MG We've seen in practice what we originally felt would be the case – we need to focus our attention on different elements of the business, especially during this period of integration. Keith’s doing a great job of leading and developing the fundamentals that our business is built on. This then gives me a strong platform to engage with our partners and clients so we can build our presence and reputation worldwide.
There’s still a lot to do but it’s going well. The integration programme will run for three years and we’re already making really good progress. We expect to have completed around 75% of the work involved within the first two years.
KS A merger will always bring a degree of uncertainty for people in relation to their roles and I’ve been very encouraged by our people’s continued level of commitment and their desire to ensure we do the right things for our clients and customers. What we are encouraging people to do now is to think about the future. We want them to engage with the opportunities for themselves, and to help us make the strategic logic for the merger a reality.
We have broad and deep investment capabilities with over 1,000 investment professionals worldwide. At the moment, clients are increasingly looking for products and services that focus on good outcomes rather than relative returns. This makes the potential value to clients of active investing even more evident, particularly next-generation active solutions – or ‘new active’ products – which focus more on long-term investment outcomes.
Str ateg ic r epo r t 7Standard Life Aberdeen 2017
This business segment also includes our 38.2% stake in HDFC Asset Management, one of the largest mutual fund companies in India. HDFC Asset Management announced in November 2017 that its Board of Directors approved initiation of the process of an initial public offering (IPO). The IPO is subject to relevant regulatory and other necessary approvals.
Retail distribution is primarily through our Wrap and Elevate financial adviser platform offerings. Workplace distribution is via employers and their advisers. Since auto enrolment began in 2012, over one million members have enrolled into our qualifying workplace pension schemes. 1825, our financial advice business, has continued to build a national presence across the UK and offers a full financial planning and personal tax advice service.
We manage assets on behalf of clients and customers in 80 countries looked after by employees based in over 50 locations. This proximity to local markets feeds our investment insight. It allows us to understand the needs of our clients and how best to respond to developing market trends. The merger also gives us the opportunity to enhance and make the most of the strong partnerships we have worldwide. These include long-standing strategic partnerships in the UK, North America, India, China and Japan.
2016 – 2020 Global estimated flows c66% ‘new active’1 1 Proportion of global estimated net inflows into growth categories.
Democratisation of financial risk Changes to the savings landscape over the last decade have moved risk and responsibility to individuals and it represents a continuing global trend. For example, in the USA, the UK, and across Europe, there is a growing requirement for people to take more individual responsibility for their financial futures. This includes the continued shift from defined benefit to defined contribution pension plans.
• Our corporate sustainability and stewardship strategy is informed through engagement with our employees, charities, regulators and subject matter experts
These strongly complementary capabilities will help to drive the growth of our combined business, bringing diversification and growth in revenues and earnings.
• Expanded our global capabilities and distribution with Aberdeen Standard Investments now serving clients in over 80 countries and operating from 50 office locations
Str ateg ic r epo r t 19Standard Life Aberdeen 2017
2017 performance In our asset management business we launched a programme to enhance the client experience and create a single, consistent approach to client management. By launching new funds across a range of different asset classes, we also broadened the capabilities we have to meet clients’ diverse investment needs. There’s more detail on page 22.
We have also continued our work to address the findings of the Financial Conduct Authority’s thematic review into the sale of non-advised annuities. The review showed that a portion of annuity sales that we made since July 2008 did not adequately explain to customers that they may have been eligible for an enhanced annuity. We expect the review to be fully operational during 2018 and will start writing to affected customers at that time.
• Focus on integrating the technology infrastructure in our asset management business to increase scalability and reduce ongoing costs
We will continue to pursue organic growth opportunities from our own resources and activities – while also carefully targeting appropriate acquisitions and new strategic partnerships.
Str ateg ic r epo r t 27Standard Life Aberdeen 2017
We made a number of executive appointments shortly after the announcement of the merger, to help provide certainty and stability for our people and for our clients and customers. We also have clear succession plans in place for all key roles.
To achieve our strategic aims, we need to provide inclusive and engaging employment, encourage collaboration, and enable people to reach their potential. Defining the right culture The scale of the merged business offers our people the potential for further opportunities to achieve their career goals. To make these opportunities valuable, we need a culture that’s supportive and relevant.
Since August, we have been gathering insight from across the combined business. This has included interviews and focus groups, and using technology and digital collaboration tools to get input from as many individuals as possible. We’ve also run a programme of internal communications to keep our employees updated on our progress. This all builds on the results of our company-wide mood and sentiment survey, which you can read about on page 29.
Net outflows in our growth channels reduced considerably to £14.9bn (2016: £21.3bn) reflecting lower redemptions in Aberdeen Standard Investments, combined with strong net inflows in Pensions and Savings. Our mature books, which are in long-term run-off, saw net outflows broadly in line with expectations at £16.6bn (2016: £15.9bn).
Str ateg ic r epo r t 33Standard Life Aberdeen 2017
The average fee revenue yield (excluding performance fees) for Aberdeen Standard Investments growth channels decreased slightly to 51bps (2016: 52bps), driven by the change in asset mix away from higher margin funds.
This impact was offset by reduced capital management results largely due to a lower net interest credit from the pension scheme surplus, resulting from lower yields at the start of 2017, and the interest expense on the $750m debt issued in October 2017.
IFRS profit IFRS profit on a Reported basis increased to £699m (2016: £368m) due to the inclusion of post-merger Aberdeen profits and a £229m reduction in the loss from adjusting items to £40m (2016: loss £269m). Adjusting items are shown in the table below. The largest item is the £319m profit on disposal of interests in associates which includes £302m from the sale of 5.4% of the shares in HDFC Life in the IPO in November 2017, leaving our remaining share in the business at 29.3%.
Gross and net flows On a Pro forma basis, gross inflows from growth channels were £50.9bn (2016: £55.1bn), and redemptions were £73.0bn (2016: £81.2bn), resulting in growth channel net outflows of £22.1bn (2016: £26.1bn). Aberdeen total net outflows for the period 1 January 2017 to 13 August 2017 were £11.0bn.
Str ateg ic r epo r t 41Standard Life Aberdeen 2017 £544bn £576bn £581bn
With significant global fixed income assets under management and a diverse client base, we are one of the largest fixed income managers in Europe. We believe high conviction macro and corporate proprietary research undertaken by our fund managers around the world, is the best way to deliver robust risk-adjusted returns and add longterm value to our clients.
Review of the year Absolute return strategies, e.g. GARS made good progress in recovering ground following their challenging 2016 and, while flows in this area remained negative in 2017, we have seen the start of a turnaround as investors start to question how much longer the rally in equity markets can last. These trends bode well for our multi-asset business which has proven highly attractive to investors in the wake of financial turbulence.
A key priority for the year ahead is to continue to innovate our product offering. For 2018 we have an exciting product pipeline that will continue to resonate with asset owners who seek outcome-orientated products, greater portfolio diversification and competitively priced products in core categories.
Profit Adjusted profit before tax On a Reported basis, adjusted profit before tax increased to £492m (2016: £386m). Of this increase, £131m relates to Aberdeen profits in the period since the merger, partly offset by lower adjusted profit from Standard Life Investments due to lower fee based revenue.
Str ateg ic r epo r t 45Standard Life Aberdeen 2017
In order to deliver for our customers, our 2017 priorities focused on the following four strategic initiatives: Integrate Elevate Our platform strategy is key to our success with advisers and the Elevate platform has been a valuable addition to our proposition. As a generalist market offering, Elevate complements our existing Wrap platform which is focused on the wealth management market. Since the acquisition of Elevate in October 2016 its AUA has grown by 16% from £11.1bn to £12.9bn. Together our platforms have combined AUA of £54.0bn, an increase of 22% (2016: £44.2bn).
Europe mature fee AUA increased by 4% to £9.9bn (2016: £9.5bn). Europe mature fee is our German with profits book which was closed to new business in April 2015 but continues to receive regular premiums.
UK UK adjusted profit before tax increased by £20m to £339m (2016: £319m). Strong fee based revenue growth and an increase in the spread/risk margin were offset by higher adjusted operating expenses associated with the growth of 1825 and acquisition of Elevate and the intangible asset impairment.
In March 2017, we announced the proposed sale of Standard Life (Asia) Limited, our wholly owned Hong Kong insurance business to HASL, our 50% owned Chinese joint venture, subject to regulatory and other approvals being obtained in Mainland China and Hong Kong. We expect the process to complete in 2018. The proposed transaction supports our goal to pursue a wider China and Hong Kong strategy leveraging the position we have built through Standard Life (Asia) and our interest in HASL. The strengths of both businesses are complementary, with the proposed transaction enhancing HASL’s current skills and services while improving the distribution model and range of products of Standard Life (Asia). Upon the completion of the transaction, Standard Life (Asia) would become a wholly owned subsidiary of HASL.
Hong Kong fee gular premium b duction is expec its revenue dur
emained stable ed to £0.7bn (20 e in our associa 016: £362m). N £295m) and net m compared to n ased to £14m (2 from regular pre e technology and wth in premium ction business a ss market share formed 7% of th e month period ual new busines e decreased by we stopped se r premium busin years from pol and net flows is section of this re net inflows and UA increased to FC Life’s AUA w g following the IP ced our share o at £0.6bn (2016 te and joint ven et inflows in HD t inflows in Heng net inflows of £6 2016: £46m) as emium business d a balanced pr income year-on and a diversified e was 18.4% of he individual ne to December 2 ss sales have £5m due to low elling in 2015. Th ness generates icy issue date.
Our industry is experiencing an increase in the volume and complexity of regulatory driven change. Also, keeping pace with the increasingly varying demands from clients and customers requires design and delivery of a growing programme of change. Our business is experiencing some challenges over delivery of aspects of our change portfolio and we are addressing these as a matter of urgency.
• Strategic risk management: This forms an integral part of the strategic planning process and is directly linked to our corporate objectives. It supports the development of long-term value by ensuring well informed risk-reward decisions are taken in pursuit of our business plan, and that capital is distributed to the areas where most value can be created from the risks taken.
• Our Investment Risk review and challenge is carried out independently of our fund managers
• We invest in initiatives to build trust and longterm relationships with customers
Oversight of Third Parties We use a number of outsourcing partners to operate and deliver core systems, capabilities and processes. There are a number of significant relationships which include Citigroup and BNP Paribas for our asset management business and FNZ’s role in the delivery of platform functionality for our Pensions and Savings business. For a period after the proposed sale of our capital heavy insurance business, Phoenix will be a key outsource service provider for certain IT services. The failure of a material outsourcing provider could lead to significant costs and disruption to our operations, clients and customers until we recover the situation or put alternative solutions in place. As the volume of outsourcing and exposure to outsourcing partners increases, so too does our exposure to the risk culture, framework and risk performance of these businesses.
• Our Standard Life Aberdeen Code of Conduct sets out the standards required of colleagues and mandatory training embeds this across the business
• We maintain strong and open relationships with our regulators and engage early with areas of potential regulatory change
• Significant one-off receipts from a sub-debt issue and HDFC Life IPO proceeds in 2017 strengthened resources in the short term
Human rights policy During 2017 we developed a policy which sets out our approach to identifying and upholding the human rights of our employees, customers and clients and the communities we operate in, as well as people impacted by our suppliers, partners and the companies we invest in. As an investor, we consider factors including human rights when evaluating companies. We assess the management of human rights impacts and engage when appropriate to highlight issues and promote good practice.
We engage our people to reduce their environmental impact both at work and at home using initiatives such as a global network of champions, recycling challenges, and newsletters and blogs. We supported employees to make positive changes in their own lives through information sessions on electric vehicles and home energy.
Note: The total 2017 location-based carbon footprint is 49,295 tonnes CO2e.
Overview Our Strategic report for the year to 31 December 2017 has been prepared in accordance with the Companies Act 2006 and the Disclosure and Transparency Rules (DTR) issued by the FCA. Under section 414 of the Companies Act 2006, DTR 4.1.8 and DTR 4.1.9, the Group is required to provide a fair, balanced and understandable review of the business and a description of the principal risks and uncertainties facing the Group. Principal risks and uncertainties are detailed in the Risk management section of this Strategic report and Note 39 in the Group financial statements section. To provide clear and helpful information, we have also considered the voluntary best practice principles of the Guidance on the Strategic report issued by the Financial Reporting Council in 2014. We have also considered the European Securities and Markets Authority (ESMA) guidelines on alternative performance measures issued in October 2015.
G o ver n an c e 65Standard Life Aberdeen 2017
As at 31 December 2017, there were 2,978,936,877 ordinary shares in issue held by 102,763 registered members. The Standard Life Aberdeen Share Account (the Company-sponsored nominee) held 736,555,571 of those shares on behalf of 1,039,617 participants. No person has any special rights of control over the Company’s share capital and all issued shares are fully paid.
3. Directors’ report continued diverse talent. The results come with their own challenge however; colleagues are looking to leaders for a clear future that will make the most of the opportunity. As the impact of the merger unfolds over the coming months, colleagues will need to see evidence that the right action is being taken to make the most of the opportunity.
4. Corporate governance statement continued appointment should be continued. Taking account of their appointment dates to the predecessor boards, the current average length of service of the non-executive Directors (excluding the Chairman) is 4.5 years. The Nomination and Governance Committee oversees the process to recommend continued appointments, but members of the Committee do not take part in discussions when their own performance – or continued appointment – is being considered.
 Remuneration  Fit and proper requirements  Risk management including Own Risk and Solvency Assessment
Communicating with investors The Company continues to maintain and further develop a dialogue with its shareholders. As part of this, our investor relations and Group secretariat teams support communication with investors. During 2017, the Group continued its programme of domestic and international presentations and meetings between Directors and institutional investors, fund managers and analysts. As well as the Merger, the wide range of relevant issues discussed, in compliance with regulations, at investor presentations and meetings, included business strategy, financial performance, operational activities and corporate governance. The Chairman has his own investor contact programme and brings relevant issues to the attention of the Board. The Remuneration Committee also consulted with major institutional investors regarding executive remuneration plans during the year. More information on this consultation can be found in the Directors’ remuneration report.
Board meetings and meeting attendance The Board and its Committees meet regularly, operating to an agreed timetable. Meetings are usually held in Edinburgh or London and, on occasion, at the offices of one of our international businesses. During the year, the Board held specific sessions to consider the Group’s strategy and business planning. The Chairman and the non-executive Directors also met during the year, formally and informally, without the executive Directors present. At these meetings, matters including executive performance and succession and Board effectiveness were discussed. During 2017, these meetings also covered discussions in relation to the Merger.
Executive Directors Keith Skeoch 9/9 Martin Gilbert 3/3 Bill Rattray 3/3 Rod Paris 3/3
Committee reports This statement includes reports from each Committee Chairman other than the report on the responsibilities and activities of the Remuneration Committee which can be found in the Directors’ remuneration report following this statement.
 Initial findings from the 2017 year end work  The Internal audit plan  Effectiveness of the External auditors  Group non-audit services provided by External auditors  Effectiveness of the Committee  Solvency II reporting  Liaison with the Remuneration Committee on targets and measures  Integration cost and synergies update
Detail of work The focus of work in respect of 2017 is described below.
In 2016 the Company recognised a provision of £175m in respect of past sales practices of annuities. In 2017, following further analysis work and an update to assumptions based on sample testing following the receipt of the FCA redress calculator, management concluded that an additional provision of £100m should be recognised. The Committee reviewed the estimate of the provision and considered sensitivities on its calculation. We were satisfied that the provision level is an appropriate estimate at this time. In addition to the provision, there remain a number of uncertainties in respect of annuities sales practices, in particular in relation to the regulatory investigation, so we continue to provide disclosures in the contingent liability note. See Note 38 of the Group financial statements.
We are interested in feedback from stakeholders and will carefully consider any feedback received.
External auditors The appointment The Committee has responsibility for making recommendations to the Board on the reappointment of the External auditors, determining their independence from the Group and its management and agreeing the scope and fee for the audit. Following its review of KPMG’s performance, the Committee concluded that there should be a resolution to shareholders to recommend the reappointment of KPMG at the 2018 AGM.
Dear Shareholder During 2017 the Risk and Capital Committee has continued to focus on ensuring the effective oversight and independent challenge of the use of capital and the management of risks, in particular the management of conduct risk, across the Group.
 Enhancements to the conduct risk framework and associated management information that would further support the effective management of conduct risk
The Committee also received a report from the Chief Investment Officer on an internal review commissioned to consider governance of investment risk within Standard Life Wealth Limited and the extent to which dispersion between performance in the asset management and wealth management businesses could potentially lead to branding or reputational risks. The Committee noted the conclusions of the review were that Standard Life Wealth Limited’s governance arrangements were considered fit for purpose and there was no evidence of systemic issues in portfolio construction that were likely to adversely impact on dispersion and hence brand or reputational damage.
Emerging risks have been actively monitored and assessed during the year with regular reporting provided to the Committee through the Views on Risk report. This reporting focuses on the key geo-political, economic, societal, legal, regulatory, technological and economic risks that are emerging and provides an assessment of the relative likelihood and significance of these.
Regulatory compliance and reporting The Committee reviews and assesses regulatory compliance plans detailing the planned assurance activities to be performed across the Group on an ongoing basis. In particular, the Committee scrutinised the scope of activities planned by Risk and Compliance and Internal Audit to ensure there was appropriate coverage at an aggregate level. In reviewing these plans the Committee challenged the extent of testing planned in respect of the overseas operations of the investment business. The Committee was advised that increased emphasis was being placed on regulatory considerations where the business was investing in overseas markets and in ensuring the relevant conduct of business rules were understood in overseas jurisdictions where products were being sold. Regular updates on key findings from regulatory compliance activity were reported to the Committee through the Views on Risk report.
The regulatory agenda for the financial services sector in 2017 has continued to be a busy one, prompted by a number of data requests and industry thematic reviews from regulators. One such item highlighted to the Committee in this regard was the UK Financial Conduct Authority’s (FCA) Final Report on Asset Management. Based 92 Standard Life Aberdeen 2017
Business Risk Reviews and other reporting The Committee has continued to receive a number of reports from the Business Risk Review team in 2017. These reports provide the Committee with an independent assessment from the Risk and Compliance function of aspects of the business that could have a material impact on long-term profitability or delivery of strategy, or that introduce a material new risk. Further details on some of the Business Risk Reviews presented in 2017 are set out below.
Chief Risk Officer Raj Singh stood down as Chief Risk Officer at the beginning of 2018 to take up a new position as Executive Financial Institutions and Senior Risk Advisor, working with the ASI Global Head of Insurance and Head of EMEA Distribution to leverage his global insurance experience as well as to provide an ambassadorial role for our office and operations in Switzerland. Following due consideration by the Committee and the approval of the Board and the Regulators, Gareth Murphy, previously Deputy Chief Risk Officer, succeeded Raj as Chief Risk Officer.
 Maintaining focus on long-term sustained levels of performance through a variable pay award that is subject to an appropriate balance of performance metrics that will, over the course of the policy term, cover a six-year period. As it would not be appropriate to consider the performance of the businesses prior to the merger, trailing performance measures will be introduced over the next three years.
The Executive LTIP and Standard Life Investments LTIP are based on three-year cumulative performance targets. Given the timing of the merger, no changes have been made to the proportion of the targets relating to 2017 performance. Adjustments have, however, been made to the proportion of the targets relating to the 2018 and 2019 performance years to reflect the enlarged Company.
In order to maximise transparency, we have also included a section in the annual remuneration report disclosing the variable pay outcome for the period 1 October 2016 to the date of the merger. These awards were determined by the remuneration committee of Aberdeen Asset Management PLC.
G o ver n an c e 97Standard Life Aberdeen 2017
 Engaged people are central to our success and delivering for customers, clients and our shareholders
Scorecard for 2018 EIP The following table sets out the performance scorecard to be used to determine 2018 EIP awards.
There is no external guidance on the methodology to be used for the calculation of the pay ratio. The Committee used the median as the comparator as it is affected less by changes in the remuneration of a small number of employees when comparing between years.
For threshold performance, the award opportunity is 0%, with 100% of the award payable for maximum performance.
The Committee retains the discretion to dis-apply time pro-rating and in the case of the Executive LTIP, performance prorating for good leavers and to accelerate payment if it considers it appropriate.
 Board membership fees are subject to a maximum cap which is stated in the Company’s articles of association. Any changes in this would be subject to shareholder approval.
5.3 Annual remuneration report – what we did in 2017 for executive Directors Single total figure of remuneration – executive Directors (audited) The following table sets out the single total figure of remuneration for each of the executive Directors who served as a Director at any time during the financial year ending 31 December 2017. Where a Director has been appointed or stepped down during the year the remuneration included in the table is that paid or reportable for the period for which they were an executive Director.
Bill Rattray  Leadership of the finance function and integration of the finance teams  Maintenance of strong liquidity and solvency positions  Oversight of the regulatory and capital management requirements  Delivery of combined results reporting and target setting for the combined company  Support and direction for the investor relations activity for the company from the point of the merger The variable pay awards for the period were as follows: Cash £’000s Deferred £’000s
Basis of award (% of salary) Face value at grant Number of shares1
Keith Skeoch Non-executive director of the Financial Reporting Council £nil Martin Gilbert Non-executive director Glencore plc $130,000
(excluding future dividend-equivalents) is 100,667.  2015 Standard Life Investments LTIP award: will vest on 30 March 2018. The number of shares that will vest (including dividend equivalents)
Pay compared to performance The graph shows the difference in value at 31 December 2017 between having invested £100 on 1 January 2009, respectively, in Standard Life Aberdeen plc and in the FTSE 100. It is assumed dividends are reinvested in both. The FTSE 100 has been chosen as Standard Life Aberdeen plc is a member of this FTSE grouping.
Lynne Peacock 1 April 2012 AGM 2012 Martin Pike 27 September 2013 AGM 2014
(% of total votes) 97.47% 2.53% (No. of votes cast) 765,570,038 19,888,754 8,290,600
 The Sharesave Plan, offered in 2017 to the majority of employees in the UK. This plan allows UK tax resident employees to save towards the exercise of options over Standard Life Aberdeen plc shares with the option price set at the beginning of the savings period at a discount of up to 20% of the market price. At 31 December 2017, 4,152 employees in the UK were saving to buy Standard Life Aberdeen plc shares.
Annual quantitative Underlying profit before tax 15.0% £263.8m £329.7m £395.6m £350.0m 9.8%
The variable pay awards for the period from 1 October 2016 to 13 August 2017 are
Unquoted investments and commercial mortgages:  Our valuation expertise: – For unquoted debt securities and commercial mortgages we evaluated the assumptions used, in particular credit risk assumptions in formulating the discount rate.
Of the group’s 227 reporting components, (of which 160 are consolidated funds), we subjected 19 to full scope audits for group purposes. A further 13 components were scoped in for audit procedures over specific account balances. These components for which we performed work other than audits for group reporting purposes were not individually significant but were included in the scope of our group reporting work in order to provide further coverage over the group's results. We conducted reviews of financial information (including enquiry) at a further 1 non-significant component as whilst the component was determined to be nonsignificant we wanted to ensure we understood financial performance and to confirm our assessment of no significant risk of material misstatement.
 The related statement under the Listing Rules set out on page 61 is materially inconsistent with our audit knowledge
Other comprehensive income for the year – – – (24) (38) (62) – – (62) Total comprehensive income for the year 28, 29 – – – 675 (38) 637 25 8 670
(a)(i) Amendments to existing standards that have been adopted by the Group The Group has adopted the following new amendments to existing standards which have been endorsed by the EU.
IFRS 17’s measurement model, which applies to groups of contracts, combines a risk-adjusted present value of future cash flows and an amount representing unearned profit. On transition retrospective application is required unless impracticable, in which case either a modified retrospective approach or a fair value approach is required. IFRS 17 introduces a new approach to presentation in the income statement and statement of comprehensive income.
Further detail on critical accounting estimates and assumptions is provided in the relevant note.
The share of associates’ and joint ventures’ tax expense is £41m (2016: £13m) and is included in profit before tax in the consolidated income statement in ‘Share of profit from associates and joint ventures’.
The accounting for certain items in the consolidated income statement results in certain reconciling items in the table above, the values of which vary from year to year depending upon the underlying accounting values:  The tax expense for the year includes policyholder tax, as described in the accounting policy above. Profit before tax includes an equivalent amount of income in relation to this policyholder tax and this therefore gives rise to a reconciling item.
Details of other significant reconciling items are as follows:  Permanent differences include non-taxable gains arising from the IPO of HDFC Life, a tax deductible donation made to Standard Life Foundation (with no corresponding tax charge on receipt by Standard Life Foundation which is a subsidiary undertaking of the Group) offset partially by expenses relating to the merger with Aberdeen which were not tax deductible. These items are expected to be non-recurring.
Acquired through business combinations (89) (2) Amounts credited/(charged) to the consolidated income statement 11 (37) Amounts credited directly to equity in respect of employee share-based payments 1 – Transfer to current tax for vested employee share-based payments – (3) Tax on defined benefit pension plan deficits (10) – Tax on cash flow hedge 3 – Foreign exchange adjustment (1) (4) Other – (1) Net deferred tax liability at 31 December (302) (217)
Customer relationships The customer relationships acquired through Aberdeen have been grouped where the customer groups have similar economic characteristics and similar useful economic lives. This gives rise to three separate intangible assets which we have termed Lloyds Banking Group, open ended funds, and segregated and similar. These are described further below.
Additions during the year 6 49 51 Reclassified as held for sale during the year (22) –
Transferred to owner occupied property 18 (17) (28) Foreign exchange adjustment 11 44
Owner occupied property Equipment Total Notes £m £m £m Cost or valuation At 1 January 2016 55 138 193
8. Group financial statements continued 24. Assets and liabilities held for sale
Liabilities of operations held for sale 706 – 1 Consists of £199m investment property (2016: £228m) and £12m owner occupied property (2016: £8m).
Following the remeasurement of the disposal group to the lower of its carrying amount and its fair value less costs to sell, an impairment loss of £24m has been included in Other administrative expenses in the consolidated income statement. Fair value has been determined by reference to the expected sale price.
Cash at bank and in hand 1,559 753 Money at call, term deposits and debt instruments with less than three months to maturity from acquisition 8,667 7,185 Cash and cash equivalents 10,226 7,938
Shares issued in respect of business combinations 997,661,231 122 – – Shares issued in respect of share incentive plans 496,817 – 460,194 – Shares issued in respect of share options 1,894,392 – 8,486,868 1
Shares issued in respect of business combinations relates solely to the Aberdeen merger as discussed in Note 1.
On expiry of the claim period on 9 July 2016, the entitlement to the unclaimed shares remaining in the UAT transferred to the Company. During the year ended 31 December 2017, 11,719,073 shares were transferred from the UAT to the EST for £nil consideration. An amount equivalent to the fair value of the shares as at the date of transfer was donated by the Company to the Standard Life Foundation.
On the acquisition of Aberdeen as discussed in Note 1, the Group recognised preference shares and perpetual capital notes issued by Aberdeen Asset Management PLC as non-controlling interests.
(b) Insurance and participating investment contract claims and change in liabilities 2017 2016
Sensitivity analysis Refer Note 39 for sensitivity analysis for the shareholder business.
In addition to the subordinated liabilities included in the key features table above, 7% US Dollar fixed rate perpetual capital notes with a principal amount of $500m were reclassified from equity during the year ended 31 December 2017, these instruments will be redeemed on 1 March 2018. Refer Note 30 for further details. Following the irrevocable notification to redeem these instruments, they no longer qualify as Tier 2 capital within the Group’s Solvency II own funds.
The lost income for customers who were entitled to enhanced annuities, for an average purchase price of £25,000, is assumed to be £300 per annum. This assumption is based on sample testing using the redress calculator provided by the FCA in early 2018. This assumption is higher than the assumption of £180 per annum used at end 2016, which was based on the FCA thematic review and was prior to receiving the FCA redress calculator. This assumption change is the main reason for the increase in the provision compared to 2016.
SLIH and all its subsidiaries AAM and all its subsidiaries excluding
(b) Market risk As described in the table on page 216, 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.
The participating business has interests in pooled investment funds of £808m (2016: £970m).
1 The amounts in the table above are presented net of tax. 2 A positive number represents a credit to the consolidated income statement. 3 The interest rate sensitivity is a parallel shift subject to a floor of -30bps.
The Other segment’s equity sensitivity to a 1% increase in interest rates is (£15m) (2016: (£17m)) and to a 1% decrease in interest rates is £15m (2016: £17m). The sensitivity of the Group’s total equity to a 1% increase in interest rates is (£31m) (2016: (£39m)) and a 1% decrease in interest rates is £33m (2016: £57m).
Cash and cash equivalents Total £m £m £m £m £m £m £m £m £m £m £m £m £m £m £m £m
1 Government, provincial and municipal includes debt securities which are issued by or explicitly guaranteed by the national government. 2 This balance primarily consists of securities held in supranationals.
Unit linked funds Non-participating insurance contract liabilities 6,443 650 354 120 98 129 – 7,794 Non-participating investment contract liabilities 11,911 32,806 26,883 16,181 9,343 8,641 – 105,765 year years years years
(f) Operational risk The Group defines operational risk as the risk of loss, or adverse consequences for the Group’s business, resulting from inadequate or failed internal processes, people or systems, or from external events.
Other financial liabilities, provisions and other liabilities (897) 1,209 Deposits received from reinsurers (460) (41) Pension and other post-retirement benefit provisions (33) (19) Deferred income (41) (46) Insurance contract liabilities (1,090) 1,393 Investment contract liabilities 1,853 9,051 Change in liability for third party interest in consolidated funds 480 1,379 Liabilities held for sale 104 – Change in operating liabilities (84) 12,926
(d) Movement in non-controlling interests – ordinary shares and third party interest in consolidated funds arising from financing activities The following table reconciles the movement in non-controlling interests and third party interests in consolidated funds in the year, split between cash and non-cash items.
Not later than one year 56 32 Later than one year and no later than five years 137 70 Later than five years 104 102 Total operating lease commitments 297 204
Share price at grant date 354p 367p 355p and 411p 429p Fair value at grant date 354p 367p 355p and 411p1 67p Exercise price Nil Nil Nil 333p-345p
Share options granted under long-term incentive plans 19 25 Share options granted under Sharesave 1 2 Share options and share awards granted under short-term incentive plans 18 2 Matching shares granted under share incentive plans 1 1 Equity-settled share-based payments 39 30 Cash-settled share-based payments 1 2 Cash-settled deferred fund awards 10 – Total expense 50 32
The Group had balances due from associates accounted for using the equity method of £nil (2016: £nil) and from joint ventures of £nil (2016: £3m) at 31 December 2017. The Group’s defined benefit pension plans have assets of £1,210m (2016: £1,028m) invested in investment vehicles managed by the Group.
The liquidity and capital management policy forms one aspect of the Group’s overall management framework. Most notably, it operates alongside and complements the strategic investment policy and the Group risk policies. Integrating policies in this way enables the Group to have a capital management framework that robustly links the process of capital allocation, value creation and risk management.
Restriction on SLAL own funds recognised at Group (0.8) – (0.8)
Standard Life (London) Limited3 Ordinary Shares 100% Standard Life (Mauritius Holdings) 2006 Limited8 Ordinary Shares 100% Standard Life Employee Services Limited2 Ordinary Shares 100% Standard Life Finance Limited2 Ordinary Shares 100% Standard Life Foundation2 N/A 100% Standard Life Investments (Holdings) Limited Ordinary Shares 100% Standard Life Oversea Holdings Limited2 Ordinary Shares 100% Threesixty Support LLP9 Limited Liability Partnership 100% Vebnet (Holdings) Limited3 Ordinary Shares 100%
Name of related undertaking Share class1 % interest held Aberdeen Global Infrastructure GP Limited40 Ordinary shares 100% Aberdeen Global Services SA39 Ordinary shares 100% Aberdeen GP 1 LLP4 Limited Liability Partnership 100% Aberdeen GP 2 LLP4 Limited Liability Partnership 100% Aberdeen GP 3 LLP4 Limited Liability Partnership 100% Aberdeen Indonesia Balanced Growth Fund41 Unit trust 78% Aberdeen Indonesia Government Bond Fund41 Unit trust 39% Aberdeen Indonesia Money Market Fund41 Unit trust 60% Aberdeen Infrastructure Feeder GP Limited4 Ordinary shares 100% Aberdeen Infrastructure Finance GP Limited40 Ordinary shares 100% Aberdeen Infrastructure GP II Limited5 Ordinary shares 100% Aberdeen Infrastructure Spain Co-Invest II GP Limited40 Ordinary shares 100% Aberdeen International Fund Managers Limited42 Ordinary shares 100% Aberdeen International Securities Investment Consulting Company Limited43 Ordinary shares 100% Aberdeen Investment Company Limited4 Ordinary shares 100% Aberdeen Investment Solutions Limited 4 Ordinary shares 100% Aberdeen Investments Euro Limited5 Ordinary shares 100% Aberdeen Investments Jersey Limited44 Ordinary shares 100% Aberdeen Investments Limited5 Ordinary shares 100% Aberdeen Investments USD Limited5 Ordinary shares 100% Aberdeen Islamic Asia Pacific ex-Japan Equity Fund45 Unit trust 30% Aberdeen Islamic Asset Management SDN BHD26 Ordinary shares 100% Aberdeen Islamic Malaysia Equity Fund45 Unit trust 94% Aberdeen Japanese Equities Fund36 OEIC 84% Aberdeen Korea Co., Ltd46 Ordinary shares 100% Aberdeen Nominees Services Limited42 Ordinary shares 100% Aberdeen Pension Trustees Limited4 Ordinary shares 100% Aberdeen Private Equity Advisers Limited22 Ordinary shares 100% Aberdeen Private Equity Managers Limited22 Ordinary shares 100% Aberdeen Private Wealth Management Limited44 Ordinary shares 100% Aberdeen Property Asset Managers Limited22 Ordinary shares 100% Aberdeen Property Fund Limited Partner Oy19 Ordinary shares 100% Aberdeen Property Fund Management (Jersey) Limited47 Ordinary shares 100% Aberdeen Property Fund Management AB28 Ordinary shares 100% Aberdeen Property Fund Management Estonia Ou48 Ordinary shares 100% Aberdeen Property Investors (General Partner) S.a.r.l.49 Ordinary shares 100% Aberdeen Property Investors Estonia Ou48 Ordinary shares 100% Aberdeen Property Investors France SAS37 Ordinary shares 100% Aberdeen Property Investors Limited Partner Oy19 Ordinary shares 100% Aberdeen Property Investors Sweden AB28 Ordinary shares 100% Aberdeen Property Investors The Netherlands BV50 Ordinary shares 100% Aberdeen Property Managers Limited22 Ordinary shares 100% Aberdeen Real Estate Investors Operations (UK) Limited22 Ordinary shares 100% Aberdeen Real Estate Operations Limited4 Ordinary shares 100% Aberdeen Residential JV Feeder Limited Partner Oy19 Ordinary shares 100% Aberdeen Secondaries II GP S.a.r.l.39 Ordinary shares 100% Aberdeen SP 2013 A/S17 Ordinary shares 100% Aberdeen Standard Asset Management Limited2 Ordinary shares 100% Aberdeen Standard Group Limited2 Ordinary shares 100% Aberdeen Standard Investment Management Limited2 Ordinary shares 100% Aberdeen Standard Investments (Japan) Limited51 Ordinary shares 100% Aberdeen Standard Investments Limited2 Ordinary shares 100% Aberdeen Standard Investments Taiwan Limited43 Ordinary shares 100% Aberdeen Standard Life Asset Management Limited2 Ordinary shares 100% Aberdeen Standard Life Group Limited2 Ordinary shares 100% Aberdeen Standard Life Investments Limited2 Ordinary shares 100% Aberdeen Standard Life Investments Limited2 Ordinary Shares 100% Aberdeen Standard Life Limited2 Ordinary shares 100%
Standard Life Investments Global SICAV Absolute Return Global Bond Strategies Fund88 SICAV 70% Standard Life Investments Global SICAV Asian Equities Fund88 SICAV 22% Standard Life Investments Global SICAV China Equities Fund88 SICAV 71% Standard Life Investments Global SICAV Emerging Market Corporate Bond Fund88 SICAV 88% Standard Life Investments Global SICAV Emerging Market Local Currency Debt Fund88 SICAV 80% Standard Life Investments Global SICAV Enhanced Diversification Global Emerging Markets Equities Fund88
Dubai, 114603, United Arab Emirates 67 Lodha Excelus, 14th Floor, Apollo Mills Compound, N.M. Joshi Marg,
Company statement of cash flows For the year ended 31 December 2017
The maturity profile of the contractual undiscounted cash flows in relation to derivative financial instruments is as follows: Within 1 year 2-5 years 6-10 years 11-15 years Total 2017 £m £m £m £m £m
(c) Credit risk The Company is exposed to credit risk from the risk of exposure to loss if a counterparty fails to perform its financial obligations, including failure to perform these obligations in a timely manner. Exposure also includes the risk of a reduction in the value of assets due to widening of credit spreads. Any loans to subsidiaries require approval from the Group’s Enterprise Risk Management Committee prior to being transacted.
Share of associates’ and joint ventures’ profit before tax 99 76 56 – – – 99 76 56
Total adjusting items (40) (269) (248) Tax on adjusting items 42 58 35 Singapore included in discontinued operations segment – – (42) Profit attributable to noncontrolling interests (preference shares and perpetual notes) (8) – – Profit for the year attributable to equity holders of Standard Life Aberdeen plc 699 368 276
Spread/risk margin 134 – – – – 134 Total adjusted operating income 1,785 1,007 28 – – 2,820
 Policyholder differences relate to policyholder’s items in the consolidated income statement. These have an equal and opposite impact on income and expenses in the consolidated income statement and are therefore not included in adjusted operating income and adjusted operating expenses.
Weighted average number of ordinary shares outstanding 2,943 2,945 2,343 1,972 Dilutive effect of share options and awards 29 24 17 6 Weighted average number of diluted ordinary shares outstanding 2,972 2,969 2,360 1,978
Standard Life Pensions and Savings growth 111.1 18.4 (10.3) 8.1 8.7 – 127.9
Executive committee Responsible for the day-to-day running of the business and comprises: Co-Chief Executives, Chief Financial Officer, Chief Investment Officer, Chief People Officer, Chief Executive – Pensions and Savings, Joint Head of Integration and Chief Operations Officer and Joint Head of Integration.
Reported and Pro forma results The merger of Standard Life plc and Aberdeen Asset Management PLC (Aberdeen) completed on 14 August 2017, with the merger accounted for as an acquisition of Aberdeen by Standard Life plc on that date. The Reported results reflect this accounting treatment. Pro forma results for the Group are prepared as if Standard Life Group and Aberdeen had always been merged and are included in these results to assist in explaining trends in financial performance by showing a full 12 months performance for the combined Group for both the current year and prior year. The difference between the Reported results and Pro forma results is the results of Aberdeen in the period prior to completion of the merger. A reconciliation between profitability on a Pro forma basis and the Reported basis is included on page 35.