benefits and claims 3,856 4,593 Change in reinsurance assets and liabilities (60) 741 Change in insurance and participating contract liabilities 3,834 (1,495) Change in unallocated divisible surplus (71) (40) Change in non-participating investment contract liabilities 5,362 10,047 Expenses under arrangements with reinsurers 639 61 Change in liability for third party interest in consolidated funds 758 829 Finance costs 98 98 Non-operating items 159 66 Other 173 133 Total expenses from continuing operations as presented on the consolidated income statement 15,952 16,196 140 Standard Life
UK conventional with profits contracts (no impact on equity holder profits in the absence of burnthrough) Conventional (i.e. non-unitised) with profits contracts consist of single or regular premium endowment, whole life and pension contracts held in the HWPF. Under endowment and whole life contracts, guaranteed benefits are payable on death. Regular bonuses may be added to the guaranteed sum assured over the term of the policy and, in addition, a final bonus may be paid on death and maturity. Certain endowment assurances have minimum surrender value provisions and minimum paid-up values.
Notes £m £m £m £m £m £m The aggregate remuneration payable in respect of employees: Wages and salaries 456 114 570 409 119 528 Social security costs 55 9 64 48 11 59 Pension costs 38
Total audit related assurance fees 4.8 1.4 6.2 4.1 1.7 5.8
Profit attributable to equity holders of Standard Life plc from continuing operations (£m) 376 335 Profit attributable to equity holders of Standard Life plc from discontinued operations (£m) 127 131 Profit attributable to equity holders of Standard Life plc (£m) 503 466 Weighted average number of ordinary shares outstanding for diluted earnings per share (millions) 2,396 2,378 Diluted earnings per share from continuing operations (pence per share) 15.7 14.1 Diluted earnings per share from discontinued operations (pence per share) 5.3 5.5 Diluted earnings per share (pence per share) 21.0 19.6 1 Comparative periods presented have been restated to reflect classification in the current year of the Group’s Canadian business as discontinued operations. Refer to
Additions to intangible assets acquired through business combinations during the year to 31 December 2014 relate to the acquisition of Ignis (refer to Note 1 – Group structure) and comprises life company contracts of £80m, institutional client contracts of £90m and retail client contracts of £38m. Each of these categories form a cash-generating unit.
Less: Deferred tax assets classified as held for sale 27 (54) -
Less: Deferred tax liabilities classified as held for sale 27 (13) -
Net investment hedge Cash flow hedge Total 2013 (restated)1 Notes £m £m £m £m £m £m £m Investments in associates and joint ventures 18 1,515 - - 2 - - 1,517
Receivables and other financial assets 1,248 1,107 1 Comparative periods presented have been restated to reflect retrospective application of changes to accounting policies as a result of new IFRSs adopted in the period. Refer to Group accounting policies – (a) Basis of preparation.
Total items recognised directly within equity - - - - - - (2) (20) - (22)
The table above shows the changes in the basis between 2013 and 2014. The risk discount rates are calculated on a market consistent basis and are set equal to the risk free rate plus a margin to allow for the non-market risks inherent in the cash flows being discounted.
Account balances paid on surrender and other terminations in the year (10,230) (10,498) Change in non-participating investment contracts recognised in the consolidated income statement 5,362 11,892
Change in UDS not recognised in the consolidated income statement (2) 44
The obligation to pay any deferred interest must be satisfied with cash raised from the issue of ordinary shares or the sale of treasury shares.
Present value of funded obligation (2,816) (98) (2,914) (242) (2,327) (76) (209) (2,612)
Net asset/(liability) 760 (44) 716 (101) 432 (23) (81) 328 1 The net liability for the Canada plan has been classified as held for sale at 31 December 2014.
Interest (expense)/income (110) 124 14 - 14 Total expense recognised in consolidated income statement1 (165) 124 (41) - (41)
Unit linked and segregated funds are normally expected to meet their obligations through liquidating the underlying assets in which they are invested. If a unit linked or segregated fund cannot meet its obligations in this way, the shareholder may be required to meet the obligations to the policyholder.
3. Financial information – Notes to the Group financial statements continued 42. Risk management continued (b) Market risk As described in the table on pages 195 to 196, the shareholder is exposed to market risk from the shareholder and participating businesses and as a result the following quantitative market risk disclosures are provided in respect of the financial assets of the shareholder and participating businesses.
3. Financial information – Notes to the Group financial statements continued 42. Risk management continued (b) Market risk continued (b)(ii) Sensitivity to market risk analysis The Group’s profit after tax and equity from continuing operations are sensitive to variations in respect of the Group’s market risk exposures and a sensitivity analysis is presented on the following pages. The analysis has been performed by calculating the sensitivity of profit after tax from continuing operations and equity to changes in equity security and property prices and to changes in interest rates as at the reporting date applied to assets and liabilities other than those classified as held for sale. For each sensitivity ‘test’, the impact of a reasonably possible change in a single sensitivity factor is presented, while the other sensitivity factors remain unchanged. Correlations between the different risks and/or other factors may mean that experience would differ from that expected if more than one risk event occurred simultaneously.
Equity sensitivity to market risk on assets and liabilities other than those classified as held for sale The shareholder business in the other reportable segment classifies certain debt securities which back subordinated debt liabilities issued by the Company as AFS. These debt securities are measured at fair value. Interest is calculated using the effective interest method and recognised in the consolidated income statement. Other changes in fair value and the related tax are recognised in other comprehensive income. As a result, the sensitivity of the Group's equity to variations in interest rate risk exposures differs from the sensitivity of the Group's profit after tax from continuing operations to variations in interest rate risk exposures.
Quantitative credit risk disclosures are not provided in respect of the assets of the unit linked and segregated funds since the shareholder is not directly exposed to credit risks from these assets. The unit linked business includes £3,523m (2013: £4,412m) of assets that are held as reinsured external funds links. Under certain circumstances the shareholder may be exposed to losses relating to the default of the insured external fund links. These exposures are actively monitored and managed by the Group and the Group considers the circumstances under which losses may arise to be very remote.
Neither past due nor impaired: At 31 December 2014, receivables and other financial assets of £15m (2013: £14m) were past due by less than three months.
Other assets of operations held for sale 2,992 118 428 21 3,559
The loaned securities were recognised on the consolidated statement of financial position and valued in accordance with the relevant Group accounting policy. All rights to income and gains or losses in respect of these assets remained with the Canadian business. Assets on loan at 31 December 2013 consisted of £146m of domestic government securities.
The Group’s maximum exposure to loss in respect of the interests presented above is the carrying value of the Group’s investment. As noted in Note 42 – Risk management, the shareholder is not exposed to market or credit risk in respect of investments held in the unit linked and segregated funds, and third party interests in consolidated funds and non-controlling interests risk segments.
Additional information on how the Group manages its exposure to risk can be found in Note 42 – Risk management.
As recognised in the consolidated statement of financial position line item Classified as held for sale Total Level 1 Level 2 Level 3 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 £m £m £m £m £m £m £m £m £m £m £m £m Shareholder business Investments in associates at FVTPL 16 19 14 10 30 29 30 29 - - - -
In addition, the Group carried a contingent consideration liability with a fair value of £15m at 31 December 2013. The liability was settled in full during the year for £15m. Movements in fair value of contingent consideration assets and contingent consideration liabilities are recognised in the consolidated income statement.
Change in operating assets (13,455) (17,523) 1 Comparative periods presented have been restated to reflect retrospective application of changes to accounting policies as a result of new IFRSs adopted in the period. Refer to Group accounting policies – (a) Basis of preparation.
(b) Compensation of key management personnel Key management personnel comprise 19 people (2013: 19 people) within the Group, including all Directors, both executive and non-executive and the direct reports of the position of Chief Executive. Detailed disclosures of Directors’ remuneration for the year and transactions in which the Directors are interested are contained within the audited section of the Directors’ remuneration report.
(c) Transactions with key management personnel and their close family members All transactions between key management and their close family members, and the Group during the year are on terms which are equivalent to those available to all employees of the Group.
In November 2014, the Company notified the PRA of its intention to call the Euro denominated 5.314% fixed/floating rate Mutual Assurance Capital Securities (MACS) prior to 31 December 2014. At this time these MACS became excluded from regulatory capital resources. As noted in Note 51 – Events after the reporting date, the MACS were redeemed in full on 6 January 2015.
Notes: (a) The maintenance and integrity of the Standard Life plc website is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website.
In November 2013, the Group announced that the results of Standard Life Wealth Limited (SLW) would be managed and reported as part of the Standard Life Investments segment from 1 January 2014. Previously, this business was managed as part of the UK and Europe segment and reported within UK and Europe non-covered business. Comparative amounts for the year ended 31 December 2013 have been prepared on the same basis to allow more meaningful comparison.
Markets Total noncovered Discontinued operations Total Pence per share 2014 £m £m £m £m £m p Opening EEV 4,538 329 1,452 2,104 8,423 353 New business contribution 177 29 - 33 239 Contribution from in-force business 222 20 - 118 360 Operating experience variances and assumption changes 172 (3) - 84 253 Development costs (24) (12) - (8) (44) Non-covered business - - 88 (9) 79 EEV operating profit after tax 547 34 88 218 887 37 EEV non-operating profit/(loss) after tax (21) 4 (110) 174 47 2 EEV profit/(loss) after tax 526 38 (22) 392 934 Non-trading adjustments (449) 43 524 (312) (194) Closing EEV 4,615 410 1,954 2,184 9,163 381
Markets Other Discontinued operations Total 2014 £m £m £m £m £m £m Operating profit/(loss) before tax 390 257 19 (62) 131 735 Tax on operating profit (43) (58) 1 13 (42) (129) Operating profit/(loss) after tax1 347 199 20 (49) 89 606 Impact of different treatment of assets and actuarial reserves (17) - (12) - 9 (20) DAC and DIR2, intangibles, tax and other (9) - 4 - (11) (16) Look through 83 (84) - - 1 - EEV operating capital and cash generation 404 115 12 (49) 88 570
Inflation This variable is calibrated based on the relationship between real and nominal yield curves.
Value of in-force covered business The value of future equity holders’ cash flows is calculated for each material business unit on an after-tax basis, projected using best estimate future assumptions. No allowance has been made for the change in reserving or required capital bases anticipated under Solvency 2. Allowance is made for external reinsurance and reinsurance within the Group. The cash flows include the profits and losses arising in Group companies providing investment management and other services where these relate to covered business, this is referred to as the ‘look through’ into service companies.
Assets designated as available-for-sale under IFRS The Group has designated certain financial assets used to back subordinated liabilities and investment contract liabilities as available-for-sale (AFS) under IFRS accounting.
EEV non-operating capital and cash generation comprises covered business non-operating profit items (non-operating net worth movement after tax) and non-covered business non-operating profit items on an after-tax basis.
The financial reporting framework that has been applied in their preparation is applicable law and IFRSs as adopted by the European Union.
Company statement of financial position As at 31 December 2014 restated1 Notes £m £m
The standard has been adopted retrospectively subject to the transition guidance which permits retrospective application only in circumstances when the outcome of the control assessment for individual entities at the date of initial application differs from the outcome under the previous accounting policy.
Additionally, IFRS 9 removes and replaces the current requirements for hedge effectiveness in IAS 39 and therefore the requirements for the application of hedge accounting. The new requirements change what qualifies as a hedged item and some of the restrictions on the use of some hedging instruments. The accounting and presentation requirements remain largely unchanged. However, entities will now be required to reclassify the gains and losses accumulated in equity on a cash flow hedge to the carrying amount of a non-financial hedged item when it is initially recognised. Additional disclosures on hedge accounting are also required.
(a)(iii) Standards, interpretations and amendments to existing standards that are not yet effective and are not expected to have a significant impact on the Company’s operations or to the preparation of separate financial statements
Impairment on individual loans is determined at each reporting date. Objective evidence that a financial asset or group of assets is impaired includes observable data that comes to the attention of the Company. This would include a measurable decrease in the estimated future cash flow from a group of financial assets since the initial recognition of those assets, although the decrease cannot yet be identified with the individual financial assets in the Company. The Company first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant.
(b) Tax relating to components of other comprehensive income 2014 2013 Notes £m £m Current tax (charge)/credit on net change of financial assets designated as availablefor -sale R (6) 4 Tax relating to each component of other comprehensive income that may be reclassified subsequently to profit or loss
(a) Investments in associates The Company’s investment in associates measured at cost relates to a 25.3% (2013: 25.3%) interest in Tenet Group Limited, a company incorporated in England. The reporting date for Tenet Group Limited is 30 September as this is its year end date. This is different from the Company’s year end date of 31 December. In addition to the above the Company has investments in associates measured at FVTPL of £13m (2013: £12m).
Gross amounts of financial instruments offset in the Company statement of financial position
(d) Liquidity risk The Group defines liquidity risk as the risk that the business units are unable to realise investments and other assets in order to settle their financial obligations when they fall due, or can do so only at excessive cost.
(b) Compensation of key management personnel The Directors and key management personnel of the Company are considered to be the same as for the Group. Information on both Company and Group compensation paid to Directors and key management personnel can be found in Note 49 of the Group financial statements. Information on transactions with/from and balances from/to key management personnel and their close family members can also be found in Note 49 of the Group financial statements.
Loans to subsidiaries J 634 644 666 687 Liabilities Subordinated notes T 499 499 561 557 Subordinated guaranteed bonds T 502 502 580 571 Mutual Assurance Capital Securities T 611 631 643 674
Z. Events after the reporting date On 3 September 2014 the Group announced its intention to sell its Canadian business to The Manufacturers Life Insurance Company (MLC), a subsidiary of Manulife Financial Corporation (Manulife). The sale of the Group’s Canadian long-term savings and retirement, individual and group insurance business (Standard Life Financial Inc.) and Canadian investment management business (Standard Life Investments Inc.) completed on 30 January 2015 for a fixed consideration of CA$4bn (£2.1bn). A further £0.1bn was received from the settlement of related hedging derivative contracts.
Closing AUA at 31 Dec 2013 £bn £bn £bn £bn £bn £bn
Fee business: Standard Life Investments third party (excl. strategic partner life business)2 (2.9) 0.6 2.1 1.9 1.3 Standard Life Investments third party strategic partner life business (0.9) (0.7) - - -
Asia and Emerging Markets (wholly owned) - 0.1 - - (0.1)
Corporate pensions F 1,329 1,956 856 882 5,065 5,885 (14%) (14%) UK retail and corporate fee business 6,994 7,430 952 971 11,195 11,794 (5%) (5%)
Fixed and intangible assets adjustment (1) (3) (1) (20) (25) - (25)
Financial calendar for 2015 Ex-dividend date for 2014 final dividend 9 April
Global Absolute Return Strategies (GARS) A discretionary multi-asset fund provided under several regulated pooled and segregated structures globally by Standard Life Investments. Their investment objective is to deliver consistent positive returns at a level exceeding the risk-free rate by an average of 5% per annum, and to do so with as little risk as possible.
Group, Standard Life Group or Standard Life Prior to demutualisation on 10 July 2006, SLAC and its subsidiaries and, from demutualisation on 10 July 2006, the Company and its subsidiaries.