TIDMSL.
RNS Number : 7408X
Standard Life plc
24 February 2017
Standard Life plc
Full Year Results 2016
Part 5 of 8
7. Independent auditors' report to the members of Standard Life
plc
Report on the Group financial statements
Our opinion
In our opinion, Standard Life plc's Group financial statements
(the 'financial statements'):
-- Give a true and fair view of the state of the Group's affairs
as at 31 December 2016 and of its profit and cash flows for the
year then ended
-- Have been properly prepared in accordance with International
Financial Reporting Standards ('IFRSs') as adopted by the European
Union
-- Have been prepared in accordance with the requirements of the
Companies Act 2006 and Article 4 of the IAS Regulation
What we have audited
The financial statements, included within the Annual report and
accounts (the 'Annual Report'), comprise:
-- The Consolidated statement of financial position as at 31 December 2016
-- The Consolidated income statement and consolidated statement
of comprehensive income for the year then ended
-- The Consolidated statement of cash flows for the year then ended
-- The Consolidated statement of changes in equity for the year then ended
-- The accounting policies and notes to the financial
statements, which includes the Presentation of consolidated
financial statements section and other explanatory information
We have not audited the pro forma reconciliation of consolidated
operating profit to profit for the year ending 31 December 2016 set
out on page 115 which was prepared by Standard Life plc.
We have not audited the elements of Note 49 - Capital management
on pages 209 and 210 described as unaudited which have been
prepared by Standard Life plc.
Certain required disclosures have been presented elsewhere in
the Annual report, rather than in the notes to the financial
statements. These are cross-referenced from the financial
statements and are identified as audited.
The financial reporting framework that has been applied in the
preparation of the financial statements is IFRSs as adopted by the
European Union, and applicable law.
Our audit approach
Overview
* Overall Group materiality: GBP34.0 million which
represents approximately 5% of operating profit
before tax
------------------------------------------------------------
* We selected 23 reporting units (as explained on page
109) on whose financial information we conducted
audit procedures
* We identified 8 of these reporting units which, in
our view, required an audit of the complete financial
information, either due to their size and/or their
risk characteristics. These focused on the material
reporting units within the Standard Life Investments
and Pensions and Savings segments.
* For the remaining 15 reporting units across all
segments, specific audit procedures were performed on
certain account balances and transactions
* Procedures were also performed at the Group level
over the Group consolidation process
------------------------------------------------------------
Our areas of focus included:
* Determination of actuarial assumptions for valuation
of assets and liabilities
* Valuation of complex financial instruments and
investment property
* Valuation of identifiable intangible assets arising
from the acquisition of Ignis Asset Management
Limited ('Ignis')
* Provision for annuity sales practices
The scope of our audit and our areas of focus
We conducted our audit in accordance with International
Standards on Auditing (UK and Ireland) ('ISAs (UK &
Ireland)').
We designed our audit by determining materiality and assessing
the risks of material misstatement in the financial statements. In
particular, we looked at where the Directors made subjective
judgements, for example in respect of significant accounting
estimates that involved making assumptions and considering future
events that are inherently uncertain. We also addressed the risk of
management override of internal controls and the risk of fraud in
revenue recognition, including evaluating whether there was
evidence of bias by the Directors that represented a risk of
material misstatement due to fraud.
The risks of material misstatement that had the greatest effect
on our audit, including the allocation of our resources and effort,
are identified as 'areas of focus' in the table below. We have also
set out how we tailored our audit to address these specific areas
in order to provide an opinion on the financial statements as a
whole, and any comments we make on the results of our procedures
should be read in this context. This is not a complete list of all
risks identified by our audit.
How our audit addressed the
Area of focus area of focus
--------------------------------------------------------- -----------------------------------------------------------
Determination of actuarial Our audit work in respect
assumptions for valuation of actuarial assumptions
of assets and liabilities in respect of life insurance
The Directors' determination contract liabilities included:
of assumptions for the valuation * Assessing the key changes in the assumptions against
of life insurance contract regulatory and reporting requirements and industry
liabilities involves complex standards
judgements about future events,
both internal and external
to the business. Changes * Obtaining audit evidence in respect of the key
in assumptions can result controls over the key actuarial models, data
in material impacts to the collection and analysis and the assumptions setting
valuation of the liabilities. processes used by management, evaluating their design
The methodology used can and implementation and testing their operating
also have a material impact effectiveness
on the valuation of the insurance
contract liabilities.
As part of our consideration * Benchmarking management's assumptions in the UK
of assumptions, we gave specific against over 20 of the largest life insurers in the
focus to the annuitant mortality UK which were included in PwC's independent
assumptions used in valuing benchmarking survey. This allowed us to compare the
life insurance contract liabilities, assumptions used relative to those used by the
because of the sensitivity Group's industry peers.
of the Group's profit to
changes in these assumptions
and the level of judgement Specifically for annuitant
involved in setting these mortality assumptions:
assumptions. * Evaluating the choice of the industry standard
Annuitant mortality assumptions Continuous Mortality Investigation ('CMI') model
are those related to the against the outputs of management's internal cause of
life expectancy of annuitants death model, wider market data from benchmarking and
and the rate at which expectancy regulatory feedback
is likely to increase. These
assumptions are driven by
past experience and assumptions Our audit work in respect
about future changes which of methodologies used in
are based on the Group's the valuation of life insurance
experience, together with contract liabilities included:
industry standard data tables. * Challenging management's methodology, focusing on
Refer to page 69 (Audit Committee changes to methodology in the year, by applying our
report), page 122 (Critical industry knowledge and experience to compare whether
accounting estimates and the methodology and/ or changes are in compliance
judgements), pages 160 to with recognised actuarial practices and regulatory
166 (Accounting policies and reporting requirements
and notes).
We determined, based on our
audit work, that the assumptions
used in the models are appropriate,
and that the methodologies
applied are in line with
Due to the magnitude of the financial reporting requirements
balance and the estimates and industry accepted practice
involved in the valuation, and reflect the nature of
we also considered the assumptions the Group's life insurance
used in valuing pension scheme contracts.
liabilities. This included Our audit work in respect
assumptions over mortality, of actuarial assumptions
discount and inflation rates. in respect of pension scheme
Refer to page 69 (Audit Committee liabilities included:
report), page 122 (Critical * Testing management's discount rate by creating an
accounting estimates and independent discount rate expectation based on our
judgements), pages 168 to knowledge of the Standard Life pension scheme and
173 (Accounting policies other schemes of a similar nature
and notes).
* Benchmarking management's key assumptions (pensioner
and non-pensioner mortality, spread between Retail
Price Index and Consumer Price Index and inflation
rate premium) against over 25 companies which were
included in PwC's independent benchmarking survey.
This allowed us to compare the assumptions used
relative to those used by other companies.
We determined based on our
audit work that the assumptions
used are in line with financial
reporting requirements and
industry accepted practice
and reflect the nature of
the value of the Group's
pension scheme.
--------------------------------------------------------- -----------------------------------------------------------
Valuation of complex financial Our audit work in respect
instruments and investment of the valuation of derivative
property assets and liabilities included:
We focused on this area as * Evaluating the design and testing the operational
valuation, specifically in effectiveness of key controls over derivative
respect of derivatives, commercial valuations, such as controls to reperform valuations
mortgages and investment calculated by outsourced operations using independent
property, is an area which source data
requires the use of judgement
by the Directors and/or the
involvement of valuation * Understanding and assessing the models and
experts. methodology used for a sample of derivative
Derivative and commercial investments across the investment portfolio, which
mortgage valuations require management value using models. This included
judgements because, for some recalculating the sample of valuations using
instruments, quoted prices independent models and sourcing our own input data
are not readily available. from recognised independent market data and
As such, management use models investigating any differences found that were greater
to estimate their fair value. than predefined thresholds.
The key judgement for derivative
valuations is whether there
are any changes required Our audit work in respect
to the methodology of these of the valuation of commercial
models as a result of market mortgages included:
practice, accounting or regulatory * Evaluating the assumptions over the credit risk of
updates. the borrowers used in formulating the discount rate
Commercial mortgage valuations for the future cash flows against our own
require the use of judgement expectations for similar borrowers
over the discount rates applied
to the future contractual
cash flows, particularly Our audit work in respect
in respect of the credit of the valuation of investment
risk of the borrowers. property included:
Investment property valuations * Evaluating the assumptions used in a sample of
are complex as they require investment property valuations by comparing a sample
the selection of assumptions, of the property yields used by management's property
such as future rental income experts against published market benchmarks in order
to determine expected yields. to identify any assumptions or valuations which fell
Management engage independent outside our expected range
property experts to assist
in selecting these assumptions.
Refer to page 69 (Audit Committee * Meeting with management's property experts to
report), page 122 (Critical establish whether the valuation approach was in
accounting estimates and accordance with our expectations based on our own
judgements), pages 148, 150 experience of the investment property industry
to 153 (Accounting policies
and notes)
We determined that the assumptions
used, and the resultant valuations
of the complex financial
instruments and investment
property were within ranges
that we consider to be acceptable.
--------------------------------------------------------- -----------------------------------------------------------
Valuation of identifiable Our audit work in respect
intangible assets arising of the valuation of the intangible
from the acquisition of Ignis assets arising through the
The Directors' valuation acquisition of Ignis included:
of intangible assets arising * Evaluating whether there had been indicators of
from business combinations impairment that would trigger an impairment review of
involves complex judgements any of the intangibles assets
about forecast fund flows,
discount rates and operating
margins, changes to which * Challenging whether the cash generating units for the
can have a material impact intangibles are supportable by reference to the
on the valuations adopted progress of Ignis' integration into the Group
in the financial statements.
The Directors' also apply
judgement when assessing * Challenging assumptions used in forecasting fund
whether there are any indicators flows. We checked that the forecasts used had been
of impairment to the remaining through management's internal challenge and approval
institutional, life and retail process and considered the sensitivity of forecasts
intangibles. relative to the historical accuracy of management's
We gave specific focus to forecasting.
the changes in assumptions
used in the revaluation of
the remaining institutional * Challenging the discount rate used through a
intangible, as changes to comparison of the range of discount rates used in the
these assumptions were most industry, as well as company specific metrics such as
likely to result in an impairment the weighted average cost of capital and our
charge within the consolidated assessment of the risk associated with forecast cash
income statement for the flows
year.
Refer to page 69 (Audit Committee
report), page 122 (Critical * Evaluating the forecast operating margins used
accounting estimates and against those experienced in the cash generating unit
judgements), pages 143 to and comparing to our own expectation of the range of
144 (Accounting policies experience in the industry
and notes)
* Performing stress testing and reverse stress testing
on key assumptions in the valuation model to
challenge the appropriateness of management's
assumptions
We determined that the assumptions
used in the valuation of
the remaining intangible
assets were appropriate to
the current circumstances
and plans of the Group, and
were within a reasonable
range.
We determined that the impairment
charge recognised in the
financial statements for
the institutional intangible
asset appropriately reflected
the changes in assumptions
during the year.
--------------------------------------------------------- -----------------------------------------------------------
Provision for annuity sales Our audit work in respect
practices of the measurement of the
The Directors' determination provision for annuity sales
of the valuation of the provision practices included:
for annuity sales practices * Evaluating the regulatory communications, legal
involves a range of accounting support and the Directors' intention to put things
judgements. A key area of right for any disadvantaged customers to establish
focus for our audit is the whether there is sufficient evidence to recognise a
consideration of the reporting provision.
implications of the FCA's
2015 Thematic Review of Annuity
Sales Practices relating * Understanding and assessing the model and methodology
to the period since July used to value and calculate the provision against the
2008. There are a number scope of the review required by the FCA in their
of elements to consider, Thematic Review of Annuity Sales Practices report
including: dated October 2016
* An assessment of the recognition criteria for this
liability
* Challenging the assumptions set by management and
used within the model to supporting evidence,
* The estimated valuation of any such provision, base including regulatory communications from October to
d February 2017 and budgeted project costs as approved
on the latest available information, including by the steering committee in February 2017. Due to
associated costs the uncertain nature of such assumptions, there is a
range of possible factors identified by management.
* The separate recognition criteria for any
reimbursement asset arising from existing indemnity * Assessing the selection of the model assumption
insurance contracts within the range and the sensitivities disclosed
within the Annual report and accounts
Refer to page 69 (Audit Committee In respect of the population
report), page 122 (Critical and policyholder data which
accounting estimates and is used by the model:
judgements), pages 174 to * Evaluating the controls applied by management over
175 and 204 to 205 (Accounting the extraction of the data from the underlying
policies and notes) customer data systems and its subsequent analysis to
obtain the appropriate data set
We are satisfied that there
is sufficient evidence to
recognise a provision in
respect of annuity sales
practices in the period since
July 2008 as at
31 December 2016.
We are satisfied that the
model and assumptions used
are appropriate for a best-estimate
provision for year-end reporting
within a reasonable range,
given current evidence available
to Standard Life at this
time.
Our work over the recognition
criteria of any potential
reimbursement asset relating
to the provision for annuity
sales practices included
evaluating communications
with the relevant insurers.
We are satisfied that Standard
Life has not yet obtained
sufficient evidence to be
virtually certain that the
asset will be received and
accordingly that there should
not be recognition of an
asset as at
31 December 2016.
--------------------------------------------------------- -----------------------------------------------------------
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed
enough work to be able to give an opinion on the financial
statements as a whole, taking into account the geographic structure
of the Group, the accounting processes and controls, and the
industry in which the Group operates.
The Group consists of four segments: Standard Life Investments,
Pensions and Savings, India and China, and Other. These segments
are disaggregated into reporting units. The financial statements
are a consolidation of these reporting units.
In establishing the overall approach to the Group audit, we
determined the type of work that needed to be performed at the
reporting units by us, as the Group engagement team, or component
auditors either within PricewaterhouseCoopers LLP or from other
PricewaterhouseCoopers network firms operating under our
instruction.
We identified eight of the Group's reporting units which, in our
view, required an audit of their complete financial information
('full scope' reporting units). These focused on the material
reporting units within the Standard Life Investments and Pensions
and Savings segments.
In addition, specific audit procedures on certain account
balances and transactions were performed at a further 15 reporting
units within the Group across all segments ('limited scope'
reporting units).
We performed testing over the controls in place at the Group
level over the Group consolidation process including the
consolidation of share capital and reserves and the elimination of
intercompany transactions.
Where the work was performed by component auditors, we
determined the level of involvement we needed to have in the audit
work performed at those reporting units to be able to conclude
whether sufficient appropriate audit evidence had been obtained as
a basis for our opinion on the financial statements. As a result,
the Group engagement team attended management's oversight and
governance meetings within Standard Life Investments as the largest
of the Group's components, and visited operations in Hong Kong
which is the wholly owned business within the India and China
segment.
Materiality
The scope of our audit was influenced by our application of
materiality. We set certain quantitative thresholds for
materiality. These, together with qualitative considerations,
helped us to determine the scope of our audit and the nature,
timing and extent of our audit procedures on the individual
financial statement line items and disclosures and in evaluating
the effect of misstatements, both individually and on the financial
statements as a whole. Based on our professional judgement, we
determined materiality for the financial statements as a whole as
follows:
Overall GBP34.0m (2015: GBP31.0m).
Group materiality
------------------ ---------------------------------------------------
How we Represents approximately 5% of operating profit
determined before tax.
it
------------------ ---------------------------------------------------
Rationale In determining our materiality, we have considered
for benchmark financial metrics which we believe to be relevant
applied and concluded that operating profit before
tax was a relevant benchmark as it is the key
performance measure reported by management
and used by other stakeholders to help give
a fuller understanding of the performance of
the business in both its internal and external
reporting to stakeholders, including shareholders
and analysts. We have also referenced IFRS
profit before tax.
------------------ ---------------------------------------------------
Component For each component in our audit scope, we allocated
materiality a materiality that is less than our overall
Group materiality. To allocate materiality
to full scope reporting units, we considered
the specific risks and balances within the
reporting units, as well as considering the
level of materiality that would impact the
individual entity's statutory financial statements
as this is a focus for management when preparing
their financial information. This resulted
in materiality being allocated between GBP9m
and GBP28m to each of the full scope reporting
units. Having considered the coverage from
the full scope reporting units, we assessed
the risk of material misstatement within the
limited scope reporting units and allocated
materiality across in scope account balances
and transactions. This resulted in allocation
of materiality in a similar range. Certain
components were audited to a local statutory
audit materiality that was also less than our
overall Group materiality.
------------------ ---------------------------------------------------
We agreed with the Audit Committee that we would report to them
misstatements identified during our audit above GBP2.0m (2015:
GBP2.0m) as well as misstatements below that amount that, in our
view, warranted reporting for qualitative reasons.
Going concern
Under the Listing Rules we are required to review the Statement
of Directors' responsibilities, set out on page 103, in relation to
going concern. We have nothing to report having performed our
review.
Under ISAs (UK & Ireland) we are required to report to you
if we have anything material to add or to draw attention to in
relation to the Directors' statement about whether they considered
it appropriate to adopt the going concern basis in preparing the
financial statements. We have nothing material to add or to draw
attention to.
As noted in the Basis of preparation, set out on page 47, the
Directors have concluded that it is appropriate to adopt the going
concern basis in preparing the financial statements. The going
concern basis presumes that the Group has adequate resources to
remain in operation, and that the Directors intend it to do so, for
at least one year from the date the financial statements were
signed. As part of our audit we have concluded that the Directors'
use of the going concern basis is appropriate. However, because not
all future events or conditions can be predicted, these statements
are not a guarantee as to the Group's ability to continue as a
going concern.
Other required reporting
Consistency of other information and compliance with applicable
requirements
Companies Act 2006 reporting
In our opinion, based on the work undertaken in the
course of the audit:
* The information given in the Strategic report and the
Directors' report for the financial year for which
the financial statements are prepared is consistent
with the financial statements
* The Strategic report and the Directors' report have
been prepared in accordance with applicable legal
requirements
In addition, in light of the knowledge and understanding
of the company and its environment obtained in the
course of the audit, we are required to report if we
have identified any material misstatements in the Strategic
report and the Directors' report. We have nothing to
report in this respect.
ISAs (UK & Ireland) reporting
Under ISAs (UK & Ireland) we are required to report
to you if, in our opinion:
------------------------------------------------------------------------------
We have
* Information in the Annual Report is: no exceptions
to report.
* Materially inconsistent with the information in the
audited financial statements
* Apparently materially incorrect based on, or
materially inconsistent with, our knowledge of the
Group acquired in the course of performing our audit
* Otherwise misleading
We have
* The statement given by the Directors on page 47, in no exceptions
accordance with provision C.1.1 of the UK Corporate to report.
Governance Code (the 'Code'), that they consider the
Annual Report taken as a whole to be fair, balanced
and understandable and provides the information
necessary for members to assess the Group's position
and performance, business model and strategy is
materially inconsistent with our knowledge of the
Group acquired in the course of performing our audit
We have
* The section of the Annual Report on pages 67 to 74, no exceptions
as required by provision C.3.8 of the Code, to report.
describing the work of the Audit Committee does not
appropriately address matters communicated by us to
the Audit Committee
-------------------------------------------------------------- --------------
The Directors' assessment of the prospects of the Group and of
the principal risks that would threaten the solvency or liquidity
of the Group
Under ISAs (UK & Ireland) we are required to report
to you if we have anything material to add or to draw
attention to in relation to:
-------------------------------------------------------------------------
We have
* The Directors' confirmation on page 36 of the Annual nothing
Report, in accordance with provision C.2.1 of the material
Code, that they have carried out a robust assessment to add
of the principal risks facing the Group, including or to draw
those that would threaten its business model, future attention
performance, solvency or liquidity to.
We have
* The disclosures in the Annual Report that describe nothing
those risks and explain how they are being managed or material
mitigated to add
or to draw
attention
to.
We have
* The Directors' explanation on pages 36 and 37 of the nothing
Annual Report, in accordance with provision C.2.2 of material
the Code, as to how they have assessed the prospects to add
of the Group, over what period they have done so and or to draw
why they consider that period to be appropriate, and attention
their statement as to whether they have a reasonable to.
expectation that the Group will be able to continue
in operation and meet its liabilities as they fall
due over the period of their assessment, including
any related disclosures drawing attention to any
necessary qualifications or assumptions
------------------------------------------------------------ -----------
Under the Listing Rules we are required to review the Directors'
statement that they have carried out a robust assessment of the
principal risks facing the Group and the Directors' statement in
relation to the longer-term viability of the Group. Our review was
substantially less in scope than an audit and only consisted of
making inquiries and considering the Directors' process supporting
their statements; checking that the statements are in alignment
with the relevant provisions of the Code; and considering whether
the statements are consistent with the knowledge acquired by us in
the course of performing our audit. We have nothing to report
having performed our review.
Adequacy of information and explanations received
Under the Companies Act 2006 we are required to report to you
if, in our opinion, we have not received all the information and
explanations we require for our audit. We have no exceptions to
report arising from this responsibility.
Directors' remuneration
Under the Companies Act 2006 we are required to report to you
if, in our opinion, certain disclosures of Directors' remuneration
specified by law are not made. We have no exceptions to report
arising from this responsibility.
Corporate governance statement
Under the Listing Rules we are required to review the part of
the Corporate Governance Statement relating to 10 further
provisions of the Code. We have nothing to report having performed
our review.
Responsibilities for the financial statements and the audit
Our responsibilities and those of the Directors
As explained more fully in the Statement of Directors'
responsibilities set out on page 103, the Directors are responsible
for the preparation of the financial statements and for being
satisfied that they give a true and fair view.
Our responsibility is to audit and express an opinion on the
financial statements in accordance with applicable law and ISAs (UK
& Ireland). Those standards require us to comply with the
Auditing Practices Board's Ethical Standards for Auditors.
This report, including the opinions, has been prepared for and
only for the Company's members as a body in accordance with Chapter
3 of Part 16 of the Companies Act 2006 and for no other purpose. We
do not, in giving these opinions, accept or assume responsibility
for any other purpose or to any other person to whom this report is
shown or into whose hands it may come save where expressly agreed
by our prior consent in writing.
What an audit of financial statements involves
An audit involves obtaining evidence about the amounts and
disclosures in the financial statements sufficient to give
reasonable assurance that the financial statements are free from
material misstatement, whether caused by fraud or error. This
includes an assessment of:
-- Whether the accounting policies are appropriate to the
Group's circumstances and have been consistently applied and
adequately disclosed
-- The reasonableness of significant accounting estimates made by the Directors
-- The overall presentation of the financial statements
We primarily focus our work in these areas by assessing the
Directors' judgements against available evidence, forming our own
judgements, and evaluating the disclosures in the financial
statements.
We test and examine information, using sampling and other
auditing techniques, to the extent we consider necessary to provide
a reasonable basis for us to draw conclusions. We obtain audit
evidence through testing the effectiveness of controls, substantive
procedures or a combination of both.
In addition, we read all the financial and non-financial
information in the Annual Report to identify material
inconsistencies with the audited financial statements and to
identify any information that is apparently materially incorrect
based on, or materially inconsistent with, the knowledge acquired
by us in the course of performing the audit. If we become aware of
any apparent material misstatements or inconsistencies we consider
the implications for our report. With respect to the Strategic
report and Directors' report, we consider whether those reports
include the disclosures required by applicable legal
requirements.
Other matter
We have reported separately on the company financial statements
of Standard Life plc for the year ended 31 December 2016 and on the
information in the Directors' remuneration report that is described
as having been audited.
Stephanie Bruce (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Edinburgh
24 February 2017
a) The maintenance and integrity of the Standard Life plc
website is the responsibility of the Directors; the work carried
out by the auditors does not involve consideration of these matters
and, accordingly, the auditors accept no responsibility for any
changes that may have occurred to the financial statements since
they were initially presented on the website.
b) Legislation in the United Kingdom governing the preparation
and dissemination of financial statements may differ from
legislation in other jurisdictions.
8. Group financial statements
Consolidated income statement
For the year ended 31 December 2016
2016 2015
Notes GBPm GBPm
------------------------------------------- ----- ------ -------
Revenue
Gross earned premium 2,139 2,276
Premium ceded to reinsurers (47) (48)
------------------------------------------- ----- ------ -------
Net earned premium 2,092 2,228
Investment return 4 15,376 5,460
Fee income 5 1,186 1,120
Other income 75 84
------------------------------------------- ----- ------ -------
Total revenue 18,729 8,892
------------------------------------------- ----- ------ -------
Expenses
Claims and benefits paid 4,801 4,543
Claim recoveries from reinsurers (492) (514)
------------------------------------------- ----- ------ -------
Net insurance benefits and claims 4,309 4,029
Change in reinsurance assets and
liabilities 33 140 520
Change in insurance and participating
contract liabilities 33 2,115 (1,693)
Change in unallocated divisible
surplus 33 53 (117)
Change in non-participating investment
contract liabilities 34 8,768 3,363
Expenses under arrangements with
reinsurers 6 509 42
Administrative expenses
Restructuring and corporate transaction
expenses 10 62 88
Other administrative expenses 7 1,494 1,540
------------------------------------------- ----- ------ -------
Total administrative expenses 1,556 1,628
Provision for annuity sales practices 40 175 -
Change in liability for third party
interest in consolidated funds 32 296 531
Finance costs 82 83
------------------------------------------- ----- ------ -------
Total expenses 18,003 8,386
------------------------------------------- ----- ------ -------
Share of profit from associates
and joint ventures 63 43
Profit before tax 789 549
------------------------------------------- ----- ------ -------
Tax expense attributable to policyholders'
returns 11 302 134
Profit before tax expense attributable
to equity holders' profits 487 415
------------------------------------------- ----- ------ -------
Total tax expense 11 370 211
Less: Tax attributable to policyholders'
returns (302) (134)
------------------------------------------- ----- ------ -------
Tax expense attributable to equity
holders' profits 11 68 77
------------------------------------------- ----- ------ -------
Profit for the year from continuing
operations 419 338
------------------------------------------- ----- ------ -------
Profit for the year from discontinued
operations 12 - 1,147
------------------------------------------- ----- ------ -------
Profit for the year 419 1,485
------------------------------------------- ----- ------ -------
Attributable to:
Equity holders of Standard Life
plc
From continuing operations 368 276
From discontinued operations - 1,147
------------------------------------------- ----- ------ -------
Equity holders of Standard Life
plc 368 1,423
Non-controlling interests 32 51 62
------------------------------------------- ----- ------ -------
419 1,485
------------------------------------------- ----- ------ -------
Earnings per share from continuing
operations
Basic (pence per share) 13 18.7 13.5
Diluted (pence per share) 13 18.6 13.4
Earnings per share
Basic (pence per share) 13 18.7 69.4
Diluted (pence per share) 13 18.6 69.1
------------------------------------------- ----- ------ -------
Consolidated statement of comprehensive income
For the year ended 31 December 2016
2016 2015
Notes GBPm GBPm
------------------------------------------------ ----- ---- -------
Profit for the year 419 1,485
Less: Profit for the year from discontinued
operations 12 - (1,147)
------------------------------------------------ ----- ---- -------
Profit for the year from continuing
operations 419 338
------------------------------------------------ ----- ---- -------
Items that will not be reclassified
subsequently to profit or loss:
Remeasurement gains on defined benefit
pension plans 37 162 167
Revaluation of owner occupied property 20 5 4
Equity movements transferred to unallocated
divisible surplus 31 (5) (4)
Equity holder tax effect relating
to items that will not be reclassified
subsequently to profit or loss 11 2 -
------------------------------------------------ ----- ---- -------
Total items that will not be reclassified
subsequently to profit or loss 164 167
------------------------------------------------ ----- ---- -------
Items that may be reclassified subsequently
to profit or loss:
Fair value losses on cash flow hedges - (1)
Net investment hedge - (1)
Fair value gains/(losses) on available-for-sale
financial assets 17 (8)
Exchange differences on translating
foreign operations 173 (6)
Equity movements transferred to unallocated
divisible surplus 31 (62) 1
Share of other comprehensive income/(expense)
of associates and joint ventures 30 (10) 2
Equity holder tax effect relating
to items that may be reclassified
subsequently to profit or loss 11 (3) 2
------------------------------------------------ ----- ---- -------
Total items that may be reclassified
subsequently to profit or loss 115 (11)
------------------------------------------------ ----- ---- -------
Other comprehensive income for the
year from continuing operations 279 156
------------------------------------------------ ----- ---- -------
Other comprehensive income for the
year from discontinued operations - (187)
------------------------------------------------ ----- ---- -------
Total other comprehensive income for
the year 279 (31)
------------------------------------------------ ----- ---- -------
Profit for the year from discontinued
operations 12 - 1,147
------------------------------------------------ ----- ---- -------
Total comprehensive income for the
year 698 1,454
------------------------------------------------ ----- ---- -------
Attributable to:
Equity holders of Standard Life plc
From continuing operations 647 432
From discontinued operations - 960
Non-controlling interests
From continuing operations 51 62
------------------------------------------------ ----- ---- -------
698 1,454
------------------------------------------------ ----- ---- -------
Pro forma reconciliation of consolidated operating profit to
profit for the year
For the year ended 31 December 2016
2015
Continuing Discontinued
2016 operations operations Total
Notes GBPm GBPm GBPm GBPm
--------------------------------------- ----- ----- ----------- ------------ -----
Operating profit/(loss)
before tax
Standard Life Investments 383 342 - 342
Pensions and Savings(1) 362 357 - 357
India and China(2) 36 27 (2) 25
Other (58) (61) - (61)
Canada - - 5 5
--------------------------------------- ----- ----- ----------- ------------ -----
Operating profit before
tax 2 723 665 3 668
--------------------------------------- ----- ----- ----------- ------------ -----
Adjusted for the following
items
Short-term fluctuations
in investment return and
economic assumption changes 14 8 (63) 63 -
Restructuring and corporate
transaction expenses 10 (67) (115) (10) (125)
Impairment of intangible
assets (19) (7) (2) (9)
Gain on sale of Canadian
business 12 - - 1,102 1,102
Provision for annuity sales
practices 40 (175) - - -
Other (21) (72) (31) (103)
--------------------------------------- ----- ----- ----------- ------------ -----
Total non-operating items 2 (274) (257) 1,122 865
--------------------------------------- ----- ----- ----------- ------------ -----
Singapore included in discontinued
operations segment(2) 2 - (42) 42 -
Share of associates' and
joint ventures' tax expense 2 (13) (13) - (13)
Profit attributable to non-controlling
interests 2 51 62 - 62
--------------------------------------- ----- ----- ----------- ------------ -----
Profit before tax expense
attributable to equity holders'
profits 487 415 1,167 1,582
--------------------------------------- ----- ----- ----------- ------------ -----
Tax (expense)/credit attributable
to
Operating profit 2 (127) (114) - (114)
Non-operating items 2 59 37 (20) 17
Singapore included in discontinued
operations segment(2) 2 - - - -
--------------------------------------- ----- ----- ----------- ------------ -----
Total tax expense attributable
to equity holders' profits (68) (77) (20) (97)
--------------------------------------- ----- ----- ----------- ------------ -----
Profit for the year 419 338 1,147 1,485
--------------------------------------- ----- ----- ----------- ------------ -----
(1) UK and Europe has been renamed as Pensions and Savings.
(2) Singapore business, the closure of which was announced in
June 2015 was included as a discontinued operation for segmental
reporting purposes under IFRS 8 as this is reflective of the
presentation of information provided to the Chief Operating
Decision Maker. This was previously included in the Asia and
Emerging Markets segment which has been renamed India and China.
Under IFRS 5, Singapore does not constitute a discontinued
operation and was included under continuing operations in the
consolidated income statement. Therefore the pro forma
reconciliation above includes the reclassification of Singapore
results between discontinued and continuing operations.
The Group's key alternative performance measure is operating
profit. Refer to Note 14 for further details.
Consolidated statement of financial position
As at 31 December 2016
2016 2015
Notes GBPm GBPm
----------------------------------------------------- ----- ------- -------
Assets
Intangible assets 16 572 566
Deferred acquisition costs 17 651 646
Investments in associates and joint ventures 18 7,948 5,719
Investment property 19 9,929 9,991
Property, plant and equipment 20 89 91
Pension and other post-retirement benefit assets 37 1,093 897
Deferred tax assets 11 42 35
Reinsurance assets 33 5,386 5,515
Loans 21 295 811
Derivative financial assets 21 3,534 2,444
Equity securities and interests in pooled investment
funds 21 83,307 71,679
Debt securities 21 67,933 66,657
Receivables and other financial assets 21 1,255 1,447
Current tax recoverable 11 166 168
Other assets 25 94 89
Assets held for sale 26 263 327
Cash and cash equivalents 21 7,938 9,640
----------------------------------------------------- ----- ------- -------
Total assets 190,495 176,722
----------------------------------------------------- ----- ------- -------
Equity
Share capital 28 242 241
Shares held by trusts 29 (2) (6)
Share premium reserve 28 634 628
Retained earnings 30 2,855 2,162
Other reserves 31 618 977
----------------------------------------------------- ----- ------- -------
Equity attributable to equity holders of Standard
Life plc 4,347 4,002
Non-controlling interests 32 297 347
----------------------------------------------------- ----- ------- -------
Total equity 4,644 4,349
----------------------------------------------------- ----- ------- -------
Liabilities
Non-participating insurance contract liabilities 33 23,422 21,206
Non-participating investment contract liabilities 34 102,063 92,894
Participating contract liabilities 33 31,273 29,654
Deposits received from reinsurers 35 5,093 5,134
Third party interest in consolidated funds 32 16,835 17,196
Subordinated liabilities 35 1,319 1,318
Pension and other post-retirement benefit provisions 37 55 33
Deferred income 38 198 236
Deferred tax liabilities 11 259 205
Current tax liabilities 11 113 113
Derivative financial liabilities 23 965 1,254
Other financial liabilities 35 3,916 2,900
Provisions 40 227 48
Other liabilities 40 113 99
Liabilities of operations held for sale 26 - 83
----------------------------------------------------- ----- ------- -------
Total liabilities 185,851 172,373
----------------------------------------------------- ----- ------- -------
Total equity and liabilities 190,495 176,722
----------------------------------------------------- ----- ------- -------
The consolidated financial statements on pages 113 to 219 were
approved by the Board and signed on its behalf by the following
Directors:
Sir Gerry Grimstone Luke Savage
Chairman Chief Financial Officer
24 February 2017 24 February 2017
Consolidated statement of changes in equity
For the year ended 31 December 2016
Total
equity
attributable
Shares to equity
held Share holders
Share by premium Retained Other of Standard Non-controlling Total
capital trusts reserve earnings reserves Life plc interests equity
2016 Notes GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------- ----- -------- ------- -------- --------- --------- ------------- --------------- -------
1 January 241 (6) 628 2,162 977 4,002 347 4,349
------------------- ----- -------- ------- -------- --------- --------- ------------- --------------- -------
Profit for the year - - - 368 - 368 51 419
Other comprehensive
income for the
year - - - 154 125 279 - 279
------------------- ----- -------- ------- -------- --------- --------- ------------- --------------- -------
Total comprehensive
income for the 30,
year 31 - - - 522 125 647 51 698
Dividends paid on
ordinary shares 15 - - - (370) - (370) - (370)
Issue of share
capital 28 1 - 6 - - 7 - 7
Reserves credit
for employee
share-based
payment schemes 31 - - - - 30 30 - 30
Transfer to
retained
earnings for
vested
employee
share-based 30,
payment schemes 31 - - - 23 (23) - - -
Shares acquired
by employee trusts - (3) - - - (3) - (3)
Shares distributed
by employee and
other trusts 30 - 7 - (7) - - - -
Expiry of unclaimed
asset trust claim
period 30 - - - 41 - 41 - 41
Cancellation of
capital redemption
reserve 28 - - - 488 (488) - - -
Other movements
in non-controlling
interests in the
period - - - - - - (101) (101)
Aggregate tax
effect
of items
recognised
directly in equity 11 - - - (4) (3) (7) - (7)
------------------- ----- -------- ------- -------- --------- --------- ------------- --------------- -------
31 December 242 (2) 634 2,855 618 4,347 297 4,644
------------------- ----- -------- ------- -------- --------- --------- ------------- --------------- -------
Total
equity
attributable
Shares to equity
held Share holders
Share by premium Retained Other of Standard Non-controlling Total
capital trusts reserve earnings reserves Life plc interests equity
2015 Notes GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------- ----- -------- ------- -------- --------- --------- ------------- --------------- -------
1 January 239 1 1,115 1,816 1,501 4,672 278 4,950
------------------- ----- -------- ------- -------- --------- --------- ------------- --------------- -------
Profit for the year
from continuing
operations - - - 276 - 276 62 338
Profit for the year
from discontinued
operations 12 - - - 1,147 - 1,147 - 1,147
Other comprehensive
income for the
year
from continuing
operations - - - 169 (13) 156 - 156
Other comprehensive
income/(expense)
for the year from
discontinued
operations - - - (14) (173) (187) - (187)
------------------- ----- -------- ------- -------- --------- --------- ------------- --------------- -------
Total comprehensive
income for the
year - - - 1,578 (186) 1,392 62 1,454
Dividends paid on
ordinary shares 15 - - - (343) - (343) - (343)
Issue of share
capital 28 2 - 1 - - 3 - 3
Issue of 'B' shares 28 488 - (488) - - - - -
Issue of 'C' shares 28 - - - - - - - -
Redemption of 'B'
shares 28 (488) - - (488) 488 (488) - (488)
Dividends paid on
'C' shares 28 - - - (1,261) - (1,261) - (1,261)
Purchase of 'C'
shares 28 - - - - - - - -
Dividends due on
unclaimed shares
not held in the
Unclaimed Asset
Trust - - - (2) - (2) - (2)
Reserves credit
for employee
share-based
payment schemes 31 - - - - 34 34 - 34
Transfer to
retained
earnings for
vested
employee
share-based 30,
payment schemes 31 - - - 32 (32) - - -
Transfer between
reserves on
disposal
of subsidiaries - - - 827 (827) - - -
Shares acquired
by employee trusts - (9) - - - (9) - (9)
Shares distributed
or sold by
employee
and other trusts 30 - 2 - (2) - - - -
Other movements
in non-controlling
interests in the
year - - - - - - 7 7
Aggregate tax
effect
of items
recognised
directly in equity 11 - - - 5 (1) 4 - 4
------------------- ----- -------- ------- -------- --------- --------- ------------- --------------- -------
31 December 241 (6) 628 2,162 977 4,002 347 4,349
------------------- ----- -------- ------- -------- --------- --------- ------------- --------------- -------
Consolidated statement of cash flows
For the year ended 31 December 2016
2016 2015
Notes GBPm GBPm
----------------------------------------------- ----- -------- -------
Cash flows from operating activities
Profit before tax from continuing
operations 789 549
Profit before tax from discontinued
operations 12 - 1,167
----------------------------------------------- ----- -------- -------
789 1,716
----------------------------------------------- ----- -------- -------
Change in operating assets 44 (12,995) (6,607)
Change in operating liabilities 44 12,926 4,042
Adjustment for non-cash movements
in investment income 174 (20)
Change in unallocated divisible surplus 33 53 (117)
Other non-cash and non-operating
items 44 122 (1,017)
Taxation paid (333) (261)
----------------------------------------------- ----- -------- -------
Net cash flows from operating activities 736 (2,264)
----------------------------------------------- ----- -------- -------
Cash flows from investing activities
Purchase of property, plant and equipment (10) (8)
Proceeds from sale of property, plant
and equipment 22 98
Acquisition of subsidiaries and unincorporated
businesses net of cash acquired (5) (6)
Disposal of subsidiaries net of cash
disposed of 44 - 1,600
Proceeds from settlement of hedging
derivatives contracts - 100
Acquisition of investments in associates
and joint ventures 1 (179) (9)
Purchase of intangible assets not
acquired through business combinations (61) (61)
----------------------------------------------- ----- -------- -------
Net cash flows from investing activities (233) 1,714
----------------------------------------------- ----- -------- -------
Cash flows from financing activities
Repayment of other borrowings (2) (3)
Repayment of subordinated liabilities - (282)
Capital flows (to)/from third party
interest in consolidated funds and
non-controlling interests (1,845) 1,575
Distributions paid to third party
interest in consolidated funds and
non-controlling interests (109) (110)
Shares acquired by trusts (3) (9)
Proceeds from issue of shares 6 -
Interest paid (83) (89)
Return of cash to shareholders under
'B/C' share scheme 15 - (1,749)
Ordinary dividends paid 15 (370) (343)
----------------------------------------------- ----- -------- -------
Net cash flows from financing activities (2,406) (1,010)
----------------------------------------------- ----- -------- -------
Net decrease in cash and cash equivalents (1,903) (1,560)
----------------------------------------------- ----- -------- -------
Cash and cash equivalents at the
beginning of the year 9,591 11,243
Effects of exchange rate changes
on cash and cash equivalents 212 (92)
----------------------------------------------- ----- -------- -------
Cash and cash equivalents at the
end of the year 27 7,900 9,591
----------------------------------------------- ----- -------- -------
Supplemental disclosures on cash
flows from operating activities
Interest paid 3 7
Interest received 1,929 1,979
Dividends received 2,023 1,923
Rental income received on investment
property 564 490
----------------------------------------------- ----- -------- -------
Presentation of consolidated financial statements
The Group's significant accounting policies are included at the
beginning of the relevant notes to the consolidated financial
statements. This section sets out the basis of preparation, a
summary of the Group's critical accounting estimates and judgements
in applying accounting policies, and other significant accounting
policies which have been applied to the financial statements as a
whole.
(a) Basis of preparation
These consolidated financial statements have been prepared in
accordance with International Financial Reporting Standards (IFRS)
issued by the International Accounting Standards Board (IASB) as
endorsed by the European Union (EU), with interpretations issued by
the IFRS Interpretations Committee (IFRICs), and with those parts
of the Companies Act 2006 applicable to companies reporting under
IFRS. The consolidated financial statements have been prepared on a
going concern basis and under the historical cost convention, as
modified by the revaluation of investment property, owner occupied
property, available-for-sale financial assets, and financial assets
and financial liabilities (including derivative instruments) at
fair value through profit or loss (FVTPL).
The principal accounting policies set out in these consolidated
financial statements have been consistently applied to all
financial reporting periods presented.
(a)(i) New interpretations and amendments to existing standards
that have been adopted by the Group
The Group has adopted the following new interpretations and
amendments to existing standards which have been endorsed by the
EU.
Interpretation or amendment Effective Date(1) Detail
-------------------------------- ----------------- -------------------------------
Amendments to IFRS 11 1 January 2016 The amendment requires
Joint Arrangements: Accounting the application of business
for Acquisitions of Interests combination accounting
in Joint Operations for the acquisition of
an interest in a joint
operation which constitutes
a business.
-------------------------------- ----------------- -------------------------------
Amendments to IAS 1 Presentation 1 January 2016 These amendments clarify
of Financial Statements: guidance in IAS 1 on
Disclosure Initiative materiality and aggregation,
the presentation of subtotals,
the structure of financial
statements and the disclosure
of accounting policies.
-------------------------------- ----------------- -------------------------------
Amendments to IAS 16 Property, 1 January 2016 The amendment clarifies
Plant and Equipment and when a method of depreciation
IAS 38 Intangible Assets: or amortisation based
Clarification of Acceptable on revenue may be appropriate.
Methods of Depreciation
and Amortisation
-------------------------------- ----------------- -------------------------------
Annual improvements 2012 1 January 2016 This annual improvements
- 2014 cycle cycle makes five minor
amendments to existing
standards.
-------------------------------- ----------------- -------------------------------
(1) For annual periods beginning on or after.
The Group's accounting policies have been updated to reflect
these. The implementation of the above interpretations and
amendments to existing standards has had no significant impact on
the Group's financial statements.
(a)(ii) Standards, interpretations and amendments to existing
standards that are not yet effective and have not been early
adopted by the Group
Certain new standards, interpretations and amendments to
existing standards have been published that are mandatory for the
Group's annual accounting periods beginning after 1 January 2016.
The Group has not early adopted the standards, amendments and
interpretations described below:
IFRS 15 Revenue from Contracts with Customers (effective for
annual periods beginning on or after 1 January 2018)
IFRS 15 will replace IAS 18 Revenue and related interpretations.
IFRS 15 provides a new five-step revenue recognition model for
determining recognition and measurement of revenue from contracts
with customers. New disclosure requirements including estimate and
judgement thresholds will also be introduced.
The Group's revenue generated from the following contracts is
exempt from this standard:
-- Lease contracts within the scope of IAS 17 Leases
-- Insurance contracts within scope of IFRS 4 Insurance Contracts
-- Financial instruments within the scope of IAS 39 Financial
Instruments: Recognition and Measurement, IFRS 9 Financial
Instruments, IFRS 10 Consolidated Financial Statements and IFRS 11
Joint Arrangements
-- Investments in associates and joint ventures within scope of
IAS 28 Investments in Associates and Joint Ventures
In 2015 the IASB issued amendments to the standard and delayed
the mandatory adoption date until 1 January 2018. In April 2016,
the IASB issued further clarifications to IFRS 15 which have not
yet been endorsed by the EU. The Group does not intend to early
adopt the standard.
A detailed impact assessment was continued in 2016, reviewing
contracts and analysing the revenue recognised by the Group. This
work has been completed for all major revenue streams and no
significant impacts to profit or net assets have been
identified.
IFRS 9 Financial Instruments (effective for annual periods
beginning on or after 1 January 2018 with option to defer for
certain insurance entities)
IFRS 9 will replace IAS 39 Financial Instruments: Recognition
and Measurement. IFRS 9 allows two measurement categories for
financial assets in the statement of financial position: amortised
cost and fair value. All equity instruments and derivative
instruments are measured at fair value. A debt instrument is
measured at amortised cost only if it is held to collect
contractual cash flows and the cash flows represent principal and
interest, otherwise it is classified at fair value through other
comprehensive income (FVOCI) or fair value through profit or loss
(FVTPL) depending on the business model it is held within or
whether the option to adopt FVTPL has been applied. Changes in
value of all equity instruments and derivative instruments are
recognised in profit or loss unless an OCI presentation election is
made at initial recognition for an equity instrument or a
derivative instrument is designated as a hedging instrument in a
cash flow hedge. IFRS 9 also introduces a new impairment model, an
expected credit loss model which will replace the current incurred
loss model in IAS 39. An impairment loss may now be recognised
prior to a loss event occurring. Accounting for financial
liabilities remains the same as under IAS 39 except that for
financial liabilities designated as at FVTPL, changes in the fair
value due to changes in the liability's credit risk are recognised
in OCI.
Additionally IFRS 9 amends the current requirements for
assessing hedge effectiveness in IAS 39 and also amends what
qualifies as a hedged item and some of the restrictions on what
qualifies as a hedging instrument. The accounting and presentation
requirements for designated hedging relationships remain largely
unchanged.
As well as presentation and measurement changes, IFRS 9 also
introduces additional disclosure requirements.
In September 2016 the IASB issued amendments to IFRS 4 Applying
IFRS 9 Financial Instruments with IFRS 4, Insurance Contracts. The
amendments address the consequences of the different effective
dates of IFRS 9 and the new insurance contracts standard, IFRS 17,
expected to be issued in 2017. Insurers are permitted to defer
implementation of IFRS 9 until periods beginning on or after 1
January 2021 if they satisfy criteria regarding the predominance of
their insurance activities, or to apply an overlay approach to
remove incremental volatility from the income statement. Management
has determined that the Group is eligible to defer the
implementation of IFRS 9 and intends to defer. The amendments have
not yet been endorsed by the EU.
The impact of the implementation of IFRS 9 will be dependent on
the implementation of the new insurance contracts standard.
IFRS 16 Leases (effective for annual periods beginning on or
after 1 January 2019 with earlier adoption permitted if IFRS 15 has
also been applied)
The IASB issued IFRS 16 Leases on 13 January 2016 with a
mandatory effective date of 1 January 2019. The new standard
replaces IAS 17 Leases and introduces a new single accounting
approach for lessees for all leases (with limited exceptions). As a
result there is no longer a distinction between operating leases
and finance leases, and lessees will recognise a liability to make
lease payments and an asset representing the right to use the
underlying asset during the lease term. The accounting for leases
by lessors remains largely unchanged.
The Group leases property for use as office space which is
currently classified as operating leases. As a result of the new
standard the property leased by the Group will be brought onto the
statement of financial position. The right of use asset will be
measured at the amount of the lease liability, adjusted for items
such as lease prepayments and lease incentives received. The lease
liability will be measured using the interest rate implicit in the
lease. The right of use asset will be depreciated over the life of
the lease and the interest expense on the lease liability will be
recognised separately. The standard has not yet been endorsed by
the EU. The Group will commence its full impact assessment of the
standard during 2017.
Other
There are no other new standards, interpretations and amendments
to existing standards that have been published that are expected to
have a significant impact on the consolidated financial statements
of the Group.
(a)(iii) Critical accounting estimates and judgements in applying accounting policies
The preparation of financial statements requires management to
exercise judgements in applying the accounting policies and make
estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses arising during the
year. Judgements and sources of estimation uncertainty are
continually evaluated and based on historical experience and other
factors, including expectations of future events, that are believed
to be reasonable under the circumstances. The areas where
judgements, estimates and assumptions have the most significant
effect on the amounts recognised in the consolidated financial
statements are as follows:
Financial statement Critical judgements in applying Related
area accounting policies note
------------------------- ---------------------------------------- --------------
Classification of Assessment of the significance Note 33
insurance, reinsurance of insurance risk transferred,
and investment contracts and treatment of contracts
which have insurance, non-participating
investment and participating
investment elements
------------------------- ---------------------------------------- --------------
Defined benefit Assessment of whether the Note 37
pension plans Group has an unconditional
right to a refund of the surplus
Treatment of tax relating
to the surplus
------------------------- ---------------------------------------- --------------
Consolidation assessment Assessment of control Basis of
for structured entities Assessment of significant consolidation
influence and Note
18
------------------------- ---------------------------------------- --------------
Contingent liabilities Assessment of whether the Note 45
Group has a contingent liability
in relation to conduct matters
------------------------- ---------------------------------------- --------------
Financial statement Critical accounting estimates Related
area and assumptions note
------------------------ ------------------------------------- --------
Participating contracts, Determination of the valuation Note 33
non-participating interest rates
insurance contracts Determination of longevity
and reinsurance and mortality assumptions
contracts Determination of expense assumptions
------------------------ ------------------------------------- --------
Financial instruments Determination of the fair Notes 21
at fair value through value of private equity investments, and 43
profit or loss debt securities categorised
as level 3 in the fair value
hierarchy and over-the-counter
derivatives
------------------------ ------------------------------------- --------
Investment property Determination of the fair Notes 19
value of investment property and 43
------------------------ ------------------------------------- --------
Defined benefit Determination of UK pension Note 37
pension plans plan assumptions for mortality,
discount rate and inflation
------------------------ ------------------------------------- --------
Intangible assets Identification and valuation Note 16
of intangible assets arising
from business combinations
Determination of useful lives
Determination of amounts to
be recognised as internally
developed software
Determination of the recoverable
amount in relation to impairment
assessments
------------------------ ------------------------------------- --------
Provisions Measurement of provision for Note 40
annuity sales practices
------------------------ ------------------------------------- --------
Further detail on critical accounting estimates and assumptions
is provided in the relevant note.
(a)(iv) Foreign currency translation
The consolidated financial statements are presented in millions
pounds Sterling.
The statements of financial position of Group entities that have
a different functional currency than the Group's presentation
currency are translated into the presentation currency at the year
end exchange rate and their income statements and cash flows are
translated at average exchange rates for the year. All resulting
exchange differences arising are recognised in other comprehensive
income and the foreign currency translation reserve in equity.
Foreign currency transactions are translated into the functional
currency at the exchange rate prevailing at the date of the
transaction. Gains and losses arising from such transactions and
from the translation at year end exchange rates of monetary assets
and liabilities denominated in foreign currencies are recognised in
the relevant line in the consolidated income statement.
Translation differences on non-monetary items, such as equity
securities held at fair value through profit or loss, are reported
as part of the fair value gain or loss within net investment return
in the consolidated income statement. Translation differences on
financial assets and liabilities held at amortised cost are
included in the relevant line in the consolidated income
statement.
The income statements and cash flows, and statements of
financial position of Group entities that have a different
functional currency from the Group's presentation currency have
been translated using the following principal exchange rates:
2016 2016 2015 2015
Statement Statement
Income statement of financial Income statement of financial
and cash flows position (closing and cash flows position (closing
(average rate) rate) (average rate) rate)
----------------- ---------------- ------------------ ---------------- ------------------
Euro 1.229 1.171 1.375 1.357
US Dollar 1.356 1.236 1.528 1.474
Canadian Dollar 1.800 1.657 1.956 2.047
Indian Rupee 91.058 83.864 98.116 97.504
Chinese Renminbi 8.999 8.587 9.599 9.571
Hong Kong
Dollar 10.521 9.580 11.844 11.423
----------------- ---------------- ------------------ ---------------- ------------------
(b) Basis of consolidation
The Group's financial statements consolidate the financial
statements of the Company and its subsidiary undertakings.
Subsidiaries are all entities (including investment vehicles)
over which the Group has control. Control arises when the Group is
exposed, or has rights, to variable returns from its involvement
with the entity and has the ability to affect those returns through
its power over the entity. For operating entities this generally
accompanies a shareholding of 50% or more in the entity. For
investment vehicles, including structured entities, the control
assessment also considers the removal rights of other investors and
whether the Group acts as principal or agent in assessing the link
between power and variable returns. In determining whether the
Group acts as principal, and therefore controls the entity, the
scope of the Group's decision-making authority and the magnitude of
the variability associated with the returns are also taken into
account. As a result, the Group often is considered to control
investment vehicles in which its shareholding is less than 50%.
Where the Group is considered to control an investment vehicle,
such as an open-ended investment company, a unit trust or a limited
partnership, and it is therefore consolidated, the interests of
parties other than the Group are assessed to determine whether they
should be classified as liabilities or as non-controlling
interests. The liabilities are recognised in the third party
interest in consolidated funds line in the consolidated statement
of financial position and any movements are recognised in the
consolidated income statement. The financial liability is
designated at fair value through profit or loss (FVTPL) as it is
implicitly managed on a fair value basis as its value is directly
linked to the market value of the underlying portfolio of assets.
The interests of parties other than the Group in all other types of
entities are recorded as non-controlling interests.
All intra-group transactions, balances, income and expenses are
eliminated in full.
The Group uses the acquisition method to account for
acquisitions of businesses. At the acquisition date the assets and
liabilities of the business acquired are identified and initially
measured at fair value on the consolidated statement of financial
position.
When the Group acquires or disposes of a subsidiary, the profits
and losses of the subsidiary are included from the date on which
control was transferred to the Group until the date on which it
ceases, with consistent accounting policies applied across all
entities throughout.
Notes to the Group financial statements
1. Group structure
(a) Composition
The following diagram is an extract of the Group structure at 31
December 2016 and gives an overview of the composition of the
Group. Diagram removed for the purposes of this announcement.
However it can be viewed in full in the pdf document.
A full list of the Company's subsidiaries is provided in Note
50.
(b) Acquisitions
(b)(i) Subsidiaries
On 31 October 2016 Standard Life Savings Limited (SLS) purchased
the Elevate adviser platform (Elevate) through the purchase of the
entire share capital of AXA Portfolio Services Limited from AXA UK
plc. The acquisition enhances the Group's position as a leading
platform provider for professional advisers by bringing together
award-winning platforms to create one of the largest and fastest
growing adviser platform businesses in the UK.
Additionally during the year, the Group's UK-wide financial
advice business, 1825, entered into sale and purchase agreements to
purchase the entire share capital of The Munro Partnership Ltd.
(Munro), Baigrie Davies Holdings Limited (Baigrie Davies) and Jones
Sheridan Holdings Limited (Jones Sheridan) with combined assets
under advice of GBP1.5bn. The acquisitions of Munro, Baigrie Davies
and Jones Sheridan completed on 1 July 2016, 1 August 2016, and 1
November 2016 respectively and are not material to the Group
individually or in aggregate.
At the acquisition date the consideration, net assets acquired
and resulting bargain purchase gain from the Elevate acquisition
was as follows:
31 October 2016 GBPm
----------------------------------- ----
Purchase consideration (all cash) 31
Fair value of net assets acquired:
Customer-related intangible assets 6
Cash and cash equivalents 33
Other assets 6
Deferred tax liability (1)
Other liabilities (8)
-------------------------------------- ----
Bargain purchase gain 5
-------------------------------------- ----
Customer-related intangible assets relate to the existing
customer contracts in place at the acquisition date. The deferred
tax liability of GBP1m relates to the temporary difference arising
from the recognition of the customer-related intangible assets and
will be released as these intangible assets are amortised or
impaired.
The bargain purchase gain recognised as a result of the Elevate
acquisition has arisen primarily due to the requirement to fund
near-term losses in the acquired business. The gain is included in
other income in the consolidated income statement.
The amount of revenue contributed to the Group's consolidated
income statement for the year ended 31 December 2016 from the
acquired Elevate entity was GBP6m, with a reduction in profit after
tax of GBP1m.
If the acquisition had occurred on 1 January 2016, the amount of
revenue that would have been contributed to the Group for the year
ended 31 December 2016 would have been GBP28m, increasing the
Group's revenue to GBP18,757m with a reduction in profit after tax
of GBP9m reducing the Group's profit from continuing operations to
GBP410m.
(b)(ii) Associates
In August 2015, the Group entered into a sale and purchase
agreement to purchase an additional 9% of the issued share capital
of HDFC Standard Life Insurance Company Limited, an associate of
the Group. The transaction completed in April 2016, after
satisfactory regulatory approvals were obtained, for a
consideration of Rs 1,706 crore (GBP179m), increasing the Group's
interest to 35%.
(c) Prior year disposal
On 3 September 2014 the Group announced its intention to sell
its Canadian business to The Manufacturers Life Insurance Company
(MLC), a subsidiary of Manulife Financial Corporation (Manulife).
The sale of the Group's Canadian long-term savings and retirement,
individual and group insurance business (Standard Life Financial
Inc.) and Canadian investment management business (Standard Life
Investments Inc.) completed on 30 January 2015. The assets and
liabilities of the Canadian branch of Standard Life Assurance
Limited (SLAL Canada branch) were transferred on 31 December 2015
following the fulfilment of certain conditions to completion,
including regulatory approval. Until disposal the operations of the
Canadian business were classified as discontinued and the assets
and liabilities were classified as held for sale. The
consideration, which was received on 30 January 2015, was CA$4.0bn
(GBP2.1bn) and a further GBP0.1bn was received from the settlement
of related hedging derivative contracts. The Group recognised a
gain on disposal in respect of the sale which is included in profit
from discontinued operations in the consolidated income statement
for the year ended 31 December 2015.
2. Segmental analysis
The Group's reportable segments have been identified in
accordance with the way in which the Group is structured and
managed. IFRS 8 Operating Segments requires that the information
presented in the financial statements is based on information
provided to the 'Chief Operating Decision Maker'. The Chief
Operating Decision Maker for the Group is the strategic executive
committee.
(a) Basis of segmentation
The Group's reportable segments are as follows:
Continuing operations:
Standard Life Investments
Standard Life Investments provides a range of investment
products for individuals and institutional customers through a
number of different investment vehicles. Investment management
services are also provided by Standard Life Investments to the
Group's other reportable segments. This segment includes the
Group's share of the results of HDFC Asset Management Company
Limited.
Pensions and Savings (formerly UK and Europe)
Pensions and Savings provide a broad range of long-term savings
and investment products to individual and corporate customers in
the UK, Germany, Austria and Ireland.
India and China
The businesses included in India and China offer a range of
insurance and savings products and comprise our life insurance
associate in India, our life insurance joint venture in China, and
wholly owned operations in Hong Kong.
Other
This primarily includes the corporate centre and related
activities.
Discontinued operations:
Canada
The operations in Canada provided long-term savings, investment
and insurance solutions to individuals, and group benefit and
retirement plan members. The Canadian business was sold on 30
January 2015.
Singapore
The business in Singapore provided a range of savings and
insurance products. The closure of this business was announced in
June 2015. This business was previously included in the Asia and
Emerging Markets segment (now renamed India and China). The results
of this business were included as discontinued operations for
segmental reporting purposes as this was reflective of the
presentation of information provided to the Chief Operating
Decision Maker. Under IFRS 5, Singapore did not constitute a
discontinued operation and was included under continuing operations
in the consolidated income statement. Therefore the segmental
analysis disclosures for the year ended 31 December 2015 include
the reclassification of Singapore results between discontinued and
continuing operations.
(b) Reportable segments - Group operating profit and revenue information
(b)(i) Analysis of Group operating profit by segment
Operating profit is the key alternative performance measure
utilised by the Group's management in their evaluation of segmental
performance and is therefore also presented by reportable
segment.
Standard India
Life Pensions and
Investments and Savings China Other Eliminations Total
31 December 2016 Notes GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------- ----- ------------ ------------ ------ ----- ------------ -------
Fee based revenue 885 861 17 - (112) 1,651
Spread/risk margin - 134 - - - 134
--------------------------- ----- ------------ ------------ ------ ----- ------------ -------
Total operating income 885 995 17 - (112) 1,785
Total operating expenses (537) (655) (22) (57) 112 (1,159)
Capital management - 22 - (1) - 21
Share of associates'
and joint ventures'
profit before tax(1) 35 - 41 - - 76
--------------------------- ----- ------------ ------------ ------ ----- ------------ -------
Operating profit/(loss)
before tax 383 362 36 (58) - 723
Tax on operating
profit (72) (71) - 16 - (127)
Share of associates'
and joint ventures'
tax expense 11 (11) - (2) - - (13)
--------------------------- ----- ------------ ------------ ------ ----- ------------ -------
Operating profit/(loss)
after tax 300 291 34 (42) - 583
--------------------------- ----- ------------ ------------ ------ ----- ------------ -------
Adjusted for the
following items
Short-term fluctuations
in investment return
and economic assumption
changes 14 3 13 - (8) - 8
Restructuring and
corporate transaction
expenses 10 (23) (38) (3) (3) - (67)
Impairment of intangible
assets (9) (10) - - - (19)
Provision for annuity
sales practices 40 - (175) - - - (175)
Other (21) 3 - (3) - (21)
--------------------------- ----- ------------ ------------ ------ ----- ------------ -------
Total non-operating
items (50) (207) (3) (14) - (274)
--------------------------- ----- ------------ ------------ ------ ----- ------------ -------
Tax on non-operating
items 9 46 - 4 - 59
--------------------------- ----- ------------ ------------ ------ ----- ------------ -------
Profit/(loss) for
the year attributable
to equity holders
of Standard Life
plc 259 130 31 (52) - 368
--------------------------- ----- ------------ ------------ ------ ----- ------------ -------
Profit attributable
to non-controlling
interests 51
--------------------------- ----- ------------ ------------ ------ ----- ------------ -------
Profit for the year 419
--------------------------- ----- ------------ ------------ ------ ----- ------------ -------
(1) Share of associates' and joint ventures' profit before tax
comprises the Group's share of results of HDFC Standard Life
Insurance Company Limited, Heng An Standard Life Insurance Company
Limited and HDFC Asset Management Company Limited.
Each operating segment reports total operating income as its
measure of revenue in its analysis of operating profit. Fee based
revenue consists of income generated primarily from asset
management charges, premium based charges and transactional
charges. Spread/risk margin reflects the margin earned on
spread/risk business and includes net earned premiums, claims and
benefits paid, net investment return using long-term assumptions
and actuarial reserving changes.
The Group has a widely diversified customer base and is
therefore not reliant on any individual customers.
Standard Pensions India Total
Life and and continuing Discontinued
Investments Savings China Other Eliminations operations operations(1) Total
31 December 2015 Notes GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------------- ----- ------------ -------- ------ ----- ------------ ----------- -------------- -------
Fee based revenue 843 808 38 - (110) 1,579 21 1,600
Spread/risk margin - 145 - - - 145 9 154
-------------------- ----- ------------ -------- ------ ----- ------------ ----------- -------------- -------
Total operating
income 843 953 38 - (110) 1,724 30 1,754
Total operating
expenses (532) (610) (36) (56) 110 (1,124) (29) (1,153)
Capital management - 14 - (5) - 9 2 11
Share of associates'
and joint ventures'
profit before
tax(2) 31 - 25 - - 56 - 56
-------------------- ----- ------------ -------- ------ ----- ------------ ----------- -------------- -------
Operating
profit/(loss)
before tax 342 357 27 (61) - 665 3 668
Tax on operating
profit (64) (54) - 4 - (114) - (114)
Share of associates'
and joint ventures'
tax expense 11 (11) - (2) - - (13) - (13)
-------------------- ----- ------------ -------- ------ ----- ------------ ----------- -------------- -------
Operating
profit/(loss)
after tax 267 303 25 (57) - 538 3 541
-------------------- ----- ------------ -------- ------ ----- ------------ ----------- -------------- -------
Adjusted for the
following items
Short-term
fluctuations
in investment
return and
economic
assumption
changes 14 - (54) - (9) - (63) 63 -
Restructuring
and corporate
transaction
expenses 10 (23) (75) - (17) - (115) (10) (125)
Impairment of
intangible assets (5) (2) - - - (7) (2) (9)
Gain on sale of
Canadian business - - - - - - 1,102 1,102
Other (25) - (47) - - (72) (31) (103)
-------------------- ----- ------------ -------- ------ ----- ------------ ----------- -------------- -------
Total non-operating
items (53) (131) (47) (26) - (257) 1,122 865
-------------------- ----- ------------ -------- ------ ----- ------------ ----------- -------------- -------
Tax on non-operating
items 11 16 5 5 - 37 (20) 17
Singapore included
in discontinued
operations
segment(1) - - (42) - - (42) 42 -
-------------------- ----- ------------ -------- ------ ----- ------------ ----------- -------------- -------
Profit/(loss)
for the year
attributable
to equity holders
of Standard Life
plc 225 188 (59) (78) - 276 1,147 1,423
-------------------- ----- ------------ -------- ------ ----- ------------ ----------- -------------- -------
Profit attributable
to non-controlling
interests 62 - 62
-------------------- ----- ------------ -------- ------ ----- ------------ ----------- -------------- -------
Profit for the
year 338 1,147 1,485
-------------------- ----- ------------ -------- ------ ----- ------------ ----------- -------------- -------
(1) Under IFRS 5, Singapore did not constitute a discontinued
operation and was included under continuing operations in the
consolidated income statement. Therefore the analysis of Group
operating profit by segment above includes the reclassification of
Singapore results between discontinued and continuing
operations.
(2) Share of associates' and joint ventures' profit before tax
comprises the Group's share of results of HDFC Standard Life
Insurance Company Limited, Heng An Standard Life Insurance Company
Limited and HDFC Asset Management Company Limited.
(b)(ii) Total income and expenses
The following table provides a reconciliation of total operating
income and total operating expenses from continuing operations, as
presented in the analysis of Group operating profit by segment, to
total revenue and total expenses respectively, as presented in the
consolidated income statement:
2016 2015
Income Expenses Income Expenses
GBPm GBPm GBPm GBPm
--------------------------------------- ------ -------- ------- --------
Total operating income or operating
expenses from continuing operations
as presented in the analysis
of Group operating profit by
segment 1,785 (1,159) 1,724 (1,124)
--------------------------------------- ------ -------- ------- --------
Net insurance benefits and claims 4,309 (4,309) 4,029 (4,029)
Change in reinsurance assets
and liabilities 140 (140) 520 (520)
Change in insurance and participating
contract liabilities 2,115 (2,115) (1,693) 1,693
Change in unallocated divisible
surplus 53 (53) (117) 117
Change in non-participating investment
contract liabilities 8,768 (8,768) 3,363 (3,363)
Expenses under arrangements with
reinsurers 509 (509) 42 (42)
Change in liability for third
party interest in consolidated
funds 296 (296) 531 (531)
Other presentation differences 380 (380) 305 (305)
Tax movement attributable to
policyholder returns 302 - 134 -
Non-operating items - (274) (23) (234)
Non-controlling interests and
capital management 72 - 71 -
Singapore included in discontinued
operations segment(1) - - 6 (48)
--------------------------------------- ------ -------- ------- --------
Total revenue or expenses from
continuing operations as presented
on the consolidated income statement 18,729 (18,003) 8,892 (8,386)
--------------------------------------- ------ -------- ------- --------
(1) Under IFRS 5, Singapore did not constitute a discontinued
operation and was included under continuing operations in the
consolidated income statement. Therefore the reconciliation
includes the reclassification of Singapore results between
discontinued and continuing operations.
This reconciliation includes a number of reconciling items which
arise due to presentation differences between IFRS reporting
requirements and the determination of operating income and
expenses. Operating income and expenses exclude items which have an
equal and opposite effect on IFRS revenue and IFRS expenses in the
consolidated income statement, such as investment returns which are
for the account of policyholders. Other presentation differences in
the above reconciliation generally relates to items included in
administrative expenses which are borne by policyholders, for
example investment property management expenses, or are directly
related to fee income.
(c) Total revenue by geographical location
Total revenue from continuing operations as presented in the
consolidated income statement split by geographical location in
which it was earned is as follows:
2016 2015
GBPm GBPm
------------------ ------ -----
UK 16,822 6,628
Rest of the world 1,907 2,264
------------------ ------ -----
Total 18,729 8,892
------------------ ------ -----
The revenue of the operating businesses is allocated based on
customer location. The return on investment funds is allocated
based on where funds are registered.
(d) Non-current non-financial assets by geographical location
2016 2015
GBPm GBPm
------------------ ------ ------
UK 9,887 9,954
Rest of the world 703 694
------------------ ------ ------
Total 10,590 10,648
------------------ ------ ------
Non-current non-financial assets for this purpose consist of
investment property, property, plant and equipment and intangible
assets (excluding deferred acquisition costs).
3. Business written in the Group's insurance entities
(a) How the business is held in the Group's insurance entities
The Group's insurance and investment contracts are held by the
regulated entities within each reportable segment. Each regulated
entity operates various funds and how the business is held within
these funds is outlined below by reportable segment.
(a)(i) Pensions and Savings
Standard Life Assurance Limited
The main entity in the Pensions and Savings reportable segment
that issues insurance and investment contracts is Standard Life
Assurance Limited (SLAL). SLAL operates a fund structure which was
established on the demutualisation of The Standard Life Assurance
Company on 10 July 2006, under which its recognised assets and
liabilities are allocated to one of the following funds:
-- Shareholder Fund (SHF)
-- Proprietary Business Fund (PBF) - includes UK, Germany and Ireland branches
-- Heritage With Profits Fund (HWPF) - includes UK, Germany and Ireland branches
-- German With Profits Fund (GWPF)
-- German Smoothed Managed With Profits Fund (GSMWPF)
-- UK Smoothed Managed With Profits Fund (UKSMWPF)
SLAL - Insurance and investment contracts issued since
demutualisation
The liabilities and associated supporting assets for contracts
issued since demutualisation are held in the PBF except for the
element of any contract where the customer has chosen to invest in
a with profits (i.e. participating) fund. The assets and associated
liabilities, including liabilities for financial guarantees, for
such with profits investment elements are held in the GWPF, GSMWPF
or UKSMWPF. The PBF is sub-divided into internal linked funds (unit
linked funds) and a non-unit linked fund. Where a customer invests
on a unit linked basis, the assets and corresponding liabilities
for such unit linked investment elements are held in the unit
linked funds. Asset management charges are transferred from the
unit linked funds to the non-unit linked sub-fund of the PBF as
they arise. Any liabilities for insurance features or financial
guarantees contained within a contract that has a unit linked
investment element are held in the non-unit linked sub-fund of the
PBF. Any liabilities for insurance features contained within a
contract that has a with profits element are held in the non-unit
linked sub-fund of the PBF. Deferred income and deferred
acquisition costs arising on contracts that have a unit linked
investment element or a with profits investment element are held in
the non-unit linked sub-fund of the PBF.
SLAL - Insurance and investment contracts issued before
demutualisation
The liabilities and associated supporting assets for contracts,
both participating and non-participating, issued prior to
demutualisation are mostly held in the HWPF except for (i) the
assets and corresponding liabilities for unit linked investment
elements of such contracts, and (ii) the supporting assets and
associated liabilities for longevity risk and investment risk on
certain annuity contracts. The assets and associated liabilities
for these two contract components are held in the PBF. Asset
management charges arising on unit linked investment elements are
transferred from the PBF to HWPF as they arise. Any liabilities for
insurance features or financial guarantees contained within a
contract that has a unit linked investment element or a with
profits investment element are held in the HWPF. Deferred income
and deferred acquisition costs arising on contracts that have a
unit linked investment element or a with profits investment element
are also held in the HWPF.
Under the Scheme of Demutualisation (the Scheme) the residual
estate of the HWPF exists to meet amounts which may be charged to
the HWPF under the Scheme. However, to the extent that the board of
SLAL is satisfied that there is an excess residual estate, it shall
be distributed over time as an enhancement to final bonuses payable
on the remaining eligible policies invested in the HWPF. The Scheme
provides that certain defined cash flows (recourse cash flows
(RCF)) arising in the HWPF on specified blocks of UK and Irish
business, both participating and non-participating, may be
transferred out of that fund when they emerge, being transferred to
the SHF, and thus accrue to the ultimate benefit of equity holders
of the Company. The Scheme also provides for additional expenses to
be charged by the PBF to the HWPF in respect of Germany branch
business. Under these mechanisms, profits, on an RCF basis, on
non-participating business excluding investment spread profits on
annuities and profits, on an RCF basis or German additional
expenses basis, on unitised with profits contracts, are transferred
to the SHF. All investment return on HWPF investments is retained
in the HWPF for the ultimate benefit of participating
policyholders. Under the Scheme, transfers to the SHF are subject
to certain constraints in order to protect policyholders.
Standard Life International Designated Activity Company
(formerly Standard Life International Limited)
The Pensions and Savings reportable segment also contains the
International Bond issued by Standard Life International Designated
Activity Company (SL Intl) (formerly Standard Life International
Limited) to UK residents. SL Intl operates using a shareholder fund
and a long-term business fund which is sub-divided into unit linked
funds and a non-unit linked fund. Where a customer invests on a
unit linked basis, the assets and associated liabilities for such
unit linked investment elements are held in the unit linked funds.
Any liabilities for insurance features contained within a contract
that has a unit linked investment element are held in the non-unit
linked fund. Deferred income and deferred acquisition costs arising
on contracts that have a unit linked investment element are held in
the non-unit linked fund.
(a)(ii) India and China
The entity in the India and China reportable segment that issues
insurance and investment contracts, other than associates and joint
ventures, is Standard Life (Asia) Limited (SLA) which is a Hong
Kong entity. SLA operates using a shareholder fund and a long-term
business fund which is sub-divided into unit linked funds and a
non-unit linked fund. Where a customer invests on a unit linked
basis, the assets and associated liabilities for such unit linked
investment elements are held in the unit linked funds. Any
liabilities for insurance features contained within a contract that
has a unit linked investment element are held in the non-unit
linked fund.
(b) Insurance, investment and reinsurance contract terms including guarantees and options
Details of the significant types of insurance and investment
contracts issued by the Group, the nature of any guarantees and
options provided under these contracts and details of significant
reinsurance contracts are given below. The accounting policy for
the classification of contracts is set out in Note 33.
(b)(i) Pensions and Savings - Insurance and investment contracts issued since demutualisation
UK annuity-in-payment contracts (spread/risk business)
This class of business consists of single premium contracts that
provide guaranteed annuity payments. The payments depend on the
survival of a life or lives with or without a guaranteed period and
may reduce on a specified death or increase each year at a
predefined rate or based on the movement in UK RPI. These contracts
are classified as non-participating insurance contracts.
The total liability at 31 December 2016 for RPI linked annuities
in payment (including any guaranteed minimum rate of escalation) is
GBP445m (2015: GBP373m) and this represents approximately 10%
(2015: 9%) of the total liability for UK annuity in payment
contracts held within the PBF. There is a subset of annuities where
the RPI linked annuity payment cannot fall or is guaranteed to
increase at a minimum rate; the majority of such annuities are
those whose payment cannot fall. If the market moves in line with
the adverse scenarios as shown in the market risk sensitivity
analysis in Note 41(b), then the impact on shareholder equity from
these RPI linked annuities and corresponding assets is not
significant.
For those annuities in payment which increase at a predefined
rate, the total liability at 31 December 2016 is GBP432m (2015:
GBP348m) and this represents approximately 10% (2015: 9%) of the
total liability for UK annuity in payment contracts held in the
PBF. If the market moves in line with the adverse market conditions
as shown in the market risk sensitivity analysis, the impact on
shareholder equity from those annuities with a predefined rate of
increase and the corresponding assets is not significant.
UK and Ireland unit linked pension contracts (fee business)
This class of business comprises single or regular premium
contracts under which a percentage of the premium is used to
allocate units in one or more unit linked funds. These contracts do
not provide significant death benefits in excess of the accumulated
value of investment fund. They are classified as non-participating
investment contracts.
The major unit linked pension contracts include UK Active Money
Self Invested Personal Pensions (SIPP), UK Active Money Personal
Pensions, UK Stakeholder, Irish Synergy Personal Pensions, UK Group
SIPPs, UK Group Flexible Retirement Plans, UK Group Stakeholder and
Trustee Investment Plans. These contracts do not contain a with
profits investment option except for UK Group Stakeholder and UK
Stakeholder, under which customers may invest in the UKSMWPF.
The costs of contracts invested in unit linked funds are
recovered by deduction of an asset management charge from the unit
linked funds. Under Stakeholder contracts, this asset management
charge has a specified maximum limit. There are no other guarantees
on these contracts with the exception that the unit prices of
certain cash funds are guaranteed not to fall.
Under UK SIPP contracts, as well as investing in unit linked
funds offered by SLAL, policyholders can choose to invest in a wide
range of other permitted investments. These other investments are
not recognised on the Group's consolidated statement of financial
position.
UK unit linked investment bonds (fee business)
Unit linked investment bonds issued by SLAL (e.g. Capital
Investment Bond) are single premium whole of life contracts under
which a percentage of the premium is used to allocate units in one
or more unit linked funds. These contracts do not provide
significant death benefits in excess of the accumulated value of
investment fund. They are classified as non-participating
investment contracts. There are no other guarantees on these
contracts with the exception that the unit prices of certain cash
funds are guaranteed not to fall.
The International Bond is issued by SL Intl to UK residents. It
is a single premium whole of life investment bond. The customer has
the option to invest in unit linked funds offered by SL Intl and
mutual funds and deposit accounts offered by other providers. The
mutual funds and deposit accounts are recognised as assets by the
Group and are classified as unit linked business along with a
corresponding liability. On death of the last life assured an
additional benefit of 0.1% of the surrender value is paid unless
the death is accidental when an additional benefit of 10% of the
surrender value is paid subject to a GBP1m cap. These contracts are
classified as insurance contracts where it is considered that the
accidental death benefit transfers significant insurance risk. No
other guarantees apply to this contract.
Germany unit linked deferred annuity contracts (fee
business)
This class of business comprises single or regular premium
contracts under which a percentage of the premium is used to
allocate units in one or more unit linked funds. These contracts
provide a return of premiums guarantee on death and the option to
take up an annuity on guaranteed terms. They are classified as
non-participating insurance contracts. These contracts do not
contain a with profits investment option.
Germany unitised with profits deferred annuity contracts (fee
business)
Germany unitised with profits deferred annuity contracts were
written in the PBF with the participating investment elements being
transferred to the GWPF and, to a significantly lesser extent, to
the GSMWPF. These contracts were closed to new business in 2015.
The death benefit under all of the deferred annuities is the
greater of the sum assured on death, 100% of the current surrender
value, the nominal fund, and, for regular premium paying contracts
and certain single premium contracts, a refund of premiums. These
contracts are classified as participating insurance contracts.
The maturity value of contracts invested in the GWPF is subject
to guaranteed minimum amounts. In addition, certain contracts are
subject to guaranteed annuity amounts or guaranteed annuity factors
and certain unit prices in the GWPF are guaranteed not to
decrease.
The GWPF is operated such that all investment return on assets
held in the fund will be distributed to participating policyholders
over time subject to deductions of asset management charges and
deductions for guarantees.
(b)(ii) Pensions and Savings - Insurance and investment
contracts issued before demutualisation and related reinsurance
contracts
HWPF participating contract allocations of regular and final
bonuses
This section firstly describes the method used by the Group to
determine the regular and final bonuses allocated to participating
contracts held in the HWPF. It then describes the significant types
of insurance and investment contracts held in that fund, the nature
of any guarantees provided and significant reinsurance
contracts.
As shown in the market risk sensitivity analysis in Note 41(b),
there is no impact on shareholder equity arising from contracts in
the HWPF for either of the market movements scenarios. As explained
in the limitations of the sensitivity analysis, this is because
although shareholders are potentially exposed to the full cost if
the assets of the HWPF are insufficient to meet policyholder
obligations, the assumption changes given are not severe enough for
such an event to occur.
Regular bonuses are declared at the discretion of the Group in
accordance with the Principles and Practices of Financial
Management (PPFM) of the HWPF for UK business and similar
principles for European business and are set at levels which aim to
achieve a gradual build-up in guaranteed participating policy
benefits whilst not unduly constraining investment freedom and the
prospects for final bonuses. In setting these rates, the financial
position (both current and projected) of the HWPF is taken into
account, and were it necessary, regular bonus rates would be set to
zero. Regular bonus rates are set for each relevant class of
participating policy and/or internal fund and reflect its
characteristics, including any guarantees. For some contracts,
final bonuses may also be paid. These bonuses are not guaranteed
and can be withdrawn at any time.
The Group's aim is that, subject to meeting all contractual
obligations and maintaining an adequate financial position, payouts
on a participating policy (including any final bonus applying)
should fairly reflect the experience of the HWPF applicable to such
a policy, after any adjustments for smoothing, and any distribution
of the residual estate deemed appropriate by the Group.
When setting payout levels, the Group seeks to ensure fair
treatment between those participating policyholders who choose to
withdraw and those who remain.
Asset shares are used as a tool to determine fair treatment. The
calculation of asset shares varies between products, for example
calculations can be on the basis of representative policies or on
an individual policy basis.
The methodology and parameters used in payout calculations may,
of necessity, involve some measure of approximation. The Group
reviews regularly the methodology and parameters used and sets
parameters on bases appropriate for the participating class and/or
internal fund concerned.
In normal circumstances the Group seeks to offer some smoothing
of investment returns to participating policyholders at the time of
claims due to maturity for life policies or for pension policies
where the Group has no right to reduce benefits as defined in the
relevant contractual terms and conditions. The Group may, at its
discretion, also provide some smoothing of investment returns for
death claims and some types of withdrawal at the time of payment.
The Group aims to operate smoothing of investment returns in such a
way as to be neutral for participating policyholders as a whole
over time. The Group monitors the anticipated cost of smoothing on
a regular basis and, in most circumstances, will reflect the costs
in payouts and in some circumstances adjust the approach to
smoothing.
When calculating asset shares, the Group may, at its discretion,
make fair deductions to reflect its assessment of the cost of
guarantees. The Group takes an allowance for the assessed costs of
guarantees when determining final bonuses payable on claims,
calculating policy switch values and calculating surrender and
transfer values. These allowances vary between types of policies,
reflecting the nature of the guarantees provided. These allowances
are kept under review. A deduction is also taken from participating
asset shares determined on an expense basis of 0.5% pa as a
contribution to the capital of the HWPF.
Eligible policies covered by the Mortgage Endowment Promise may
receive 'top up' amounts, in accordance with the Scheme.
UK conventional with profits contracts (no impact on equity
holder profits in the absence of burnthrough)
Conventional (i.e. non-unitised) with profits contracts consist
of single or regular premium endowment, whole life and pension
contracts held in the HWPF.
Under endowment and whole life contracts, guaranteed benefits
are payable on death. Regular bonuses may be added to the
guaranteed sum assured over the term of the policy and, in
addition, a final bonus may be paid on death and maturity. Certain
endowment assurances have minimum surrender value provisions and
minimum paid-up values.
Under pension contracts, a minimum level of benefit is set at
the outset and applies at the date(s) specified in the policy, for
example under pure endowment contracts. Regular bonuses may be
added to this initial minimum over the term of the policy and, in
addition, a final bonus may be paid. Guaranteed annuity options
providing for payment of a minimum annuity, in lieu of a cash sum,
are available under pure endowment contracts. Under some of these
contracts the guarantee applies only at the maturity date. Under
other contracts, the option also applies for a specified period
preceding the maturity date, in which case the sum assured and
bonuses are reduced by specified factors and different guaranteed
annuity rates apply.
All conventional with profits contracts are classified as
participating insurance contracts.
UK and Ireland unitised with profits pension contracts (fee
business via RCF)
This class of business comprises single or regular premium
contracts held in the HWPF under which a percentage of the premium
is used to allocate units on a participating basis. Such contracts
include hybrid contracts (see Note 33) resulting in the unitised
with profits investment elements being classified as participating
investment contracts, although there are some contracts that are
classified as participating insurance contracts, for example those
with guaranteed minimum pensions. The major unitised with profits
pension contracts include Individual Personal Pension Plans, Group
Personal Pension Plans, Executive Pensions, Stakeholder and Trustee
Investment Plans.
The significant options and guarantees under these contracts are
the following:
-- Contracts where, subject to specified conditions, it is
guaranteed either that the unit price will rise at an annual rate
of at least 4% per year or that the unit price will not fall and
that there will be no unit price adjustment (UPA) at specified
retirement dates or death
-- Certain Trustee Investment Plan contracts where, subject to
specified conditions and limits, it is guaranteed that there will
be no unit price adjustment (UPA) when units are encashed
UK and Ireland unitised with profits life contracts (fee
business via RCF)
Unitised with profits life business comprises single or regular
premium endowment and whole life contracts held in the HWPF under
which a percentage of the premium is used to allocate units on a
participating basis. The death benefit under regular premium
contracts is the greater of the bid value of units allocated and
sum assured under the contract. Some contracts also contain
critical illness cover providing for payment of a critical illness
sum assured on diagnosis of certain defined serious illnesses.
These contracts, principally Homeplan, With Profits Bonds and
Versatile Investment Plans, are classified as participating
insurance contracts.
The significant options and guarantees under these contracts are
the following:
-- Contracts where, subject to specified conditions, it is
guaranteed on death and maturity either that the unit price will
rise at an annual rate of at least 3% a year or that the unit price
will not fall, and, that there will be no UPA at maturity
-- For bonds it is guaranteed that no UPA will apply on regular
withdrawals up to certain specified limits
Under contracts effected in connection with house purchase, the
death benefit is guaranteed. Under other regular premium contracts,
at any time after the first 10 years, the Group may review the
status of the contract and, if it deems it necessary, the sum
assured may be reduced, within the limits permitted.
Under some contracts effected in connection with house purchase,
provided the original contract is still in force, the following
options can normally be exercised at any time before the 55th
birthday of the life assured:
-- Future insurability option under which a new contract can be
effected on then current premium rates, in connection with a
further loan, up to the level of life and basic critical illness
cover available on the original contract, without any further
evidence of health
-- Term extension option on then current premium rates under
which the term of the contract may be extended by a whole number of
years if the lender agrees to extend the term of the loan
Germany unitised with profits contracts (fee business via German
additional expenses basis)
Unitised with profits Germany contracts held in the HWPF mainly
consist of endowment assurances and deferred annuities, under which
a percentage of each premium is applied to purchase units on a
participating basis. The death benefit under endowment assurances
is the greater of the sum assured on death or 105% of the current
surrender value. The death benefit under deferred annuities is the
greater of the sum assured on death, 100% of the current surrender
value, the nominal fund and, for regular premium paying contracts
and certain single premium contracts, a refund of premiums. These
contracts are classified as participating insurance contracts.
The maturity value, and for certain contracts the surrender
benefits, are subject to guaranteed minimum amounts. For some
participating unitised policies it is guaranteed that there will be
no UPA on claims on or after the surrender option date. Certain
contracts are subject to guaranteed annuity amounts or guaranteed
annuity factors. In addition certain unit prices in the HWPF are
guaranteed not to decrease.
UK and Ireland unit linked pension contracts (fee business via
RCF)
This class of business comprises single or regular premium
contracts under which a percentage of the premium is used to
allocate units in one or more unit linked funds held in the PBF.
Such contracts include hybrid contracts (see Note 33) resulting in
the unit linked investment elements being classified as
non-participating investment contracts. The major unit linked
pension contracts include Individual Personal Pension Plans, Group
Personal Pension Plans, Executive Pensions, Stakeholder and Trustee
Investment Plans.
The costs of contracts invested in unit linked funds are
recovered by deduction of asset management charges from the unit
linked funds which are transferred from the PBF to the HWPF. Under
Stakeholder contracts, this asset management charge has a maximum
limit. There are no other guarantees on these contracts with the
exception that the unit prices of certain cash funds are guaranteed
not to fall.
UK and Ireland unit linked life contracts (fee business via
RCF)
This class of business comprises principally unit linked
investment bonds (e.g. Capital Investment Bonds), classified as
non-participating investment contracts and the unit linked
investment element of Homeplan contracts, classified as
non-participating insurance contracts. No significant guarantees,
other than the guaranteed death benefit on Homeplan contracts, are
provided under these contracts.
The costs of contracts invested in unit linked funds are
recovered by deduction of asset management charges from the unit
linked funds which are transferred from the PBF to the HWPF.
UK and Ireland annuity-in-payment contracts (spread/risk
business in relation to longevity risk transferred to PBF otherwise
no impact on shareholder profits in absence of burnthrough)
This class of business consists of the same type of contracts
described in (b)(i) and also includes the With Profit Pension
Annuity (WPPA), under which changes to the level of annuity are
based on a declared rate of return but reductions in the level of
the annuity are limited. These contracts are classified as
non-participating insurance contracts, except for the WPPA which is
classified as a participating insurance contract.
SLAL has reinsured both the longevity and market risk arising on
a portfolio of annuity-in-payment contracts held within the HWPF.
In order to limit counterparty credit exposure, the reinsurer was
required to deposit back an amount equal to the reinsurance premium
(referred to as 'the deposit'). Interest is payable on the deposit
at a floating rate. In respect of this arrangement SLAL holds a
ring fenced pool of assets within the HWPF. See Note 41(c) on
credit exposure and Note 6 for further details of the deposit back.
A floating charge over the ring fenced pool of assets has been
granted to the reinsurer. The reinsurance asset recognised in
relation to this arrangement is GBP5,190m (2015: GBP5,258m).
The longevity risk on certain non-participating
annuity-in-payment contracts held in the HWPF has been transferred
to the PBF. The market risk on certain annuities has been
transferred to the PBF.
For those annuities in payment which increase at a predefined
rate the total liability at 31 December 2016 is GBP2,951m (2015:
GBP2,869m) and this represents approximately 32% (2015: 33%) of the
total liability for UK annuity in payments contracts held within
the HWPF.
The total liability at 31 December 2016 for RPI linked annuities
in payment (including any guaranteed minimum rate of escalation) is
GBP1,983m (2015: GBP1,811m) and this represents approximately 22%
(2015: 21%) of the total liability for UK annuity contracts held
within the HWPF. There is a subset of annuities where the RPI
linked annuity payment cannot fall or is guaranteed to increase at
a minimum rate; the majority of such annuities are those whose
payment cannot fall.
UK other non-participating contracts (spread/risk business via
RCF)
This class of business consists primarily of deferred annuities
that provide guaranteed annuity payments from the retirement age
associated with the relevant pension plan. The payments depend on
the survival of a life or lives with or without a guarantee period
and may reduce on a specified death or increase each year at a
predefined rate or in line with the increase in UK RPI. These
contracts are classified as non-participating insurance
contracts.
(b)(iii) India and China - Insurance and investment
contracts
Unit linked life contracts (fee business)
The main contract issued by SLA is the Harvest 101 product. This
contract was closed to new business in 2015. It is a regular
premium savings product with a term ranging from 5 to 25 years. The
customer has the option to invest in unit linked funds offered by
SLA and mutual funds and deposit accounts offered by other
providers. The mutual funds and deposit accounts are recognised as
assets by the Group and are classified as unit linked business
along with a corresponding liability. On death of the life insured,
a benefit of 101% of the fund value is paid. If the death is
accidental then an additional benefit of 10% of the initial account
value is paid subject to a USD10,000 cap. These contracts are
classified as insurance contracts where it is considered that the
accidental death benefit transfers significant insurance risk. No
other guarantees apply to this contract.
4. Investment return
Gains and losses resulting from changes in both market value and
foreign exchange on investments classified at fair value through
profit or loss are recognised in the consolidated income statement
in the period in which they occur. The gains and losses include
investment income received such as interest payments but exclude
dividend income. Dividend income is separately recognised in the
consolidated income statement when the right to receive payment is
established.
Interest income on financial instruments classified as
available-for-sale or loans and receivables is separately
recognised in the consolidated income statement using the effective
interest rate method. The effective interest rate method allocates
interest and other finance costs at a constant rate over the
expected life of the financial instrument, or where appropriate a
shorter period, by using as the interest rate the rate that exactly
discounts the future cash receipts over the expected life to the
net carrying value of the instrument.
Rental income from investment property is recognised in the
consolidated income statement on a straight-line basis over the
term of the lease. Lease incentives granted such as rent free
periods are recognised as an integral part of the total rental
income and are spread over the term of the lease.
2016 2015
Notes GBPm GBPm
---------------------------------------------- ----- ------- -----
Interest and similar income
Cash and cash equivalents 86 94
Available-for-sale debt securities 12 15
Loans 6 4
---------------------------------------------- ----- ------- -----
104 113
---------------------------------------------- ----- ------- -----
Dividend income 1,999 1,902
Gains/(losses) on financial instruments
at fair value through profit or loss
Associates (other than dividend income) 19 204
Equity securities (other than dividend
income) 9,769 1,131
Debt securities 7,169 (27)
Derivative financial instruments (3,857) 1,179
---------------------------------------------- ----- ------- -----
13,100 2,487
---------------------------------------------- ----- ------- -----
Foreign exchange (losses)/gains on
instruments other than those at fair
value through profit or loss (80) 19
Income from investment property
Rental income 19 555 487
Net fair value (losses)/gains on investment
property 19 (302) 452
---------------------------------------------- ----- ------- -----
253 939
---------------------------------------------- ----- ------- -----
Investment return from continuing operations 15,376 5,460
---------------------------------------------- ----- ------- -----
5. Fee income
Fee income from investment contracts, fund platforms and third
party funds under management relates to the provision of investment
management and administration services, and is recognised as
services are provided and it is almost certain that the fee income
will be received. Where fee income is received in advance
(front-end fees), this income is deferred and recognised as a
deferred income liability until the services have been provided
(see Note 38).
2016 2015
Notes GBPm GBPm
--------------------------------- ----- ----- -----
Fee income from investment
contracts and fund platforms 649 622
Fee income from third party
funds under management 466 438
Fee income deferred during
the year 38 (15) (25)
Amortisation of deferred
income 38 61 63
Other fee income 25 22
--------------------------------- ----- ----- -----
Total fee income from continuing
operations 1,186 1,120
--------------------------------- ----- ----- -----
6. Expenses under arrangements with reinsurers
Expenses, including interest, arising under elements of
contracts with reinsurers that do not transfer significant
insurance risk are recognised on an accruals basis in the
consolidated income statement as expenses under arrangements with
reinsurers.
2016 2015
GBPm GBPm
--------------------------------------- ---- ----
Interest payable on deposits from
reinsurers 31 34
Premium Adjustments 478 8
--------------------------------------- ---- ----
Expenses under arrangements with
reinsurers from continuing operations 509 42
--------------------------------------- ---- ----
The Group has reinsured the longevity and investment risk
related to a portfolio of annuity contracts held within its
Heritage With Profits Fund. At inception of the reinsurance
contract the reinsurer was required to deposit an amount equal to
the reinsurance premium with the Group. Interest is payable on the
deposit at a floating rate. The Group maintains a ring fenced pool
of assets to back this deposit liability. Annuity payments under
the reinsured contracts are made by the Group from the ring fenced
assets and the deposit liability is reduced by the amount of these
payments. Periodically the Group is required to pay to the
reinsurer or receive from the reinsurer Premium Adjustments defined
as the difference between the value of the ring fenced assets and
the deposit amount, which has the effect of ensuring that the
investment risk on the ring fenced pool of assets falls on the
reinsurer.
7. Other administrative expenses
2016 2015
Notes GBPm GBPm
--------------------------------------- ----- ----- -----
Interest expense 5 12
Commission expenses 153 170
Staff costs and other employee-related
costs 8 596 635
Operating lease rentals 34 21
Auditors' remuneration 9 6 7
Depreciation of property,
plant and equipment 20 14 16
Impairment losses on property,
plant and equipment 20 1 4
Impairment losses reversed
on property, plant and equipment 20 - (5)
Amortisation of intangible
assets 16 64 51
Impairment losses on intangible
assets 16 20 9
Other 556 506
--------------------------------------- ----- ----- -----
1,449 1,426
Acquisition costs deferred
during the year 17 (51) (83)
Impairment of deferred acquisition
costs 17 - 73
Amortisation of deferred
acquisition costs 17 96 124
--------------------------------------- ----- ----- -----
Total other administrative
expenses from continuing
operations 1,494 1,540
--------------------------------------- ----- ----- -----
In addition to interest expense from continuing operations of
GBP5m (2015: GBP12m), interest expense of GBP82m (2015: GBP83m) was
incurred in respect of subordinated liabilities and GBP31m (2015:
GBP34m) in respect of deposits from reinsurers. For the year ended
31 December 2016, total interest expense from continuing operations
is GBP118m (2015: GBP129m).
8. Staff costs and other employee-related costs
2016 2015
Continuing Discontinued
operations operations Total
Notes GBPm GBPm GBPm GBPm
--------------------------------------------- ----- ---- ----------- ------------ -----
The aggregate remuneration payable in
respect of employees:
Wages and salaries 489 491 12 503
Social security costs 56 57 1 58
Pension costs 37
Defined benefit plans (14) 25 2 27
Defined contribution plans 33 27 - 27
Employee share-based payments 47 32 35 1 36
--------------------------------------------- ----- ---- ----------- ------------ -----
Total staff costs and other employee-related
costs 596 635 16 651
--------------------------------------------- ----- ---- ----------- ------------ -----
2016 2015(1)
--------------------------------------- ----- -------
The average number of staff employed
by the Group during the year:
Standard Life Investments(2) 1,681 1,496
Pensions and Savings 4,026 4,116
India and China 112 136
Other(3) 483 518
Canada(2) - 165
--------------------------------------- ----- -------
Total average number of staff employed 6,302 6,431
--------------------------------------- ----- -------
(1) Allocation between India and China and Pensions and Savings
restated.
(2) 2015 includes all staff employed by the Canadian business
including Standard Life Investments Inc. until its sale on 30
January 2015.
(3) Includes staff in group corporate centre and group
information technology.
Information in respect of Directors' remuneration is provided in
the Directors' remuneration report on pages 80 to 102.
9. Auditors' remuneration
2016 2015
(all continuing
operations)
GBPm GBPm
------------------------------------------- ---- ---------------
Fees payable to the Company's auditors
for the audit of the Company's individual
and consolidated financial statements 0.3 0.3
Fees payable to the Company's auditors
for other services
The audit of the Company's consolidated
subsidiaries pursuant to legislation 3.8 3.4
The audit of funds not consolidated in
the Group's financial statements 0.8 0.7
Audit related assurance services 0.8 1.6
------------------------------------------- ---- ---------------
Total audit related assurance fees 5.7 6.0
------------------------------------------- ---- ---------------
Other assurance services 0.5 0.5
Tax compliance services 0.4 0.4
Tax advisory services 0.2 0.1
Other non-audit fee services 0.3 0.3
------------------------------------------- ---- ---------------
Total non-audit fees 1.4 1.3
------------------------------------------- ---- ---------------
Total auditors' remuneration 7.1 7.3
------------------------------------------- ---- ---------------
In addition, the audit fees in respect of the UK staff defined
benefit plan and the Ireland staff defined benefit plan were
GBP71,000 (2015: GBP65,000).
For more information on non-audit services, refer to the Audit
Committee report in Section 4 - Corporate governance statement.
10. Restructuring and corporate transaction expenses
Total restructuring and corporate transaction expenses incurred
from continuing operations during the year were GBP62m (2015:
GBP88m). The expenses relate mainly to Ignis integration and
Pensions and Savings restructuring programmes and corporate
transactions. Deal costs relating to acquisitions included in
restructuring and corporate transaction expenses for the year ended
31 December 2016 were GBP3m (2015: GBPnil).
In December 2014 the Group announced that the UK staff defined
benefit pension plan would be closed to future accrual. On 16 April
2016 all employees in the closing plan were transferred to the UK
defined contribution plan for future service and employer
contributions into the defined contribution plan were amended.
Following this restructuring of the pension plans, operating profit
from continuing operations for the year ended 31 December 2016 has
been increased by GBP5m (2015: GBP35m) so that operating profit
reflects the expected long-term pension expense for the year and is
therefore more indicative of the long-term operating performance of
the Group. As a result GBP5m (2015: GBP35m) of pension costs that
are included in staff costs in the consolidated income statement
for the year ended 31 December 2016, are included in restructuring
and corporate transaction expenses in determining operating profit
from continuing operations. Further details of the defined benefit
pension plan expense for the year are included in Note 37.
The table below reconciles restructuring and corporate
transaction expenses from continuing operations to restructuring
and corporate transaction expenses used to determine operating
profit from continuing operations.
2016 2015
GBPm GBPm
---------------------------------------- ---- ----
Restructuring and corporate transaction
expenses from continuing operations 62 88
Pension plan restructuring 5 35
Expenses incurred by the Heritage With
Profit Fund - (1)
Closure of Singapore(1) - (7)
---------------------------------------- ---- ----
Restructuring and corporate transaction
expenses used to determine operating
profit from continuing operations 67 115
---------------------------------------- ---- ----
(1) Singapore business, the closure of which was announced in
June 2015, was included as a discontinued operation for segmental
reporting purposes under IFRS 8 as this was reflective of the
presentation of information provided to the Chief Operating
Decision Maker. Under IFRS 5, Singapore did not constitute a
discontinued operation and was included under continuing operations
in the consolidated income statement.
Restructuring and corporate transaction expenses for the year
ended 31 December 2015 of GBP10m were used to determine operating
profit before tax from discontinued operations. These expenses
related to the sale of the Canadian business and the closure of the
Singapore business.
11. Taxation
The Group's tax expense comprises both current tax and deferred
tax expense.
Current tax is payable on taxable profit, as adjusted for items
that are not taxable or tax deductible.
A deferred tax asset represents a tax deduction that is expected
to arise in a future period. It is only recognised to the extent
that there is expected to be future taxable profit or investment
return to offset the tax deduction. A deferred tax liability
represents taxes which will become payable in a future period as a
result of a current or prior year transaction. Where local tax law
allows, deferred tax assets and liabilities are netted off on the
statement of financial position. The tax rates used to determine
deferred tax are those enacted or substantively enacted at the
reporting date.
Deferred tax is recognised on temporary differences arising from
investments in subsidiaries and associates only when it is expected
that the temporary difference will reverse in the foreseeable
future and the timing of the reversal is not in our control.
Current tax and deferred tax is recognised in the consolidated
income statement except when it relates to items recognised in
other comprehensive income or directly in equity, in which case it
is credited or charged to other comprehensive income or directly to
equity respectively.
The Group provides additional disclosure in relation to the
total tax expense. Certain products are subject to tax on
policyholders' investment returns. This tax, 'policyholder tax', is
accounted for as an element of income tax. To make the tax expense
disclosure more meaningful, we disclose policyholder tax and tax
payable on equity holders' profits separately. The policyholder tax
expense is the amount payable in the year plus the movement of
amounts expected to be payable in future years by policyholders on
their investment return. The remainder of the tax expense is
attributed to equity holders as tax payable on equity holders'
profit.
(a) Tax charge in the consolidated income statement
(a)(i) Current year tax expense
2016 2015
GBPm GBPm
------------------------------------------------------------ ---- ----
Current tax:
UK 316 197
Double tax relief (3) (2)
Overseas 23 15
Adjustment to tax expense
in respect of prior years (3) 12
------------------------------------------------------------- ---- ----
Total current tax attributable
to continuing operations 333 222
------------------------------------------------------------- ---- ----
Deferred tax:
Deferred tax expense/(credit) arising from the current year 37 (11)
------------------------------------------------------------- ---- ----
Total deferred tax attributable to continuing operations 37 (11)
------------------------------------------------------------- ---- ----
Total tax expense attributable to continuing operations 370 211
------------------------------------------------------------- ---- ----
Attributable to policyholders' investment return 302 134
Attributable to equity holders' profits 68 77
------------------------------------------------------------- ---- ----
Total tax expense attributable to continuing operations 370 211
------------------------------------------------------------- ---- ----
The share of associates' and joint ventures' tax expense from
continuing operations is GBP13m (2015: GBP13m) and is included in
profit before tax in the consolidated income statement in 'Share of
profit from associates and joint ventures'.
In 2016 unrecognised tax losses from previous years of GBP6m
(2015: GBP1m) were used to reduce the current tax expense.
Unrecognised losses and timing differences of GBP3m were used to
reduce the deferred tax expense (2015: GBPnil).
Current tax recoverable and current tax liabilities at 31
December 2016 were GBP166m (2015: GBP168m) and GBP113m (2015:
GBP113m) respectively. Current tax assets and liabilities at 31
December 2016 and 31 December 2015 are expected to be recoverable
or payable in less than 12 months.
Certain Group entities are party to claims and proceedings to
recover tax suffered in respect of overseas income. These claims
and proceedings predominantly relate to assets in policyholder
funds, primarily SLAL's HWPF. There is significant uncertainty on
the outcome of these claims and they are not expected to materially
impact profit for the year attributable to equity holders or total
equity.
(a)(ii) Reconciliation of tax expense
2016 2015
GBPm GBPm
--------------------------------------- ---- ----
Profit before tax from continuing
operations 789 549
---------------------------------------- ---- ----
Tax at 20% (2015: 20.25%) 158 111
Policyholder tax (net of tax
at UK standard rate) 241 107
Permanent differences 2 9
Tax effect of accounting for
non-controlling interests (10) (13)
Tax effect of accounting for
share of profit from associates
and joint ventures (13) (9)
Different tax rates (5) (19)
Adjustment to current tax expense
in respect of prior years (3) 12
Recognition of previously unrecognised
tax credit (9) (2)
Deferred tax not recognised - 18
Adjustment to deferred tax
expense in respect of prior
years (2) (4)
Write-down of deferred tax
asset 11 5
Other - (4)
---------------------------------------- ---- ----
Total tax expense from continuing
operations for the year 370 211
---------------------------------------- ---- ----
The standard rate of UK corporation tax is 20%. The UK
corporation tax rate will reduce to 19% from 1 April 2017 and 17%
from 1 April 2020. These future rate changes have been taken into
account in the calculation of the UK deferred tax balance at 31
December 2016.
The accounting for certain items in the consolidated income
statement results in certain reconciling items in the table above,
the values of which vary from year to year depending upon the
underlying accounting values.
-- The tax expense for the year includes policyholder tax, as
described in the accounting policy above. Profit before tax
includes an equivalent amount of income in relation to this
policyholder tax and this therefore gives rise to a reconciling
item.
-- The Group's non-controlling interests primarily relate to
private equity vehicles which do not incur significant tax expense
and therefore this gives rise to a reconciling item. Other
interests in these vehicles are held by policyholders and therefore
do not contribute to profit before tax.
-- Share of profit from associates and joint ventures is
presented net of tax in the consolidated income statement and
therefore also gives rise to a reconciling item
Details of other significant reconciling items are as
follows:
-- Different tax rates will vary according to the level of
profit subject to tax at rates different from the UK standard rate
(e.g. overseas profit and profit arising in consolidated investment
funds)
-- Prior year adjustments will vary depending upon the specific
items to which they relate and are regarded as non-recurring in
nature
-- The ability to value tax losses and other tax assets will
also affect the actual tax charge. These items are expected to be
non-recurring. In 2016 we were able to recognise historic tax
losses valued at GBP9m and there was a write down of a deferred tax
asset in the Germany Pension and Savings business valued at GBP11m.
In 2015 there was a one-off item of GBP18m relating to tax losses
arising in our Singapore and Germany businesses for which deferred
tax was not recognised due to uncertainty of recoverability.
The occurrence of other reconciling items is dependent upon the
underlying tax results of the Group.
(b) Tax relating to components of other comprehensive income
Tax relating to components of other comprehensive income from
continuing operations is as follows:
2016 2015
GBPm GBPm
--------------------------------------------- ---- ----
Tax relating to defined benefit pension
plan deficit (2) -
---------------------------------------------- ---- ----
Equity holder tax effect relating to
items that will not be reclassified
subsequently to profit or loss (2) -
---------------------------------------------- ---- ----
Current tax on net change in financial
assets designated as available-for-sale 3 (2)
---------------------------------------------- ---- ----
Equity holder tax effect relating to
items that may be reclassified subsequently
to profit or loss 3 (2)
---------------------------------------------- ---- ----
Tax relating to other comprehensive
income from continuing operations 1 (2)
---------------------------------------------- ---- ----
All of the amounts presented above are in respect of equity
holders of Standard Life plc.
(c) Tax relating to items taken directly to equity
2016 2015
GBPm GBPm
------------------------------------- ---- ----
Tax relating to expiry of unclaimed
asset trust claim period 7 -
Tax credit on reserves for employee
share-based payments - (4)
-------------------------------------- ---- ----
Tax relating to items taken directly
to equity 7 (4)
-------------------------------------- ---- ----
(d) Deferred tax assets and liabilities
(d)(i) Movements in net deferred tax liabilities
2016 2015
GBPm GBPm
--------------------------------------- ----- -----
At 1 January (170) (181)
Acquired through business combinations (2) -
Amounts (charged)/credited to the
consolidated income statement (37) 11
Amounts credited directly to equity
in respect of employee share-based
payment schemes - 4
Transfer to current tax for vested
employee share-based payment schemes (3) (5)
Foreign exchange adjustment (4) 1
Other (1) -
---------------------------------------- ----- -----
Net deferred tax liability at 31
December (217) (170)
---------------------------------------- ----- -----
(d)(ii) Analysis of recognised deferred tax
2016 2015
GBPm GBPm
----------------------------------- ----- -----
Deferred tax assets comprise:
Actuarial liabilities - 5
Losses carried forward 12 9
Depreciable assets 42 38
Deferred income 12 20
Employee benefits 26 25
Provisions and other temporary
timing differences 14 13
Insurance related items 5 12
Other - 5
------------------------------------ ----- -----
Gross deferred tax assets 111 127
------------------------------------ ----- -----
Less: Offset against deferred
tax liabilities (69) (92)
------------------------------------ ----- -----
Deferred tax assets 42 35
------------------------------------ ----- -----
Deferred tax liabilities comprise:
Insurance related items 5 6
Unrealised gains on investments 187 148
Intangible assets acquired through
business combinations 25 25
Deferred acquisition costs 104 111
Temporary timing differences 1 3
Other 6 4
------------------------------------ ----- -----
Gross deferred tax liabilities 328 297
------------------------------------ ----- -----
Less: Offset against deferred
tax assets (69) (92)
------------------------------------ ----- -----
Deferred tax liabilities 259 205
------------------------------------ ----- -----
Net deferred tax liability at
31 December (217) (170)
------------------------------------ ----- -----
A deferred tax asset of GBP12m (2015: GBP9m) for the Group has
been recognised in respect of losses of various subsidiaries and
unrealised losses on investments. Deferred tax assets are
recognised to the extent that it is probable that the losses will
be capable of being offset against taxable profits and gains in
future periods. The value attributed to them takes into account the
certainty or otherwise of their recoverability. Their
recoverability is measured against the reversal of deferred tax
liabilities and anticipated taxable profits and gains based on
business plans. The losses do not have an expiry date.
Deferred tax assets and liabilities are expected to be recovered
or settled after more than 12 months.
(e) Unrecognised deferred tax
Due to uncertainty regarding recoverability, deferred tax has
not been recognised in respect of the following assets:
-- Cumulative losses carried forward of GBP165m (2015: GBP215m)
-- Tax reserves of the Germany branch of Standard Life Assurance Limited of GBP20m (2015: GBP26m)
-- Unrealised investment losses of GBP12m (2015: GBP20m)
12. Discontinued operations
The Group classifies as discontinued operations areas of
business which have been disposed of or are classified as held for
sale at the year end and which either represent a separate major
line of business or geographical area, or are part of a plan to
dispose of one. The results of discontinued operations are shown
separately on the face of the consolidated income statement from
the results of the remaining (continuing) parts of the Group's
business.
There are no discontinued operations for the year ended 31
December 2016. Discontinued operations for the year ended 31
December 2015 relate solely to the Group's Canadian business. As
discussed in Note 1, the sale of Standard Life Financial Inc. and
Standard Life Investments Inc. completed on 30 January 2015 and the
results of these operations until that date and the gain on their
disposal are included in discontinued operations. The results of
the SLAL Canada Branch, the assets and liabilities of which were
transferred on 31 December 2015, are also included until that
date.
The consolidated income statement, other comprehensive income
and cash flows from discontinued operations are shown below.
2015
Consolidated income statement GBPm
------------------------------------------- -----
Revenue
Gross earned premium 138
Premium ceded to reinsurers (43)
--------------------------------------------- -----
Net earned premium 95
Investment return 1,166
Fee income 11
Gain on sale of subsidiaries 1,102
Other income 1
--------------------------------------------- -----
Total revenue from discontinued operations 2,375
--------------------------------------------- -----
Expenses
Claims and benefits paid 123
Claim recoveries from reinsurers (63)
--------------------------------------------- -----
Net insurance benefits and claims 60
Change in reinsurance assets and
liabilities 45
Change in insurance and participating
contract liabilities 507
Change in non-participating investment
contract liabilities 525
Administrative expenses
Restructuring and corporate transaction
expenses 3
Other administrative expenses 37
--------------------------------------------- -----
Total administrative expenses 40
Change in liability for third party
interest in consolidated funds 30
Finance costs 1
--------------------------------------------- -----
Total expenses from discontinued
operations 1,208
--------------------------------------------- -----
Share of loss from associates and
joint ventures -
Profit before tax from discontinued
operations 1,167
--------------------------------------------- -----
Tax expense attributable to policyholders'
returns -
Profit before tax expense attributable
to equity holders' profits 1,167
--------------------------------------------- -----
Total tax expense 20
Less: Tax attributable to policyholders'
returns -
------------------------------------------- -----
Tax expense attributable to equity
holders' profits 20
--------------------------------------------- -----
Profit for the year from discontinued
operations 1,147
--------------------------------------------- -----
Attributable to:
Equity holders of Standard Life plc 1,147
Non-controlling interests -
------------------------------------------- -----
1,147
------------------------------------------- -----
2015
Other comprehensive income GBPm
-------------------------------------------------- -----
Items that will not be reclassified subsequently
to profit or loss:
Remeasurement losses on defined benefit
pension plans (19)
Revaluation of owner occupied property -
Equity holder tax effect relating to items
that will not be reclassified subsequently
to profit or loss 5
--------------------------------------------------- -----
Total items that will not be reclassified
subsequently to profit or loss (14)
--------------------------------------------------- -----
Items that may be reclassified subsequently
to profit or loss:
Fair value gains on cash flow hedges 58
Net investment hedge 57
Fair value gains on available-for-sale
financial assets 15
Exchange differences on translating foreign
operations (62)
Equity holder tax effect relating to items
that may be reclassified subsequently
to profit or loss (4)
--------------------------------------------------- -----
Total items that may be reclassified subsequently
to profit or loss 64
--------------------------------------------------- -----
Items that were transferred to profit
or loss on disposal of subsidiaries:
Release of available-for-sale financial
assets reserve (17)
Release of cash flow hedges reserve (60)
Release of net investment hedge reserve (110)
Release of foreign currency translation
reserve (50)
--------------------------------------------------- -----
Total items that were transferred to profit
or loss on disposal of subsidiaries (237)
--------------------------------------------------- -----
Other comprehensive income/(expense) for
the year from discontinued operations (187)
--------------------------------------------------- -----
2015
Cash flows GBPm
----------------------------------------- -----
Net cash flows from operating activities (132)
Net cash flows from financing activities (7)
Net cash flows from investing activities (500)
------------------------------------------ -----
Total net cash flows (639)
------------------------------------------ -----
The net cash flows from investing activities represent the cash
and cash equivalents of the operations disposed of at the date of
disposal and do not include cash consideration received of
GBP2,100m.
13. Earnings per share
Basic earnings per share is calculated by dividing profit
attributable to ordinary equity holders by the weighted average
number of ordinary shares in issue during the year excluding shares
owned by the employee trusts that have not vested unconditionally
to employees.
Diluted earnings per share is calculated by adjusting the
weighted average number of ordinary shares in issue during the year
to assume the conversion of all dilutive potential ordinary shares,
such as share options granted to employees.
Alternative earnings per share is calculated on operating profit
after tax.
Basic earnings per share was 18.7p (2015: 69.4p) and diluted
earnings per share was 18.6p (2015: 69.1p) for the year ended 31
December 2016. The following table shows details of basic, diluted
and alternative earnings per share.
2016 2015
Continuing Discontinued
operations operations
GBPm GBPm GBPm
------------------------------------ -------- ----------- ------------
Operating profit before tax 723 665 3
Tax on operating profit (127) (114) -
Share of associates' and joint
ventures' tax expense (13) (13) -
------------------------------------ -------- ----------- ------------
Operating profit after tax 583 538 3
------------------------------------ -------- ----------- ------------
Total non-operating items (274) (257) 1,122
Tax on non-operating items 59 37 (20)
Singapore included in discontinued
operations segment(1) - (42) 42
------------------------------------ -------- ----------- ------------
Profit attributable to equity
holders of Standard Life plc 368 276 1,147
------------------------------------ -------- ----------- ------------
Millions Millions Millions
------------------------------------ -------- ----------- ------------
Weighted average number of ordinary
shares outstanding 1,972 2,051 2,051
Dilutive effect of share options
and awards 6 9 9
------------------------------------ -------- ----------- ------------
Weighted average number of diluted
ordinary shares outstanding 1,978 2,060 2,060
------------------------------------ -------- ----------- ------------
Pence Pence Pence
------------------------------------ -------- ----------- ------------
Basic earnings per share 18.7 13.5 55.9
------------------------------------ -------- ----------- ------------
Diluted earnings per share 18.6 13.4 55.7
------------------------------------ -------- ----------- ------------
Alternative earnings per share 29.6 26.2 0.1
------------------------------------ -------- ----------- ------------
Diluted alternative earnings per
share 29.5 26.1 0.1
------------------------------------ -------- ----------- ------------
(1) Singapore business, the closure of which was announced in
June 2015, was included as a discontinued operation for segmental
reporting purposes under IFRS 8 as this was reflective of the
presentation of information provided to the Chief Operating
Decision Maker. Under IFRS 5, Singapore did not constitute a
discontinued operation and was included under continuing operations
in the consolidated income statement. Therefore the analysis of
Group operating profit above includes the reclassification of
Singapore results between discontinued and continuing
operations.
Details of share options and awards which have a dilutive effect
are provided in Note 47.
As discussed in Note 28 the Company undertook a share
consolidation in 2015 followed by a return of value to
shareholders. In accordance with IAS 33, earnings per share were
not restated following the share consolidation as there was an
overall corresponding change in resources. As a result of the share
consolidation, earnings per share from continuing operations for
the year ended 31 December 2016 are not directly comparable with
the prior year.
14. Operating profit and non-operating items
Operating profit is the Group's key alternative performance
measure. Operating profit excludes impacts arising from short-term
fluctuations in investment return and economic assumption changes.
It is calculated based on expected returns on investments backing
equity holder funds, with consistent allowance for the
corresponding expected movements in equity holder liabilities.
Impacts arising from the difference between the expected return and
actual return on investments, and the corresponding impact on
equity holder liabilities except where they are directly related to
a significant management action, are excluded from operating profit
and are presented within profit before tax. The impact of certain
changes in economic assumptions is also excluded from operating
profit and is presented within profit before tax.
Operating profit also excludes the impact of the following
items:
-- Restructuring costs and corporate transaction expenses.
Restructuring includes the impact of major regulatory change.
-- Impairment of intangible assets acquired in business combinations
-- Profit or loss arising on the disposal of a subsidiary, joint venture or associate
-- Amortisation of intangibles acquired in business combinations
and fair value movements in contingent consideration
-- Items which are one-off and, due to their size or nature, are
not indicative of the long-term operating performance of the
Group
As disclosed in our Annual report and accounts 2015, from 1
January 2016 we changed the operating profit accounting policy so
that items which, due to their size or nature, are not indicative
of the long-term operating performance of the Group are excluded
from operating profit (even if they are within the control of
management). The objective of the change is to make operating
profit a more useful indication of the long-term performance of the
Group. This change has had no impact on comparative reporting
periods presented.
(a) Short-term fluctuations in investment return and economic assumptions changes
The components of IFRS profit attributable to market movements
and interest rate changes which give rise to variances between
actual and expected returns on investments backing equity holder
funds, with consistent allowance for the corresponding expected
movement in equity holder liabilities, as well as the impact of
changes in economic assumptions on equity holder liabilities, are
excluded from operating profit. Investments backing equity holder
funds include investments backing annuities and subordinated debt,
investments from surplus capital in insurance companies, and
investments held by holding companies and other non-insurance
entities.
For annuities this means that all fluctuations in liabilities
and the assets backing those liabilities due to market interest
rate (including credit risk) movements over the year are excluded
from operating profit.
The expected rates of return for debt securities and equity
securities are determined separately. The expected rates of return
for equity securities are determined based on the gilt spot rates
of an appropriate duration plus an equity risk premium of 3% (2015:
3%). Investments in pooled investment funds which target equity
returns over the longer term, including absolute return funds, also
use an expected rate of return determined based on the gilt spot
rates of an appropriate duration plus a risk premium of 3%.
In respect of debt securities at fair value through profit or
loss, the expected rate of return is determined based on the
average prospective yields for the debt securities actually held.
For debt securities classified as available-for-sale that support
liabilities measured at amortised cost, the expected rate of return
is the effective interest rate adjusted for an allowance,
established at initial recognition, for expected defaults. If debt
securities classified as available-for-sale are sold, any gain or
loss is amortised within the expected return over the period to the
earlier of the maturity date of the sold debt security, or the
redemption date of the supported liability.
The expected rates of return used for both the assets backing
subordinated liabilities and the subordinated liabilities
themselves include a discount for expected credit defaults. This
means that the interest expense included in operating profit for
subordinated liabilities is after deducting a margin for own credit
risk. Additionally, the effect of the accounting mismatch, where
subordinated liabilities are measured at amortised cost and certain
assets backing the liabilities are measured at fair value, is also
excluded from operating profit.
There have been no actual defaults or impairments of assets
backing subordinated liabilities during the year ended 31 December
2016 or 31 December 2015. If these were to arise they would be
excluded from operating profit.
Gains and losses on foreign exchange are deemed to represent
short-term fluctuations in investment return and economic
assumption changes and thus are excluded from operating profit.
For the year ended 31 December 2016, short-term fluctuations in
investment return and economic assumption changes resulted in gains
of GBP8m (2015: GBP63m losses) from continuing operations.
Short-term fluctuations in investment return from continuing
operations relate principally to the impact of interest rate
changes on UK annuity liabilities and the assets backing those
liabilities. Short-term gains in investment return from
discontinued operations of GBP63m for the year ended 31 December
2015 related principally to investment volatility in Canada
non-segregated funds.
(b) Other
In the pro forma reconciliation of consolidated operating profit
to profit for the year the Other non-operating sub-total
includes:
-- Amortisation of intangibles acquired in business combinations
and fair value movements in contingent consideration
-- The impact of restructuring on deferred acquisition costs,
claims, and change in investment and insurance contract
liabilities
Other non-operating items from continuing operations for the
year ended 31 December 2016 includes GBP19m (2015: GBP20m) in
relation to amortisation of intangible assets acquired through
business combinations. For the year ended 31 December 2015, other
non-operating items from continuing operations also included GBP46m
relating to a review of expense and reserving assumptions in Hong
Kong following regulatory change. This Hong Kong non-operating
restructuring loss primarily related to an impairment of deferred
acquisition costs.
15. Dividends and return of value
Dividends are distributions of profit to holders of Standard
Life plc's share capital and as a result are recognised as a
deduction in equity. Final dividends are announced with the Annual
report and accounts and are recognised when they have been approved
by shareholders. Interim dividends are announced with the Half year
results and are recognised when they are paid.
2016 2015
Pence per Pence per
share GBPm(1) share GBPm
------------------------------- --------- ------- --------- ----
Prior year's final dividend
paid 12.34 243 11.43 224
Interim dividend paid 6.47 127 6.02 119
------------------------------- --------- ------- --------- ----
Total dividends paid
on ordinary shares 370 343
------------------------------- --------- ------- --------- ----
Current year final recommended
dividend 13.35 262 12.34 243
------------------------------- --------- ------- --------- ----
(1) Estimated for current year final recommended dividend
The final recommended dividend will be paid on 23 May 2017 to
shareholders on the Company's register as at 18 April 2017, subject
to approval at the Annual General Meeting on 16 May 2017. After the
current year final recommended dividend, the total dividend in
respect of the year ended 31 December 2016 is 19.82p (2015:
18.36p).
During the year ended 31 December 2015, in addition to the
dividend distribution on ordinary shares, the Group returned 73
pence per ordinary share (GBP1,749m) to shareholders through a
'B/C' share scheme as discussed in Note 28.
16. Intangible assets
Intangible assets are created when the Group acquires a business
and the amount paid exceeds the value of the net tangible assets
acquired. These assets are reflective of the additional value that
the Group determines to be attached to the acquired business.
Intangible assets acquired by the Group through business
combinations consist mainly of investment management contracts and
technology in place in acquired businesses. Any remaining value
that cannot be identified as a separate intangible asset on
acquisition is recognised as goodwill.
The Group also recognises as intangible assets software which
has been developed internally and other purchased technology which
is used in managing and executing our business. Costs to develop
software internally are capitalised after the research phase and
when it has been established that the project is technically
feasible and the Group has both the intention and ability to use
the completed asset.
Intangible assets are recognised at cost and charged to the
income statement on a straight-line basis over the length of time
the Group expects to derive benefits from the asset.
Goodwill is not charged to the income statement unless it
becomes impaired.
Acquired through
business combinations
-----------------------------------
Investment
management Internally
and customer developed Purchased
Goodwill contracts Technology software software Total
Notes GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------- ----- -------- ------------- ---------- ---------- --------- -----
Gross amount
At 1 January 2015 216 237 30 234 63 780
Additions 3 3 - 55 3 64
Disposals and adjustments - - - (1) - (1)
Other - - - (1) - (1)
-------------------------- ----- -------- ------------- ---------- ---------- --------- -----
At 31 December
2015 219 240 30 287 66 842
-------------------------- ----- -------- ------------- ---------- ---------- --------- -----
Additions 14 14 - 61 - 89
Disposals and adjustments - - - (6) - (6)
Other - - - 3 - 3
-------------------------- ----- -------- ------------- ---------- ---------- --------- -----
At 31 December
2016 233 254 30 345 66 928
-------------------------- ----- -------- ------------- ---------- ---------- --------- -----
Accumulated amortisation
and impairment
At 1 January 2015 - (54) (22) (118) (21) (215)
Amortisation charge
for the year - (16) (4) (23) (8) (51)
Impairment losses
recognised - (5) - (4) - (9)
Disposals and adjustments - - - 1 - 1
Other - - - - (2) (2)
-------------------------- ----- -------- ------------- ---------- ---------- --------- -----
At 31 December
2015 - (75) (26) (144) (31) (276)
-------------------------- ----- -------- ------------- ---------- ---------- --------- -----
Amortisation charge
for the year 7 - (16) (3) (37) (8) (64)
Impairment losses
recognised 7 (10) (9) - (1) - (20)
Disposals and adjustments - - - 6 - 6
Other - - - (2) - (2)
-------------------------- ----- -------- ------------- ---------- ---------- --------- -----
At 31 December
2016 (10) (100) (29) (178) (39) (356)
-------------------------- ----- -------- ------------- ---------- ---------- --------- -----
Carrying amount
At 1 January 2015 216 183 8 116 42 565
At 31 December
2015 219 165 4 143 35 566
At 31 December
2016 223 154 1 167 27 572
-------------------------- ----- -------- ------------- ---------- ---------- --------- -----
The Group's goodwill has been acquired through a series of
business combinations, most recently through the acquisitions
discussed in Note 1. Of the Group's goodwill of GBP223m (2015:
GBP219m) at 31 December 2016, GBP145m (2015: GBP145m) is attributed
to the Standard Life Investments cash-generating unit. This
primarily relates to the Ignis acquisition in 2014. The remaining
goodwill of GBP78m (2015: GBP74m) is attributable to a number of
smaller cash-generating units in the Pensions and Savings
segment.
Included in investment management and customer contracts
intangible assets of GBP154m (2015: GBP165m) are GBP114m (2015:
GBP136m) relating to investment management contracts acquired
through the acquisition of Ignis, comprising life company
contracts, institutional client contracts and retail client
contracts, each of which formed a cash-generating unit.
Estimates and assumptions
The key estimates and assumptions in relation to intangible
assets are:
-- Identification and valuation of intangible assets arising from business combinations
-- Determination of useful life
-- Determination of amounts to be recognised as internally developed software
-- Determination of the recoverable amount in relation to impairment assessments
The identification of intangible assets arising from business
combinations is considered as part of the acquisition and based on
contractual relationships, technologies and brands in place in the
acquired business. Measuring the fair value of these assets
requires assumptions and judgements around expected future
revenues, appropriate discount rates and the appropriate duration
over which benefits are expected to be derived.
The determination of useful life requires judgement in respect
of the length of time that the Group expects to derive benefits
from the asset and considers for example expected duration of
contractual relationships for investment management contracts
acquired in business combinations and when technology is expected
to become obsolete for technology based assets. The amortisation
period for each of the Group's intangible asset categories is as
follows:
-- Investment management contracts acquired through business
combinations - between 10 and 17 years
-- Customer contracts acquired through business combinations - between 5 and 7 years
-- Technology acquired through business combinations - 6 years
-- Internally developed software - generally between 2 and 6
years, but can be up to 10 years. Amortisation commences once the
asset is available for use.
-- Purchased software - between 2 and 6 years
The determination of amounts to be recognised as internally
developed software requires judgement and assumptions in respect of
whether assets are capable of being separated and the extent to
which development costs form part of the separable asset.
Additionally judgement is required to determine which costs have
been incurred in relation to the research phase, which are not
capitalised, and which have been incurred in relation to the
development phase of a project, which are capitalised. We consider
that costs are directly attributable to the software asset and can
therefore be capitalised, where they would not have been incurred
if the software development had not taken place.
Intangible assets including goodwill are assessed for impairment
at each reporting date. If the carrying value of an intangible
asset exceeds its recoverable amount then the carrying value is
written down to the recoverable amount.
The recoverable amount for intangible assets excluding goodwill
is currently its value in use. In assessing value in use, expected
future cash flows are discounted to their present value using a
pre-tax discount rate. Judgement is required in assessing both
expected cash flows and an appropriate discount rate which is based
on current market assessments of the time value of money and the
risks associated with the asset.
In relation to investment management contracts acquired in
business combinations, the most significant judgements relate to
assumptions for the institutional and life client contracts
cash-generating units. The key assumptions for these
cash-generating units are future changes in assets under management
due to net flows and market movements, forecasted operating profit
margins and the discount rate. Future changes to assets under
management due to net flows and market movements are based on
forecasted information for the next five years and thereafter
assume no further net flows. The remaining economic life of these
intangible assets is between 8 and 13 years and therefore the
projected cash flows used to determine value in use cover a period
of longer than five years. The operating profit margins are based
on current experience and the discount rates reflect the level of
risk for the relevant contracts.
The investment management and customer contracts impairment
charge of GBP9m in 2016 (2015: GBP5m) relates to the institutional
client contracts cash generating unit and primarily reflects lower
than forecast net inflows for the Absolute Return Government Bond
Fund. Following the impairment the remaining carrying value of the
institutional client contracts at 31 December 2016 is GBP25m (2015:
GBP36m). The recoverable amount at 31 December 2016 was calculated
using a discount rate of 14% (2015: 14%) and an operating margin of
50% (2015: 40%). Increasing the discount rate by 2% or decreasing
the operating margin by 5% would result in an additional impairment
loss of GBP2m or GBP3m respectively. The current carrying value
assumes no future inflows into the Absolute Return Government Bond
Fund.
The carrying value of the life client contracts at 31 December
2016 is GBP58m (2015: GBP66m). Increasing the discount rate by 2%
or decreasing the operating margin by 5% would not result in an
impairment loss and therefore would have no impact on profit after
tax. The remaining amortisation period of the life contracts is 8
years.
Goodwill allocated to the Standard Life Investments
cash-generating unit is significant in comparison with the total
value of goodwill. The recoverable amount of this cash-generating
unit is based on fair value less costs of disposal. The key
assumption used to measure fair value is a price/earnings ratio
which is derived from market price/earnings ratios of similar
businesses to Standard Life Investments. This fair value
measurement would be categorised as level 3 in the fair value
hierarchy. A reasonably possible change in the price/earnings ratio
would not result in an impairment.
17. Deferred acquisition costs
The Group incurs costs to obtain and process new business. These
are accounted for as follows:
Pensions and Savings - insurance and participating investment
contracts
Acquisition costs incurred in issuing insurance or participating
investment contracts are not deferred where such costs are borne by
a with profits fund that was subject to the Prudential Regulation
Authority (PRA) realistic capital regime. For other participating
investment contracts, incremental costs directly attributable to
the issue of the contracts are deferred. For other insurance
contracts both incremental acquisition costs and other indirect
costs of acquiring and processing new business are deferred.
Deferred acquisition costs are amortised in proportion to
projected margins over the period the relevant contracts are
expected to remain in force. After initial recognition, deferred
acquisition costs are reviewed by category of business and written
off to the extent that they are no longer considered to be
recoverable.
India and China - insurance contracts
The Group's policy for acquisition costs incurred on insurance
contracts issued by overseas subsidiaries is to apply the policy
used in the issuing entity's local statutory or regulatory
reporting or, where local reporting did not explicitly or
implicitly defer acquisition costs at the time the overseas
subsidiary was first consolidated, to adjust those policies to
apply a policy similar to that described above for
non-participating insurance contracts.
Non-participating investment contracts and asset management
contracts
Incremental costs directly attributable to securing rights to
receive fees for asset management services either sold with unit
linked investment contracts or in other asset management services
contracts, are deferred. Where such costs are borne by a with
profits fund that was subject to the PRA's realistic capital
regime, deferral is limited to the level of any related deferred
income.
Deferred acquisition costs are amortised over the life of the
contracts as the related revenue is recognised. After initial
recognition, deferred acquisition costs are reviewed by category of
business and are written off to the extent that they are no longer
considered to be recoverable.
Trail or renewal commission on non-participating investment
contracts where the Group does not have an unconditional legal
right to avoid payment is deferred at inception of the contract and
an offsetting liability for contingent commission is
established.
2016 2015
Notes GBPm GBPm
---------------------------- ----- ---- -----
At 1 January 646 771
Additions during the year 7 51 83
Amortisation charge 7 (96) (124)
Impairment charge 7 - (73)
Foreign exchange adjustment 50 (11)
---------------------------- ----- ---- -----
At 31 December 651 646
---------------------------- ----- ---- -----
The amount of deferred acquisition costs expected to be
recovered after more than 12 months is GBP566m (2015: GBP558m).
Included in deferred acquisition costs above are costs deferred on
investment contracts (deferred origination costs) amounting to
GBP389m (2015: GBP411m).
Included within the impairment charge of GBP73m for the year
ended 31 December 2015 is GBP59m in relation to an impairment of
deferred acquisition costs in Hong Kong primarily as a result of a
review of expense and reserving assumptions following regulatory
change. The key non-economic assumptions used in the impairment
testing of Hong Kong deferred acquisition costs were those relating
to future persistency and expenses. The remaining impairment charge
of GBP14m related to impairment of deferred acquisition costs in
Singapore resulting from the closure of the business.
18. Investments in associates and joint ventures
Associates are entities where the Group can significantly
influence decisions made relating to the financial and operating
policies of the entity but does not control the entity. For
entities where voting rights exist, significant influence is
presumed where the Group holds between 20% and 50% of the voting
rights.
Our judgement is that the Group also has significant influence
over investment vehicles where, through its role as investment
manager, it has power over the investment decisions of the vehicle.
As a result the Group classifies all Group managed investment
vehicles which are not subsidiaries and in which the Group holds an
investment as associates even though it may hold less than 20% of
the voting rights of the investment vehicle. Where the Group has an
investment in an associate, a portion of which is held by, or is
held indirectly through, a mutual fund, unit trust or similar
entity, including investment-linked insurance funds, that portion
of the investment is measured at fair value through profit or
loss.
Joint ventures are strategic investments where the Group has
agreed to share control of an entity's financial and operating
policies through a shareholders' agreement and decisions can only
be taken with unanimous consent.
Associates, other than those accounted for at fair value through
profit or loss, and joint ventures are accounted for using the
equity method from the date that significant influence or shared
control, respectively, commences until the date this ceases with
consistent accounting policies applied throughout.
Under the equity method, investments in associates and joint
ventures are initially recognised at cost and include any goodwill
identified on acquisition. The carrying value is adjusted for the
Group's share of post-acquisition profit or loss and other
comprehensive income of the associate or joint venture, which are
recognised in the consolidated income statement and other
comprehensive income respectively. The carrying value is also
adjusted for any impairment losses.
2016 2015
Notes GBPm GBPm
------------------------------------ ----- ----- -----
Investments in associates and
joint ventures accounted for using
the equity method 569 292
Investments in associates measured
at FVTPL 21 7,376 5,425
Loans to associates and joint
ventures 21 3 2
------------------------------------ ----- ----- -----
Total investments in associates
and joint ventures 7,948 5,719
------------------------------------ ----- ----- -----
The level of future dividend payments and other transfers of
funds to the Group from associates and joint ventures accounted for
using the equity method could be restricted by the regulatory
solvency and capital requirements of the associate or joint
venture, and certain local foreign currency transaction
restrictions.
(a) Investments in associates
The following are particulars of the Group's principal
associates, which are both unlisted:
HDFC Standard Life
Insurance Company HDFC Asset Management
Limited Company Limited
------------------------------------- -------------------- -----------------------
Country of incorporation and
registration India India
------------------------------------- -------------------- -----------------------
2016 2015 2016 2015
GBPm GBPm GBPm GBPm
------------------------------------- ---------- -------- ----------- ----------
Summarised financial information
of associate:
Revenue 2,844 1,961 175 127
Profit after tax 99 72 58 46
Other comprehensive income/(expense) (5) - - -
Total assets 10,199 7,529 345 267
Total liabilities 9,776 7,228 180 131
Net assets 423 301 165 136
------------------------------------- ---------- -------- ----------- ----------
Interest held 35% 26% 40% 40%
Share of net assets 148 78 66 54
Carrying value of associate 363 115 111 87
Dividends received 8 5 8 7
------------------------------------- ---------- -------- ----------- ----------
In April 2016 the Group acquired an additional 9% of the issued
share capital of HDFC Standard Life Insurance Company Limited (HDFC
Life). Refer to Note 1 for further details.
On 8 August 2016, HDFC Life announced that it had agreed terms
with Max Life Insurance Company Limited (Max Life), Max Financial
Services Limited (Max FS) and Max India Limited (Max India) for the
combination of the life insurance businesses of HDFC Life and Max
Life. The transaction is intended to be effected through a
composite scheme of arrangement and remains subject to regulatory,
court and other necessary approvals. The aim is to complete the
transaction within the next 12 months.
Under the proposed transaction Max Life will merge into Max FS
and HDFC Life will then issue new shares to shareholders of Max FS
in exchange and as consideration for the life insurance business of
Max Life. Following completion of the transaction, the shares of
HDFC Life will list on the Bombay Stock Exchange and the National
Stock Exchange of India, subject to the approval of these stock
exchanges and the Securities and Exchange Board of India.
Completion of the proposed transaction would result in the
Group's current holding of 35% in HDFC Life becoming 24.1% of the
enlarged HDFC Life entity at completion (based on current
shareholdings). As a result, if the transaction is completed, the
Group expects to recognise a dilution gain in the consolidated
income statement, with a corresponding increase in the carrying
value of its investment in HDFC Life. The amount of the dilution
gain will be dependent on a number of factors including the share
price of Max FS at completion, foreign exchange rates and the
profit or loss reported by HDFC Life until completion of the
transaction. The Group will remain the second largest shareholder
in the enlarged HDFC Life entity. The dilution gain is not expected
to give rise to a tax charge.
The Group's interest in HDFC Life has been built up over time to
its current level of 35% (2015: 26%). The difference between the
carrying value of this associate and the Group's current share of
net assets is due to additional investments being made at fair
value rather than book value.
HDFC Asset Management Company Limited manages a range of mutual
funds and provides portfolio management and advisory services. The
Group's share of post-acquisition movements in reserves of HDFC
Asset Management Company Limited which have been recognised
directly in equity, have not been reflected in the carrying value
of the associate. As a result there is a difference between the
carrying value of the associate and the Group's share of net
assets.
The year end date for HDFC Asset Management Company Limited and
HDFC Life is 31 March which is different from the Group's year end
date of 31 December. For the purposes of the preparation of the
Group's consolidated financial statements, financial information as
at and for the 12 months ended 30 September and 31 December is used
for HDFC Asset Management Company Limited and HDFC Life
respectively.
The Group also has investments in associates measured at FVTPL
of GBP7,376m (2015: GBP5,425m), none of which are considered
individually material to the Group as the investments are primarily
held by unit linked funds. These associates have no significant
contingent liabilities to which the Group is exposed and there are
no restrictions that would prevent the transfer of funds to the
Group (2015: none).
(b) Investments in joint ventures
The following are particulars of the Group's principal joint
venture which is unlisted:
Heng An Standard
Life Insurance
Company
------------------------------------- ------------------
Country of incorporation
and registration China
------------------------------------- ------------------
2016 2015
GBPm GBPm
------------------------------------- --------- -------
Summarised financial information
of joint venture:
Revenue 254 194
Profit after tax 15 8
Other comprehensive income/(expense) (15) 3
Total assets 1,212 963
Total liabilities 1,035 807
Net assets 177 156
--------------------------------------- --------- -------
Interest held 50% 50%
Current share of net assets 88 78
Carrying value of joint
venture 88 78
Dividends received - -
--------------------------------------- --------- -------
19. Investment property
Property held for long-term rental yields or investment gain
that is not occupied by the Group and property being constructed or
developed for future use as investment property are classified as
investment property. Investment property is initially recognised at
cost and subsequently measured at fair value. Gains or losses
arising from changes in fair value are recognised in the
consolidated income statement.
2016 2015
Notes GBPm GBPm
----------------------------------- ----- ------- -----
At 1 January 9,991 9,041
Reclassified as held for sale
during the year (191) (87)
Additions - acquisitions(1) 1,624 595
Additions - subsequent expenditure 131 267
Net fair value (losses)/gains 4 (302) 452
Disposals (1,337) (290)
Transferred to owner occupied
property 20 (28) -
Foreign exchange adjustment 44 (8)
Other (3) 21
----------------------------------- ----- ------- -----
At 31 December 9,929 9,991
----------------------------------- ----- ------- -----
The fair value of investment
property can be analysed as:
Freehold 7,271 7,137
Long leasehold 2,658 2,788
Short leasehold - 66
----------------------------------- ----- ------- -----
9,929 9,991
----------------------------------- ----- ------- -----
(1) Additions - acquisitions includes GBP1,289m (2015: GBPnil)
relating to the merger of property investment vehicles.
The rental income arising from investment property during the
year from continuing operations amounted to GBP555m (2015:
GBP487m). Direct operating expenses (included within other
administrative expenses) from continuing operations arising in
respect of such rented property during the year amounted to GBP75m
(2015: GBP70m).
Valuations are provided by independent qualified professional
valuers at 31 December or as at a date that is not more than three
months before 31 December. Where valuations have been undertaken at
dates prior to the end of the reporting period, adjustments are
made where appropriate to reflect the impact of changes in market
conditions between the date of these valuations and the end of the
reporting period.
Future minimum lease rental receivables in respect of
non-cancellable operating leases on investment properties were as
follows:
2016 2015
GBPm GBPm
---------------------- ----- -----
Not later than one
year 477 478
Later than one year
and no later than
five years 1,529 1,563
Later than five years 4,028 4,105
----------------------- ----- -----
Total operating lease
receivables 6,034 6,146
----------------------- ----- -----
Estimates and assumptions
Determination of the fair value of investment property is a key
estimate. The methods and assumptions used to determine fair value
of investment property are discussed in Note 43.
20. Property, plant and equipment
Property, plant and equipment consists primarily of property
owned and occupied by the Group and the computer equipment used to
carry out the Group's business and is initially recognised at
cost.
Owner occupied property is revalued at each reporting date to
the fair value as provided by the most recent independent valuation
less any subsequent accumulated depreciation. The useful life of
owner occupied property is considered as between 30 and 50 years.
These properties are depreciated down to their estimated residual
values over their useful life and therefore depreciation is only
charged if the residual value expected at the end of the property's
useful life is lower than the fair value.
Equipment is subsequently measured at cost less depreciation.
Depreciation is charged to the income statement over 2 to 15 years
depending on the length of time the Group expects to derive benefit
from the asset.
Owner
occupied
property Equipment Total
Notes GBPm GBPm GBPm
------------------------------------- ----- --------- --------- -----
Cost or valuation
At 1 January 2015 138 130 268
Additions - 8 8
Disposals and adjustments(1) (92) - (92)
Revaluations 4 - 4
Impairment losses reversed(2) 7 5 - 5
------------------------------------- ----- --------- --------- -----
At 31 December 2015 55 138 193
------------------------------------- ----- --------- --------- -----
Additions 1 9 10
Transferred from investment property 19 28 - 28
Reclassified as held for sale (8) - (8)
Disposals and adjustments(1) (22) (10) (32)
Revaluations 5 - 5
Impairment losses recognised 7 (1) - (1)
Foreign exchange adjustment - 1 1
------------------------------------- ----- --------- --------- -----
At 31 December 2016 58 138 196
------------------------------------- ----- --------- --------- -----
Accumulated depreciation
At 1 January 2015 - (82) (82)
Depreciation charge for the year 7 - (16) (16)
Impairment loss recognised 7 - (4) (4)
------------------------------------- ----- --------- --------- -----
At 31 December 2015 - (102) (102)
------------------------------------- ----- --------- --------- -----
Depreciation charge for the year 7 - (14) (14)
Disposals and adjustments(1) - 9 9
At 31 December 2016 - (107) (107)
------------------------------------- ----- --------- --------- -----
Carrying amount
At 1 January 2015 138 48 186
At 31 December 2015 55 36 91
At 31 December 2016 58 31 89
------------------------------------- ----- --------- --------- -----
(1) For the year ended 31 December 2016 GBP4m (2015: GBPnil) of
disposals and adjustments relates to equipment with net book value
of GBPnil which is no longer in use.
(2) The impairment losses reversed in respect of owner occupied
property for the year ended 31 December 2015 arose due to changes
in the market value of a number of properties relative to their
original deemed cost.
If owner occupied property was measured using the cost model,
the historical cost before impairment would be GBP93m (2015:
GBP76m). As the expected residual value of owner occupied property
is in line with the current fair value, no depreciation is
currently charged.
21. Financial investments
Management determines the classification of financial
investments at initial recognition. Financial investments which are
not derivatives and are not designated at fair value through profit
or loss (FVTPL) are classified as either available-for-sale (AFS)
or loans and receivables. The classification of derivatives is set
out in Note 23.
The majority of the Group's debt securities and all equity
securities and interests in pooled investment funds are designated
at FVTPL as they are part of groups of assets which are managed and
whose performance is evaluated on a fair value basis. These
investments are recognised at fair value with changes in fair value
recognised in investment return in the consolidated income
statement. Commercial real estate loans are included within debt
securities designated at fair value.
All other debt securities are classified as AFS and are
recognised at fair value with changes in fair value recognised in
other comprehensive income. Interest is credited to the
consolidated income statement using the effective interest rate
method. On disposal of an AFS security any gains or losses
previously recognised in other comprehensive income are recognised
in the consolidated income statement (recycling).
The accounting policies for other financial investments are
detailed in the separate related notes indicated below.
Designated
as at fair
value through
profit Held for Available- Loans and
or loss trading for-sale receivables Total
2016 Notes GBPm GBPm GBPm GBPm GBPm
-------------------------- ----- --------------- -------- ---------- ------------ -------
Investments in associates
and joint ventures 18 7,376 - - 3 7,379
Loans 22 - - - 295 295
Derivative financial
assets 23 - 3,534 - - 3,534
Equity securities
and interests in
pooled investment
funds 41 83,307 - - - 83,307
Debt securities 41 67,312 - 621 - 67,933
Receivables and other
financial assets 24 10 - - 1,245 1,255
Cash and cash equivalents 27 - - - 7,938 7,938
-------------------------- ----- --------------- -------- ---------- ------------ -------
Total 158,005 3,534 621 9,481 171,641
-------------------------- ----- --------------- -------- ---------- ------------ -------
Designated
as at fair
value through
profit Held for Available- Loans and
or loss trading for-sale receivables Total
2015 Notes GBPm GBPm GBPm GBPm GBPm
-------------------------- ----- --------------- -------- ---------- ------------ -------
Investments in associates
and joint ventures 18 5,425 - - 2 5,427
Loans 22 - - - 811 811
Derivative financial
assets 23 - 2,444 - - 2,444
Equity securities
and interests in
pooled investment
funds 41 71,679 - - - 71,679
Debt securities 41 65,914 - 743 - 66,657
Receivables and other
financial assets 24 15 - - 1,432 1,447
Cash and cash equivalents 27 - - - 9,640 9,640
-------------------------- ----- --------------- -------- ---------- ------------ -------
Total 143,033 2,444 743 11,885 158,105
-------------------------- ----- --------------- -------- ---------- ------------ -------
The amount of debt securities expected to be recovered or
settled after more than 12 months is GBP55,591m (2015: GBP46,814m).
Due to the nature of equity securities and interests in pooled
investment funds, there is no fixed term associated with these
securities.
Estimates and assumptions
Determination of the fair value of private equity investments
and those debt securities categorised as level 3 in the fair value
hierarchy is a key estimate. The methods and assumptions used to
determine fair value of these assets are discussed in Note 43.
22. Loans
Loans are initially measured at fair value and subsequently
measured at amortised cost, using the effective interest method,
less any impairment losses.
2016 2015
Notes GBPm GBPm
----------------------------------------------------------- ----- ---- ----
Loans secured by mortgages 43(e) 73 87
Loans and advances to banks with greater than three months
to maturity from acquisition date 220 721
Loans secured on policies 2 3
----------------------------------------------------------- ----- ---- ----
Loans 41 295 811
----------------------------------------------------------- ----- ---- ----
Loans with variable rates and fixed interest rates are GBP52m
and GBP243m respectively (2015: GBP67m and GBP744m respectively).
Loans that are expected to be recovered after more than 12 months
are GBP88m (2015: GBP138m).
23. Derivative financial instruments
A derivative is a financial instrument that is typically used to
manage risk and whose value moves in response to an underlying
variable such as interest or foreign exchange rates. The Group uses
derivative financial instruments in order to match contractual
liabilities, to reduce the risk from potential movements in foreign
exchange rates, equity indices, property indices and interest
rates, to reduce credit risk or to achieve efficient portfolio
management. Certain consolidated investment vehicles also use
derivatives to take and alter market exposure, with the objective
of enhancing performance and controlling risk.
Management determines the classification of derivatives at
initial recognition. All derivative instruments are classified as
held for trading except those designated as part of a hedging
relationship. Held for trading derivatives are measured at fair
value with changes in fair value recognised in the consolidated
income statement.
Using derivatives to manage a particular exposure is referred to
as hedging. For a derivative to be considered as part of a hedging
relationship its purpose must be formally documented at inception.
In addition, the effectiveness of the hedge must be initially high
and be able to be reliably measured on a regular basis. Derivatives
used to hedge variability in future cash flows such as revenue
receivable in a foreign currency are designated as cash flow hedges
while derivatives used to hedge currency risk on investments in
foreign operations are designated as net investment hedges.
Where a derivative qualifies as a cash flow or net investment
hedge, hedge accounting is applied. The effective part of any gain
or loss resulting from the change in fair value is recognised in
other comprehensive income, and in the cash flow or net investment
hedge reserve in equity, while any ineffective part is recognised
immediately in the consolidated income statement. If a derivative
ceases to meet the relevant hedging criteria, hedge accounting is
discontinued.
For cash flow hedges, the amount recognised in the cash flow
hedge reserve is transferred to the consolidated income statement
(recycled) in the same period or periods during which the hedged
item affects profit or loss and is transferred immediately if the
cash flow is no longer expected to occur. For net investment
hedges, the amount recognised in the net investment hedge reserve
is transferred to the consolidated income statement on disposal of
the investment.
2016 2015
Fair Fair Fair Fair
Contract value value Contract value value
amount assets liabilities amount assets liabilities
Notes GBPm GBPm GBPm GBPm GBPm GBPm
--------------------- ----- -------- ------- ------------ -------- ------- ------------
Cash flow hedges 9 - - 10 - -
Net investment
hedges 6 - - 5 - -
Held for trading 35 119,926 3,534 965 153,277 2,444 1,254
--------------------- ----- -------- ------- ------------ -------- ------- ------------
Derivative financial
instruments 41 119,941 3,534 965 153,292 2,444 1,254
--------------------- ----- -------- ------- ------------ -------- ------- ------------
Derivative assets of GBP2,460m (2015: GBP2,098m) are expected to
be recovered after more than 12 months. Derivative liabilities of
GBP215m (2015: GBP475m) are expected to be settled after more than
12 months.
(a) Cash flow hedges
Forward foreign exchange contracts with an aggregate notional
principal amount of GBP9m (2015: GBP10m) and a net fair value asset
position of less than GBP1m (2015: less than GBP1m) were designated
as hedges of future cash flows arising from revenue receivable in
foreign currency. The cash flows from these instruments are
expected to be reported in the consolidated income statement for
the following year. In 2016 and 2015, the ineffectiveness
recognised in the consolidated income statement that arises from
these cash flow hedges was less than GBP1m.
(b) Net investment hedges
Forward foreign exchange contracts with a notional principal
amount of GBP6m (2015: GBP5m) and a net fair value liability
position of less than GBP1m (2015: less than GBP1m) were designated
as net investment hedges and gave rise to losses for the year of
less than GBP1m (2015: less than GBP1m), which have been deferred
in the net investment hedge translation reserve. The effectiveness
of hedges of net investments in foreign operations is measured with
reference to changes in the spot exchange rates. Any
ineffectiveness, together with any difference in value attributable
to forward points, is recognised in the consolidated income
statement. In 2016, the losses recognised in the consolidated
income statement were less than GBP1m (2015: less than GBP1m).
During 2015 GBP110m was transferred to retained earnings through
the consolidated income statement due to the disposal of the
Canadian business on 30 January 2015.
(c) Held for trading
Derivative financial instruments classified as held for trading
include those that the Group holds as economic hedges of financial
instruments that are measured at fair value. Held for trading
derivative financial instruments are also held by the Group to
match contractual liabilities that are measured at fair value or to
achieve efficient portfolio management in respect of instruments
measured at fair value.
2016 2015
Fair Fair Fair Fair
Contract value value Contract value value
amount assets liabilities amount assets liabilities
GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------------- -------- ------- ------------ -------- ------- ------------
Equity derivatives:
Futures 5,907 33 88 12,684 18 129
Variance swaps 17 27 22 28 25 20
Options 3,397 571 8 4,752 661 3
Total return swaps 2,313 3 38 3,652 18 50
Bond derivatives:
Futures 34,125 247 96 8,908 13 52
Interest rate derivatives:
Swaps 22,604 762 148 81,160 748 458
Floors 44 8 - 63 11 -
Options - - - - - -
Swaptions 5,980 1,097 - 7,139 704 5
Foreign exchange derivatives:
Forwards 42,228 704 506 30,860 203 497
Futures - - - - - -
Options 1 - - 1,276 - 11
Other derivatives:
Inflation rate swaps 2,032 27 41 1,108 5 26
Credit default swaps 1,278 55 18 1,647 38 3
--------------------------------- -------- ------- ------------ -------- ------- ------------
Derivative financial instruments
held for trading 119,926 3,534 965 153,277 2,444 1,254
--------------------------------- -------- ------- ------------ -------- ------- ------------
(d) Maturity profile
The maturity profile of the contractual undiscounted cash flows
in relation to derivative financial instruments is as follows:
Within Greater
1 2-5 6-10 11-15 16-20 than
year years years years years 20 years Total
2016 GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------- -------- ------ ------ ------ ------ --------- --------
Cash inflows
Derivative financial
assets 23,319 448 355 172 221 744 25,259
Derivative financial
liabilities 14,060 11 - - 1 - 14,072
-------------------------- -------- ------ ------ ------ ------ --------- --------
Total 37,379 459 355 172 222 744 39,331
-------------------------- -------- ------ ------ ------ ------ --------- --------
Cash outflows
Derivative financial
assets (22,175) (2) (4) (16) (11) - (22,208)
Derivative financial
liabilities (14,821) (46) (23) (14) (32) (147) (15,083)
-------------------------- -------- ------ ------ ------ ------ --------- --------
Total (36,996) (48) (27) (30) (43) (147) (37,291)
-------------------------- -------- ------ ------ ------ ------ --------- --------
Net derivative financial
instruments cash inflows 383 411 328 142 179 597 2,040
-------------------------- -------- ------ ------ ------ ------ --------- --------
Cash inflows and outflows are presented on a net basis where the
Group is required to settle cash flows net.
Within Greater
1 2-5 6-10 11-15 16-20 than
year years years years years 20 years Total
2015 GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------------- -------- ------ ------ ------ ------ --------- --------
Cash inflows
Derivative financial
assets 9,288 453 469 86 96 503 10,895
Derivative financial
liabilities 20,003 10 3 - - 2 20,018
------------------------------------- -------- ------ ------ ------ ------ --------- --------
Total 29,291 463 472 86 96 505 30,913
------------------------------------- -------- ------ ------ ------ ------ --------- --------
Cash outflows
Derivative financial
assets (8,831) (3) (15) (32) (490) - (9,371)
Derivative financial
liabilities (20,695) (107) (44) (24) (33) (494) (21,397)
------------------------------------- -------- ------ ------ ------ ------ --------- --------
Total (29,526) (110) (59) (56) (523) (494) (30,768)
------------------------------------- -------- ------ ------ ------ ------ --------- --------
Net derivative financial
instruments cash (outflows)/inflows (235) 353 413 30 (427) 11 145
------------------------------------- -------- ------ ------ ------ ------ --------- --------
Estimates and assumptions
Determination of the fair value of over-the-counter derivative
financial instruments is a key estimate. The methods and
assumptions used to determine fair value of over-the-counter
derivative financial instruments are discussed in Note 43.
24. Receivables and other financial assets
2016 2015
Notes GBPm GBPm
--------------------------- ----- ----- -----
Amounts receivable on
direct insurance business 82 83
Amounts receivable on
reinsurance contracts 1 1
Outstanding sales of
investment securities 196 58
Accrued income 223 224
Cancellations of units
awaiting settlement 317 265
Collateral pledged in
respect of derivative
contracts 41 30 448
Property related assets 156 169
Contingent consideration
asset 43 10 15
Other 240 184
--------------------------- ----- ----- -----
Receivables and other
financial assets 1,255 1,447
--------------------------- ----- ----- -----
The carrying amounts disclosed above reasonably approximate the
fair values as at the year end.
The amount of receivables and other financial assets expected to
be recovered after more than 12 months is GBP77m (2015:
GBP69m).
25. Other assets
2016 2015
GBPm GBPm
------------- ---- ----
Prepayments 41 36
Other 53 53
-------------- ---- ----
Other assets 94 89
-------------- ---- ----
The amount of other assets expected to be recovered after more
than 12 months is GBP4m (2015: GBP26m).
26. Assets and liabilities held for sale
Assets and liabilities held for sale are presented separately in
the consolidated statement of financial position and consist of
operations and individual non-current assets whose carrying amount
will be recovered principally through a sale transaction and not
through continuing use.
Operations held for sale, being disposal groups, are measured at
the lower of their carrying amount and their fair value less
disposal costs. No depreciation or amortisation is charged on
assets in a disposal group once it has been classified as held for
sale.
Operations held for sale relate to newly established investment
vehicles which the Group has seeded but is actively seeking to
divest from. For these investment funds, which do not have
significant liabilities or non-financial assets, financial assets
continue to be measured based on the accounting policies that
applied before they were classified as held for sale.
Certain amounts seeded into funds are classified as investments
in associates at FVTPL. Investment property and owner occupied
property held for sale relates to property for which contracts have
been exchanged but the sale had not completed during the current
financial year. Investments in associates at FVTPL and investment
property held for sale continue to be measured based on the
accounting policies that applied before they were classified as
held for sale.
2016 2015
GBPm GBPm
-------------------------- ---- ----
Assets of operations
held for sale
Investment vehicles 27 207
Investments in associates
at FVTPL - 33
Investment and owner
occupied property(1) 236 87
--------------------------- ---- ----
Assets held for sale 263 327
--------------------------- ---- ----
Liabilities of operations
held for sale - 83
--------------------------- ---- ----
(1) Consists of GBP228m investment property (2015: GBP87m) and
GBP8m owner occupied property (2015: GBPnil).
The assets and liabilities of operations held for sale at 31
December 2015 primarily related to the assets and liabilities of a
consolidated infrastructure fund and its subsidiaries. The Group no
longer has control of this fund at 31 December 2016. The assets and
liabilities were held in the Pensions and Savings segment.
27. Cash and cash equivalents
Cash and cash equivalents include cash at bank, money at call
and short notice with banks, and any highly liquid investments
(including reverse repurchase agreements) with less than three
months to maturity from the date of acquisition, and are measured
at amortised cost. For the purposes of the consolidated statement
of cash flows, cash and cash equivalents also include bank
overdrafts which are included in other financial liabilities on the
consolidated statement of financial position.
2016 2015
GBPm GBPm
-------------------------------- ----- -----
Cash at bank and in hand 753 824
Money at call, term deposits
and debt instruments with less
than three months to maturity
from acquisition 7,185 8,816
--------------------------------- ----- -----
Cash and cash equivalents 7,938 9,640
--------------------------------- ----- -----
2016 2015
Notes GBPm GBPm
-------------------------------- ----- ----- -----
Cash and cash equivalents 7,938 9,640
Bank overdrafts 39 (38) (49)
-------------------------------- ----- ----- -----
Total cash and cash equivalents
for consolidated statement
of cash flows 7,900 9,591
-------------------------------- ----- ----- -----
Cash at bank, money at call and short notice and deposits are
subject to variable interest rates.
28. Issued share capital and share premium
Shares are classified as equity instruments when there is no
contractual obligation to deliver cash or other assets to another
entity on terms that may be unfavourable. The Company's share
capital consists of the number of ordinary shares in issue
multiplied by their nominal value. The difference between the
proceeds received on issue of the shares and the nominal value of
the shares issued is recorded in share premium.
(a) Issued share capital
The movement in the issued ordinary share capital of the Company
was:
2016 2016 2015 2015 2015
Issued shares fully 12 2/9p 12 2/9p
paid each GBPm 10p each each GBPm
------------------------------ ------------- ---- --------------- ------------- ----
At 1 January 1,969,937,375 241 2,394,373,744 - 239
Shares issued in respect
of share incentive plans 460,194 - 169,283 194,329 -
Shares issued in respect
of share options 8,486,868 1 642,089 10,046,128 2
New shares issued immediately
prior to share consolidation - - 6 - -
Share consolidation - - (2,395,185,122) 1,959,696,918 -
------------------------------ ------------- ---- --------------- ------------- ----
At 31 December 1,978,884,437 242 - 1,969,937,375 241
------------------------------ ------------- ---- --------------- ------------- ----
On 13 March 2015, the Company undertook a share consolidation of
the Company's share capital. Nine new ordinary shares of 12 2/9
pence each were issued for each holding of 11 existing ordinary
shares of 10 pence each. As a result, the number of shares in issue
reduced from 2,395,185,122 to 1,959,696,918. All ordinary shares in
issue in the Company rank pari passu and carry the same voting
rights to receive dividends and other distributions declared or
paid by the Company.
The Company can issue shares to satisfy awards granted under
employee incentive plans which have been approved by shareholders.
Details of the Group's employee plans are provided in Note 47.
(b) Return of value
668,370,013 'B' shares were issued for nil consideration with a
nominal value of 73 pence each on 19 March 2015, resulting in a
total of GBP488m being credited to the 'B' share capital account.
At the same time GBP488m was deducted from the share premium
account. On 20 March 2015 the 'B' shares were redeemed at 73 pence
each. An amount of GBP488m was deducted from the 'B' share capital
account and GBP488m was transferred from retained earnings to the
capital redemption reserve.
1,726,815,109 'C' shares were issued for nil consideration with
a nominal value of 0.0000001 pence each on 19 March 2015. An amount
of GBP1.73 was credited to the 'C' share capital account. On 20
March 2015 a dividend of 73 pence per share became payable at a
total cost of GBP1,261m and this amount has been recorded as a
deduction from retained earnings. On the same date, the 'C' shares
were automatically reclassified as deferred shares. The Company
subsequently purchased the deferred shares for an aggregate
consideration of one pence.
On 17 June 2016 the Company's capital redemption reserve was
cancelled in accordance with section 649 of the Companies Act 2006
resulting in a transfer of GBP488m to retained earnings.
(c) Share premium
2016 2015
GBPm GBPm
---------------------------- ---- -----
1 January 628 1,115
Issue of 'B' shares - (488)
Shares issued in respect of
share options 6 1
------------------------------- ---- -----
31 December 634 628
------------------------------- ---- -----
29. Shares held by trusts
Shares held by trusts relates to shares in Standard Life plc
that are held by the Employee Share Trust (EST) and the Unclaimed
Asset Trust (UAT).
The EST purchases shares in the Company for delivery to
employees under employee incentive plans. Purchased shares are
recognised as a deduction from equity at the price paid for them.
Where new shares are issued to the EST the price paid is the
nominal value of the shares. When shares are distributed from the
trust their corresponding value is released to retained
earnings.
In July 2006 Standard Life demutualised and former members of
the mutual company were allocated shares in the new listed Company.
Some former members were yet to claim their shares and the UAT held
these on their behalf. There was an off-setting obligation to
deliver these shares which was also recognised in the shares held
by trust reserve. The shares and the off-setting obligation were
both measured at GBPnil. The claim entitlement period for the UAT
expired on 9 July 2016. Shares remaining in the UAT after 9 July
2016 continue to be measured at GBPnil.
The number of shares held in trust at 31 December 2016 was as
follows:
2016 2015
------------------------------- ---------- ----------
Number of shares held in trust
Employee Share Trust 1,287,431 1,637,419
Unclaimed Asset Trust 12,999,801 14,709,934
---------------------------------- ---------- ----------
On expiry of the claim period on 9 July 2016, the entitlement to
the unclaimed shares remaining in the UAT transferred to the
Company. Unclaimed shares, and unclaimed cash referred to in Note
30, will be used to fund the charitable activities of the Standard
Life Foundation.
30. Retained earnings
The following table shows movements in retained earnings during
the year. The movements are aggregated for both continuing and
discontinued operations.
2016 2015
Notes GBPm GBPm
------------------------------------------------ ----- ----- -------
At 1 January 2,162 1,816
Recognised in comprehensive income
Recognised in profit for the year
attributable to equity holders 368 1,423
Recognised in other comprehensive
income
Remeasurement gains on defined
benefit pension plans 37 162 148
Share of other comprehensive income/(expense)
of associates and joint ventures (10) 2
Aggregate tax items recognised
in other comprehensive income 2 5
------------------------------------------------ ----- ----- -------
Total items recognised in comprehensive
income 522 1,578
------------------------------------------------ ----- ----- -------
Recognised directly in equity
Dividends paid on ordinary shares (370) (343)
Redemption of 'B' shares 28 - (488)
Dividends paid on 'C' shares 28 - (1,261)
Dividends due on unclaimed shares
not held in the Unclaimed Asset
Trust - (2)
Transfer from equity compensation
reserve for vested employee share-based
payments 31 23 32
Transfer from other reserves on
disposal of a subsidiary - 827
Cancellation of capital redemption
reserve 31 488 -
Shares distributed by employee
and other trusts (7) (2)
Expiry of unclaimed asset trust
claim period 41 -
Aggregate tax items recognised
in equity (4) 5
------------------------------------------------ ----- ----- -------
Total items recognised directly
in equity 171 (1,232)
------------------------------------------------ ----- ----- -------
At 31 December 2,855 2,162
------------------------------------------------ ----- ----- -------
In addition to unclaimed shares, which are referred to in Note
29, the UAT holds cash in relation to unclaimed cash entitlements
arising from both cash entitlements which were allocated to
eligible members of the mutual company at the date of
demutualisation and dividends received on shares held in the UAT.
On expiry of the UAT claim period on 9 July 2016, the entitlement
to the unclaimed assets remaining in the UAT transferred to the
Group. The expiry resulted in the derecognition of a liability of
GBP41m to eligible members in relation to their cash entitlements,
which was recognised directly in retained earnings in equity.
This information is provided by RNS
The company news service from the London Stock Exchange
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