Other information 12. Reports from the Committees of Standard Life Assurance Limited and the Standard Life Master Trust Co. Ltd. 246 13. Glossary 250 14. Shareholder information 254 15. Contact us IBC
Our simple business model is designed to help us generate value over the long term. We manage, administer and advise on assets for customers and clients and our businesses are focused on meeting their investment needs.
Our head office is in Edinburgh with key operations in London, Dublin and Frankfurt. We also have regional hubs in Boston and Hong Kong for asset management.
Our Institutional channel manages assets for a wide range of institutions, such as pension fund clients, government authorities, corporates, charities and insurance companies.
Our simple and consistent business model has been the foundation for our success for over a decade now and this continues to serve us well. However, to meet our ambitions we need to increase the pace of change and delivery in the business over the next year.
Elevate Our acquisition of Elevate helps us create one of the largest and fastest growing adviser platform businesses in the UK – with combined assets under administration of over £40bn, and supporting over 3,000 adviser businesses.
“We are committed to bringing out the best in our people and enabling them to reach their potential.” Sandy Begbie, Chief People Officer
Spread/risk margin Spread/risk margin, which mainly relates to income earned on annuities, decreased by £11m to £134m. 2016 includes a £22m benefit from an acceleration of payments from our main with profits fund relating to changes to the Scheme of Demutualisation in response to the transition to Solvency II. This was more than offset by a £26m reduction due to a number of other components including mortality experience in 2016 and new business profits. Although we had expected fewer asset and liability opportunities to exist in the low yield environment, we took advantage of a number of periods of market volatility to deliver a benefit of £25m (2015: £30m).
See p115, p141 and p142 for further details on operating profit and reconciliation of operating profit to IFRS profit
Operating profit before tax increased by £58m to £723m, driven by higher fee revenue in our growth channels. Capital management increased by £12m to £21m largely due to the benefit of a higher pension scheme surplus. Our share of profit from associates and JVs continued to grow with strong performance from HDFC Life and HDFC Asset Management in India and further progress from Heng An Standard Life in China.
Short-term fluctuations in investment return and economic assumption changes 8 (63) Restructuring and corporate transaction expenses (67) (115) Impairment of intangible assets (19) (7) Provision for annuity sales practices (175) Other operating profit adjustments (21) (72) Non-operating loss before tax (274) (257) 1 After tax attributable to equity holders of Standard Life plc. For further details on our IFRS
We continue to maintain a strong liquidity position and this was again shown in internal stress testing undertaken during 2016.
Business performance Our reportable segments have been identified in accordance with the way that we are structured and managed. In 2015 discontinued operations for segmental reporting purposes related to our Canadian business which was sold on 30 January 2015 and our Singapore business, the closure of which was announced in June 2015.
By channel: Institutional1 – record gross inflows Our Institutional business saw record gross flows of £15.6bn during 2016 (2015: £11.1bn). Redemptions also increased to £14.5bn (2015: £7.8bn) resulting in net inflows of £1.1bn (2015: £3.3bn). The quality and breadth of our offering is demonstrated through net inflows into private equity, real estate and multi-asset.
Operating expenses UK operating expenses increased by £32m to £487m, impacted by the continued drive to scale our business. The growth of 1825 and acquisition of Elevate incurred operating expenses of £21m. The cost/income ratio rose to 62% (2015: 59%) which also included the impact of lower spread/risk margin in 2016. Excluding the acquisition of Elevate and the growth of 1825 the cost/income ratio would have been 60%.
ORSA process The ORSA is the set of processes that underpin our ERM framework. The purpose of the ORSA is to inform and develop:  Our understanding of the current and potential risks to the business over the product lifecycles. This includes both financial and nonfinancial risks including environmental, social and governance (ESG) risks and their potential to affect both the long and short-term value of the business.
While we see the level of regulatory change risk increasing, we remain well placed to deal with significant developments on the horizon including the Markets in Financial Instruments Directive II, Packaged Retail and Insurance-based Investment Products, European Union General Data Protection Reform and the likely introduction of a pension dashboard.
 We maintain strong and open relationships with our regulators and engage early with areas of potential regulatory change
 Our Chief Strategy Officer has responsibility to further develop our strategy
As we transition to a world-class investment company we must ensure that we effectively manage any conflicts of interest across different parts of our business to support fair outcomes for customers. This includes embedding our robust conduct risk framework into any newly acquired businesses.
 We continuously invest in modernising our IT infrastructure via internal change programmes
Our rigorous stress and scenario testing programme during 2016 once again confirmed we have a resilient capital position which means we are well prepared for whatever market conditions we face in the future.
Our forward-looking assessment, given the current uncertainty affecting financial markets, is for credit risk to remain stable but at an elevated level.
Our sustainability strategy and approach During 2016 we engaged directly with our customers, investors and employees to review our strategy and ensure we continue to focus on the right areas. We asked these stakeholders to provide their views on what is important to them across our four sustainability priorities.
Volunteering We have strong links with our local communities and support our people to volunteer and make a difference through our #getinvolved initiative. Our volunteering policy gives our people the opportunity to take three paid days leave a year. Our people donated 1,529 days for volunteering work in 2016 (2015: 661 days), significantly exceeding our target of 1,000 days. In 2017 we are aiming to donate more time and have increased our target again to 2,000 days.
Working communities In 2016 we received accreditation from the UK Government as one of only 11 UK Social Mobility Champions based on our work to break down barriers to employment.
2 Talent pipeline includes graduates and members of the Emerging Leaders Development Support (ELDS) and Accelerated Development Support (ADS) programmes.
In November 2016, we again ran our employee survey. The responses gave us a clear update on how our people feel about a range of topics. Our vision, social responsibility, and risk culture were our top three scoring themes. Our overall employee engagement score has increased, however, our enablement score – how well employee skills are utilised and working environments facilitate productivity – has decreased. Specifically, the question on understanding of strategic direction decreased, so this is a focus for us in 2017.
We provide support and expertise to enable people to manage their money and save for their future.
Committee memberships: �  Audit (c)  Nomination and Governance  Risk and Capital
 �Make market purchases of the Company’s ordinary shares up to a maximum of 197,001,046 or 10% of its issued ordinary shares
Credit Facility – under a £400m revolving credit facility between the Company and the banks and financial institutions named therein as lenders (Lender) dated 22 May 2015 (the Facility), in the event that (i) any persons or group of persons acting in concert, gain control of the Company or (ii) Standard Life Assurance Limited ceases to be a member of the Group, then any Lender may elect within a prescribed time frame to cancel its outstanding commitment under the Facility and declare its participation in all outstanding loans, together with accrued interest and all amounts accrued immediately due and payable, whereupon the commitment of that Lender under the Facility will be cancelled and all such outstanding amounts will become immediately due and payable.
India – under a shareholders' agreement dated 10 June 2003 (as amended) between Standard Life Investments Limited and HDFC, pursuant to which the relevant Group company holds its interest in HDFC Asset Management Company Limited (HDFC AMC), upon a change in the ownership structure of Standard Life Investments Limited that results in the acquisition by a third party, either directly or indirectly, of more than 20% of the issued, subscribed and paid-up capital of Standard Life Investments Limited, HDFC will have 90 days from the date upon which Standard Life Investments Limited notifies it in writing of the occurrence of such a change to purchase the relevant Group company’s shares in HDFC AMC for a price determined in accordance with an agreed pricing formula.
Dear Shareholder It is my pleasure to introduce the 2016 Corporate governance statement and Nomination and Governance Committee report, in line with my responsibility to ensure effective corporate governance throughout the Group. Your Board adheres to the highest standards of corporate governance and ethical behaviour in directing the Group’s affairs and in its accountability to you as shareholders. As Directors, we believe these commitments are key to understanding and managing our business effectively, providing engaged leadership, and delivering shareholder value over the longer term. Your Board takes the quality of its performance seriously and strives to improve performance through annual reviews and continuing self-assessment. As well as our key activities to oversee the composition of the Board and its effectiveness, during 2016 we:  Reviewed and revised the composition of the boards of our principal subsidiaries, Standard Life Assurance Limited (SLAL) and Standard Life Investments (Holdings) Limited (SLIH)
Managers Regime (SIMR) requirements  �Reviewed executive succession and talent  Reviewed subsidiaries’ committees’ terms of reference
Throughout 2016, the Company complied with all of the provisions set out in the Code issued by the Financial Reporting Council (FRC) in September 2014, which is available at www.frc.org.uk
The Group’s Code of Conduct guides our people to do the right thing and complements the Board Charter. It sets out our standards of conduct and governing principles for operational excellence, compliance responsibilities, customer service, our people, and other stakeholders.
Board composition, balance and diversity The Board’s policy is to appoint and retain non-executive Directors who bring relevant expertise as well as a wide perspective to the Group and its decision-making framework. The Directors believe that at least half of the Board should be made up of independent non-executive Directors. As at 24 February 2017, the Board comprises the Chairman, seven independent non-executive Directors and four executive Directors. The Board is made up of nine men (75%) and three women (25%) (2015: men 69%, women 31%). The Board continues to support its Board Diversity statement which states that the Board:  �Believes in equal opportunities and supports the principle that due regard should be had for the benefits of diversity, including gender, when undertaking a search for candidates, both executive and nonexecutive
Sir Gerry Grimstone was Chairman of the Board throughout the year. He has retained his non-executive positions with Barclays PLC, where he serves as deputy chairman and senior independent director, Deloitte LLP and the UK Government’s Ministry of Defence. He is also an adviser to the board of the Abu Dhabi Commercial Bank.
 How he informs the Board of stakeholders’ views  His relationship with both executive and non-executive Directors
Kevin Parry, Chairman 8/8 Noel Harwerth 8/8 Lynne Peacock 8/8 Martin Pike 8/8
The Board believes members have the necessary range of financial, risk, control and commercial expertise required to provide effective challenge to management. Kevin Parry is a former senior audit partner, was chief financial officer of Schroders plc and is an experienced audit committee chairman. For the business of the Committee, he is considered by the Board to have competence in accounting and auditing as well as recent and relevant financial experience.
 �Fulfilled its duties under its terms of reference, and kept its terms of reference up-to-date, recognising that in 2017 its regulatory reporting duties would continue to cover Solvency II
 Completion of the 2015 external audit for all audited entities
 �Our Annual report and accounts goes through an extensive internal verification process of all content to verify accuracy
 �Financial information system design  �Appraisal or valuation services where the results would be material to the financial statements  �Internal audit co-sourcing  �Actuarial calculations  �Management functions  �Legal services  �Forensic audit services  �Temporary or permanent services as a director, officer or employee or performance of any decision-making, supervisory or monitoring function
The final proposals submitted were compliant with the minimum requirements set and the bids qualified and were assessed against the selection criteria. The Steering Committee reviewed each of the proposals and sought additional clarifications from the audit firms through a structured Q&A.
 �Combined stresses – looking at simultaneous stresses to a combination of financial and demographic risks
Due to the timing of production of this year’s annual report by the With Profits Committee on the management of SLAL’s with profits business, it was considered that the Board was better placed to perform a timely review of the report. As a result this Committee was not required to review the report this year.
During the year the Committee received a dedicated training and challenge session on the Internal Capital Adequacy Assessment Process (ICAAP) for SLIH. This supported the Committee in discharging their responsibility to review the key assumptions and bases underlying the SLIH ICAAP document submitted to the FCA. The Committee also reviewed the ICAAP document for Standard Life Savings Limited during the year.
Before finalising its decisions the Committee reviewed the overall remuneration for our executive Directors considering our shareholder experience over the performance periods, the underlying performance of the company and the remuneration decisions for the broader employee workforce. We believe that the remuneration for our executive Directors is appropriate considering these factors. The single remuneration figure for our executive Directors is presented in the ‘at a glance’ section below, with the full breakdown set out in Section 5.3 of this report.
Operation Executive Directors can participate in the all-employee share plans operated by Standard Life on the same basis as all other employees. The two current all-employee share plans are:  �The Standard Life (Employee) Share Plan  �The Standard Life Sharesave Plan
 The maximum level of bonus and long-term incentive awards which may be awarded to a new executive Director (excluding the Chief Executive, Standard Life Investments) at or shortly following recruitment shall be limited to 475% of salary. The maximum level for the Chief Executive, Standard Life Investments will be 865% of salary. These limits exclude buyout awards and are in line with the policy table approved by shareholders.
Any payment in lieu of notice will be up to 12 months’ salary, pension contributions and the value of other contractual benefits.
In all plans, the Remuneration Committee retains the discretion to dis-apply time pro-rating for good leavers and, in the case of the Group LTIP and Executive LTIP, performance pro-rating.
Keith Skeoch £175,000 Luke Savage £152,969 Paul Matthews £157,500 Colin Clark £150,000
The target and maximum bonus award opportunities (expressed as a percentage of base salary at 31 December 2016) that could be earned in respect of 2016 Group performance were: Target Maximum opportunity
The scorecard is based on a scale of 1 to 5 with 5 reflecting maximum, 3 on target and 1 unsatisfactory performance.
Colin Clark  Focus on emerging needs of our Institutional, Wholesale, Retail and
Performance measures Drive customer focus within the organisation and build advocacy for the Standard Life brand.
Cumulative Group operating profit before tax for the three years ended 31 December 20161 £1,795m £1,930m £2,145m Actual performance and vesting outcome (70% weighting) £1,967m 58.60% Cumulative Group net flows for the three years ended 31 December 20161 £15.5bn £20.6bn £24.3bn Actual performance and vesting outcome (30% weighting) £3.2bn 0% 1 Including our life associate HDFC Life and our life joint venture Heng An Standard Life from
 �Shares currently held which were obtained from the exercise of awards and which contributed to satisfying the previous shareholding guidelines
Bonus awards - deferred shares These awards are the deferred share elements of the 2013, 2014 and 2015 bonus awards. The value of the bonus deferred into share awards is reported within the annual bonus figures shown in the Directors’ remuneration for the year for which the bonus is payable. All awards lapse six months after the expected first date of exercise and carry the right to receive rolled-up dividends, but only to the extent awards vest.
Bonus The executive Directors will participate in the Group annual bonus plan. Target and maximum award opportunities are: Target opportunity as a % of salary
Related party transactions All transactions between Directors and the Group are on commercial terms that are equivalent to those available to all employees. During the year to 31 December 2016, the Directors (including close family members) contributed £1,408,546 (2015: £3,283,620) to products sold by the Group.
Note 32. Non-controlling interests and third party interest in consolidated funds 159
 Overall Group materiality: £34.0 million which represents approximately 5% of operating profit before tax
Annuitant mortality assumptions are those related to the life expectancy of annuitants and the rate at which expectancy is likely to increase. These assumptions are driven by past experience and assumptions about future changes which are based on the Group’s experience, together with industry standard data tables.
We determined that the assumptions used in the valuation of the remaining intangible assets were appropriate to the current circumstances and plans of the Group, and were within a reasonable range.
We determined that the impairment charge recognised in the financial statements for the institutional intangible asset appropriately reflected the changes in assumptions during the year.
Refer to page 69 (Audit Committee report), page 122 (Critical accounting estimates and judgements), pages 174 to 175 and 204 to 205 (Accounting policies and notes)
 The section of the Annual Report on pages 67 to 74, as required by provision C.3.8 of the Code, describing the work of the Audit Committee does not appropriately address matters communicated by us to the Audit Committee
Earnings per share Basic (pence per share) 13 18.7 69.4 Diluted (pence per share) 13 18.6 69.1
Total tax expense attributable to equity holders’ profits (68) (77) (20) (97) Profit for the year 419 338 1,147 1,485 1 UK and Europe has been renamed as Pensions and Savings. 2 Singapore business, the closure of which was announced in June 2015 was included as a discontinued operation for segmental reporting purposes under IFRS 8 as this is reflective of the presentation of information provided to the Chief Operating Decision Maker. This was previously included in the Asia and Emerging Markets segment which has been renamed India and China. Under IFRS 5, Singapore does not constitute a discontinued operation and was included under continuing operations in the consolidated income statement. Therefore the pro forma reconciliation above includes the reclassification of Singapore results between discontinued and continuing operations.
The Group’s insurance and investment contracts are held by the regulated entities within each reportable segment. Each regulated entity operates various funds and how the business is held within these funds is outlined below by reportable segment.
(b)(ii) Pensions and Savings – Insurance and investment contracts issued before demutualisation and related reinsurance contracts HWPF participating contract allocations of regular and final bonuses This section firstly describes the method used by the Group to determine the regular and final bonuses allocated to participating contracts held in the HWPF. It then describes the significant types of insurance and investment contracts held in that fund, the nature of any guarantees provided and significant reinsurance contracts.
In addition to interest expense from continuing operations of £5m (2015: £12m), interest expense of £82m (2015: £83m) was incurred in respect of subordinated liabilities and £31m (2015: £34m) in respect of deposits from reinsurers. For the year ended 31 December 2016, total interest expense from continuing operations is £118m (2015: £129m).
The table below reconciles restructuring and corporate transaction expenses from continuing operations to restructuring and corporate transaction expenses used to determine operating profit from continuing operations.
Certain Group entities are party to claims and proceedings to recover tax suffered in respect of overseas income. These claims and proceedings predominantly relate to assets in policyholder funds, primarily SLAL’s HWPF. There is significant uncertainty on the outcome of these claims and they are not expected to materially impact profit for the year attributable to equity holders or total equity.
Details of share options and awards which have a dilutive effect are provided in Note 47.
During the year ended 31 December 2015, in addition to the dividend distribution on ordinary shares, the Group returned 73 pence per ordinary share (£1,749m) to shareholders through a ‘B/C’ share scheme as discussed in Note 28.
The Group also recognises as intangible assets software which has been developed internally and other purchased technology which is used in managing and executing our business. Costs to develop software internally are capitalised after the research phase and when it has been established that the project is technically feasible and the Group has both the intention and ability to use the completed asset.
Summarised financial information of joint venture: Revenue 254 194 Profit after tax 15 8 Other comprehensive income/(expense) (15) 3 Total assets 1,212 963 Total liabilities 1,035 807 Net assets 177 156 Interest held 50% 50% Current share of net assets 88 78 Carrying value of joint venture 88 78 Dividends received - -
Depreciation charge for the year 7 - (14) (14) Disposals and adjustments1 - 9 9 1 For the year ended 31 December 2016 £4m (2015: £nil) of disposals and adjustments relates to equipment with net book value of £nil which is no longer in use. 2 The impairment losses reversed in respect of owner occupied property for the year ended 31 December 2015 arose due to changes in the market value of a number of properties relative to their original deemed cost.
Greater than 20 years Total 2016 £m £m £m £m £m £m £m
Cash at bank and in hand 753 824 Money at call, term deposits and debt instruments with less than three months to maturity from acquisition 7,185 8,816 Cash and cash equivalents 7,938 9,640
Included in non-controlling interests of £297m (2015: £347m) are non-controlling interests of Standard Life European Private Equity Trust plc (SLEPET), which was renamed Standard Life Private Equity Trust plc on 1 February 2017, of £251m (2015: £210m) which is considered material to the Group. Non-controlling interests own 45% (2015: 46%) of the voting rights of SLEPET. The profit allocated to non-controlling interests of SLEPET for the year ended 31 December 2016 is £49m (2015: £31m). Dividends paid to non-controlling interests of SLEPET during the year ended 31 December 2016 were £4m (2015: £5m).
Reportable segment Participating insurance contracts Non-participating insurance contracts Participating investment contracts Non-participating investment contracts
Some participating contract liabilities arise under contracts issued by a non-participating fund with a with profits investment element then transferred to a with profits fund within SLAL that fell within the scope of the PRA’s realistic capital regime. The with profits investment element of such contracts is measured as described above. In particular the expected future cash flows included in the FPRL reflect the transfer of charges to the non-participating fund only to the extent that solvency of the with profit fund on the realistic basis is maintained. Any liability for insurance features retained in the non-participating fund is measured using the gross premium method applicable to non-participating contracts (see policy (v)).
8. Group financial statements continued 34. Non-participating investment contracts Unit linked non-participating investment contracts are separated into two components being an investment management services component and a financial liability. All fees and related administrative expenses are deemed to be associated with the investment management services component (refer to Note 5, Note 17 and Note 38). The financial liability component is designated at FVTPL as it is implicitly managed on a fair value basis as its value is directly linked to the market value of the underlying portfolio of assets.
Remeasurement gains/(losses) recognised in other comprehensive income 340 (73) 267 (100) 167
Defined benefit plans also use pooled investment vehicles to access a variety of asset classes in an efficient way. The underlying assets of the pooled investment vehicles include, but are not limited to, cash, equity securities, property, debt securities and absolute return portfolios.
Consumer Price Index (CPI) 2.25 2.15 Retail Price Index (RPI) 3.25 3.15
On 14 October 2016, the Financial Conduct Authority (FCA) published the findings of its thematic review of non-advised annuity sales practices. Standard Life has been a participant in that review. The FCA looked at whether firms provided sufficient information to their customers about their potential eligibility for enhanced annuities.
Percentage changed by +/-4.5 (e.g. 43.5% increased to 48%) +/- £11m
Percentage of eligible customers that did not receive sufficient information from Standard Life about enhanced annuities Percentage changed by +/-5 +/- £9m Lost income per annum for an average annuity purchase of £25,000 +/- £60 +/- £43m Costs per case of conducting the review +/- 20% of the cost per case +/- £7m
Standard Life Investments SLIH and all its subsidiaries n/a n/a India and China SLA (excluding unit linked funds)
Interests in Indian and Chinese associates and joint ventures n/a SLA unit linked funds
SLAL = Standard Life Assurance Limited SLIH = Standard Life Investments (Holdings) Limited SL Intl = Standard Life International Designated Activity Company SLA = Standard Life (Asia) Limited SLS = Standard Life Savings Limited (including Elevate) SLCM = Standard Life Client Management Limited
(b)(i)(i) Group exposure to equity risk The Group is exposed to the risk of adverse equity market movements which could result in losses. This applies to daily changes in the market values and returns on the holdings in its equity securities portfolio. The Group’s shareholders are exposed to the following sources of equity risk:  Direct equity shareholdings in the shareholder business and the Group’s defined benefit pension plans  Burnthrough from the with profits funds where adverse movements in the market values and returns on holdings in the equity portfolios of these funds mean the assets of the with profits funds are not sufficient to meet their obligations  The indirect impact from changes in the value of equities held in funds from which management charges are taken
Shareholder business Participating business Total £m £m £m £m £m £m
(b)(i)(iv) Group exposure to foreign currency risk The Group’s financial assets are generally held in the local currency of its operational geographic locations, principally to assist with the matching of liabilities. However, foreign currency risk arises where adverse movements in currency exchange rates impact the value of revenues received from, and the value of assets and liabilities held in, currencies other than the local currency. The Group can be exposed to foreign currency risk through the need to meet the expectations of particular groups of policyholders or to improve the Group’s risk profile through diversification. The Group manages this risk through the use of limits on the amount of foreign currency risk that is permitted.
The analysis that follows presents the undiscounted cash flows payable by remaining contractual maturity at the reporting date for all financial liabilities, including non-participating investment contract liabilities. Given that policyholders can usually choose to surrender, in part or in full, their unit linked contracts at any time, the non-participating investment contract unit linked liabilities of Pensions and Savings life and pensions business presented in the table below have been designated as payable within one year. Such surrenders would be matched in practice, if necessary, by sales of underlying assets. The Group can delay settling liabilities to unit linked policyholders to ensure fairness between those remaining in the fund and those leaving the fund. The length of any such delay is dependent on the underlying financial assets. In this analysis, the maturity within one year includes liabilities that are repayable on demand.
Refer to Note 23 for the maturity profile of undiscounted cash flows of derivative financial instruments.
Contingent consideration liabilities have also been recognised in respect of acquisitions made during the year. The valuations are based on unobservable assumptions regarding expected movements in assets under advice and therefore the liabilities are classified as level 3 in the fair value hierarchy.
Equity securities and interests in pooled investment vehicles 58 52 27 17 85 69 78 61 - - 7 8
Equity securities and interests in pooled investment vehicles 7,319 7,133 - - 7,319 7,133 7,050 6,859 - - 269 274 1 Third party interest in consolidated funds and non-controlling interests.
Assets Loans secured by mortgages 22 73 87 86 84 - - 86 84 - -
(d) Disposal of subsidiaries There were no operations disposed of in the year ended 31 December 2016. The following table sets out the cash inflows from the disposal of the Canadian business in 2015.
Investment property 1,343 Loans 2,235 Equity securities and interests in pooled investment funds 12,415 Debt securities 11,206 Other assets of operations disposed of excluding cash and cash equivalents 1,354 Non-participating insurance contract liabilities (9,455) Non-participating investment contract liabilities (15,195) Other liabilities of operations disposed of (2,702) Net assets disposed of 1,201
Weighted average remaining contractual life of options outstanding (years) 2.21 1.35 1.43 2.66 2.18 1.96 1.31 2.34
Share options granted under long-term incentive plans 25 29 Share options granted under Sharesave 2 1 Share options granted under short-term incentive plan 2 2 Matching shares granted under share incentive plans 1 1 Expense from continuing operations 30 33 Expense from discontinued operations - 1
The summary of compensation of key management personnel is as follows: £m £m
This regulatory framework can be summarised as follows for the main regulated entities in the Group: Entity level Contribution to Group SII position
Standard Life Investments Limited BIPRU1 BIPRU1 Standard Life Assurance Limited (SLAL) SII internal model SII internal model Standard Life International DAC SII standard formula SII standard formula Standard Life plc - SII internal model Standard Life (Asia) Limited Local regime (Hong Kong) SII standard formula Heng An Standard Life Insurance Company Limited Local regime (China) SII standard formula HDFC Standard Life Insurance Company Limited Local regime (India) Excluded 1 Prudential Sourcebook for Banks, Building Societies and Investment Firms.
The particulars of the Company’s related undertakings at 31 December 2016 are listed below. For details of the Group’s consolidation policy refer to (b) Basis of consolidation in the Presentation of consolidated financial statements section.
PLC Poland 20 Sp z.o.o.15 Ordinary Shares 60% PLC Poland 25 Sp z.o.o.15 Ordinary Shares 60% PLC Poland 34 Sp z.o.o.15 Ordinary Shares 60% Property Corporate Director 1 Limited11 Ordinary Shares 100% Property Corporate Director 2 Limited11 Ordinary Shares 100% Ravensbourne Retail Park Limited11 Ordinary Shares 100% Retail Park HANÁ a.s.16 Ordinary Shares 60% Retail Park Ostrava a.s. 16 Ordinary Shares 60% Rock Rail East Anglia (Holdings) 1 Limited32 Ordinary Shares 35% Rock Rail East Anglia (Holdings) 2 Limited32 Ordinary Shares 35% Rock Rail East Anglia plc32 Ordinary Shares 35% Rock Rail Moorgate (Holdings) Limited32 Ordinary Shares 35% Rock Rail Moorgate plc32 Ordinary Shares 35% Scottish Mutual Investment Managers Limited Ordinary Shares 100% Scottish Mutual PEP and ISA Managers Limited3 Ordinary Shares 100% Seabury Assets Fund plc
What an audit of financial statements involves We conducted our audit in accordance with ISAs (UK & Ireland). An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of:  Whether the accounting policies are appropriate to the company’s circumstances and have been consistently applied and adequately disclosed
Assets Investments in subsidiaries A 4,769 4,591 Investments in associates and joint ventures B 134 150 Loans to subsidiaries C 323 322 Debt securities C 605 743 Receivables and other financial assets C 54 48 Other assets F 8 19 Cash and cash equivalents C 55 61 Total assets 5,948 5,934
Further information on the merger reserve and special reserve is given in Note 31 of the Group financial statements.
Movements in deferred tax liabilities comprise: At 1 January (1) (1) Amounts credited to net profit 1 Amounts charged to other comprehensive income (3) -
The following table provides information regarding the market risk exposure to debt securities of the Company at 31 December 2016 and 31 December 2015, showing diversification by geographic region.
Geography UK Europe Other Total £m £m £m £m £m £m £m £m 232 Standard Life 2016
R. Contingent liabilities, contingent assets, indemnities and guarantees (a) Legal proceedings and regulations The Company, like other financial organisations, is subject to legal proceedings and complaints in the normal course of its business. All such material matters are periodically reassessed, with the assistance of external professional advisers where appropriate, to determine the likelihood of the Company incurring a liability. Where it is concluded that it is more likely than not that a material outflow will be made a provision is established based on management’s best estimate of the amount that will be payable. In some cases it will not be possible to form a view, for example because the facts are unclear or because further time is needed to properly investigate, and no provisions are held for such matters. It is not possible to predict with certainty the extent and timing of the financial impact of legal proceedings, complaints and related regulatory matters.
Underlying performance Underlying performance is calculated as operating profit before tax after excluding the impact of spread/risk operating actuarial assumption changes and specific management actions in the reporting period. It therefore removes certain volatile items from operating profit and supports an understanding of the underlying operating performance of the business.
(b) Current tax on underlying performance Current tax on underlying performance excludes tax on non-operating and underlying adjustments, excludes current tax attributable to policyholders, and excludes deferred tax charges/credits.
(c) Deferred acquisition costs (DAC)/ Deferred income reserve (DIR) adjustment The DAC/DIR non-cash adjustment adds back existing business DAC/DIR amortisation included in underlying performance for the period and deducts the equivalent new business DAC/DIR additions for the period. The following table reconciles DAC/DIR movements in the Group financial statements to the DAC/DIR adjustment.
Depreciation of equipment 20 14 16 Amortisation of intangible assets 16 64 51 Amortisation of intangible assets acquired through business combinations (non-operating) 16 (19) (20) Additions of equipment1 20 (9) (7) Additions of intangible assets 16 (89) (64) Additions of intangible assets acquired through business combinations (not amortised through operating profit) 16 28 6 Fixed and intangible assets adjustment (11) (18) 1 Excludes equipment acquired through business combinations.
EBITDA margin EBITDA margin is a measure reported by Standard Life Investments and is commonly used by asset management businesses to measure profit in relation to revenue. It is calculated as EBITDA divided by fee based revenue.
Third party strategic partner life business 39.6 1.2 (3.9) (2.7) 6.9 43.8
Closing AUM at 31 Dec 2016 £bn £bn £bn £bn £bn £bn
Assets under administration Fee based 163.1 127.6 0.5 - (17.9) 273.3
Rene Poisson Chairman, Independent Governance Committee of Standard Life Assurance Limited
The Chairman is responsible for the production of an annual report, the first of which was published on 29 March 2016. The report and information on the committee’s composition can be found at the following website www.standardlife.co.uk/igc
The annual report can be found at the following website www.standardlife.co.uk/igc 248 Standard Life 2016
Heritage With Profits Fund (HWPF) The Heritage With Profits Fund contains all business – both with profits and non-profit – written before demutualisation in the UK, Irish or German branches, with the exception of the classes of business which the Scheme of Demutualisation allocated to funds outside the HWPF. The HWPF also contains increments to this business.