TIDMSL.
RNS Number : 7411X
Standard Life plc
24 February 2017
Standard Life plc
Full Year Results 2016
Part 2 of 8
Strategic Report
Highlights
Financial highlights
Assets under
administration
(AUA) Operating profit
-------------------- -------------------
GBP357.1bn GBP723m
2015: GBP307.4bn 2015: GBP665m
Underlying cash
Net flows generation
-------------------- -------------------
GBP2.6bn outflow GBP502m
2015: GBP6.3bn 2015: GBP459m(1)
inflow
Operating return
on equity Cost/income ratio
-------------------- -------------------
15.2% 62%
2015: 14.2%(2) 2015: 63%
Full year dividend
per share
--------------------
19.82p
2015: 18.36p
We include measures here which
have not been determined to
be KPIs but we believe are integral
to the Group's performance.
IFRS profit after
tax attributable Basic earnings
to equity holders per share
-------------------- -------------------
GBP368m 18.7p
2015: GBP276m 2015: 13.5p
2015 comparatives are in relation
to continuing operations unless
otherwise stated.
(1) Comparative has been restated.
See Chief Financial Officer's
overview.
(2) Comparative includes discontinued
operations.
Non-financial highlights
Movement in Standard
Life brand net Employee engagement
promoter score survey Engagement
-------------------- -------------------
Down 11 65%
2015: Up 5 2015: 63%
Enablement
-------------------
62%
2015: 64%
Key performance indicators (KPIs) are defined as the measures by
which the development, performance or position of the business can
be measured effectively.
The Strategic report and financial highlights 2016 contains
extracts from the Group's Annual report and accounts 2016. For
further information and a fuller understanding of the results and
the state of affairs of the Group, please refer to the full Annual
report and accounts 2016 which can be found on our website at
www.standardlife.com/annualreport
The auditors' report on the full accounts for the year ended 31
December 2016 was unqualified, and their statement under section
496 of the Companies Act 2006 (whether the Strategic Report and the
Directors' Report are consistent with the accounts) was
unqualified.
Who we are
We were established in Edinburgh in 1825. Today we're an
investment company employing 6,300 people - through operations in
the UK, Europe, North America, Asia and Australia.
Our purpose is to invest for a better future. We do it to make a
difference. For our customers and clients, our people and our
shareholders. This takes the combined skills, expertise and
collaboration of a team of people who are committed to excellence
in all they do.
Our simple business model is designed to help us generate value
over the long term. We manage, administer and advise on assets for
customers and clients and our businesses are focused on meeting
their investment needs.
Our business today
Growing our business...
Where we operate
We have offices in many of the world's financial centres and
market locations. Operating this way lets us understand where and
how markets and trends are developing and also how best we can
respond to them.
Our head office is in Edinburgh with key operations in London,
Dublin and Frankfurt. We also have regional hubs in Boston and Hong
Kong for asset management.
Our associate businesses in India, HDFC Life and HDFC Asset
Management, are based in Mumbai. Our joint venture in China, Heng
An Standard Life, operates out of Tianjin.
Expanding our reach
We are building on the strong foundation of our business in the
UK, with acquisitions during 2016 that have strengthened our
position in the advice and adviser platform markets. We continued
to expand internationally too, including a new office in Tokyo and
commencing a strategic partnership with Challenger, a leading
retirement income group in Australia.
...to meet customer and client needs
Our businesses
Standard Life Pensions and India and China
Investments Savings
---------
Overview Standard Life Our Pensions Through a combination
Investments specialises and Savings business of associate
in active asset is a leading and joint venture
management. Our provider of long-term life businesses,
key markets are savings and investment we have extensive
in the UK, Europe, propositions. reach in the
North America We are primarily key savings markets
and Asia. We based in the in India and
offer a wide UK, with operations China. We also
range of investment in Ireland and have a wholly
solutions and Germany and serve owned business
funds, all supported around 4.5 million in Hong Kong.
by a distinctive customers and Across these
investment philosophy clients. Our businesses, we
-Focus on Change. main aim is to help to look
help people manage after the life
their money today insurance needs
and save for of over 25 million
their future. customers.
--------- -------------------------- ------------------------- -----------------------
How we Our investment In the UK, through HDFC Life, our
operate funds and solutions our Workplace associate business
are available channel, we offer in India, sells
to clients through pensions, savings individual and
two distribution and flexible group life insurance
channels. benefits schemes policies via
Our Institutional to employees a network of
channel manages through their around 400 branches
assets for a employers. as well as through
wide range of Our Retail channel a number of key
institutions, is a mix of intermediary bancassurance
such as pension relationships relationships.
fund clients, (financial advisers), Heng An Standard
government authorities, direct customer Life (HASL),
corporates, charities relationships our joint venture
and insurance and our own financial business in China
companies. planning business has 82 offices
Our Wholesale (1825). offering life
channel provides Our valuable and health insurance
funds and solutions mature book includes products on both
to retail investors UK mature Retail a group and individual
through wholesale as well as spread/risk basis. Sales
distributors products, such are predominantly
and platforms. as annuities made direct to
We also provide and protection. customers and
active asset In Ireland and clients. HASL
management services Germany, we offer also maintains
for life insurance savings and investment relationships
books to the products to a with bank and
wider Standard variety of customers insurance brokers.
Life Group and and clients. We operate as
to strategic Standard Life
partners such in Hong Kong,
as the Phoenix selling insurance
Group. and savings products
Our associate via insurance
business, HDFC brokers.
Asset Management,
is a leading
manager of mutual
funds in India.
--------- -------------------------- ------------------------- -----------------------
Operating GBP383m GBP362m GBP36m
profit (2015: GBP342m) (2015: GBP357m) (2015: GBP27m)
--------- -------------------------- ------------------------- -----------------------
Outlook We expect the We believe the Following the
low interest demand for financial announcement
rate and compressed advice will continue in August 2016,
return climate to grow. To meet the aim is to
in financial that demand, complete the
markets to continue. we aim to continue proposed combination
We will continue growing our platform of the life insurance
to develop innovative business and businesses of
investment solutions to pursue further HDFC Life and
and global distribution opportunities Max Life within
to further diversify to build scale the next 12 months,
our business. in our 1825 financial subject to necessary
This includes advice business. approvals being
expanding our Our Workplace obtained.
liability aware business is expected We are well positioned
offering and to continue to for expected
range of multi-asset benefit from future growth
investment solutions. ongoing implementations in the life insurance
We are also strengthening from auto enrolment, markets in India
our private markets securing a steady and China. We
capabilities. flow of regular continue to develop
We will continue contributions our future business
to expand our into our pension strategy in mainland
geographic reach products. China and Hong
through developing We will respond Kong.
our own distribution to European Union In China, HASL
and building developments continues to
strong relationships in a way that work towards
with strategic takes into account gaining a pensions
partners. the best interests licence from
of customers, the China Insurance
clients and our Regulatory Commission.
business.
Message from the Chairman
An unpredictable and changing world
2016 was not a good year for experts and much happened that was
unpredicted and unexpected. In the UK we have had a change of
leadership in Government and a great shift in terms of the future
direction for the nation as a result of the decision to leave the
European Union. In the US there is a new President, clearly
different from his predecessor. It has been a time of great and
significant change and it will be some years for the long-term
effects to become apparent. The good news is that our business has
had, in its 191-year history, a very good track record of being
able to navigate times of internal, economic, and societal change,
all whilst keeping its customers and clients absolutely at the
heart of what it does. Change brings comparative advantage for
well-run businesses, provided they anticipate and adapt.
Across the world, markets continued to feel the effects of
short-term peaks and troughs and this has affected our investment
performance in certain asset classes. However, we have a very fine
investment management business and a good many excellent investment
professionals and I'm confident that our robust processes will
continue to deliver strong performance over the longer term.
The major developments in our business in 2016 have been aimed
at increasing the depth and reach of what we do. Increased scale is
allowing us to improve our operational efficiency and to widen the
services we can provide to our customers and clients around the
world.
Our dividend
Together with our focus to deliver against our established
strategy, we have again generated another solid set of financial
results. We continued to make good profits, continued to invest in
our operations for the future, and continued to manage our balance
sheet effectively.
I am very pleased to confirm, as a result of our strong
performance, another year of increased dividend payments to our
shareholders. Our final dividend for 2016 is 13.35p per share (up
8.2% on 2015) and gives a total 2016 dividend of 19.82p per share
(up 8.0% on 2015). If our shareholders approve the final dividend
at our Annual General Meeting in May this year, it will be paid out
on 23 May 2017.
Business overview
During 2016, we made several key announcements, designed to
further our ambitions. We made a significant strategic investment
in the adviser platform market by acquiring Elevate. Together with
our own Wrap platform, this gives us a much bigger footprint in the
UK marketplace. The demand for platforms and also for professional
financial advice has grown as more people are empowered to take
control of their long-term savings plan. We also acquired three
independent advice businesses as part of our growth strategy for
our 1825 brand.
Our investment expertise in both public and private markets
continued to develop and our global investment activities further
expanded both geographically and in the range of clients we serve.
We are closely monitoring potential changes both in regulation and
customer behaviour in asset management and we are determined to
maintain our position as a successful global investment company of
significant expertise and scale.
We have very substantial investments in India through our
partner HDFC -- one of the leading players in both asset management
and life insurance. A change in legislation gave us the opportunity
to increase our investment in HDFC Life, which has continued to
expand in the Indian life and pensions market, as well as
geographically too into the Gulf region. HDFC Life is also working
towards combining its life insurance business with that of Max
Life, which will give it significantly increased scale and
opportunity.
European Union
The decision of the people of the UK to leave the European Union
after over 40 years is one of profound importance which is bound to
impact our business. For example, we use 'passporting' to service
our 500,000 customers in Ireland, Germany and Austria through
branches of our UK business, and to allow our Ireland business to
service those UK customers invested in our International Bond.
Whatever the outcome of the negotiations that will shortly start
between the UK and the EU, our intention is to maintain current
levels of service for all our customers.
It is no secret that, prior to the referendum, I publicly
advocated the advantages that membership of the single market gives
to the financial services industry in the UK, and to Standard Life,
our customers and clients. It's now clear that many of these
advantages will no longer be available. The people have spoken, the
politicians are preparing for the Article 50 negotiations and we,
as a responsible business, will do everything we can to make a
success of the UK's new position in the world.
We intend to play our full part in influencing the negotiations
and helping to build a solution that is right for the UK. We
believe that this will benefit our customers, our shareholders, our
employees and, ultimately, our country.
Culture and governance
Our company's culture is built on a set of strong values,
including customer focus and trust. We embody these values in
everything that we do. Governance and conduct are the measures we
put in place, in part, to ensure we are continuing to follow our
values consistently. I have always been very vocal in championing
effective governance at board level. In 2016, we continued to look
at how best we can serve the needs of our business, our customers
and clients and, of course, our shareholders.
Against this background, it was particularly disappointing that
the outcome of the Financial Conduct Authority's thematic review
into the sale of non-advised annuities showed that a portion of
annuity sales that we made since July 2008 did not adequately
explain to customers that they may have been eligible for an
enhanced annuity. We are continuing the work to ensure we put
things right and have made a provision in our accounts for the
costs that we may incur in relation to this.
We have strengthened the governance and oversight of our
principal insurance company, Standard Life Assurance Limited, by
appointing an independent Chairman, Lynne Peacock, who already sits
on the plc Board, and an additional three very experienced
non-executives, Amanda Bowe, Richard Houghton and David Marock.
This in turn will allow the plc Board to devote more time to its
strategic oversight of the whole of Standard Life.
In other Board changes, we said goodbye to Crawford Gillies and
Isabel Hudson, and I was very pleased to welcome John Devine as a
non-Executive Director. John previously chaired Standard Life
Investments and is a highly experienced operational practitioner
and independent director, with previous roles at Threadneedle Asset
Management Limited and Merrill Lynch.
In January 2017 we announced that Paul Matthews would be
stepping down from the Board as Chief Executive of Pensions and
Savings on 1 March 2017, prior to his retirement on 31 August 2017.
His successor, Barry O'Dwyer, joins the Board from 1 March,
bringing with him a great deal of customer insight experience from
his role as CEO of Standard Life Assurance Limited.
Sustainability
As you would expect for a business that has been around for 191
years, operating in a sustainable way is central to what we do. I
am very pleased that, once again, our people's hard work and
dedication to making your business efficient, effective and
responsible, was recognised in our best-ever achievements in both
the Dow Jones and FTSE4Good sustainability rankings. We also
received a 'Silver Class' award from independent experts RobecoSam
for our corporate sustainability work. You can read more about our
corporate and social responsibility activities in the
Sustainability section of this report.
Standard Life Foundation
I announced the launch of the Standard Life Foundation at our
AGM in May 2016. This independent charity carries on the spirit of
the former Standard Life Charitable Trust, but with a new and
enhanced focus. I also announced that a substantial endowment would
be gifted to the Foundation too. This endowment, in the region of
GBP80 million, represents the vast majority of the proceeds of the
disposal of unclaimed demutualisation shares and related
dividends.
Lord Darling, the former Chancellor of the Exchequer, is chair
of the Foundation, supported by a team of very experienced
trustees. The Foundation will focus on independent research to
strengthen financial well-being and resilience in the UK. I expect
it to become highly-regarded and a very influential force in
commissioning and disseminating research, both on its own account
and working alongside other like-minded organisations too.
Finally...
Businesses only succeed if they hold true to their values and
constantly try to do the right thing. In a business like ours,
customers and clients need to trust us and this trust is
hard-earned.
Our achievements during 2016 are down to our dedicated
employees. Tremendous people work for Standard Life and I'm very
grateful to all of them for their hard work and talent. I'd also
like to thank our shareholders for your continued support.
Over recent years we have fundamentally reshaped Standard Life
and, very importantly, have created substantial value for
shareholders. Standard Life has the potential to achieve much more
and your company is in good shape to continue creating value for
you in this increasingly complex and ever-changing world.
Sir Gerry Grimstone
Chairman
Standard Life plc
Chief Executive's overview
Creating a world-class investment company
Q&A with Keith Skeoch, Chief Executive
Q: How would you describe Standard Life's performance in
2016?
A: Overall, we performed well. Our results show a picture of a
business that is playing to its strengths and growing in times of
profound political change and market volatility. We improved our
financial discipline to increase profits, maintain our financial
strength and grow dividends. We also saw our targeted investments
in diversification help increase our assets and revenues.
We continued to attract new assets from customers and clients
with GBP42bn of gross inflows across our business. One of the
hallmarks of 2016 was the industry wide retreat from parts of the
investment market, which saw the most challenging conditions for
the UK mutual funds industry in over 20 years.
However, we experienced modest net outflows of GBP2.6bn, less
than 1% of assets at the start of 2016. This included outflows from
our mature books which are in long-term run-off. Against these
headwinds fee based revenue grew by 5% which, combined with careful
cost control, helped us deliver a 9% increase in operating profit.
Our strategy to build a well-diversified business helps our company
to cope with significant change. What was encouraging was the
GBP4.1bn of net inflows into the areas we regard as the long-term
drivers of Standard Life's growth.
Q: What are Standard Life's ambitions?
A: Our ambition is to create a world-class investment company: a
global business which competes in our home markets and against the
leading companies across the world.
To do this we will have to bring together the best from our
successful active asset management, wealth management and pension
and savings businesses to meet the changing shape of saver and
investor needs.
We will build on our asset management skills, the quality of our
advice to customers, the strength of the propositions that sit on
our distribution platforms and the administration skills that lie
behind them. This combination has allowed us to attract a highly
diversified customer and client base which we want to continue
growing.
Q: You talk about world-class - what does this mean?
A: I believe to be world-class will mean our business is truly
valued by savers, admired by the market and a source of pride for
our people.
Our simple and consistent business model has been the foundation
for our success for over a decade now and this continues to serve
us well. However, to meet our ambitions we need to increase the
pace of change and delivery in the business over the next year.
Building on the work undertaken in 2016, we will continue to
broaden and deepen our investment capabilities through new product
innovation and identifying investment opportunities. This will
allow us to both strengthen our relationships with our customers
and, ultimately, give them the investment outcomes they expect.
We'll continue to look for new opportunities to run our business
more efficiently to drive real long-term value for all of our
stakeholders. And we'll continue to focus on attracting the best
talent from around the world to make our ambitions a reality.
Q: You have been in the role for 18 months now, what changes
have you introduced to make the business operate more
effectively?
A: My role is to ensure the business continues to evolve and
progress. In my view the best way of doing this is to build a
well-diversified global investment company where we work
effectively together to drive value for customers, clients, and
shareholders.
Since I took on the role of Chief Executive I've focused on
improving our financial discipline and on ensuring we continue with
targeted investments in diversification to generate growth.
Delivering long-term value is not just about growing the business
but also bringing it closer together and building a strong culture
focused on delivering for shareholders and customers. It is a
culture based on collaboration, diversity, respect and
inclusion.
A culture is not developed overnight. It takes time to win the
hearts and minds of those involved and is only evidenced through
actions and behaviours. One key indicator of how we are progressing
is our employee survey scores. Against the backdrop of change, it
was pleasing that our employee engagement score increased slightly
compared to the previous year.
So we are making good progress and we are already seeing the
benefits of working more closely together, delivering a number of
initiatives in the last year across the business.
We delivered new investment propositions across an increasingly
broad range of asset classes and geographies to meet the emerging
needs of our Institutional, Wholesale, Retail and Workplace
customers and clients. Our very successful MyFolio suite of funds
was also launched in Germany.
We opened a Tokyo office to further our reach in Japan and began
a new strategic collaboration with Bosera International - one of
China's leading asset managers. In North America and Asia, we
continued to develop strategic partnerships with global names like
John Hancock and Sumitomo Mitsui.
In the UK our financial adviser platform proposition grew
following the acquisition of Elevate, building on our already
successful platform business, and ensuring we now work with a
broader adviser population. Our own UK-wide financial planning
brand, 1825, continued to develop through the acquisition of three
financial planning businesses.
We also announced a very exciting development for our associate
business in India, with the proposed combination of the life
insurance businesses of HDFC Life and Max Life.
Q: How does the leadership team you have in place play its part
in delivering Standard Life's strategy?
A: My executive team brings together leadership skills and
expertise from across the business. It's responsible for developing
a single strategic plan that identifies our targeted investments in
diversification and capitalises on the opportunities open to our
asset management and pension and savings businesses, and those
created by our various partnerships around the world. We also have
a diverse, experienced and strong leadership population supporting
the executive team in implementing our single strategy.
A key element of our strategy is recognising the importance of
effective succession planning within that leadership population. We
actively demonstrated this following the recent announcement that
Paul Matthews is to retire this year. Barry O'Dwyer, a key member
of the Pension and Savings management team, will take on Paul's
responsibilities and replace him on the plc Board. I think this is
a great example of the strength of talent we have at Standard Life
and the importance we place on effective succession planning.
Q: What's next for the business?
A: For me it's simple, we need to continue to deliver steady
progress in becoming the world-class business that I've
described.
The external environment may be challenging at the moment but I
believe we need to continue to look to the long term. As a business
we'll be celebrating our 200th birthday in 2025 and we are proud of
our heritage. Our longevity has been built on holding true to our
values, understanding the evolving needs of our customers and
clients and continuously rising to meet the demands of the world
around us.
Our purpose in everything that we do is to invest for a better
future. We will continue to do this with the aim of making a real
difference to the lives of our stakeholders.
Keith Skeoch
Chief Executive
Standard Life plc
Our business model
Our scalable businesses are well positioned to manage,
administer and advise on assets to meet a range of customer and
client needs, and to create value for our stakeholders.
Our simple business model...
Increasing Growing revenue Lowering unit Driving profit
assets We aim to grow costs Increasing
revenue by We aim to reduce assets, growing
providing propositions our unit costs revenue and
which customers by controlling lowering unit
and clients expenses and costs enables
value because investing carefully us to drive
of the quality to improve our profit
of our service both the scalability and further
and the long-term and efficiency invest in growing
investment of our business. our business.
returns we Cash generation
deliver. Most is closely
of the fees aligned with
we charge are profit.
based on the
level of assets
managed or
administered.
------------ ----------------------- --------------------- ------------------
Optimising We ensure that we have the appropriate
the balance level of capital to support our operations
sheet and provide protection for our policyholders,
while continuing to focus on growing our
capital-efficient fee business. We balance
investing for business growth with continuing
to pay growing dividends to shareholders.
------------ --------------------------------------------------------------------------
...is designed to be sustainable and resilient over the long
term...
We are well positioned to take advantage of four trends that
continue to shape the global savings and investment landscape.
Democratisation of financial risk
Customers and clients are having to take more responsibility for
their and their families' financial futures - driving the need for
financial guidance, advice and simpler products and services.
Rebuilding trust in financial services
The global financial crisis damaged trust in financial services
organisations. We will play our part in helping to rebuild this
trust - by demonstrating we are committed to doing the right thing,
being transparent in the way we operate and, through our products
and services, offering value to our customers and clients.
Innovation, technology and digitalisation
We aim to develop innovative products and services - helping us
to work more efficiently while improving the ways customers and
clients can access, invest and keep track of their assets.
Slow growth, low inflation, compressed return environment
In these market conditions, customers and clients are looking
for simple and transparent products, with clear outcomes that will
meet their investment needs.
...to create value for our stakeholders
We aim to create value for our stakeholders by:
-- Providing investment growth and excellent service for our
customers and clients
-- Using our influence as an investor to encourage responsible
thinking and practices in other organisations
-- Providing employment and opportunities for career growth to
our people
-- Delivering increased profits and dividends to grow
shareholder value
...with a strategy to achieve our world-class ambitions
Our strategy is designed to help us make the most of our market
opportunities and support our world-class ambitions.
Delivering our strategic objectives
Building a world-class investment company means providing real
value for our customers and clients over the long term. It takes a
commitment to teamwork and excellence in everything we do - and
ensuring that our people have the skills, resources and knowledge
to deliver.
Our strategic objectives are the key areas that we are focusing
on to deliver against our business model. By developing strong
relationships with customers and clients and broadening and
deepening our investment capability, we can increase assets and
grow our revenue. We can lower our unit costs and grow our profits
by building an efficient and effective business.
Attracting, retaining and developing our people will support us
in performing strongly in the future.
Together our investments in diversification will help improve
the resilience of our business model and the returns and value it
delivers for our shareholders.
Broadening and deepening our investment capability
"We have continued to demonstrate our capabilities as a
forward-looking, responsible company, as we look to deliver the
investment outcomes our customers and clients expect."
Rod Paris,
Chief Investment Officer
2016 summary
Key activities
-- Continued to expand our liability aware range with launch of
our unique Integrated Liability Plus Solutions
-- Increased our focus on private markets where we believe
better investment returns are possible over the long term
-- Enhanced choice of investment funds with 16 funds launched
during 2016
-- Launched MyFolio in our European markets following its
success in the UK
-- Embedded Environmental, Social and Governance principles into
our investment processes
Assets under administration (AUA)
GBP357.1bn +16%
Net flows
GBP2.6bn outflow
Key risks
-- Customer and client preferences and demand
-- Investment performance
-- Talent management
Objective
Broadening and deepening our investment capability gives us the
potential to attract a wider range of future customers and
clients.
We design propositions and fund choices to deliver the outcomes
they expect over the long term.
Success is measured by delivering investment performance that
meets the desired outcomes of our customers and clients. Our
propositions and fund choices demonstrate our capabilities as a
forward-looking, responsible investor. As a long-term asset
manager, our customers and clients expect us to have a long-term
view on how their investments will perform.
Market forces
We are well positioned to benefit from global trends that are
shaping the savings and investments landscape. This includes the
potential for slower economic growth and the compressed return
environment continuing for longer which we expect will drive demand
for active asset management.
2016 performance
Our short-term investment performance was weaker in 2016 and
this had an adverse impact on net flows. Net outflows of GBP2.6bn
were less than 1% of assets at the start of 2016. Our overall
long-term investment performance remains strong.
We launched 16 new funds across a range of different asset
classes, including Equities, Multi-asset and Fixed income. New
funds, with specific objectives, are part of our ongoing aim to
meet the investment needs of our customers and clients
Our MyFolio range of risk-based funds, which launched in 2010,
reached GBP10bn in assets under management - a positive
demonstration of our reputation and ability to actively manage
assets over the long term.
Outlook and 2017 objectives
We expect the compressed/low-return market environment to
persist during 2017. Our main objective is to continue to innovate
and seek new, diverse investment opportunities, including:
-- Further strengthen our private markets capability such as
private equity, real estate and illiquid credit
-- Convert our strong pipeline for our Integrated Liability Plus
Solution with further variants planned
-- Target opportunities from growing global markets for
outsourcing of management of insurance assets
Building an efficient and effective business
"Our continuing investment in technology is helping us to
develop increasingly scalable operations. We are able to administer
growing volumes of assets efficiently."
Colin Walklin,
Group Chief Operating Officer
2016 summary
Key activities
-- Continued to evolve our IT systems to reduce ongoing costs
and increase scalability
-- Enhanced our position as a leading platform provider
following the acquisition of Elevate
-- Increased automation in customer operations processes
Cost/income ratio
62% -1% pt
Assets under administration
GBP357.1bn +16%
Operating profit
GBP723m +9%
Key risks
-- Change management
-- IT failure and security
-- Outsourcer relationship management
-- Political change
Objective
Efficient and effective operations are critical for our
business. They help us provide outstanding service to our
customers, advisers and employers at a competitive unit cost.
We're transforming our operating platform to make it more
modern, flexible and scalable. We are also focusing on efficiency -
allowing us to deliver new products to market faster and
effectively manage unit costs. The surrounding architecture - which
includes our IT systems, the processes we follow and external
service providers we use - gives us greater flexibility and reduces
ongoing maintenance costs.
Market forces
To meet the expectations of our customers, advisers and
employers, we've continued to work to deliver modern, consistent
experiences across all of our platforms. Innovation, technology and
digitalisation are major market trends - and we are investing in
technology that helps us to become more scalable and operate more
efficiently.
We're supportive of changes that will improve regulation, and we
respond in an efficient and effective manner. For example, we've
been early adopters of the European Market Infrastructure
Regulation (EMIR) principles, designed to improve transparency and
reduce risk in the derivatives market.
2016 performance
We celebrated 10 years of our Wrap platform. Since launching in
2006, the platform has been adopted by over 1,500 financial advice
and wealth management firms, and currently serves over 200,000
customers.
We successfully embedded our new trade order management system -
the core investment platform for our fund managers - and we've made
significant progress with improving the technology and systems we
use to manage investment data.
The cost/income ratio, which measures our efficiency, improved
by 1% point to 62%. This includes the benefit of synergies
delivered from the integration of Ignis. We have generated over
GBP50m of annual cost synergies from this acquisition.
Outlook and 2017 objectives
-- Invest in technology to increase scalability, reduce ongoing
costs and increase our ability to adapt to change
-- Modernise the information storage systems in our Pensions and
Savings business to address risks around technology going out of
date and to reduce costs
-- Transform the way we use digital platforms to provide
information to customers and clients
Strategic objectives
Attracting, retaining and developing talented people
"We are committed to bringing out the best in our people and
enabling them to reach their potential."
Sandy Begbie,
Chief People Officer
2016 summary
Key activities
-- Developed our people managers with a tailored 12-month
training programme
-- Encouraged our people to develop their skills through
external board appointments
-- Implemented the Living Wage Foundation's latest UK hourly
rate of GBP8.45 (GBP9.75 in London)
Employee engagement survey
Engagement
65% +2% pts
Enablement
62% -2% pts
Key risks
-- Political change
-- Talent management
Objective
We invest in our employees' development because we know that
engaged people are central to building long-term customer and
client relationships, contributing to our businesses' performance,
reputation, profitability and long-term shareholder value.
Market forces
We compete in a global marketplace where talented people are in
high demand. We invest in mentoring, coaching and development
programmes for our people as part of their ongoing career
development.
We have a robust succession planning process in place for our
strategic executive committee members. This includes ongoing talent
management for people who have the potential and drive to become
our future business leaders.
2016 performance
Around 1,200 of our people were supported through employee
networks. We launched a Carers Network for people who are, or
support, carers and also LGBT+ Allies, which aims to raise
awareness of lesbian, gay, bisexual and transgender issues in the
workplace.
We continued our commitment to employing young people,
recruiting 46 graduates and 158 people through our youth employment
initiatives. 8% of our people in the UK and Ireland are aged 25 or
under, compared to just 0.5% in 2010.
Our peoples' contribution to business innovation and support for
our communities was celebrated through our annual Inspiration
Awards.
We had some small changes in the overall engagement and
enablement scores from our latest employee survey. In 2017, we will
create action plans to address the key themes from the survey.
Outlook and 2017 objectives
-- Continue to invest in our leaders and further develop our
strong talent pipeline
-- Promote the continued importance and benefits of cooperation
and collaboration to create high performing teams
-- Progress the policies and initiatives for a diverse and
inclusive culture, including working towards our targets for the
proportion of women in leadership roles
-- Identify and address key actions from our employee engagement
survey
Developing strong relationships with customers and clients
"Our strong relationships with customers, clients and advisers
have been the driving force of our success."
Colin Clark,
Global Client Director
A compelling proposition
Administration
We offer innovative products and services that allow customers
and clients to easily manage their savings and investments. We make
the most of technology to ensure people can easily access, service
and consolidate their assets.
Advice
We offer financial planning and advice to help clients achieve a
wide range of financial goals. We also offer a platform for
independent advisers that helps them capitalise on the growing
demand for their services and to serve their clients more
efficiently.
Asset management
We're an active asset manager. We offer market-leading
investment products that have clear investment outcomes. Our
approach is supported by a team of investment experts and a
philosophy which is focused on anticipating market change and
carefully managing risks.
2016 summary
Key activities
-- Continued to expand and diversify Standard Life Investments'
client base by geography, channel, client type and range of funds -
supported by innovative solutions and commitment to service
excellence
-- Supported leading advisers and consultants in the UK to embed
workplace and platform solutions
-- Continued to grow strategic partnerships that serve clients
in markets worldwide - including John Hancock in the US
Movement in Standard Life brand net promoter score
Down 11
Key risks
-- Customer and client outcomes
-- Customer and client preferences and demand
-- Outsourcer relationship management
Objective
We focus on putting customers and clients first, and we always
aim to operate in a timely and efficient way. If we don't meet our
own high standards, we look to put it right. Our processes and
technology are designed to enable us to deliver great customer
experiences that are also scalable, to support the future growth of
our business.
Market forces
Increased regulatory and legislative complexity, as well as
political uncertainty, have meant a greater need for advice and
tailored investment solutions. Individual and institutional clients
are looking to trusted organisations and advisers to help them make
the right choices. In the UK, we've also seen increased complexity
through pension freedoms - where people have greater choice in how
they take their pension.
We're also competing against offerings from other organisations.
We therefore aim to offer a premium service, consistent with our
overall proposition.
2016 performance
During 2016 we continued to strengthen how we support the needs
of our increasingly diverse range of institutional and wholesale
clients. We've also looked for opportunities to diversify through
our strategic relationships.
With individuals taking more responsibility for their finances
and seeking advice, our Wrap platform has remained a popular choice
for advisers - as it allows them to consolidate and manage clients'
financial plans more efficiently. The acquisition of Elevate has
strengthened our position in the UK advised platform market,
connecting us with more advisers and customers.
Our brand net promoter score is an important measure of customer
advocacy. In 2016 our score fell by 11 points. We believe the
reasons for this include the processes around pension freedoms -
which is a complex area - and lower customer confidence in
financial services as a whole. We also saw challenges arising from
new technology designed to improve customer experience. We've
planned a number of actions for 2017 to improve customer
experiences - including automating and simplifying key processes,
better self service online, and greater collaboration to better
understand customer needs.
We have also continued our work to address the findings of the
Financial Conduct Authority's thematic review into the sale of
non-advised annuities. The review showed that a portion of annuity
sales that we made since July 2008 did not adequately explain to
customers that they may have been eligible for an enhanced
annuity.
Outlook and 2017 objectives
-- Continue to develop client relationships - including through
new distribution partnerships and growing global brand awareness -
and how we connect with advisers through our platform business
-- Integrating new technology to improve our telephone systems
and online capabilities to deliver services that are scalable,
automated and cost efficient
-- Continue to collaborate across our business to keep improving
customer, client and adviser experiences
Growing and diversifying our revenue and profit
"Our targeted opportunities to further diversify our business
help us to grow revenues and profits."
Luke Savage,
Chief Financial Officer
2016 summary
Key activities
-- Completed the acquisition of Elevate, making us one of the
UK's largest and fastest growing adviser platform businesses
-- 1825, our financial advice business, completed three further
acquisitions
-- Increased our holding in HDFC Life to 35% and also announced
the proposed combination of this business with Max Life
Underlying cash generation
GBP502m +9%
Operating profit
GBP723m +9%
Full year dividend per share
19.82p +8%
Key risks
-- Counterparty risk
-- Investment performance
-- Longevity risk
-- Market risk
-- Regulatory change
Objective
We remain focused on growing and diversifying revenue and
profit, to deliver sustainable value for our shareholders and other
key stakeholders. We aim to do this by creating a world-class
investment company that is well diversified by geography,
distribution channel, client type, asset class and across the value
chain.
To support diversification, we will continue to pursue organic
growth opportunities from our own resources and activities - while
also carefully targeting appropriate acquisitions and new strategic
partnerships.
Market forces
As people are having to take more responsibility for their
financial futures, we've seen a growing demand for financial advice
and guidance. This presents an opportunity for us to diversify and
grow our sources of revenue - in particular, through our financial
advice business 1825.
We've seen increased customer and client appetite for simple and
transparent products that have clear investment objectives, and to
take a more active approach to managing their investments. These
are areas of strength for our business, built on our track record
of strong long-term investment performance and innovation.
2016 performance
We benefited from our diversified client base with business
channels responding in different ways to the market environment -
which was impacted by political and economic developments in the
UK, the US and other parts of the world. We also enhanced our focus
on financial discipline.
We continued to expand our global capabilities and distribution
through new strategic relationships. These relationships are an
important way of supporting our global growth and diversification
plan by providing a cost-effective way of quickly accessing new
markets.
Outlook and 2017 objectives
-- Expand our business in Europe, North America and Asia to
continue extending our global reach
-- Grow our 1825 financial advice business through organic
growth and acquisitions
-- Pursue a structured programme to seek further opportunities
to grow and diversify our business, while also reducing costs
Chief Financial Officer's overview
Delivering diversified and sustainable growth
"Our financial performance demonstrates continued growth and
resilience during a period of market uncertainty."
Luke Savage,
Chief Financial Officer
Q: How would you summarise Standard Life's performance in
2016?
A: Standard Life has demonstrated the benefits of our
diversified business, delivering a robust set of results against a
backdrop of challenging market conditions.
We have continued to attract high levels of gross flows,
indicating strong demand for our products, but we saw an increase
in redemptions, particularly in wholesale markets which were
impacted by weaker investor sentiment. We delivered another year of
increased revenue which together with our improved focus on cost
discipline has driven a 9% increase in operating profit to
GBP723m.
Q: You announced that there would be an increased focus on
efficiency across the business during 2016. How has that work
progressed so far and what can we expect during the remainder of
2017?
A: Standard Life has a good track record over recent years of
improving operational efficiency. This has been demonstrated by the
reduction in the cost/income ratio which has fallen by seven
percentage points since 2012. The integration of Ignis which has
delivered over GBP50m of annual cost savings and our investment in
IT architecture are good examples of what we have done to improve
efficiency. Whilst, in the short term, the investment to build our
1825 business and the acquisition of Elevate will impact the
downward trajectory in the cost/income ratio, we are confident that
the underlying direction remains unchanged. We remain focused on
delivering further operational efficiencies at the same time as
continuing to invest in the growth of our business.
Q: Standard Life has a strong capital and cash position. How can
we expect to see this being used?
A: Our strong capital position is very important to us. It
provides a buffer to support our progressive dividend policy which
has continued uninterrupted for the last 10 years, something we are
all very proud of. It also allows us to make strategic investments
and acquisitions to grow our business, such as our increased stake
in HDFC Life and the acquisition of Elevate. We intend to maintain
our progressive dividend policy and continue to invest capital
where we believe it increases shareholder value.
Q; Can you explain what is included in the results in relation
to the FCA's enhanced annuity thematic review?
A: Our IFRS profit before tax includes a non-operating impact of
GBP175m relating to a provision for an estimate of the redress
payable to customers, the costs of conducting the review, and other
related expenses. At this stage there is significant uncertainty
relating to all of these elements. Note 40 of the Group financial
statements provides further background, and explains that we are
seeking for up to GBP100m of the financial impact to be mitigated
by insurance. Discussions are ongoing with our insurers and, as a
result, no insurance recovery has been recognised as an asset in
these financial statements.
Increasing assets
Assets under administration and net flows
The increase in AUA from GBP307.4bn to GBP357.1bn was driven by
market movements, including benefits from a lower Sterling exchange
rate since the EU referendum, and the acquisition of the Elevate
platform business.
Net outflows were GBP2.6bn (2015: inflows GBP6.3bn) against a
backdrop of market uncertainty and weaker short-term investment
performance. Resilient net inflows of GBP4.1bn across our growth
channels were offset by net outflows of GBP7.1bn from our mature
books, which are in long-term run-off. Gross inflows remained
strong at GBP42.1bn (2015: GBP43.0bn) but redemptions increased to
GBP44.7bn (2015: GBP36.7bn).
Our growth channels saw continued positive net flows, benefiting
from product and client diversification. Standard Life Investments
experienced net outflows of GBP0.7bn (2015: inflows GBP10.3bn).
Institutional benefited from the breadth of our product offering
with net inflows of GBP1.1bn (2015: GBP3.3bn). This was outweighed
by net outflows of GBP1.7bn (2015: inflows GBP9.3bn) from Wholesale
where investors reacted to market volatility and short-term
investment performance. Pensions and Savings growth net inflows of
GBP5.9bn (2015: GBP6.7bn) were driven by strong platform flows and
growing contributions into existing Workplace schemes.
Net outflows from our mature books reduced by GBP1.7bn to
GBP7.1bn, helped by a GBP1.2bn new mandate secured from
Phoenix.
Net flows 2016 2015
GBPbn GBPbn
-------------------------- ------ ------
Standard Life Investments
growth (0.7) 10.3
Pensions and Savings
growth 5.9 6.7
Eliminations and
other growth (1.1) (2.1)
-------------------------- ------ ------
Total growth channels 4.1 14.9
-------------------------- ------ ------
Standard Life Investments
third party strategic
partner life business (2.7) (4.8)
Pensions and Savings
mature fee (3.5) (3.1)
Pensions and Savings
spread/risk (0.9) (0.9)
-------------------------- ------ ------
Total mature books (7.1) (8.8)
-------------------------- ------ ------
Associate and joint
venture life businesses 0.4 0.2
-------------------------- ------ ------
Total net flows (2.6) 6.3
-------------------------- ------ ------
Growing revenue
Fee based revenue
Fee based revenue increased by 5% to GBP1,651m (2015: GBP1,579m)
driven by higher average asset levels, including the benefit of
exchange rate movements. Average fee revenue yield remained broadly
in line with the prior year.
Fee based revenue in the UK Pensions and Savings and Standard
Life Investments growth channels increased by 11% and 9%
respectively. This was partly offset by a GBP21m reduction in Hong
Kong due to lower regular premium new business. Fee based revenue
from our mature business reduced in line with expected
outflows.
Spread/risk margin
Spread/risk margin, which mainly relates to income earned on
annuities, decreased by GBP11m to GBP134m. 2016 includes a GBP22m
benefit from an acceleration of payments from our main with profits
fund relating to changes to the Scheme of Demutualisation in
response to the transition to Solvency II. This was more than
offset by a GBP26m reduction due to a number of other components
including mortality experience in 2016 and new business profits.
Although we had expected fewer asset and liability opportunities to
exist in the low yield environment, we took advantage of a number
of periods of market volatility to deliver a benefit of GBP25m
(2015: GBP30m).
Operating assumption and actuarial reserving changes provided a
benefit of GBP42m (2015: GBP44m), primarily relating to future
longevity assumptions.
Lowering unit costs
We invest to enhance our propositions and capabilities in a
disciplined manner that aims to improve both the scalability and
efficiency of our business. The cost/income ratio which includes
our share of associates' and joint ventures' (JVs) profit before
tax, has improved by 1% point to 62%. This reflects not just the
rise in revenue but also our continued cost discipline and drive
for greater cost efficiencies.
Operating expenses increased by 3% to GBP1,159m (2015:
GBP1,124m) reflecting further investment in expanding the
distribution and global reach of Standard Life Investments,
building scale in the 1825 business, the acquisition of Elevate,
ongoing investment in technology in our Pensions and Savings
business and the impact of exchange rate movements.
Driving profit
Operating profit before tax increased by 9% and IFRS profit from
continuing operations(1) increased by 33%.
Operating profit before tax
Operating profit before tax continues to be a key measure which
helps to give shareholders a fuller understanding of the
performance of the business by identifying and analysing
non-operating items.
Operating profit before tax increased by GBP58m to GBP723m,
driven by higher fee revenue in our growth channels. Capital
management increased by GBP12m to GBP21m largely due to the benefit
of a higher pension scheme surplus. Our share of profit from
associates and JVs continued to grow with strong performance from
HDFC Life and HDFC Asset Management in India and further progress
from Heng An Standard Life in China.
Operating profit benefited by approximately GBP20m from lower
average Sterling exchange rates in 2016 compared to 2015.
Underlying performance
Underlying performance increased by 8% to GBP681m (2015:
GBP630m) and includes the GBP22m spread/risk margin benefit from an
acceleration of payments from our main with profits fund relating
to changes to the Scheme of Demutualisation in response to the
transition to Solvency II. Underlying performance excludes the
GBP42m (2015: GBP44m) of operating assumption and actuarial
reserving changes which benefited operating profit.
IFRS profit(1)
IFRS profit from continuing operations increased to GBP368m
(2015: GBP276m) due to a 9% increase in operating profit and
reduced restructuring costs offset by the GBP175m provision for
annuity sales practices.
Short-term fluctuations in investment return and economic
assumption changes generated a profit of GBP8m (2015: loss GBP63m)
mainly due to a narrowing of credit spreads and a fall in
yields.
Restructuring and corporate transaction expenses reduced to
GBP67m (2015: GBP115m), and included GBP24m relating to the
integration of Ignis, GBP5m for staff pension scheme restructuring,
GBP4m of costs relating to the Elevate acquisition, GBP15m Pensions
and Savings transformation costs and a number of other business
unit restructuring programmes and corporate transactions.
2015 also included a GBP46m non-operating restructuring loss in
Hong Kong following regulatory change.
The non-operating loss includes GBP175m relating to the
provision for annuity sales practices.
The total tax expense attributable to equity holders' profit
from continuing operations was GBP68m (2015: GBP77m). Further
details are included on the next page.
Other(2) profit from continuing operations comprises the share
of associates' and joint ventures' tax of GBP13m (2015: GBP13m). In
2015, this also included a Singapore IFRS loss before tax of GBP42m
which largely related to expenses in respect of the closure of that
business. The 2015 IFRS profit from discontinued operations of
GBP1,147m included the gain on sale of the Canadian business of
GBP1,102m.
IFRS profit 2016 2015
GBPm GBPm
-------------------------- ----- -----
Operating profit
before tax 723 665
Non-operating loss
before tax (274) (257)
Total tax expense (68) (77)
Other(2) (13) (55)
-------------------------- ----- -----
IFRS profit from
continuing operations(1) 368 276
-------------------------- ----- -----
IFRS profit from
discontinued operations - 1,147
-------------------------- ----- -----
Total IFRS profit(1) 368 1,423
-------------------------- ----- -----
Analysis of non-operating 2016 2015
loss before tax GBPm GBPm
-------------------------- ----- -----
Short-term fluctuations
in investment return
and economic assumption
changes 8 (63)
Restructuring and
corporate transaction
expenses (67) (115)
Impairment of intangible
assets (19) (7)
Provision for annuity
sales practices (175) -
Other operating
profit adjustments (21) (72)
Non-operating loss
before tax (274) (257)
-------------------------- ----- -----
(1) After tax attributable to equity holders of Standard Life
plc. For further details on our IFRS results, see the Group's IFRS
consolidated income statement on p113.
(2) Singapore was presented as a discontinued operation within
operating profit, but under IFRS 5 it was included in continuing
operations. Therefore a reclassification was required. For further
details see Note 2 in the Group financial statements section.
(3) Underlying cash generation
(4) This measure provides insight into our ability to generate
cash that supports further investment in the business and the
payment of dividends to our shareholders.
(5) Underlying cash generation increased to GBP502m driven by
the growth in fee based revenue within underlying performance.
Reconciliation of
underlying cash 2016 2015(1)
generation GBPm GBPm
-------------------------- ----- -------
Underlying performance 681 630
Associates and JVs
adjustment(1) (60) (44)
Current tax on underlying
performance (106) (114)
DAC/DIR adjustment (2) 5
Fixed and intangible
assets adjustment (11) (18)
-------------------------- ----- -------
Underlying cash
generation 502 459
-------------------------- ----- -------
(1) Group tax expense from continuing operations
(2) The total tax expense attributable to equity holders'
profits from continuing operations was GBP68m (2015: GBP77m), of
which GBP127m (2015: GBP114m) related to operating items and a
credit of GBP59m (2015: credit GBP37m) to non-operating items. The
reduction in the tax expense mainly reflects non-recurring items
which increased the tax charge in 2015. The effective tax rate was
14%(2) (2015: 19%(2) ) compared to a UK corporation tax rate of 20%
(2015: 20.25%). The main reasons for the rate being less than the
UK corporation tax rate are the inclusion within profit before tax
of our share of post-tax profit of JVs and associates with no added
tax charge and low tax rates relating to profit attributed to
non-controlling interests which are included in profit before tax.
These are also expected to reduce the effective tax rate in future
periods. There are also a number of one-off items affecting both
years. Excluding the effect of the accounting for JVs and
associates profit and non-controlling interests the effective tax
rate would be 18% (2015: 25%). Excluding these effects, in the
medium term we would expect the effective tax rate on profit
attributable to equity holders (subject to one-off items in any
given year) to be broadly in line with the UK corporation tax
rate.
(3) In 2016, our total tax contribution from continuing
operations to tax authorities in all the jurisdictions in which we
operated was GBP1,149m (2015: GBP1,059m). Of the total, GBP451m
(2015: GBP332m) was taxes borne by the Group whilst GBP698m (2015:
GBP727m) represents tax collected by us on behalf of tax
authorities. Taxes borne are higher than 2015 mainly due to
increased UK corporation tax payments relating to investment
returns on policyholder investments. Of the taxes collected, the
largest items are pay-as-you-earn (PAYE) deductions from pension
payments made to customers and from employee payroll payments.
(4) Tax policy
(5) Understanding tax risk, how to manage it, and how it impacts
all our stakeholders are important parts of running our business
responsibly. The Group proactively manages tax risks and employs an
experienced in-house tax team to oversee the affairs of the Group.
We have a tax risk management policy that is approved annually by
the Board and have published our tax strategy on our website at
www.standardlife.com/annualreport
Optimising the balance sheet
Solvency II capital surplus(3)
Our capital surplus is the amount of capital resources (referred
to as Own funds) that the Group holds in excess of its capital
requirement. The calculation of the Group's capital resources and
requirement is governed by the Solvency II regulatory regime. Under
Solvency II, every insurer is required to identify its key risks -
e.g. that equity markets fall - and hold sufficient capital to
withstand adverse outcomes from those risks. The capital required
to withstand these outcomes is the Solvency capital requirement
(SCR). The SCR is calibrated so that the likelihood of a loss being
greater than the SCR in one year is less than 1 in 200. Around 90%
of the Group SCR relates to Standard Life Assurance Limited (SLAL),
our principal insurance company.
We are strongly capitalised with a Solvency II capital surplus
(Investor view) of GBP3.3bn (2015: GBP3.3bn) representing a
solvency cover of 214% (2015: 222%). Capital requirements have
increased by GBP0.2bn as a result of lower interest rates and
higher equity values. We disclose an Investor view of our solvency
position as this provides insight into the solvency capital
provided by equity and debt investors.
The Solvency II Investor view capital surplus of GBP3.3bn would
change by GBP0.2bn or less following a:
-- 20% rise or fall in equities, or
-- 100bps rise or fall in fixed interest yields, or
-- 50bps rise or fall in credit spreads
The Regulatory view solvency cover prescribed by Solvency II
regulations is 176% (2015: 162%). The Regulatory view capital
surplus excludes GBP0.2bn (2015: GBP1.2bn) of capital in
subsidiaries that is not deemed to be freely transferrable around
the Group. The Regulatory view capital surplus increased to
GBP3.1bn (2015: GBP2.1bn) due to a reduction in unrecognised
capital following methodology and legislative changes. In addition,
the Regulatory view solvency cover is diluted by the inclusion of
GBP1.2bn (2015: GBP0.7bn) of capital requirements for with profits
funds and our defined benefit pension scheme. These capital
requirements are covered in full by capital resources in those
funds.
31 December 2016(3) 1 January 2016(3)
---------------- ------------------------------------------------- -------------------------------------------------
Add Add
with with
Reconciliation profits profits
of Standard Life funds funds
Investor view Less and Less and
and Regulatory Investor unrecognised pension Regulatory Investor unrecognised pension Regulatory
view view capital scheme view view capital scheme view
---------------- ---------- ------------- ---------- ---------- ---------- ------------- ---------- ----------
Own funds GBP6.2bn (GBP0.2bn) GBP1.2bn GBP7.2bn GBP6.0bn (GBP1.2bn) GBP0.7bn GBP5.5bn
Solvency capital
requirement
(SCR) (GBP2.9bn) - (GBP1.2bn) (GBP4.1bn) (GBP2.7bn) - (GBP0.7bn) (GBP3.4bn)
Solvency II
capital
surplus GBP3.3bn (GBP0.2bn) - GBP3.1bn GBP3.3bn (GBP1.2bn) - GBP2.1bn
---------------- ---------- ------------- ---------- ---------- ---------- ------------- ---------- ----------
Solvency cover 214% 176% 222% 162%
---------------- ---------- ------------- ---------- ---------- ---------- ------------- ---------- ----------
(1) Underlying cash generation now includes dividends received
from our Indian associates. Prior period figures have been
restated. Further details are included in the Supplementary
information section of this report.
(2) Tax expense attributable to equity holders' profits divided
by profit before tax expense attributable to equity holders'
profits. Includes profit attributable to non-controlling
interests.
(3) 31 December 2016 based on draft regulatory returns. 1
January 2016 based on final regulatory returns.
Operating return on equity
Operating return on equity measures our success in generating
operating profit relative to our shareholder capital. We will
continue to manage our capital position to ensure that we generate
sustainable returns for our shareholders. For example, in April
2016 we invested GBP179m to increase our stake in HDFC Life.
Operating return on equity increased to 15.2% (2015: 14.2%)
reflecting strong operating profit partly offset by a higher tax
charge.
Our key growth channels including Standard Life Investments
Institutional and Wholesale, and UK Workplace and Retail are
'capital-lite' which means that they do not require significant
amounts of additional capital as they continue to grow.
Operating return on equity continues to be diluted by the impact
of the cGBP1bn pension scheme surplus. Excluding the impact of the
pension scheme, operating return on equity was 18.8% (2015:
16.9%).
Dividends
Dividend policy
Our progressive dividend policy is to grow the annual dividend
from the prior year pence per share payment at a rate that is
sustainable over the long term.
Proposed dividend
The Board is recommending a final dividend for 2016 of 13.35p
per ordinary share which is an increase of 8.2% on last year's
final dividend. Subject to shareholder approval, this will be paid
on 23 May 2017 to shareholders on the register at close of business
on 18 April 2017.
The dividend payment which is expected to be GBP262m is strongly
supported by underlying cash generation. At 31 December 2016
Standard Life plc held GBP0.9bn of cash and liquid resources and
GBP1.6bn of distributable reserves.
The final dividend, combined with the 2016 interim dividend of
6.47p, brings the total dividend for the year to 19.82p - an
increase of 8.0% on the 2015 full year dividend.
How the dividend is funded
External dividends are funded from the cumulative dividend
income that Standard Life plc receives from its subsidiaries. To
provide some protection against fluctuations in subsidiary
dividends, Standard Life plc holds a buffer of distributable cash
and liquid resources. This buffer is dynamic and takes into account
expected future subsidiary dividend flows and the risks to those
dividends. Further information on the principal risks and
uncertainties that may affect the business and therefore dividends
is provided in the Risk management section of this Strategic
report.
Liquidity management
Standard Life plc, the Group holding company, holds substantial
cash and liquid resources. At 31 December 2016, Standard Life plc
held GBP395m (2015: GBP522m) of cash and short-term debt
securities, GBP304m (2015: GBP290m) of bonds and GBP201m (2015:
GBP200m) of holdings in pooled investment funds managed by Standard
Life Investments.
We continue to maintain a strong liquidity position and this was
again shown in internal stress testing undertaken during 2016.
The increase in dividends received from subsidiaries includes
approximately GBP50m related to capital released following the
integration of Ignis.
In April 2016 we increased our stake in HDFC Life by 9% to 35%.
This was funded from existing Standard Life plc resources. In
October 2016 we completed the purchase of the Elevate platform
business. This purchase was funded by Standard Life Assurance
Limited, but the cost impact will be absorbed by Standard Life
plc's resources over time.
In April 2016 we extended the maturity date of our syndicated
revolving credit facility by a further year to 2021. This GBP400m
facility is held as part of our contingency funding plans and is
currently undrawn.
Standard Life plc
cash and liquid 2016 2015
resources GBPm GBPm
----------------------- ----- -----
Opening 1 January 1,012 630
Canada net retained
proceeds - 460
Dividends received
from subsidiaries 457 355
Cash dividends paid
to shareholders (370) (343)
Cash investments
in associates and
JVs (177) (3)
Cash investments
in subsidiaries (31) (44)
Other 9 (43)
----------------------- ----- -----
Closing 31 December(1) 900 1,012
----------------------- ----- -----
(1) 31 December 2016 excludes GBP36m of cash in the Unclaimed
Assets Trust. The residual assets of this trust (after claims and
costs have been settled) are expected to be donated to the Standard
Life Foundation. IFRS presentation at 31 December 2016 consists of
investments in subsidiaries at FVTPL of GBP276m, debt securities of
GBP605m and cash and cash equivalents of GBP55m.
Business performance
Our reportable segments have been identified in accordance with
the way that we are structured and managed. In 2015 discontinued
operations for segmental reporting purposes related to our Canadian
business which was sold on 30 January 2015 and our Singapore
business, the closure of which was announced in June 2015.
Analysis of operating profit(1) from continuing operations
Standard Pensions India Total
Life Investments and Savings(2) and China Other(3) Eliminations(4) continuing
----------------- ----------------- ------------ ------------ ----------------- ----------------
2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------- ------- -------- -------- ------- ----- ----- ----- ----- -------- ------- ------- -------
Fee based
revenue 885 843 861 808 17 38 - - (112) (110) 1,651 1,579
Spread/risk
margin - - 134 145 - - - - - - 134 145
--------------- ------- -------- -------- ------- ----- ----- ----- ----- -------- ------- ------- -------
Total operating
income 885 843 995 953 17 38 - - (112) (110) 1,785 1,724
Total operating
expenses (537) (532) (655) (610) (22) (36) (57) (56) 112 110 (1,159) (1,124)
Capital
management - - 22 14 - - (1) (5) - - 21 9
Share of
associates'
and joint
ventures'
profit before
tax 35 31 - - 41 25 - - - - 76 56
--------------- ------- -------- -------- ------- ----- ----- ----- ----- -------- ------- ------- -------
Operating
profit before
tax 383 342 362 357 36 27 (58) (61) - - 723 665
--------------- ------- -------- -------- ------- ----- ----- ----- ----- -------- ------- ------- -------
Underlying
adjustments(5) - - (42) (35) - - - - - - (42) (35)
--------------- ------- -------- -------- ------- ----- ----- ----- ----- -------- ------- ------- -------
Underlying
performance 383 342 320 322 36 27 (58) (61) - - 681 630
--------------- ------- -------- -------- ------- ----- ----- ----- ----- -------- ------- ------- -------
Reversal of
underlying
adjustments - - 42 35 - - - - - - 42 35
Share of
associates'
and joint
ventures'
tax expense (11) (11) - - (2) (2) - - - - (13) (13)
Non-operating
items (50) (53) (207) (131) (3) (47) (14) (26) - - (274) (257)
Total tax
expense (63) (53) (25) (38) - 5 20 9 - - (68) (77)
Singapore
included in
discontinued
segment - - - - - (42) - - - - - (42)
--------------- ------- -------- -------- ------- ----- ----- ----- ----- -------- ------- ------- -------
Profit for
the year
attributable
to equity
holders of
Standard Life
plc 259 225 130 188 31 (59) (52) (78) - - 368 276
--------------- ------- -------- -------- ------- ----- ----- ----- ----- -------- ------- ------- -------
(1) Operating profit is IFRS profit before tax adjusted to
remove the impact of short-term market driven fluctuations in
investment return and economic assumption changes, restructuring
costs, amortisation and impairment of intangible assets acquired in
business combinations, gain or loss on the sale of a subsidiary,
associate or joint venture and other one-off items which are not
indicative of the long-term operating performance of the Group. The
impact of the restructuring of the UK staff pension scheme has been
adjusted so that 2016 operating profit is based on the expected
long-term pension expense, which results in a GBP5m increase to
operating profit before tax (2015: GBP35m) and a corresponding
increase to non-operating restructuring and corporate transaction
expenses - refer to Note 10 in the Group financial statements
section for further details.
(2) UK and Europe has been renamed as Pensions and Savings.
(3) Other primarily relates to corporate centre costs and head
office related activities.
(4) Eliminations primarily relate to revenue and expenses
included in both the Pensions and Savings business and Standard
Life Investments. Therefore, at a Group level an elimination
adjustment is required to remove intra Group impacts.
(5) Relates to operating assumption changes of GBP42m (2015:
GBP44m), included in the spread/risk margin and principally in
respect of longevity assumption changes. The 2015 underlying
adjustment also included GBP9m shareholder support provided to the
German with profits business, included in operating expenses.
Standard Life Investments
Delivering innovative, client focused, funds and solutions
"Continued revenue growth, together with controlled management
of costs, has delivered increased profitability."
Keith Skeoch,
Chief Executive, Standard Life Investments
Standard Life Investments is a leading active asset manager. We
offer market-leading investment funds and solutions to our third
party clients through two main distribution channels:
-- Institutional: managing assets for a wide range of
institutions, such as pension fund clients, government authorities,
corporates, charities and insurance companies
-- Wholesale: providing funds and solutions to retail investors
through wholesale distributors and platforms
We also provide active asset management services for life
insurance books to the wider Standard Life Group and to strategic
partners such as the Phoenix Group.
As truly active managers, we place significant emphasis on
rigorous research and a strong team ethos. This, combined with
disciplined risk management and shared commitment to a culture of
investment excellence, is key to helping our clients look to their
future with confidence.
Our distinctive investment philosophy, Focus on Change, lies at
the heart of our wide range of investment funds and solutions.
Focus on Change helps analyse key factors driving the market price
of an investment and identifies the drivers that the wider market
may have missed. Our core belief is that our experienced investment
professionals can consistently add value to client portfolios by
exploiting these market inefficiencies.
We recognise that corporate governance along with responsible
stewardship of a business' capital, employees, customers,
environment and society has a fundamental impact on long-term
investment returns. Our commitment to socially responsible
investing is a fundamental component of our Focus on Change
investment philosophy and process.
Investing for the longer term
An uncertain political backdrop has the potential to dampen
global economic growth: the form Brexit takes and the trade and
immigration policies implemented by the new US administration makes
the path for asset prices more complicated. A number of supportive
factors are still in play: the US corporate profits recession is
ending, fiscal policy is expected to be expansionary, and financial
stress is contained at least for the time being. China is
experiencing a slowing economy but remains on course to rebalance
away from investment and to consumption.
In a world of slow growth, low inflation and compressed returns,
there are still cyclical opportunities to be found. Our view
emphasises sustainable yield as an investment theme, while
searching for specific growth opportunities.
Britain's decision to leave the EU may also affect our future
operating environment. We are monitoring developments on behalf of
our stakeholders and we remain ready to adapt our business to
future changes in regulations and markets. We remain committed to
our strategy of European business development. Work has commenced
to identify the optimal structure and distribution model in order
to continue to meet our clients' needs.
We support the aims of the Financial Conduct Authority (FCA)
Market Study of the asset management industry and are committed to
improving transparency, value and outcomes for customers and
clients. As a truly active asset manager we have always been
committed to delivering consistent, long-term investment
outperformance, and we welcome any moves which help individuals
understand the merits of different approaches to investing. We will
continue to work with the FCA throughout the period of its market
study.
We remain well positioned to deliver profitable and diversified
growth. We are broadening our offering to clients through a strong
pipeline of new investment funds and solutions. Our track record of
client co-development and commercialising innovation positions us
well to continue to meet the changing demands of our clients. At
the same time we continue to invest to drive performance, to raise
our profile and to enhance our infrastructure to support our growth
ambitions
Overview
-- Total AUM up 10% to GBP277.9bn
-- Fee based revenue from growth channels increased by 9% to
GBP680m
-- Gross inflows, in our growth channels, were resilient at
GBP28.5bn (2015: GBP31.4bn), while net outflows of GBP0.7bn (2015:
inflows GBP10.3bn) were impacted by higher redemptions
-- EBITDA margin of 45% (2015: 42%), achieved one year ahead of
stated target on acquisition of Ignis
-- Operating profit increased by 12% to GBP383m (2015: GBP342m)
driven by increased fee revenue and controlled growth in
expenses
-- Cost/income ratio improved to 58% (2015: 61%) with continued
integration of the Ignis business and ongoing cost discipline
-- Weaker short-term investment performance with 20% of growth
channels funds ahead of benchmark over one year, 76% over three
years and 88% over five years
Increasing assets
AUM increased by 10% to GBP277.9bn (2015: GBP253.2bn) driven by
market and other movements, of which around one-third relates to
favourable foreign exchange gains. The increase has been offset
somewhat by the natural run-off from our mature books together with
net outflows in our Wholesale channel against a background of
volatile markets.
Resilient growth channels flows
Gross flows across our growth channels remained strong at
GBP28.5bn (2015: GBP31.4bn), largely into Institutional and
Wholesale. This result reflects the breadth of our product
offering, our expanding global distribution capability and the
increasingly diverse range of client segments served. Net outflows
of GBP0.7bn (2015: inflows GBP10.3bn) were recorded; Institutional
net inflows of GBP1.1bn (2015: GBP3.3bn) were offset by Wholesale
net outflows of GBP1.7bn (2015: inflows GBP9.3bn). This reinforces
the benefit of our diversified client base where we have seen a
clear difference in investor sentiment in our two main distribution
channels. Wholesale redemptions increased as retail clients react
quickly to volatile markets and weaker short-term investment
performance while Institutional clients have longer term investment
horizons and are happier to ride out periods of market
volatility.
By channel:
Institutional(1) - record gross inflows
Our Institutional business saw record gross flows of GBP15.6bn
during 2016 (2015: GBP11.1bn). Redemptions also increased to
GBP14.5bn (2015: GBP7.8bn) resulting in net inflows of GBP1.1bn
(2015: GBP3.3bn). The quality and breadth of our offering is
demonstrated through net inflows into private equity, real estate
and multi-asset.
Wholesale(1) - challenging markets
Investor sentiment has been weak in this channel globally given
market volatility, the EU referendum result, other political
uncertainty and weaker short-term investment performance. Despite
this, we have achieved a top 5 gross sales position(2) in the UK
wholesale market for 17 consecutive quarters and remain well
positioned with a share of gross sales of 4.7%(3) (2015: 5.4%). In
terms of net sales, our ranking was 30th in 2016. Lower gross flows
and significantly increased redemptions of GBP13.8bn (2015:
GBP7.5bn) led to a net outflow of GBP1.7bn (2015: inflows
GBP9.3bn). Net inflows into MyFolio and fixed income are
particularly strong although multi-asset saw net outflows during
the year, largely due to GARS net outflows of GBP3.9bn.
By asset class:
Multi-asset experienced net outflows of GBP3.8bn (2015: inflows
GBP9.5bn), GBP3.9bn of net outflows from Wholesale offset by
GBP0.1bn of Institutional inflows. Gross flows into GARS slowed
during 2016 to GBP10.2bn (2015: GBP17.0bn) with redemptions also
increasing to GBP14.5bn (2015: GBP7.7bn) resulting in net outflows
of GBP4.3bn (2015: inflows GBP9.3bn). The launch of the Liability
Aware Absolute Return III fund and the Global Focused Strategies
fund in the US helped other multi-asset solutions net inflows to
reach GBP0.5bn.
Total growth channels gross flows excluding GARS were GBP18.3bn
(2015: GBP14.4bn) with net inflows of GBP3.6bn (2015: GBP1.0bn).
Our diversified fund offering is demonstrated by continued demand
for asset classes such as our MyFolio range of funds, which saw net
inflows of GBP1.6bn (2015: GBP1.9bn) as AUM increased to GBP10.5bn
(2015: GBP8.1bn). Other flows echoed market sentiment with
investors continuing to retreat from equities towards fixed income
with net outflows of GBP0.3bn (2015: GBPnil) and net inflows of
GBP1.1bn (2015: GBP0.3bn) respectively. Real estate also saw net
outflows of GBP0.3bn (2015: inflows GBP0.3bn). Other asset classes
saw net inflows of GBP1.0bn (2015: GBP0.8bn).
By geography:
North America returned net outflows in the year of GBP0.7bn
(2015: inflows GBP3.0bn), with over half as a result of fund
rationalisation activity. European and Asian net outflows of
GBP1.5bn and GBP0.1bn respectively (2015: inflows of GBP3.4bn and
GBP1.2bn respectively), reflected the impact of investment
volatility on wholesale markets. This also impacted our domestic UK
business with net inflows reducing to GBP0.1bn (2015: GBP4.4bn). In
India, our share of HDFC AMC net inflows increased to GBP1.5bn
(2015: GBP0.8bn).
Mature books
Our mature books business, which is in natural run-off, saw
overall net outflows of GBP4.8bn (2015: GBP6.8bn). This was due to
net outflows of GBP2.7bn (2015: GBP4.8bn) from the assets managed
on behalf of Phoenix Group as well as net outflows of GBP2.1bn
(2015: GBP2.0bn) from the life insurance books we manage for
Standard Life Group. Notably, 2016 included the award of a new
mandate for GBP1.2bn of assets from Phoenix Group, as our
relationship with this strategic partner develops. 2015 included a
GBP1.4bn one-off redemption by Phoenix Group.
Gross Inflows Net flows AUM
--------------- -------------- --------------
2016 2015 2016 2015 2016 2015
GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn
------------------------ ------- ------ ------ ------ ------ ------
Institutional(1) 15.6 11.1 1.1 3.3 87.0 67.0
Wholesale(1) 12.1 16.8 (1.7) 9.3 50.1 45.9
Wealth 0.8 0.9 (0.1) 0.2 6.8 6.5
Ignis(1) - 2.6 - (2.5) - 11.1
------------------------ ------- ------ ------ ------ ------ ------
Total growth channels 28.5 31.4 (0.7) 10.3 143.9 130.5
------------------------ ------- ------ ------ ------ ------ ------
Standard Life Group 3.5 4.1 (2.1) (2.0) 90.2 83.1
Phoenix Group 1.2 0.2 (2.7) (4.8) 43.8 39.6
------------------------ ------- ------ ------ ------ ------ ------
Total strategic partner
life business - mature
books 4.7 4.3 (4.8) (6.8) 134.0 122.7
------------------------ ------- ------ ------ ------ ------ ------
Total 33.2 35.7 (5.5) 3.5 277.9 253.2
------------------------ ------- ------ ------ ------ ------ ------
(1) During 2016 Ignis funds were merged into Standard Life
Investments funds and are now reported within Institutional and
Wholesale. This has resulted in a transfer of GBP11.1bn AUM out of
Ignis into Institutional (GBP9.8bn) and Wholesale (GBP1.3bn)
through Market and other movements.
(2) Source: Pridham market report Q4 2016.
(3) Source: Investment Association Q4 2016.
Growing revenue
Increased fee based revenue
Growth channels fee based revenue increased by 9% to GBP680m due
to higher AUM, a continued shift in mix towards our higher margin
growth products and favourable foreign exchange movements. Total
fee based revenue grew by 5% to GBP885m with a robust performance
from our mature business. The average revenue yield on growth AUM
was 53bps (2015: 52bps) and for mature books reduced slightly to
16bps (2015: 17bps) due to lower performance fees.
Lowering unit costs
Controlled operating expense growth
We have reduced our cost/income ratio to 58% (2015: 61%), which
is helped by the integration of Ignis together with the operational
leverage inherent within our business model. We have maintained
flexibility in our cost base which provides resilience in current
market conditions. Total operating expenses increased modestly by
1% to GBP537m demonstrating our ability to continue expanding our
investment capabilities and global reach while maintaining cost
discipline.
Driving profit
Operating profit before tax increased by 12% to GBP383m driven
by the increase in fee revenue and the closely controlled growth in
expenses. Operating return on equity increased to 39.5% (2015:
36.3%).
EBITDA, which is closely aligned with operating profit,
increased to GBP395m. Our EBITDA margin grew to 45% (2015: 42%),
achieving the target set when we acquired Ignis.
Total IFRS profit(1) increased to GBP259m (2015: GBP225m) due to
strong operating performance and the benefit of lower Ignis
integration costs.
2016 2015
GBPm GBPm
----------------------- ----- -----
Fee based revenue 885 843
Operating expenses (537) (532)
Share of associates'
profit before tax 35 31
----------------------- ----- -----
Operating profit
before tax 383 342
----------------------- ----- -----
Interest, depreciation
and amortisation 12 10
----------------------- ----- -----
EBITDA 395 352
----------------------- ----- -----
Reversal of interest,
depreciation and
amortisation (12) (10)
Non-operating items (50) (53)
Tax expense(2) (74) (64)
----------------------- ----- -----
Total IFRS profit(1) 259 225
----------------------- ----- -----
(1) After tax, from continuing operations, attributable to
equity holders of Standard Life plc.
(2) Tax expense includes share of associates' tax expense.
Ignis integration
As at 31 December 2016, in our second full year of ownership,
the migration of the Ignis business onto the Standard Life
Investments platform is substantially complete, with the final
integration costs to be incurred in H1 2017.
The integration of Ignis has allowed us to deliver annual
synergies in excess of GBP50m and helped us to achieve an EBITDA
margin for the combined business of 45%, a year ahead of
target.
Delivering long-term investment performance
Investment performance in 2016 was weak as short-term
performance was adversely impacted by the market reaction to
macro-economic and geopolitical events. Over one year, 20% of
growth channels funds were ahead of benchmark. Despite this, the
longer-term performance remains strong; 76% of funds were ahead
over three years while 88% were ahead of benchmark over five years
(2015: one year 88%, three years 95%, five years 90%).
Portfolios were positioned for a modest recovery in economic
growth. Market volatility, initially in China but more latterly in
response to the result of the UK's referendum on EU membership,
undermined investor confidence, boosting prices for defensive
assets at the expense of more growth orientated stocks. Performance
did, however, stage a late recovery as investors regained their
appetite for risk assets. However, this rebound was insufficient to
offset the losses from earlier in the year.
Increasing diversification
We continue to build efficient and effective global operations
with a presence in 29 cities worldwide including our Head Office in
Edinburgh and regional hubs in Boston and Hong Kong. As well as our
own distribution, we have developed strong relationships with
strategic partners in the US, Canada, India, Asia, Japan and in the
UK including the wider Standard Life Group, giving us an
increasingly international client base across 45 countries. A
recent example of this is our strategic partnership with Bosera
International, in mainland China, with whom we are collaborating on
a manufacturing basis, including joint product innovation and
investment management cooperation. In February 2017 we also
announced the commencement of a strategic partnership with
Challenger, a leading retirement income group in Australia.
We are increasingly diversified with innovative investment
solutions, such as liability aware and a range of multi-asset
investment solutions as well as investment capabilities in
traditional asset classes, including equities and fixed income. We
are also working to strengthen our private markets capability.
Awards and recognition
Our dedication to meeting clients' financial needs resulted in
us winning a number of industry awards, including:
-- UK Fixed Income Manager of the Year and Global Fixed Income
Manager of the Year 2016 - Professional Pensions Investment
Awards
-- Best Targeted Absolute Return Fund Provider - Moneyfacts
Awards
-- Large Fund Manager of the Year - Local authority pension fund
awards
-- UK Equity Income Unconstrained platinum award - Portfolio
Adviser Fund Awards 2016
-- UK Core Fixed Income and Pan-Europe Small Cap Equity winner -
Institutional Investor 2016 European Money Management Awards
-- Global Fixed Income - Financial Times PIPA Awards 2016
-- Best Application of ESG - Asia Asset Management Best of the
Best 2016
-- Best House for Absolute Returns - Asia Asset Management Best
of the Best 2016
-- Standard Life Wealth won 'Boutique Investment Management' at
the Charity Times Awards
-- Boston office ranked best medium-sized employer - 2016
Pensions & Investments' Best Place to Work in Money Management
awards
Pensions and Savings
Building lasting relationships with our customers
"We want to help and support people in managing their money
today and saving for their future. By understanding their needs we
use our skills and knowledge to advise, guide, inform and
importantly, develop the right products and services."
Paul Matthews,
Chief Executive Pensions and Savings
Our Pensions and Savings business is a leading provider of
long-term savings and investment propositions. Our main aim is to
help people manage their money today and save for their future.
In the UK we offer products and services through two broad
growth channels:
-- Retail: pensions and savings where the relationship is either
directly with the customer, or with their financial adviser
-- Workplace: pensions, savings and flexible benefits to
employees through their employers
We also own businesses that specialise in financial advice and
risk and compliance services.
The Europe business consists of our domestic and international
bond businesses in Ireland as well as our business in Germany.
Our valuable mature book includes UK mature Retail, which
includes business that was predominantly written before
demutualisation and spread/risk products, such as annuities and
protection, which provide a sustained contribution to our
profit.
Close collaboration with Standard Life Investments allows us to
support customers with a full suite of solutions. Pensions and
Savings accounts for 84% of total MyFolio AUA. Standard Life
Investments manage 71% of our Workplace AUA and 21% of our Wrap
assets. The interaction between the two businesses helps strengthen
our relationship with our customers by improving the quality of our
propositions and the choices available.
Broadening and deepening relationships
We acquired the Elevate platform from AXA on 31 October 2016,
bringing a further GBP11.1bn of AUA to the business. Elevate, with
its broad market appeal, award-winning service and positive net
flows, will complement our existing Wrap platform with cGBP30bn of
assets which is focused on the wealth management market. Together
our platforms have over GBP44bn of assets and they will give more
than 3,000 adviser firms access to the full range of Standard
Life's pension and investment capabilities.
We continue to grow our 1825 financial advice business which
offers a full financial planning and personal tax advice service.
Offering a wide range of investment options, supported by
investment experts and technology, clients are able to access
support how and when they need it. We have completed the
acquisition of four quality adviser firms to date, broadening our
reach across the country and bringing total assets under advice in
1825 up to GBP3.2bn.
Our Workplace business continues to build scale. Since auto
enrolment began in 2012 we have supported over 8,000 employers to
set up Qualifying Workplace Pension Schemes (QWPS), with over one
million members enrolled into these schemes.
External factors
A number of external factors have impacted global economic
growth and led to increased uncertainty, increasing the customer
need for advice, guidance and information. Volatility in financial
markets resulted in lower daily average asset values in the first
half of the year, whilst the rise in market levels increased asset
values in the second half of 2016. The weakening of Sterling led to
an increase in the value of overseas denominated assets.
The EU referendum result in favour of leaving the EU surprised
global markets in June and combined with other factors brought
challenging conditions for sales. We operate branches in Ireland
and Germany and there is a risk that regulations may change and
impact on our current operating structure. We will respond to these
developments in a way that takes into account the best interests of
customers, clients and our Pensions and Savings business.
The Financial Conduct Authority's thematic review into the sale
of non-advised annuities showed that a portion of annuity sales
that we made since July 2008 did not adequately explain to
customers that they may have been eligible for an enhanced annuity.
We are continuing the work to ensure we put things right and have
made a provision in our accounts for the costs that we may incur in
relation to this.
Overview
-- AUA up 21% to GBP181.5bn driven by the acquisition of
Elevate, market movements and net inflows
-- Growth channels gross inflows of GBP13.5bn - the highest year
ever
-- Growth channels net inflows of GBP5.9bn - down 12% as
customers continue to take advantage of pension freedoms
-- Operating profit before tax remained stable at GBP362m
(2015: GBP357m), including a GBP5m loss from Elevate
-- Operating expenses are stable in real terms after excluding
costs relating to the growth of 1825 and the acquisition of
Elevate. We remain committed to driving further cost efficiencies
to support future growth.
Increasing assets
Gross inflows Net flows AUA
--------------- -------------- --------------
2016 2015 2016 2015 2016 2015
GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn
--------------------------- ------- ------ ------ ------ ------ ------
UK Retail(1) 8.1 7.5 3.7 3.9 62.9 42.6
UK Workplace 4.1 4.1 1.7 1.9 37.4 33.0
Europe growth fee(1) 1.3 1.6 0.5 0.9 11.2 9.6
--------------------------- ------- ------ ------ ------ ------ ------
Total growth channels 13.5 13.2 5.9 6.7 111.5 85.2
--------------------------- ------- ------ ------ ------ ------ ------
UK mature Retail 0.6 0.7 (2.5) (2.4) 34.3 32.7
Spread/risk 0.2 0.2 (0.9) (0.9) 16.1 14.9
Europe mature fee 0.7 0.7 (0.1) 0.2 10.1 8.4
Conventional with profits - - (0.9) (0.9) 0.6 1.3
--------------------------- ------- ------ ------ ------ ------ ------
Total mature books 1.5 1.6 (4.4) (4.0) 61.1 57.3
--------------------------- ------- ------ ------ ------ ------ ------
Assets not generating
revenue from products - - - - 8.9 7.7
--------------------------- ------- ------ ------ ------ ------ ------
Total Pensions and Savings 15.0 14.8 1.5 2.7 181.5 150.2
--------------------------- ------- ------ ------ ------ ------ ------
(1) Platform AUA of GBP44.2bn (Wrap, Elevate and Fundzone)
comprises of GBP41.7bn (2015: GBP24.4bn) reported within UK Retail
and GBP2.5bn (2015: GBP2.1bn) relating to Wrap International Bond
reported within Europe growth fee.
Growth channels
UK Retail
UK Retail AUA has increased 48% to GBP62.9bn (2015: GBP42.6bn),
reflecting the acquisition of Elevate, strong platform inflows and
positive market movements. Retail gross inflows exceeded GBP8bn for
the first time.
Following pension freedoms we have seen more of our customers
moving into our drawdown products, with total assets invested in
drawdown products increasing by 21% to GBP16.4bn (2015: GBP13.6bn)
reflecting both inflows and positive market movements. Gross Retail
outflows increased by 22% to GBP4.4bn as the size of our
proposition grows and customers make use of drawdown
functionality.
UK Workplace
UK Workplace AUA increased by 13% to GBP37.4bn (2015:
GBP33.0bn), benefiting from net inflows of GBP1.7bn. Whilst we have
seen fewer large scheme transfers across the market as employers
adapt to new pension regulations, we are benefiting from growing
contributions into existing schemes which provide a steady
long-term source of growth.
Our success in attracting new flows through auto enrolment has
resulted in a 5% increase in regular premiums to GBP3.1bn. Regular
premiums now account for 75% of Workplace inflows.
Our Workplace business continues to be a source of growth for
our retail businesses with GBP2.2bn of assets transferring in
2016.
Europe growth fee
In our Europe business, AUA in our growth channels of GBP11.2bn
is up 17% on 2015 with net inflows of GBP0.5bn and favourable
foreign exchange and market movements.
Mature books
UK mature Retail
As expected, we continue to see stable net outflows on our UK
mature Retail book of business. This included GBP0.3bn transferred
to our Active Money Personal Pension product (included in our
growth channels), with customers continuing to take advantage of
pension freedoms. We engage with our customers who are approaching
retirement or have maturing policies to help ensure they are
equipped to make informed decisions. This is valued by our
customers with many choosing to continue to save with us.
Spread/risk
Spread/risk AUA increased by 8% to GBP16.1bn, with net outflows
from scheduled annuity payments of GBP0.9bn, offset by the benefit
from reductions in yields increasing the value of bond investments
backing our annuity book.
Europe mature fee
Europe mature fee includes our German with profits book which
was closed to new business in April 2015, resulting in net outflows
of GBP0.1bn in 2016.
Profitability Pensions
UK Europe and Savings
-------------------------- ------------ ------------ --------------
2016 2015 2016 2015 2016 2015
GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------- ----- ----- ----- ----- ------ ------
Fee based revenue 664 631 197 177 861 808
Spread/risk margin 119 143 15 2 134 145
-------------------------- ----- ----- ----- ----- ------ ------
Total operating income 783 774 212 179 995 953
Operating expenses (487) (455) (168) (155) (655) (610)
Capital management 23 15 (1) (1) 22 14
-------------------------- ----- ----- ----- ----- ------ ------
Operating profit before
tax 319 334 43 23 362 357
-------------------------- ----- ----- ----- ----- ------ ------
Underlying adjustments(1) (38) (43) (4) 8 (42) (35)
-------------------------- ----- ----- ----- ----- ------ ------
Underlying performance 281 291 39 31 320 322
-------------------------- ----- ----- ----- ----- ------ ------
Reversal of underlying
adjustments 38 43 4 (8) 42 35
Non-operating items(2) (213) (106) 6 (25) (207) (131)
Total tax expense (13) (31) (12) (7) (25) (38)
-------------------------- ----- ----- ----- ----- ------ ------
Total IFRS profit(3) 93 197 37 (9) 130 188
-------------------------- ----- ----- ----- ----- ------ ------
(1) Relates to operating assumption changes of GBP42m (2015:
GBP44m), included in the spread/risk margin and principally in
respect of longevity assumption changes. The 2015 underlying
adjustment also included GBP9m shareholder support provided to the
German with profits business, included in operating expenses.
(2) Non-operating items primarily relate to a provision for
annuity sales practices of (GBP175m), short-term fluctuations in
investment return and economic assumption changes of GBP13m
(2015: (GBP54m)) and restructuring and corporate transaction
expenses of (GBP38m) (2015: (GBP75m)).
(3) After tax attributable to equity holders of Standard Life
plc from continuing operations.
Growing revenue
Fee based revenue
UK fee based revenue increased by 5% to GBP664m. Fee based
revenue benefited from a combination of strong net inflows together
with positive movement in market levels over the second half of the
year. Our continued focus on the growth of 1825 and the acquisition
of Elevate has enabled us to diversify our sources of revenue,
increasing fee revenue by GBP8m. Average fee revenue yield remained
broadly stable at 58bps (2015: 59bps).
Spread/risk margin
UK spread/risk margin decreased by GBP24m to GBP119m. Operating
assumption and actuarial reserving changes provided a benefit of
GBP38m (2015: GBP43m), primarily relating to future longevity
assumption changes. Although we had expected fewer asset and
liability opportunities to exist in the low yield environment, we
took advantage of volatility in financial markets mainly in H1 2016
to deliver a benefit of GBP25m (2015: GBP30m). A number of other
components contributed to a lower spread/risk margin than 2015
including adverse mortality experience and reduced new business.
These reductions were partly offset by an GBP18m payment in 2016
from our main with profits fund relating to changes to the Scheme
of Demutualisation in response to the transition to Solvency II.
This effectively brings forward some of the payments expected in
future years under the previous scheme rules.
Lowering unit costs
Operating expenses
UK operating expenses increased by GBP32m to GBP487m, impacted
by the continued drive to scale our business. The growth of 1825
and acquisition of Elevate incurred operating expenses of GBP21m.
The cost/income ratio rose to 62% (2015: 59%) which also included
the impact of lower spread/risk margin in 2016. Excluding the
acquisition of Elevate and the growth of 1825 the cost/income ratio
would have been 60%.
Ongoing investment in technology to reduce future customer
operations and IT maintenance costs has allowed further process
automation and customer self service. Examples of our progress
include:
-- In 2016, 30% of our customers who took action following
pension freedoms transacted entirely online
-- Our online Good to Go proposition meets the needs of smaller
employers efficiently by processing pension schemes on the same day
and has secured c3,500 schemes in 2016 (c7,500 to date)
Driving profit
Operating profit
Pensions and Savings operating profit before tax remained stable
at GBP362m (2015: GBP357m) including a loss of GBP5m from Elevate,
GBP2m of which is underlying trading. Operating profit includes the
GBP22m spread/risk margin benefit from an acceleration of payments
from our main with profits fund relating to changes to the Scheme
of Demutualisation in response to the transition to Solvency
II.
UK
UK operating profit reduced by GBP15m to GBP319m. The reduction
was due to a GBP24m reduction in the spread/risk margin and a GBP5m
loss for Elevate. Excluding this our operating profit improved by
GBP14m, with an 11% increase in our growth channels fee
revenue.
Europe
Europe operating profit increased by GBP20m to GBP43m. The 2015
result was lower due to the impact of the GBP9m one-off shareholder
support provided to the German with profits business. In 2016 our
German business benefited from a GBP5m reduction in actuarial
reserves due to lower maintenance expenses. The 2016 spread/risk
result includes the benefit of a GBP4m payment from our main with
profits fund relating to changes to the Scheme of Demutualisation
in response to the transition to Solvency II. The 2016 result also
benefited from favourable foreign exchange movements of GBP2m.
Operating return on equity
Operating return on equity decreased to 13.4% (2015: 15.2%)
reflecting higher opening shareholder net assets and a higher tax
charge. Operating return on equity continues to be diluted by the
impact of the GBP1.1bn pension scheme surplus. Excluding the impact
of the pension scheme surplus, operating return on equity was 20.4%
(2015: 22.1%).
Total IFRS profit
Pensions and Savings total IFRS profit decreased by GBP58m to
GBP130m. This is mainly due to a higher non-operating loss of
GBP207m
(2015: GBP131m). The non-operating loss includes a provision of
GBP175m for the costs that we may incur in relation to the FCA's
review of our annuity sales practices. This was partly offset by
favourable short-term fluctuations in investment return and
economic assumption changes and lower restructuring and corporate
transaction expenses compared to 2015.
Awards and recognition
-- Best Group Personal Pension Provider, Money Observer Pension
Awards 2016
-- Group Pension Provider of the Year, Corporate Adviser Awards
2016
-- Group Personal Pension provider of the Year, Pensions Insight
DC Awards 2016
-- Wrap awarded a Platinum Platform rating, Adviser Asset
2016
-- Wrap awarded Best Platform Provider with AUM over GBP15bn,
Schroders UK Platform Awards 2016
-- Elevate awarded Best Platform Provider with AUM up to
GBP15bn, Schroders UK Platform Awards 2016
-- Elevate awarded Best Platform for Adviser Service, Schroders
UK Platform Awards 2016
Integrating two award winning platforms
We're delighted to have won the Best Large Adviser Platform
Provider (AUM over GBP15bn) award at the Schroders UK Platform
Awards 2016.
This award shows the exceptionally high standard of our Wrap
Platform.
Elevate also won the Best Smaller Adviser Platform (AUM up to
GBP15bn) award. This is an exciting time for us as we work towards
bringing together two of the best platforms in the industry.
These awards are important because they are voted for by the
adviser community, advocating the strength of our advisory
relationships.
India and China
Well positioned for future growth
Our India and China life business consists of our life associate
in India, HDFC Life; our life joint venture in China, Heng An
Standard Life; and our wholly owned business in Hong Kong. The
results of our Indian asset management associate business, HDFC
Asset Management Company, are included in the Standard Life
Investments section of this Strategic report.
Our operations in India and China continue to strengthen and are
well positioned for future growth in the region.
Growing our presence in India
HDFC Life is currently one of India's leading life insurance
companies with a 16% market share in the private sector. It has a
broad product portfolio which provides over 20 million customers
with innovative insurance and savings solutions.
We continue to be encouraged by the future outlook for the life
insurance market in India. The insurable population is anticipated
to reach 750 million in 2020 and life insurance is projected to
comprise 35% of total savings by the end of this decade.
Demographic factors such as a growing middle class, young insurable
population and increasing awareness of the need for protection and
retirement planning are anticipated to support the growth of the
life insurance and pensions industry in India.
In April 2016, we completed the transaction to increase our
stake in HDFC Life from 26% to 35% for GBP179m.
In August 2016, we announced that HDFC Life had agreed terms
with Max Life Insurance Company Limited (Max Life), Max Financial
Services Limited (Max FS) and Max India Limited for the combination
of the life insurance businesses of HDFC Life and Max Life. The
strategic benefits of this transaction include increased scale and
enhanced distribution and product mix. Max Life's bancassurance
relationships with three of the leading private sector banks in
India will complement HDFC Life's already strong distribution
capability.
The proposed transaction is subject to several regulatory, court
and other necessary approvals. Although the Insurance Regulatory
and Development Authority of India (IRDAI) expressed reservations
on the proposed scheme, the transaction parties are working through
these with the IRDAI and aim to complete the transaction in the
next 12 months.
Following completion, Standard Life, based on current
shareholdings, would hold a 24.1% stake in the enlarged entity. The
shares of HDFC Life would list on the Bombay Stock Exchange and the
National Stock Exchange of India, subject to approval of these
stock exchanges and the Securities and Exchange Board of India.
After a significant amount of change over recent years the
regulatory framework is now fairly stable with the Government of
India focused on ensuring greater social security for Indian
citizens. HDFC Life has responded well to these historic changes
maintaining its position as one of the leading private companies in
the life insurance market and will continue to work with
regulators, in order to better understand and shape future changes
and adapt to them efficiently and effectively.
Positioned for future growth in China and Hong Kong
Heng An Standard Life continues to build a sustainable and
profitable business by offering a range of insurance and savings
products to a growing customer base in mainland China. Both
profitability and sales are ahead of 2015.
The Chinese insurance market has grown in recent years to become
the second largest in the world and we believe that the prospects
for future growth remain very positive, driven by an increasing
middle class and wealthy population who are living longer and are
more aware of the need for protection, medical insurance and
retirement provision. Heng An Standard Life, through its extensive
sales network and product range, is well positioned to meet this
need. It also continues to investigate opportunities to increase
its presence in the growing pensions market and has now submitted
an application to the China Insurance Regulatory Commission for a
new pension insurance company licence.
In Hong Kong, market volatility and recent regulatory changes
have made growing flows challenging. We remain focused on retaining
and efficiently managing the policies currently on our books as we
continue to define our future business strategy.
Overview
India
-- Increased our stake in HDFC Life to 35% in April 2016
-- Proposed combination of the life insurance businesses of HDFC
Life and Max Life announced in August 2016
-- HDFC Life operating profit increased to GBP34m in 2016 driven
by the growth in premium income
-- HDFC Life dividend, paid in December 2016, was 22% higher
compared to the prior year and Standard Life's share of the
dividend was GBP8m
China
-- Heng An Standard Life's operating profit and net flows
increased by over 70% in 2016
Hong Kong
-- Fee based revenue and net flows reduced in Hong Kong due to
lower regular premium business which we stopped selling in 2015
Increasing assets
Total AUA increased by 64% to GBP4.6bn reflecting favourable
market movements, including the benefit from a lower Sterling
exchange rate. HDFC Life's AUA increased to GBP3.4bn (2015:
GBP1.8bn). GBP0.8bn of the increase reflects our higher share of
HDFC Life AUA following our stake increase in April 2016.
AUA in Heng An Standard Life increased to GBP0.6bn (2015:
GBP0.5bn) and Hong Kong also increased to GBP0.6bn (2015:
GBP0.5bn).
Net inflows continued to increase in our associate and joint
venture businesses to GBP362m in 2016 (2015: GBP230m). Net inflows
in HDFC Life were GBP295m of which GBP49m relates to the increased
ownership. Net flows in Heng An Standard Life increased to GBP67m
compared to net flows of GBP36m in the prior year.
In Hong Kong, net inflows decreased to GBP46m (2015: GBP63m) as
a result of lower regular premium new business.
Growing revenue
HDFC Life's commitment to digital leadership and product
innovation for its customers has driven the development of the
successful 'Click2' online product series and award-winning cancer
care plan. Through their broad product range, premium income
increased by 18% compared to 2015.
Heng An Standard Life's new business sales have increased by 39%
compared to 2015.
In Hong Kong fee based revenue decreased by GBP21m due to lower
regular premium business which we stopped selling in 2015. This
reduction is expected, as regular premium business generates most
of its revenue during the first two years from policy issue
date.
Lowering unit costs
In Hong Kong, we continue to manage costs whilst investing in
new propositions in response to changes in regulation. Our focus on
cost management resulted in a reduction in operating costs compared
to 2015.
Driving profit
Operating profit before tax increased to GBP36m driven by an
increase in operating profit from HDFC Life to GBP34m(1) (2015:
GBP21m) and an increase in Heng An Standard Life to GBP7m (2015:
GBP4m). Both our associate and JV businesses continue to benefit
from growth in premium income.
This increase was partly offset by an operating loss in Hong
Kong of GBP5m (2015: operating profit GBP2m), due to falls in both
revenue and expenses as the business product mix continues to
adjust following the regulatory changes in 2015. We are considering
further actions to address the loss making position.
Total IFRS profit increased to GBP31m (2015: loss GBP59m). 2015
included a GBP46m non-operating restructuring loss in Hong Kong
following regulatory change and a Singapore IFRS loss before tax of
GBP42m which largely related to the closure of that business.
2016 2015
GBPm GBPm
------------------------- ----- -----
Share of associates'
and joint ventures'
profit before tax 41 25
Hong Kong fee based
revenue 17 38
Hong Kong operating
expenses (22) (36)
------------------------- ----- -----
Operating profit
before tax 36 27
------------------------- ----- -----
Share of associates'
and joint ventures'
tax expense (2) (2)
Non-operating loss (3) (47)
Total tax expense - 5
Singapore included
in discontinued
segment - (42)
------------------------- ----- -----
Total IFRS profit/(loss)
after tax 31 (59)
------------------------- ----- -----
Note: Results are presented on the basis of Standard Life
ownership percentages during 2016 and do not include the 40% share
in HDFC Asset Management which is included in the results for
Standard Life Investments. HDFC Life ownership was 26% until the
end of April 2016 and then 35% from May 2016, Heng An Standard Life
ownership is 50% and Hong Kong is 100%.
(1) Based on Standard Life ownership percentages during 2016.
Assuming a constant 26% shareholding the operating profit in 2016
would have been GBP28m compared to GBP21m in 2015.
Risk management
Effectively managing risk in an uncertain environment
"Our risk management framework continues to operate effectively
in a constantly changing risk environment. This is essential for
protecting the interests of our customers and clients while
providing a sound platform for growth and building long-term
value."
Raj Singh,
Chief Risk Officer
Our approach to risk management
The consistent application of effective and pre-emptive risk
management across our business protects the value of Standard Life
in the short-term while encouraging the development of long-term
value. We ensure that:
-- Well informed risk-reward decisions are taken in pursuit of
our business plan objectives
-- Capital is delivered to areas where most value can be created
from the risks taken
Our approach to risk management, delivered through our
Enterprise Risk Management (ERM) Framework, is well embedded in our
business. The pace of change in the business and risk environment,
and the threats and opportunities arising from it, mean we will
always review and adapt our methods to ensure we are well placed to
respond pre-emptively.
Over the past year our risk management approach has received
external recognition. In May 2016, Standard & Poor's increased
their rating on the Risk and Capital Models component of our
framework to 'positive' and maintained their 'strong' rating of our
overall ERM Framework.
We also received two external awards; Insurance Risk Manager of
the Year (February 2016, Risk Magazine) and Insurance Risk and
Actuarial Function of the Year for 2017 (January 2017, Insurance
ERM).
We are building a simplified, well diversified and scalable
world-class investment company and in order to deliver this
effective risk management is essential. We must ensure that change
is successfully implemented with any change in our overall risk
profile understood. This includes the ongoing integration of
Elevate and 1825 acquisitions.
Business and risk environment
The wider environment proved to be challenging in 2016. We
continue to operate under a heightened level of uncertainty with
political, financial and regulatory risks being the predominant
themes over the year. We expect this heightened level of
uncertainty to continue in 2017.
The major political event for our business in 2016 was the UK's
vote to leave the EU. We will be directly impacted by the outcome
of the negotiations between the UK and EU, although the details may
not be known for some time. We have a strong track record of
successfully responding to changing circumstances and are ready to
adapt our business as appropriate to any post-Brexit changes in
regulations and markets.
The outlook for financial markets is uncertain; however, we have
a robust Focus on Change investment philosophy and a strong,
resilient capital position which we have subjected to a wide range
of stress and scenario testing. This allows us to be prepared for
whatever market conditions we face.
Given the vital role that our industry has in society, we are
subject to high levels of political and regulatory focus. In 2017
the regulatory agenda will continue to evolve with the outcome of a
number of market studies and new regulatory initiatives. Also, the
UK Government will look to determine its priorities and agenda. We
are directly engaged with government, industry bodies and
regulators to make sure that our knowledge and experience informs
the decisions that are taken.
Our principal risks and uncertainties
The specific risks that we face as a business are driven by what
we choose to do and how we do it, as well as the wider environment
in which we are operating. We group these risks into categories
which include Strategic, Conduct, Operational, Financial Market and
Credit and Demographic and Expense.
From within these categories we have identified our principal
risks and uncertainties. These should not be considered to be an
exhaustive list of all the risks that the Company faces, but rather
those which we currently believe have the greatest potential to
affect our business model, future performance, solvency or
liquidity. These principal risks were subject to robust assessment
by the Board during 2016.
As our strategic development continues and we respond to changes
in the external environment, it is to be expected that both the
risks themselves and the relative importance of these may
change.
Viability statement
The Directors confirm that they have a reasonable expectation
that Standard Life will be able to continue in operation and meet
its liabilities as they fall due over the next three years. The
Directors' assessment takes into account Standard Life's current
capital and liquidity position, as described in the Chief Financial
Officer's overview, which shows a Solvency II regulatory capital
surplus of GBP3.1bn and substantial cash and liquid resources held
by Standard Life plc.
The key processes used by the Board to assess the prospects of
Standard Life are set out below. The assessment process is overseen
by the Risk function and is subject to challenge from executive
management and the Risk and Capital Committee, as well as Board
consideration.
The business and strategic planning processes: Strategic
planning is a continuous process which underpins business planning.
Strategic planning considers the sustainability and resilience of
our business model as described on page 8 of this report, which is
key to ensuring our business remains viable. Business planning is
an annual process which projects the performance, regulatory
capital and liquidity of Standard Life over a three year period,
and considers multiple scenarios including a severe downside
economic scenario. The severe downside used in 2016 assumes that
the global economy tips into a severe recession; global equities
fall and long-term interest rates reach new lows. Our projected
capital positions are a measure of the capital we need in the
business to cover our risks, including financial and operational
risks, under such stress scenarios. Our analysis shows that, whilst
capital is eroded under the severe downside scenario, the strength
and quality of our capital base is such that regulatory solvency is
maintained and our business remains viable.
Quantitative stress and scenario testing which investigates
Standard Life's liquidity and capital positions' exposure to
specific risks and combined scenarios. Stresses are calibrated at
the 1-in-200 probability level, or more extreme, and test Standard
Life's resilience to market, credit, expense and demographic
shocks. Standard Life remains solvent in such circumstances and can
support potential cash outflows.
Reverse stress testing which gives a quantitative and
qualitative understanding of plausible but severe risk scenarios
which could threaten the viability of Standard Life, and informs
related management actions. The scenarios assessed evolve over time
and are informed by the principal risks set out later in this
section. Whilst a limited number of scenarios can be assessed each
year the insight from previous years' exercises often remain
relevant. This year scenarios assessed risk events related to
failures of key third parties, significant regulatory change and
political change, major shocks to financial markets, cyber threats,
and reputational damage caused by matters of conduct in parts of
Standard Life or its joint ventures. The assessment showed that,
taking into account mitigating actions, Standard Life is resilient
to extreme events as a result of its embedded risk management
framework.
Oversight of risk within the business delivered through the Own
Risk and Solvency Assessment (ORSA) processes described in this
section.
We consider that three years is an appropriate period for this
viability assessment, which is in line with our core business
planning process. It is the period over which major strategic
actions, such as the launch of new investment propositions, are
typically delivered. It also takes into account the uncertain
economic environment and changing political and regulatory
environment, and the timescale over which changes to major
regulations and the external landscape affecting our business
typically take place. We consider that the severe scenarios
assessed as part of our reverse stress testing are appropriate over
this three year period.
Risk governance
Enterprise risk management framework
Standard Life's ERM framework enables a risk based approach to
managing our business. It integrates concepts of strategic
planning, operational management and internal control. Our
framework has been developed and embedded in the business over
several years.
-- Risk culture: The way we think and act as individuals and as
a business. It encompasses our attitudes, capabilities and
behaviours. Our culture drives how we identify, understand and
openly discuss, and act on, current and future risks.
-- Risk control process: The practices by which we manage
financial and non-financial risks within Standard Life. They are
used to identify, assess, control and monitor risk.
-- Strategic risk management: This forms an integral part of the
strategic planning process and is directly linked to our corporate
objectives. It supports the development of long-term value by
ensuring that well informed risk-reward decisions are taken in
pursuit of our business plan. It also helps to ensure that capital
is distributed to the areas where most value can be created from
the risks taken.
-- Risk and capital models: The models that we use to measure
our risk exposures and capital position and the work that we do to
test and understand the sensitivity of these positions
-- Emerging risks: The aim of emerging risk management is to
identify risks before they materialise. This gives us time to
engage with the risk, understand it and respond accordingly. We use
our emerging risk process to inform reverse stress testing and
capital adequacy requirements across Standard Life. Our proactive
screening process which looks across broad sources of risk
including geopolitical, technological, environmental and societal,
helps us to anticipate future threats.
ORSA process
The ORSA is the set of processes that underpin our ERM
framework. The purpose of the ORSA is to inform and develop:
-- Our understanding of the current and potential risks to the
business over the product lifecycles. This includes both financial
and non-financial risks including environmental, social and
governance (ESG) risks and their potential to affect both the long
and short-term value of the business.
-- Our appetite for these risks and how we manage them
-- Our own assessment of current solvency and capital
requirements with respect to the risks
-- A forward-looking assessment of the risk and solvency needs
of the Company over a multi-year time horizon in light of the
business plans
-- The ORSA plays a key role in supporting decision making and
strategy development at our boards and risk committees
Three lines of defence
We operate a 'three lines of defence' model of risk management,
with clearly defined roles and responsibilities for individuals and
committees:
-- First line: Day-to-day risk management is delegated from the
Board to the Chief Executive and, through a system of delegated
authorities and limits, to business managers
-- Second line: Risk oversight is provided by the Chief Risk
Officer and supported by the specialist Risk Management and
Compliance functions across Standard Life as well as through
established risk committees such as the Enterprise Risk Management
Committee (ERMC) and with reporting to the Risk and Capital
Committee (RCC).The majority of members of the ERMC are senior
first line representatives. Independent oversight is provided by
non-executive Directors at the RCC.
-- Third line: Independent verification of the adequacy and
effectiveness of the internal risk and control management systems
is provided by our internal audit function. This is independent
from all other operational functions. It operates subject to
supervision and challenge by the Audit Committee.
STRATEGIC RISK
Our definition and appetite
Risks which threaten the achievement of our strategy through
poor strategic decision making, implementation or response to
changing circumstances. We recognise that core strategic activity
brings with it exposure to strategic risk. However, we seek to
proactively manage and control these exposures.
The risks to our business and how we Our principles in
managed them in 2016 managing these risks Link to strategy
Investment Performance
(New)
Our strategy to be a world-class Broadening
investment company is underpinned * Our Focus on Change investment philosophy is driven and deepening
by our ability to offer our by a robust and repeatable investment decision our investment
customers and clients superior process which is highly disciplined, research capability
long-term investment performance intensive and risk informed Growing
through active management. and diversifying
Poor investment performance our revenue
relative to peers, benchmarks * Our investment philosophy is designed to operate and profit
or internal targets may impact through the cycle and provides the opportunity to
our ability to grow assets outperform throughout the cycle
under administration and can
increase the level of outflows
across our business. This in * We regularly engage with our customers and clients on
turn can also cause a stagnation service and performance
or decline in revenues.
Short periods of market dislocation
and heightened volatility, * We review our internal processes and investment
such as that seen in 2016, decisions in light of results on an ongoing basis
carries a risk that investment
performance is weaker. However,
our Focus on Change investment
philosophy has a good track
record of delivering resilient
long-term performance.
In 2016 we reviewed our investment
processes to ensure they continue
to work effectively for our
customers and clients.
-------------------------------------- ----------------------------------------------------------- -----------------
Customer and Client Preferences
and Demand
Delivering our business plan Developing
requires us to attract and * The development of our new and existing propositions strong
retain customers and clients start from the customer or client need relationships
across our business. We are with
therefore exposed to the risk customers
that our propositions do not * We regularly seek customer feedback on our and clients
keep pace with emerging customer performance and use focus groups to help with Broadening
preferences or fail to meet proposition development and deepening
the needs and expectations our investment
of customers and clients. capability
The UK pensions and savings * We invest in initiatives to build trust and long-term
market continues to evolve relationships with customers
as we seek to meet our customers'
savings and retirement needs.
As customer needs and behaviours
develop we continue to place
a focus on ensuring their long-term
investment solutions are fit
for purpose.
We have made a number of key
propositional enhancements
to our Pensions and Savings
business with the purchase
of Elevate and growth of our
financial advice business 1825.
Also, our highly differentiated
Workplace proposition continues
to increase engagement with
employers and employees.
Standard Life Investments has
delivered a number of new solutions
to meet client needs. For example,
the Integrated Liability Plus
Solution (ILPS) fund range
for our Institutional growth
channel and the expansion of
our Global Focused Strategies
Range into the US.
-------------------------------------- ----------------------------------------------------------- -----------------
Political Change
Political change can impact Building
us directly through new laws * We constructively engage with key decision makers in an effective
or indirectly by altering the the best interests of our stakeholders, for example and efficient
wider environment. Decisions by contributing to consultations business
taken by the UK and Scottish Attracting,
governments, but also those retaining
in other locations where we * Political risks are considered under our stress and and developing
operate, can significantly scenario testing programme (which includes both talented
alter circumstances and change quantitative and reverse stress testing) and emerging people
the way we do business. We risk process
witnessed several significant
political events in 2016.
Following the UK's vote to * For the most extreme scenarios we maintain
leave the EU in June, our business appropriate business continuity and contingency plans
operations in Europe will be and these are regularly tested and reviewed
directly impacted by the outcome
of the forthcoming negotiations.
Also, the recent announcement
from Theresa May confirming
that the UK will leave the
European single market provides
an indication of the environment
we will face outside the EU.
The result of the presidential
election in the US is likely
to result in policy changes
that may impact global growth
and financial markets.
Since the change of leadership
within the UK Government we
have seen different approaches
being taken, for example with
secondary annuities. As we
look forward to the 2017 budget
we may see further changes
that could impact our business
and our customers and clients.
In light of actual and potential
political changes we are evaluating
possible scenarios and preparing
to adapt our business as appropriate.
-------------------------------------- ----------------------------------------------------------- -----------------
The risks to our business
and how we managed them in Our principles in managing
2016 these risks Link to strategy
Regulatory Change
We operate in a highly regulated Growing
industry and our global growth * Ongoing regulatory compliance is governed via our and diversifying
requires us to comply with Standard Life Policy Framework our revenue
an increasing number of regulatory and profit
regimes.
New or changing regulations * We maintain strong and open relationships with our
can create opportunities for regulators and engage early with areas of potential
our business but can also regulatory change
increase risk. They can increase
compliance costs, impact profitability
and demand for our propositions, * Regulatory changes are considered under our stress
or tie up resources which and scenario testing programme and emerging risk
may slow the delivery of other process
developments to support our
growth plans.
In 2016 the FCA carried out
a number of thematic reviews,
which we were part of, and
also published the initial
findings of its Asset Management
Market Study which we await
the final conclusions of in
2017.
While we see the level of
regulatory change risk increasing,
we remain well placed to deal
with significant developments
on the horizon including the
Markets in Financial Instruments
Directive II, Packaged Retail
and Insurance-based Investment
Products, European Union General
Data Protection Reform and
the likely introduction of
a pension dashboard.
-------------------------------------- ----------------------------------------------------------- -----------------
Strategic Transition and
Delivery (New)
We continue our strategic Impacts
delivery towards a simplified, * Our Strategic Executive Committee has responsibility all areas
well diversified and scalable for our corporate strategy and execution of a single of strategy
world-class investment company. strategic plan
We aim to take advantage of
a number of growth opportunities
in the key markets in which * Our Chief Strategy Officer has responsibility to
we operate. further develop our strategy
There is a risk that we fail
to deliver long-term value
for shareholders because we * Inorganic growth opportunities are fully assessed to
are unable to successfully ensure they align with strategic priorities
deliver this strategic transition.
We have continued to deliver
on our transition over 2016
with the growth of our investment
business and through acquisitions
such as Elevate.
-------------------------------------- ----------------------------------------------------------- -----------------
CONDUCT RISK
Our definition and appetite
The risk that through our behaviours, strategies, decisions and
actions the business, or individuals within the business, do not do
the right thing and/or do not behave in a manner which:
-- Pays due regard to treating our customers and clients
fairly
-- Is consistent with our disclosures and setting of customer
and client expectations
-- Supports the integrity of financial markets
We recognise that our core strategic activity brings with it
exposure to conduct risk which must be understood and managed.
However, there is no appetite for purposeful or deliberate actions
(behaviours/decisions) which result in conduct risk.
The risks to our business and how we Our principles in
managed them in 2016 managing these risks Link to strategy
Customer and Client Outcomes
We are exposed to the risk Developing
of unfair customer and client * Our Standard Life Code of Conduct sets out the strong
outcomes as a result of our standards required of colleagues and mandatory relationships
business not acting in the training embeds this across the business with
right way. This can arise from customers
failed or poorly designed processes, and clients
badly designed or performing * Our Conduct Risk Policy helps to ensure that the
propositions, poor customer standards and outcomes we set are implemented
communications or conduct by consistently across the business
our people. Unfair customer
outcomes can also lead to significant
reputational damage and material * Strong oversight and challenge is provided within our
financial losses for our business. business by our Conduct and Compliance risk centre
The standards that we aspire
to internally, as well as those
expected of us by regulators, * We maintain a strong and open relationship with the
third parties and our customers FCA and other regulators
are consistently being raised.
However, higher standards mean
that there is a greater risk * Ensuring fair treatment of our customers and clients
of failing to meet these, which is continually reinforced through the culture of
leads to our assessment that Standard Life
this risk is increasing.
As we transition to a world-class
investment company we must
ensure that we effectively
manage any conflicts of interest
across different parts of our
business to support fair outcomes
for customers. This includes
embedding our robust conduct
risk framework into any newly
acquired businesses.
At the FCA's request, we shall
be reviewing all non-advised
annuity sales from July 2008
to identify whether our customers
received sufficient information
about enhanced annuity options.
It is essential that conduct
risk is properly understood
and managed throughout this
process in order to deliver
fair customer outcomes.
Our response to increased redemption
requests after the EU referendum,
from UK property funds, protected
investors. We took action to
do the right thing to achieve
the best possible outcome for
our customers and clients.
--------------------------------------- ----------------------------------------------------------- ----------------
OPERATIONAL RISK
Our definition and appetite
Risk of loss or adverse consequences resulting from inadequate
or failed internal processes, people or systems, or from external
events. We have limited appetite for large operational losses due
to the related reputational damage and opportunity costs. We will
seek to manage existing operational risk exposures and proactively
control new exposures.
The risks to our business and how we Our principles in
managed them in 2016 managing these risks Link to strategy
IT Failure and Security,
including cyber risk
Our business relies on a wide Building
range of IT systems and our * We continuously invest in modernising our IT an efficient
strategy requires greater use infrastructure via internal change programmes and effective
of online functionality to meet business
customer preferences, improve
efficiency and manage costs. * We work with specialist external cyber risk experts
This exposes us to the risk to identify new risks and develop our response to
of failure of key systems, and them
technological security risks
such as cyber-attacks.
Over time we expect our increasing * IT failure, security and cyber risk are considered
global profile to raise the under our stress and scenario testing programme and
threat from cyber-attacks. We emerging risk process
continue to work with our external
providers to ensure that our
response is appropriate to the * For the most extreme scenarios we maintain
scale and nature of the threat. appropriate business continuity and contingency plans
In 2016 we established a Chief and these are regularly tested and reviewed
Information Security Office
to oversee and set the security
priorities across the business.
The Security Office has specified
our risk appetite for cyber
risk in order to better measure
the risk and drive the appropriate
responses to it.
--------------------------------------- ----------------------------------------------------------- ----------------
Outsourcer Relationship Management
We use a number of outsourcing Developing
providers to operate and deliver * Our outsourcing policy sets out standards that must strong
core systems, capabilities and be complied with relationships
processes. Key relationships with
include Citigroup for our investment customers
business and FNZ's role in the * We maintain strong relationships with external and clients
delivery of platform functionality providers to ensure that the risks arising are well Building
for our Pensions and Savings understood an efficient
business. and effective
These types of business arrangements business
allow us to access specialist * Outsourcing risks are considered under our stress and
services and skills, and enable scenario testing programme
our business to run more efficiently
and cost effectively.
The failure of a material outsourcing * For the most extreme scenarios we maintain
provider could lead to significant appropriate business continuity and contingency plans
costs and disruption to our and these are regularly tested and reviewed
operations until we recover
the situation or put alternative
solutions in place.
Our acquisition of Elevate broadens
our relationship with FNZ. This
change in risk exposure is well
understood and was assessed
as part of our due diligence.
--------------------------------------- ----------------------------------------------------------- ----------------
Change Management
In today's dynamic world successful Building
businesses need to be able to * Change management forms part of our operational risk an efficient
respond effectively and efficiently management framework which provides a robust and and effective
to changes around them. established framework under which change is managed, business
We run a large change portfolio reported and implemented
with an increased level of activity
arising from regulatory changes,
transition activity for acquisitions * In recent years, our business has built up
and wider strategic initiatives. significant experience of successfully responding to
This exposes us to the risk change, whilst continuing to develop market-leading
that change takes longer or propositions for customers
costs more than expected or
that the change does not meet
its intended objective.
Our risk committees maintain
a strong focus on ensuring the
effective management of our
change risk portfolio.
--------------------------------------- ----------------------------------------------------------- ----------------
Talent Management
The strength of our business Broadening
is built on our people and it * We regularly benchmark our terms and conditions and deepening
is essential that we are able against the market our investment
to attract and retain people capability
with the skills and capabilities Attracting,
that we need to deliver our * Our Sustainability section explains the range of retaining
business plan. initiatives that we use to support employee wellbeing and developing
We are exposed to the risk that and engagement talented
we are not able to do this, people
that it can only be achieved
at a higher cost than expected * We maintain succession plans for key individuals
or that key individuals leave which are regularly reviewed
the business unexpectedly.
As significant new powers are
devolved to the Scottish Parliament * Our Emerging Leaders Development Support and
it is essential for our business Accelerated Development Support programmes help to
that these are used to make build our talent pipeline
Scotland an attractive place
for talented individuals to
live and work.
We continue to develop the diversity
of our workforce and are involved
in a wide range of initiatives
aimed at promoting social mobility
and increased diversity across
the organisation. These include
how we consider diverse Board
representation, talent pipeline
development, talent acquisition,
as well as actions to ensure
a more inclusive workplace.
In 2016 we signed up to the
HM Treasury Women in Finance
Charter.
--------------------------------------- ----------------------------------------------------------- ----------------
FINANCIAL MARKET AND CREDIT RISKS
Our definition and appetite
Risk of losses due to risks inherent in financial markets.
Standard Life has appetite for market risk exposures where
exposures arise as a consequence of core strategic activity. We
have an appetite for credit risk to the extent that acceptance of
this risk optimises Standard Life's risk adjusted return.
The risks to our business and how
we Our principles in
managed them in 2016 managing these risks Link to strategy
Market Risk
Our business is exposed to Growing
market risk from the direct * We set limits for market risk exposures where this is and diversifying
investment of shareholder assets, appropriate our revenue
indirectly from UK and German and profit
with profits funds in our Pensions
and Savings business, and as * We use our stress and scenario testing programme to
a result of fluctuations in understand our sensitivities to markets and identify
fees that we earn which are mitigating actions
linked to the value of underlying
assets in both our Pensions
and Savings and investment * Hedging is used to manage market risks faced by
businesses. policyholders in our with profits funds where
Over time this risk is becoming appropriate
more important as the contribution
of spread business to our overall
revenue reduces and we become
more focused on fee based revenue
as we transition to a world-class
investment company.
Global political and economic
events caused financial markets
to be volatile over 2016 and
we expect this uncertainty
to continue in 2017. This volatility
in markets has an impact on
asset values as well as investor
sentiment.
Our rigorous stress and scenario
testing programme during 2016
once again confirmed we have
a resilient capital position
which means we are well prepared
for whatever market conditions
we face in the future.
------------------------------------ ----------------------------------------------------------- -----------------
Counterparty Risk
In response to economic, political Growing
and regulatory developments * Our credit risk management policy sets out the and diversifying
we saw a number of ratings standards that must be complied with our revenue
downgrades from external credit and profit
rating agencies in 2016.
During this time our governance * Limits for individual counterparties are overseen by
processes in relation to investment our Group Credit Risk Committee
mandates have operated effectively
and we remain comfortable with
the credit quality of our cash * Where appropriate, counterparties are collateralised
counterparties and other and internal credit assessments are used
investments.
Our forward-looking assessment,
given the current uncertainty * Exposures are proactively monitored with mitigation
affecting financial markets, action taken where necessary
is for credit risk to remain
stable but at an elevated level.
------------------------------------ ----------------------------------------------------------- -----------------
DEMOGRAPHIC AND EXPENSE RISK
Our definition and appetite
Risk that arises from the inherent uncertainties as to the
occurrence, amount and timing of future cash flows due to
demographic and expense experience differing from that expected
which, for the purpose of risk management, includes liabilities of
insurance and investment contracts. Within demographic risk we have
an appetite for longevity risk since we expect acceptance of this
risk to be value additive.
The risks to our business and how we Our principles in
managed them in 2016 managing these risks Link to strategy
Longevity Risk
This is the risk that our annuity Growing
customers live longer than * We set limits for longevity risk exposure and diversifying
we expect. our revenue
In 2016 annuity sales continued and profit
to be materially lower following * We have a robust governance process for setting our
the introduction of Pension longevity assumptions using the latest data sources
Freedoms in the UK. In November
we took the decision to restrict
annuity sales to existing customers * We have a reinsurance arrangement with Canada Life
only. which transfers a material part of our longevity
We expect our longevity risk exposure. We monitor opportunities to implement
to decrease over time as our further transactions to reduce our exposure.
existing annuity book steadily
runs off.
Determination of longevity * We consider longevity scenarios under our stress and
assumptions is a critical accounting scenario testing programme and emerging risk process
estimate. Further details on
this judgement are discussed
in the Audit Committee report
and in Note 33 of the Group
financial statements section.
--------------------------------------- ---------------------------------------------------------- -----------------
Sustainability
Investing for a better future
Our sustainability strategy covers four key priorities and
enables us to manage environmental, social and governance (ESG)
risks and opportunities. This helps us make a positive contribution
to the futures of our people, customers and clients, and wider
society.
Our sustainability strategy and approach
During 2016 we engaged directly with our customers, investors
and employees to review our strategy and ensure we continue to
focus on the right areas. We asked these stakeholders to provide
their views on what is important to them across our four
sustainability priorities.
This materiality review highlighted a number of areas that
matter most to our stakeholders including trust and transparency,
governance, sustainable economic growth, cyber-crime, climate
change, responsible investment and stewardship, financial inclusion
and decent work and pay. This input will also help focus our
activity in 2017 and beyond.
You can find out more about our review and what we are doing in
these areas in our sustainability report at
www.standardlife.com/sustainability
Sustainability at Board level
An update on internal and external ESG issues is provided for
each Board meeting. Non-financial measures, which monitor progress
against our sustainability strategy, are also highlighted on a
quarterly basis.
Our best ever DJSI and FTSE4Good index scores
In 2016, we were listed for the sixth year running in the DJSI
World and Europe indices, which include the top 10% and 20%
respectively of sustainable companies in our sector. We received
our best ever score in this and the FTSE4Good index, and our first
ever Silver class distinction from RobecoSAM. These are based on an
assessment of how we manage economic, environmental and social
factors relevant to company success.
Responsible business
This is the core of how we run our business and build a positive
culture. We aim to operate in a way that builds trust, to
contribute to our communities and to manage our environmental
impact
Business ethics
We recently updated our global code of conduct, which provides a
set of guidelines on how we expect our people to behave. In the
code, we frame many of the aspects of good conduct as a question,
such as 'am I doing the right thing?' or 'what would our customers
and clients think?' As part of the launch, we promoted our
independent speak-up helpline - an anonymous way to raise concerns.
We commit to follow up all issues raised and to support and protect
the caller.
We held a series of events in collaboration with the University
of Edinburgh Sustainable Business Initiative, the Institute of
Business Ethics, and the Institute of Corporate Responsibility and
Sustainability. These events were designed to raise awareness of
the importance and benefits of investing in an ethical culture. As
both a large business and an investor in other companies, we have a
distinct perspective on this area and used the events to share best
practice and further our learning.
Human rights
We have a responsibility to protect and respect human rights as
an employer, investor, procurer and provider of services and
through our business partnerships. We have a statement on our
website setting out our approach and commitment to human rights and
will be reviewing and building on this during 2017 using the UN
Guiding Principles on Business and Human Rights framework. We have
also published our Modern Slavery statement setting out the steps
we are taking to help prevent modern slavery in our business and
supply chains. You can find out more at
www.standardlife.com/annualreport
Managing our environmental impact
Our operational environmental impact strategy focuses on our
highest greenhouse gas (GHG) emitting activities: energy use in our
buildings and business travel.
In 2016, we continued to run our awareness programme for our
people and customers, including an environmental champions network,
promoting sustainable travel, collaborative technology workshops
and ongoing energy reduction and recycling initiatives.
In 2013, we targeted a 20% reduction in GHG emissions by 2020.
At the end of December 2016, we had achieved an absolute 5%
reduction, however, on a like-for-like basis we are ahead of target
with a 16% reduction. The table below shows GHG emissions for our
business operations. We also measure GHG emissions for our global
real estate investment portfolio. You can find out more at
www.standardlife.com/annualreport
We know that the biggest impact we can have on environmental
issues, including climate change, is through how we invest. You can
find out more about this within our sustainability report at
www.standardlife.com/sustainability
Volunteering
We have strong links with our local communities and support our
people to volunteer and make a difference through our #getinvolved
initiative. Our volunteering policy gives our people the
opportunity to take three paid days leave a year. Our people
donated 1,529 days for volunteering work in 2016 (2015: 661 days),
significantly exceeding our target of 1,000 days. In 2017 we are
aiming to donate more time and have increased our target again to
2,000 days.
Our charity partners
Our people vote for the charities we support. They pick
charities close to their hearts and carry out vital fundraising
during the partnership. Our current charities are:
-- In the UK, Place2Be - provides emotional support to children
in schools
-- In Ireland, ARC Cancer Centres - therapies and counselling
for people with cancer and their carers
-- In Germany, Hilfe für krebskranke Kinder Frankfurt e.V -
supports children with cancer
-- In Austria, Österreichische Krebshilfe Wien - provides cancer
support in Vienna
-- In the US, Let's Get Ready - supports low-income high school
students
-- In Hong Kong, Hong Kong Society for the Protection of
Children - focusing on the care and welfare of children
2016 total charitable contribution
GBP2.6m(1)
(1) This consists of time given to the community, Raise and
Match, Standard Life Foundation, Standard Life Charity Fund,
donation of equipment and services and our employability scheme
funding.
(2) Greenhouse gas emissions (continuing operations)
2016 2015(6) 2013 (baseline) Actual change(7) 2016 target(7)
-------------------- ------------ ------ ------- --------------- ---------------- --------------
Greenhouse gas
emissions (CO2e) Scope 1(2) 2,227 2,675 2,134 4% (6%)
Scope 2(3) 10,194 12,123 12,034 (15%) (6%)
Scope 3(4) 12,575 10,755 12,070 4% (15%)
--------------------------------- ------ ------- --------------- ---------------- --------------
Total 24,996 25,553 26,238 (5%) (9%)
--------------------------------- ------ ------- --------------- ---------------- --------------
FTE / Tonnes
CO2e ratio(5) Total 3.21 3.39 3.75 (8%) (6%)
-------------------- ------------ ------ ------- --------------- ---------------- --------------
Paper used (tonnes) Total 407 485 603 (32%) (15%)
-------------------- ------------ ------ ------- --------------- ---------------- --------------
Waste (tonnes) Landfill 10 7 276 (96%) N/A
Divert from
landfill 736 718 608 21% N/A
--------------------------------- ------ ------- --------------- ---------------- --------------
Total 746 725 884 (16%) (6%)
--------------------------------- ------ ------- --------------- ---------------- --------------
(1) Scope 1 emissions include gas (and fluorinated greenhouse
gas from 2014).
(2) Scope 2 emissions include electricity.
(3) Scope 3 emissions include business travel (air, rail and
leased fleet), transmission and distribution losses for electricity
and electricity use by a third party data centre.
(4) Based on a full-time equivalent (FTE) employee figure which
includes contingent FTE.
(5) Figures have been restated to reflect full calendar
year.
(6) vs 2013 baseline.
Engaging employment
We want to provide inclusive and engaging employment, encourage
collaboration, and enable our people to reach their potential.
Employee proposition
As we continue to create a world-class investment company we
appreciate the value that attracting, developing and retaining
talented people brings to our business and the impact that they
make on our global ambitions and our customers and clients. We
offer a range of benefits and financial rewards to our people
through our Total Reward package. Our people can tailor their
package to suit their individual needs.
We use a performance-based remuneration system, including a
variable pay scheme which is based on the performance of the
relevant business unit as well as that of individual employees. Our
people can access a range of our savings and investment products at
preferential rates and have the opportunity to join two different
company share schemes. One matches employees' share purchases of up
to GBP50 per month (an increase of GBP25 in 2016) and the other
enables employees to save for a fixed term and exercise their
option to purchase shares at the end of the term at a discounted
set price.
Our people strategy is consistent with both the United Nations
and International Labour Organisation's standards.
Diversity
We continue to show our commitment to inclusion and supporting
diversity and believe we have leading policies and practices in
many areas. We aim to provide an inclusive workplace where everyone
is valued and able to fulfil their potential. Our latest employee
engagement survey showed that 85% of our people believe that our
company appreciates difference among our employees, a 7% increase
from the previous survey.
In 2016 we created new policies and continued activity in a
number of areas for our people to feel part of a more inclusive
workplace. Examples include the launch of our Carers Policy, the
promotion of our Shared Parental Leave Policy featuring enhanced
shared parental pay, the change to our enhanced paternity pay
policy (which means new parents taking paternity leave will be
entitled to be paid up to two weeks' salary regardless of how long
they've worked at Standard Life), increasing the proportion of our
people aged 25 and under in the UK and Ireland to 8% and providing
unconscious bias training across our organisation. We also
continued supporting our employee networks; Armed Forces, LGBT,
LGBT+ Allies, Young People, Carers and Women's Development.
A key strand in our approach is gender equality as we know this
is an area where we have more work to do. In 2016, we were one of
the first signatories to the HM Treasury Women in Finance Charter.
We have made firm, public commitments to support actions which will
improve the representation of senior women in our industry,
including setting progressive target ranges for our leadership
population which is currently 25% women. We will also develop wider
targets incorporating other aspects of diversity across our people
including reporting our gender targets and our gender pay gap in
the coming year.
Working communities
In 2016 we received accreditation from the UK Government as one
of only 11 UK Social Mobility Champions based on our work to break
down barriers to employment.
We believe job creation is vital to creating healthy
communities. Providing quality employment, paid at a living wage,
with access to skills and on-the-job experience for all, can turn
jobs into careers and allow people to plan and look to the future
with confidence. We work with people from disadvantaged backgrounds
who are less well qualified or living in poverty, those who have
been through the care system, people serving as carers, people with
disabilities and people who are transitioning from a career with
the Armed Forces.
In 2016 we published our UK community impact report highlighting
our employability and financial capability work from 2013-2016.
Early careers
We offer challenging and rewarding opportunities for school
leavers and graduates, and internships for those in their
penultimate year of study.
Throughout 2016 we have continued our work with the Edinburgh
Guarantee Scheme, providing 33 young people with paid work
experience for six months. We have also continued our work with the
Investment2020 scheme, offering 12-month paid work experience
placements to 11 people. Across our global employability programmes
we have provided 46 jobs in total in 2016.
Wellbeing
We know that people who work in a healthy and supportive
workplace are more engaged in their roles. We base our ongoing
wellbeing programme activities around three essential areas:
healthy mind, healthy body and healthy culture.
Our analysis shows that mental health is one of the main
wellbeing issues our people can face, so we are committed to
creating a workplace where everyone feels comfortable discussing
any and all mental health issues. To help raise awareness, we offer
workplace training on how to build a mentally healthy environment,
signed up to the Time for Change pledge, supported World Mental
Health Day and in 2016 we became a See Me in Work Partner.
Employee engagement and enablement
Our 2015 employee engagement survey highlighted the importance
our people placed on effective and transparent communication across
our business. We want to enable collaboration and, during 2016, we
made significant steps to address this by:
-- Introducing a new company-wide intranet, built on the
principles of social sharing and conversation
-- Running new engagement programmes where our people meet and
hear from senior leaders and subject matter experts covering all
aspects of our business and the markets we operate in
-- Embedding Microsoft SharePoint as our chosen way to
collaborate on projects and share knowledge across our global
locations
In November 2016, we again ran our employee survey. The
responses gave us a clear update on how our people feel about a
range of topics. Our vision, social responsibility, and risk
culture were our top three scoring themes. Our overall employee
engagement score has increased, however, our enablement score - how
well employee skills are utilised and working environments
facilitate productivity - has decreased. Specifically, the question
on understanding of strategic direction decreased, so this is a
focus for us in 2017.
Our employee engagement survey scores were 65% for engagement
and 62% for enablement, below the global financial services average
scores of 69%.
Our gender targets
-- By September 2017: 26-30% leadership population will be
female
-- By September 2021: 30-35% leadership population will be
female
-- By end 2025: our leadership population will represent the
gender split of our workforce (currently 49% female)
Our talent pipeline, which we've been developing since 2011, is
pivotal to attaining these targets. The numbers we report for our
talent pipeline and our leadership population are not mutually
exclusive, with the pipeline feeding into our leadership population
- 38% of our leadership population are also in our talent pipeline
for succession to more senior roles.
31 31 31
Dec Dec Dec
2016 2016 2015
Gender Number % %
------------------- ------- -------- ------ -----
Board Male 9 75 69
Female 3 25 31
--------------------------- -------- ------ -----
Male 97 75 80
Leadership
population(1) Female 32 25 20
------------------- ------- -------- ------ -----
Talent pipeline(2) Male 143 58 60
Female 102 42 40
--------------------------- -------- ------ -----
Employees Male 3,259 51 51
Female 3,074 49 49
--------------------------- -------- ------ -----
(1) If you include employees who are directors of consolidated
subsidiaries, the percentage increases to 27% female and 73%
males.
(2) Talent pipeline includes graduates and members of the
Emerging Leaders Development Support (ELDS) and Accelerated
Development Support (ADS) programmes.
Supporting saving
We provide support and expertise to enable people to manage
their money and save for their future.
Workplace pensions
We support action which can make saving more inclusive and can
help address the savings gap. In 2012 the UK Government introduced
auto enrolment - where employers are required to offer workers a
workplace pension - which opens up long-term saving into a pension
for more people. Since then, we have helped over one million people
to access saving through a workplace pension and look forward to
their future with more confidence.
Inclusion
We have a customer inclusion panel, made up of internal and
external specialists, to develop practical ways that we can make
our products and services more accessible. We also work with The
Wisdom Council - an organisation which helps provide insight on our
customers and clients. Most recently we have been looking at
financial services jargon and what would help to make
communications simpler and more accessible for customers.
Standard Life Foundation
First announced at our AGM in May 2016, the Foundation is a
charity that will focus on independent research to strengthen
financial well-being and resilience in the UK. We will make a gift
of around GBP80m to the Foundation which is funded from unclaimed
shares and cash entitlements as a result of our demutualisation in
July 2006. During the past decade we have made continued efforts to
trace those entitled to claim and were successful in uniting over
97% of people with their entitlements before the deadline of 9 July
2016. Lord Darling, the former Chancellor of the Exchequer, is
chair of the Foundation and is supported by a team of very
experienced trustees. The Foundation will set out the priorities of
its work during the course of 2017.
Customer trust and advocacy
Our brand Net Promoter Score (NPS) is an important measure of
customer advocacy. The score indicates how likely a customer is to
recommend Standard Life to family and friends. In 2016 our brand
NPS fell by 11 points. We believe the reasons for this include the
processes around pension freedoms - which some customers may have
considered more complex - and lower customer confidence in
financial services as a whole. We've planned a number of actions
for 2017 to improve customer experiences.
Customer complaints
We aim to always do the right thing for our customers - and if
something goes wrong, we are committed to putting it right. We
carry out root cause analysis for any issue raised by a customer so
we can understand what went wrong and take action. In 2016 we
received 7,576 complaints from our customers (2015: 7,516
complaints), which is 17.8 complaints per 10,000 policies in force
(2015: 18.5 complaints). 3% of these complaints went to the
Financial Ombudsman Service (FOS). Of the complaint cases
considered by FOS in H1 2016, they agreed with our decision in 77%
of cases against an industry average of 70%.
Investing responsibly
Our approach to responsible investment and stewardship considers
investments as a tool to promote positive change.
As stewards of our clients' investments we act responsibly in
our investment activities. At Standard Life Investments we
integrate ESG issues into our investment process as we believe
these issues are significant components of investment risk and can
have a fundamental impact on the achievement of sustainable
long-term investment returns. We apply this approach throughout our
investment processes and to mandates which have tailored
sustainable responsible investment (SRI) or ethical criteria.
As a leading investment company, we take our role in this area
seriously. We research, analyse and engage with companies on ESG
issues to understand the risks and drive positive change. We
transparently disclose our discussions and thematic reviews within
our quarterly and annual update reports.
595 ESG engagements with companies
We actively use our influence through voting at shareholder
meetings of investee companies - in order to hold boards to account
and promote high standards of governance. We regularly provide
updates of our voting records on our website.
We voted at 1,569 shareholder meetings of investee companies
Sustainable real estate
We are committed to sustainability across our direct real estate
portfolio. We have a comprehensive Sustainable Real Estate
Investment (SREI) Policy and accompanying procedures that govern
how we embed ESG factors into development projects and asset
management. Our strategic priorities for SREI cover climate change,
resource scarcity and the health, wellbeing and productivity of
building occupiers. We have targets in place to reduce waste, and
water and energy use.
In 2016, Standard Life Investments achieved 15 'Green Stars' in
the annual Global Real Estate Sustainability Benchmark (GRESB)
Assessment - the leading global benchmark for real estate
sustainability. This is the highest number gained of all
participants for the second consecutive year. Three of our 15 Green
Stars also attained GRESB's new 5 Star rating - putting us in the
top 20% of our peers.
Our measurement and assurance
Our non-financial performance measures are aligned across our
four priority areas: responsible business, engaging employment,
supporting saving, and investing responsibly. They are
independently assured by PricewaterhouseCoopers (PwC):
-- Total employee days volunteered
-- Carbon footprint
-- Total people directly employed through employability
programmes
-- InterAction employee survey results
-- Gender diversity of the talent pipeline
-- Gender diversity of the leadership population
-- Total customer complaints
-- Annual movement in the Brand Net Promoter Score (NPS)
-- Voting at shareholder meetings of investee companies
-- Environmental, social and governance engagements with
companies
Basis of preparation
Overview
Our Strategic report for the year to 31 December 2016 has been
prepared in line 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 41 in the Group financial statements section. To
provide clear and helpful information, we have also considered the
voluntary best practice principles of the Guidance on the Strategic
report issued by the Financial Reporting Council in 2014. We have
also considered the European Securities and Markets Authority
(ESMA) guidelines on alternative performance measures issued in
October 2015.
The Group's International Financial Reporting Standards (IFRS)
consolidated financial statements have been prepared in accordance
with IFRS, as endorsed by the European Union (EU). However, our
Board believes that alternative performance measures (APMs), which
have been used in the Strategic report, are also useful for both
management and investors.
The most important APMs in the Strategic report include
operating profit and underlying cash generation.
All APMs should be read together with the Group's 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.
Going concern
The Group's business activities, together with the factors
likely to affect its future development, performance and position,
are set out in this Strategic report. This includes details on our
liquidity and capital management in the Chief Financial Officer's
overview section and our viability statement and principal risks in
the Risk management section. In addition, the Group financial
statements section includes notes on the Group's subordinated
liabilities (Note 36), management of its risks including market,
credit and liquidity risk (Note 41), its contingent liabilities and
commitments (Notes 45 and 46), and its capital structure and
position (Note 49).
The Group continues to meet Group and individual entity capital
requirements, and day-to-day liquidity needs through the Group's
available credit facilities. The Company has a revolving credit
facility of GBP400 million as part of our contingency funding plans
and this is due to mature in 2021. The Group has considerable
financial resources together with a diversified business model,
with a spread of business and geographical reach. As a consequence,
the Directors believe that the Group is well placed to manage its
business risks successfully.
Having assessed the principal risks and the other matters
discussed in connection with the viability statement, the directors
considered it appropriate to adopt the going concern basis of
accounting in preparing the financial statements.
IFRS reporting
The financial results are prepared on an IFRS basis. All
EU-listed companies are required to prepare consolidated financial
statements using IFRS issued by the International Accounting
Standards Board (IASB) as endorsed by the EU. The IFRS financial
results in the Strategic report and in the Group financial
statements have been prepared on the basis of the IFRS accounting
policies as disclosed in the Group financial statements section of
this report.
Operating profit
The 2016 reconciliation of consolidated operating profit to IFRS
profit for the year, presented on page 115 of this report, presents
profit before tax expense attributable to equity holders adjusted
for non-operating items. Further details on the calculation of
Group operating profit is presented in Note 14. Operating profit
reporting provides further analysis of the results reported under
IFRS and the Directors believe helps to give shareholders a fuller
understanding of the performance of the business by identifying and
analysing non-operating items.
Forward-looking statements
This document may contain certain 'forward-looking statements'
with respect to Standard Life's plans and its current goals and
expectations relating to its future financial condition,
performance, results, strategy and objectives. For example,
statements containing words such as 'may', 'will', 'should',
'continue', 'aims', 'estimates', 'projects', 'believes', 'intends',
'expects', 'plans', 'pursues', 'seeks', 'targets' and
'anticipates', and words of similar meaning, may be
forward-looking. By their nature, all forward-looking statements
involve risk and uncertainty because they are based on information
available at the time they are made, including current expectations
and assumptions, and relate to future events and circumstances
which may be or are beyond Standard Life's control, including among
other things: UK domestic and global political, economic and
business conditions (such as the United Kingdom's exit from the
European Union); market related risks such as fluctuations in
interest rates and exchange rates, and the performance of financial
markets generally; the impact of inflation and deflation;
experience in particular with regard to mortality and morbidity
trends, lapse rates and policy renewal rates; the impact of
competition; the timing, impact and other uncertainties of future
acquisitions or combinations within relevant industries; default by
counterparties; information technology or data security breaches;
natural or man-made catastrophic events; the failure to attract or
retain necessary key personnel; the policies and actions of
regulatory authorities; and the impact of changes in capital,
solvency or accounting standards, and tax and other legislation and
regulations in the jurisdictions in which Standard Life and its
affiliates operate as well as other factors described in the Risk
management section of this Strategic report. These may for example
result in changes to assumptions used for determining results of
operations or re-estimations of reserves for future policy
benefits. As a result, Standard Life's actual future financial
condition, performance and results may differ materially from the
plans, goals, strategy and expectations set forth in the
forward-looking statements. Persons receiving this document should
not place undue reliance on forward-looking statements. Standard
Life undertakes no obligation to update any of the forward-looking
statements contained in this document or any other forward-looking
statements it may make. Past performance is not an indicator of
future results and the results of Standard Life in this document
may not be indicative of, and are not an estimate, forecast or
projection of, Standard Life's future results.
The Strategic report has been approved by the Board and signed
on its behalf by
Kenneth A Gilmour
Company Secretary
Standard Life plc (SC286832)
24 February 2017
This information is provided by RNS
The company news service from the London Stock Exchange
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