Final Results - Part 7 of 8

RNS Number : 7406X

Standard Life plc

24 February 2017

 

Standard Life plc

Full Year Results 2016

Part 7 of 8

9. Independent auditors' report to the members of Standard Life plc

Report on the company financial statements

Our opinion

In our opinion, Standard Life plc's company financial statements (the 'financial statements'):

·   Give a true and fair view of the state of the company's affairs as at 31 December 2016 and of its cash flows for the year then ended

·   Have been properly prepared in accordance with International Financial Reporting Standards ('IFRSs') as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006

·   Have been prepared in accordance with the requirements of the Companies Act 2006

What we have audited

The financial statements, included within the Annual report and accounts (the 'Annual Report'), comprise:

·   The Company statement of financial position as at 31 December 2016

·   The Company statement of cash flows for the year then ended

·   The Company statement of changes in equity for the year then ended

·   The accounting policies

·   The notes to the financial statements, which include other explanatory information

Certain required disclosures have been presented elsewhere in the Annual Report, rather than in the notes to the financial statements. These are cross-referenced from the financial statements and are identified as audited.

The financial reporting framework that has been applied in the preparation of the financial statements is IFRSs as adopted by the European Union, and applicable law, and as applied in accordance with the provisions of the Companies Act 2006.

Other required reporting

Consistency of other information and compliance with applicable requirements

Companies Act 2006 reporting

In our opinion, based on the work undertaken in the course of the audit:

·   The information given in the Strategic report and the Directors' report for the financial year for which the financial statements are prepared is consistent with the financial statements

·   The Strategic report and the Directors' report have been prepared in accordance with applicable legal requirements

In addition, in light of the knowledge and understanding of the company and its environment obtained in the course of the audit, we are required to report if we have identified any material misstatements in the Strategic report and the Directors' report. We have nothing to report in this respect.

ISAs (UK & Ireland) reporting

Under International Standards on Auditing (UK and Ireland) ('ISAs (UK & Ireland)') we are required to report to you if, in our opinion, information in the Annual Report is:

·   Materially inconsistent with the information in the audited financial statements

·   Apparently materially incorrect based on, or materially inconsistent with, our knowledge of the company acquired in the course of performing our audit

·   Otherwise misleading

We have no exceptions to report arising from this responsibility.

Adequacy of accounting records and information and explanations received

Under the Companies Act 2006 we are required to report to you if, in our opinion:

·   We have not received all the information and explanations we require for our audit

·   Adequate accounting records have not been kept by the company, or returns adequate for our audit have not been received from branches not visited by us

·   The financial statements and the part of the Directors' remuneration report to be audited are not in agreement with the accounting records and returns

We have no exceptions to report arising from this responsibility.

Directors' remuneration

Directors' remuneration report - Companies Act 2006 opinion

In our opinion, the part of the Directors' remuneration report to be audited has been properly prepared in accordance with the Companies Act 2006.

Other Companies Act 2006 reporting

Under the Companies Act 2006 we are required to report to you if, in our opinion, certain disclosures of directors' remuneration specified by law are not made. We have no exceptions to report arising from this responsibility.

Responsibilities for the financial statements and the audit

Our responsibilities and those of the directors

As explained more fully in the Statement of Directors' responsibilities set out on page 103, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view.

Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and ISAs (UK & Ireland). Those standards require us to comply with the Auditing Practices Board's Ethical Standards for Auditors.

This report, including the opinions, has been prepared for and only for the company's members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

What an audit of financial statements involves

We conducted our audit in accordance with ISAs (UK & Ireland). An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of:

·   Whether the accounting policies are appropriate to the company's circumstances and have been consistently applied and adequately disclosed

·   The reasonableness of significant accounting estimates made by the directors

·   The overall presentation of the financial statements

We primarily focus our work in these areas by assessing the directors' judgements against available evidence, forming our own judgements, and evaluating the disclosures in the financial statements.

We test and examine information, using sampling and other auditing techniques, to the extent we consider necessary to provide a reasonable basis for us to draw conclusions. We obtain audit evidence through testing the effectiveness of controls, substantive procedures or a combination of both.

In addition, we read all the financial and non-financial information in the Annual Report to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. With respect to the Strategic report and Directors' report, we consider whether those reports include the disclosures required by applicable legal requirements.

Other matter

We have reported separately on the group financial statements of Standard Life plc for the year ended 31 December 2016.

Stephanie Bruce (Senior Statutory Auditor)

for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Edinburgh
24 February 2017

a) The maintenance and integrity of the Standard Life plc website is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website.

b) Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

10. Company financial statements

Company statement of financial position

As at 31 December 2016

		2016	2015
	Notes	£m	£m
Assets
Investments in subsidiaries	A	4,769	4,591
Investments in associates and joint ventures	B	134	150
Loans to subsidiaries	C	323	322
Debt securities	C	605	743
Receivables and other financial assets	C	54	48
Other assets	F	8	19
Cash and cash equivalents	C	55	61
Total assets		5,948	5,934
Equity
Share capital	H	242	241
Shares held by trusts	I	(2)	(6)
Share premium reserve	H	634	628
Retained earnings
Brought forward retained earnings		837	785
Profit for the year		351	1,090
Other movements in retained earnings		163	(1,038)
Total retained earnings		1,351	837
Other reserves	K	2,393	2,860
Total equity		4,618	4,560
Liabilities
Subordinated liabilities	L	1,319	1,318
Deferred tax liabilities	N	3	1
Derivative financial liabilities	L	-	2
Other financial liabilities	L	8	52
Other liabilities	P	-	1
Total liabilities		1,330	1,374
Total equity and liabilities		5,948	5,934

The financial statements on pages 222 to 235 were approved by the Board and signed on its behalf, by the following Directors:

Sir Gerry Grimstone                                                         Luke Savage

Chairman                                                                          Chief Financial Officer

24 February 2017                                                            24 February 2017

Company statement of changes in equity

For the year ended 31 December 2016

		Share capital	Shares held by trusts	Share premium reserve	Retained earnings	Other reserves	Total equity
2016	Notes	£m	£m	£m	£m	£m	£m
1 January		241	(6)	628	837	2,860	4,560
Profit for the year		-	-	-	351	-	351
Other comprehensive income that may be reclassified subsequently to profit or loss
Fair value gains on available-for-sale financial assets		-	-	-	-	17	17
Tax effect relating to items that may be reclassified subsequently to profit or loss		-	-	-	-	(3)	(3)
Total other comprehensive income for the year that may be reclassified subsequently to profit or loss		-	-	-	-	14	14
Total comprehensive income for the year		-	-	-	351	14	365
Dividends paid on ordinary shares		-	-	-	(370)	-	(370)
Issue of share capital	H	1	-	6	-	-	7
Expiry of unclaimed asset trust claim period	J	-	-	-	36	-	36
Reserves credit for employee share-based payment schemes	K	-	-	-	-	30	30
Transfer to retained earnings for vested employee share-based payment schemes	K	-	-	-	23	(23)	-
Shares acquired by employee trusts		-	(3)	-		-	(3)
Shares distributed or sold by employee trusts		-	7	-	(7)	-	-
Cancellation of capital redemption reserve		-	-	-	488	(488)	-
Aggregate  tax effect of items recognised directly in equity		-	-	-	(7)	-	(7)
31 December		242	(2)	634	1,351	2,393	4,618

		Share capital	Shares held by trusts	Share premium reserve	Retained earnings	Other reserves	Total equity
2015	Notes	£m	£m	£m	£m	£m	£m
1 January		239	(3)	1,115	785	3,405	5,541
Profit for the year		-	-	-	1,090	-	1,090
Other comprehensive income that may be reclassified subsequently to profit or loss
Fair value (losses) on available-for-sale financial assets		-	-	-	-	(7)	(7)
Loss on sale of available-for-sale financial assets recycled to profit and loss		-	-	-	-	(2)	(2)
Tax effect relating to items that may be reclassified subsequently to profit or loss		-	-	-	-	2	2
Total other comprehensive income/(expense) for the year that may be reclassified subsequently to profit or loss		-	-	-	-	(7)	(7)
Total comprehensive income for the year		-	-	-	1,090	(7)	1,083
Dividends paid on ordinary shares		-	-	-	(343)	-	(343)
Issue of share capital	H	2	-	1	-	-	3
Issue of 'B' shares		488	-	(488)	-	-	-
Issue of 'C' shares		-	-	-	-	-	-
Redemption of 'B' shares		(488)	-	-	(488)	488	(488)
Dividends paid on 'C' shares		-	-	-	(1,261)	-	(1,261)
Purchase of 'C' shares		-	-	-	-	-	-
Reserves credit for employee share-based payment schemes	K	-	-	-	-	34	34
Transfer to retained earnings for vested employee share-based payment schemes	K	-	-	-	32	(32)	-
Transfer between reserves on disposal of subsidiary	K	-	-	-	1,028	(1,028)	-
Shares acquired by employee trusts		-	(9)	-	-	-	(9)
Shares distributed or sold by employee trusts		-	6	-	(6)	-	-
31 December		241	(6)	628	837	2,860	4,560

Company statement of cash flows

For the year ended 31 December 2016

		2016	2015
	Notes	£m	£m
Cash flows from operating activities
Profit before tax		334	1,073
Impairment of subsidiary undertakings		49	1,415
Impairment of associate undertaking		3	-
Gains on financial instruments		(4)	(1)
Dividend income from subsidiaries		(458)	(2,585)
Interest income on loans to subsidiaries		(20)	(20)
Interest income on available-for-sale debt securities		(12)	(15)
Distributions from equity instruments		(34)	(34)
Interest payable on subordinated liabilities		82	82
Movements in operating assets and liabilities		5	49
Taxation paid		-	-
Net cash flows used in operating activities		(55)	(36)
Cash flows from investing activities
Loans repaid by subsidiaries		-	301
Capital injections into existing subsidiaries	A	(208)	(35)
Acquisition of subsidiaries measured at cost	A	-	(12)
Interest received on loans to subsidiaries		20	20
Interest received on available-for-sale debt securities		17	6
Distributions from equity instruments		34	34
Dividends received from subsidiaries		457	2,585
Acquisition of subsidiaries at FVTPL		(18)	(200)
Disposal of subsidiaries at FVTPL	A	-	75
Sale of debt securities and derivatives		147	(235)
Disposal of investment in associates and joint ventures		13	-
Net cash flows generated from investing activities		462	2,539
Cash flows from financing activities
Repayment of subordinated liabilities		-	(294)
Dividends paid		(370)	(343)
Interest paid on subordinated liabilities		(82)	(82)
Proceeds from issue of shares		6	1
Shares acquired by trusts		(3)	(9)
Return of cash to shareholders under 'B/C' share scheme		-	(1,749)
Expiry of unclaimed asset trust claim period		36	-
Net cash flows used in financing activities		(413)	(2,476)
Net (decrease)/increase in cash and cash equivalents		(6)	27
Cash and cash equivalents at the beginning of the year	G	61	34
Cash and cash equivalents at the end of the year	G	55	61
Supplemental disclosures on cash flows from operating activities
Interest received		-	2

Company accounting policies

(a)        Basis of preparation

These financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) as endorsed by the European Union (EU), with interpretations issued by the IFRS Interpretations Committee and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS. The financial statements have been prepared on a going concern basis and under the historical cost convention, as modified by the revaluation of available-for-sale financial assets (AFS) and financial assets and financial liabilities (including derivative instruments) at fair value through profit or loss (FVTPL).

The principal accounting policies adopted are the same as those set out in the Group financial statements, together with the Company specific policies set out below, and have been consistently applied to all financial reporting periods presented in these financial statements.

The Company has taken advantage of the exemption in section 408 of the Companies Act 2006 not to present its own income statement in these financial statements. This is a change from the treatment adopted in 2015 when an income statement was presented. The Company has no employees.

(a)(i)     Standards, interpretations and amendments to existing standards that are not yet effective and have not been early adopted by the Company

IFRS 9 Financial Instruments (effective for annual periods beginning on or after 1 January 2018 with option to defer for certain insurance entities)

IFRS 9 will replace IAS 39 Financial Instruments: Recognition and Measurement. Details of the Group's assessment of IFRS 9 are given in the basis of preparation of the Group financial statements.  Management are assessing the impact of the standard in relation to the Company financial statements. The impact of the standard is not expected to be significant.

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

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

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

(a)(iii)   Financial guarantee contracts

The Company recognises and measures financial guarantee and indemnity contracts initially at fair value. The Company must reassess the value at each subsequent reporting date by estimating the expenditure required to settle the contract and comparing this to the fair value (net of any amortisation). The higher of these values is recognised on the statement of financial position.

(a)(iv)   Pension costs and other post-retirement benefits

The Group operates a number of defined benefit and defined contribution plans, the assets of which are held in separate trustee administered funds. The pension plans are funded by payments from employees and by the Group companies, determined by periodic actuarial calculations.

The sponsoring employer for the UK defined benefit plan is Standard Life Assurance Limited (SLAL), and therefore the net defined benefit cost of the plan is recognised by SLAL. As a result, the Company treats its participation in the defined benefit plan as a defined contribution plan. Consequently the costs of this plan and the UK defined contribution plan represent the contributions payable for the accounting period.

For the defined contribution plan, the Company pays contributions to separately administered pension insurance plans. The contributions are recognised in staff costs and other employee-related costs when they are due.

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

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

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

Notes to the Company financial statements

A.      Investments in subsidiaries

		2016	2015
	Notes	£m	£m
Investments in subsidiaries measured at cost		4,493	4,334
Investments in subsidiaries measured at FVTPL	C	276	257
Investments in subsidiaries		4,769	4,591

		2016	2015
		£m	£m
At 1 January		4,591	5,833
Investment into existing subsidiaries measured at cost		220	35
Acquisition of subsidiaries at cost		-	12
Disposal of subsidiaries measured at cost		(12)	-
Impairment of subsidiaries measured at cost		(49)	(1,415)
Acquisition of subsidiaries at FVTPL		19	200
Gains on subsidiaries at FVTPL		-	1
Disposal of subsidiaries at FVTPL		-	(75)
At 31 December		4,769	4,591

Details of the Company's subsidiaries are given in Note 50 of the Group financial statements.

On 11 February 2016 the Company increased its investment in Standard Life Employee Services Limited through the purchase of 8,000 ordinary shares for a cash consideration of £8m.

On 11 April 2016 the Company increased its investment in Standard Life (Mauritius Holdings) 2006 Limited through the purchase of 250,300,000 ordinary shares for a cash consideration of £177m.

On 30 June 2016 the Company increased its investment in Standard Life Assurance Limited through the purchase of 10,000,000 ordinary shares for a cash consideration of £10m.

On 22 December 2016 the Company further increased its investment in Standard Life Assurance Limited through the purchase of 13,000,000 ordinary shares for a cash consideration of £13m.

On 14 December 2016 the Company transferred its 100% holding in Pearson Jones plc to 1825 Financial Planning Limited, the Group's UK-wide financial advice business. The consideration received was 11,600,000 £1 ordinary shares in Standard Life Assurance Limited.

Included within the impairment charge of £49m in 2016 (2015: £1,415m) is an impairment of £31m (2015: £nil) in the Company's investment in its subsidiary Focus Solutions Group Limited. The recoverable amount is £18m which is its value in use and has been determined using a discount rate of 12% (2015: 12%). This impairment is as a result of a decrease in projected future revenues of the entity.  Additionally, an impairment charge of £18m (2015:£70m) has been recognised in the Company's investment in its subsidiary Standard Life Oversea Holdings Limited. This was primarily in relation to an impairment of Standard Life Oversea Holdings Limited's investment in Standard Life (Asia) Limited. In 2015 the impairment was primarily as a result of a review of expense and reserving assumptions following regulatory change.

On 30 January 2015 Standard Life Oversea Holdings Limited sold its Canadian business to The Manufacturers Life Insurance Company (MLC), a subsidiary of Manulife Financial Corporation (Manulife), for a fixed consideration of CAD $4bn (£2.1bn). Following the sale, a dividend of £2,230m was paid to the Company from Standard Life Oversea Holdings Limited which resulted in an impairment in the Company's investment in this subsidiary in 2015 of £1,345m.

Investments in subsidiaries at FVTPL are £276m (2015: £257m) which relate to holdings in money market and absolute return investment funds over which the Group has control.

B.      Investments in associates and joint ventures

		2016	2015
	Notes	£m	£m
Investment in associate measured at cost		10	13
Investments in associates measured at FVTPL	C	-	13
Investment in joint venture measured at cost		124	124
Investments in associates and joint ventures		134	150

(a)        Investments in associates

The Company's investment in associate measured at cost relates to a 25.3% (2015: 25.3%) interest in Tenet Group Limited, a company incorporated in England. The year end date for Tenet Group Limited is 30 September which is different from the Company's year end date of 31 December. For the purposes of the preparation of the Company's financial statements, financial information for the year ended 31 December is used.  

(b)        Investment in joint venture

The Company has a 50% (2015: 50%) interest in Heng An Standard Life Insurance Company Limited, a company incorporated in China. Further details on this joint venture are provided in Note 18 of the Group financial statements.

C.      Financial investments

		Designated as at fair value through profit or loss	Held for trading	Available- for-sale	Loans and receivables	Total
2016	Notes	£m	£m	£m	£m	£m
Investments in subsidiaries at FVTPL		276	-	-	-	276
Loans to subsidiaries		-	-	-	323	323
Debt securities		-	-	605	-	605
Receivables and other financial assets	E	-	-	-	54	54
Cash and cash equivalents	G	-	-	-	55	55
Total		276	-	605	432	1,313

		Designated as at fair value through profit or loss	Held for trading	Available - for-sale	Loans and receivables	Total
2015	Notes	£m	£m	£m	£m	£m
Investments in subsidiaries at FVTPL		257	-	-	-	257
Investments in associates at FVTPL		13	-	-	-	13
Loans to subsidiaries		-	-	-	322	322
Debt securities		-	-	743	-	743
Receivables and other financial assets	E	-	-	-	48	48
Cash and cash equivalents	G	-	-	-	61	61
Total		270	-	743	431	1,444

The amount of debt securities expected to be recovered or settled after more than 12 months is £297m (2015: £290m).

The amount of loans to subsidiaries expected to be recovered or settled after more than 12 months is £323m (2015: £322m).

D.      Derivative financial instruments

The Company uses derivative financial instruments in order to reduce the risk from potential movements in foreign exchange rates. These instruments are designated as held for trading in the Company's financial statements.

	2016			2015
	Contract amount	Fair value assets	Fair value liabilities	Contract amount	Fair value assets	Fair value liabilities
	£m	£m	£m	£m	£m	£m
Foreign exchange forwards	6	-	-	40	-	2

The derivative liabilities of £nil (2015: £2m) are expected to be settled within 12 months.

The maturity profile of the contractual undiscounted cash flows in relation to derivative financial instruments is as follows:

	Within 1 year	2-5 years	Total
2016	£m	£m	£m
Cash inflows
Derivative financial liabilities	6	-	6
Total	6	-	6
Cash outflows
Derivative financial liabilities	6	-	6
Total	6	-	6
Net derivative financial instruments cash flows	-	-	-

	Within 1 year	2-5 years	Total
2015	£m	£m	£m
Cash inflows
Derivative financial assets	18	-	18
Derivative financial liabilities	22	-	22
Total	40	-	40
Cash outflows
Derivative financial assets	18	-	18
Derivative financial liabilities	24	-	24
Total	42	-	42
Net derivative financial instruments cash flows	(2)	-	(2)

E.      Receivables and other financial assets

		2016	2015
		£m	£m
Due from related parties		52	44
Collateral pledged in respect of derivatives contracts		-	2
Other financial assets		2	2
Total receivables and other financial assets		54	48

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

Receivables and other financial assets are expected to be recovered within 12 months.

F.      Other assets

Other assets of £8m (2015: £19m) comprise amounts due from related parties in respect of Group relief, which are expected to be recovered within 12 months.

G.      Cash and cash equivalents

		2016	2015
		£m	£m
Money at call and term deposits with original maturity of less than three months		55	61
Total cash and cash equivalents		55	61

Money at call and term deposits with original maturity of less than three months are subject to variable interest rates.

H.      Share capital

Details of the Company's share capital are given in Note 28 of the Group financial statements.

Details of the dividends paid on ordinary shares and the 73p per ordinary share returned to the shareholders in 2015 through a 'B/C' share scheme by the Company are provided in Notes 15 and 28 of the Group financial statements. Note 15 also includes information regarding the final dividend proposed by the Directors for the year ended 31 December 2016.

I.        Shares held by trusts

Shares held by trusts relates to shares in Standard Life plc that are held by the Employee Share Trust (EST) and the Unclaimed Asset Trust (UAT).

The EST purchases shares in the Company for delivery to employees under employee incentive plans. Purchased shares are recognised as a deduction from equity at the price paid for them.  Where new shares are issued to the EST the price paid is the nominal value of the shares. When shares are distributed from the trust their corresponding value is released to retained earnings.

In July 2006 Standard Life demutualised and former members of the mutual company were allocated shares in the new listed Company. Some former members were yet to claim their shares and the UAT held these on their behalf.

On expiry of the claim period on 9 July 2016, the entitlement to the unclaimed shares remaining in the UAT transferred to the Company and they became classified as shares held by trusts. These shares are measured at £nil. Unclaimed shares and unclaimed cash referred to in Note J will be used to fund the charitable activities of the Standard Life Foundation.

The number of shares held in trust at 31 December 2016 was as follows:

				2016	2015
Number of shares held in trust
Employee Share Trust				1,287,431	1,637,419
Unclaimed Asset Trust				12,999,801	-

J.       Retained earnings

Included in retained earnings is an amount related to the expiry of the UAT claim period. In addition to unclaimed shares, which are referred to in Note I, the UAT holds cash in relation to unclaimed cash entitlements arising from both cash entitlements which were allocated to eligible members of the mutual company at the date of demutualisation and dividends received on shares held in the UAT. On expiry of the UAT claim period on 9 July 2016, the entitlement to the unclaimed cash remaining in the UAT transferred partly to the Company and partly to the Standard Life Foundation. The transfer of the cash entitlement to the Company resulted in the recognition of a cash asset of £36m, the impact of which was recognised directly in retained earnings in equity.

K.      Reconciliation of movements in other reserves

		Merger reserve	Equity compensation reserve	Special reserve	Capital redemption reserve	Available-for-sale financial assets	Total
2016		£m	£m	£m	£m	£m	£m
At 1 January		2,080	50	241	488	1	2,860
Reserves credit for employee share-based payment schemes		-	30	-	-	-	30
Transfer to retained earnings for vested employee share-based payments		-	(23)	-	-	-	(23)
Cancellation of capital redemption reserve		-	-	-	(488)	-	(488)
Fair value gains on available-for-sale financial assets		-	-	-	-	17	17
Tax effect relating to items that may be reclassified subsequently to profit or loss		-	-	-	-	(3)	(3)
At 31 December		2,080	57	241	-	15	2,393
2015
At 1 January		3,108	48	241	-	8	3,405
Reserves credit for employee share-based payment schemes		-	34	-		-	34
Transfer to retained earnings for vested employee share-based payments		-	(32)	-	-	-	(32)
Redemption of 'B' shares		-	-	-	488	-	488
Transfer between reserves on disposal of subsidiary		(1,028)	-	-	-	-	(1,028)
Loss on sale of AFS financial assets recycled to profit and loss		-	-	-	-	(2)	(2)
Fair value losses on available-for-sale financial assets		-	-	-	-	(7)	(7)
Tax effect relating to items that may be reclassified subsequently to profit or loss		-	-	-	-	2	2
At 31 December		2,080	50	241	488	1	2,860

Further information on the merger reserve and special reserve is given in Note 31 of the Group financial statements.

On 17 June 2016 the Company's capital redemption reserve was cancelled in accordance with section 649 of the Companies Act 2006 resulting in a transfer of £488m to retained earnings.

L.      Financial liabilities

		Held for trading	Financial liabilities measured at  amortised cost	Total
2016	Notes	£m	£m	£m
Subordinated liabilities	M	-	1,319	1,319
Other financial liabilities	O	-	8	8
Total		-	1,327	1,327

		Held for trading	Financial liabilities measured at  amortised cost	Total
2015	Notes	£m	£m	£m
Subordinated liabilities	M	-	1,318	1,318
Derivative financial liabilities	D	2	-	2
Other financial liabilities	O	-	52	52
Total		2	1,370	1,372

M.     Subordinated liabilities

	2016		2015
	Principal amount	Carrying value	Principal amount	Carrying value
	£m	£m	£m	£m
Subordinated notes:
5.5% Sterling fixed rate due 4 December 2042	500	499	500	499
Subordinated guaranteed bonds:
6.75% Sterling fixed rate perpetual	500	502	500	502
Mutual Assurance Capital Securities:
6.546% Sterling fixed rate perpetual	300	318	300	317
Subordinated liabilities		1,319		1,318

Subordinated liabilities are considered current if the contractual re-pricing or maturity dates are within one year. The principal amount of all the subordinated liabilities is expected to be settled after more than 12 months. The accrued interest on the subordinated liabilities of £37m (2015: £37m) is expected to be settled within 12 months.

Further information on the terms and conditions of the subordinated liabilities is given in Note 36 of the Group financial statements.

N.      Deferred tax liabilities

		2016	2015
		£m	£m
Deferred tax liabilities		3	1
Total tax liabilities		3	1

The amount of deferred tax liabilities expected to be settled after more than 12 months is £3m (2015: £1m).

There are no tax assets or current tax liabilities.

The Company has surrendered the benefit of its tax losses to underlying subsidiaries for a consideration of £8m (2015: £19m). The Company has provided for deferred tax amounting to £3m (2015: £1m) in respect of unrealised gains on assets held as available for sale.

Recognised deferred tax

		2016	2015
		£m	£m
Deferred tax liabilities comprise:
Unrealised gains on assets held as available-for-sale		(3)	(1)
Net deferred tax liabilities		(3)	(1)
Movements in deferred tax liabilities comprise:
At 1 January		(1)	(1)
Amounts credited to net profit		1	-
Amounts charged to other comprehensive income		(3)	-
At 31 December		(3)	(1)

O.      Other financial liabilities

The amount of other financial liabilities expected to be settled after more than 12 months is £nil (2015: £nil).

P.      Other liabilities

The amount of other liabilities expected to be settled after more than 12 months is £nil (2015: £nil).

Q.      Risk management  

(a)        Overview

The Company is principally involved in the management of its investments in subsidiaries, and is responsible for the raising and allocation of capital to ensure that the operational funding and regulatory capital needs of its subsidiaries are met at all times. The Group's capital management policies are explained in Note 49 of the Group financial statements.

Through the management of its investment in subsidiaries and capital position the Company holds financial instruments and is principally exposed to market, credit and liquidity risks.

The risk management processes of the Company are aligned with those of the Group as a whole. Details of the Group's risk management processes are outlined in the 'Risk Management' section within the Strategic report and in Note 41 of the Group financial statements.

(b)        Market risk

The most significant element of market risk for the Company arises from its exposure to fluctuations in interest rates and equity markets. The Company is exposed to fluctuations in the fair value of future cash flows of financial instruments caused by changes in market interest rates. Financial assets and liabilities which are subject to the most significant exposure to interest rate risk include corporate bonds and money market instruments. The Company is also exposed to fluctuations in the equity securities markets, and as a result, changes in the value of its holdings and the return on those holdings.

The Company's investments and liabilities are generally held in its functional currency. However, for strategic and capital reasons the Company may hold investments and liabilities in other currencies. In these cases, derivative financial instruments may be employed to manage currency exposure so that the Company has no remaining significant exposure to foreign exchange fluctuations.

The market risk exposure to foreign currency assets is matched by liabilities held in the same currency or managed using derivative financial instruments.

Derivative instruments may also be utilised to reduce risk arising from exposure to fluctuations in interest rates and equity indices. Transactions in derivatives are undertaken on a regulated market or are with an approved counterparty. In employing derivatives, the Company must always have sufficient cash and cash equivalents or underlying assets to cover any potential obligation or exercise right following reasonably foreseeable adverse variations.

The following table provides information regarding the market risk exposure to debt securities of the Company at 31 December 2016 and
31 December 2015, showing diversification by geographic region.

	Geography
	UK		Europe		Other		Total
	2016	2015	2016	2015	2016	2015	2016	2015
	£m	£m	£m	£m	£m	£m	£m	£m
Debt securities	215	183	254	521	136	39	605	743

(b)        Market risk continued

(b)(ii)    Sensitivity analysis - market risk

The table below illustrates the sensitivity of profit after tax to changes in equity security prices and to changes in interest rates as at the reporting date, assuming other assumptions remain unchanged.

	Equity security prices						Interest rates
	+20%		-20%		+10%		-10%		+1%		-1%
	2016	2015	2016	2015	2016	2015	2016	2015	2016	2015	2016	2015
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
Impact on profit after tax	4	5	(4)	(5)	2	2	(2)	(2)	(2)	-	2	-

Equity sensitivity to market risk

The Company classifies certain debt securities as available-for-sale. These debt securities are measured at fair value. Interest is calculated using the effective interest method and recognised in the income statement. Other changes in fair value and the related tax are recognised in other comprehensive income. As a result, the sensitivity of the Company's equity to variations in interest rate risk exposures differs from the sensitivity of the Company's profit after tax to variations in interest rate risk exposures.

The Company's equity sensitivity to a 1% increase in interest rates is (£17m) (2015: (£16m)) and to a 1% decrease in interest rates is £17m (2015: £16m). 

The sensitivity of the Company's total equity to change in equity security prices in respect of each of the scenarios shown in the preceding tables is the same as the sensitivity of the Company's profit after tax.

(c)        Credit risk

The Company is exposed to credit risk from the risk of exposure to loss if a counterparty fails to perform its financial obligations, including failure to perform these obligations in a timely manner. Exposure also includes the risk of a reduction in the value of assets due to widening of credit spreads. Any loans to subsidiaries require approval from the Group Enterprise Risk Management Committee prior to being transacted.

(c)(i)     Credit exposure of financial assets

The following table provides an analysis of the quality of financial assets that are neither past due nor impaired at the reporting date and are exposed to credit risk. An explanation of credit ratings is included in Note 41(c) of the Group financial statements.

The total amount in the table below represents the Company's credit exposure to financial investments at the year end without taking into account any collateral held.

	Investments in subsidiaries at FVTPL		Investments in associates at FVTPL		Loans to subsidiaries		Derivative financial assets		Debt Securities		Receivables           and other     financial assets		Cash and cash equivalents		Total
	2016	2015	2016	2015	2016	2015	2016	2015	2016	2015	2016	2015	2016	2015	2016	2015
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
AAA	-	-	-	-	-	-	-	-	36	35	-	-	-	-	36	35
AA	-	-	-	-	-	-	-	-	127	64	-	-	2	9	129	73
A	-	-	-	-	-	-	-	-	295	537	-	-	10	4	305	541
BBB	-	-	-	-	-	-	-	-	131	92	-	-	43	48	174	140
Below BBB	-	-	-	-	-	-	-	-	15	-	-	-	-	-	15	-
Not rated	276	257	-	13	323	322	-	-	1	15	54	48	-	-	654	655
Total	276	257	-	13	323	322	-	-	605	743	54	48	55	61	1,313	1,444

Investments in subsidiaries at FVTPL of £276m (2015: £257m) includes £201m (2015: £200m) invested in absolute return funds and £75m (2015: £57m) relating to a holding in a money market fund. These funds are managed by a subsidiary company and are not rated. The money market fund invests in a range of counterparties that are externally rated, and uses concentration limits and maturity limits in managing its exposures.

At 31 December 2016 and 31 December 2015, all financial assets were neither past due nor impaired.

(d)        Liquidity risk

Liquidity risk is the risk that the Company 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. The Company ensures that it can meet its financial obligations as they fall due by maintaining suitable levels of liquid assets. The obligations arising from subordinated liabilities are mostly offset by receipts arising from loans to subsidiaries and investments in subsidiaries. Refer to Note D for the maturity profile of undiscounted cash flows of derivative financial instruments.

Liquidity risk is managed through the Group liquidity and capital management policy which is outlined in Note 41 (e) of the Group financial statements. The Company is required to manage risk in accordance with the Group policy and to take mitigating action as appropriate to operate within defined risk appetites.

Liquidity risk is managed by the Company in consultation with the central Group Treasury function. Liquidity risk is primarily managed by placing limits on the value of financial assets held which are neither quoted nor regularly traded on a recognised exchange and by maintaining a portfolio of committed bank facilities. In May 2015, the Company reduced its syndicated revolving credit facility which it held as part of its contingency funding plans, to £400m (from £500m) in line with a lower risk profile following the sale of the Canadian business. In 2016 the maturity date of this facility was extended for a further year to 2021 and it is currently undrawn. The Company is also responsible for the definition and management of the contingency funding plan which operates on a continuous basis and is fully documented.

(d)(i)     Maturity analysis

A cash flow analysis by remaining contractual maturities for subordinated liabilities (all of which are issued by the Company) is included in the shareholder business section of Note 41(e)(i) of the Group financial statements. Other financial liabilities have a contractual maturity of within 1 year.

R.      Contingent liabilities, contingent assets, indemnities and guarantees

(a)        Legal proceedings and regulations

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

(b)        Indemnities and guarantees

Under the trust deed in respect of the Group's UK defined benefit pension plan, Standard Life Employee Services Limited (SLESL), the principal employer, must pay contributions to the pension plan as the trustees' actuary may certify necessary. The Company has guaranteed the obligations of SLESL to the UK defined benefit pension plan for a period of 15 years from 10 July 2006, which gave rise to a liability of £nil at 31 December 2016 (2015: £nil).

S.      Related party transactions

(a)        Transactions with and balances from/(to) related parties

In the normal course of business, the Company enters into transactions with related parties. The year end balances arising from such transactions are as follows:

		2016	2015
		£m	£m
Due from related parties:
Subsidiaries		60	63
Loans to subsidiaries		323	322
		383	385

Transactions with related parties carried out by the Company during the year were as follows:

		2016	2015
		£m	£m
Revenues from related parties:
Subsidiaries		512	1,295
Associates		4	-
		516	1,295
Expenses to related parties:
Subsidiaries		109	156
Associates		3	-
		112	156

Where financial instruments arising from transactions with related parties are offset in the statement of financial position, the net position is presented in the tables above.

(b)        Compensation of key management personnel

The Directors and key management personnel of the Company are considered to be the same as for the Group.  Information on both Company and Group compensation paid to Directors and key management personnel can be found in Note 48 of the Group financial statements and the audited section of the Directors' remuneration report. Information on transactions with/from and balances from/to key management personnel and their close family members can also be found in Note 48 of the Group financial statements. Details of the employee share-based payment schemes operated by the Company are given in Note 47 of the Group financial statements.

T.      Fair value of assets and liabilities

The Company's approach to the fair value of assets and liabilities is aligned with the Group policy detailed in Note 43 of the Group financial statements. An analysis of the Company's financial investments and financial liabilities in accordance with the categories of financial instrument set out in IAS 39 Financial Instruments: Recognition and Measurement is presented in Notes C and L and includes those financial assets and liabilities held at fair value.

(a)        Methodology used to determine fair value of assets and liabilities

The fair value hierarchy, and the methods and assumptions used to determine fair value by the Company are aligned with the Group, as detailed in Note 43 of the Group financial statements, with the following exceptions:

Investments in subsidiaries at FVTPL

Investments in subsidiaries at FVTPL comprises £201m (2015: £200m) of investments on a recognised exchange which are valued using prices sourced from the primary exchange on which they are listed. These instruments are generally considered to be quoted in an active market and are therefore treated as level 1 investments within the fair value hierarchy.

The remaining investments in subsidiaries at FVTPL relate to a short term investment fund which is valued daily at net asset value (NAV) adjusted for accrued interest. Although the price is not quoted in an active market the valuation is based on observable market data and as a result has been classified as level 2 in the fair value hierarchy.

(b)        Fair value hierarchy for financial instruments measured at fair value in the statement of financial position

The following table sets out an analysis of financial assets and liabilities measured at fair value by level of the fair value hierarchy.

	Fair value hierarchy
	Level 1		Level 2		Level 3		Total
	2016	2015	2016	2015	2016	2015	2016	2015
Assets	£m	£m	£m	£m	£m	£m	£m	£m
Investments in subsidiaries at FVTPL	201	200	75	57	-	-	276	257
Investment in associate at FVTPL	-	13	-	-	-	-	-	13
Debt securities	32	31	572	711	1	1	605	743
Total	233	244	647	768	1	1	881	1,013

Liabilities
Derivative financial liabilities	-	-	-	2	-	-	-	2
Total	-	-	-	2	-	-	-	2

There were no significant transfers between level 1 and level 2 in the year. During the year, there were no disposals (2015: none) of level 3 securities. There is no significant sensitivity of level 3 financial instruments measured at fair value in relation to changes in key assumptions.

(c)        Fair value of financial assets and liabilities measured at amortised cost

The fair value of subordinated liabilities is set out in Note 43(e) of the Group financial statements.

The table below presents estimated fair values of other financial assets and liabilities held by the Company whose carrying value does not approximate fair value.

		2016	2015	2016	2015
		Carrying value	Carrying value	Fair value	Fair value
	Notes	£m	£m	£m	£m
Loans to subsidiaries	C	323	322	340	348

The estimated fair values of loans to subsidiaries are determined with reference to quoted market prices determined using observable market inputs. The Company does not consider its loans to subsidiaries to be impaired.

The carrying value of all other financial assets and liabilities measured at amortised cost approximates their fair value.

The table below presents the loans to subsidiaries as detailed above measured at fair value by level of the fair value hierarchy.

	Level 1		Level 2		Level 3		Total
	2016	2015	2016	2015	2016	2015	2016	2015
	£m	£m	£m	£m	£m	£m	£m	£m
Loans to subsidiaries	-	-	334	343	6	5	340	348

11. Supplementary Information

11.1  Alternative performance measures

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

We have presented below reconciliations from these APMs to the most appropriate measure prepared in accordance with IFRS.

Full definitions for APMs are included in the Glossary

Operating profit

Operating profit is a key APM used by our management to evaluate performance.

Operating profit reporting provides further analysis of the results reported under IFRS and the Directors believe it helps to give shareholders a fuller understanding of the performance of the business by identifying and analysing non-operating items. Operating profit is a key performance indicator, and is consistent with the way that financial performance is measured by management and reported to the Board and strategic executive committee.

			2016	2015
			£m	£m
Fee based revenue			1,651	1,579
Spread/risk margin			134	145
Total operating income			1,785	1,724
Total operating expenses			(1,159)	(1,124)
Capital management			21	9
Share of associates' and joint ventures' profit before tax			76	56
Operating profit before tax from continuing operations			723	665
Tax on operating profit			(127)	(114)
Share of associates' and joint ventures' tax expense			(13)	(13)
Operating profit after tax from continuing operations			583	538
Singapore included in discontinued operations segment			-	(42)
Total non-operating items			(274)	(257)
Tax on non-operating items			59	37
IFRS profit from continuing operations			368	276
IFRS profit from discontinued operations			-	1,147
Total IFRS profit attributable to equity holders of Standard Life plc			368	1,423

Operating profit excludes impacts arising from short-term fluctuations in investment return and economic assumption changes. Operating profit also excludes restructuring and corporate transaction costs, amortisation and impairment of intangibles acquired in business combinations, and certain one-off items. Further details on operating profit and non-operating items are included in Notes 2(b)(i) and 14 of the Group financial statements section of this report.

As set out in the table above, the key components of operating profit before tax are total operating income (which is broken down into fee based revenue and spread/risk margin), total operating expenses and share of associates' and joint ventures' profit before tax. These components provide a meaningful analysis of our operating results. A reconciliation of total operating income and total operating expenses from continuing operations (as presented in the analysis of operating profit above) to total revenue and total expenses respectively (as presented in the Group consolidated income statement) is included in Note 2(b)(ii) of the Group financial statements section of this report.

Underlying performance

Underlying performance is calculated as operating profit before tax after excluding the impact of spread/risk operating actuarial assumption changes and specific management actions in the reporting period. It therefore removes certain volatile items from operating profit and supports an understanding of the underlying operating performance of the business.

			2016	2015
			£m	£m
Operating profit before tax from continuing operations			723	665
Underlying adjustments
Operating assumption changes			(42)	(44)
Shareholder support to the German with profits business			-	9
Underlying performance from continuing operations			681	630

Underlying cash generation

This is an APM which presents a shareholder view of underlying cash earnings. Underlying cash generation adjusts underlying performance for certain non-cash items as set out below. It provides insight into our ability to generate cash that supports further investment in the business and the payment of dividends to shareholders. The IFRS consolidated statement of cash flows includes policyholder cash flows, and therefore does not present a shareholder view, and does not exclude underlying adjustments and non-operating items.               

			2016	2015
			£m	£m
Operating profit before tax from continuing operations			723	665
Underlying adjustments			(42)	(35)
Underlying performance from continuing operations			681	630
Associates and JVs adjustment	(a)		(60)	(44)
Current tax on underlying performance	(b)		(106)	(114)
DAC/DIR adjustment	(c)		(2)	5
Fixed and intangible assets adjustment	(d)		(11)	(18)
Underlying cash generation			502	459

Further details on the reconciling items between underlying performance and underlying cash generation are included below.

(a)     Associates and Joint Ventures (JVs) adjustment

The calculation of underlying cash generation was changed during H1 2016. Underlying cash generation now includes dividends received from associates and joint ventures, previously no contribution was included from these businesses. The revised approach reflects more closely the underlying cash generated given the regular receipt of dividends in recent years from our Indian associates HDFC Life and HDFC Asset Management. Comparatives have been restated.                

	Notes per Group financial statements		2016	2015
			£m	£m
Exclude share of associates' and joint ventures' profit before tax	2		(76)	(56)
Dividends received from associates and joint ventures	18		16	12
Associates and JVs adjustment			(60)	(44)

(b)     Current tax on underlying performance

Current tax on underlying performance excludes tax on non-operating and underlying adjustments, excludes current tax attributable to policyholders, and excludes deferred tax charges/credits.

	Notes per Group financial statements		2016	2015
			£m	£m
Total current tax attributable to continuing operations	11		(333)	(222)
Current tax expense attributable to policyholders' returns			264	168
Current tax credit relating to non-operating profit items			(44)	(68)
Current tax expense attributable to underlying adjustments			7	8
Current tax on underlying performance			(106)	(114)

(c)     Deferred acquisition costs (DAC)/ Deferred income reserve (DIR) adjustment

The DAC/DIR non-cash adjustment adds back existing business DAC/DIR amortisation included in underlying performance for the period and deducts the equivalent new business DAC/DIR additions for the period. The following table reconciles DAC/DIR movements in the Group financial statements to the DAC/DIR adjustment.

	Notes per Group financial statements		2016	2015
			£m	£m
Amortisation of deferred acquisition costs	17		96	124
Acquisition costs deferred during the period	17		(51)	(83)
Amortisation of deferred income	38		(61)	(63)
Fee income deferred during the period	38		15	25
Adjustments for HWPF and GWPF DAC/DIR not included in shareholder view			(1)	2
DAC/DIR adjustment			(2)	5

 

(d)     Fixed and intangible assets adjustment

The fixed and intangible assets adjustment adds back depreciation and amortisation that is included within underlying performance for the period and deducts additions for the period where the depreciation or amortisation of those additions will be included within underlying performance. The following table reconciles equipment and intangible asset movements in the Group financial statements to the fixed and intangible asset adjustment.

	Notes per Group financial statements		2016	2015
			£m	£m
Depreciation of equipment	20		14	16
Amortisation of intangible assets	16		64	51
Amortisation of intangible assets acquired through business combinations (non-operating)	16		(19)	(20)
Additions of equipment1	20		(9)	(7)
Additions of intangible assets	16		(89)	(64)
Additions of intangible assets acquired through business combinations (not amortised through operating profit)	16		28	6
Fixed and intangible assets adjustment			(11)	(18)

¹   Excludes equipment acquired through business combinations.

Earnings before interest, tax, depreciation and amortisation (EBITDA)

EBITDA is an APM reported by Standard Life Investments, which is commonly used by asset management businesses to measure profitability and therefore provides useful information on operating performance. EBITDA for Standard Life Investments adjusts operating profit by removing net interest expense, depreciation and amortisation.                        

			2016	2015
Standard Life Investments			£m	£m
EBITDA			395	352
Interest, depreciation and amortisation			(12)	(10)
Operating profit before tax from continuing operations			383	342
Share of associates' and joint ventures' tax expense			(11)	(11)
Total non-operating items			(50)	(53)
Total tax expense			(63)	(53)
Profit for the year attributable to equity holders of Standard Life plc			259	225

11.2  Financial ratios

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

Operating return on equity

Operating return on equity is a measure that highlights our ability to generate operating profit relative to our shareholder capital. Operating return on equity represents the annualised post-tax operating profit expressed as a percentage of the opening IFRS equity, adjusted for time apportioned dividends paid to equity holders.             

			2016	2015
Operating profit after tax (£m)			583	541
Opening IFRS equity attributable to equity holders of Standard Life plc (£m)			4,002	4,672
External final dividend payment - time apportioned (£m)			(142)	(131)
External interim dividend payment - time apportioned (£m)			(21)	(20)
Canada: Sale proceeds less return of value - time apportioned (£m)			-	397
Canada: Remove net asset value at point of sale - time apportioned (£m)			-	(1,106)
Adjusted IFRS equity (£m)			3,839	3,812
Operating return on equity (%)			15.2	14.2

 

Cost/income ratio

Cost/income ratio is a measure that highlights our efficiency and is calculated as operating expenses divided by operating income on a rolling 12 month basis, and includes the share of associates' and joint ventures' profit before tax.

		2016	2015	2014
Operating expenses from continuing operations (£m)		(1,159)	(1,124)	(1,045)
Fee based revenue (£m)		1,651	1,579	1,429
Spread/risk margin (£m)		134	145	183
Share of associates' and joint ventures' profit before tax (£m)		76	56	39
Total operating income and share of associates' and joint ventures' profit before tax from continuing operations (£m)		1,861	1,780	1,651
Cost/income ratio (%)		62	63	63

Fee revenue yield (bps)

The average revenue yield on fee based business is a measure which illustrates the average margin earned on the assets that we administer. It is calculated as a rolling 12 month fee based revenue divided by a rolling 12 month monthly average AUA.

	Standard Life Investments growth channels		UK Pensions and Savings
	2016	2015	2016	2015
Fee based revenue (£m)	680	624	664	631
Average fee based assets under administration (£bn)1	129.4	119.0	115.2	106.2
Fee revenue yield (bps)	53	52	58	59

¹   Excludes AUA from conventional with profits for the UK Pensions and Savings business and HDFC Asset Management for Standard Life Investments.

EBITDA margin

EBITDA margin is a measure reported by Standard Life Investments and is commonly used by asset management businesses to measure profit in relation to revenue. It is calculated as EBITDA divided by fee based revenue.

Standard Life Investments			2016	2015
EBITDA (£m)			395	352
Fee based revenue (£m)			885	843
EBITDA margin (%)			45	42

11.3 Assets under administration and net flows

Assets under administration (AUA) is a measure of the total assets we administer. It includes Standard Life Investments assets under management (AUM), as well as those assets that the Group administers where the customer has made a choice to select an external third party investment manager.

AUA represents the IFRS gross assets of the Group, adjusted to include third party AUA which is not included on the consolidated statement of financial position, and excluding certain assets which do not constitute AUA. The assets excluded are primarily reinsurance assets, deferred acquisition costs and intangible assets.

As an investment company, AUA and net flows are key drivers of shareholder value.

Assets under administration

12 months ended 31 December 2016

			Opening AUA at 1 Jan 2016	Gross flows	Redemptions	Net flows	Market and other movements	Closing AUA at 31 Dec 2016
			£bn	£bn	£bn	£bn	£bn	£bn
Total growth channels			198.3	38.6	(34.5)	4.1	35.2	237.6
Total mature books fee			82.0	2.5	(8.7)	(6.2)	13.0	88.8
Total mature books spread/risk			14.9	0.2	(1.1)	(0.9)	2.1	16.1
Total other			12.2	0.8	(0.4)	0.4	2.0	14.6
Total AUA			307.4	42.1	(44.7)	(2.6)	52.3	357.1
Growth Channels	Institutional		67.0	15.6	(14.5)	1.1	18.9	87.0
	Wholesale		45.9	12.1	(13.8)	(1.7)	5.9	50.1
	Wealth		6.5	0.8	(0.9)	(0.1)	0.4	6.8
	Ignis1		11.1	-	-	-	(11.1)	-
	Standard Life Investments		130.5	28.5	(29.2)	(0.7)	14.1	143.9
	UK Workplace		33.0	4.1	(2.4)	1.7	2.7	37.4
	UK Retail2		42.6	8.1	(4.4)	3.7	16.6	62.9
	UK Pensions and Savings		75.6	12.2	(6.8)	5.4	19.3	100.3
	Europe growth fee2		9.6	1.3	(0.8)	0.5	1.1	11.2
	Pensions and Savings		85.2	13.5	(7.6)	5.9	20.4	111.5
	Hong Kong		0.5	0.1	(0.1)	-	0.1	0.6
	Eliminations3		(17.9)	(3.5)	2.4	(1.1)	0.6	(18.4)
	Total growth channels		198.3	38.6	(34.5)	4.1	35.2	237.6
Mature Books	UK mature Retail		32.7	0.6	(3.1)	(2.5)	4.1	34.3
	Europe mature fee		8.4	0.7	(0.8)	(0.1)	1.8	10.1
	Third party strategic partner life business		39.6	1.2	(3.9)	(2.7)	6.9	43.8
	Other fee including CWP		1.3	-	(0.9)	(0.9)	0.2	0.6
	Total mature books fee		82.0	2.5	(8.7)	(6.2)	13.0	88.8
	Spread/risk		14.9	0.2	(1.1)	(0.9)	2.1	16.1
	Total mature books		96.9	2.7	(9.8)	(7.1)	15.1	104.9
Associate and joint venture life businesses4			2.3	0.8	(0.4)	0.4	1.3	4.0
Other5			10.4	-	-	-	0.8	11.2
Other Eliminations3			(0.5)	-	-	-	(0.1)	(0.6)
Total			307.4	42.1	(44.7)	(2.6)	52.3	357.1

¹   During 2016 Ignis funds were merged into Standard Life Investments funds and are now reported within Institutional and Wholesale. This has resulted in a transfer of £11.1bn AUM out of Ignis into Institutional (£9.8bn) and Wholesale (£1.3bn) through Market and other movements.

²   Platform AUA (Wrap, Elevate and Fundzone) of £44.2bn (2015: £26.5bn) comprises £41.7bn (2015: £24.4bn) reported within UK Retail and £2.5bn (2015: £2.1bn) relating to Wrap International Bond reported within Europe growth fee.

³   Certain products are included in both Pensions and Savings growth AUA and Standard Life Investments growth AUM. Therefore, at a Group level an elimination adjustment is required to remove any duplication, in addition to other necessary consolidation adjustments. Comprises £18.4bn (2015: £17.9bn) related to growth channel business eliminations and £0.6bn (2015: £0.5bn) related to other consolidation/eliminations.

⁴   Market and other movements includes £0.8bn relating to stake increase in HDFC Life in April 2016.

⁵   Other comprises Assets that do not generate revenue from products of £8.9bn (2015: £7.7bn) and Other corporate assets of £2.3bn (2015: £2.7bn).

Assets under administration

12 months ended 31 December 2015

			Opening AUA at 1 Jan 2015	Gross flows	Redemptions	Net flows	Market and other movements	Closing AUA at 31 Dec 2015
			£bn	£bn	£bn	£bn	£bn	£bn
Total growth channels			180.7	40.8	(25.9)	14.9	2.7	198.3
Total mature books fee			87.9	1.6	(9.5)	(7.9)	2.0	82.0
Total mature books spread/risk			16.1	0.2	(1.1)	(0.9)	(0.3)	14.9
Total other			11.9	0.4	(0.2)	0.2	0.1	12.2
Total AUA			296.6	43.0	(36.7)	6.3	4.5	307.4
Growth Channels	Institutional		61.4	11.1	(7.8)	3.3	2.3	67.0
	Wholesale		35.5	16.8	(7.5)	9.3	1.1	45.9
	Wealth		6.1	0.9	(0.7)	0.2	0.2	6.5
	Ignis		14.5	2.6	(5.1)	(2.5)	(0.9)	11.1
	Standard Life Investments		117.5	31.4	(21.1)	10.3	2.7	130.5
	UK Workplace		32.0	4.1	(2.2)	1.9	(0.9)	33.0
	UK Retail1		37.3	7.5	(3.6)	3.9	1.4	42.6
	UK Pensions and Savings		69.3	11.6	(5.8)	5.8	0.5	75.6
	Europe growth fee1		8.7	1.6	(0.7)	0.9	-	9.6
	Pensions and Savings		78.0	13.2	(6.5)	6.7	0.5	85.2
	Hong Kong		0.4	0.1	-	0.1	-	0.5
	Eliminations2		(15.2)	(3.9)	1.7	(2.2)	(0.5)	(17.9)
	Total growth channels		180.7	40.8	(25.9)	14.9	2.7	198.3
Mature Books	UK mature Retail		33.5	0.7	(3.1)	(2.4)	1.6	32.7
	Europe mature fee		8.5	0.7	(0.5)	0.2	(0.3)	8.4
	Third party strategic partner life business		43.8	0.2	(5.0)	(4.8)	0.6	39.6
	Other fee including CWP		2.1	-	(0.9)	(0.9)	0.1	1.3
	Total mature books fee		87.9	1.6	(9.5)	(7.9)	2.0	82.0
	Spread/risk		16.1	0.2	(1.1)	(0.9)	(0.3)	14.9
	Total mature books		104.0	1.8	(10.6)	(8.8)	1.7	96.9
Associate and joint venture life businesses			2.1	0.4	(0.2)	0.2	-	2.3
Other3			10.2	-	-	-	0.2	10.4
Other Eliminations2			(0.4)	-	-	-	(0.1)	(0.5)
Total			296.6	43.0	(36.7)	6.3	4.5	307.4

¹   Platform AUA (Wrap, Elevate and Fundzone) of £26.5bn comprises £24.4bn reported within UK Retail and £2.1bn relating to Wrap International Bond reported within Europe growth fee.

²   Certain products are included in both Pensions and Savings growth AUA and Standard Life Investments growth AUM. Therefore, at a Group level an elimination adjustment is required to remove any duplication, in addition to other necessary consolidation adjustments. Comprises (£17.9bn) related to growth channel business eliminations and (£0.5bn) related to other consolidation/eliminations.

³   Other comprises Assets that do not generate revenue from products of £7.7bn and Other corporate assets of £2.7bn.

11.4  Standard Life Investments assets under management and net flows

12 months ended 31 December 2016		Opening AUM at 1 Jan 2016	Gross flows	Redemptions	Net flows	Market and other movements	Closing AUM at 31 Dec 2016
		£bn	£bn	£bn	£bn	£bn	£bn
Growth AUM	UK	83.2	17.3	(17.2)	0.1	17.3	100.6
	Europe	14.2	4.0	(5.5)	(1.5)	3.5	16.2
	North America	11.7	4.8	(5.5)	(0.7)	1.7	12.7
	Asia Pacific	3.3	0.9	(1.0)	(0.1)	0.6	3.8
	India	7.0	1.5	-	1.5	2.1	10.6
	Ignis1	11.1	-	-	-	(11.1)	-
	By geography of client	130.5	28.5	(29.2)	(0.7)	14.1	143.9
	Equities	16.9	3.8	(4.1)	(0.3)	1.3	17.9
	Fixed income	21.8	5.4	(4.3)	1.1	9.1	32.0
	Multi-asset2	50.3	11.3	(15.1)	(3.8)	5.0	51.5
	Real estate	8.6	1.1	(1.4)	(0.3)	2.0	10.3
	MyFolio	8.1	2.5	(0.9)	1.6	0.8	10.5
	Other3	13.7	4.4	(3.4)	1.0	7.0	21.7
	Ignis1	11.1	-	-	-	(11.1)	-
	By asset class	130.5	28.5	(29.2)	(0.7)	14.1	143.9
	Institutional	67.0	15.6	(14.5)	1.1	18.9	87.0
	Wholesale	45.9	12.1	(13.8)	(1.7)	5.9	50.1
	Wealth	6.5	0.8	(0.9)	(0.1)	0.4	6.8
	Ignis1	11.1	-	-	-	(11.1)	-
	By channel	130.5	28.5	(29.2)	(0.7)	14.1	143.9
Standard Life Group		83.1	3.5	(5.6)	(2.1)	9.2	90.2
Phoenix Group		39.6	1.2	(3.9)	(2.7)	6.9	43.8
Strategic partner life business AUM		122.7	4.7	(9.5)	(4.8)	16.1	134.0
Standard Life Investments AUM		253.2	33.2	(38.7)	(5.5)	30.2	277.9

12 months ended 31 December 2015		Opening AUM at 1 Jan 2015	Gross flows	Redemptions	Net flows	Market and other movements	Closing AUM at 31 Dec 2015
		£bn	£bn	£bn	£bn	£bn	£bn
Growth AUM	UK	75.5	15.2	(10.8)	4.4	3.3	83.2
	Europe	11.3	5.4	(2.0)	3.4	(0.5)	14.2
	North America	8.1	5.3	(2.3)	3.0	0.6	11.7
	Asia Pacific	2.0	2.1	(0.9)	1.2	0.1	3.3
	India	6.1	0.8	-	0.8	0.1	7.0
	Ignis	14.5	2.6	(5.1)	(2.5)	(0.9)	11.1
	By geography of client	117.5	31.4	(21.1)	10.3	2.7	130.5
	Equities	15.5	2.6	(2.6)	-	1.4	16.9
	Fixed income	22.0	3.1	(2.8)	0.3	(0.5)	21.8
	Multi-asset2	38.6	17.3	(7.8)	9.5	2.2	50.3
	Real estate	7.4	1.1	(0.8)	0.3	0.9	8.6
	MyFolio	5.9	2.6	(0.7)	1.9	0.3	8.1
	Other3	13.6	2.1	(1.3)	0.8	(0.7)	13.7
	Ignis	14.5	2.6	(5.1)	(2.5)	(0.9)	11.1
	By asset class	117.5	31.4	(21.1)	10.3	2.7	130.5
	Institutional	61.4	11.1	(7.8)	3.3	2.3	67.0
	Wholesale	35.5	16.8	(7.5)	9.3	1.1	45.9
	Wealth	6.1	0.9	(0.7)	0.2	0.2	6.5
	Ignis	14.5	2.6	(5.1)	(2.5)	(0.9)	11.1
	By channel	117.5	31.4	(21.1)	10.3	2.7	130.5
Standard Life Group		84.6	4.1	(6.1)	(2.0)	0.5	83.1
Phoenix Group		43.8	0.2	(5.0)	(4.8)	0.6	39.6
Strategic partner life business AUM		128.4	4.3	(11.1)	(6.8)	1.1	122.7
Standard Life Investments AUM		245.9	35.7	(32.2)	3.5	3.8	253.2

¹   During 2016 Ignis funds were merged into Standard Life Investments funds, transferring £11.1bn AUM through Market and other movements into the following categories - By geography: UK (£11.1bn), By asset class: Fixed income (£5.3bn), Multi-asset (£0.2bn), Real estate (£1.7bn) and Other (£3.9bn), By channel: Institutional (£9.8bn) and Wholesale (£1.3bn).

²   Comprises absolute return strategies, enhanced diversification strategies, risk-based portfolios and traditional balanced portfolios.

³    Comprises cash, private equity, liquidity funds and Wealth. Net inflows from India cash funds £0.4bn (2015: £0.6bn), net inflows from liquidity funds of £0.3bn (2015: £0.7bn).

11.5  Assets under administration by reporting segment

An analysis of AUA by reportable segment is included below.

	Standard Life Investments	Pensions and Savings	India and China	Other	Eliminations1	Total
31 December 2016	£bn	£bn	£bn	£bn	£bn	£bn
Assets under administration
Fee based	177.1	156.5	0.6	-	(18.4)	315.8
Spread/risk	-	16.1	-	-	-	16.1
Assets not generating revenue from products	-	8.9	-	-	-	8.9
Associate and joint venture businesses	10.6	-	4.0	-	-	14.6
Other corporate assets	1.1	-	-	1.2	(0.6)	1.7
Total assets under administration	188.8	181.5	4.6	1.2	(19.0)	357.1

	Standard Life Investments	Pensions and Savings	India and China	Other	Eliminations1	Total
31 December 2015	£bn	£bn	£bn	£bn	£bn	£bn
Assets under administration
Fee based	163.1	127.6	0.5	-	(17.9)	273.3
Spread/risk	-	14.9	-	-	-	14.9
Assets not generating revenue from products	-	7.7	-	-	-	7.7
Associate and joint venture businesses	7.0	-	2.3	-	-	9.3
Other corporate assets	1.0	-	-	1.6	(0.5)	2.1
Total assets under administration	171.1	150.2	2.8	1.6	(18.4)	307.4

¹   In order to be consistent with the presentation of new business information, certain products are included in both Standard Life Investments AUA and other segments. Therefore, at a Group level an elimination adjustment is required to remove any duplication, in addition to other necessary consolidation adjustments.

 

END

 

 

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