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We do it to make a difference to the lives of our clients, customers, employees and shareholders. We have a commitment to excellence in everything that we do – drawing on the innovation and global collaboration of our talented people.
We strive to make a positive long-term impact. As well as delivering for clients, this means creating an inclusive culture for our people and contributing to wider society. We operate ethically, encourage good practices among the companies we invest in, and support our local communities.
There is no denying that it will be challenging, particularly in the short term, considering the current economic and geopolitical landscapes. A continuous eye on improving what we do and how we do it, always putting the customer first, will, I believe, keep us on the path to success.
Our financial performance undoubtedly reflects challenging market conditions and the impact of outflows and there is work to be done to address this. This is set against the backdrop of fundamental change for Standard Life Aberdeen.
At 31 December 2018, the AUM was c£100bn and no assets have currently been withdrawn. SLA has informed LBG that it does not agree that, following the merger of Aberdeen Asset Management PLC and Standard Life plc, SLA was in material competition in the UK with LBG and that, therefore, SLA does not consider that LBG, Scottish Widows or their respective affiliates has the right to terminate the IMAs. The parties have been engaged in an arbitration process since last year.
Our focus is on what we do best – understanding and meeting the investment needs of our clients and customers, wherever they are in the world.
As our business has transformed, our strategy has evolved. Our strategic objectives set out on the following page reflect the new shape of our business and our priorities for the future. We have simplified our operations, helping to optimise and modernise our business structure for future success. Our business model as set out on page 11 remains relevant following these changes.
We ensure that we have the appropriate level of capital to support and protect our operations while continuing to focus on growing our business. We balance investing for business growth with continuing to pay dividends to shareholders.
2018 highlights • New fund launches and bolt-on acquisitions to meet client needs and accelerate our US presence in specialist areas, including private markets, closed-ended funds and exchange-traded funds
In the UK, with changes to pension policy and provision, many more people are choosing to remain invested throughout retirement, leading to a greater demand for financial advice. In response we’ve launched the next generation of model portfolio management technology on the Wrap platform – Professional Portfolio Manager. This innovative offering has greater digital and automated capabilities and gives advisers an efficient, scalable and risk controlled operating model. In less than six months since launch, businesses advising on c£3.5bn of assets have chosen to adopt the new functionality.
Real estate Our approach to real estate is global, but implemented locally
ESG at the heart of everything we do We believe that positive investment outcomes can be aligned with positive outcomes for society and the environment. We integrate, review and research ESG considerations throughout the investment process. We see this as an important way of protecting our clients’ investments and believe it really adds to the value we offer to them. It’s about analysing the key issues for each asset class and using that analysis to make better-informed investment decisions for our clients. In 2018, we announced our involvement as joint lead partner and founder of The Big Exchange, part of The Big Issue Group’s social investment arm. The Exchange is a platform providing investors with access to funds that meet ethical investment criteria.
How we engage We operate in a way that allows us to stay close to our clients and actively seek feedback to inform ongoing improvements. We create meaningful partnerships to understand how their requirements evolve. We have a large global distribution team, and they significantly increased engagement with clients in 2018 across the full sales process.
Our annual general meetings alternate between London and Edinburgh to allow more shareholders to attend and enable us to gather shareholders’ views while giving them the opportunity to hear directly from our Chairman and Board.
The strength of the US economy allowed the Federal Reserve to continue monetary tightening. Japan and Europe continued quantitative easing and kept rates on hold, while China first tightened and then relaxed its restrictions on bank lending in response to faster or slower growth. The US Dollar strengthened against most other major currencies in 2018. Falling unemployment and periodically higher oil prices gave rise to inflation concerns. Volatility, meanwhile reappeared, with two particularly sharp episodes in early February and late December, reaching levels not seen since the financial crisis.
Global ex-US equity Global government bonds US equity 24 Standard Life Aberdeen 2018
Market volatility and uncertainty will be with us for some time, which will result in changing client demands. Clients are looking for simple and transparent products with clear outcomes that will meet their investment needs, and we’re seeing a continued demand for active investment solutions – particularly ‘new active’ solutions, which focus on achieving specific outcomes to meet specific client needs.
Our business has transformed in line with our vision. Our strategic objectives now reflect the new shape of our business and our priorities for the future.
• Enhance profile of our flagship brands (Aberdeen Standard Investments and Standard Life) and our profile as an ESG leader
We have strengthened oversight and governance of our progress against these areas of focus at a senior level. We are also working to improve the quality of the demographic-based information we gather from our employees.
Equities 11.8 14.2 (17.6) (10.2) Fixed income 6.0 8.6 (2.8) (3.1) Multi-asset 9.3 13.9 (15.7) (6.9) Private markets 1.1 1.1 (1.3) (0.3) Alternatives 0.8 0.8 (0.4) (0.5) Real estate 3.8 3.6 (0.2) (1.0) Quantitative 0.2 0.2 (0.1) (0.5) Cash/Liquidity 7.4 6.4 (1.3) (1.7) Institutional/Wholesale2 40.4 48.8 (39.4) (24.2) Strategic insurance partners
Our Wrap and Elevate retail platforms had net inflows of £4.2bn representing 8% of opening assets, although down on the record net inflows of £7.0bn in 2017. The benefit from the boost in the pensions market from individuals looking to take advantage of high defined benefit transfer values has declined over 2018. However, these transfers continue to provide a significant source of inflows into our platform products which provide the flexibility offered by drawdown and pensions freedom. The need for financial advice continues to increase as the savings industry becomes more complex and people take on more responsibility for their life savings.
The average fee revenue yield (excluding performance fees) for asset management (excluding strategic insurance partners) decreased to 48.1bps (2017: 51.1bps), reflecting the change in product mix driven by net outflows from higher margin equity and multi-asset funds. Within private markets, 2017 revenue included a non-recurring benefit of £7m from deferred income recognised.
Impairment of associates of £228m relates to our investment in Phoenix. In accordance with IAS 28 requirements the Phoenix carrying value is the market value of this investment on 31 December 2018. Under IAS 28, the additional strategic value of our relationship with Phoenix is not taken into account in the impairment assessment. The Phoenix share price has recovered strongly since the year end and we will reverse this impairment to reflect any such improvement at the end of subsequent accounting periods.
We aim to ensure that: • Our decision-making is attentive to both risk and reward in pursuit of our business plan objectives and strong client outcomes • Our responsibilities to clients and customers are prioritised • Capital is appropriately rewarded for the risks that are taken
Three lines of defence We operate ‘three lines of defence’ in the management of risk so that there are clearly defined roles and responsibilities within our Enterprise Risk Management (ERM) framework: • First line: Day-to-day risk management, including identification and mitigation of risks and maintaining appropriate controls, is delegated from the Board to the Co-Chief Executives and, through a system of delegated authorities and limits, to business managers
• We operate a number of controls covering anti-money laundering, anti-bribery, fraud and other areas of financial crime and monitor them closely
Risk appetite statement: The Company is undergoing a significant transformation programme that requires our staff and processes to adapt quickly. We will not undertake change initiatives that do not meet the criteria for delivering these strategic objectives and/or regulatory requirements to the Company. We have no appetite for material wastage in time, scope, cost or quality of deliverables. Our change portfolio will be governed to predict and overcome change barriers in preparation for change implementation.
Basis of preparation Overview Our Strategic report for the year to 31 December 2018 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 revised voluntary best practice principles of the Guidance on the Strategic report issued by the Financial Reporting Council in July 2018. We have also considered the European Securities and Markets Authority (ESMA) guidelines on alternative performance measures issued in October 2015.
2 Simon Troughton – Deputy Chairman and Senior Independent Director NG 4 Martin Gilbert – Co-Chief Executive
Appointed Director on 4 July 2016, John is also a non-executive director of Credit Suisse International, Credit Suisse Securities (Europe) Limited, Citco Custody Limited and Citco Custody (UK) Limited. From 2008-2010, John was chief operating officer of Threadneedle Asset Management Limited. Prior to joining Threadneedle, John held a number of senior positions at Merrill Lynch in London and New York.
The Committee’s work in 2018 An indicative breakdown as to how the Committee spent its time is shown below:  Reviewed compliance with the Corporate Governance Code
 Significant external communications  Terms of reference of Board Committees  Appointments to the Board and to Board Committees  Matters escalated from subsidiary boards to the Board for approval
The Board regularly reviews reports from the Co-Chief Executives and from the Chief Financial Officer on progress against approved strategies, plans and budgets, as well as updates on stock market and global economic conditions. There are also regular presentations from key business functional leaders and regional heads including from the Chief Risk Officer. The Chair reports at each Board meeting on the activities he has undertaken on behalf of the Board and the Group since the previous meeting.
Board changes during the period Appointments There were no executive Director appointments over the year. Cathleen Raffaeli was appointed as non-executive Director on 1 August 2018, and Sir Douglas Flint was appointed as a non-executive Director on 1 November 2018. Sir Douglas was subsequently appointed Chair on 1 January 2019. Heidrick and Struggles were engaged to support the appointment of Cathleen Raffaeli. Heidrick and Struggles have no other commercial relationships with the Group. MWM were engaged to support the Chair’s appointment. The Group has additionally used the services of MWM to support a recent senior management search for the Chief People Officer role.
The key conclusions and recommendations from the review included:  Strategy: create more space in the Board calendar to define and understand the strategic direction by using the Board Committees as efficiently as possible
 People: refresh the Board’s own line-up over time and oversee senior leadership, succession, diversity and inclusion and talent and development programmes
 Meetings with the Company Secretary on the Group’s corporate governance framework and the role of the Board and its Committees, and with the Chief Risk Officer on the risk management framework as well as meetings on their individual responsibilities both as Directors and as holders of a Controlled Function/Senior Management Function role
G o ver n an c e 59Standard Life Aberdeen 2018
Following on from the Sale, during the latter part of 2018, the Board revisited what it should be considering collectively and what it should be delegating to Board Committees. This discussion recognised the revised shape of the business after the Sale and its ongoing transformation into an investment management company.
The Board believes members have the necessary range of financial, risk, control and commercial expertise required to provide effective challenge to management. John Devine is a member of the Chartered Institute of Public Finance and Accountancy. 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.
 Annual report and accounts 2017  Strategic report and financial highlights 2017  Financial reporting judgements  External auditors’ review of full year results  Integration cost and synergies update  Liaison with the Remuneration Committee on targets and measures
We considered key assumptions determining the pension fund surplus: inflation (including the gap between the retail price index and the consumer price index), mortality and the discount rate. The assumptions were compared with market data and expert opinions. Further details are set out in Note 35 of the Group financial statements.
G o ver n an c e 65Standard Life Aberdeen 2018
 The Key Performance Indicators (KPIs) results for the period are consistent with the key messages outlined in the Strategic report
We agreed to recommend to the Board that the Annual report and accounts 2018, taken as a whole, is fair, balanced and can be understood by someone with a reasonably informed knowledge of financial statements and our industry.
The Group Finance function sets formal requirements for financial reporting which apply to the Group as a whole, defines the processes and detailed controls for the consolidation process and reviews and challenges reporting segment submissions. Further, the Group Finance function runs a technical review committee and is responsible for monitoring external technical developments.
The Committee Chair is the designated whistleblower’s champion and the Committee receives regular updates on the operation of the whistleblowing procedures from the Global Head of Conduct and Compliance. The anonymised reports include a summary of the incidents raised as whistleblowing, and information on developments of the arrangements in place, to ensure concerns can be raised in confidence about possible malpractice, wrongdoing and other matters.
 The assessment of the internal control environment across functions and regions, where SLA Internal Audit has responsibility. The internal control environment of material Joint Ventures and associates is not within the scope of this work.
We have discussed the accuracy of financial reporting (known as materiality) with KPMG both as regards accounting errors that will be brought to the Committee’s attention and as regards amounts that would need to be adjusted so that the financial statements give a true and fair view. Differences can arise for many reasons ranging from deliberate errors (fraud etc.) to good estimates that were made at a point in time that, with the benefit of more time, could have been more accurately measured. Overall audit materiality has been set at £32m (2017: £38m). This equates to approximately 4.8% of normalised profit before tax. This is within the range in which audit opinions are conventionally thought to be reliable. To manage the risk that aggregate uncorrected differences become material, we supported that audit testing would be performed to a lower materiality threshold for individual reporting units. Further, KPMG agreed to draw the Committee’s attention to all identified uncorrected misstatements greater than £1.6 million (2017: £2m). The aggregated net uncorrected misstatements were approximately £20m which was less than audit materiality. The gross differences were attributable to various individual components of the consolidated income statement and balance sheet. No audit difference was material to any line item in either the income statement or the balance sheet. Accordingly, the Committee did not require any adjustment to be made to the financial statements as a result of the audit differences reported by the External auditors.
Cathleen Raffaeli was appointed to the Committee on 1 January 2019. The Committee meetings are attended by the Chief Risk Officer. Others invited to attend on a regular basis include the Chair, the Co-Chief Executives, the Chief Financial Officer, the Chief Investment Officer and the Chief Internal Auditor as well as the External auditors.
 The due diligence and key risks associated with the planned acquisition of ETF Securities (US) LLC and its US affiliates
 The Aberdeen Standard Investments ICAAP report  Results from the 2018 stress and scenario testing programme  The remit and resources of the investment risk oversight function  The potential impacts of a disorderly Brexit and plans to mitigate the risks arising from this  Progress in the management of IT obsolescence risk  The management of conflicts of interest in Aberdeen
Governance arrangements The Committee has continued to rely on the work of those risk committees comprising non-executives operating in subsidiary companies to provide oversight and challenge of risks within those subsidiaries. The Committee receives updates and minutes from these committees in order to maintain awareness and oversight of risks across the Group. The Committee also reviews the terms of reference for these committees in order to ensure their remit is suitably aligned.
Talent Attracting, retaining and developing talent is a key strategic objective for the organisation. We remain committed to investing in the recruitment and development of early careers talent. Over the past 12 months, we have hired a total of 146 individuals on to early careers programmes across Standard Life Aberdeen. This consists of our Graduate, Intern programme, and Edinburgh Guarantee populations across the UK, Europe, Asia and America.
Over the year ahead we plan actions based on the themes that emerged, and we will continue to measure engagement, mood and culture across the Group.
Workforce Engagement Recognising the 2018 Corporate Governance Code provision on workforce engagement, the Nomination and Governance Committee discussed the three possible options and agreed that it would be appropriate to propose a designated non-executive director to support this. After discussion with the Committee, Melanie Gee has accepted this proposal and the following parameters have been identified for her engagement role:  Meet regularly with the employee representative forums  Meet collectively with the representatives of the employee networks  Meet with the Regional Heads to discuss local initiatives on employee engagement in the regions  Meet with the Transformation team to discuss how workforce engagement is built into the various work streams  Meet with the Talent and Leadership team to discuss how they are taking forward employee engagement matters, including those arising from the Viewpoint survey
 A variable pay award based on a pre-determined balanced scorecard of measures that will reward achievement of key financial milestones across our global business over the long term (up to six years). This includes flows.
 Introduced innovation panel and idea sharing platforms to embed an innovative culture across the Group. Review of working practices is underway to support transformation objectives.
 The outcome is calculated at the end of each financial year in the three-year underpin period (2019-2021), with the average of the three years’ results to be at or above 55% of AUM by value to be outperforming benchmark
Cost/income ratio 25%  The underpin approved target of 66.0% is based on averaging the three annual cost-income ratios for the three year period 2019-2021 from the 2019 budget increased by the % midpoint of the range between Threshold and Target applied in the 2019 EIP.
2016 Standard Life Investments LTIP award vesting in respect of performance ending in 2018 (audited) Under the Standard Life Investments LTIP, awards are only capable of vesting if Aberdeen Standard Investments’ investment performance (three-year money-weighted average) is above the lower quartile of the money-weighted average of all assets under management (both captive and third party assets) compared to other asset managers.
4 For non-executive Directors, individual fees are constructed by taking a base fee and adding extra fees for being the senior independent Director or, the chairman of, or member of, committees and subsidiaries’ boards where a greater responsibility and time commitment is required.
Richard Mully (Chairman) 12/12 John Devine 12/12 Gerhard Fusenig 9/12 Kevin Parry 12/12 Cathleen Raffaeli 4/4 Jutta af Rosenborg 11/12
External advisers During the year, the Committee took advice from Deloitte LLP (a member of the Remuneration Consultants Group) who were appointed by the Committee in 2017. The Committee is satisfied that the advice given is objective and independent.
Shareholder voting We remain committed to ongoing shareholder dialogue and take an active interest in voting outcomes. Where there are substantial votes against resolutions in relation to Directors’ remuneration, the Committee seek to understand the reasons for any such vote, and will detail here any actions in response to it.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the parent company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that its financial statements comply with the Companies Act 2006. They are responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities.
2. Key audit matters: including our assessment of risks of material misstatement Key audit matters are those matters that, in our professional judgment, were of most significance in the audit of the financial statements and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by us, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. We summarise below the key audit matters, in arriving at our audit opinion above, together with our key audit procedures to address those matters and, as required for public interest entities, our results from those procedures. These matters were addressed, and our results are based on procedures undertaken, in the context of, and solely for the purpose of, our audit of the financial statements as a whole, and in forming our opinion thereon, and consequently are incidental to that opinion, and we do not provide a separate opinion on these matters.
In addition, we are required to consider the other information presented in the Annual Report including the principal risks disclosure and the viability statement and to consider the directors’ statement that the annual report and financial statements taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group’s position and performance, business model and strategy.
Benchmarking assumptions and industry experience: For key inputs we compared and benchmarked the assumptions used, such as the cost of capital, to externally derived data. We also used our knowledge of industry practice to challenge the Group’s assumptions in these areas.
Our responsibility is to conclude on the appropriateness of the Directors’ conclusions and, had there been a material uncertainty related to going concern, to make reference to that in this audit report. However, as we cannot predict all future events or conditions and as subsequent events may result in outcomes that are inconsistent with judgements that were reasonable at the time they were made, the absence of reference to a material uncertainty in this auditor's report is not a guarantee that the Group and the Company will continue in operation.
Corporate governance disclosures We are required to report to you if: • We have identified material inconsistencies between the knowledge we acquired during our financial statements audit and the directors' statement that they consider that the annual report and financial statements taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group's position and performance, business model and strategy
Expenses Insurance contract claims and change in liabilities 31 1 201 Change in non-participating investment contract liabilities 32 (78) 74 Administrative expenses
Equity attributable to equity holders of Standard Life Aberdeen plc 7,438 8,604 Non-controlling interests
Profit for the year from continuing operations – – – 402 – 402 – 8 410 Profit for the year from discontinued operations – – – 297 – 297 25 – 322 Other comprehensive income for the year from continuing operations – – – (24) (50) (74) – – (74) Other comprehensive income for the year from discontinued operations – – – – 12 12 – – 12 Total comprehensive income for the year 28, 29 – – – 675 (38) 637 25 8 670
The standard requires the incremental cost of obtaining contracts with customers to be recognised as an asset where it is expected that these costs will be recovered. These costs have been included as an intangible asset and are shown in Note 14.
The amendments address the consequences of the different effective dates of IFRS 9 and the new insurance contracts standard, IFRS 17. Insurers are permitted to defer implementation of IFRS 9 until periods beginning on or after 1 January 2021 (which is expected to be amended to 1 January 2022) if they satisfy criteria regarding the predominance of their insurance activities, or to apply an overlay approach to remove incremental volatility from the income statement. At 31 December 2015 the Group’s liabilities arising from contracts within the scope of IFRS 4 and liabilities connected with insurance as a percentage of total liabilities were 32% and in excess of 96% respectively: 31/12/2015 £m
The Group has adopted IFRS 16 on 1 January 2019, and will use the cumulative catch up approach. The Group intends to use the ‘practical expedients’ available to apply the new standard solely to leases previously identified in accordance with IAS 17 and IFRIC 4 Determining whether an Arrangement Contains a Lease, to not recognise leases with a low value or whose term ends within 12 months of the date of initial application (1 January 2019), to apply a single discount rate to leases with similar characteristics and the use of IAS 37 Provisions, Contingent Liabilities and Contingent Assets relating to onerous leases.
Goodwill 7 1 The fair value of the earn-out payment of £8m has been calculated by reference to revenue retention and increases in assets under management and could range from £nil to £10m.
Share of associates’ and joint ventures’ profit before tax1 46 140 186 – – 186
The movement in the Cost of obtaining customer contracts is primarily due to investment management contracts obtained via a number of asset purchases in the year.
In 2018 unrecognised tax losses from previous years were used to reduce the current tax expense by £4m (2017: £3m). Unrecognised tax losses and timing differences were used to reduce the deferred tax expense by £nil (2017: £3m).
Items that may be reclassified subsequently to profit or loss: Exchange differences on translating foreign operations 3 (1) Change in unallocated divisible surplus (5) 12 Total items that may be reclassified subsequently to profit or loss (2) 11 Items that were transferred to profit or loss on disposal of subsidiaries: Release of foreign currency translation reserve (43) – Total items that were transferred to profit or loss on disposal of subsidiaries (43) – Other comprehensive income for the period from discontinued operations (43) 12
Share of associates’ and joint ventures’ tax expense (43) – (43) (41) – (41)
 Phoenix recognise charges on unit linked business based on expected investment returns, whereas wholly owned insurance entities use actual investment returns.
The Group also recognises the cost of obtaining customer contracts (see Note 4) as an intangible asset. For the cost of obtaining customer contracts, the intangible asset is amortised on the same basis as the transfer to the customer of the services to which the intangible asset relates.
Estimates and assumptions The key estimates and assumptions in relation to intangible assets are:  Determination of the recoverable amount of goodwill and customer intangibles  Determination of useful lives
In relation to customer relationships acquired in business combinations, the most significant judgements relate to assumptions for the openended intangible assets acquired through the acquisition of Aberdeen. The following table shows the consequence of downside sensitivities of key assumptions to the carrying amounts at 31 December 2018: Open-ended £m 20% increase in net attrition (16) 10% one-off decrease in AUM at 1 January 2019 (14) Operating margin percentage decreased by 2.5% (19) Discount rate percentage increased by 2% (8)
Estimates and assumptions At 31 December 2018 the market value of the Group’s interest in Phoenix was £812m which was significantly below the carrying value. We considered this to be an indicator of impairment and therefore an impairment review was performed. A key area of estimation was determining the recoverable amount of Phoenix on a value in use basis for the purpose of assessing impairment. Given that the fair value was significantly below the carrying value, we considered that under IAS 28 the market value of Phoenix represented the best estimate of the present value of future dividends and therefore this market value of £812m was used as the value in use. As the value in use was based on the market value, a discount rate was not determined. An impairment loss of £243m has been recognised of which £15m arose at acquisition and has been offset against the bargain purchase gain. This has resulted in a difference between the Group’s share of net assets of Phoenix and the carrying value at 31 December 2018.
Financial assets with contractual cash flows that are solely payments of principal and interest (SPPI) excluding those held for trading or managed on a fair value basis1 5,662 Financial assets other than those above2 7,596 Total 13,258 1 Financial assets that are SPPI (excluding those held for trading or managed on a fair value basis) are predominantly AAA debt instruments including central and state government securities. Their carrying value at 31 December 2018 is £5,642m. Securities with fair value and carrying value of £10m are rated below BBB. 2 The change in fair value in the year to 31 December 2018 for financial assets that are SPPI (excluding those held for trading or managed on a fair value basis) is a gain of £385m. The change in fair value for all other financial assets is a gain of £116m.
On 6 August 2018, HDFC AMC listed on the National Stock Exchange of India Limited and the Bombay Stock Exchange Limited following completion of an IPO. Refer Note 1 for further details. As a result of the planned IPO, a portion of the equity share capital of the associate was classified as held for sale as at 31 December 2017. Refer Note 24 for further details.
Receivables and other financial assets 22 6 – – – 1,236 1,242 Cash and cash equivalents 25 – – – – 10,226 10,226
Cash outflows Derivative financial assets (18,731) (27) (21) (15) – – (18,794)
Cash at bank and in hand 669 1,559 Money at call, term deposits and debt instruments with less than three months to maturity from acquisition 471 8,667 Cash and cash equivalents 1,140 10,226
8. Group financial statements continued 28. Retained earnings The following table shows movements in retained earnings during the year. The movements are aggregated for both continuing and discontinued operations.
The 2017 transfer for vested employee share-based payments included £32m in relation to replacement awards granted to employees of Aberdeen which vested before the acquisition date and were recognised directly in retained earnings on acquisition.
Statement of financial position: Total assets 600 Total liabilities 1 Income statement: Revenue 89 Profit after tax 81 Total comprehensive income 81 Cash flows: Cash flows from operating activities 2 Cash flows from investing activities 1 Cash flows from financing activities (15) Net (decrease)/increase in cash equivalents (12)
(e) Movement in components of unallocated divisible surplus (UDS) The movement in UDS was as follows: £m £m
Not applicable 2.915% over the five-year Treasury rate (and at each fifth anniversary)
Return on plan assets, excluding amounts included in interest income – (253) (253) – (253) Loss from change in financial assumptions 224 – 224 – 224
Creation of units awaiting settlement 168 205 Cash collateral held in respect of derivative contracts 39 21 1,501
(a) Provisions The movement in provisions during the year is as follows: Provision for annuity sales practices Legal provisions Other provisions Total provisions 2018 £m £m £m £m
Provision for annuity sales practices Legal provisions Other provisions Total provisions 2017 £m £m £m £m
Included in other provisions is a provision of £80m (2017: £nil) for separation costs expected to be incurred following the sale of the UK and European insurance business to Phoenix (the Sale). Refer Note 1 and Note 8 for further details. We announced in the Sale Circular on 30 May 2018 that we expected to incur one-off costs relating to the separation of the business sold of approximately £250m, and there has been no change to this estimate. Costs of £53m were incurred in the period to 31 December 2018. Our judgement is that a provision should be recognised for costs for which the Group will not derive ongoing benefits such as those relating to the de-coupling and decommissioning of systems and data but that a provision should not be recognised for costs related to the development of replacement systems and services as these will give future benefits. The costs covered by the provision are expected to be incurred in the three years to 2021.
(b) Other liabilities The amount of other liabilities expected to be settled after more than 12 months is £2m (2017: £nil).
The risk of regulatory or legal sanction, reputational damage or financial consequences as a result of a failure to comply with, or adequately allow for changes in, all applicable laws and legislation, contractual requirements or regulations in any of the countries in which the Group operates.
Prior to the sale of the UK and European insurance business the Group also had a participating business risk segment. Participating business referred to the assets and liabilities of the participating funds of SLAL.
Investments in associates and joint ventures accounted for using the equity method 1,444 503 – – – – – – 1,444 503
Liabilities of operations held for sale 51 59 – – 606 641 – 6 657 706
Operational risk exposures are controlled using one or a combination of the following: modifying operations to mitigate the exposure to the risk; accepting exposure to the risk; or accepting exposure to the risk and controlling the exposure by risk transfer or risk treatment. The factors on which the level of control and nature of the controls implemented are based include:  The potential cause and impact of the risk  The likelihood of the risk being realised in the absence of any controls  The ease with which the risk could be insured against  The cost of implementing controls to reduce the likelihood of the risk being realised  Operational risk appetite Risk Control Self Assessment (RCSA) is a monitoring activity where business managers assess the operation of the controls for which they are responsible and the adequacy of these controls to manage key operational risks and associated business processes. The assessment completed by business managers is validated and challenged on a risk basis by the Risk and Compliance function in its role of ‘second line of defence’. Independent assurance as to the effectiveness of the RCSA process is provided by Group Internal Audit in its role of ‘third line of defence’. The results of RCSA are reported through the risk governance structure.
(a) Determination of fair value hierarchy To provide further information on the approach used to determine and measure the fair value of certain assets and liabilities, the following fair value hierarchy categorisation has been used:  Level 1: Fair values measured using quoted prices (unadjusted) in active markets for identical assets or liabilities. An active market exists where transactions take place with sufficient frequency and volume to provide pricing information on an ongoing basis.
(f) Movement in subordinated liabilities The following table reconciles the movement in subordinated liabilities in the year, split between cash and non-cash items.
Other share plans (i) Annual bonus deferred share awards The Group operates the following deferred bonus plan which awards conditional shares.
The Group had balances due from associates accounted for using the equity method of £63m (2017: £nil), balances due to associates accounted for using the equity method of £19m (2017: £nil) and no balances due to or from joint ventures as at 31 December 2018 (2017: none). The Group’s defined benefit pension plans have assets of £1,132m (2017: £1,210m) invested in investment vehicles managed by the Group.
Pearson Jones Nominees Limited57 Ordinary shares 100% Phoenix Group Holdings plc6 Ordinary shares 20% PT Aberdeen Standard Investments Indonesia38 Limited Liability Company 99% PURetail Luxembourg Management Company S.a.r.l.18 Class A shares 50% Regent Property Partners (Retail Parks) Limited4 Ordinary shares 100% Reksa Dana Syariah Aberdeen Standard Syariah Asia Pacific Equity USD Fund38 Unit trust 21% Residential Zoning Club General Partner Oy13 Ordinary shares 100% Self Directed Holdings Ltd51 Ordinary A shares,
Zone 35 Bangkok City Tower, 28th Floor, 179 South Sathorn Road, Thungmahamek,
Barat Kav. E4.3 No. 1-2, 12950 Jakarta, Indonesia 39 21 Church Street, #01-01, Capital Square Two, 049480, Singapore 40 44 Chipman Hill, Suite 1000 POX Box 7283, Stn. "A" Saint John, N.B. E2L 4S6,
Other than in relation to IFRS 9, as discussed below, the principal accounting policies adopted are the same as those given in the consolidated financial statements, together with the Company specific policies set out below, and have been consistently applied to all financial reporting periods presented in these financial statements.
Where the terms of a financial liability are modified and the modification does not result in the derecognition of the liability, the liability is adjusted to the net present value of the future cash flows less transaction costs with a modification gain or loss recognised in the income statement.
Investment in associates measured at cost 822 10 Investment in joint venture measured at cost 196 124 Investments in associates and joint ventures 1,018 134
 Investment return variances and economic assumption changes in the Group’s insurance entities are excluded from adjusted profit. The Group’s UK and European insurance business was sold during the year and is classified as discontinued operations. The Group’s other wholly owned insurance business, SL Asia, is classified as held for sale. For annuities, all fluctuations in liabilities and the assets backing those liabilities due to market interest rate (including credit risk) movements over the period are excluded from adjusted profit. Removing these investment return variances and economic assumption changes is consistent with many of our insurance peers and aims to ensure that adjusted profit reflects a long-term view aligned to the maturity profile and economic matching of the corresponding assets and liabilities. In relation to certain subordinated liabilities this adjustment also excludes an accounting mismatch that arises where subordinated liabilities are measured at amortised cost and certain assets backing the liabilities are measured at fair value. Where associates and joint ventures have a policy for determining investment return variances and economic assumption changes, the Group uses the policy of the associate or joint venture for including their results in the Group’s adjusted profit. This currently applies only to the Group’s investment in Phoenix. The Phoenix policy is similar to that used by the wholly owned insurance entities. Details of the main differences are included in Note 12 of the Group financial statements.
Restructuring and corporate transaction expenses used to determine adjusted profit before tax in 2017 were £215m on a Pro forma basis compared to £173m on a Reported basis. The Pro forma basis in 2017 included merger related costs of £42m incurred by Aberdeen. The results for 2018 are the same on a Pro forma basis as on a Reported basis.
Net flows represent gross inflows less gross outflows or redemptions. Gross inflows are new funds from clients and customers. Gross outflows or redemptions is the money withdrawn by clients or customers during the period.
Closing AUM at 31 Dec 2018 £bn £bn £bn £bn £bn £bn £bn
Standard Life Group Prior to demutualisation on 10 July 2006, The Standard Life Assurance Company 2006 and its subsidiaries and, from demutualisation on 10 July 2006 to 13 August 2017, Standard Life plc and its subsidiaries.
The KPIs that we use may not be directly comparable with similarly named measures used by other companies. See Supplementary information in Section 10 for further information.