Final Results - Part 2 of 8

RNS Number : 0493B

Standard Life plc

27 February 2014

Standard Life plc

Full Year Results 2013

Part 2 of 8

Chairman's statement

Another year of good progress

I am pleased to report another year of good progress for Standard Life. Our world-class investments business has continued to deliver innovative propositions and excellent performance. We have continued to build our global presence and also maintain our leading position in the UK savings and pensions market, which is one of the most competitive and dynamic in the world. Our strong balance sheet allows us to look after the savings and pensions of around six million people across the world through our wholly-owned businesses in the UK, Canada, USA, Germany, Ireland, Hong Kong, Singapore, and Dubai. We are very conscious of the important part we play in many people's lives. It is a special responsibility to have and we strive constantly to ensure that we live up to our customers' expectations.

Our good progress has meant that we have been able to continue to grow our dividend well above the rate of inflation. During this prolonged period of low interest rates, we hope that this is welcome news to our shareholders - we attach much importance to maintaining our record of regular increases. We are recommending a final dividend of 10.58p per share. If approved, the final dividend will give a total 2013 dividend of 15.8p, an increase of 7.5% compared to the 2012 interim and final dividend. Our capital position remains one of the strongest in the industry and we expect this to be maintained as the new, EU-wide Solvency 2 regime is introduced.

Much is talked about the importance of ethics and integrity in financial services, but there is often a disconnect between what chairmen and their boards say and the day-to-day experiences of their customers. For us, we always try to make sure that all our people know that doing the right thing by our customers is the only way in which we can build a sustainable business. This includes being transparent in our charges and making sure that people understand exactly what they are getting when they buy one of our products, so that they can make properly-informed decisions.

The rollout of auto enrolment into workplace pensions is changing the savings landscape in the UK and we are reinforcing our leading position in this market. It is - rightly - a very competitive market and I believe that's the best way to ensure that charges are fair and give value for money. The value that we offer includes excellent customer service and access to award-winning investment solutions.

Our approach to corporate governance continues to be, we believe, best in class, both in the way we conduct ourselves and the way in which we exercise our stewardship responsibilities towards the companies in which we invest. A strong, engaged board is central to this. We constantly refresh the people on your board to ensure that it contains excellent people from a variety of backgrounds, maintains its great expertise and provides ongoing constructive challenge. Martin Pike, formerly a leading consulting actuary, joined us and two people left our Board during the year - Jackie Hunt stepped down as our Chief Financial Officer to take up a Chief Executive position at Prudential UK, and Sheelagh Whittaker left our Group Board to join the board of Standard Life Canada. And after six years' excellent service, Colin Buchan will retire from the Board at the next AGM on 13 May. Some of these departures have hurt our diversity statistics a little in the short-term but we're determined to maintain our diversity balance, not just on our boards, but also throughout the Company.

In September this year, the Scottish people will be voting in a referendum on Scottish independence. Your Company is strictly apolitical and it would be inappropriate for us to give any views on how people should vote. Equally, as one of the largest companies headquartered and based in Scotland, it is appropriate that we have carefully thought through the potential consequences if Scotland were to become an independent nation. We have reviewed all the information that we have available to us at the current time, and we consider that a number of material issues remain uncertain. David Nish covers these issues in section 1.1 of this report.

We have been based in Scotland for 189 years and we are very proud of our heritage. Scotland has been a good place from which to run our business and to compete around the world. We very much hope that this can continue. But if anything were to threaten this, we will take whatever action we consider necessary - including transferring parts of our operations from Scotland - in order to ensure continuity and to protect the interests of our stakeholders. We will continue to seek further clarity from politicians on both sides of the debate, so that we can reach an informed view on what constitutional change may mean for our customers, our business and our shareholders.

It is our people that make Standard Life special. Our executive leadership continues to push the business forward, keep it safe and strong and expand its reach. We strive to put ourselves in our customers' shoes and give them the standards of service that we would expect to receive ourselves. I'm confident 2014 will be another good year for Standard Life.

Gerry Grimstone, Chairman

1. Strategic report

1.1 Chief Executive's overview

Standard Life has had another strong year with Group underlying performance up 19% to £638m. Group operating profit reduced by 13% to £751m due to a particularly strong prior year which included a higher positive impact of one-off items. We continue to invest to meet the large scale changes in our markets. As a result, higher growth has been delivered.

In the UK we are capitalising on the opportunities created by the Retail Distribution Review and auto enrolment. We attracted 340,000 new customers and increased assets by 13% to £150bn. Standard Life Investments had a particularly good year with third party net inflows of over £10bn as a result of excellent investment performance, broadening geographical reach and an expanding investment offering. In Canada, we are delivering against our transformation strategy.

Our balance sheet remains strong. We are generating significant cash flows and have once again increased our dividend.

Our business has been shaped and positioned to benefit from evolving customer needs and regulatory changes. This, combined with our investment expertise and focus on providing value for our customers, is driving demand for our propositions across the retail, workplace, institutional and wholesale channels. We remain very well positioned for the future and look forward with confidence to delivering growing returns for our shareholders.

Strong market position delivering growth in assets, revenue and returns

Our goal is to create shareholder value through being a leading customer-driven business focused on long-term savings and investments propositions in our chosen markets. This is underpinned by a simple business model: increasing assets, maximising revenue and lowering unit costs while optimising the balance sheet.

During 2013 we have continued to make good progress in each of our businesses. Growth in revenue reflects customer demand for our propositions, while continued work on controlling costs has enabled us to increase operating leverage, in turn driving an ongoing improvement in underlying performance.

· Continuing strong growth from the UK business, attracting 340,000 new customers, reflecting the success of our business model and also the opportunities created by the Retail Distribution Review and auto enrolment

· Strong flows and investment performance driving Standard Life Investments operating profit

· Growing our fee based business in Canada, leveraging Standard Life Investments expertise with launch of 20 new funds and expanded bank distribution

· Continued progress in Asia and Emerging Markets, with our business in Hong Kong ranked 3rd in the savings and investment market and is the market-leader in the broker and IFA segment.

Delivering on our sustainability strategy

· Maintained our positions in DJSI World, DJSI Europe and FTSE4Good sustainability indices, reflecting our continued performance in delivering on our sustainability strategy

· A main focus was on employability, in particular our placement programme for young people, in partnership with Edinburgh City Council's Edinburgh Guarantee

· Carried out research to learn more about our customers' wants and needs

· Held our first group-wide Green Travel Week to raise awareness, encourage greener travel and reduce our carbon footprint

· Continued to invest in our people, through development, leadership and technology

· Signed the Armed Forces Corporate Covenant and recently announced an enhanced special leave policy for employees who are, or who are partners of, serving personnel

· Continued programme of activity to influence and promote sustainability issues, both as an investor through Standard Life Investments and with our suppliers.

Outlook

Our UK business has been shaped and positioned to benefit from regulatory, market and demographic changes. Our retail platform is gaining market share as we continue to deepen relationships with a growing number of advisers. Our corporate business has a good pipeline for 2014 which includes significant auto enrolment activity.

Standard Life Investments remains focused on delivering excellent investment performance, expanding its investment capabilities and increasing its distribution channels and geographic reach. This is reflected in a robust pipeline of institutional business and continued demand for our wholesale propositions.

Canada continues to build momentum in its fee based propositions, however its contribution in 2014 at a Group level will be impacted if weakness in the Canadian Dollar continues. Our Asia and Emerging Markets business is well positioned for future growth in the attractive international markets in which it operates.

We look forward to the future with confidence as we continue to capitalise on the strong distribution capabilities of our long-term savings businesses and our global investment expertise. We are innovating and driving efficiency to deliver the right propositions and value for our customers. These strengths, combined with our strong balance sheet mean we can continue to deliver value for customers and grow returns for our shareholders.

1.1 Chief Executive's overview continued

Objectives and strategy

Our strategic objectives and our performance against them are illustrated below. Find out more on how our businesses performed in Section 1.4 - Business segment performance. Our strategic objectives and ultimately our ability to generate value for our shareholders may be subject to financial and non-financial risks. Section 1.5 - Risk management has more information on our principal risks and risk management approach. Find out more about some of the terms used in this report in the glossary.

Our strategic objectives

Expanding the global reach of our investment management business

Corporate: Building on strength in pension savings and corporate benefits

Our performance

in 2013

· £5.3bn, or 53% of third party net flows in 2013 from outside the UK

· Retention rates amongst the best in the industry, with redemptions at just 15% of opening third party AUM

· Assets managed for John Hancock in the US rose to £2.8bn (2012: £1.0bn)

· Excellent money weighted average investment performance with 99% of third party AUM ahead of benchmark in the year, with 94% ahead over 3 years and 96% over 5 years

· Innovation and client demand driving new fund launches including second local currency Global Emerging Markets Debt fund, US Monthly Income Fund and Enhanced-Diversification Growth Fund.

· In 2013, 292,000 employees joined our UK corporate pension schemes with total employees now 1.4 million

· Successful start to auto enrolment in the UK with 290 schemes implemented in 2013 and a low opt out rate at under 10% of those enrolled

· UK corporate net inflows increased by 62% to £2.0bn (2012: £1.2bn)

· In Canada, corporate pensions Target Liability Bond Funds were launched and we also expanded our range of corporate benefits services and tools.

Competitive advantages and market opportunities

· Pipeline of institutional business remains robust and we continue to attract considerable interest, increasingly from outside the UK

· Continued to deliver excellent investment performance over all key time periods

· Further opportunities to leverage internal distribution across the Group

· Continued to extend our global reach with expansion in Boston and Hong Kong

· Ryder Cup sponsorship provides further opportunity to promote the brand globally

· Opportunities for further global growth with strategic partners including Sumitomo Mitsui in Japan and John Hancock in the US.

· Leading provider of corporate benefit solutions in the UK and Canada

· Continued opportunity to benefit from ongoing shift from defined benefit to defined contribution and bundling of pension provision with single provider

· New small and medium-sized enterprise pension solution launched to target the significant number of employees who will need to be auto-enrolled over next few years

· Ongoing investment in technology and investment solutions created greater capacity to take on new business

· We celebrated our 180^th anniversary in Canada during 2013 and remain well placed for introduction of Pooled Registered Pension Plans (PRPP) and overall need for greater private pension provision.

Our strategic objectives

Retail: Focusing on the savings and investments needs of customers in our chosen segments

Maximising value from the joint venture relationships in Asia

Our performance

in 2013

· UK Wrap platform assets increased by 36% to £16.6bn

· Standard Life Wealth continues to grow and completed the acquisition of the private client division of Newton Management Limited in September 2013

· Success of MyFolio risk based funds continues with assets increasing by 82% to £4.0bn (2012: £2.2bn)

· Our SIPP proposition continues to grow with a 20% increase in customers and AUA up 18% to £23.2bn (2012: £19.6bn)

· In Canada, retail segregated funds AUA increased by 22% to £2.8bn (2012: £2.3bn).

· HDFC Life continues to grow and is a leading force in the private market in India

· HDFC Life paid its first dividend to shareholders in December 2013

· HDFC Asset Management, our associate business remains the largest mutual fund provider in India with 4.6 million customers

· In China, Heng An Standard Life has taken strategic action to focus on sustainable growth by targeting higher margin regular premium business.

Competitive advantages and market opportunities

· Taking the lead in securing super clean share classes and concluded negotiations with 14 investment management companies enabling us to deliver preferential terms to customers

· Market-leading range of MyFolio funds meeting the growing demand for simple investment solutions

· Platforms are well positioned for growth, outperforming in a fast growing market

· Helping to support and guide customers post RDR, including working with bank partners

· One of the fastest growing retail segregated fund franchises in Canada.

· We established an Asia Advisory Board to provide guidance and advice on our strategy to grow across the region

· HDFC Life has been a market leader in updating its product range to reflect new Indian product guidelines which came into effect on 1 January 2014

· Increased scope for distribution of Standard Life Investments and HDFC Asset Management investment products.

1.1 Chief Executive's overview continued

Market overview

The latter part of 2013 saw more investor confidence with major economies showing signs of recovery, helped by very considerable support from central banks. Equity markets benefited from continued earnings growth, while global fund flows suggested that investors were gradually increasing their risk appetite as inflows to equity markets exceeded those to bonds for the first time in a number of years. During 2013 as a whole, share prices rose strongly in most developed markets, although many emerging markets lagged behind due to economic and political concerns. The average daily FTSE All-Share Index rose by 15% between 2012 and 2013 buoyed by increased investor confidence with the potential of a strong recovery in the US, and initial signs of recovery in the Eurozone.

Legislation and public policy

The phased introduction of auto enrolment continued in 2013. By 2018, all UK employers will need to provide a qualifying workplace pension for their eligible employees. The largest employers have already done this and from April 2014, companies with less than 250 employees will need to comply with the new rules. That means around 1.4 million qualifying workplace pension schemes will need to be created and 8.8 million employees auto-enrolled over the next few years.

In November 2013, the UK Government launched a consultation on pension charges for workers automatically enrolled into workplace pensions including the potential introduction of a charge cap. The level of any cap will be confirmed as part of the outcome of the consultation which we expect to be published in Q1 2014. However, the Government has confirmed that any charge cap will not be implemented before April 2015, in order to give employers at least twelve months' notice of rules that will apply to them. We believe that we offer competitive pensions which meet our customers' needs including those joining schemes through auto enrolment. Although charges are an important element of providing a good value pension, contribution levels, investment selection and performance are also critical factors and it is important that a debate on charges does not distract from the important work being done to make the auto enrolment project a success.

The Retail Distribution Review phase 2 brings new regulations mainly affecting platform service providers. Customers will pay for platform services through transparent charges deducted from their investments and platform providers cannot receive payment for these services from fund managers. These regulations are effective from 6 April 2014 for new business and from 6 April 2016 for existing business. As well as implementing changes for the April 2014 date we are also progressing with the 2016 requirements leaving us well placed in the market.

Pooled Registered Pension Plans (PRPP) are being introduced in Canada, aiming to encourage saving for a retirement income for those individuals who do not have access to a corporate pension plan via their workplace. We have developed a strong PRPP proposition and we were granted a licence to be a federal PRPP administrator in September 2013.

Solvency 2 is a major European regulatory change initiative that will bring consistency to the way in which EU insurers manage capital and risk, with the aim of enhancing protection for consumers. In November 2013, the European Parliament, Council and Commission reached an agreement on the Omnibus II Directive. The agreement on Omnibus II enables the Solvency 2 framework to become operational by 1 January 2016. We continue to closely monitor the development of Solvency 2 and our business is well placed to implement the necessary changes expected to be required before 2016.

Constitutional change

As a large company and employer based in Scotland, we have been following the constitutional debate ahead of the independence referendum on 18 September 2014.

We have a long-standing policy of strict political neutrality and at no time will we advise people on how they should vote.However, we have a duty and a responsibility to understand the implications of independence for our four million UK customers, our shareholders, our people and other stakeholders in our business and take whatever action is necessary to protect their interests.

For this reason, we have engaged with key politicians and analysed the relevant papers published by both sides of the independence debate. These include the Scottish Government publication Scotland's Future (the 'White Paper') and the UK Government's Scotland Analysis series.

At the time of publishing this report (February 2014), we believe a number of material issues remain uncertain. These include:

· The currency that an independent Scotland would use

· Whether agreement and ratification of an independent Scotland's membership to the European Union would be achieved by the target date (currently 24 March 2016)

· The shape and role of the monetary system

· The arrangements for financial services regulation and consumer protection in an independent Scotland

· The approach to individual taxation, especially around savings and pensions, as a consequence of any constitutional change.

We will continue to seek clarity on these matters, but uncertainty is likely to remain. In view of this, there are steps we will take based on our analysis of the risks. For example, we have started work to establish additional registered companies to operate outside Scotland, into which we could transfer parts of our operations if it was necessary to do so. This is a precautionary measure to ensure continuity of our businesses' competitive position and to protect the interests of our stakeholders. As Chief Executive my commitment is, whatever happens, we will continue to serve the needs of our customers and maintain our competitive position.

1.2 Group key financial performance indicators

Group operating profit before tax¹

Group operating profit is a measure of our ability to deliver long-term returns for our shareholders and provides an indication of our dividend paying capability.

· Group operating profit before tax reduced by 13% to £751m, due to a particularly strong prior year which included significant management actions in Canada and the £96m benefit from the UK professional indemnity insurance claim

· Group underlying performance increased by 19% to £638m (2012: £534m) and benefited from strong performance in Standard Life Investments and the UK

· Fee based revenue increased by 15% or £188m to £1,459m, with strong demand for our propositions in the UK and Standard Life Investments, and higher asset values.

Assets under administration and net flows

As a long-term savings and investments business, assets under administration (AUA) and net flows are key drivers of shareholder value. We aim to grow AUA by focusing on our customers and meeting their needs with innovative propositions.

· Group AUA increased by 12% to a record £244.2bn, driven by strong net inflows in the UK and Standard Life Investments, and favourable market movements

· Total net inflows almost doubled to a record £9.6bn

· Record level of third party assets in Standard Life Investments at £97.4bn (2012: £83.0bn).

EEV operating profit beforetax¹

European Embedded Value (EEV) operating profit measures our ability to manage our existing book of business and to write profitable new business.

· EEV operating profit before tax decreased by 16% to £915m

· Core EEV operating profit of £687m was broadly consistent with prior year (2012: £697m)

· Efficiency and back book management elements, which are more variable than core, reduced by £97m and £61m respectively, reflecting higher investment costs allocated to covered business and lower benefits from management actions.

EEV operating capital and cash generation¹

EEV operating capital and cash generation reflects our ability to generate capital and cash. This enables further investment in the business and the payment of dividends to our shareholders.

· EEV operating capital and cash generation decreased by 17% to £582m largely due to £91m lower operating capital and cash generation from back book management and £50m higher new business strain mainly reflecting increased sales volumes

· EEV operating capital and cash generation remains aligned with Group operating profit after tax.

¹Comparatives have been restated to reflect an amendment to IAS 19 Employee Benefits.

Find out more about these measures in Section 1.3 - Group financial overview and Section 1.9 - Basis of preparation.

1.3 Group financial overview

Our financial results demonstrate our ability to deliver sustainable returns for our shareholders. We continue to develop high-quality and innovative solutions that meet the changing needs of our customers. Our financial performance is detailed below.

IFRS and Group operating profit
	2013	2012	Movement
Group operating profit before tax^1,2	£751m	£867m	(13%)
IFRS profit after tax attributable to equity holders of Standard Life plc²	£466m	£665m	(30%)
Group operating return on equity²	14.7%	19.2%	(4.5% points)

IFRS profit

IFRS profit after tax attributable to equity holders reduced to £466m (2012: £665m) mainly due to the impact of a rise in yields on debt securities, lower management actions in 2013, benefit from the UK professional indemnity insurance claim included in 2012 and an increased tax charge. The tax expense attributable to equity holders' profits in 2013 was £90m (2012: £51m). IFRS profit for the year of £496m (2012: £694m) also includes profit attributable to non-controlling interests of £30m (2012: £29m). 2012 results have been restated to reflect the revised requirements following the amendment to IAS 19 Employee Benefits which reduced the comparative period results by £33m.

Group operating profit before tax

	UK and Europe		Standard Life Investments		Canada		Asia and Emerging Markets		Other / Eliminations		Total
	2013	2012	2013	2012	2013	2012	2013	2012	2013	2012	2013	2012
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
Fee based revenue	927	839	521	408	194	172	54	46	(237)	(194)	1,459	1,271
Spread/risk margin	162	112	-	-	351	393	-	-	-	-	513	505
Total income	1,089	951	521	408	545	565	54	46	(237)	(194)	1,972	1,776
Acquisition expenses	(227)	(203)	-	-	(76)	(79)	(22)	(10)	-	-	(325)	(292)
Maintenance expenses³	(485)	(463)	(351)	(281)	(234)	(240)	(43)	(41)	237	194	(876)	(831)
Group corporate centre costs³	-	-	-	-	-	-	-	-	(53)	(50)	(53)	(50)
Capital management²	3	12	-	-	16	107	-	-	(13)	23	6	142
Share of JV and associates' PBT	-	-	22	18	-	-	5	8	-	-	27	26
Other	-	96	-	-	-	-	-	-	-	-	-	96
Group operating profit before tax	380	393	192	145	251	353	(6)	3	(66)	(27)	751	867

Analysis of Group operating profit before tax
	2013	2012
	£m	£m
Business unit underlying performance	704	561
Group centre costs/capital management	(66)	(27)
Group underlying performance	638	534
Canada specific management actions (Spread/risk margin)	42	81
Canada specific management actions (Capital management)	3	72
Operating assumption and actuarial reserving changes (Spread/risk margin)	68	84
Professional indemnity insurance claim	-	96
Group operating profit before tax	751	867

¹ Operating profit is IFRS profit before tax adjusted to remove the impact of short-term market driven fluctuations in investment return and economic assumptions, restructuring costs (including Solvency 2), impairment of intangible assets, amortisation of intangible assets acquired in business combinations, profit or loss on the disposal of a subsidiary, joint venture or associate, changes in Canada insurance contract liabilities due to resolution of prior year tax matters and other significant one-off items outside the control of management.

²Comparatives have been restated to reflect an amendment to IAS 19 Employee Benefits.

³JV relationship management costs are now reflected in Group corporate centre costs, previously these were included within maintenance expenses as part of our Asia and Emerging Markets business. 2012 comparatives have been restated.

Group operating profit before tax fell by 13% to £751m, following significant management actions in Canada in 2012, and the £96m benefit from the UK professional indemnity insurance claim in 2012. Group underlying performance increased by 19% to £638m (2012: £534m) due to a strong performance in the UK and Standard Life Investments.

· Fee based revenue increased by 15% to £1,459m driven by higher average asset values and strong demand for our fee based products

· Spread/risk margin increased slightly to £513m mainly due to better than expected claims and investment experience and higher returns from existing business in Canada. Specific management actions in Canada generated a benefit of £42m (2012: £81m) from property sales and the renegotiation of an existing reinsurance arrangement. Actuarial reserving changes generated a gain of £68m (2012: gain £84m) and includes a benefit of £40m (2012: benefit £1m) from a reduction in actuarial reserves arising from UK mortality assumption changes.

· Acquisition expenses increased to £325m and expressed as a proportion of sales improved to 145bps (2012: 156bps)

· Maintenance expensesincreased to £876m reflecting further investment in our businesses. Maintenance expenses expressed as a proportion of average AUA improved further to 41bps (2012: 45bps).

· Group corporate centre costs increased slightly to £53m (2012: £50m)

· Capital management reduced to £6m due to lower investment return on shareholders' funds and higher financing costs following the issue of subordinated debt in 2012. Gains on property sales in Canada generated £3m (2012: £72m).

· HDFC Asset Management, our associate business which is included in the results of Standard Life Investments, contributed £22m to profit (2012: £18m). Our share of profit from the life joint venture businesses in Asia reduced to £5m (2012: £8m), mainly due to higher new business strain driven by the expansion of our Indian joint venture's unit linked product sales in 2013.

Group non-operating loss before tax

Group non-operating loss before tax
	2013	2012
	£m	£m
Short-term fluctuations in investment return and economic assumption changes	(92)	(29)
Restructuring and corporate transaction expenses	(73)	(109)
Other operating profit adjustments	(22)	(4)
Group non-operating loss before tax	(187)	(142)

The Group non-operating loss in 2013 was £187m (2012: loss £142m). The losses in 2013 were primarily due to short-term fluctuations in investment return and economic assumption changes, with losses of £92m (2012: loss £29m) mainly due to a rise in yields on debt securities. Non-operating restructuring and corporate transaction expenses of £73m (2012: £109m) relate to business unit restructuring programmes, Solvency 2 and costs arising from the acquisition of the private client division of Newton Management Limited.

Group tax expense and total tax contribution

The tax expense attributable to equity holders' profits in 2013 was £90m (2012: £51m) of which £141m (2012: £124m) related to operating items and a credit of £51m (2012: credit £73m) to non-operating items. The increase in the total tax expense reflects a higher tax charge in our UK and Europe business in 2013 and a non-recurring release of current and deferred tax on a number of items in 2012. The effective tax rate increased from 7% to 15%.

In 2013, our total tax contribution to tax authorities in all the jurisdictions in which we operated was £870m (2012: £932m) of which £492m (2012: £631m) related to the UK. Of the total, £313m (2012: £417m) was total taxes borne by the Group whilst £557m (2012: £515m) represents total tax collected by us on behalf of tax authorities. Total taxes borne and total tax contribution is less than 2012 mainly due to a reduction in the UK tax payable on policyholder investment returns as a result of bond market movements.

Of the non-corporation tax items, the largest is PAYE deducted from both pension annuity payments made to customers and from employee payroll payments, demonstrating the Group's wider economic contribution.

Group operating return on equity

Return on equity measures our success in generating profit relative to our shareholder capital. Group operating return on equity decreased to 14.7% (2012: 19.2%) mainly due to an increased tax charge and the reduced operating profit before tax. The prior year result benefited from a non-recurring release of deferred tax on a number of items. We will continue to manage our capital position to ensure that we generate sustainable returns for our shareholders.

Find out more about the IFRS results in Section 1.4 - Business segment performance and Section 1.9 - Basis of preparation.

Assets under administration and new business
	2013	2012	Movement
Assets under administration	£244.2bn	£218.1bn	12%
Net flows	£9.6bn	£5.0bn	92%
Present value of new business premiums	£22.9bn	£19.3bn	19%
New business contribution	£320m	£339m	(6%)

Assets under administration and net flows

AUA increased by 12% to £244.2bn driven by a combination of net inflows across our businesses and positive market movements:

· Overall net inflows increased to £9.6bn (2012: £5.0bn) reflecting strong net inflows into our newer style fee based propositions such as MyFolio and Wrap and the global expansion at Standard Life Investments

· Fee business AUA increased to £210.1bn (2012: £180.7bn) with 86% (2012: 83%) of total AUA now related to fee business

· Spread/risk business AUA reduced to £23.5bn (2012: £25.7bn) due to negative market movements which were impacted by the increase in yields on debt securities and net outflows in the UK due to scheduled annuity payments.

New business PVNBP			New business contribution		PVNBP margin		IRR		Undiscounted payback
	2013	2012	2013	2012	2013	2012	2013	2012	2013	2012
	£m	£m	£m	£m	%	%	%	%	years	years
UK and Europe	19,076	14,935	245	267	1.3	1.8	17	17	6	6
Canada	2,894	3,584	36	45	1.3	1.3	7	8	10	11
Asia and Emerging Markets	933	774	39	27	4.2	3.5	13	13	7	7
Total	22,903	19,293	320	339	1.4	1.8	13	13	7	7

· Present value of new business premiums (PVNBP) for the Group increased by 19% to a record £22,903m. UK and Europe sales rose by 28%, partly offset by a 19% fall in Canada.

· Reduced new business contribution in the UK and Europe reflects changes in product mix, with lower sales of annuities combined with increased sales of lower margin corporate pensions business. The overall margin was 1.4%, with a reduction in UK and Europe partly offset by an increase in Asia and Emerging Markets.

· Total internal rate of return (IRR) for the Group remained stable at 13%. The low interest rate environment continues to impact the returns on business written in Canada, which generated an IRR of 7%.

EEV
	2013	2012	Movement
EEV per share	353p	343p	3%
EEV operating profit before tax¹	£915m	£1,083m	(16%)
EEV profit before tax¹	£1,279m	£1,301m	(2%)

¹Comparatives have been restated to reflect an amendment to IAS 19 Employee Benefits.

Group embedded value

Group embedded value increased to £8,423m (2012: £8,142m) representing an EEV per share of 353p. EEV per share increased by 38p before dividend distributions, including EEV operating profit after tax of £683m (29p per share). EEV non-operating profit after tax was £305m (13p per share), mainly comprising investment variances of £234m and economic assumption changes of £143m. The 4p decrease in EEV per share from other and non-trading items was mainly due to adverse foreign exchange movements, mostly relating to Canada.

EEV profit before tax

EEV profit before tax of £1,279m (2012: £1,301m) comprises operating profit of £915m (2012: £1,083m) and non-operating profit of £364m (2012: £218m).

EEV operating profit before tax


	2013	2012
	£m	£m
Core	687	697
Efficiency	(91)	6
Back book management	319	380
Total	915	1,083

EEV operating profit before tax decreased by 16%, with core profits largely stable and lower efficiency and back book management profits:

· Core operating profits decreased by 1% to £687m

· Efficiency operating loss of £91m was primarily due to increased investment costs allocated to covered business

· EEV operating profit before tax from back book management of £319m (2012: £380m) included £176m of favourable operating tax variances and £144m from improved modelling of cashflows. 2012 profit of £380m included £453m of gains from asset strategy changes, improved modelling, property disposals and benefit from the UK professional indemnity insurance claim.

EEV non-operating profit before tax

Total EEV non-operating profit before tax of £364m (2012: £218m) included favourable investment return and tax variances of £293m (2012: £498m) and profit from economic assumption changes of £168m (2012: loss £106m). The favourable investment return and tax variances profit of £293m included a £333m profit from higher than expected investment returns. The £168m profit from economic assumption changes was due to the use of higher projected investment returns and the reduction in the UK corporation tax rate, partly offset by losses from higher discount rates.

Restructuring and corporate transaction expenses of £73m (2012: £114m) primarily relate to business unit restructuring programmes, Solvency 2 and costs arising from the acquisition of the private client division of Newton Management Limited.

Cash generation
	2013	2012	Movement
EEV operating capital and cash generation¹	£582m	£701m	(17%)

¹Comparatives have been restated to reflect an amendment to IAS 19 Employee Benefits.

Group EEV operating capital and cash generation

	2013	2012
	£m	£m
UK and Europe	575	534
Canada	238	364
Asia and Emerging Markets	36	40
Non-covered	(1)	(21)
Gross EEV operating capital and cash generation	848	917
New business strain	(266)	(216)
EEV operating capital and cash generation	582	701
Analysed by:
Core	302	348
Efficiency	15	(3)
Back book management	265	356
Total	582	701

Total EEV operating capital and cash generation decreased by 17% to £582m (2012: £701m):

· Gross EEV operating capital and cash generation decreased by £69m mainly as a result of reduced capital and cash generation from back book management. Outflows from new business strain increased by 23%, mainly reflecting higher sales volumes. As a percentage of PVNBP, new business strain was 1.2% (2012: 1.1%).

· Core capital and cash generation was £46m lower than 2012. This included a £50m increase in new business strain, mainly due to higher sales volumes.

· Back book management operating capital and cash generation of £265m included £165m of favourable tax variances and £38m from changes to mortality assumptions.

Coverage of gross EEV operating capital and cash compared to new business strain decreased to 3.2 (2012: 4.2). Coverage of EEV operating capital and cash generation compared to the interim and final dividends (excluding 2012 special dividend) decreased to 1.6 (2012: 2.0).

Reconciliation of Group operating profit to EEV operating capital and cash generation

As with EEV operating capital and cash generation, Group operating profit removes the impact of short-term economic volatility. Whilst there is clear alignment between Group operating profit and EEV operating capital and cash generation, there are differences which include:

· £36m negative impact from the difference in the treatment of assets and actuarial reserves

· £16m positive impact from the difference in the treatment of deferred acquisition costs (DAC)/deferred income reserve (DIR), intangibles, tax and other. Other includes the impact of different methodologies in respect of asset management charges. In EEV operating profit this income is included on an expected return basis but the actual charges are included in Group operating profit.

Capital management
	2013	2012	Movement
IFRS equity attributable to equity holders of Standard Life plc¹	£4,227m	£4,359m	(3%)
EEV¹	£8,423m	£8,142m	3%
Group capital surplus²	£3.8bn	£4.1bn	(7%)

¹Comparatives have been restated to reflect an amendment to IAS 19 Employee Benefits.

² 2013 based on estimated regulatory returns. 2012 based on final regulatory returns.

Group capital surplus

Group capital surplus and solvency cover³	2013	2012	2011
	£bn	£bn	£bn
Shareholders' capital resources	2.9	3.3	3.1
Capital resources arising from subordinated debt	1.9	1.9	1.1
SLAL long-term business funds	3.6	2.8	3.1
Group capital resources⁴	8.4	8.0	7.3
Group capital resource requirement	(4.6)	(3.9)	(4.2)
Group capital surplus	3.8	4.1	3.1
Group solvency cover	183%	205%	173%

² Group operating profit after tax consists of: Group operating profit before tax of £751m, tax charge on operating profit of (£141m) and share of joint ventures' and associates' tax expense of (£8m).

³2013 based on estimated regulatory returns. 2012 and 2011 based on final regulatory returns.

⁴ Net of restricted assets of £1.2bn (2012: £1.2bn, 2011: £1.0bn).

The Group capital surplus decreased to £3.8bn (2012: £4.1bn) following the payment of the £302m special dividend and the acquisition of the private client division of Newton Management Limited.

The Group capital surplus remains largely insensitive to a 30% fall in equities from the 31 December 2013 position, with the surplus estimated to reduce by approximately £0.2bn (2012: £0.3bn reduction). Following a 100bps rise in yields, the surplus is estimated to reduce by approximately £0.1bn (2012: £0.1bn reduction). Following a 100bps fall in yields the surplus is estimated to reduce by approximately £0.1bn (2012: £0.4bn reduction).

We welcome the positive steps in the development of the Solvency 2 regime during 2013 and expect our capital position to remain strong following implementation.

Reconciliation of key capital measures

The following diagram illustrates the key differences between regulatory, IFRS and EEV capital measures at 31 December 2013:

(Diagram removed for the purposes of this announcement. However it can be viewed in full in the pdf document).

Liquidity management and dividends
	2013	2012	Movement
Standard Life plc cash and liquid resources	£907m	£1,064m	(15%)
Full year dividend¹	£375m	£345m	8.7%

Liquidity management

Standard Life plc cash and liquid resources	2013	2012
	£m	£m
Opening 1 January	1,064	565
Dividends received from subsidiaries	629	499
Cash dividends paid to shareholders²	(656)	(331)
Additional investments in subsidiaries	(97)	(131)
Additional investments in associates and joint ventures	(19)	(16)
Issue of external subordinated liabilities	-	497
Other	(14)	(19)
Closing 31 December	907	1,064

¹Excludes special dividend of £302m in 2012.

²2013 reflects the payment of the 2012 final dividend of £230m, the 2012 special dividend of £302m and the 2013 interim dividend of £124m. 2012 reflects the payment of the 2011 final dividend of £216m and the 2012 interim dividend of £115m.

The Group maintains a strong liquidity position and this was shown in stress testing undertaken during 2013.

This liquidity stress testing ensures that we can withstand a scenario of significant falls in asset values combined with unprecedented levels of surrenders and claims.

We also maintain contingency funding plans across the Group to ensure that each business unit is prepared for a liquidity issue. As part of this contingency planning, Standard Life plc, the Group's ultimate holding company, maintains a £500m revolving credit facility with a syndicate of banks which will mature in March 2018. The Group's revolving credit facility remained unutilised during 2013 apart from a small drawdown to test the facility.

Standard Life plc also holds substantial cash and liquid resources. At 31 December 2013, Standard Life plc held £574m (2012: £1,064m) of cash and short-term debt securities and £333m (2012: £nil) of bonds.

Dividends

We propose a final dividend of 10.58p per share making a total of 15.80p (2012: 14.70p excluding the special dividend). This represents an increase of 7.5% per share. We will continue to apply our existing progressive dividend policy taking account of market conditions and our financial performance.

1.4 Business segment performance

1.4.1 UK and Europe

Financial highlights¹

	2013	2012	Movement
Operating profit before tax²	£380m	£393m	(3%)
Operating return on equity²	20.0%	25.4%	(5.4% points)
Assets under administration	£166.0bn	£146.2bn	14%
Net flows	£3,358m	£1,922m	75%
EEV operating profit before tax²	£483m	£813m	(41%)

¹Standard Life Wealth included in UK results. From 1 January 2014 Standard Life Wealth will be included in Standard Life Investments results.

² Comparatives have been restated to reflect an amendment to IAS 19 Employee Benefits.

Strategic overview

Our UK and Europe business is a leading provider of long-term savings and investment propositions including self-invested and workplace pensions, individual savings accounts, and mutual funds. We have built strong relationships with individual customers, advisers, employee benefits consultants and employers and we offer a comprehensive range of products and services across the value chain, including access to a wide range of investment solutions through Standard Life Investments. We are a customer focused business providing platforms, business services and investment outsourcing options that are simple, effective and efficient. Technology is helping us to improve our customer proposition further and achieve even greater benefits of scale in our business.

Market update

Auto enrolment and the Retail Distribution Review (RDR) continue to influence developments and change across the UK market. Capitalising on these changes has helped us to secure over 340,000 new customers during the year. Financial advisers are increasingly focused on the long-term financial needs of their clients and are becoming less product-centric. They are looking towards platforms and simple investment propositions to improve their business efficiency, meet increasing regulatory demands and to provide a better customer experience. The platform market already exceeds £250bn in AUA and is forecast to grow to £600bn by 2018 with a greater concentration towards fewer providers.

The number of active defined benefit schemes is declining, reflecting an underlying shift towards defined contribution schemes. Increasing life expectancy and the reluctance of employers to continue to bear long-term investment risk are key reasons for this shift. Nevertheless, consumers are generally under-estimating how much they need to save for retirement, underlining the importance of auto enrolment.

Small and medium-sized enterprises (SMEs) are central to the UK economy, accounting for 99% of UK businesses and employing over 14 million people. Over the next few years, around 1.4 million qualifying workplace pension schemes will need to be created to cater for an estimated 8.8 million employees who will be auto-enrolled. We have already added over 220,000 new customers as a result of auto enrolment across some of our largest clients. We are now working with advisers across the UK to provide propositions, support and tools for SMEs, who often lack the resources of larger employers, to help make auto enrolment a success for their employees.

In November 2013, the UK Government launched a consultation on pension charges for workers automatically enrolled into workplace pensions including the potential introduction of a charge cap. The level of any cap will be confirmed as part of the outcome of the consultation which we expect to be published in Q1 2014. However, the Government has confirmed that any charge cap will not be implemented before April 2015, in order to give employers at least twelve months notice of rules that will apply to them. We believe that we offer competitive pensions which meet our customers' needs including those joining schemes through auto enrolment. Although charges are an important element of providing a good value pension, contribution levels, investment selection and performance are also critical factors and it is important that a debate on charges does not distract from the important work being done to make the auto enrolment project a success.

Several regulators in EU member states are considering the introduction of regulation similar to elements of the UK's RDR. In January 2014, the European Parliament and Council reached a compromise on the Market in Financial Instruments Directive II (MiFID II) and are currently finalising wording, which may also include text that resembles language from RDR. Work being done at the EU level, notably the Insurance Mediation Directive (IMD II) and Packaged Retail Investment Products (PRIPs) will further solidify the rules surrounding retail financial products. Our experience in the UK, together with an increasingly positive sentiment across Europe towards a greater need for pension savings, means that our business is well placed to meet market and regulatory changes in our operations in Europe.

Whilst the UK economy is showing good signs of recovery, we remain alert to the continuing economic and political risks, including Eurozone volatility and the potential for rising interest rates in the UK. Germany is the largest savings market in Europe and its export driven economy has continued to grow despite the Euro crisis and recession affecting other major economies in Europe. We have also seen increasing market confidence in Ireland, where lower retail bank deposit rates and the removal of the Government blanket deposit guarantee further encouraged consumers to move investments into longer term products.

Profitability

Operating profit before tax

	UK		Europe		UK and Europe
	2013	2012	2013	2012	2013	2012
	£m	£m	£m	£m	£m	£m
Fee based revenue	727	667	200	172	927	839
Spread/risk margin	154	107	8	5	162	112
Total income	881	774	208	177	1,089	951
Acquisition expenses	(181)	(174)	(46)	(29)	(227)	(203)
Maintenance expenses	(368)	(356)	(117)	(107)	(485)	(463)
Capital management	3	11	-	1	3	12
Other	-	96	-	-	-	96
Operating profit before tax	335	351	45	42	380	393

UK and Europe operating profit before tax reduced by £13m to £380m. UK and Europe underlying performance increased by £32m to £336m.

Movements in the UK operating profit from 2012 include:

· Fee based revenue increased by 9% to £727m mainly driven by higher AUA as our new style propositions continue to attract net inflows while our older style propositions benefit from ongoing increments, market movements and our retention activity. The average revenue yield on fee based business reduced to 67bps (2012: 72bps) reflecting changes in business mix.

· Spread/risk margin increased by 44% to £154m benefiting from a reduction in actuarial reserves arising from mortality assumption changes

· Acquisition expenses increased by just 4% to £181m despite a 31% increase in sales and expressed as a percentage of sales

improved to 106bps (2012: 133bps), reflecting the scalability of our business model

· Maintenance expenses increased by 3% to £368m reflecting increased investment management fees due to higher average market levels and the growth in institutional pensions business. As a proportion of average AUA, maintenance expenses improved to 26bps (2012: 31bps) as we continue to benefit from our scalable business model and cost discipline.

Europe operating profit increased by 7% to £45m. Our business in Ireland benefited from operating assumption changes, higher AUA and improved cost management. In Germany, the impact of higher strain from new business sales was offset by modelling

improvements leading to a reduction in actuarial reserves.

Analysis of UK and Europe operating profit before tax
	2013	2012
	£m	£m
UK and Europe underlying performance	336	304
Operating assumption and actuarial reserving changes (Spread/risk margin)	44	(7)
Professional indemnity insurance claim	-	96
UK and Europe operating profit before tax	380	393

UK profit contribution¹

	2013	2012
	£m	£m
Retail - new	80	54
Retail - old	188	179
Retail fee based business contribution	268	233
Corporate	90	88
Fee based business contribution	358	321
Spread/risk	142	94
UK profit contribution	500	415
Indirect expenses and capital management	(165)	(160)
Other	-	96
UK operating profit before tax	335	351

¹ Profit contribution reflects the income and expenses directly attributable to each of the UK lines of business. It differs from operating profit due to the exclusion of indirect expenses, such as overheads, and capital management.

Overall UK profit contribution increased by 20% to £500m (2012: £415m).

Newer style UK retail propositions continue to show momentum which, combined with the benefits of scalability and growth in direct customers coming from our corporate business, helped to deliver 48% growth in profit contribution to £80m. This, together with the 5% increase in contribution from our older style propositions, helped to drive an overall increase in retail fee based business contribution of 15% to £268m (2012: £233m).

In our corporate business, profit contribution increased by 2% to £90m (2012: £88m). Our corporate business continues to provide

our old and new retail business with a source of new customers and revenue.

Profit contribution from spread/risk products increased by 51% to £142m (2012: £94m) benefiting from reserve releases arising from assumption changes.

EEV operating profit

UK and Europe EEV operating profit before tax was lower at £483m (2012: £813m), with the prior period benefiting from back book management actions taken to reduce the risk exposures of the UK business and the one-off professional indemnity insurance claim. UK and Europe core EEV operating profit before tax reduced to £439m (2012: £458m) due to lower new business contribution reflecting changes in product mix, with lower sales of annuities combined with increased sales of lower margin corporate pensions business.

Operating return on equity

UK and Europe operating return on equity of 20.0% (2012: 25.4%), reflects a £46m decrease in operating profit after tax to £332m (2012: £378m) due to an increased tax charge in 2013 and the benefit in respect of a professional indemnity insurance claim included in the 2012 results.

Assets under administration and net flows

	Net flows		AUA
	2013	2012	2013	2012
	£m	£m	£bn	£bn
UK retail - new	3,069	2,753	38.6	28.7
UK retail - old	(2,642)	(3,057)	33.5	31.7
UK retail fee based business	427	(304)	72.1	60.4
UK corporate	1,981	1,224	29.2	24.5
UK retail and corporate fee based business	2,408	920	101.3	84.9
UK institutional pensions	1,907	1,832	25.3	21.3
UK conventional with profits	(1,450)	(1,447)	2.9	4.1
Europe fee based	1,154	1,138	15.7	13.6
Total fee based business	4,019	2,443	145.2	123.9
UK spread/risk	(654)	(530)	14.6	15.3
Europe spread/risk	(7)	9	0.5	0.5
Assets not backing products	-	-	5.7	6.5
Total UK and Europe	3,358	1,922	166.0	146.2

UK and Europe AUA increased by 14% to £166.0bn. Fee based business AUA, which accounts for 87% of total AUA, increased by 17% to £145.2bn due to a combination of higher net flows and positive market movements.

In the UK, net flows into our new style retail propositions continued to grow, increasing by 11% to £3.1bn, reflecting stronger gross inflows of £5.9bn (2012: £5.2bn).

Improved retention in our older style UK retail business led to a 14% reduction in net outflows while AUA grew by 6%, reflecting ongoing increments and positive market movements. We continue to engage with customers with maturing policies who wish to continue to save or annuitise with us.

UK corporate pension AUA increased by £4.7bn or 19% to £29.2bn. Net inflows increased by 62% to £2.0bn (2012: £1.2bn) with our success in securing new schemes and the positive impact of auto enrolment more than offsetting the impact of expected outflows from schemes secured by competitors on a commission basis prior to the implementation of RDR. We continue to secure new schemes and have a solid pipeline of business wins, including SMEs with upcoming auto enrolment staging dates. UK institutional pensions AUA managed by Standard Life Investments increased by 19% to £25.3bn helped by a 4% increase in net inflows to £1.9bn (2012: £1.8bn).

UK spread/risk business AUA reduced to £14.6bn (2012: £15.3bn), as negative market movements caused by an increase in yields on debt securities and scheduled annuity payments more than offset the impact of new annuity sales.

In our Europe business, fee based AUA grew by 15% to £15.7bn, driven by net inflows, which increased slightly to £1.2bn

(2012: £1.1bn) and favourable market movements. Sales and inflows have improved from 2012, driven largely by the quality of our investment proposition and our marketing campaign in the Ireland branch.

New business performance

Total UK and Europe PVNBP sales increased by 28% to £19,076m (2012: £14,935m). This was against a backdrop of subdued, although improving, retail consumer sentiment and ongoing economic uncertainly and a continually evolving market environment following the introduction of RDR. Sales of corporate pensions increased by 73% benefiting from the implementation of auto enrolment and the strength of our propositions for the workplace pension market.

Our business model

We have strategically positioned ourselves across the value chain, by providing investment solutions through Standard Life Investments via funds such as MyFolio and through Standard Life Wealth. Our business model also supports the wider Group in generating additional revenue margins.

Maximising revenue

· Negotiations concluded with 14 investment management companies, enabling us to deliver preferential terms to customers in a simple, transparent and tax-efficient way. As well as creating value for our customers this will remove significant complexity for advisers and our business.

· MyFolio, managed by Standard Life Investments, provides an attractive investment outsourcing option to advisers and customers. In the UK, MyFolio AUA increased by 82% to £4.0bn (2012: £2.2bn). Distribution of MyFolio in Ireland has progressed well, accounting for 25% of total sales in 2013, and in Germany MyFolio now accounts for £60m of AUA.

· Launched Master Trust, our trust based pension solution in response to the growing market opportunities presented by auto enrolment and the large market for trust based schemes

· Our auto enrolment solution for SMEs was launched in 2013 with Standard Life Investment Active Plus III as the default fund providing a risk based default solution. We have now entered into arrangements with 22 strategic partners including Punter Southall and Barnett Waddingham to offer a packaged 'off the shelf' solution to their new auto enrolment clients.

· Following a year-long review of the annuities market, the Financial Conduct Authority (FCA) issued their report in February 2014. The FCA is now launching a further study with a view to improving customer outcomes. We support this as we believe it is important that customers understand their options. Our education process begins 10 years before retirement focussing on helping customers to understand all the options available to them so that they can make an informed decision and get the right outcome for their retirement. In the meantime, in Q4 2013, we expanded our propositions by launching our enhanced annuity proposition in response to growing customer demand.

· Standard Life Wealth completed the acquisition of the private client division of Newton Management Limited in September 2013. This will increase the scale of the Group's discretionary investment management service, broaden the client investment proposition and increase distribution capability. In November 2013, we announced that Standard Life Wealth will move from the UK and Europe business and will be reported as part of Standard Life Investments results from 1 January 2014.

· We now have 1m customers with whom we have a direct relationship and we are developing new services to support those customers in order to improve engagement and increase cross sales, consolidation and retirement services opportunities

· Our Maxxellence investment product in Germany continues to perform well, attracting £33m (2012: £10m) of assets since its launch in 2012.

Increasing assets

· Wrap platform assets increased by 36% to £16.6bn (2012: £12.2bn). The number of firms using our Wrap platform increased by 99 firms to 1,236 firms and those with more than £20m assets on the platform are up 41% to 228 firms.

· We support the FCA's move to the unbundling of charges and the promotion of clean share classes. We have delivered a simple, consistent and tax-efficient pricing structure, along with clear discounts from external fund managers. This demonstrates our buying power in the market and we believe that this will support asset growth as it will create value for our customers and will remove significant complexity for advisers and our business.

· Our SIPP proposition continues to grow with a 20% increase in customers and AUA up 18% to £23.2bn (2012: £19.6bn)

· Our distribution arrangement with RBS Group for private banking customers continues to develop and has now contributed £0.2bn in Wrap platform AUA. We have also launched an online feature allowing customers who have already taken advice from their RBS adviser to top up online through their wrap platform.

· We secured 243 new corporate schemes (2012: 203 new schemes), which will bring an estimated 118,000 new employees

(2012: 88,000 new employees)

· We successfully implemented auto enrolment for 219 existing and 71 new schemes in 2013, which combined with regular joiners across the 35,000 schemes we administer, means that we have secured 292,000 new employees resulting in the number of total employees increasing to 1.4 million

· Our early experience of auto enrolment remains encouraging with an average opt out rate of less than 10% of those auto-enrolled

· We are continuing to see high levels of enquiries from employers as they review their entire defined contribution pension provision.

Lowering unit costs

· We expect to continue to deliver further unit cost reductions through automation and greater operational efficiencies

· Auto enrolment is expected to deliver scale with acquisition costs per new joiner falling, as demonstrated with the continuing trend towards online interaction with customers and self-servicing. 79% of opt-outs for auto enrolment were processed without manual intervention or interaction with our customer service representatives.

· Our new in-house bulk hub, which specialises in bulk fund switches, has reduced end to end processing time by over 95% regardless of scheme size

· Staff costs represent approximately 87% of total UK operational direct costs. Overall, there has been a 15% reduction in employee numbers since 2011, whilst UK revenue per average employee has increased by 21%.

· Providing our customers with high quality service remains very important to us. We will continue to invest in both the quality and efficiency of our customer service operation whilst maintaining a downward trend in overall unit costs and ensuring that the UK business is equipped to meet future growth demands.

1.4.2 Standard Life Investments

Financial highlights

	2013	2012	Movement
Operating profit before tax	£192m	£145m	32%
Operating return on equity	67.4%	52.0%	15.4% points
Earnings before interest and tax (EBIT)¹	£192m	£145m	32%
EBIT margin¹	37%	36%	1% point
Third party assets under management (AUM)	£97.4bn	£83.0bn	17%
Total assets under management	£184.1bn	£167.7bn	10%
Third party net inflows	£10.1bn	£6.1bn	66%

¹ EBIT and EBIT margin are key performance metrics for the investment management industry.

Strategic overview

Standard Life Investments is a leading asset manager with an expanding global reach. Our 'Focus on Change' investment philosophy lies at the heart of our wide range of investment solutions and is backed by disciplined risk management and a shared commitment to a culture of investment excellence. This has proved itself to be robust and repeatable in both good and challenging market conditions. We have an unbroken record of positive annual net flows since inception and a strong track record of profitable organic growth. Earnings before interest and tax have a compound annual growth rate over the last six years of 17%.

We have further expanded our range of investment solutions, with developments in real estate, multi-asset portfolios and emerging markets being of particular note. We continue to broaden the diversity of our AUM with 53% (£5.3bn) of third party net inflows coming from outside the UK, including £2.1bn from the US, and 46% from the Institutional distribution channel.

We will continue to leverage our investment expertise and work closely with the wider Standard Life Group, and with our strategic partners including Sumitomo Mitsui in Japan, HDFC in India and John Hancock in the US, while exploring and capitalising on further opportunities for growth elsewhere.

Our 'Focus on Change' investment philosophy continues to drive our investment processes, delivering strong performance with over 90% of third party AUM funds ahead of benchmark for all key time periods. We play a leading role in governance and stewardship. Strong corporate governance along with responsible stewardship of a business' assets, employees, customers and environment has a fundamental impact on long-term investment returns. During 2013, we voted at 1,939 shareholder meetings and undertook 511 Environmental, Social and Governance engagements, promoting high standards of governance and stewardship.

During 2013, Standard Life Investments became the first designated Worldwide Partner in the history of the Ryder Cup, extending our brand reach and building our global growth strategy. The Ryder Cup's heritage, values and strong team ethos are an excellent match to Standard Life Investments' core beliefs and ambition.

Results for Standard Life Wealth will be reported as part of Standard Life Investments from 1 January 2014. This follows the acquisition of the private client division of Newton Management Limited which created a deeper operational and investment link between Standard Life Wealth and Standard Life Investments. We believe that there are substantial opportunities to accelerate the growth of Standard Life Wealth by utilising Standard Life Investments' infrastructure, internal expertise and international exposure.

Market update

The latter part of 2013 saw more investor confidence that the major economies were recovering, helped by very considerable support from central banks. Equity markets benefited from continued earnings growth, while global fund flows suggested that investors were gradually increasing their risk appetite as inflows to equity markets exceeded those to bonds for the first time in a number of years. During 2013 as a whole, share prices rose strongly in most developed markets, although many emerging markets lagged behind due to economic and political concerns.

Despite many investors still seeking income opportunities in a period of low interest rates, demand for sustainable earnings and growth opportunities in equities and commercial real estate has increased. Standard Life Investments stands to benefit by providing robust and innovative investment solutions that satisfy changing client risk appetites.

Confidence among institutional clients continues to grow and strong inflows have also been recorded across the global wholesale market. The advantages of our strategic positioning have been reflected in Standard Life Investments' ability to attract flows across a range of higher margin products through a broad suite of investment solutions, continuing product innovation and expanding geographic reach.

Profitability

Operating profit before tax	2013	2012
	£m	£m
Fee based revenue	521	408
Maintenance expenses	(351)	(281)
Share of joint ventures' and associates' profit before tax	22	18
Standard Life Investments operating profit before tax	192	145
Interest and exchange rate movements	-	-
Earnings before interest and tax (EBIT)	192	145

Operating profit before tax and EBIT increased by 32% to £192m, with a 1% point increase in EBIT margin to 37%.

The key highlights were:

· Fee based revenue exceeded half a billion pounds for the first time, rising 28% to £521m. This reflected the shift in mix towards higher margin products such as UK mutual funds and multi-asset investment solutions, and the increased market levels. The changing mix helped to increase the revenue yield on third party AUM to 44bps (2012: 40bps).

· Maintenance expenses increased to £351m reflecting the investment in growing the business and diversifying our sources of revenue both geographically and by product category. We have expanded our geographical footprint and invested in our operational and technology infrastructure while maintaining control of our cost base.

· HDFC Asset Management, our associate business, remains the largest mutual fund provider in India and contributed £22m (2012: £18m) to operating profit before tax.

Operating return on equity

Operating return on equity increased to 67.4% (2012: 52.0%), reflecting the increased profitability of our business and an efficient and scalable capital base.

Investment performance

Strong growth in 2013 was underpinned by excellent money weighted average investment performance. 99% of third party assets under management were ahead of benchmark in the year with 94% ahead over 3 years and 96% over 5 years. It is particularly encouraging that equity funds performed strongly through stock selection during the recent period of turbulence, with 99% of equity funds ahead of benchmark at 1 year. Impressive performance continues to be delivered by the credit teams, with 100% of funds ahead of benchmark at 1 year. Our suite of multi-asset funds outperformed their cash benchmark over all key time periods since inception. In addition, the strength of our mutual funds proposition is demonstrated by fifteen of our funds being in the top decile of the peer group over 1 year and twelve funds being in the top decile over 3 years. A large proportion of eligible and actively managed funds (45 out of 61) were rated 'Silver' or above by Standard & Poor's.

Assets under management and net flows

We remain focused on meeting the needs of existing clients and securing new business backed by consistently strong investment performance, product innovation, high levels of client service and an expanding global distribution capability. Third party net inflows increased 66% to £10.1bn (2012: £6.1bn) representing 12% of opening third party AUM. This continued our unbroken record of positive annual net inflows since inception. Our retention rates were amongst the best in the industry, with redemptions at just 15% of opening third party AUM.

Third party AUM increased to a record £97.4bn (2012: £83.0bn) representing 53% of total AUM (2012: 49%). In-house AUM increased to £86.7bn (2012: £84.7bn) with investment performance returns and favourable market movements more than offsetting scheduled outflows from the with profits business. As a result, total AUM reached £184.1bn (2012: £167.7bn).

Inflows during 2013 reflected the diverse nature of our product offering, our expanding global distribution capability and the increasingly international nature of our client base. Assets under management generated from sales in our Boston office broke through $7bn, with net inflows in 2013 increasing to £2.1bn (2012: £1.8bn). In the UK and Europe we increased the institutional client base by 11%.

At an asset class level, we saw a broad mix of net inflows into fixed income, multi-asset, real estate and cash.

Our UK wholesale retail business continued to perform well with net inflows into our range of UK mutual funds up 36% to £3.4bn (2012: £2.5bn) and represented a market share of gross sales at 4.9% (2012: 4.7%). We also recorded the highest net sales in the industry in 2013, with the total for the year almost double that of our nearest competitor.

Our pipeline of institutional business remains robust with fixed income, real estate and multi-asset propositions continuing to attract considerable interest, increasingly from outside the UK. There is also demand for our mutual funds in the UK and for our SICAV funds in continental Europe and Asia Pacific.

Our business model

Maximising revenue

· Sales of high margin products enabled us to increase the revenue yield on our third party gross sales to 53bps

(2012: 52bps) resulting in the average revenue yield on third party assets increasing to 44bps (2012: 40bps)

· Continued to collaborate across the Group to maximise the Group's share of the value chain, for example our MyFolio range of funds, which won 'Best New Fund Launch' at the Professional Adviser awards

· Standard Life Investments announced the launch of a second Global Emerging Markets Debt Fund, for retail and institutional investors in Europe.

Increasing assets

· Achieved record third party AUM of £97.4bn driven by third party net inflows of £10.1bn

· Our share of the wholesale market in the UK continues to grow, with gross sales increasing to 4.9% (2012: 4.7%). UK mutual funds AUM now exceeds £19.5bn, representing 20% of third party assets.

· Developing our multi-asset portfolio of products which comprises our suite of global absolute return strategies and balanced funds including the recent launch of the Enhanced-Diversification Growth Fund

· Market-leading range of MyFolio risk based funds, used extensively within our long-term savings and investments business, continues to be very popular with AUM of £4.0bn

· Development of our real estate product suite including the intent to enter the commercial real estate debt market and the launch of a Canadian Real Estate Fund

· Strong pipeline of new investment initiatives which positions us well to continue to meet the changing demands of our clients through new and innovative investment solutions.

Lowering unit costs

· Maintenance expenses expressed as a proportion of average AUM were 19bps (2012: 17bps). This reflects the ongoing development of our investment capability and expanding distribution and geographic reach.

· Continued investment to extend our geographical footprint with expansion in Boston and Hong Kong

· Investment in core operational and technology infrastructure to support future growth

· Ongoing management of costs, combined with expansion in revenue margins, has resulted in a 17% compound annual growth in EBIT over the last six years.

1.4.3 Canada

Financial highlights

	2013	2012	Movement
Operating profit before tax¹	£251m	£353m	(29%)
Operating return on equity¹	14.7%	24.5%	(9.8% points)
Assets under administration	£27.4bn	£27.8bn	(1%)
Net flows	£376m	£407m	(8%)
EEV operating profit before tax¹	£393m	£310m	27%

¹ Comparatives have been restated to reflect an amendment to IAS 19 Employee Benefits.

Strategic overview

In Canada, we celebrated our 180^th anniversary in 2013 and continue to help our customers to look forward to their financial future with confidence and optimism. Demographic and market changes are creating opportunities to grow our fee based business. We aim to achieve this by providing innovative retirement and investment solutions as well as exceptional levels of customer service.

Our corporate pension business creates employer and individual member solutions through innovation in technology and a comprehensive investment platform. In addition, our highly ranked retail sales team are providing advisers with solutions and tools to bring them closer to their customers, including our market-leading retail segregated funds. We are building on the strength of Standard Life Investments to provide global products in a Canadian market experiencing increased demand for investment diversification. We have expanded distribution across the corporate broker network, increasing our presence with investment advisers. We are engaging directly with our corporate pension members as we look to consolidate their assets on our investment platforms. We also continue to focus on maximising the value of our back book of spread business, improving its profitability, capital efficiency and risk exposure.

Market update

Consumer confidence has reached its highest level since 2010 and Canada continues to be seen as a safe haven for international investors. While Canadians are feeling more optimistic about their current and future finances, they remain cautious about future job prospects, reflecting global economic worries and subdued national growth prospects. Longer term, the combination of declining population growth and an ageing population is expected to increase the emphasis on private sector retirement and health benefit provisions. This increases opportunities for providers of investment products, as well as decumulation and payout propositions.

Rising interest rates and equity market volatility have left investors looking for alternatives to traditional investments and savings propositions, with net new flows in the retail investment space improving but remaining below historical levels. As a result, our retail business has a complete suite of income-oriented investment funds, a leading retail segregated fund offering and Standard Life Investments' successful Global Absolute Return Strategies (GARS) offering has been launched for the Canadian retail market. These are aiming to meet the need of risk-averse customers seeking stable yields. Retail mutual fund regulation is evolving towards increased cost and performance transparency. While we do not expect that this will lead to the elimination of upfront sales commissions in the short term, we are leveraging the UK experience with RDR to take advantage of this evolving environment. Our new fee based class of segregated funds are designed for advisers and clients moving away from traditional commission-based products.

In light of the current investment climate, the Canadian market has been focused on product management and retention. We have launched a comprehensive programme aimed at getting Canadians to break free from financial inertia caused by financial uncertainty and the volume and complexity of information. Our new online tool, the Motion Profiler, allows both existing and potential customers and their advisers to understand how finances and investing fit into their broader life goals and concerns, and what might be preventing them from saving or holding them back from investing.

The need for greater private pension provision through employers is also very evident. We continue to engage with policy makers and employers to develop propositions that meet our customers' needs. We expect that demand for defined contribution retirement solutions will increase with the continued shift away from defined benefit pension plans, particularly by private sector employers. In addition, the introduction of Pooled Registered Pension Plans (PRPP) will make pensions saving much more accessible to employees of small and medium-sized enterprises who represent the majority of employers in Canada. Whilst provincial legislation introducing PRPP has experienced delays, provinces representing over 50% of all businesses in Canada have enacted PRPP legislation and are in the process of introducing guidelines and issuing licenses to providers. Quebec is the most advanced and is the only province with an announced timetable for implementation following the adoption of the Voluntary Retirement Savings Plans (VRSPs). From July 2014, VRSPs will include mandatory auto enrolment for Quebec-based businesses with more than five employees but voluntary contribution from employees, over a deferred period.

Profitability

Operating profit before tax

	2013	2012
	£m	£m
Fee based revenue	194	172
Spread/risk margin	351	393
Total income	545	565
Acquisition expenses	(76)	(79)
Maintenance expenses	(234)	(240)
Capital management	16	107
Canada operating profit before tax	251	353

Operating profit before tax decreased by £102m to £251m (2012: £353m) mainly due to lower gains from one-off actuarial reserving changes and a reduced level of management actions compared to 2012. Canada underlying performance increased by 67% to £182m (2012: £109m).

Analysis of Canada operating profit before tax
	2013		2012
	£m		£m
Canada underlying performance		182	109
Specific management actions (Spread/risk margin)		42	81
Specific management actions (Capital management)		3	72
Operating assumption and actuarial reserving changes (Spread/risk margin)		24	91
Canada operating profit before tax		251	353

The key movements in operating profit were:

· Fee based revenue increased by £22m due to higher average AUA

· Spread/risk margin reduced due to lower actuarial reserving changes which generated a gain of £24m (2012: gain £91m). Spread/risk margin was also impacted by a reduction in total management actions to £91m (2012: £109m). Specific management actions of £42m (2012: £81m) reflected gains from property sales and the renegotiation of an existing reinsurance arrangement. Other ongoing regular management actions to enhance the investment yields on assets contributed £49m (2012: £28m). These items were partially offset by better than expected claims and investment experience and higher returns from existing business.

· Acquisition expenses decreased slightly due to lower administrative expenses

· Maintenance expenses decreased by £6m to £234m and expressed as a proportion of average AUA improved to 88bps (2012: 95bps)

· Capital management decreased by £91m due to reduced gains on property sales of £3m (2012: £72m) and lower returns following de-risking in 2012, which resulted in surplus assets being invested in lower yielding bonds rather than properties.

EEV operating profit

EEV operating profit before tax increased to £393m (2012: £310m), mainly due to improved modelling of future taxes within the actuarial reserves, partly offset by lower property disposal gains and the impact of assumption changes.

Operating return on equity

Operating return on equity decreased to 14.7% (2012: 24.5%) in line with lower operating profit and higher levels of capital at the start of the year following management actions undertaken in 2012.

Assets under administration and net flows

Total AUA decreased by 1% to £27.4bn reflecting adverse exchange rate movements partly offset by positive net inflows. AUA increased by 7% in constant currency.

Fee business AUA increased by 18% in constant currency to £17.3bn due to positive net inflows into retail segregated funds and corporate pensions as well as positive market movements.

Spread/risk AUA decreased to £8.4bn resulting from scheduled net outflows and adverse market movements.

Net inflows into fee based propositions reduced by £243m to £572m (2012: £815m) due to lower flows into corporate pensions and net outflows from retail mutual funds, largely reflecting outflows in fixed income funds driven by the adverse interest rate environment. These were partly offset by strong growth in retail segregated funds, driven by the strength of our offering and adviser relationships.

Net flows¹		2013	2012
		£m	£m
Fee (F)	F	248	500
Spread/Risk (S/R)	S/R	(112)	(224)
Corporate pensions		136	276
Corporate benefits	S/R	82	92
Retail fee	F	324	315
Retail spread/risk	S/R	(166)	(276)
Total Canada		376	407
Fee business		572	815
Spread/risk business		(196)	(408)
Total Canada		376	407

¹Canada categories for AUA and net flows have been revised to align with other business segments.

New business performance

PVNBP sales of £2,894m were 18% lower in constant currency (2012: £3,584m) due to a particularly strong performance in 2012 when several large corporate pension and corporate benefit schemes were won. This was partially offset by a strong performance in retail fee business where segregated funds sales increased by 27% in constant currency to £832m (2012: £668m).

Our business model

We look to further enhance our position in the market and strengthen our relationships with customers and advisers by providing innovative retirement and investments solutions, enabled by Standard Life Investments' global investment capabilities.

Maximising revenue

· The average revenue yield on our fee business remained stable at 113bps (2012: 113bps)

· We continue to work closely with Standard Life Investments on

distributing global investment products through our retail

investment funds offering, securing a greater proportion of the value chain and driving future revenue growth. Across all our product lines 20 new funds managed by Standard Life Investments were launched in 2013.

Increasing assets

Corporate

· Launched 'Pension in a Box', a comprehensive and flexible retirement programme targeted at SMEs, which offers the complete Plan for Life Programme member experience

· Launched our Financial Education Centre for corporate pension members, providing better understanding of financial concepts through interactive multi-media tools and calculators

· Our Group Retirement Centre focused on delivering retirement income planning services to customers and generated £90m in net inflows in 2013

· Launched Target Liability Bond Funds, a sophisticated solution for employers looking to address the challenges of the low interest rate environment and help them manage the transition from defined benefit to defined contribution plans

· Added 22 new funds to our Quality and Choice platform, including 13 funds managed by Standard Life Investments and funds from four new external managers

· In corporate benefits, we expanded our range of consulting services and tools, focusing on promoting sustainable health initiatives in the workplace

· Enhanced our healthcare management approach by enabling the submission of claims directly from healthcare providers' point-of-care and introduced digital statements and invoicing through our client website

· Continued to develop our serious health issues Management and Support Programme to assist customers, ensure optimal quality and effectiveness of treatment and help plan sponsors to contain costs.

Retail

· Continued to expand our mutual funds offering with new product launches, including Standard Life Investments managed US Monthly Income, Tactical Bond funds, and Standard Life Mutual Funds' Global Real Estate Fund

· Enhanced our retail segregated funds proposition by adding the GARS fund and expanded our market reach by introducing a new class for all our funds destined for fee based advisers and their clients

· Maintained leading position in individual segregated funds - ranked no.1 by net flows and market share of 13% as at

31 December 2013

· We now have access to five of the top six Canadian banks' investment dealer platforms with the GARS mutual fund and other global funds managed by Standard Life Investments helping us to strengthen and build distribution relationships.

Lowering unit costs

· Acquisition expenses as a proportion of sales were 263bps (2012: 220bps), adversely impacted by lower sales volumes in the year

· Maintenance costs as a proportion of average AUA improved to 88bps (2012: 95bps), reflecting continued efforts to improve efficiency.

1.4.4 Asia and Emerging Markets

Financial highlights - wholly owned

	2013	2012	Movement
Operating loss before tax	(£11m)	(£5m)	(120%)
Operating return on equity	(14.1%)	(10.2%)	(3.9% points)
Assets under administration	£296m	£215m	38%
Net flows	£80m	£55m	45%
EEV operating loss before tax	(£8m)	(£19m)	58%

Financial highlights - joint ventures (Standard Life's share)

	2013	2012	Movement
Operating profit before tax	£5m	£8m	(38%)
Operating return on equity	5.1%	7.9%	(2.8% points)
Assets under administration	£1.6bn	£1.5bn	7%
Net flows	£231m	£249m	(7%)
EEV operating profit before tax	£23m	£18m	28%

Strategic overview

Our Asia and Emerging Markets business consists of wholly owned operations in Hong Kong, Singapore and Dubai, and life joint ventures in India and China. The wholly owned and joint venture businesses in Asia continue to evolve to meet the needs of customers in our chosen markets. The wholly owned business restructure was completed successfully in 2013 with the transfer of knowledge, operations and management responsibility to our new hub in Hong Kong.

Product enhancements and growing our distribution capability are key areas of focus for our wholly owned business. This will help meet the needs of our wide range of customers and also allow us to adapt to the rapidly changing regulatory environment. In Hong Kong, work is continuing to improve our business quality with a shift towards increasing direct contact with customers and closer distribution relationships with key independent financial advisers (IFAs). For the newly opened branches in Singapore and Dubai, the focus is on expanding distribution and developing our operational capability.

The Asia Advisory Board (AAB) was established during 2013 to provide guidance and advice on our strategy to grow across the region. The work of the AAB will support our businesses in the region as well as inputting to our joint ventures. The AAB is chaired by Gerry Grimstone and consists of Standard Life and external members.

The life joint venture business in India, HDFC Life, continues to be one of the top private providers in its local market, meeting the needs of their customers through offering a range of insurance solutions and demonstrating strong customer-focused business practices. In December 2013 HDFC Life paid its first dividend to shareholders. This is a significant milestone in the company's development and is a result of successful growth and HDFC Life board's confidence in the future sustainability of the business.

Heng An Standard Life, our life joint venture in China, continues with its strategy to develop targeted distribution channels to provide sustainable growth through offering a range of traditional insurance products.

Market update

The long-term savings and investments market in Hong Kong remained competitive. Our business continued to attract higher net worth customers resident in Hong Kong and the wider region, improving our position in the market.

Singapore and Dubai are both high growth, high value emerging markets. In Singapore, the full implications of the comprehensive Financial Advisory Industry Review, chaired by the Monetary Authority of Singapore, are not yet known however we support any move to increase transparency for customers.

The Indian economy had a turbulent year in 2013 with economic growth rates declining. Life insurance penetration rates are still low in India compared to more developed markets. Regulatory change continued in 2013 which led to uncertainty for both companies and customers. HDFC Life continues to adapt proactively to the regulatory and market changes, to focus on providing quality products and services to customers and to consolidate its standing and reputation in the market.

The life assurance market in China is dominated by local companies who account for over 90% of new business. For joint venture companies, sales increased by 45% in 2013, with low margin short term single premium business accounting for a significant share of this growth. The Heng An Standard Life management team continue to drive sustainable growth through offering a range of long-term assurance solutions and expanding their targeted distribution channels.

Profitability

Operating (loss)/profit before tax

Operating (loss)/profit before tax	2013	2012
	£m	£m
Fee based revenue	54	46
Acquisition expenses	(22)	(10)
Maintenance expenses	(43)	(41)
Total wholly owned	(11)	(5)
India and China JV businesses	5	8
Asia and Emerging Markets operating (loss)/profit before tax	(6)	3

Operating loss before tax is £6m (2012: profit £3m):

· Fee based revenue increased by 16% in constant currency due to the growth in sales volumes

· Total expensesincreased by 25% in constant currency reflecting the increased investment in expanding our business into Singapore and Dubai and an impairment of deferred acquisition costs in Hong Kong due to policyholders ceasing to make regular premiums to their policies earlier than expected

· The joint venture businessesdelivered an operating profit before tax of £5m (2012: £8m). This reduction was primarily driven by changes in the new business mix in India towards more profitable products which have a higher new business strain and a strengthening of Sterling against the local currencies.

EEV operating profit

Total EEV operating profit increased to £15m from a loss of £1m in 2012. The wholly owned businesses recorded a total EEV operating loss of £8m (2012: loss £19m). Higher sales in Hong Kong and business written by our new branches in Singapore and Dubai have benefited the result.

EEV operating profit in our joint venture businesses increased to £23m (2012: £18m). In constant currency the EEV operating profit has increased by 44%. This increase has been driven by new business contribution increasing to £19m (2012: £13m), a 48% increase in constant currency.

Operating return on equity

Operating return on equity for our total Asia and Emerging Markets operations was a negative return of 2.3% (2012: positive return of 1.3%) driven by the operating loss after tax.

Assets under administration and net flows

AUA in the wholly owned businesses grew by 38% in constant currency to £296m (2012: £215m), with net inflows increasing to £80m (2012: £55m). This was driven by robust net inflows in Hong Kong and also reflects improved consumer sentiment across the markets we operate in.

AUA in the joint venture businesses increased by 7% to £1.6bn (2012: £1.5bn) mainly due to net inflows of £231m (2012: £249m). Net inflows in India were broadly in line with 2012 levels. In China, net inflows were lower in 2013 due to the product mix being weighted more towards higher margin regular premium business rather than lower margin single premium products, which would have higher initial flows.

New business performance

PVNBP sales in the wholly owned businesses increased by 84% in constant currency to £468m (2012: £252m), driven mostly by the increased sales in Hong Kong. In India, sales fell by 3% in constant currency to £388m. HDFC Life continues to balance quality of business with sales volumes. In China, sales fell by 14% in constant currency to £77m as a result of strategic actions taken to focus on sustainable growth by targeting higher margin regular premium business.

Our business model

Maximising revenue

· Revenue for wholly owned business increased by 16% in constant currency, reflecting the strong growth in AUA. Our wholly owned business continues to increase the diversification of revenue across products and territories.

· Further opportunities for greater collaboration with Standard Life Investments in Asia are being explored

· In India, HDFC Life continues to generate strong net inflows as it focuses on improving customer experience and implementing new business quality initiatives.

Increasing assets

· We offer propositions that help our customers invest during volatile market conditions. In Hong Kong, the Harvest 101 product will be re-launched mid-2014, meeting revised regulatory requirements and will continue to meet the needs of the target market of internationally mobile clients.

· Following the first anniversary of the opening of our branches in Singapore and Dubai, we aim to increase our asset base and provide solutions for a wide range of customers

· HDFC Life continues to be ranked in the top 3 private companies for overall new business sales in the life insurance market.

Lowering unit costs

· Total expenses increased to £65m (2012: £51m), reflecting the costs associated with expanding our operations into Singapore and Dubai and the impairment of deferred acquisition costs in our Hong Kong business

· Successful transition of shared functions to Hong Kong in 2013 generated cost efficiencies and enabled improvements in capability as support services moved closer to the territories.

1.5 Risk management

Risk management is an integral part of the Group's corporate agenda. Our risk management strategy is to actively support the development of long-term value creation by ensuring well informed risk-reward decisions are taken in pursuit of the Group's business plan objectives and to ensure capital is delivered to areas where most value can be created for the risks taken. Further details on our risks and our management of these risks are included in Note 41 - Risk management in the Group financial statements section of this report. The framework we use to manage our risks is set out in the Corporate governance section.

	Market risk	Credit risk
Definition	The risk that arises from the Group's exposure to market movements which could result in the value of income, or the value of financial assets and liabilities, or the cash flows relating to these, fluctuating by differing amounts.	The risk of exposure to loss if a counterparty fails to perform its financial obligations, including failure to perform those obligations in a timely manner. It also includes the risk of a reduction in the value of assets due to a widening of mortgage, bond and swap spreads.
Appetite	The Group has appetite for market risk exposures that arise as a consequence of core strategic activity. Business units are expected to limit market risk exposures by matching the features of liabilities to features of assets. Exposures may be incurred where there is an overriding business need and specific appetites will be established as necessary. Exposures may also be incurred with surplus assets subject to limits on the quantum and term of exposures.	The Group has an appetite for credit risk to the extent that acceptance of this risk optimises the Group risk-adjusted return. However, the Group has limited appetite for significant losses arising from counterparty failures and maintains robust risk limits which business units must adhere to.
Main sources of risk	Equity and property risk · Changes in the value of future profits earned on unit linked funds and collective investment schemes where the funds are invested in equities and property · Burnthrough from the Heritage With Profits Fund (HWPF) and German With Profits Fund (GWPF) · Assets held to back annuities and surplus in Canada. Fixed interest risk · Changes in the value of future profits earned on unit linked funds and collective investment schemes where the underlying funds are invested in fixed interest assets · Burnthrough from the HWPF and GWPF · Insufficient long-dated fixed income assets to match the longest dated liabilities in Canada. Currency risk · Exchange rate movements that reduce the Sterling value of overseas operations and the capital repatriated from them · Changes in the value of future profits on unit linked funds and collective investment schemes where the underlying funds are invested in overseas assets.	The Group is exposed to credit risk through: · Changes in the value of future profits earned on unit linked funds and collective investment schemes where the underlying funds are invested in corporate bonds · Burnthrough from the HWPF. Credit risk also results from holding the following assets: · Corporate bonds held to back annuities written by SLAL post-demutualisation · Assets held to back subordinated debt, including a small proportion in SLAL which are asset backed securities that are held for historical reasons · Corporate bonds and commercial mortgages held in Canada to back annuities. Other holdings of cash and cash equivalents, debt securities and the reinsurance of certain insurance liabilities to reinsurance counterparties also results in credit risk.
2013 summary	Whilst concerns about sovereign debt levels in certain Eurozone countries remain, the return of economic growth and the possibility of tapering the US Federal Reserve stimulus have led to yields in the UK, Germany and Canada rising. In managing our market risks in 2013 we have: · Introduced cashflow matching investment strategies for annuity business in Ireland and Germany which have reached sufficient size to make this feasible · Continued the dynamic hedging of guarantees provided for Canadian Segregated Funds · Monitored and managed the level of risk taken within the HWPF in line with Principles and Practices of Financial Management and the need to treat with-profits policyholders fairly · Reviewed and affirmed our currency hedging strategy which, within certain parameters, seeks to minimise currency volatility within the regulatory surplus and reduce the currency risk relating to dividend receipts from overseas operations.	During the year, UK sovereign debt credit ratings were cut by two major rating agencies. We had anticipated this and were well-prepared. Our approach to managing credit concerns regarding debt issued by certain European sovereign states and banks remains the same and ensured we suffered no direct loss as a result of the financial crisis in Cyprus in 2013. We successfully restructured a number of reinsured external fund links which has resulted in reducing our potential credit exposures. We typically have minimal direct exposure to US sovereign debt. However, we have closely monitored political developments in the US regarding the debt ceiling and budget discussions given the potential wider implications for credit markets.

	Demographic and expense risk	Liquidity risk	Operational and strategic risk
Definition	The risk that arises from the inherent uncertainties as to the occurrence, amount and timing of future cash flows due to demographic and expense experience differing from that expected. This includes risks relating to insurance and investment contracts.	The risk that the Group is unable to realise investments and other assets in order to settle its financial obligations when they fall due, or can do so only at excessive cost.	Operational risk is the risk of adverse consequences for the Group's business, resulting from inadequate or failed internal processes, people or systems, or external events. Strategic risk is the risk associated with the robustness of the planning process and threats to achieving our strategy.
Appetite	The Group has an appetite for demographic risks since we expect acceptance of such risks to be value additive and limits are established to reflect planned business activities. The Group recognises expense risk may arise from core strategic activity but has limited appetite for significant expense over-runs.	The Group always aims to meet its liabilities as they fall due.	The Group recognises that core strategic activity brings with it exposure to operational risk. However, the Group has limited appetite for large operational losses due to the related reputational damage and opportunity costs. The Group seeks to manage existing operational risk exposures and proactively control new exposures.
Main sources of risk	Persistency · Changes in the value of future profits earned on unit linked funds and collective investment schemes and future recourse cash flow payments from the HWPF · Changes in the value of future profits earned in respect of Standard Life Investments' third party AUM and segregated fund business. Longevity · Annuity contracts written by the business where the current experience differs from that expected, there is more volatility of experience than expected, or the rate of improvement in mortality is greater than anticipated. Expense · Changes in the value of future expected expenses · Shareholder is directly exposed to risk of expenses being above expectation.	The Group is exposed to liquidity risk from the following sources: · The type of business that is written, the assets and liabilities arising from that business and how the assets are managed to meet those liabilities · Operational aspects of the business, for example the management of cash as it flows into our business as premiums and out of our business as claims and the payment of corporate cash flows including dividends, coupons and debt repayment · Potential liquidity issues in unit linked funds due to the underlying asset classes · The collateralisation of derivatives which results in cash volatility as the value of the derivative changes.	The key operational and strategic themes affecting the Group are: · Ability to deliver the strategic plan · The significance of adverse global economic volatility · The changes to the tax, legal or regulatory environment and resultant impact on our model and strategy · Inadequate control environment internally and in relation to third parties · Customer detriment resulting from system outage or security failings · Systems unavailability and security exposures from emerging risks such as cyber threat · Potential loss of clients from adverse customer experiences · Insufficient capacity and capability to deliver change programmes and projects · Insufficient people capabilities to deliver our strategy and plans · Reputational damage.
2013 summary	We have continued to monitor opportunities for enhancing back-book profitability via reinsurance or capital market solutions. We remain focused on developing propositions to increase the retention of funds when insurance and savings contracts reach maturity. We have continued to monitor emerging research into longevity, for example from the Office for National Statistics and the industry-wide Continuous Mortality Investigation, in order to inform our in-house view of likely future improvements in life expectancy. We have renegotiated the terms of certain reinsurance arrangements in Canada to assist with the management of our longevity risk.	We continue to monitor liquidity for various asset classes particularly in the context of developments in the financial markets. During H1 2013 we refinanced our £500m syndicated revolving credit facility for a further 5 years and this remained undrawn at 31 December 2013. To further assist with liquidity management we have continued to: · Centrally co-ordinate strategic planning and funding requirements · Maintain our Euro Medium Term Note Programme.	The move to the new regulatory regime within the UK in April 2013 has had no significant impact on the Group to date. We have continued to work on implementing appropriate processes and controls to prepare for tax, legal and regulatory changes. In particular, aligned to regulatory developments, we have increased our focus on conduct risk management to ensure this is embedded across the Group and we meet, if not exceed, regulatory expectations. We continue to prepare for the changes in requirements for Solvency 2. We continue to monitor developments and prepare for possible outcomes from the referendum on Scottish independence in 2014 and any potential referendum on UK membership of the European Union.

1.6 Our customers

Understanding our customers - their financial needs today and in the future - helps drive what we do and enables us to create commercial value. We're constantly looking at what our customers tell us to see how we can meet their changing needs and how to make improvements to the experience we give them.

Knowing our customers

We operate in a very competitive market, and a strong knowledge of our customers is crucial in developing the right types of products and services to suit their needs. This means more than simply having accurate information on things like demographics, personal wealth and attitudes to risk, as has traditionally been the focus in our sector. We believe that it's just as important to know how customers think and feel.

During 2013, we commissioned research to help us understand more deeply how people feel about saving for the long term. Our Saving in mind research has helped us understand more clearly how emotions and positive communications can help us build stronger customer relationships. We also published a report on how families share and talk about their money called The Family Financial Tree - looking at how money passes through the generations and, significantly, how families talk to each other about their finances. The insight can help us develop products and services that help customers to make informed savings decisions and be more confident about their financial futures, and we think it can also inform approaches taken across our whole industry.

Another type of insight we've used to help inform the way we build customer relationships is a concept called 'Personas'. By using pen portraits of our customer groups, this concept helps us understand the needs of different types of customers when we are designing or reviewing the services we offer to them. This type of insight is a powerful tool to help us shape our activities across the Group, and to deliver tailored and targeted experiences to our customers.

We continue to find better ways of generating valuable customer insight. For example, we have hired a dedicated customer insight manager for our Asia and Emerging Markets business. We have also set up a working party to build a consistent approach to customer measurement and segmentation across the Group. This is made up of members of our UK and Europe, Canada, Asia and Emerging Markets and Standard Life Investments businesses. They look at the aspects of customer measurement and insight that can be shared across the business, as well as sharing best practice and helping to build a more comprehensive view of our customers around the world.

Helping our customers

Online technology plays a big part in the ways we help our customers deal with us quickly, more easily and at times that suit them. We use feedback from customers to continue to improve the online experience. The main areas we looked at improving were around the information, guidance and transactional services that we offer. During 2013 we launched Lifemap, a tool we have developed to help customers with their financial priorities. It allows customers to select what their current priority is and receive some guidance accordingly.

We have continued our relationship with our online community, which now has more than 1,500 customer members. This is used on a regular basis to get feedback on products, services and experiences from our customers to inform our decision making, as well as for research into customer needs and expectations.

In 2013 we also launched our Financial Inertia programme in Canada. Following research that we commissioned, we found out that over 40% of Canadians are concerned about their finances, but that life goals, behaviours and values can hold many back from taking action. The Financial Inertia programme offers a dedicated website which provides a series of educational tools to help people reach their long-term savings and investment objectives. By using these tools, it can help people understand more clearly what might be holding them back from long-term saving, and how they can make this fit more easily into their lives.

Treating customers fairly

For many years we have aimed to put our customers at the centre of everything we do, and one of the ways we show our commitment to this is through the policies we follow.

In the UK we are committed to following the Treating Customers Fairly principles - the UK financial services' guiding principles for companies in this sector. Since 2009, we have used these principles as a minimum requirement in our approach to customer service, and we continue to invest in improving our customer processes and understanding with the aim of exceeding these outcomes. In 2013 we strengthened this commitment by creating a new policy. The new Conduct Risk policy helps us show that our commitment to delivering fair customer outcomes at all times - everything from our people, processes, leadership style and systems are key parts of the culture of our business.

In Canada, we also follow the Sound Commercial Practices Guideline, which includes properly informing customers being offered a product or service and acting fairly in dealings with them.

Satisfied customers

We have worked to improve how we measure and understand the experiences that we deliver to our customers. We continue to measure customer complaints and the causes of these issues, which gives us a clear idea of what we can do to put things right. In 2013 we received 5,785 customer complaints in the UK, which was down from 5,979 in 2012. We have also established new measures to help us understand more clearly how our customers feel about their experiences with us. Across our businesses in the UK, Canada, and Asia and Emerging Markets, we use the Net Promoter Score (NPS) measure to find out how likely people would be to recommend us. We use NPS along with a number of other measures, to plan and prioritise changes we can make to improve these experiences. We will continue to build up our insight of our customers in 2014 and, importantly, take action as a result.

Another important focus area in 2013 was finding out how we can improve customer engagement through the communication channels we use - by testing and learning to help us produce quicker, more regular communications activity. For example, the digital retailing department we've set up in our UK business is responsible for delivering services that are driven by customer needs and the evolution of digital servicing. Its work involves improving our online channels and producing analysis and insight into customers' digital requirements. By using this insight to inform our decision-making processes, it will help us prioritise the changes we should make to drive our future activities.

Awards and recognition

Awards and recognition for our individual businesses in 2013 include:

UK and Europe

· Communication Innovation of the Year at the Professional Pensions UK Pensions Awards

· Auto enrolment Innovation of the Year at the Professional Pensions UK Pensions Awards

· Best benefits communications for a large company at the Employee Benefits Awards

· Best flexible benefits plan for a large employer - highly commended at the Employee Benefits Awards

· Five-star rating awarded for online service at the FT Adviser Online Service Awards

· Standard Life Wealth won the Gold Standard for Discretionary Portfolio Management at the Incisive Media Awards

· Best Group Pension Provider at the Corporate Adviser Awards.

Standard Life Investments

· UK Equity Unconstrained Fund won the UK All Companies sector award at the Moneywise Fund Awards

· Multi Asset Investing Team won top prize for the second time at the Scottish Financial Services Award

· Large Investment Group of the year and the top awards in the UK equity category for our UK Equity Unconstrained Fund, and the Absolute Return category for our Global Absolute Return Strategies Fund, at the Investment Adviser 100 Club Awards 2013

· Best Client Service by an Investment Manager at the Engaged Investor Trustee Awards

· MyFolio team won the adviser award for best Fund of Funds/Multi Manager at the Investment Week Fund Manager of the Year awards

· DC Investment Provider of the Year, SRI/ESG Provider of the Year and Multi-Asset Manager of the Year at the UK Pensions Awards 2013

· Best New Fund Launch for our MyFolio range at the Professional Adviser awards

· Platinum award for our Global Absolute Returns Strategies Fund at the Portfolio Adviser Fund Awards

· Keith Skeoch was named European Personality of the Year, by Funds Europe, the business strategy magazine for Europe's asset management professionals. The award criteria were for someone who has made a major and significant contribution to the European funds industry in 2012/2013. It also took into account longer term achievements in, and contributions to, the industry.

Canada

· Fundata Award won for Ideal Monthly Income Fund for superior risk-adjusted performance relative to peers

· Award of Excellence for Fund Information from the Insurance and Financial Communicators Association for our Global Equity Fund materials.

Asia and Emerging Markets

· Best for Adviser Support/Customer Service in the Asia category of the International Adviser Life awards

· Readers' Choice award for the Best International Life Company - Global at the International Adviser Life awards

· HDFC Life Smart Woman Plan voted as 'Life Insurance Product of the Year 2013' - Nielsen's Product of the Year Consumer Survey.

1.7 Our people strategy

Our people enable us to deliver our strategy. We are committed to bringing out the best in them and having a culture that encourages career development. We invest in the development of our people and understand that highly engaged employees can drive a positive impact on our profits and shareholder value. Listening to what our employees tell us gives us even greater insight into where we should focus action and strengthens the relationship our employees have with the organisation.

The four strategic themes of our people strategy

1 Strengthening our leadership - developing powerful, consistent leadership and identifying and growing tomorrow's leaders at all levels across the organisation

2 Developing our organisational capability - building the people resources, capabilities and behaviours we need to support the business

3 Transforming the way we work - designing and building an organisation that is fit for purpose and scaleable for the future

4 Building the environment we work in - defining and building the high performance culture we aspire to.

Leadership and talent

We work with our people to bring out the best in them and allow everyone to fulfil their potential. We offer development opportunities for everyone at all levels, across all geographies throughout the organisation. Through our Group Development Framework, we focus on development across our talent pipeline right up to executive team level. This is driven by both business priorities and individual development needs.

To attract and retain the best people, we make sure that they have the right development and career opportunities and they hold regular conversations with their managers about their development and aspirations. We understand the value of engaging the Board on our talent agenda. In June 2013 we provided a full update to the Nomination and Governance Committee on the progress over the last three years and priorities for the future.

Senior leadership

We continue to invest in mentoring, coaching and development programmes for our future leaders to fulfil our aim of a sector leading senior leadership group. We have a particular focus on ensuring that our senior leadership group have meaningful and stretching development goals in place. In addition to some key external recruitment, we continue to ensure strong internal succession cover. To support this, we benchmark our top leaders against the best externally and continue to make targeted investment in future leaders a priority.

Talent programmes

Our talent programmes continue to be a key focus at all levels. In 2013 we launched another cohort of each of our award-winning talent programmes - Emerging Leaders Development Support and Accelerated Development Support with over 50 participants across the Group. We work with external organisations to address key development needs and create a strong succession pipeline into senior roles within our organisation. Individuals participating on these programmes continue to move across the organisation, including internationally, and typically stay with us to develop their careers.

Graduates

Graduates help to support our future growth and we continue to put a focus on the structured development of them through our graduate and award-winning internship programmes. Our group-wide graduate programme continues to cover a wide variety of disciplines and we've increased our number of cross-group moves, including international placements. To strengthen our global graduate capability we began recruitment activity in Montreal, Boston and Hong Kong.

Employability

Employability is a key focus of our sustainability activities. To us, it means working to help improve the opportunities that people, particularly young people, are afforded in society. Find out more about our progress in this area in Section 1.8 - Our sustainability strategy.

Engagement and well-being

In 2013 we undertook a local staff survey in each business unit to understand how our areas of focus were beginning to make a difference. The survey was tailored for each local business with one consistent group question on technology and systems. Across the Group we saw positive feedback on how employees viewed the investment we have been making in technology and how this has helped make a difference to their engagement with the Group. The latest group-wide employee engagement survey took place at the beginning of 2014, the results of which will be used to understand the views of our people and focus local management actions for the year ahead.

Well-being continues to be a strategic priority. To promote a healthy work environment we participated in the Global Corporate Challenge, a healthy living and activity campaign, for the second time. Spaces filled up quickly and we improved our global ranking, finishing as the ninth most active organisation out of the 1,200 that took part. To recognise our success, we received a recognition of achievement award and were highlighted as a case study organisation on the challenge website. We also ran our first green travel week where activities such as walking and cycling to work were encouraged. This was in addition to a focus on mental health that also took place across the Group.

Our performance culture

We believe great performance should be rewarded, and we aim to make the process we follow to do that clear to everyone. Our approach continues to support our reward principles by linking pay to performance and ensuring our remuneration remains competitive to the market and we continue to be a UK Living Wage employer. In addition to this commitment to the Living Wage, we do not support the use of zero hours contracts in our organisation. In 2013, building on our regular performance management conversations and enabled by technology, we introduced a flexible pay matrix and a new goal management system. This brings together performance and development goals in one place and helps ensure greater transparency to support our performance culture. We also introduced a refreshed total reward statement in September 2013, designed to help emphasise the way employees can tailor their benefits package and, by including details of annual salary and bonus awards, highlights to employees the link between performance and reward.

Diversity and inclusion

Standard Life has a strong focus on creating an environment where everyone is respected, valued and included as an individual. We've always promoted a culture of fairness and equality, and our practices align with both United Nations and International Labour Organisation's standards. We believe that having a diverse and inclusive culture where our people can be themselves, are engaged and perform to their potential helps us deliver a great customer experience and helps to deepen the understanding we have of our customers' needs. In 2013, our diversity agenda was accelerated across the Group and we delivered a range of activities to achieve our goals. This included introducing new mandatory diversity training, providing unconscious bias training and carrying out workplace or role adjustments for people with disabilities. Our employee network groups make an important contribution to our business and community. In 2013 we launched an employee network for our lesbian, gay, bisexual and transgender employees. This, along with other initiatives, resulted in our Stonewall Workplace Equality Index ranking improving from 351st to 224th, which Stonewall confirmed was one of the biggest rank increases they have seen. Our women's development network also achieved a highly commended award at the 2013 European Diversity Awards after having been launched only 15 months previously.

Our Board benefits from diversity in its widest sense by ensuring an overall balance of skills, independence, knowledge and experience. As at 31 December 2013, the Board comprised eleven Directors made up of nine males (82%) and two females (18%) (2012: males 67%, females 33%). The departure of Jackie Hunt and the retiral of Sheelagh Whittaker during the year affected our diversity statistics at Board level and when considering all future appointments, the Board follows the principles of its Diversity statement which you can read in the Corporate governance section.

We track and take action on gender and age related diversity in our leadership and talent pipeline populations, and will formally gather data on other characteristics across all levels from 2014. We continue to promote gender diversity and the business case for gender balance in leadership is clear. We have also gathered the gender data relating to senior managers in our Group (which includes the directors of our consolidated subsidiaries; members of our Executive Job Family and members of our Senior Leadership Group). From a total population of 105, 86 are male (82%) and 19 are female (18%).

Our talent pipeline continues to show a balanced male/female mix with 49% females joining our graduate programme, and 42% joining the Emerging Leaders Group. The total number of employees in our Group is 8,589 comprising 4,367 females (51%) and 4,222 males (49%).

1.8 Our sustainability strategy

Our sustainability strategy is mapped to our Group's business strategy, so that the commercial aims of our business are linked to our Environmental, Social and Governance responsibilities. Our overall aim is to ensure we operate in ways that will help secure a successful long-term future for our business.

The five material themes of our sustainability strategy

1 Listening and responding to customers

2 Operating and growing responsibly

3 Developing and engaging our people

4 Protecting our environment

5 Contributing to our communities.

Each one focuses on a different area of our business: customers, the environment, our people, how we operate and the communities in which we operate. We developed them to best reflect the issues that matter most to our business and to our stakeholders on all areas of running a sustainable business. Our stakeholders are a variety of different audiences, including our customers, our people, shareholders, industry analysts, regulators and the media. All sustainability work is overseen by our Corporate Responsibility Committee. Find out more information on this committee in the Corporate governance section of this report.

In each section below, we have summarised what each theme is about and included an update on the work we have done to deliver against it during 2013.

1. Listening and responding to customers

We believe a key part of being sustainable is to understand what our customers' wants and needs are. The majority of our business is about providing long-term savings and investments products and these are designed to be held over many years. We need to be able to build understanding and trust, as well as listen. What customers tell us helps inform the types of products and services that we offer and we have several programmes in place to get feedback. Find out what we delivered against this theme in Section 1.6 - Our customers.

2. Operating and growing responsibly

Good governance lies at the heart of the way we manage our businesses. We have a robust reporting programme in place to record our activities and accountabilities in the areas of corporate governance, risk management, anti-bribery and anti-corruption. Find out more about the activities and important updates in these areas in the Corporate governance section of this report.

We also look to apply the internal governance principles we use ourselves in the relationships we have with other organisations. Broadly we do this through influencing:

· as an investor, through Standard Life Investments

· as a buyer of goods and services.

Investor

In 2013, Standard Life Investments, our global asset management business, continued to influence as an investor. This was done through voting or other types of engagement. We had 511 Environmental, Social and Governance engagements and voted at 1,939 shareholder meetings. Where possible, we use our influence with the companies we invest in to encourage best practice in Environmental, Social and Governance issues. We feel it is important to be an active shareholder. It allows us to voice the sustainability issues that matter to us and also to help protect the interests of our customers.

As an investor, we publish regular reports, statistics and evidence of our governance and stewardship activities. These are available online at www.standardlifeinvestments.com/governance_and_stewardship/index.html

Standard Life Investments is also an active member of several organisations that champion good governance:

· ABI Investment Committee

· Asian Corporate Governance Association

· CBI Companies Committee

· Council for Institutional Investors.

Supply chain management

In 2013 we began an important piece of work with a cross-section of our key suppliers, which included sending a questionnaire to find out more about social compliance and diversity, sustainability, and health and safety across these suppliers. The responses to the questionnaire helped give us a more detailed picture of the policies, processes and structures our suppliers have in place to meet their Environmental, Social and Governance responsibilities. This work has helped to foster stronger relationships across our supply chain that we aim to build upon in 2014 and beyond.

We are developing a wider Supply Chain Diversity and Sustainability Programme, which will be rolled out in 2014. We are planning activities to encourage areas of the business to work with and offer help to more local suppliers, particularly SMEs, as part of a strategic aim to diversify our supplier base. We have also created a Supplier Diversity and Inclusion Code of Conduct which will be launched during 2014.

We have been fully committed to the UK Living Wage since April 2012 and we promote this with our suppliers. All third party dedicated resource providing catering, cleaning, security and vending services on our UK premises are paid the UK Living Wage as a minimum. We have also addressed zero hour contracts with these service providers and, with the exception of a small number of hospitality staff, we have successfully negotiated moving those people working with us from zero hour contracts to fixed hour contracts.

3. Developing and engaging our people

We make it a priority to invest in our employees' professional and personal development, so that they can continue to do their jobs as effectively as possible. In particular, leadership and employee engagement are central to our strategy to develop our people. Find out more about what we have delivered against this theme in Section 1.7 - Our people strategy.

During 2013 we continued, as part of a significant group-wide investment in technology, to roll out a single desktop operating system and suite of office tools to help increase productivity and collaboration. Key elements of this technology programme, called 'digital workplace', were a direct result of feedback from our 2012 employee engagement survey. We also announced the planned installation of Microsoft's SharePoint software, our first group-wide collaboration system. We began a pilot in the UK and Ireland towards the end of 2013, and intend to build on the learnings from this as the system is rolled out across the Group during 2014. We hope to make optimal use of SharePoint to help reduce duplication of processes and increase collaboration in project work across the Group.

4. Protecting our environment

In 2013, we worked to bring additional transparency to our greenhouse gas emissions data by gaining a greater understanding of the environmental impact of our Hong Kong office. We are now in a position to include our Hong Kong energy and travel data in our 2013 greenhouse gas emissions total. This means our overall greenhouse gas emissions have risen to 32,796 Tonnes CO2e. However, on a like for like basis, excluding Hong Kong, there is a reduction of 1% from 32,264 Tonnes CO2e in 2012 to 31,796 Tonnes CO2e in 2013.

The environmental impact of our business travel is now more accurate too. The class of travel affects the environmental impact, therefore we have replaced our average class calculation with a more realistic calculation which takes into account the travel class.

We believe having a greater understanding of our environmental impact allows us to continue to take specific actions to further reduce emissions.

We have disclosed our greenhouse gas emissions for our own business operations in the table below. This does not include our greenhouse gas emissions for our global real estate investment portfolio, however these emissions are disclosed in the Standard Life Investments annual Sustainable Real Estate Investments report.

Environment measures		Unit	2013	2012	2006	% change from 2012	% change from 2006
Greenhouse gas emissions - Carbon dioxide equivalent (CO2e)	Scope 1¹	Tonnes CO2e	3,157	2,975	4,221	+6%	-25%
	Scope 2²	Tonnes CO2e	14,462	14,836	22,305	-3%	-35%
	Scope 3³	Tonnes CO2e	15,177	14,452	9,566⁵	+5%	+59%
Total greenhouse gas emissions⁴		Tonnes CO2e	32,796	32,263	36,092	+2%	-9%
FTE / Tonnes CO2e ratio		Ratio	4.4	4.3	4.4	+2%	-
Paper used		Tonnes	914	1,026	1,382	-11%	-34%
Waste - landfill		Tonnes	446	699	864	-36%	-48%
Waste - recycling		Tonnes	948	956	707	-1%	+34%
Total Waste		Tonnes	1,394	1,655	1,571	-16%	-11%

¹Scope 1 emissions include gas and fuel oil.

²Scope 2 emissions include electricity.

³Scope 3 emissions include business travel and transmission and distribution losses for electricity.

⁴As a result of the change to our business travel calculations and a change to Department for Environment, Food and Rural Affairs conversion factors, the 2012 and 2006 greenhouse gas emission totals have been restated.

⁵2006 Scope 3 emissions does not include travel from our Canadian business as it was not available at the time.

In November 2013, we launched our first group-wide initiative to encourage greener travel. Green Travel Week was designed to encourage our employees to 'make a small change for a bigger impact', by making individual pledges to reduce or rethink how they travel to and from work. One area of focus was on the impact that short, private car journeys have on the environment as several of our larger offices are in major cities, including Edinburgh, London, Toronto, Hong Kong and Boston. We offered help and information on using public transport as well as details of alternative transport, like organised cycling groups.

At our Group headquarters in Edinburgh, we have been replacing the chiller units that provide the building's air conditioning. Our headquarters is a large building at 36,533m² and the costs to operate it are significant. The new chiller units produce less carbon dioxide and based on initial assumptions could potentially reduce our energy bill by £90,000 in their first year.

1.8 Our sustainability strategy continued

5. Contributing to our communities

Employability is the main focus of our community initiatives (see separate section below), although we have continued to support other projects aimed at giving something back to the communities in which we operate.

In October 2013, we signed the UK Armed Forces Corporate Covenant - an initiative set up to support serving members of the Armed Forces, and their families, in the workplace. Serving personnel and their families face particular challenges, for example, being deployed overseas. From 1 January 2014, we enhanced our special leave policy for UK employees, offering up to five days additional paid leave and allowing temporary changes to working patterns for spouses and partners of Service personnel deployed overseas. This complements our existing provision for Reservists - people who volunteer to serve alongside the Regular Forces - where we offer an additional two weeks paid leave over and above an employee's annual leave to take part in Reservists' training.

Through the Standard Life Charitable Trust, an independent charity that we set up in 2009, we worked with the Royal British Legion, Ministry of Defence and the UK Government's Money Advice Service to launch 'Moneyforce'. This is a new money guidance website for Armed Forces personnel in the UK designed to help enlisted personnel manage their finances. It is recognised that this is an area that can be quite problematic for serving personnel, especially when they are posted abroad. The website www.moneyforce.org.uk,offers a range of help on a wide variety of money-related matters including budgeting, banking and managing debt.

We have supported and encouraged fundraising by our staff for many charities across the globe. In Canada, we organised a charity concert with the help of the Orchestré Symphonique de Montreal, which raised CA$107,000 for Canada's Big Brothers, Big Sisters youth mentoring organisation. At Standard Life Investments, staff raised almost £95,000 to support Marie Curie Cancer Care. We also supported 13 other UK and Ireland charities, raising almost £90,000. In Hong Kong, we supported The Hong Kong Society for the Protection of Children and staff raised almost HK$35,000.

We are always keen to support new and different ways for our people to donate their time to help charities and organisations in our communities. Our Group Finance team offered to donate their skills and expertise to help organisations which needed them, instead of more traditional task-based contributions such as landscaping or renovating. The pilot has achieved some good results and we are looking at extending this type of charitable giving elsewhere in the Group.

In 2013, in addition to our staff fundraising, our total Group community contribution through donating money, staff time and items to charitable organisations was £1.6m.

Measurement

We measure our progress against seven key performance indicators and publish the results in our annual sustainability report which is available online at www.standardlife.com/sustainability. We also take part annually in two global sustainability surveys - Dow Jones Sustainability Indices (DJSI) and FTSE4Good. Each is internationally-recognised for its methodology and scrutiny of a company's sustainable credentials. Both surveys ask for a wide variety of data with strict criteria on what and how evidence can be presented.

DJSI survey

In 2013, we maintained our listings in two of DJSI's key indices - the DJSI World and DJSI Europe. These indices list the top 10% and 20% respectively of sustainable companies in our industry in the survey (1,831 in total). We also achieved our best overall rating to date in the survey, scoring 76% with the highest score for companies in our industry being 83%.

FTSE4Good

We also take part in the FTSE4Good index, which is another well-known sustainability survey. We qualified for their 2013 survey, which rates the Environmental, Social and Governance credentials of over 2,400 companies worldwide.

Assurance

We measure our progress using seven key performance indicators. These are independently assured by PricewaterhouseCoopers LLP:

· Customer complaints recorded

· Impact of technology on employee engagement

· Succession planning for critical roles

· Voting at shareholder meetings of investee companies

· Environment, Social, Governance engagements

· Carbon footprint (greenhouse gas emissions reported as kg of CO2e)

· Total community contribution.

We publish the results on our website at www.standardlife.com/sustainability

Our focus on employability

We focus on employability because it runs across our material themes. To us, it means working to help improve the opportunities that people, particularly young people, are afforded in society. We are a large employer, with around 8,500 people working for us across the Group. We believe that this carries with it a big responsibility, both for us as an employer in aiming to maintain a diverse, sustainable workforce and in the communities and wider societies in which we operate.

During the year, we continued our involvement with Edinburgh City Council's Edinburgh Guarantee programme, offering full-time paid work placements for 35 school-leavers and young people, which makes 54 in total since the programme began in 2012. From the last intake of 2013, 10 of the 15 young people have gone on to be successfully recruited into a permanent role with us, and four have gone on to further education. We believe the programmes offer young people a great opportunity to begin their working lives or further education. Through the placements, young people get access to more than just paid work. They are offered help and advice from colleagues as well as the opportunity to apply for internal vacancies across the Group. Our ultimate aim is to help young people find the destination that's right for them, whether it's work, further education or another positive development area.

We've been encouraged by the success of the programme so far, especially the number of young people who have successfully progressed into a permanent job or on to further education. We were also pleased at the high number of young people who successfully gained full-time roles with us.

Highlights from around the Group

· Standard Life Investments recruited seven young people on an Investment apprenticeship as part of their 'Investment 2020' initiative

· We made a £65,000 donation to the 'Tomorrow's People' charity to provide work skills to 60 disadvantaged young people living in Kent, UK

· In Canada, we donated CA$10,000 to the Working Skills Centre and 12 of our employees volunteered too, offering practical skills and advice to people from disadvantaged backgrounds seeking employment.

Diversity and employability

Diversity, particularly age diversity, plays an important part in employability too. Our customers come from all walks of life. They cover a broad range of ages, have different professions, lifestyles and different wants and needs. So it's really important to us that our employees reflect that diversity as well. We believe that widening the diversity of our employee population helps us to reflect society better. There's no better alternative, we feel, to understanding our customers than having employees with similar experiences who are able to see things from their customer's point of view.

Our ambitions for the future

We have made good progress against each of our sustainability themes during 2013. Several of our initiatives do, by their nature, take several years to complete. We have set out our ambitions for the next three years as follows:

· Fully embed sustainability into all business units plans across the Group, ensuring that every part of the business takes a consistent balanced view of our key sustainability issues and considers these in everything they do

· Lead by example in how we build our long-term customer relationships and as a way of demonstrating how this can help restore confidence in our industry

· Aim to be an industry leader in managing talent and diversity

· Grow our reputation as a business that uses its influence responsibly - in how it governs, invests and manages its supply chain

· Work with our key stakeholders to make a positive difference on Environmental, Social and Governance issues

· Build an enviable reputation as a leader and authority on employability.

The key initiatives that, if delivered successfully, will help us achieve these ambitions include:

· Review our environmental targets to ensure they continue to be relevant and stretching but achievable

· Enhance our online sustainability reporting to ensure we engage our key stakeholders

· Review our material themes with key stakeholders to ensure we continue to tackle the big issues for our business

· Build on our current employability activities with increased Edinburgh Guarantee intake and further positive intervention work in other UK locations.

We will continue to monitor our success with our progress being measured in our key performance indicators and our performance in sustainability indices like DJSI and FTSE4Good.

1.9 Basis of preparation

Overview

Our Strategic report for the year to 31 December 2013 has been prepared in line with the Companies Act 2006 and the Disclosure and Transparency Rules (DTR) issued by the FCA. In August 2013, Parliament approved The Companies Act 2006 (Strategic Report and Directors' Report) Regulations 2013. These regulations came into force for periods ending on or after 30 September 2013. Under section 414 of the Companies Act 2006, DTR 4.1.8 and DTR 4.1.9, the Group is required to provide a fair, balanced and understandable review of the business and a description of the principal risks and uncertainties facing the Group. Principal uncertainties are detailed in Section 1.1 - Chief Executive's overview. Principal risks are detailed in Section 1.5 - Risk management. To provide clear and helpful information, we have also considered the voluntary best practice principles of the Reporting statement: Operating and Financial Review (OFR) issued by the Accounting Standards Board (ASB).

The Group's financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS), as endorsed by the European Union (EU). However, our Board believes that non-Generally Accepted Accounting Principles (non-GAAP) measures, which have been used in the Strategic report, are useful for both management and investors and make it easier to understand our Group's performance.

The most important non-GAAP measures in the Strategic report include operating profit, European Embedded Value (EEV) operating profit and EEV operating capital and cash generation. All non-GAAP measures should be read together with the Group's IFRS consolidated income statement, consolidated statement of financial position and consolidated statement of cash flows, which are presented in the Group financial statements section of this report.

Going concern

After making appropriate enquiries, the Directors have a reasonable expectation that the Company and the Group as a whole have adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the financial statements. For more detail, see the Corporate governance section.

IFRS and EEV reporting

The financial results are prepared on both an IFRS basis and an EEV basis. All EU-listed companies are required to prepare consolidated financial statements using IFRS issued by the International Accounting Standards Board (IASB) as endorsed by the EU. EEV measures the net assets of the business plus the present value of future profits expected to arise from in-force long-term life assurance and pensions policies. The IFRS financial results in the Strategic report and in the Group financial statements section of this report have been prepared on the basis of the IFRS accounting policies in the Group financial statements section of this report. The EEV basis has been determined in accordance with the EEV Principles and Guidance issued by the Chief Financial Officers (CFO) Forum. The EEV financial results in the Strategic report and in the EEV financial information have been prepared in accordance with the EEV methodology in the EEV financial information section of this report.

Group operating profit and EEV operating profit

The 2013 reconciliation of consolidated operating profit to IFRS profit for the year, presented on page 106 of this report, presents profit before tax expense attributable to equity holders adjusted for non-operating items. Further details on the calculation of Group operating profit is presented in the Group accounting policies at (jj). Group operating profit has not been audited by our independent auditors. The 2013 EEV consolidated income statement on page 219, presents EEV profit showing both operating and non-operating items. By presenting our results in this way, the Directors believe they are presenting a more meaningful indication of the underlying business performance of the Group.

Forward-looking statements

This document may contain 'forward-looking statements' about certain of the Standard Life Group's current plans, goals and expectations relating to future financial conditions, performance, results, strategy and objectives. Statements containing the words: 'believes', 'intends', 'targets', 'estimates', 'expects', 'plans', 'seeks' and 'anticipates' and any other words of similar meaning are forward-looking. By their nature, all forward-looking statements involve risk and uncertainty because they relate to future events and circumstances which may be beyond the Group's control. As a result, the Group's actual financial condition, performance and results may differ materially from the plans, goals and expectations set out in the forward-looking statements, and persons receiving this document should not place undue reliance on forward-looking statements. The Standard Life Group undertakes no obligation to update any of the forward-looking statements in this document or any other forward-looking statements it may make.

Approved on behalf of the Board

Malcolm J Wood, Group Company Secretary and General Counsel

Standard Life plc (SC286832)

27 February 2014

Board of Directors as at 27 February 2014

Board of Directors

Our business is managed by our Board of Directors. Biographical details of the Directors as at 27 February 2014 are listed below.

Gerry Grimstone

Chairman

Age: 64

Tenure: 8 years

Nationality: British

Qualifications: MA and MSc Oxford University

Appointed Chairman in May 2007, having been Deputy Chairman since March 2006. He became a Director of The Standard Life Assurance Company in July 2003. In October 2012, Gerry became Chairman of TheCityUK, the representative body for financial and related professional services in the UK. He has continued as an Independent Non-Executive of Deloitte LLP and the Lead Non-Executive at the Ministry of Defence. Other appointments include being a member of the Shareholder Executive Board of the Department of Business, Innovation and Skills (BIS) and Senior Adviser to the board of the Abu Dhabi Commercial Bank. Previously, he held senior positions within the Department of Health and Social Security and HM Treasury, and from 1986, spent 13 years with Schroders in London, Hong Kong and New York. He was Vice Chairman of Schroders' worldwide investment banking activities from 1998 to 1999.

Gerry is Chairman of both the Nomination and Governance Committee and the Corporate Responsibility Committee.

David Nish

Chief Executive

Age: 53

Tenure: 7 years

Nationality: British

Qualifications: BAcc University of Glasgow. Member of the Institute of Chartered Accountants of Scotland

Appointed Chief Executive on 1 January 2010, having been Group Finance Director since November 2006 when he was appointed to the Board. He is also Deputy Chairman of the board of the Association of British Insurers and Chairman of its Long-Term Savings and Life Insurance Committee; a non-executive Director of the UK Green Investment Bank plc, where he also chairs the audit and risk committee; a member of the Advisory Council of TheCityUK and a member of the Financial Services Advisory Board of the Scottish Government. David was previously a partner with Price Waterhouse, and subsequently Group Finance Director and executive Director, Infrastructure Division at Scottish Power plc.

David is a member of the Corporate Responsibility Committee.

Keith Skeoch

Executive Director

Age: 57

Tenure: 8 years

Nationality: British

Qualifications: BA Sussex University and MA Warwick University. Fellow of the Securities and Investment Institute

Appointed Director in May 2006, having been a Director of The Standard Life Assurance Company since March 2006. He is Chief Executive of Standard Life Investments Limited. Keith joined Standard Life Investments Limited in 1999 as Chief Investment Officer after nearly 20 years' investment experience at James Capel & Company Limited in a number of roles, including Chief Economist and Managing Director International Equities. He is also a Director of the Investment Management Association, a non-executive Director of the Financial Reporting Council and a member of the Advisory Board of Reform Scotland. In November 2013 he was awarded European Personality of the Year by Funds Europe.

John Paynter

Senior Independent Director

Age: 59

Tenure: 2 years

Nationality: British

Qualifications: Law Degree, Oxford University
Appointed Director in January 2012. He is the Company's Senior Independent Director and the non-executive Chairman of Standard Life Investments (Holdings) Limited. John is a non-executive Director of Standard Chartered plc, where he also sits on the audit and remuneration committees and is a Senior Adviser to Greenhill & Co International. From 2001 to 2005, he was Deputy Chairman of Cazenove Group plc and then Vice Chairman of JP Morgan Cazenove from 2005 to 2008. He served as a non-executive Director of Jardine Lloyd Thompson Group plc from October 2008 until June 2012, including three years as Chairman of its remuneration committee.

John is a member of the Audit Committee; the Remuneration Committee and the Nomination and Governance Committee.

Colin Buchan

Non-executive Director

Age: 59

Tenure: 6 years

Nationality: British

Qualifications: BCom University of Witwatersand, South Africa; AMP INSEAD. Fellow of the Chartered Institute of Bankers of Scotland

Appointed Director in January 2008. He is also Senior Independent Director of Blackrock World Mining Trust plc; Chairman of TTT Moneycorp Limited and Director of the Scottish Chamber Orchestra. He was formerly Global Head of Equities at UBS Warburg and a member of the Group Management Board of UBS AG. He was appointed Chairman of The Royal Bank of Scotland Group plc's remuneration committee in February 2009 and retired from that board in 2011 after almost ten years' service as a non-executive Director.

Colin was a non-executive Director of Standard Life Investments Limited from February 2002 to December 2011, serving as Chairman from 2008. As announced, Colin will retire from the Board following the 2014 AGM.

Colin is Chairman of the Investment Committee and a member of the Audit Committee; the Remuneration Committee and the Nomination and Governance Committee.

Pierre Danon

Non-executive Director

Age: 57

Tenure: 2.5 years

Nationality: French

Qualifications: Degree in Civil Engineering, Ecole Nationale des Ponts et Chaussées, Paris; Law Degree Faculté de droit, Paris; MBA HEC Paris

Appointed Director in October 2011. He is also Vice Chairman of TDC; executive Chairman of Volia; independent Director of CIEL Investment Limited; Director of Cordial Consulting Limited and Vice Chairman of AgroGeneration. From 2000 to 2005 Pierre was Chief Executive Officer of BT Retail and, subsequently, Chief Operating Officer of Capgemini Group and Chairman of Eircom. Until June 2012 he served as Chief Executive Officer and then non-executive Chairman of Numericable Completel in Paris.

Pierre is a member of the Investment Committee; the Remuneration Committee and the Risk and Capital Committee.

Crawford Gillies

Non-executive Director

Age: 57

Tenure: 7 years

Nationality: British

Qualifications: Law Degree, University of Edinburgh; MBA Harvard Business School. Member of the Institute of Chartered Accountants of England and Wales

Appointed Director in January 2007. He is also Chairman of Scottish Enterprise and Control Risks Group Holdings Limited, and was appointed a non-executive Director of MITIE Group PLC in July 2012. Crawford spent 22 years with Bain & Company Inc., the international management consultants, where he was Managing Director Europe. He was an independent member of the Department of Trade and Industry (DTI) Management and Strategy Boards from 2002 to 2007, and chaired the DTI's audit and risk committee from 2003 to 2007.

Crawford is Chairman of the Remuneration Committee and a member of the Investment Committee; the Risk and Capital Committee and the Corporate Responsibility Committee.

David Grigson

Non-executive Director

Age: 59

Tenure: 4.5 years

Nationality: British

Qualifications: BA University of Manchester. Member of the Institute of Chartered Accountants of England and Wales

Appointed Director in November 2009. He is also Chairman of Creston plc and Trinity Mirror plc and he is the Senior Independent Director of Ocado Group plc. He sits on the audit, remuneration and nomination committees of each of these companies. He is also Chairman of Investis Limited. David spent much of his career in senior financial executive positions, first with Emap plc where he served as Group Finance Director from 1989 to 2000, and more recently with Reuters Group plc, where he was Chief Financial Officer from 2000 to 2008, when Reuters Group became Thomson Reuters Limited.

David is Chairman of the Audit Committee and a member of the Risk and Capital Committee and the Nomination and Governance Committee.

Noel Harwerth

Non-executive Director

Age: 66

Tenure: 2 years

Nationality: British and American

Qualifications: Law Degree, University of Texas
Appointed Director in July 2012. She is also Chairman of Sumitomo Mitsui Banking Corporation Europe Limited, and holds non-executive Director appointments with GE Capital Bank Limited; Dominion Diamond Corporation; Alent plc and The London Metal Exchange. Noel has recently been appointed a Director of London First. Noel was previously with Citicorp for 15 years, latterly as the Chief Operating Officer of Citibank International. She previously held non-executive Director appointments at Logica plc; LME Holdings Limited; Avocet Mining plc and RSA Insurance Group plc.

Noel is Chairman of the Risk and Capital Committee and a member of the Audit Committee.

Lynne Peacock

Non-executive Director

Age: 60

Tenure: 2 years

Nationality: British

Qualifications: BA North East London Polytechnic

Appointed Director in April 2012. Lynne is also a non-executive Director of Scottish Water, where she chairs its audit committee. She is a non-executive Director of Nationwide Building Society, and chairs its remuneration committee and is a member of its audit, risk and nomination committees. She joined National Australia Bank Limited in 2003 and, from 2004 to 2011, she was Chief Executive Officer, UK (Clydesdale Bank plc and Yorkshire Bank). Before that, Lynne was with Woolwich plc from 1983 to 2003, finishing her career there as Chief Executive Officer.

Lynne is a member of the Remuneration Committee; the Corporate Responsibility Committee and the Audit Committee.

Martin Pike

Non-executive Director

Age: 52

Tenure: appointed September 2013

Nationality: British

Qualifications: BA and MA Oxford University. Fellow of the Institute and Faculty of Actuaries
Appointed Director in September 2013. Martin joined R Watson & Sons in 1983, and progressed his career with the firm to partner level. His senior roles included Head of European Insurance and Financial Services Practice, Watson Wyatt from 2006 to 2009; Vice President and Global Practice Director, Insurance and Financial Services, Watson Wyatt during 2009 and, latterly, Managing Director, Risk Consulting & Software, EMEA, Towers Watson from 2010 to 2013.

Martin is a member of the Investment Committee and the Risk and Capital Committee.

Directors' report

The Directors present their annual report on the affairs of the Standard Life group (the "Group"), together with the audited International Financial Reporting Standards (IFRS) consolidated financial statements, European Embedded Value (EEV) financial information and Standard Life plc (the "Company") financial statements, for the year ended 31 December 2013.

Reporting for the year ended 31 December 2013

The Company is the holding company of the Group. You can find out about the relevant activities of the Company's principal subsidiary undertakings and their overseas branches in the Group financial overview and Business segment performance sections of the Strategic report.

The main trends and factors likely to affect the future development, performance and position of the Group are outlined in the Chief Executive's overview section of the Strategic report. Reviews of the operating and financial performance of the Group for the year ended 31 December 2013 are given in the Strategic report.

The Chairman's statement, the Directors' responsibility statement and the Corporate governance section form part of the Directors' report. The Corporate governance section is submitted by the Board.

The results of the Group on both IFRS and EEV bases are presented in the Group financial statements and EEV financial information. A detailed description of the basis of preparation for IFRS (including operating profit) and EEV results are set out in the Group accounting policies section of the Group financial statements and Note 1 of the EEV financial information respectively. More information about the Group's use of financial instruments and related financial risk management matters is in Note 23 and Note 41 to the Group financial statements.

This report was prepared by the Company's executive team together with the Board and forms part of the management report.

Forward-looking statements

Various sections of the Annual Report and Accounts 2013, including but not limited to the Chairman's statement, the Chief Executive's overview and the Group financial overview, may contain forward-looking statements. These statements are based on the Group's future plans, goals and expectations. These statements may be identified by words like 'believes', 'intends', 'expects', 'plans', 'pursues', 'seeks', 'anticipates' or words of a similar meaning.

Forward-looking statements carry an element of risk and uncertainty. As such, the Group's actual future financial condition, performance and results may materially differ from the plans, goals and expectations described in these statements.

The Company does not intend to update any of these statements.

Dividends

The Board recommends paying a final dividend for 2013 of 10.58p per ordinary share. This will be paid on 22 May 2014 to shareholders whose names are on the Register of Members at the close of business on 11 April 2014.

The total payment is estimated at £251m for the final dividend and together with the interim dividend of 5.22p per share totalling £124m paid on 29 October 2013, the total dividend for 2013 will be 15.80p per share (2012: 27.50p inclusive of the special dividend paid in 2013) totalling £375m (2012: £647m inclusive of the special dividend paid in 2013).

Share capital

You can find full details of the Company's share capital, including movements in the Company's issued ordinary share capital during the year, in Note 28 to the Group financial statements. You can also find an analysis of registered shareholdings by size, as at 31 December 2013, in the Shareholder information section on page 281.

On 31 December 2013, there were 2,376,616,730 ordinary shares in issue held by 107,416 registered members. The Standard Life Share Account (the Company-sponsored nominee) held 947,113,201 of those shares on behalf of 1,128,016 participants. No person has any special rights of control over the Company's share capital and all issued shares are fully paid.

During the year, and until the date this report was signed, the Company received the following notifications in respect of major shareholdings and major proportions of voting rights in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority (FCA).

Shareholder	Date of Transaction	Type of Transaction	Percentage of Voting Rights Following Transaction
BlackRock, Inc.	10 December 2013	Adjustment to the calculation of notifiable interest in voting rights	Less than 5%
Legal & General Group Plc	15 July 2013	Disposal	Less than 3%

During the year, in accordance with the terms of the Standard Life Employee Trust Deed, the Trustees of the Standard Life Employee Trust waived all entitlements to current or future dividend payments for shares they hold under option on behalf of participants in the Company's discretionary share plans between the grant and vest dates. Details of ordinary shares under option in respect of the Company's discretionary share plans are shown in Note 46 to the Group financial statements.

The Trustees of the Standard Life (Employee) Share Plan also voted the appropriate shares in accordance with any instructions received from participants in the plan. Details of the Company's employee share plan can be found in Note 46 to the Group financial statements.

Restrictions on the transfer of shares and securities

Except where listed below, there are no specific restrictions on the size of a holding or on the transfer of shares. Both are governed by the general provisions of the Company's Articles of Association (the "Articles") and current legislation and regulation. The Articles can be found on our website at www.standardlife.com/about/governance You can also obtain a copy from Companies House, or by writing to the Group Company Secretary and General Counsel at our registered address (details of which can be found in the Contact details section on page 289). The Articles may only be amended by a special resolution passed by the shareholders.

The Board may decline to register the transfer of:

· a share that is not fully paid

· a certificated share, unless the instrument of transfer is duly stamped or duly certified and accompanied by the relevant share certificate or other evidence of the right to transfer, is in respect of only one class of share and is in favour of no more than four joint transferees

· an uncertificated share, in the circumstances set out in the uncertificated securities rules (as defined in the Articles) and where, in the case of a transfer to joint holders, the transfer is in favour of more than four joint transferees

· a certificated share by a person with a 0.25% interest in the Company, if that person has been served with a restriction notice under the Articles, after failing to provide the Company with information about interests in those shares as set out in the Companies Act 2006 (unless the transfer is shown to the Board to be pursuant to an arm's length sale under the Articles).

These restrictions are in line with the standards set out in the FCA's Listing Rules and are considered to be standard for a listed company.

The Directors are not aware of any other agreements between holders of the Company's shares that may result in restrictions on the transfer of securities or on voting rights.

Rights attached to shares

Subject to applicable statutes, any resolution passed by the Company under the Companies Act 2006 and other shareholders' rights, shares may be issued with such rights and restrictions as the Company may decide by ordinary resolution, or (if there is no such resolution or if it does not make specific provision) as the Board may decide. Subject to the Articles, the Companies Act 2006 and other shareholders' rights, unissued shares are at the disposal of the Board.

Every member and duly appointed proxy present at a general meeting or class meeting has one vote on a show of hands. On a poll, every member present in person or by proxy has one vote for every share they hold. For joint shareholders, the vote of the senior joint shareholder who tenders a vote, in person or by proxy, will be accepted and will exclude the votes of the other joint shareholders. For this purpose, seniority is determined by the order that the names appear on the register for joint shareholders.

A member will not be entitled to vote at any general meeting or class meeting in respect of any share they hold if any call or other sum then payable by them for that share remains unpaid or if they have been served with a restriction notice (as defined in the Articles) after failing to provide the Company with information about interests in those shares required to be provided under the Companies Act 2006.

The Company may, by ordinary resolution, declare dividends up to the amount recommended by the Board. Subject to the Companies Act 2006, the Board may also pay an interim dividend, and any fixed rate dividend, whenever the financial position of the Company, in the opinion of the Board, justifies its payment. If the Board acts in good faith, it is not liable to holders of shares with preferred or 'pari passu' rights for losses that arise from paying interim or fixed dividends on other shares.

The Board may withhold payment of all or part of any dividends or other monies payable in respect of the Company's shares from a person with a 0.25% interest (as defined in the Articles) if that person has been served with a restriction notice (as defined in the Articles) after failure to provide the Company with information about interests in those shares, which is required under the Companies Act 2006.

Subject to the Companies Act 2006, rights attached to any class of shares may be varied with the written consent of the holders of not less than three-quarters in nominal value of the issued shares of that class (excluding any shares held as treasury shares). These rights can also be varied with the sanction of a special resolution passed at a separate general meeting of the holders of those shares. At every separate general meeting (except an adjourned meeting) the quorum shall be two persons holding, or representing by proxy, not less than one third in nominal value of the issued shares of the class (calculated excluding any shares held as treasury shares).

A shareholder's rights will not change if additional shares ranking 'pari passu' with their shares are created or issued - unless this is expressly provided in the rights attaching to their shares.

Powers to purchase the Company's own shares

At the 2013 Annual General Meeting (AGM), shareholders granted the Directors limited power to:

· allot the Company's ordinary shares up to a maximum aggregate amount of £78,601,061

· disapply, up to a maximum total nominal amount of £11,790,159 or 5% of its issued ordinary share capital, shareholders' pre-emption rights in respect of new ordinary shares issued for cash

· make market purchases of the Company's ordinary shares up to a maximum of 235,803,185 or 10% of its issued ordinary shares.

Significant agreements

There are a number of agreements to which the Company is party that entitle the counterparties to exercise termination or other rights in the event of a change of control of the Company. These agreements include:

· Under a £500m revolving credit facility between the Company and the banks and financial institutions named therein as lenders (Lenders) dated 5 March 2013 (the Facility), in the event that (i) any persons or group of persons acting in concert gains control of the Company or (ii) Standard Life Assurance Limited ceases to be a member of the Group, then any Lender may elect within a prescribed time frame to cancel its outstanding commitment under the Facility and declare its participation in all outstanding loans, together with accrued interest and all amounts accrued immediately due and payable, whereupon the commitment of that Lender under the Facility will be cancelled and all such outstanding amounts will become immediately due and payable

· Under a shareholders' agreement dated 15 January 2002 between The Standard Life Assurance Company and Housing Development Finance Corporation Limited (HDFC), pursuant to which the Group holds its interest in HDFC Standard Life Insurance Company Limited (HDFC Standard Life), upon a change of control of the Company, HDFC potentially has the right to terminate the joint venture and to purchase, or nominate a third party to purchase, the Group's shares in HDFC Standard Life for a price determined in accordance with the agreement

· Under a shareholders' agreement dated 10 June 2003 (as amended) between Standard Life Investments Limited (SLI) and HDFC, pursuant to which the Group holds its interest in HDFC Asset Management Company Limited (HDFC AMC) upon a change in the ownership structure of SLI that results in the acquisition by a third party, either directly or indirectly, of more than 20% of the issued, subscribed and paid-up capital of SLI, HDFC will have 90 days from the date upon which SLI notifies it in writing of the occurrence of such a change to purchase the Group's shares in HDFC AMC at a mutually agreed price

· Under a joint venture agreement dated 12 October 2009 (as amended) between the Company and Tianjin TEDA International Holding (Group) Co. Limited (TEDA), pursuant to which the Group holds its interest in Heng An Standard Life Insurance Company Limited (Heng An Standard Life), upon a change of control of the Company, TEDA has the right to terminate the joint venture and to purchase, or nominate a third party to purchase, the Group's shares in Heng An Standard Life for a price determined in accordance with the agreement.

A number of other agreements contain provisions that entitle the counterparties to exercise termination or other rights in the event of a change of control of the Company. However, these agreements are not considered to be significant in terms of their likely impact on the business of the Group as a whole.

The Directors are not aware of any agreements with any employee that would provide compensation for loss of office or employment resulting from a takeover bid. The Company also has no agreement with any Director to provide compensation for loss of office or employment resulting from a takeover.

Directors and their interests

The Directors who served throughout the year were:

· Gerry Grimstone (Chairman)

· Colin Buchan

· Pierre Danon

· Crawford Gillies

· David Grigson

· Noel Harwerth

· Jackie Hunt (Chief Financial Officer) (resigned on 26 April 2013)

· David Nish (Chief Executive)

· John Paynter

· Lynne Peacock

· Martin Pike (appointed as a non-executive Director on 27 September 2013)

· Keith Skeoch

· Sheelagh Whittaker (retired on 14 May 2013).

Biographies of the Directors can be found on pages 39 to 41.

Details of the Directors' beneficial interests in the Company's ordinary shares, the Standard Life (Employee) Share Plan, the Sharesave Plan and the share-based executive long-term incentive plans (LTIPs) are set out in the Directors' remuneration report together with details of the executive Directors' service contracts and non-executive Directors' appointment letters.

No Director had any interest in the Company's listed debt securities or in any shares, debentures or loan stock of the Company's subsidiaries. No Director had any material interest in any contract with the Company or a subsidiary undertaking which was significant in relation to the Company's business, except for the following:

· the benefit of a continuing third-party indemnity provided by the Company (in accordance with company law and the Articles)

· service contracts between each executive Director and subsidiary undertakings (Standard Life Employee Services Limited and Standard Life Investments Limited).

Copies of the following documents can be viewed at the Company's registered office (details of which can be found in the Contact details section on page 289) during normal business hours (9am to 5pm Monday to Friday) and will be available for inspection at the Company's AGM on 13 May 2014:

· the Directors' service contracts or letters of appointment

· the Directors' deeds of indemnity, entered into in connection with the indemnification of Directors provisions in the Articles

· the Articles

· the rules of the proposed new LTIP.

Appointment and retirement of Directors

The appointment and retirement of Directors is governed by the Articles, the Companies Act 2006, the UK Corporate Governance Code, and related legislation.

The UK Corporate Governance Code recommends that Directors of FTSE 350 companies should stand for election every year. In line with this, all our Directors will retire at the AGM on 13 May 2014. Martin Pike will stand for election and all remaining Directors who wish to continue in office will stand for re-election. As announced, Colin Buchan will retire from the Board following the 2014 AGM and therefore, will not stand for re-election.

The powers of the Directors can also be found in the Articles.

Directors' liability insurance

The Company maintains directors' and officers' liability insurance on behalf of its Directors and officers which gives appropriate cover for any legal action brought against them. The Company also maintains a third-party indemnity policy for the boards of trustees of the UK, Irish and Canadian staff pension schemes. The trustees include individuals who are directors of subsidiaries within the Group.

Our people

We recognise that our people are central to delivering our strategy and you can read about our commitment to bring out the best in them in Section 1.7 of the Strategic report - Our people strategy.

The Group remains committed to creating a high-performing, diverse and healthy working environment where everyone is respected, valued and included as an individual. We treat people with disabilities fairly in relation to job applications, training, promotion and career development. Adjustments are made to train and support employees who become disabled during their employment to enable them to continue and develop in their role.

We know that positive employee relations are vital in engaging our people and achieving business goals. Constructive staff representation provides an essential means of informing the Group's strategy through the views and insights of our people. There are separate staff representation arrangements across different jurisdictions in the Group. In the UK, most employees are represented through partnership agreements with the Group's staff associations, VIVO and Bridge. In Ireland, there is an established agreement with Unite, and a Works Council was established in Germany in 2008.

We have maintained good relationships with our different staff representative bodies and a positive employee relations (ER) environment. Throughout 2013 we have continued to review and develop the organisational model to make sure that it is optimal to support our business strategy. A theme of the ER environment has, therefore, been around restructuring. This restructuring meant that, during 2013, around 250 people were made redundant. More than half of these were voluntary leavers. VIVO, one of our staff representative bodies in the UK, supported this as an effective means of mitigating compulsory redundancies. As part of our performance culture, each employee takes part in regular discussions with their manager. They agree performance goals and how their aspirations, strengths and limitations can be developed and addressed at work. We believe great performance should be rewarded, and we think the process we follow to do that should be clear to everyone. Our approach continues to support our reward principles by linking pay to performance and ensuring our remuneration remains competitive to the market.

We also use our internal intranet to communicate with our staff on matters which may concern them as employees and to ensure that our employees are fully aware of any financial and economic factors which may affect the performance of the Group.

As at 31 December 2013, 64% of the Group's employees were shareholders through participation in The Standard Life (Employee) Share Plan (the Plan). The Plan allows employees to buy ordinary shares in the Company directly from their earnings up to a market value of £125 per month, or an equivalent sum in a relevant currency. These are called Partnership shares. For each Partnership share that an employee buys under the Plan, the Company matches the purchase by allocating them one ordinary share up to a maximum total value of £25 per month, or an equivalent sum in the relevant currency. As at 31 December 2013, 3,657 (65%) of eligible employees in the UK were making a monthly average contribution of £42. A similar tax approved plan is used in Ireland and has a 47% take up. Even though the Plan cannot be structured on a tax favourable basis in Canada, Germany or Austria, more than 640 employees in these countries are buying shares each month.

The Group also encourages share ownership in the Company in the UK and Ireland through the Standard Life Sharesave Plan which was launched in August 2011. In September 2013 we launched a third invitation to UK employees and at the same time made a second invitation to Irish employees. There are now 2,918 employees in the UK and 85 employees in Ireland participating in Sharesave plans. The exercise price was £1.57 under the 2011 invitation; £2.21 (Euros €2.81) under the 2012 invitations and £2.72 (Euros €3.22) under the 2013 invitations.

Sustainability

We launched our sustainability strategy in 2010. It is mapped to our Group's business strategy, so that the commercial aims of our business are linked to our environmental, social and governance responsibilities. You can find out more in Section 1.8 of the Strategic report - Our sustainability strategy and in the Environmental, social and governance risk paragraph of the Corporate governance section.

Greenhouse gas emissions

We have disclosed our greenhouse gas emissions in Section 1.8 of the Strategic report - Our sustainability strategy.

Political donations

No political donations were made during the year ended 31 December 2013. From time to time, we make our training facilities available to political parties, charities and other third sector organisations to facilitate debate and discussion on relevant public policy issues.

Auditors

The Audit Committee is responsible for considering the Group's external audit arrangements. A resolution proposing the re-appointment of PricewaterhouseCoopers LLP as auditors to the Company and giving authority to the Directors to determine their remuneration will be submitted at the AGM to be held on 13 May 2014.

Disclosure of information to the auditors

Each Director confirms that he or she has taken all steps necessary, in his or her role as a Director, to be made aware of any relevant audit information and to establish that PricewaterhouseCoopers LLP is made aware of that information.

As far as each Director is aware, there is no relevant audit information that PricewaterhouseCoopers LLP is not aware of as at the date this report was approved.

Annual General Meeting

This will be held at 2pm (UK time) on Tuesday, 13 May 2014 at the Edinburgh International Conference Centre, The Exchange, 150 Morrison Street, Edinburgh EH3 8EE, Scotland. Details of the meeting content can be found in our AGM guide 2014 which will be available online at www.standardlife.com from 1 April 2014.

On behalf of the Board

Malcolm J Wood, Group Company Secretary and General Counsel
Standard Life plc (SC286832)
27 February 2014

Directors' responsibilities for preparing the financial statements

The following statements should be read with the statement of auditor's responsibilities included in the independent auditor's reports. They are made to help shareholders distinguish between the responsibilities of the Directors and those of the auditor's in relation to the financial statements for 2013.

The Directors are responsible for preparing the Annual Report and Accounts 2013. It is also their responsibility to state that they consider that the Annual Report and Accounts 2013, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's performance, business model and strategy. Under the Companies Act 2006, the Directors are required to prepare and approve financial statements for each financial year. The Directors must only approve the financial statements when they are satisfied that they give a true and fair view of how the Group and the Company have performed at the end of the financial year, and that they give a true and fair view of the profit of the Group and the Company for that year. The financial statements of the Group and, where relevant, the Company have been prepared in accordance with:

· International Financial Reporting Standards (IFRS) as adopted by the European Union (EU)

· the Companies Act 2006

· the Disclosure and Transparency Rules (DTR) issued by the Financial Conduct Authority (FCA)

· Article 4 of the International Accounting Standards (IAS) Regulation.

In preparing these financial statements, the Directors are required to:

· select suitable accounting policies and then apply them consistently

· make judgements and accounting estimates that are reasonable and prudent

· state whether applicable IFRS as adopted by the EU have been followed, subject to any material departures disclosed and explained in the financial statements

· prepare the financial statements on the basis that the Group is a going concern, unless it is inappropriate to presume that the Group will continue in business.

The Directors are responsible for ensuring that proper accounting records are maintained. These must disclose, with reasonable accuracy at any time, the financial position of the Group and the Company and enable the Directors to ensure that the financial statements and the Directors' remuneration report comply with the Companies Act 2006 and the DTR. The Directors should also make sure that the Group financial statements comply with Article 4 of the IAS Regulation.

The Directors are also responsible for:

· safeguarding the assets of the Company and the Group

· taking reasonable steps to prevent and detect fraud and other irregularities

· the maintenance and integrity of the Group's website.

UK legislation governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Directors' responsibility statement

Each of the Directors, whose names and functions are listed in the Board of Directors section on page 39, confirms that to the best of their knowledge and belief:

1. the Group and the Company financial statements, which have been prepared in accordance with IFRS as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit of the Group and of the Company and taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Group's performance, business model and strategy.

2. the Strategic report includes the information required by DTR 4.1.8 and DTR 4.1.9 - a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties it faces.

By order of the Board

Gerry Grimstone, Chairman

27 February 2014

David Nish, Chief Executive

27 February 2014

This information is provided by RNS

The company news service from the London Stock Exchange

END

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