Standard Life Aberdeen plc

Full Year Results 2018

Part 7 of 8

 

9. Company financial statements

Company statement of financial position

As at 31 December 2018

		2018	2017
	Notes	£m	£m
Assets
Investments in subsidiaries	A	6,467	9,425
Investments in associates and joint ventures	B	1,018	134
Deferred tax assets	N	22	-
Loans to subsidiaries	C	6	324
Derivative financial assets	C	13	-
Equity securities and interests in pooled investment funds	C	197	-
Debt securities	C	854	857
Receivables and other financial assets	C	57	76
Other assets	F	35	27
Cash and cash equivalents	C	17	7
Total assets		8,686	10,850
Equity
Share capital	G	353	364
Shares held by trusts	H	(88)	(36)
Share premium reserve	G	640	639
Retained earnings	I
Brought forward retained earnings		1,564	1,351
Profit for the year		461	624
Other movements in retained earnings		10	(411)
Total retained earnings		2,035	1,564
Other reserves	J	4,505	6,390
Total equity		7,445	8,921
Liabilities
Subordinated liabilities	L	1,086	1,876
Derivative financial liabilities	L	-	33
Other financial liabilities	L	69	19
Other liabilities	P	86	1
Total liabilities		1,241	1,929
Total equity and liabilities		8,686	10,850

The financial statements on pages 225 to 236 were approved by the Board and signed on its behalf, by the following Directors:

 

 

 

Sir Douglas Flint                                                                    Bill Rattray

Chairman                                                                                 Chief Financial Officer

13 March 2019                                                                        13 March 2019

 

The Notes on pages 228 to 236 are an integral part of these financial statements.

Company statement of changes in equity

For the year ended 31 December 2018

		Share capital	Shares held by trusts	Share premium reserve	Retained earnings	Other reserves	Total shareholders' equity	Non shareholders' equity	Total equity
2018	Notes	£m	£m	£m	£m	£m	£m	£m	£m
31 December 2017		364	(36)	639	1,564	6,390	8,921	-	8,921
Effect of change in accounting policy to IFRS 9		-	-	-	-	(15)	(15)	-	(15)
1 January 2018		364	(36)	639	1,564	6,375	8,906	-	8,906
Profit for the year		-	-	-	461	-	461	28	489
Other comprehensive income for the year		-	-	-	-	11	11	-	11
Total comprehensive income for the year		-	-	-	461	11	472	28	500
Issue of share capital	G	-	-	1	-	-	1	-	1
Issue of 'B' shares	G	1,000	-	-	-	(1,000)	-	-	-
Reclassification of perpetual debt instruments to equity	K	-	-	-	-	-	-	1,005	1,005
Repurchase of perpetual debt instruments	K	-	-	-	-	-	-	(970)	(970)
Redemption of perpetual debt instruments	K	-	-	-	-	-	-	(44)	(44)
Dividends paid on ordinary shares		-	-	-	(634)	-	(634)	-	(634)
Coupons paid on perpetual debt instruments		-	-	-	-	-	-	(25)	(25)
Redemption of 'B' shares	G	(1,000)	9	-	(1,002)	1,000	(993)	-	(993)
Shares bought back on-market and cancelled	G	(11)	-	-	(238)	11	(238)	-	(238)
Reserves credit for employee share-based payment	J	-	-	-	-	36	36	-	36
Transfer to retained earnings for vested employee share-based payment	J	-	-	-	68	(68)	-	-	-
Transfer between reserves on disposal of investment in subsidiaries	J	-	-	-	1,290	(1,290)	-	-	-
Transfer between reserves on impairment of investment in subsidiaries	J	-	-	-	570	(570)	-	-	-
Shares acquired by employee trusts		-	(101)	-	-	-	(101)	-	(101)
Shares distributed by employee and other trusts and related dividend equivalents		-	40	-	(44)	-	(4)	-	(4)
Aggregate tax effect of items recognised directly in equity		-	-	-	-	-	-	6	6
31 December		353	(88)	640	2,035	4,505	7,445	-	7,445

 

The Notes on pages 228 to 236 are an integral part of these financial statements.

		Share capital	Shares held by trusts	Share premium reserve	Retained earnings	Other reserves	Total equity
2017	Notes	£m	£m	£m	£m	£m	£m
1 January		242	(2)	634	1,351	2,393	4,618
Profit for the year		-	-	-	624	-	624
Other comprehensive income for the year		-	-	-	-	(17)	(17)
Total comprehensive income for the year		-	-	-	624	(17)	607
Issue of share capital	G	122	-	5	-	3,972	4,099
Dividends paid on ordinary shares		-	-	-	(469)	-	(469)
Reserves credit for employee share-based payment schemes	J	-	-	-	-	96	96
Transfer to retained earnings for vested employee share-based payment schemes	J	-	-	-	86	(54)	32
Shares acquired by employee trusts		-	(63)	-	-	-	(63)
Shares distributed or sold by employee trusts		-	29	-	(28)	-	1
31 December		364	(36)	639	1,564	6,390	8,921

 

The Notes on pages 228 to 236 are an integral part of these financial statements.

Company accounting policies

(a)     Basis of preparation

These separate financial statements are presented as required by the Companies Act 2006. The Company meets the definition of a qualifying entity under Financial Reporting Standard 100 (FRS 100) issued by the Financial Reporting Council (FRC). In the year ended 31 December 2018 the Company has adopted Financial Reporting Standard 101 Reduced Disclosure Framework (FRS 101) as issued by the FRC and has transitioned from reporting under International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) as endorsed by the European Union (EU) to FRS 101. Accordingly, these financial statements were prepared in accordance with FRS 101 incorporating the Amendments to FRS 101 issued by the FRC up to March 2018. This transition to FRS 101 had no impact on measurement or recognition in the financial statements. The financial statements have been prepared on a going concern basis and under the historical cost convention, as modified by the revaluation of financial assets and financial liabilities (including derivative instruments) at fair value through profit or loss (FVTPL).

As permitted by FRS 101, the Company has taken advantage of the following disclosure exemptions available under that standard:

·  A cash flow statement and related notes

·  Capital management

·  Effect of IFRSs issued but not effective

·  Related party transactions with wholly owned subsidiaries

As equivalent disclosures are given in the consolidated financial statements, we have also applied the disclosure exemptions for share based payments and financial instruments.

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.

The Company has taken advantage of the exemption in section 408 of the Companies Act 2006 not to present its own income statement in these financial statements. The auditors' remuneration for audit and other services is disclosed in Note 5 to the consolidated financial statements. The Company has no employees.

(a)(i)       Standards, interpretations and amendments to existing standards that have been adopted by the Company

IFRS 9 Financial Instruments (effective for annual periods beginning on or after 1 January 2018)

On 1 January 2018 the company adopted IFRS 9 Financial Instruments: Recognition and Measurement. Financial assets are classified at initial recognition based on whether their contractual cash flows are solely payments of principal and interest (SPPI) and the nature of the business model they are managed under. This has resulted in the Company's equity securities and interests in pooled investment funds being classified as fair value through profit or loss (FVTPL) and the Company's debt securities, loans to subsidiaries, receivables and other financial assets and cash being measured at amortised cost except where they do not meet the SPPI test and are therefore classified as FVTPL. Derivative instruments are measured at fair value.

Financial liabilities are measured at amortised cost using the effective interest method unless they are derivatives or they are designated as FVTPL.

Changes in fair value of all financial instruments classified as FVTPL and derivative instruments are recognised in profit or loss except for derivative instruments that are designated as a hedging instrument in a cash flow hedge. Interest is credited to profit or loss using the effective interest rate method for financial instruments measured at amortised cost.

An expected credit loss impairment model is applied to financial assets measured at amortised cost. Impairment losses representing the expected credit loss in the next 12 months are recognised unless there has been a significant increase in credit risk from initial recognition in which case lifetime expected losses are recognised.

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.

The Company has elected to continue applying the hedge accounting requirements of IAS 39. Therefore the hedge accounting policy is the same as that given in the consolidated financial statements.

The main impact of adopting IFRS 9 is that the Company's debt securities previously classified as available-for-sale (AFS) and therefore measured at fair value are now measured at amortised cost. As permitted by IFRS 9 comparatives have not been restated.

At 31 December 2017 the fair value of AFS securities was £857m with a corresponding AFS financial assets reserve balance of £15m and deferred tax liability of £3m. On reclassification, the Company's debt securities were recognised at 1 January 2018 at their amortised cost (less expected credit losses) of £839m. The available-for-sale financial assets reserve balance and the related deferred tax liability were no longer recognised. The expected credit losses at 1 January 2018 were less than £1m.

 (a)(ii)     Investment in subsidiaries, associates and joint ventures

The Company has certain subsidiaries which are investment vehicles such as open-ended investment companies, unit trusts and limited partnerships whose primary function is to generate capital or income growth through holding investments. This category of subsidiary is held at FVTPL since they are managed on a fair value basis.

Investments in subsidiaries (other than those measured at FVTPL), associates (other than those measured at FVTPL) and joint ventures are initially recognised at cost and subsequently held at cost less any impairment charge. An impairment charge is recognised when the carrying amount of the investment exceeds its recoverable amount. Any gain or loss on disposal of a subsidiary, associate or joint venture is recognised in profit for the year.

Distributions received of non-cash assets, including investments in subsidiaries, are recognised at fair value in the balance sheet and as dividends in specie in the income statement.

(b)     Critical accounting estimates and judgement in applying accounting policies

The preparation of financial statements requires management to make estimates and assumptions and exercise judgements in applying the accounting policies that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses arising during the year. Estimates and judgements are continually evaluated and based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

The areas where judgements have the most significant effect on the amounts recognised in the financial statements are as follows:

Financial statement area	Critical accounting estimates and assumptions	Related notes
Investments in subsidiaries	Determining the cash-generating unit to be used in relation to the recoverable amount of investments in subsidiaries	Note A

The areas where assumptions and other sources of estimation uncertainty at the end of the reporting period have a significant risk of resulting in a material adjustment to the carrying amount of assets and liabilities within the next financial year are as follows:

Financial statement area	Critical accounting estimates and assumptions	Related notes
Investments in subsidiaries, associates and joint ventures held at cost	Determination of the recoverable amount	Note A and B

Notes to the Company financial statements

A.    Investments in subsidiaries         

		2018	2017
	Notes	£m	£m
Investments in subsidiaries measured at cost		6,249	9,092
Investments in subsidiaries measured at FVTPL	C	218	333
Investments in subsidiaries		6,467	9,425

 

		2018	2017
		£m	£m
At 1 January		9,425	4,769
Reclassified as operations held for sale during the year		(2,312)	-
Investment into existing subsidiaries measured at cost		167	413
Acquisition of subsidiaries at cost		5	4,243
Acquisition of subsidiaries at cost via in specie dividend		374	-
Disposal of subsidiaries measured at cost		(2)	(37)
Repayment of loan to subsidiaries classified as equity investment		(486)	-
Impairment of subsidiaries measured at cost		(589)	(20)
Acquisition of subsidiaries at FVTPL		90	55
Reclassification of subsidiaries at FVTPL to interests in pooled investment funds		(198)	-
(Losses)/gains on subsidiaries at FVTPL		(7)	2
At 31 December		6,467	9,425

Details of the Company's subsidiaries are given in Note 49 of the Group financial statements.

(a)    Operations held for sale

Following the Group's announcement of the proposed sale (the Sale) of the UK and European insurance business to Phoenix Group Holdings (Phoenix) on 23 February 2018, the Company's investments in Standard Life Assurance Limited (SLAL), excluding the loan to SLAL classified as an equity investment, and Vebnet (Holdings) Limited (Vebnet) were classified as held for sale and measured at their carrying amount.

On 9 August 2018, the Company transferred its investment in Vebnet of £27m to SLAL, which increased the carrying value of SLAL by the same amount.

The Sale completed on 31 August 2018.

(b)    Acquisitions

During 2018, the Company made the following acquisitions of subsidiaries measured at cost:

·  On 8 August 2018, Standard Life Savings Limited, 1825 Financial Planning Limited and Standard Life Client Management Limited were acquired via dividends in specie from SLAL and recognised at amounts of £320m, £50m and £4m respectively

·  On 11 May 2018 the Company increased its investment in Focus Solutions Group Limited through the purchase of 200,000,000 ordinary shares for a cash consideration of £20m

·  On 11 May 2018 the Company increased its investment in Standard Life Oversea Holdings Limited through the purchase of 1,750,000 ordinary shares for a cash consideration of £2m

·  On 18 May 2018 the Company increased its investment in Aberdeen Asset Management PLC (Aberdeen) through the purchase of 31,547,174 ordinary shares for a cash consideration of £101m

·  On 16 August 2018 the Company acquired control of The Standard Life Assurance Company 2006 for a cash consideration of £5m

·  On 15 October 2018 the Company increased its investment in 1825 Financial Planning Limited through the purchase of 23,000,000 ordinary shares for a cash consideration of £11m and the capitalisation of a loan of £12m

·  On 21 December 2018 the Company increased its investment in Standard Life Employee Services Limited through the purchase of 21,386 ordinary shares for the capitalisation of the intercompany receivable due from its subsidiary of £21m

During 2017, the Company made the following acquisitions of subsidiaries measured at cost:

·  On 14 August 2017 the Company acquired Aberdeen and was renamed Standard Life Aberdeen plc. The Company acquired 100% of the share capital of Aberdeen, and Aberdeen ordinary shareholders received 0.757 of a share in Standard Life Aberdeen plc on the completion date satisfied through newly issued shares. The cost of the investment in Aberdeen was £4,243m consisting of £4,098m based on the fair value of the equity consideration at the date of completion including £98m for shares issued to the Aberdeen Asset Management Employee Benefit Trust 2003, £89m for replacement employee share-based payments reflecting the fair value of the pre-acquisition service element of the awards and transaction costs of £56m. Further details are provided in Note 1 of the Group financial statements.

·  On 16 August 2017 the Company increased its investment in Standard Life Assurance Limited through the purchase of 13,000,000 ordinary shares for a cash consideration of £13m

·  On 13 December 2017 the Company increased its investment in Aberdeen through the purchase of 125,000,000 ordinary shares for cash consideration of £400m

See Section (e) below for details on investments in subsidiaries at FVTPL.

(c)    Disposals

During 2018, the Company made the following disposals of subsidiaries measured at cost:

·  On 30 August 2018, SLAL repaid a loan from the Company with the principal amount of £500m. This bond had been classified as an equity investment in SLAL and its repayment reduced the Company's investment in SLAL by £486m.

·  On 19 April 2018 the Company redeemed £2m of equity capital in Standard Life (Mauritius Holdings) 2006 Limited through the cancellation of 30,000 Participating shares

During 2017, the Company made the following disposals of subsidiaries measured at cost:

·  On 22 November 2017 the Company reduced its investment in Standard Life (Mauritius Holdings) 2006 Limited through the disposal of 494,589.5 participating shares for a cash consideration of £37m, as a result of a share capital reduction by Standard Life (Mauritius Holdings) 2006 Limited

(d)    Impairment

The company holds investments in Aberdeen and Standard Life Investments (Holdings) Limited (SLIH). As Aberdeen and SLIH are managed and reported together within the Asset management and platforms segment, and the synergies from the merger of these entities are expected to benefit both entities, we judge that it is appropriate to consider the recoverable amount of these entities on a combined basis. The Company impaired its investments in Aberdeen and SLIH by £570m (2017: £nil). The recoverable amount was £5,508m which was its value in use and was determined using a pre-tax discount rate of 11.1%. The impairments are as a result of a decrease in projected future revenues of the entities. Following the impairment loss recognised in the period, the recoverable amount was equal to the carrying amount. Therefore any adverse movement in a key assumption would lead to further impairment. The sensitivity of the carrying value of the investments in Aberdeen and SLIH to changes in key assumptions is the same as the sensitivity of Aberdeen Standard Investments goodwill to changes in key assumptions provided in Note 14 of the Group financial statements.

The Company's investment in its subsidiary Focus Solutions Group Limited (Focus) was impaired during 2018 by £19m (2017: £7m). The recoverable amount of Focus is £13m (2017: £11m) which is its value in use and has been determined using a discount rate of 12% (2017: 12%).

Additionally in 2017, an impairment of £13m was recognised in relation to the Company's investment in its subsidiary Standard Life Employee Services Limited. The recoverable amount was £30m which was its value in use and was determined using a discount rate of 9%.

(e)    Investments in subsidiaries at FVTPL

Investments in subsidiaries at FVTPL, valued at £218m (2017: £333m), relate to a holding in money market funds over which the Company has control. Holdings in two further funds were reclassified to equity securities and interests in pooled investment funds, following the sale of Standard Life Assurance Limited to Phoenix.

B.    Investments in associates and joint ventures

		2018	2017
		£m	£m
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

(a)     Investment in associates

Following the completion of the Sale in August 2018, as part of the total consideration, the Company was issued with new Phoenix shares representing 19.98% of the issued share capital of Phoenix, a company incorporated in England and Wales (refer Note 1 and Note 16 of the Group financial statements). The cost of this investment was considered to be the fair value of the shares issued at 31 August 2018.

The Company's investments in associates are measured at cost less impairment. An impairment of £211m was recognised in relation to the company's associate investment in Phoenix. The impairment resulted from the fall in the Phoenix share price between 31 August 2018 and 31 December 2018. The recoverable amount was £812m which is the fair value of the Company's interest in Phoenix at 31 December 2018.

The Company has an interest of 25.3% (2017: 25.3%) in Tenet Group Limited, a company incorporated in England and Wales. The year end date for Tenet Group Limited is 30 September which is different from the Company's year end date of 31 December. For the purposes of the preparation of the Company's financial statements, financial information for the year ended 31 December is used.

(b)     Investment in joint venture

The Company has a 50% (2017: 50%) interest in Heng An Standard Life Insurance Company Limited (HASL), a company incorporated in China. On 19 April 2018, the Company made a US$95m (£72m) capital contribution to HASL. Further details on this joint venture are provided in Note 16 of the Group financial statements.

C.    Financial investments

		Fair value through profit or loss	Derivative financial instruments used for hedging	Amortised cost	Total
2018	Notes	£m	£m	£m	£m
Investments in subsidiaries measured at FVTPL	A	218	-	-	218
Loans to subsidiaries		-	-	6	6
Derivative financial assets	D	-	13	-	13
Equity securities and interests in pooled investment funds		197	-	-	197
Debt securities		-	-	854	854
Receivables and other financial assets	E	8	-	49	57
Cash and cash equivalents		-	-	17	17
Total		423	13	926	1,362

 

		Designated as at fair value through profit or loss	Available -for-sale	Loans and receivables	Total
2017	Notes	£m	£m	£m	£m
Investments in subsidiaries measured at FVTPL	A	333	-	-	333
Loans to subsidiaries		-	-	324	324
Debt securities		-	857	-	857
Receivables and other financial assets	E	-	-	76	76
Cash and cash equivalents		-	-	7	7
Total		333	857	407	1,597

 

The amount of debt securities expected to be recovered or settled after more than 12 months is £270m (2017: £291m). The amount of loans to subsidiaries expected to be recovered or settled after more than 12 months is £6m (2017: £324m).

D.    Derivative financial instruments

The Company uses derivative financial instruments in order to reduce the risk from potential movements in foreign exchange rates.

	2018			2017
	Contract amount	Fair value assets	Fair value liabilities	Contract amount	Fair value assets	Fair value liabilities
	£m	£m	£m	£m	£m	£m
Cash flow hedges	589	13	-	559	-	(33)
Foreign exchange forwards	6	-	-	6	-	-
Derivative financial instruments	595	13	-	565	-	(33)

Derivative asset of £13m (2017: derivative liability of £33m) is expected to be settled after more than 12 months.

On 18 October 2017, the Company issued subordinated notes with a principal amount of US$750m. In order to manage the foreign exchange risk relating to the principal and coupons payable on these notes the Company entered into a cross-currency swap which is designated as a hedge of future cash flows.

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
2018	£m	£m	£m	£m	£m
Cash inflows
Cash flow hedges	25	88	714	-	827
Foreign exchange forwards	6	-	-	-	6
Total	31	88	714	-	833
Cash outflows
Cash flow hedges	(18)	(64)	(660)	-	(742)
Foreign exchange forwards	(6)	-	-	-	(6)
Total	(24)	(64)	(660)	-	(748)
Net derivative financial instruments cash flows	7	24	54	-	85

 

	Within 1 year	2-5 years	6-10 years	11-15 years	Total
2017	£m	£m	£m	£m	£m
Cash inflows
Cash flow hedges	28	94	118	566	806
Foreign exchange forwards	6	-	-	-	6
Total	34	94	118	566	812
Cash outflows
Cash flow hedges	(22)	(73)	(91)	(578)	(764)
Foreign exchange forwards	(6)	-	-	-	(6)
Total	(28)	(73)	(91)	(578)	(770)
Net derivative financial instruments cash flows	6	21	27	(12)	42

E.     Receivables and other financial assets

		2018	2017
		£m	£m
Due from related parties		49	43
Collateral pledged in respect of derivatives contracts		-	28
Contingent consideration asset		8	-
Other financial assets		-	5
Total receivables and other financial assets		57	76

The carrying amounts disclosed above reasonably approximate the fair values at the year end.

Amounts due to related parties are expected to be recovered within 12 months.

F.     Other assets

Other assets of £35m (2017: £27m) comprise amounts due from related parties in respect of Group relief, which are expected to be recovered within 12 months.

G.    Share capital and share premium

Details of the Company's share capital and share premium are given in Note 26 of the Group financial statements including details of the return of capital, the share consolidation and the share buyback.

Details of the dividends paid on the ordinary shares by the Company are provided in Note 13 of the Group financial statements. Note 13 also includes information regarding the final dividend proposed by the Directors for the year ended 31 December 2018.

H.    Shares held by trusts

Shares held by trusts relates to shares in Standard Life Aberdeen plc that are held by the Employee Share Trust (EST) and the Unclaimed Asset Trust (UAT). Further details of these trusts are provided in Note 27 of the Group financial statements.

I.      Retained earnings

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.

J.     Movements in other reserves

The following tables show the movements in other reserves during the year

	Merger reserve	Equity compensation reserve	Special reserve	Capital redemption reserve	Available-for-sale financial assets	Cash flow hedges	Total
2018	£m	£m	£m	£m	£m	£m	£m
At 31 December 2017	6,052	99	241	-	15	(17)	6,390
Effect of change in accounting policy to IFRS 9	-	-	-	-	(15)	-	(15)
At 1 January 2018	6,052	99	241	-	-	(17)	6,375
Fair value losses on cash flow hedges	-	-	-	-	-	54	54
Realised losses on cash flow hedges transferred to income statement	-	-	-	-	-	(41)	(41)
Issue/redemption of 'B' shares	(1,000)	-	-	1,000	-	-	-
Shares bought back on-market and cancelled	-	-	-	11	-	-	11
Reserves credit for employee share-based payments	-	36	-	-	-	-	36
Transfer to retained earnings for vested employee share-based payments	-	(68)	-	-	-	-	(68)
Transfer between reserves on disposal of investment in subsidiaries	(1,290)	-	-	-	-	-	(1,290)
Transfer between reserves on impairment of investment in subsidiaries	(570)	-	-	-	-	-	(570)
Tax effect of items that may be reclassified subsequently to profit or loss	-	-	-	-	-	(2)	(2)
At 31 December	3,192	67	241	1,011	-	(6)	4,505

 

	Merger reserve	Equity compensation reserve	Special reserve	Available-for-sale financial assets	Cash flow hedges	Total
2017	£m	£m	£m	£m	£m	£m
At 1 January 2017	2,080	57	241	15	-	2,393
Shares issued in respect of business combinations	3,972	-	-	-	-	3,972
Fair value losses on cash flow hedges	-	-	-	-	(33)	(33)
Realised losses on cash flow hedges transferred to income statement	-	-	-	-	13	13
Reserves credit for employee share-based payments	-	96	-	-	-	96
Transfer to retained earnings for vested employee share-based payments	-	(54)	-	-	-	(54)
Tax effect of items that may be reclassified subsequently to profit or loss	-	-	-	-	3	3
At 31 December 2017	6,052	99	241	15	(17)	6,390

On completion of the sale of the investment in Standard Life Assurance Limited, (refer Note A) £1,290m (2017: £nil) was transferred from the merger reserve to retained earnings.

As part of the return of capital, £1,000m (2017: £nil) was transferred from the merger reserve to the capital redemption reserve. A further £11m (2017:£nil) was also recognised in the capital redemption reserve for the share buyback (refer Note 26 of the Group financial statements).

Following the impairment loss recognised in the period on the Company's investments in Aberdeen and SLIH (refer to note A), £570m (2017:£nil) was transferred from the merger reserve to retained earnings.

Following the completion of the merger of Standard Life plc and Aberdeen on 14 August 2017 an amount was recognised in the merger reserve representing the difference between the nominal value of shares issued to shareholders of Aberdeen and their fair value on that date. Further information on the merger reserve and special reserve is given in Note 29 of the Group financial statements.

For the year ended 31 December 2017 the reserves credit for employee share-based payments included £57m in relation to replacement awards granted to employees of Aberdeen which were unvested at the acquisition date.

K.    Non shareholders' equity

On 30 August 2018, the Company's subordinated guaranteed bonds and Mutual Assurance Capital Securities (MACS) were reclassified as non shareholders' equity from subordinated liabilities. Following a tender and mandatory redemption process which completed on 25 October 2018, the Company repurchased/redeemed the guaranteed bonds and MACS. Further information is given in Note 30 of the Group financial statements.

L.     Financial liabilities

			Amortised cost	Total
2018	Notes		£m	£m
Subordinated liabilities	M		1,086	1,086
Other financial liabilities	O		69	69
Total			1,155	1,155

 

 

		Cash flow hedge	Amortised cost	Total
2017	Notes	£m	£m	£m
Subordinated liabilities	M	-	1,876	1,876
Derivative financial liabilities	D	33	-	33
Other financial liabilities	O	-	19	19
Total		33	1,895	1,928

M.    Subordinated liabilities

	2018		2017
	Principal amount	Carrying value	Principal amount	Carrying value
Subordinated notes:
4.25% US Dollar fixed rate due 30 June 2028 (2017 - 30 June 2048)	$750m	£586m	$750m	£556m
5.5% Sterling fixed rate due 4 December 2042	£500m	£500m	£500m	£500m
Subordinated guaranteed bonds:
6.75% Sterling fixed rate perpetual	-	-	£500m	£502m
Mutual Assurance Capital Securities:
6.546% Sterling fixed rate perpetual	-	-	£300m	£318m
Total subordinated liabilities		£1,086m		£1,876m

Subordinated liabilities are considered current if the contractual re-pricing or maturity dates are within one year. The principal amount of all the subordinated liabilities is expected to be settled after more than 12 months. The accrued interest on the subordinated liabilities of £2m (2017: £42m) is expected to be settled within 12 months.

On 18 October 2017, the Company issued US Dollar subordinated notes with a principal amount of $750m. The subordinated notes of US$750m have been subject to renegotiation during the year which resulted in a modification loss of £4m. Further information including the terms and conditions of all subordinated liabilities is given in Note 34 of the Group financial statements.

On 30 August 2018, the Company's subordinated guaranteed bonds and MACS were reclassified as non shareholders' equity. Refer Note K.

N.    Deferred tax assets and liabilities

		2018	2017
		£m	£m
Deferred tax assets		22	-

The amount of deferred tax assets expected to be recovered or settled after more than 12 months are £22m (2017: £nil).

The Company has surrendered the benefit of its tax losses to underlying subsidiaries for a consideration of £35m (2017: £27m).

Recognised deferred tax

		2018	2017
		£m	£m
Deferred tax assets comprise:
Unused tax losses		21	-
Unrealised losses on cash flow hedges		1	3
Deferred tax liabilities comprise:
Unrealised gains on assets held as available-for-sale		-	(3)
Net deferred tax assets		22	-
Movements in net deferred tax assets comprise:
At 1 January		-	(3)
Effect of change in accounting policy to IFRS 9		3	-
Amounts credited to profit or loss		21	3
Amounts charged to other comprehensive income		(2)	-
At 31 December		22	-

The deferred tax assets recognised are in respect of unused tax losses arising in the year and unrealised losses on cash flow hedges. The deferred tax assets are recognised to the extent that it is probable that the losses will be capable of being offset against future taxable profits.

O.    Other financial liabilities

		2018	2017
		£m	£m
Amounts due to related parties		38	13
Collateral held in respect of derivative contracts		21	-
Other		10	6
Other financial liabilities		69	19

Other financial liabilities are expected to be settled within 12 months (2017: £19m).

P.    Other liabilities

Other liabilities of £86m (2017: £1m) are expected to be settled within 12 months.

Q.    Contingent liabilities, contingent assets, indemnities and guarantees

(a)     Legal proceedings and regulations

The Company, like other financial organisations, is subject to legal proceedings and complaints in the normal course of its business. All such material matters are periodically reassessed, with the assistance of external professional advisers where appropriate, to determine the likelihood of the Company incurring a liability. Where it is concluded that it is more likely than not that a material outflow will be made a provision is established based on management's best estimate of the amount that will be payable. In some cases it will not be possible to form a view, for example because the facts are unclear or because further time is needed to properly investigate, and no provisions are held for such matters. It is not possible to predict with certainty the extent and timing of the financial impact of legal proceedings, complaints and related regulatory matters.

(b)     Indemnities and guarantees

Under the trust deed in respect of the UK Standard Life defined benefit pension plan, Standard Life Employee Services Limited (SLESL), the principal employer, must pay contributions to the pension plan as the trustees' actuary may certify necessary. The Company guarantees the obligations of certain subsidiaries' UK and Ireland defined benefit pension plans, which did not give rise to any liabilities at 31 December 2018 (2017: £nil).

R.    Related party transactions

(a)     Compensation of key management personnel

The Directors and key management personnel of the Company are considered to be the same as for the Group. See Note 46 of the Group financial statements for further information.

10. Supplementary information

10.1 Alternative performance measures

 
We assess our performance using a variety of measures that are not defined under IFRS and are therefore termed alternative performance measures (APMs). The APMs that we use may not be directly comparable with similarly named measures used by other companies.

We have presented below reconciliations from these APMs to the most appropriate measure prepared in accordance with IFRS. All APMs should be read together with the IFRS consolidated income statement, IFRS consolidated statement of financial position and IFRS consolidated statement of cash flows, which are presented in the Group financial statements section of this report.

KPI = Key performance indicators (KPIs) are defined as the measures by which the development, performance or position of the business can be measured effectively.

 

R = Measure is a key input to a metric used for Executive remuneration. See page 86 for more information.

 

Definition		Purpose and changes made
Adjusted profit before tax	KPI  R
Adjusted profit before tax is the Group's key alternative performance measure. Adjusted profit excludes the impact of the following items: ·  Restructuring costs and corporate transaction expenses. Restructuring includes the impact of major regulatory change. ·  Amortisation and impairment of intangible assets acquired in business combinations and through the purchase of customer contracts ·  Profit or loss arising on the disposal of a subsidiary, joint venture or associate ·  Fair value movements in contingent consideration ·  Items which are one-off and, due to their size or nature, are not indicative of the long-term operating performance of the Group Adjusted profit also excludes impacts arising from investment return variances (formerly called short-term fluctuations in investment return) and economic assumption changes in the Group's insurance entities. It is calculated based on expected returns on investments backing equity holder funds, with consistent allowance for the corresponding expected movements in equity holder liabilities. Impacts arising from the difference between the expected return and actual return on investments, and the corresponding impact on equity holder liabilities except where they are directly related to a significant management action, are excluded from adjusted profit and are presented within profit before tax. The impact of certain changes in economic assumptions is also excluded from adjusted profit and is presented within profit before tax. Coupons payable on perpetual notes classified as non-controlling interests for which interest is accrued are included in adjusted profit before tax. For IFRS purposes, these are recognised directly in equity. This gave rise to an adjusting item in 2017, prior to the reclassification of such instruments to subordinated liabilities on 18 December 2017. Dividends payable on preference shares classified as non-controlling interests are excluded from adjusted profit in line with the treatment of ordinary shares. Similarly to preference shares, our share of interest payable on Tier 1 debt instruments held by associates, which are only accounted for when paid (as if interest is not paid it is cancelled), is excluded from adjusted profit.		Adjusted profit reporting provides further analysis of the results reported under IFRS and the Directors believe it helps to give shareholders a fuller understanding of the performance of the business by identifying and analysing adjusting items. Adjusted profit before tax is consistent with the way that financial performance is measured by management and reported to the Board and executive committee. Adjusted profit before tax is also a key input to the adjusted earnings per share measure which is used to assess performance for remuneration purposes.
Adjusted cash generation
Adjusted cash generation presents a shareholder view of cash generation. For the Aberdeen Standard Investments element of the Asset management and platforms segment, adjusted cash generation adjusts IFRS net cash flows from operating activities for restructuring and corporate transaction expenses paid. For the platforms and corporate centre elements of the Asset management and platforms segment, adjusted cash generation removes certain non-cash items from adjusted profit before tax. Adjustments are made for deferred acquisition costs/deferred income reserve and fixed/intangible assets. Adjusted cash generation is stated net of current (cash) tax. IFRS net cash flows from operating activities is not used as the basis for these segments as it includes policyholder cash flows, and does not exclude adjusting items. For the Insurance associates and joint ventures segment, adjusted cash generation reflects dividends received in the period.		This APM presents a shareholder view of cash generation and removes adjusting items to make this cash metric more comparable to adjusted profit after tax. Adjusted cash generation provides insight into our ability to generate cash that supports further investment in the business and the payment of dividends to shareholders. The IFRS consolidated statement of cash flows includes policyholder cash flows, and therefore does not present a shareholder view, and does not exclude adjusting items.

Adjusted profit before tax

The table below reconciles adjusted profit before tax from continuing operations to Profit before tax.

The merger of Standard Life plc and 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 basis results reflect this accounting treatment with Aberdeen results included from 14 August 2017 only. Therefore, Aberdeen is included from 14 August 2017 only in the 2017 results on a Reported basis. In our Strategic report we have also presented comparative results on a Pro forma basis to assist in explaining trends by showing performance for the combined Group as if Standard Life plc and Aberdeen had always been merged. The difference between the Reported results and Pro forma results is the results of Aberdeen in the period prior to completion of the merger.

			Pro forma basis		Remove Aberdeen results pre-merger completion					Reported basis
	2018	2017		2016	2018	2017	2016	2018	2017		2016
	£m	£m		£m	£m	£m	£m	£m	£m		£m
Fee based revenue	1,868	2,099		2,051	-	(652)	(1,035)	1,868	1,447		1,016
Total adjusted operating expenses	(1,395)	(1,551)		(1,453)	-	467	697	(1,395)	(1,084)		(756)
Adjusted operating profit	473	548		598	-	(185)	(338)	473	363		260
Capital management	(9)	13		20	-	-	2	(9)	13		22
Share of associates' and joint ventures' profit before tax	186	99		76	-	-	-	186	99		76
Adjusted profit before tax from continuing operations	650	660		694	-	(185)	(336)	650	475		358
Share of associates' and joint ventures' tax expense1								(40)	(41)		(13)
Total adjusting items from continuing operations								(1,397)	4		(83)
Profit before tax								(787)	438		262

¹   2018 Includes £3m (2017: £nil) relating to tax on adjusting items.

The table below provides a segmental breakdown of adjusted profit before tax on a continuing operations basis. Comparatives are shown on a pro forma basis:

	Asset management and platforms			Insurance associates and joint ventures			Total
	2018	2017	2016	2018	2017	2016	2018	2017	2016
	£m	£m	£m	£m	£m	£m	£m	£m	£m
Fee based revenue	1,868	2,099	2,051	-	-	-	1,868	2,099	2,051
Total adjusted operating expenses	(1,395)	(1,551)	(1,453)	-	-	-	(1,395)	(1,551)	(1,453)
Adjusted operating profit	473	548	598	-	-	-	473	548	598
Capital management	(9)	13	20	-	-	-	(9)	13	20
Share of associates' and joint ventures' profit before tax	46	41	35	140	58	41	186	99	76
Adjusted profit before tax from continuing operations	510	602	653	140	58	41	650	660	694

The table below provides a breakdown for the calculation of our share of adjusted profit before tax from Phoenix of £86m which is included in the Insurance associates and joint ventures total of £140m above. Phoenix use an operating profit alternative performance measure which is before finance costs, while the Group's adjusted profit is after deducting finance costs.

	2018	2018
	100%	19.98%
Phoenix profitability for the four months ended 31 December 2018	£m	£m
Operating profit before tax (Phoenix APM)	458	92
Finance costs	(30)	(6)
Adjusted profit before tax (Standard Life Aberdeen APM)	428	86

The table below provides a summarised reconciliation of adjusted profit before tax (split by continuing operations, discontinued operations and Total) to Profit before tax. Comparatives are shown on a Reported basis.

	Continuing operations			Discontinued operations			Total
	2018	2017	2016	2018	2017	2016	2018	2017	2016
	£m	£m	£m	£m	£m	£m	£m	£m	£m
Adjusted profit before tax	650	475	358	210	379	360	860	854	718
Share of associates' and joint ventures' tax expense	(40)	(41)	(13)	-	-	-	(40)	(41)	(13)
Total adjusting items	(1,397)	4	(83)	1,519	(44)	(186)	122	(40)	(269)
Profit attributable to non-controlling interests - ordinary shares	-	-	-	5	25	51	5	25	51
Profit before tax1	(787)	438	262	1,734	360	225	947	798	487

¹    Discontinued operations shown as profit before tax expense attributable to equity holders.

Analysis of adjusting items

The table below provides detail of the adjusting items made in the calculation of adjusted profit before tax:

	Continuing operations			Discontinued operations			Total
	2018	2017	2016	2018	2017	2016	2018	2017	2016
	£m	£m	£m	£m	£m	£m	£m	£m	£m
Restructuring and corporate transaction expenses	(239)	(162)	(42)	(264)	(11)	(25)	(503)	(173)	(67)
Amortisation and impairment of intangible assets acquired in business combinations and through the purchase of customer contracts	(1,155)	(138)	(38)	-	-	-	(1,155)	(138)	(38)
Provision for annuity sales practices	-	-	-	-	(100)	(175)	-	(100)	(175)
Profit on disposal of subsidiaries	-	-	-	1,780	-	-	1,780	-	-
Profit on disposal of interests in associates	185	319	-	-	-	-	185	319	-
Impairment of associates	(228)	-	-	-	-	-	(228)	-	-
Investment return variances and economic assumption changes	54	-	-	(41)	67	13	13	67	13
Other	(14)	(15)	(3)	44	-	1	30	(15)	(2)
Total adjusting items	(1,397)	4	(83)	1,519	(44)	(186)	122	(40)	(269)

An explanation for why individual items are excluded from adjusted profit is set out below:

·  Restructuring and corporate transaction expenses are excluded from adjusted profit. Restructuring includes the impact of major regulatory change. By highlighting and excluding these costs we aim to give shareholders a fuller understanding of the performance of the business. Restructuring and corporate transaction expenses include costs relating to the integration of businesses acquired. Other restructuring costs excluded from adjusted profit relate to projects which have a significant impact on the way the Group operates. Costs are only excluded from adjusted profit where they are outwith business as usual activities and the costs would not have been incurred had the restructuring project not taken place. For headcount related costs, where duplicate posts are identified as a result of an integration plan, the duplicated cost will be treated as a restructuring cost from the beginning of the process which eliminates the duplicate cost. For continuing operations, the 2018 expenses mainly relate to integration and merger related costs of £191m (2017: £109m of which £59m relates to transaction costs) which included £20m of merger related costs relating to the accounting impact of the alignment of Aberdeen and Standard Life Investments variable pay structures. For discontinued operations, the 2018 expenses mainly related to the redemption of our Tier 1 subordinated bonds of £198m (2017: £nil), and £53m (2017: £nil) of separation costs relating to the sale of the UK and European insurance business to Phoenix. 2018 also included £14m of costs in relation to Brexit which we consider to be a major regulatory change. The residual costs of £47m related to other restructuring and corporate transaction expenses.

·  Amortisation and impairment of intangible assets acquired in business combinations and through the purchase of customer contracts is included as an adjusting item. This is consistent with peers and therefore excluding these items aids comparability. Highlighting this as an adjusting item aims to give a fuller understanding of these accounting impacts which arise where businesses have been acquired but do not arise where businesses have grown organically. 2018 includes the £880m impairment of the Aberdeen Standard Investments goodwill intangible asset, reflecting the impact of markets and flows on future earnings expectations. Further details are provided in Note 14.

·  Profits on the disposal of a subsidiary, joint venture or associate are also removed to assist comparability of results period on period. The sale of our UK and European insurance subsidiary completed on 31 August 2018. Profit on disposal of interests in associates in 2018 of £185m includes £177m in relation to the HDFC Asset Management IPO. Details are provided in Note 1 of the Group financial statements.

·  Impairment of associates in 2018 of £228m relates to our investment in Phoenix and reflects the fall in the Phoenix share price between 31 August 2018 and 31 December 2018. This impairment will reverse in future periods if the Phoenix share price increases. The impairment of Phoenix is considered an item which is one-off and not indicative of the long-term operating performance of the Group and has therefore been excluded from adjusted profit to assist comparability of results period to period. More details are provided in Note 12 of the Group financial statements.

·  Investment return variances and economic assumption changes in the Group's insurance entities are excluded from adjusted profit. The Group's UK and European insurance business was sold during 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.

·  Details on items classified as 'Other' in the table on the previous page are provided in Note 12 of the Group financial statements. In 2018 this balance primarily relates to a held for sale accounting adjustment. Following the classification of the UK and European insurance business as held for sale on the announcement of the transaction on 23 February 2018, no amortisation or depreciation was recognised. This increase to profit was classified as an adjusting item as it related to the disposal of a subsidiary.

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.

Reconciliation of adjusted profit to IFRS profit by component

The key components of adjusted profit before tax are total adjusted operating income (which is broken down into fee based revenue and spread/risk margin), total adjusted operating expenses and share of associates' and joint ventures' profit before tax. These components provide a meaningful analysis of our adjusted results.

The table below provides a reconciliation of movements between adjusted profit component measures and their closest IFRS equivalent:

Adjusted profit term	Group adjusted profit	Presentation differences	Adjusting items	Capital management	Share of associates' and joint ventures' tax expense	Non-controlling interests	Group IFRS	IFRS term
2018	£m	£m	£m	£m	£m	£m	£m
Fee based revenue	1,868	70	202	(9)	-		2,131	Total income
Adjusted operating expenses	(1,395)	(70)	(1,355)		-	-	(2,820)	Total expenses
Capital management	(9)	-	-	9	-	-	-	N/A
Share of associates' and joint ventures' profit before tax	186	-	(244)	-	(40)	-	(98)	Share of profit from associates and JVs1
Adjusted profit before tax from continuing operations	650	-	(1,397)	-	(40)		(787)	Profit before tax
Tax on adjusted profit	(95)	-	52	-	-	-	(43)	Total tax expense
Share of associates' and joint ventures' tax	(43)	-	-	-	43	-	-	N/A
Adjusted profit after tax from continuing operations	512	-	(1,345)	-	3	-	(830)	Profit for the year from continuing operations
Adjusted profit after tax from discontinued operations	133	-	1,560	-	-	5	1,698	Profit for the year from discontinued operations
Adjusted profit after tax	645	-	215	-	3	5	868	Profit for the year

¹    Includes £228m loss on impairment of interest in associates.

Adjusted profit term	Group adjusted profit (Reported basis)	Presentation differences	Adjusting items	Capital management	Share of associates' and joint ventures' tax expense	Non-controlling interests - ordinary shares	Group IFRS	IFRS term
2017	£m	£m	£m	£m	£m	£m	£m
Fee based revenue	1,447	360	345	13	-	-	2,165	Total income
Adjusted operating expenses	(1,084)	(360)	(328)	-	-	-	(1,772)	Total expenses
Capital management	13	-	-	(13)	-	-	-	N/A
Share of associates' and joint ventures' profit before tax	99	-	(13)	-	(41)	-	45	Share of profit from associates and JVs
Adjusted profit before tax from continuing operations	475	-	4	-	(41)	-	438	Profit before tax
Tax on adjusted profit	(77)	-	49	-	-	-	(28)	Total tax expense
Share of associates' and joint ventures' tax	(41)	-	-	-	41	-	-	N/A
Adjusted profit after tax from continuing operations	357	-	53	-	-	-	410	Profit for the year from continuing operations
Adjusted profit after tax from discontinued operations	348	-	(51)	-	-	25	322	Profit for the year from discontinued operations
Adjusted profit after tax	705	-	2	-	-	25	732	Profit for the year

This reconciliation includes a number of reconciling items which arise due to presentation differences between IFRS reporting requirements and the determination of adjusted operating income and adjusted operating expenses. Adjusted operating income and expenses exclude items which have an equal and opposite effect on IFRS income and IFRS expenses in the consolidated income statement. Other presentation differences also include Aberdeen Standard Investments commission expenses which are presented in expenses in the consolidated income statement but are netted against adjusted operating income in the analysis of Group adjusted profit by segment. Further details of presentation differences are included in Note 2(b)(ii) of the Group financial statements section of this report.

Adjusted cash generation from continuing operations

Adjusted cash generation provides insight into our ability to generate cash that supports further investment in the business and the payment of dividends to shareholders. The IFRS consolidated statement of cash flows includes policyholder cash flows, and therefore does not present a shareholder view, and does not exclude adjusting items.

Analysis of adjusted cash generation (Comparatives shown on a Pro forma basis)				2018	2017
				£m	£m
Asset management and platforms	(a)			420	495
Insurance associates and joint ventures				33	10
Adjusted cash generation (continuing operations)				453	505

Further details of the calculation of adjusted cash generation for the Asset management and platforms segment are included below:

Investment management

	Per Group financial statements			2018	2017
				£m	£m
IFRS Net cash flow from operating activities - total Group	Consolidated statement of cash flows			826	2,194
Less: Net cash flows from operating activities - discontinued operations, platforms and corporate centre				(482)	(1,846)
Net cash flow from operating activities - Aberdeen Standard Investments1				344	348
Pro forma adjustment for pre-merger results2				-	140
Restructuring and corporate transaction expenses paid - Aberdeen Standard Investments				124	63
Adjusted cash generation - Aberdeen Standard Investments				468	551
Adjusted cash generation - platforms and corporate centre				(48)	(56)
Adjusted cash generation - Asset management and platforms (2017 on Pro forma basis)				420	495

1. From 2018, net cash flow from operating activities excludes movements between cash and pooled cash funds.

2. The Pro forma adjustment adds pre-merger results for Aberdeen which are excluded from the consolidated statement of cash flows.

10.2 Financial ratios

We also use a number of financial ratios to help assess our performance and these are also not defined under IFRS. Details of our main financial ratios and how they are calculated are presented below.

Definition				Purpose and changes
Cost/income ratio  KPI  R
This is an efficiency measure that is calculated as adjusted operating expenses divided by adjusted operating income in the period, and includes the share of associates' and joint ventures' profit before tax.				This ratio is used by management to assess efficiency and reported to the Board and executive committee. This ratio is also a measure used to assess performance for remuneration purposes.
Adjusted diluted earnings per share  KPI			KPI
Adjusted diluted earnings per share is calculated on adjusted profit after tax. The weighted average number of ordinary shares in issue is adjusted during the period to assume the conversion of all dilutive potential ordinary shares, such as share options granted to employees. Details on the calculation of adjusted diluted earnings per share are set out in Note 11 in the Group financial statements section.				Earnings per share is a commonly used financial metric which can be used to measure the profitability and capital efficiency of a company over time. We also calculate adjusted diluted earnings per share to illustrate the impact of adjusting items on the metric. This ratio is used by management to assess performance and reported to the Board and executive committee.
Fee revenue yield (bps)
The fee revenue yield is calculated as annualised fee based revenue (excluding performance fees, SL Asia, 1825, Focus and Threesixty) divided by monthly average fee based AUM/AUA.				The average revenue yield on fee based business is a measure that illustrates the average margin being earned on the assets that we manage or administer.

Cost/income ratio from continuing operations

 

			Pro forma basis			Reported basis
	2018		2017	2016		2017	2016
Adjusted operating expenses (£m)	(1,395)		(1,551)	(1,453)		(1,084)	(756)
Fee based revenue (£m)	1,868		2,099	2,051		1,447	1,016
Share of associates' and joint ventures' profit before tax (£m)	186		99	76		99	76
Total adjusted operating income and share of associates' and joint ventures' profit before tax (£m)	2,054		2,198	2,127		1,546	1,092
Cost/income ratio (%)	68		71	68		70	69

Adjusted diluted earnings per share

	Continuing operations1			Discontinued operations			Total
		Pro forma basis	Reported basis		Pro forma basis	Reported basis		Pro forma basis	Reported basis
	2018	2017	2017	2018	2017	2017	2018	2017	2017
	£m	£m	£m	£m	£m	£m	£m	£m	£m
Adjusted profit after tax	512	516	357	133	348	348	645	864	705
Dividend paid on preference shares	(5)	(5)	-	-	-	-	(5)	(5)	-
Adjusted profit after tax attributable to equity holders of the Company	507	511	357	133	348	348	640	859	705
Profit attributable to equity holders of the Company	(835)	N/A	402	1,665	N/A	297	830	N/A	699
	Million	Million	Million	Million	Million	Million	Million	Million	Million
Weighted average number of ordinary shares outstanding	2,848	2,943	2,343	2,848	2,943	2,343	2,848	2,943	2,343
Dilutive effect of share options and awards	-	29	17	-	29	17	-	29	17
Weighted average number of diluted ordinary shares outstanding	2,848	2,972	2,360	2,848	2,972	2,360	2,848	2,972	2,360
	Pence	Pence	Pence	Pence	Pence	Pence	Pence	Pence	Pence
Basic earnings per share	(29.3)	N/A	17.1	58.4	N/A	12.7	29.1	N/A	29.8
Adjusted diluted earnings per share1	17.8	17.2	15.1	4.7	11.7	14.8	22.5	28.9	29.9

¹    In accordance with IAS 33, earnings per share have not been restated following the share consolidation as there was an overall corresponding change in resources due to the redemption of the 'B' shares. As a result of the share consolidation and share buyback, earnings per share from continuing operations for the year ended 31 December 2018 is not directly comparable with the prior year. Refer to Note 11 of the Group financial statements for information relating to the calculation of diluted earnings per share.

 

Fee revenue yield (bps) from continuing operations

 

Fee revenue yield	Average AUMA (£bn)			Fee based revenue (£m)			Fee revenue yield (bps)
(Comparatives shown on a Pro forma basis)	2018	2017		2018	2017		2018	2017
Equities	86.3	98.1		578	666		66.9	67.9
Fixed income	46.9	49.0		130	144		27.7	29.4
Multi-asset	65.4	74.7		350	432		53.6	57.7
Private markets	15.8	16.7		68	84		43.1	50.7
Alternatives	10.5	7.1		18	12		17.4	16.9
Real estate	28.9	29.2		154	159		53.2	54.4
Quantitative	2.1	2.2		3	3		12.2	12.1
Cash/Liquidity	17.3	19.1		14	14		8.0	7.4
Institutional/Wholesale2	273.2	296.1		1,315	1,514		48.1	51.1
Strategic insurance partners	265.0	271.1		347	372		13.1	13.7
Retail - Wrap and Elevate	55.6	49.2		142	129		25.6	26.2
Eliminations	(7.9)	(7.2)		N/A	N/A		N/A	N/A
Group fee revenue yield	585.9	609.2		1,804	2,015		30.8	33.1
SL Asia				12	12
Retail advice and other3				43	46
Performance fees				9	26
Group fee based revenue				1,868	2,099

²    Includes Wealth/Digital.

³    Includes 1825, Focus and Threesixty.

10.3 Assets under management and administration and flows

Definition			Purpose and changes
AUMA  KPI
AUMA is a measure of the total assets we manage or administer on behalf of our clients and customers. It includes assets under management (AUM) and assets under administration (AUA). AUM is a measure of the total assets that we manage on behalf of individual customers and institutional clients. AUM also includes captive assets managed on behalf of the Group including assets managed for corporate purposes. AUA is a measure of the total assets we administer for customers through products such as platforms and ISAs.			As an investment company, AUMA and flows are key drivers of shareholder value. AUMA has been restated to exclude associates, joint ventures, SL Asia and is also only presented on a continuing operations basis. This change has been made to simplify disclosures and to better align asset and fee revenue disclosures. A reconciliation of AUMA and net flows to previously disclosed information is provided in Section 10.5.
Gross inflows and net flows  KPI R
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.			As an investment company, AUMA and flows are key drivers of shareholder value. Gross inflows have been included as a KPI in 2018 to align with our remuneration measures. Gross inflows and net flows has been restated to exclude associates, joint ventures, SL Asia and is also only presented on a continuing operations basis.

 

10.3.1 AUMA

12 months ended 31 December 2018

		Opening AUMA at 1 Jan 2018	Gross inflows	Redemptions	Net flows	Market and other movements	Corporate actions and business rationalisation1	Closing AUMA at 31 Dec 2018
		£bn	£bn	£bn	£bn	£bn	£bn	£bn
Equities		97.5	11.8	(29.4)	(17.6)	(8.2)	1.2	72.9
Fixed income		48.0	6.0	(8.8)	(2.8)	0.6	0.9	46.7
Multi-asset		72.4	9.3	(25.0)	(15.7)	(2.8)	-	53.9
Private markets		16.5	1.1	(2.4)	(1.3)	0.8	-	16.0
Alternatives		8.0	0.8	(1.2)	(0.4)	2.6	2.1	12.3
Real estate		28.5	3.8	(4.0)	(0.2)	0.8	0.6	29.7
Quantitative		2.2	0.2	(0.3)	(0.1)	-	-	2.1
Cash/Liquidity		17.2	7.4	(8.7)	(1.3)	0.6	-	16.5
Institutional/Wholesale2		290.3	40.4	(79.8)	(39.4)	(5.6)	4.8	250.1
Strategic insurance partners		271.8	28.6	(34.1)	(5.5)	(11.3)	-	255.0
Total AUM		562.1	69.0	(113.9)	(44.9)	(16.9)	4.8	505.1
Retail - Wrap and Elevate		54.0	8.5	(4.3)	4.2	(4.0)	-	54.2
Eliminations		(8.0)	(2.3)	2.1	(0.2)	0.4	-	(7.8)
Total AUMA		608.1	75.2	(116.1)	(40.9)	(20.5)	4.8	551.5

¹   Corporate actions relate to the acquisition of £4.8bn of AUM in transactions with Alpine Woods, ETF Securities and Hark Capital.

²    Includes Wealth/Digital.

12 months ended 31 December 2017 (Pro forma basis)

		Opening AUMA at 1 Jan 2017	Gross inflows		Redemptions			Net flows	Market and other movements		Corporate actions and business rationalisation1		Closing AUMA at 31 Dec 2017
		£bn	£bn		£bn			£bn	£bn		£bn		£bn
Equities		93.6		14.2		(24.4)	(10.2)		14.1	-		97.5
Fixed income		51.6		8.6		(11.7)	(3.1)		0.8	(1.3)		48.0
Multi-asset		79.1		13.9		(20.8)	(6.9)		2.6	(2.4)		72.4
Private markets		16.8		1.1		(1.4)	(0.3)		-	-		16.5
Alternatives		8.9		0.8		(1.3)	(0.5)		(0.4)	-		8.0
Real estate		27.5		3.6		(4.6)	(1.0)		2.0	-		28.5
Quantitative		2.4		0.2		(0.7)	(0.5)		0.3	-		2.2
Cash/Liquidity		18.7		6.4		(8.1)	(1.7)		0.2	-		17.2
Institutional/Wholesale2		298.6		48.8		(73.0)	(24.2)		19.6	(3.7)		290.3
Strategic insurance partners		271.5		15.6		(30.8)	(15.2)		15.5	-		271.8
Total AUM		570.1		64.4		(103.8)	(39.4)		35.1	(3.7)		562.1
Retail - Wrap and Elevate		44.2	10.7		(3.7)			7.0	2.8		-		54.0
Eliminations		(6.4)	(2.7)		2.2			(0.5)	(1.1)		-		(8.0)
Total AUMA		607.9	72.4		(105.3)			(32.9)	36.8		(3.7)		608.1

 

10.3.2 Quarterly net flows

	3 months to 31 Dec 18	3 months to 30 Sep 18	3 months to 30 Jun 18	3 months to 31 Mar 18	3 months to 31 Dec 17
	£bn	£bn	£bn	£bn	£bn
Equities	(5.7)	(4.3)	(3.9)	(3.7)	(3.5)
Fixed income	(0.4)	(0.3)	(0.9)	(1.2)	(0.5)
Multi-asset	(6.7)	(4.6)	(2.9)	(1.5)	(1.3)
Private markets	0.3	(0.9)	(0.2)	(0.5)	(0.1)
Alternatives	(0.6)	0.4	(0.4)	0.2	-
Real estate	(0.2)	0.2	-	(0.2)	(0.1)
Quantitative	0.1	(0.2)	-	-	-
Cash/Liquidity	0.6	(3.5)	1.4	0.2	(0.8)
Institutional/Wholesale2	(12.6)	(13.2)	(6.9)	(6.7)	(6.3)
Strategic insurance partners	(1.7)	1.8	(3.1)	(2.5)	(3.5)
Total net flows from AUM	(14.3)	(11.4)	(10.0)	(9.2)	(9.8)
Retail - Wrap and Elevate	0.7	1.0	1.0	1.5	1.6
Eliminations	0.1	(0.1)	(0.1)	(0.1)	(0.1)
Total net flows	(13.5)	(10.5)	(9.1)	(7.8)	(8.3)

¹    Corporate actions include the closure of an uneconomic multi-manager fund range and the rationalisation of the US fixed income business.

²   Includes Wealth/Digital.

10.4 AUM and flows (excludes strategic insurance partners)

10.4.1 Detailed asset class split and by channel

12 months ended 31 December 2018	Opening AUM at 1 Jan 2018	Gross inflows	Redemptions	Net flows	Market and other movements	Corporate actions and business rationalisation	Closing AUM at 31 Dec 2018
	£bn	£bn	£bn	£bn	£bn	£bn	£bn
Developed markets equities	16.3	2.2	(3.6)	(1.4)	(2.0)	-	12.9
Emerging markets equities	37.0	4.2	(13.4)	(9.2)	(2.8)	-	25.0
Asia Pacific equities	27.7	3.9	(6.8)	(2.9)	(2.3)	-	22.5
Global equities	16.5	1.5	(5.6)	(4.1)	(1.1)	1.2	12.5
Total equities	97.5	11.8	(29.4)	(17.6)	(8.2)	1.2	72.9
Developed markets credit	32.9	3.3	(5.6)	(2.3)	0.6	0.9	32.1
Developed markets rates	5.7	0.8	(1.2)	(0.4)	(0.1)	-	5.2
Emerging markets fixed income	9.4	1.9	(2.0)	(0.1)	0.1	-	9.4
Total fixed income	48.0	6.0	(8.8)	(2.8)	0.6	0.9	46.7
Absolute return	39.8	2.5	(19.0)	(16.5)	(1.4)	-	21.9
Diversified growth/income	1.5	0.7	(0.3)	0.4	(0.2)	-	1.7
MyFolio	13.3	2.7	(1.5)	1.2	(0.6)	-	13.9
Other multi-asset	6.5	0.7	(1.9)	(1.2)	0.2	-	5.5
Parmenion	4.4	2.1	(1.0)	1.1	(0.3)	-	5.2
Aberdeen Standard Capital	6.9	0.6	(1.3)	(0.7)	(0.5)	-	5.7
Total multi-asset	72.4	9.3	(25.0)	(15.7)	(2.8)	-	53.9
Private equity	12.4	0.9	(1.9)	(1.0)	0.9	-	12.3
Private credit and solutions	0.3	0.2	(0.2)	-	(0.3)	-	-
Infrastructure equity	3.8	-	(0.3)	(0.3)	0.2	-	3.7
Total private markets	16.5	1.1	(2.4)	(1.3)	0.8	-	16.0
Total alternatives	8.0	0.8	(1.2)	(0.4)	2.6	2.1	12.3
UK real estate	15.8	1.1	(2.3)	(1.2)	0.7	-	15.3
European real estate	11.1	2.3	(1.4)	0.9	0.2	-	12.2
Global real estate	0.1	0.2	(0.1)	0.1	-	0.6	0.8
Real estate multi-manager	1.5	0.2	(0.2)	-	(0.1)	-	1.4
Total real estate	28.5	3.8	(4.0)	(0.2)	0.8	0.6	29.7
Total quantitative	2.2	0.2	(0.3)	(0.1)	-	-	2.1
Total cash/liquidity	17.2	7.4	(8.7)	(1.3)	0.6	-	16.5
Total	290.3	40.4	(79.8)	(39.4)	(5.6)	4.8	250.1

 

	Opening AUM at 1 Jan 2018	Gross inflows	Redemptions	Net  flows	Market and other movements	Corporate actions and business rationalisation	Closing AUM at 31 Dec 2018
12 months ended 31 December 2018	£bn	£bn	£bn	£bn	£bn	£bn	£bn
Institutional	192.5	19.3	(47.0)	(27.7)	1.9	-	166.7
Wholesale	86.6	18.4	(30.5)	(12.1)	(6.8)	4.8	72.5
Wealth/Digital	11.2	2.7	(2.3)	0.4	(0.7)	-	10.9
Total	290.3	40.4	(79.8)	(39.4)	(5.6)	4.8	250.1

 

AUM and flows (excludes strategic insurance partners)   12 months ended 31 December 2017	Opening AUM at 1 Jan 2017	Gross inflows	Redemptions	Net flows	Market and other movements	Corporate actions and business rationalisation	Closing AUM at 31 Dec 2017
(Pro forma basis)	£bn	£bn	£bn	£bn	£bn	£bn	£bn
Developed markets equities	15.8	2.4	(3.2)	(0.8)	1.3	-	16.3
Emerging markets equities	33.9	5.6	(8.4)	(2.8)	5.9	-	37.0
Asia Pacific equities	26.1	4.6	(7.7)	(3.1)	4.7	-	27.7
Global equities	17.8	1.6	(5.1)	(3.5)	2.2	-	16.5
Total equities	93.6	14.2	(24.4)	(10.2)	14.1	-	97.5
Developed markets credit	37.8	4.8	(9.1)	(4.3)	0.7	(1.3)	32.9
Developed markets rates	5.5	1.4	(1.2)	0.2	-	-	5.7
Emerging markets fixed income	8.3	2.4	(1.4)	1.0	0.1	-	9.4
Total fixed income	51.6	8.6	(11.7)	(3.1)	0.8	(1.3)	48.0
Absolute return	48.9	5.8	(15.6)	(9.8)	0.7	-	39.8
Diversified growth/income	0.7	1.0	(0.3)	0.7	0.1	-	1.5
MyFolio	10.6	3.3	(1.3)	2.0	0.7	-	13.3
Other multi-asset	9.1	1.4	(2.2)	(0.8)	0.6	(2.4)	6.5
Parmenion	3.0	1.5	(0.2)	1.3	0.1	-	4.4
Aberdeen Standard Capital	6.8	0.9	(1.2)	(0.3)	0.4	-	6.9
Total multi-asset	79.1	13.9	(20.8)	(6.9)	2.6	(2.4)	72.4
Private equity	14.6	0.8	(1.4)	(0.6)	(0.2)	(1.4)	12.4
Private credit and solutions	-	0.3	-	0.3	-	-	0.3
Infrastructure equity	2.2	-	-	-	0.2	1.4	3.8
Total private markets	16.8	1.1	(1.4)	(0.3)	-	-	16.5
Total alternatives	8.9	0.8	(1.3)	(0.5)	(0.4)	-	8.0
UK real estate	15.2	1.4	(2.0)	(0.6)	1.2	-	15.8
European real estate	10.5	2.1	(2.3)	(0.2)	0.8	-	11.1
Global real estate	0.2	-	(0.1)	(0.1)	-	-	0.1
Real estate multi-manager	1.6	0.1	(0.2)	(0.1)	-	-	1.5
Total real estate	27.5	3.6	(4.6)	(1.0)	2.0	-	28.5
Total quantitative	2.4	0.2	(0.7)	(0.5)	0.3	-	2.2
Total cash/liquidity	18.7	6.4	(8.1)	(1.7)	0.2	-	17.2
Total	298.6	48.8	(73.0)	(24.2)	19.6	(3.7)	290.3

 

	Opening AUM at 1 Jan 2017	Gross inflows	Redemptions	Net flows	Market and other movements	Corporate actions and business rationalisation	Closing AUM at 31 Dec 2017
12 months ended 31 December 2017 (Pro forma basis)	£bn	£bn	£bn	£bn	£bn	£bn	£bn
Institutional	202.4	24.3	(44.0)	(19.7)	11.1	(1.3)	192.5
Wholesale	86.4	22.1	(27.7)	(5.6)	8.2	(2.4)	86.6
Wealth/Digital	9.8	2.4	(1.3)	1.1	0.3	-	11.2
Total	298.6	48.8	(73.0)	(24.2)	19.6	(3.7)	290.3

10.4.2 AUM by geography (excludes strategic insurance partners)

12 months ended 31 December	31 Dec 2018	31 Dec 2017
	£bn	£bn
UK	125.4	145.6
Europe, Middle East and Africa (EMEA)	57.1	61.8
Asia Pacific (APAC)	18.2	22.7
Americas	49.4	60.2
Total	250.1	290.3

 

10.4.3 Total AUM by asset class

	31 Dec 2018			31 Dec 2017
	Institutional/ Wholesale1	Strategic insurance partners	Total	Institutional/ Wholesale1	Strategic insurance partners	Total
	£bn	£bn	£bn	£bn	£bn	£bn
Equities	72.9	44.0	116.9	97.5	53.1	150.6
Fixed income	46.7	90.0	136.7	48.0	92.6	140.6
Multi-asset	53.9	17.5	71.4	72.4	17.6	90.0
Private markets	16.0	2.3	18.3	16.5	1.2	17.7
Alternatives	12.3	-	12.3	8.0	-	8.0
Real estate	29.7	10.3	40.0	28.5	10.7	39.2
Quantitative	2.1	60.7	62.8	2.2	66.3	68.5
Cash/Liquidity	16.5	30.2	46.7	17.2	30.3	47.5
Total AUM	250.1	255.0	505.1	290.3	271.8	562.1

¹    Includes Wealth/Digital.

10.5 AUMA - reconciliation to previously disclosed information

12 months ended 31 December 2017 (Pro forma basis)

	Opening AUMA at 1 Jan 2017	Gross inflows	Redemptions	Net flows	Market and other movements	Corporate actions and business rationalisation	Closing AUMA at 31 Dec 2017
	£bn	£bn	£bn	£bn	£bn	£bn	£bn
Standard Life Aberdeen plc AUMA as reported	647.6	80.1	(111.1)	(31.0)	42.6	(4.3)	654.9
Less: Discontinued operations	(127.4)	(9.2)	12.2	3.0	(9.7)	-	(134.1)
Less: Discontinued eliminations	102.8	4.6	(6.9)	(2.3)	5.2	-	105.7
Less: HDFC AMC	(10.5)	(2.1)	-	(2.1)	(1.0)	-	(13.6)
Less: India and China life	(4.6)	(1.0)	0.5	(0.5)	(0.3)	0.6	(4.8)
Total Standard Life Aberdeen AUMA	607.9	72.4	(105.3)	(32.9)	36.8	(3.7)	608.1