Half-year Report - Part 2 of 3

RNS Number : 0776I
abrdn PLC
10 August 2021
 

abrdn plc

Half year results 2021       

Part 2 of 3

10 August 2021

 

 

2. Statement of Directors' responsibilities

Each of the Directors, whose names and functions are listed on the abrdn plc website, www.abrdn.com, confirms to the best of his or her knowledge and belief that:

 

· The International Financial Reporting Standards (IFRS) condensed consolidated income statement, the IFRS condensed consolidated statement of comprehensive income, the IFRS condensed consolidated statement of financial position, the IFRS condensed consolidated statement of changes in equity and the IFRS condensed consolidated statement of cash flows and associated notes, have been prepared in accordance with IAS 34 Interim Financial Reporting as adopted for use in the UK.

 

· The interim management report includes a fair review of the information required by:

− DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the IFRS condensed consolidated financial information and a description of the principal risks and uncertainties for the remaining six months of the year.

 

− DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so.

 

· As per principle N of the UK Corporate Governance Code, the Half year results 2021 taken as a whole, present a fair, balanced and understandable assessment of the Company's position and prospects.

 

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

 

Changes to Directors during the period

On 6 August, the Company announced the appointment of Hannah Grove as a non-executive Director with effect from 1 September 2021 and that Melanie Gee would stand down from the Board at the conclusion of her second term of appointment on 31 October 2021.

 

By order of the Board

 


 

Sir Douglas Flint

Chairman

10 August 2021

Stephanie Bruce

Chief Financial Officer

10 August 2021

 

3. Independent review report to abrdn plc

Conclusion

We have been engaged by the company to review the condensed set of financial statements in the Half Year Results for the six months ended 30 June 2021 which comprises the IFRS condensed consolidated income statement, IFRS condensed consolidated statement of comprehensive income, Reconciliation of consolidated adjusted profit before tax to IFRS profit for the period, IFRS condensed consolidated statement of financial position, IFRS condensed statement of changes in equity, IFRS condensed consolidated statement of cash flows and the related explanatory notes.

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the Half Year Results for the six months ended 30 June 2021 is not prepared, in all material respects, in accordance with IAS 34 Interim Financial Reporting as adopted for use in the UK and the Disclosure Guidance and Transparency Rules ("the DTR") of the UK's Financial Conduct Authority ("the UK FCA").

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use in the UK. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. We read the other information contained in the Half Year Results and consider whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Directors' responsibilities

The Half Year Results is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the Half Year Results report in accordance with the DTR of the UK FCA.

The latest annual financial statements of the group were prepared in accordance with International Financial Reporting Standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union and in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and the next annual financial statements will be prepared in accordance with UK-adopted international accounting standards. The directors are responsible for preparing the condensed set of financial statements included in the Half Year Results in accordance with IAS 34 as adopted for use in the UK.

Our responsibility

Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the Half Year Results based on our review.

The purpose of our review work and to whom we owe our responsibilities

This report is made solely to the company in accordance with the terms of our engagement to assist the company in meeting the requirements of the DTR of the UK FCA. Our review has been undertaken so that we might state to the company those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company for our review work, for this report, or for the conclusions we have reached.

 

Jonathan Mills

for and on behalf of KPMG LLP

Chartered Accountants
Saltire Court
20 Castle Terrace
Edinburgh
EH1 2EG

10 August 2021

 

4. Financial information 

IFRS condensed consolidated income statement

For the six months ended 30 June 2021

 

 

6 months
2021

6 months
2020

Full year
2020

 

Notes

£m

£m

£m

Income

 

 

 

 

Investment return

4.4

71

(87)

163

Revenue from contracts with customers

4.5

853

753

1,527

Insurance contract premium income

 

-

30

31

Profit on disposal of interests in associates

 

68

651

1,858

Other income

4.6

92

13

30

Total income from continuing operations

 

1,084

1,360

3,609

 

 

 

 

 

Expenses

 

 

 

 

Insurance contract claims and change in liabilities

 

-

17

17

Change in non-participating investment contract liabilities

 

66

(45)

56

Administrative expenses

 

 

 

 

Restructuring and corporate transaction expenses

4.7

106

131

297

Impairment of goodwill - asset management

 

-

915

915

Other administrative expenses

 

729

868

1,608

Total administrative expenses

4.7

835

1,914

2,820

Change in liability for third party interest in consolidated funds

 

22

(37)

(3)

Finance costs

 

15

15

30

Total expenses from continuing operations

 

938

1,864

2,920

 

 

 

 

 

Share of profit from associates and joint ventures

 

(33)

136

194

(Loss) on impairment of interests in associates and joint ventures

4.13

-

(130)

(45)

 

 

 

 

 

Profit/(loss) before tax from continuing operations

 

113

(498)

838

Tax expense/(credit) attributable to continuing operations

4.8

11

6

(15)

Profit/(loss) for the period from continuing operations

 

102

(504)

853

Loss for the period from discontinued operations

4.2

-

-

(15)

Profit/(loss) for the period

 

102

(504)

838

 

 

 

 

 

Attributable to:

 

 

 

 

Equity shareholders of abrdn plc

 

 

 

 

From continuing operations

 

102

(509)

848

From discontinued operations

 

-

-

(15)

Equity shareholders of abrdn plc

 

102

(509)

833

Non-controlling interests

 

 

 

 

From continuing operations - preference shares

 

-

5

5

 

 

102

(504)

838

Earnings per share from continuing operations

 

 

 

 

Basic (pence per share)

4.9

4.8

(22.7)

38.5

Diluted (pence per share)

4.9

4.7

(22.7)

37.9

Earnings per share

 

 

 

 

Basic (pence per share)

4.9

4.8

(22.7)

37.8

Diluted (pence per share)

4.9

4.7

(22.7)

37.2

 

  The Notes on pages 29 to 52 are an integral part of this IFRS condensed consolidated financial information.

 

IFRS condensed consolidated statement of comprehensive income

For the six months ended 30 June 2021

 

 

6 months
2021

6 months
2020

Full year
2020

 

Notes

£m

£m

£m

Profit/(loss) for the period

 

102

(504)

838

Less: loss from discontinued operations

 

-

-

15

Profit/(loss) from continuing operations

 

102

(504)

853

 

 

 

 

 

Items that will not be reclassified subsequently to profit or loss:

 

 

 

 

Remeasurement gains/(losses) on defined benefit pension plans

 

(33)

205

280

Share of other comprehensive income of associates and joint ventures

 

12

(16)

(13)

Equity holder tax effect of items that will not be reclassified subsequently to profit or loss

4.8

4

-

2

Total items that will not be reclassified subsequently to profit or loss

 

(17)

189

269

 

 

 

 

 

Items that may be reclassified subsequently to profit or loss:

 

 

 

 

Fair value gains/(losses) on cash flow hedges

 

(2)

76

(3)

Exchange differences on translating foreign operations

 

(25)

40

(8)

Share of other comprehensive income of associates and joint ventures

 

(8)

13

13

Items transferred to the condensed consolidated income statement

 

 

 

 

Fair value (gains)/losses on cash flow hedges

 

3

(40)

13

Realised foreign exchange losses

 

1

-

6

Share of other comprehensive income of associates and joint ventures

 

(9)

-

-

Equity holder tax effect of items that may be reclassified subsequently to profit or loss

4.8

(1)

(7)

(2)

Total items that may be reclassified subsequently to profit or loss

 

(41)

82

19

Other comprehensive income for the period from continuing operations

 

(58)

271

288

Total comprehensive income for the period from continuing operations

 

44

(233)

1,141

Loss from discontinued operations

4.2

-

-

(15)

Total comprehensive income for the period from discontinued operations

 

-

-

(15)

Total comprehensive income for the period

 

44

(233)

1,126

 

 

 

 

 

Attributable to:

 

 

 

 

Equity shareholders of abrdn plc

 

 

 

 

From continuing operations

 

44

(238)

1,136

From discontinued operations

 

-

-

(15)

Non-controlling interests

 

 

 

 

From continuing operations - preference shares

 

-

5

5

 

 

44

(233)

1,126

 

 

 

 

 

The Notes on pages 29 to 52 are an integral part of this IFRS condensed consolidated financial information.

 

Reconciliation of consolidated adjusted profit to IFRS profit for the period

For the six months ended 30 June 2021

 

 

6 months

2021

6 months

2020

restated1

Full year

2020

restated1

 

Notes

£m

£m

£m

Investments

 

126

95

186

Adviser

 

37

23

48

Personal

 

4

(4)

(5)

Corporate/strategic

 

(7)

(9)

(10)

Adjusted operating profit

4.3

160

105

219

Adjusted net financing costs and investment return

 

3

(13)

21

Adjusted profit before tax

4.3

163

92

240

Adjusted for the following items

 

 

 

 

Restructuring and corporate transaction expenses

 

(113)

(131)

(316)

Amortisation and impairment of intangible assets acquired in business combinations and through the purchase of customer contracts

 

(51)

(1,124)

(1,180)

Profit on disposal of interests in subsidiaries

 

84

8

8

Profit on disposal of interests in associates

 

68

651

1,858

Change in fair value of significant listed investments

 

(72)

-

65

Dividends from significant listed investments

 

35

-

-

Other

 

32

-

14

Adjusting items

4.3

(17)

(596)

449

Share of profits from associates and joint ventures

 

(33)

136

194

Impairment of associates and joint ventures

 

-

(130)

(45)

Total adjusting items including results of associates and joint ventures

4.3

(50)

(590)

598

Profit/(loss) before tax

 

113

(498)

838

Tax (expense)/credit attributable to

 

 

 

 

Adjusted profit

4.3

(13)

(13)

(38)

Adjusting items

4.3

2

7

53

Total tax (expense)/credit

 

(11)

(6)

15

Profit/(loss) for the period from continuing operations

 

102

(504)

853

(Loss) for the period from discontinued operations

4.2

-

-

(15)

Profit/(loss) for the period

 

102

(504)

838

Comparatives for the six months ended 30 June 2020 and the 12 months ended 31 December 2020 have been restated in relation to changes to the Group's reportable segments and the change to the Group's adjusted profit alternative performance measure. Refer Notes 4.3 and 4.10 for further details.

Refer Note 4.10 for further details on adjusted profit.

The Notes on pages 29 to 52 are an integral part of this IFRS condensed consolidated financial information.

 

IFRS condensed consolidated statement of financial position

As at 30 June 2021 

 

 

30 June
2021

30 June
2020

restated1

31 December
2020

 

Notes

£m

£m

£m

Assets

 

 

 

 

Intangible assets

4.12

674

579

501

Pension and other post-retirement benefit assets

4.15

1,454

1,382

1,474

Investments in associates and joint ventures accounted for using the equity method

4.13

381

1,409

1,371

Property, plant and equipment

 

208

254

236

Deferred tax assets

 

146

111

131

Financial investments

4.17(b)(d)

3,152

2,163

3,110

Receivables and other financial assets

4.10(b)

1,521

621

621

Current tax recoverable

 

8

8

9

Other assets

 

134

63

46

Assets held for sale

 

-

2

19

Cash and cash equivalents

 

1,341

1,752

1,519

 

 

9,019

8,344

9,037

Assets backing unit linked liabilities

 

 

 

 

Financial investments

4.17

1,396

1,313

1,395

Receivables and other unit linked assets

 

13

11

8

Cash and cash equivalents

 

32

72

38

 

 

1,441

1,396

1,441

Total assets

 

10,460

9,740

10,478

Liabilities

 




Third party interest in consolidated funds

4.17

101

184

77

Subordinated liabilities

 

632

798

638

Pension and other post-retirement benefit provisions

4.15

51

57

55

Deferred income

4.16

10

64

73

Deferred tax liabilities

 

83

89

66

Current tax liabilities

 

22

18

15

Derivative financial liabilities

4.17

15

8

13

Other financial liabilities

 

1,341

1,443

1,177

Provisions

 

63

92

93

Other liabilities

 

8

7

6

Liabilities of operations held for sale

 

-

-

11

 

 

2,326

2,760

2,224

Unit linked liabilities

 

 

 

 

Investment contract liabilities

4.17

1,034

990

1,042

Third party interest in consolidated funds

4.17

399

376

388

Other unit linked liabilities

4.17

8

30

11

 

 

1,441

1,396

1,441

Total liabilities

 

3,767

4,156

3,665

Equity

 

 

 

 

Share capital

4.14

305

317

306

Shares held by trusts

4.14

(173)

(172)

(170)

Share premium reserve

4.14

640

640

640

Retained earnings

4.14

4,877

3,700

4,970

Other reserves

4.14

1,041

1,096

1,064

Equity attributable to equity holders of abrdn plc

 

6,690

5,581

6,810

Non-controlling interests

 

 

 

 

Ordinary shares

 

3

3

3

Total equity

 

6,693

5,584

6,813

Total equity and liabilities

 

10,460

9,740

10,478

Comparatives for 30 June 2020 have been restated in relation to accounting for share buybacks. Refer Note 4.1(a)(iii) for further details of the restatement.

The Notes on pages 29 to 52 are an integral part of this IFRS condensed consolidated financial information.

 

IFRS condensed consolidated statement of changes in equity

For the six months ended 30 June 2021

 

 

Share capital

Shares held by trusts

Share premium reserve

Retained earnings

Other reserves

Total equity attributable to equity shareholders of abrdn plc

Non-controlling interests - ordinary shares

Total equity

 

Notes

£m

£m

£m

£m

£m

£m

£m

£m

1 January 2021

 

306

(170)

640

4,970

1,064

6,810

3

6,813

Profit for the period from continuing operations

 

-

-

-

102

-

102

-

102

Other comprehensive income for the period from continuing operations

 

-

-

-

(34)

(24)

(58)

-

(58)

Total comprehensive income for the period

 

-

-

-

68

(24)

44

-

44

Issue of share capital

4.14

-

-

-

-

-

-

-

-

Dividends paid on ordinary shares

4.11

-

-

-

(154)

-

(154)

-

(154)

Share buyback

4.14

(1)

-

-

-

1

-

-

-

Other movements in non-controlling interests in the period

 

-

-

-

5

-

5

-

5

Reserves credit for employee share-based payments

 

-

-

-

-

24

24

-

24

Transfer to retained earnings for vested employee share-based payments

 

-

-

-

24

(24)

-

-

-

Shares acquired by employee trusts

 

-

(37)

-

-

-

(37)

-

(37)

Shares distributed by employee and other trusts and related dividend equivalents

 

-

34

-

(37)

-

(3)

-

(3)

Aggregate tax effect of items recognised directly in equity

 

-

-

-

1

-

1

-

1

30 June 2021

 

305

(173)

640

4,877

1,041

6,690

3

6,693

 

 

 

 

 

 

 

 

 

Non-controlling interests

 

 

 

Share capital

Shares held by trusts

Share premium reserve

Retained earnings

restated1

Other reserves

Total equity attributable
to equity shareholders of abrdn plc

restated1

Ordinary shares

Preference shares

Total equity

restated1

 

Notes

£m

£m

£m

£m

£m

£m

£m

£m

£m

1 January 2020

 

327

(134)

640

2,886

2,845

6,564

3

99

6,666

Loss for the period from continuing operations

 

-

-

-

(509)

-

(509)

-

5

(504)

Other comprehensive income for the period from continuing operations

 

-

-

-

202

69

271

-

-

271

Total comprehensive income for the period

 

-

-

-

(307)

69

(238)

-

5

(233)

Issue of share capital

4.14

-

-

-

-

-

-

-

-

-

Dividends paid on ordinary shares

4.11

-

-

-

(320)

-

(320)

-

-

(320)

Dividends paid on preference shares

 

-

-

-

-

-

-

-

(3)

(3)

Reclassification of preference shares to liability

 

-

-

-

(1)

-

(1)

-

(101)

(102)

Share buyback1

4.14

(10)

-

-

(401)

10

(401)

-

-

(401)

Reserves credit for employee share-based payments

 

-

-

-

-

26

26

-

-

26

Transfer to retained earnings for vested employee share-based payments

 

-

-

-

20

(20)

-

-

-

-

Transfer between reserves on impairment of subsidiaries

4.14

-

-

-

1,834

(1,834)

-

-

-

-

Shares acquired by employee trusts

 

-

(48)

-

-

-

(48)

-

-

(48)

Shares distributed by employee and other trusts and related dividend equivalents

 

-

10

-

(11)

-

(1)

-

-

(1)

30 June 2020

 

317

(172)

640

3,700

1,096

5,581

3

-

5,584

Comparatives for 30 June 2020 have been restated in relation to accounting for share buybacks. Refer Note 4.1(a)(iii) for further details of the restatement.









Non-controlling interests




Share capital

Shares held by trusts

Share premium reserve

Retained earnings

Other reserves

Total equity attributable
to equity shareholders of abrdn plc

Ordinary shares

Preference shares

Total equity


Notes

£m

£m

£m

£m

£m

£m

£m

£m

£m

1 January 2020


327

(134)

640

2,886

2,845

6,564

3

99

6,666

Profit for the year from continuing operations


-

-

-

848

-

848

-

5

853

Loss for the year from discontinued operations


-

-

-

(15)

-

(15)

-

-

(15)

Other comprehensive income for the year from continuing operations


-

-

-

282

6

288

-

-

288

Other comprehensive income for the year from discontinued operations


-

-

-

-

-

-

-

-

-

Total comprehensive income for the year


-

-

-

1,115

6

1,121

-

5

1,126

Issue of share capital

4.14

-

-

-

-

-

-

-

-

-

Dividends paid on ordinary shares

4.11

-

-

-

(479)

-

(479)

-

-

(479)

Dividends paid on preference shares

 

-

-

-

-

-

-

-

(3)

(3)

Reclassification of preference shares to liability

 

-

-

-

(1)

-

(1)

-

(101)

(102)

Share buyback

4.14

(21)

-

-

(402)

21

(402)

-

-

(402)

Reserves credit for employee share-based payments

 

-

-

-

-

64

64

-

-

64

Transfer to retained earnings for vested employee share-based payments

 

-

-

-

38

(38)

-

-

-

-

Transfer between reserves on impairment of subsidiaries

4.14

-

-

-

1,834

(1,834)

-

-

-

-

Shares acquired by employee trusts


-

(54)

-

-

-

(54)

-

-

(54)

Shares distributed by employee and other trusts and related dividend equivalents


-

18

-

(21)

-

(3)

-

-

(3)

31 December 2020


306

(170)

640

4,970

1,064

6,810

3

-

6,813

The Notes on pages 29 to 52 are an integral part of this IFRS condensed consolidated financial information.

 

IFRS condensed consolidated statement of cash flows

For the six months ended 30 June 2021

 

 

6 months
2021

6 months
2020

Full year
2020

 

Notes

£m

£m

£m

Cash flows from operating activities

 

 

 

 

Profit/(loss) before tax from continuing operations

 

113

(498)

838

Loss before tax from discontinued operations

4.2

-

-

(15)

 

 

113

(498)

823

Change in operating assets

 

(184)

167

817

Change in operating liabilities

 

(46)

(159)

(991)

Adjustment for non-cash movements in investment income

 

5

5

6

Other non-cash and non-operating items

 

(2)

517

(646)

Dividends received from associates and joint ventures

 

-

34

80

Taxation paid1

 

(14)

(14)

(33)

Net cash flows from operating activities

 

(128)

52

56

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

Purchase of property, plant and equipment

 

(4)

(6)

(13)

Proceeds from sale of property, plant and equipment

 

3

-

-

Acquisition of subsidiaries and unincorporated businesses net of cash acquired

 

(61)

-

-

Disposal of subsidiaries net of cash disposed of

 

81

(8)

(8)

Acquisition of investments in associates and joint ventures

 

(7)

-

(5)

Proceeds in relation to contingent consideration

 

54

-

3

Payments in relation to contingent consideration

 

(26)

(3)

(48)

Disposal of investments in associates and joint ventures

 

-

742

914

Taxation paid on disposal of investments in associates and joint ventures1

 

-

(33)

(33)

Purchase of financial investments

 

(58)

(328)

(521)

Proceeds from sale or redemption of financial investments

 

321

415

737

Acquisition of intangible assets

 

(60)

(3)

(12)

Net cash flows from investing activities

 

243

776

1,014

Cash flows from financing activities

 

 

 

 

Repayment of subordinated liabilities and preference shares

 

-

-

(100)

Payment of lease liabilities

 

(15)

(18)

(35)

Shares acquired by trusts

 

(37)

(48)

(54)

Interest paid

 

(14)

(11)

(30)

Share buyback

 

(40)

(172)

(361)

Preference dividends paid

 

-

(3)

(5)

Ordinary dividends paid

4.11

(154)

(320)

(479)

Net cash flows from financing activities

 

(260)

(572)

(1,064)

Net (decrease)/increase in cash and cash equivalents

 

(145)

256

6

Cash and cash equivalents at the beginning of the period

 

1,358

1,347

1,347

Effects of exchange rate changes on cash and cash equivalents

 

(11)

16

5

Cash and cash equivalents at the end of the period2

 

1,202

1,619

1,358

Supplemental disclosures on cash flows from operating activities

 

 

 

 

Interest paid

 

1

2

2

Interest received

 

10

24

30

Dividends received

 

54

58

122

Rental income received on investment property

 

2

2

3

Total taxation paid for the six months ended 30 June 2021 was £14m (six months ended 30 June 2020: £47m; 12 months ended 31 December 2020: £66m).

Comprises £1,373m (30 June 2020: £1,824m; 31 December 2020: £1,560m) of cash and cash equivalents, including cash and cash equivalents held for sale and backing unit linked liabilities and (£171m) (30 June 2020: (£205m); 31 December 2020: (£202m)) of overdrafts which are reported in other financial liabilities in the IFRS condensed consolidated statement of financial position.

The Notes on pages 29 to 52 are an integral part of this IFRS condensed consolidated financial information.

Notes to the IFRS condensed consolidated financial information

4.1  Accounting policies

(a)  Basis of preparation

The IFRS condensed consolidated half year financial information has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted for use in the UK and the Disclosure Guidance and Transparency Rules of the UK's Financial Conduct Authority.

The accounting policies for recognition, measurement, consolidation and presentation as set out in the Group's Annual report and accounts for the year ended 31 December 2020 have been applied in the preparation of the IFRS condensed consolidated half year financial information except as noted below.

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

The Group has adopted the following new International Financial Reporting Standards (IFRSs), interpretations and amendments to existing standards adopted by the UK for annual periods beginning on or after 1 June 2020 and 1 January 2021.

Amendments to existing standards

· Amendments to IFRS 16 COVID-19-related rent concessions.

· Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 Interest rate benchmark reform - phase 2.

The Group's accounting policies have been updated to reflect these amendments. Management considers the implementation of the above amendments to existing standards has had no significant impact on the Group's financial statements.

(a)(ii)  Anticipated-acquisition method

When the Group grants a put option to holders of non-controlling interests at the date of acquiring control of a subsidiary, the Group has elected as its accounting policy to apply the principles of the anticipated-acquisition method. This accounting policy choice was not relevant in previous periods, but is relevant to the accounting for the Tritax acquisition (refer Note 4.2(a)(i)).

Under this accounting policy a non-controlling interest is not recognised in the Group's total equity. Instead a financial liability is recognised at the date of acquisition, which is included as part of the consideration paid in determining goodwill. The subsidiary is fully consolidated as if the non-controlling interests had been acquired at the date of acquisition. Subsequent changes in the value of the financial liability are recognised in the condensed consolidated income statement and are attributable to the equity shareholders of abrdn plc.

This accounting policy choice is considered a critical judgement in applying accounting policies (and is an addition to the critical judgements in applying accounting policies disclosed in the Group's Annual report and accounts for the year ended 31 December 2020).

(a)(iii)  Restatement - share buybacks

At 30 June 2020 and 31 December 2020, the Company had irrevocable contractual obligations with a third party to purchase the Company's own shares of £226m and £40m respectively. At 31 December 2020, this obligation was recognised as a part of the share buyback reduction to retained earnings for the year of £402m, with a corresponding £40m liability included within other financial liabilities. However, as disclosed in Note 26 of the Group financial statements section of the Annual report and accounts 2020, the accounting treatment adopted in the Half year results 2020 did not appropriately recognise a reduction to retained earnings and a corresponding liability within other financial liabilities for the £226m irrevocable contractual obligation at 30 June 2020. The retained earnings and other financial liabilities at 30 June 2020 have been restated to correct this. The change in the amounts previously presented is as summarised in the table below.

 

30 June

2020

As previously presented

30 June

2020

Reclassification

30 June

2020

Restated

IFRS condensed consolidated statement of financial position

£m

£m

£m

Other financial liabilities

1,217

226

1,443

Total liabilities

3,930

226

4,156

Retained earnings

3,926

(226)

3,700

Total equity attributable to equity shareholders of abrdn plc

5,807

(226)

5,581

Total equity

5,810

(226)

5,584

 

 

30 June

2020

As previously presented

30 June

2020

Reclassification

30 June

2020

Restated

IFRS condensed consolidated statement of changes in equity

£m

£m

£m

Movement in retained earnings for share buybacks

(175)

(226)

(401)

Retained earnings

3,926

(226)

3,700

Total equity attributable to equity shareholders of abrdn plc

5,807

(226)

5,581

Total equity

5,810

(226)

5,584

This restatement has had no impact on 30 June 2020 reported profit, earnings per share, regulatory capital or cash flows. There is no impact of this correction on any other previous reporting periods.

(b)  IFRS condensed consolidated half year financial information

This IFRS condensed consolidated half year financial information does not comprise statutory accounts within the meaning of Section 434 of the Companies Act. Additionally, the comparative figures for the financial year ended 31 December 2020 are not the Company's statutory accounts for that financial year. The statutory accounts have been reported on by the Company's auditor and delivered to the Registrar of Companies. The report of the auditor was (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under Section 498 (2) or (3) of the Companies Act 2006. The IFRS condensed consolidated half year financial information has been reviewed, not audited.

(c)  Exchange rates

The income statements and cash flows, and statements of financial position of Group entities that have a different functional currency from the Group's presentation currency have been translated using the following principal exchange rates:

 

6 months

2021

6 months

2020

Full year

2020

 

Income statement and cash flows (average rate)

Statement of financial position (closing rate)

Income statement and cash flows (average rate)

Statement of financial position (closing rate)

Income statement and cash flows (average rate)

Statement of financial position (closing rate)

Euro

1.156

1.165

1.147

1.100

1.127

1.117

US Dollar

1.39

1.381

1.270

1.236

1.292

1.367

Indian Rupee

102.046

102.680

93.729

93.292

95.602

99.880

Chinese Renminbi

8.979

8.926

8.937

8.741

8.905

8.940

Hong Kong Dollar

10.789

10.728

9.866

9.576

10.024

10.599

Singapore Dollar

1.852

1.857

1.768

1.724

1.778

1.807

(d)   Going concern

The Group's business activities, together with the factors likely to affect its future development, performance and financial position, are set out in the Management report and in the Annual report and accounts 2020 Strategic report. This includes details on our liquidity and capital positions and our principal risks, including the impact of COVID-19 on these principal risks.

In preparing these half year results on a going concern basis, the Directors have considered the following matters and have taken into account the uncertainty created by COVID-19.

· The fundamental basis of our business has not been impacted by COVID-19. We consider that COVID-19 will accelerate the key global trends already underway in our industry and already factored into our strategy which are discussed further in the Annual report and accounts 2020 Strategic report on pages 10 to 11, and that the Group is well placed to manage its business risks successfully.

· The Group has robust cash and liquid resources of £2.2bn at 30 June 2021, which does not include the £653m net proceeds from the sale of shares in HDFC Life which settled on 1 July. In addition the Company has a revolving credit facility of £400m as part of our contingency funding plans which is due to mature in 2024 and remains undrawn.

· The Group's indicative regulatory capital surplus was £2.8bn in excess of capital requirements at 30 June 2021. The regulatory capital surplus does not include the majority of the value of the Group's listed associate (HDFC Asset Management) or the Group's significant listed investments in HDFC Life and Phoenix.

· The Group performs regular stress and scenario analysis as described in the Annual report and accounts 2020 Viability statement. The market stresses considered in these analyses are considerably more severe than experienced as a result of COVID-19, and the diverse range of management actions available meant the Group was able to withstand these extreme stresses.

· The Group's operational resilience processes have operated effectively during the period including the provision of services by key outsource providers. We have put in place additional processes to monitor key outsource providers during this remote working environment.

Based on a review of the above factors the Directors are satisfied that the Group and Company have and will maintain sufficient resources to enable them to continue operating for at least 12 months from the date of approval of the financial statements. Accordingly, the financial statements have been prepared on a going concern basis. There were no material uncertainties relating to this going concern conclusion.

4.2  Acquisitions and disposals

(a)  Acquisitions

(a)(i)  Current period acquisitions of subsidiaries

Tritax Management LLP (Tritax)

On 1 April 2021, Aberdeen Asset Management PLC (AAM PLC) purchased 60% of the membership interests in Tritax, a specialist logistics real estate fund manager. The initial cash consideration payable at the completion of the acquisition was £64m. Subject to the satisfaction of certain conditions, an additional contingent deferred earn-out is expected to be payable to acquire the remaining 40% of membership interests in Tritax should the selling Tritax partners choose to exercise three put options in each of years ended 31 March 2024, 2025 and 2026. The amount payable is linked to the EBITDA of the Tritax business in the relevant period. The Group will also have the right to purchase any outstanding membership interests at the end of the five-year period through exercising a call option.

Tritax has been accounted for under the anticipated-acquisition method (refer Note 4.1(a)(ii)).

Tritax has therefore been fully consolidated from 1 April 2021 and no non-controlling interest has been recognised in the Group's total equity in relation to the 40% of the membership interests in Tritax subject to the put and call options. A contingent consideration financial liability has been recognised at fair value in relation to the earn-out payments (under the put and call options) and the expected non-discretionary allocation of profit payments to the holders of the 40% membership interests up to the date of the exercise of the options. This contingent consideration financial liability is included in the table below as part of the consideration paid. The acquisition of Tritax strengthens the Group's combined offering in the growing logistics real estate market and fulfils the Group's strategy of providing deep sector specialism for our clients in this key growth area. The assets under management of Tritax were £6bn at the completion date.

At the acquisition date the consideration, net assets acquired and resulting goodwill from the Tritax acquisition were as follows:

1 April 2021

 

£m

Cash consideration

 

64

Fair value of contingent consideration 1

 

155

Consideration2

 

219

Fair value of net assets acquired

 

 

Customer relationships and investment management contracts

 

71

Property, plant and equipment

 

2

Receivables and other financial assets

 

6

Cash and cash equivalents

 

3

Other assets

 

1

Total assets

 

83

Other financial liabilities

 

11

Deferred tax liabilities

 

17

Total liabilities

 

28

Goodwill

 

164

The fair value of contingent consideration includes £113m relating to the fair value of the earn-out payments (under the put and call options) and £42m relating to the fair value of the expected non-discretionary allocation of profit payments to the holders of the 40% membership interests up to the date of the exercise of the options. These are calculated by reference to earnings before interest, taxes, depreciation, and amortisation (EBITDA). The earn-out payments could range from £nil to £140m. The expected distribution of profit payments to the holders of the 40% membership interests up to the date of the exercise of the options could range from £nil and have no maximum value.

Not included in the consideration is an additional payment in 2023 of up to £25m for an earn-up linked to EBITDA for the years ended 31 March 2022 and 2023. The expected payment is being accrued over two years as remuneration and is included in other administrative expenses in the IFRS condensed consolidated income statement.

Customer relationships and investment management contracts intangible assets primarily relate to Tritax's investment management contracts with Tritax Big Box REIT plc and Tritax Euro Box plc which are listed closed-end real estate funds. The useful life for these intangible assets has been assessed as 13 years. The other key assumptions in measuring the fair value of these intangible assets at acquisition date were as follows:

· Revenue growth - this assumption was based on the fund growth (from markets and investment performance) included in the Tritax business plan as adjusted for the impact of fund raisings which commenced prior to the acquisition date. Management fee rates are assumed to stay in line with current rates.

· Operating margin - this assumption was based on the current operating margins adjusted for expected cost synergies. 

· Discount rate - this assumption was based on a market participant weighted average cost of capital.

As the investment management contracts relate to closed-end funds, the straight line method of amortisation is considered appropriate for these intangibles.

The key assumptions used to value the contingent consideration at the date of acquisition are the same as the inputs used to value this contingent consideration liability at 30 June 2021 and set out in Note 4.17(b)(iv). The valuation assumes that the timing of the exercise of the earn out put options between 2024, 2025 and 2026 would be that which is most beneficial to the holders of the put options.

The goodwill arising on acquisition is mainly attributable to expected cash flows from future fund raisings for existing and new funds and products, which are not included in the valuation of the investment management contract intangibles, revenue synergies from the Group's distribution capabilities and existing real estate investment management expertise, and the quality and experience of the Tritax executive team and employees. The goodwill is not expected to be deductible for tax purposes.

The amounts of revenue from contracts with customers and profit contributed to the Group's condensed consolidated income statement for the six months ended 30 June 2021 from the acquired Tritax business were £7m and £nil respectively. The profit contributed excludes amortisation of intangible assets acquired through business combinations. If the acquisition had occurred on 1 January 2021, the Group's total revenue from contracts with customers for the period would have increased by £7m to £860m and the profit would have been unchanged.

Transaction costs were not material and were accounted for as part of restructuring and corporate transaction expenses in the
12 months ended 31 December 2020.

(b)  Disposals

(b)(i)  Current period disposal of subsidiaries

Parmenion Capital Partners LLP (Parmenion)

On 9 March 2021, the Group announced the sale of Parmenion to Preservation Capital Partners. Parmenion is reported in the Corporate/strategic segment (previously asset management, platforms and wealth segment). The sale was completed on 30 June 2021.

The gain on sale, which is included in other income in the condensed consolidated income statement for the six months ended 30 June 2021 was calculated as follows:

 

 

£m

Total assets of operations disposed of

 

(36)

Total liabilities of operations disposed of

 

13

Net assets of operations disposed of

 

(23)

Cash consideration (less transaction costs) and outstanding loan1

 

75

Fair value of earn-out payments

 

21

Gain on sale before tax

 

73

Following the completion of the sale, the intercompany loan from abrdn plc to Parmenion of £9m which previously eliminated on consolidation is now recognised as an asset of the Group.

The taxable gain which arose on the sale has been computed in accordance with the tax rules applicable to UK partnerships.

Parmenion was classified as an operation held for sale at 31 December 2020.

Nordics real estate business

On 31 May 2021, the Group completed the sale of its Nordics real estate business to DEAS Asset Management A/S through a number of share and asset sale agreements. The disposal is not considered material to the Group.

( b)(ii)  Prior period disposal of subsidiaries

Standard Life (Asia) Limited (SL Asia)

On 30 June 2020, the Group completed the sale of the entire issued share capital of its wholly owned Hong Kong insurance business, SL Asia, to the Group's Chinese joint venture business, Heng An Standard Life Insurance Company Limited (HASL). SL Asia was reported in the Corporate/Strategic segment (previously the Asset management, platforms and wealth segment) and HASL is not included in the Group's reportable segments (previously reported within the Insurance associates and joint ventures segment). Refer Note 4.3 for further details.

Total consideration received comprised cash of £19m and the Group recognised a gain on disposal of £8m in respect of the sale within other income from continuing operations in the condensed consolidated income statement for the six months ended 30 June 2020. On disposal a gain of £8m was recycled from the translation reserve and was included in determining the gain on sale.

Prior to the completion of the sale, SL Asia was classified as an operation held for sale.

The accounting for the acquisition of SL Asia by HASL at 30 June 2020 was based on provisional amounts as allowed under IFRS 3 Business combinations.

(b)(iii)  Current period reclassification of associates and other related transactions

Phoenix Group Holdings plc (Phoenix)

On 23 February 2021, the Group announced details of the simplification and extension of the strategic partnership between the Group and Phoenix. The key details were:

· The Group announced the purchase of certain products in the Phoenix Group's savings business offered through abrdn's Wrap platform, comprising a self-invested pension plan (SIPP) and an onshore bond product; together with the Phoenix Group's trustee investment plan (TIP) business for UK pension scheme clients. The assets relating to these businesses at 31 December 2020 were £38bn and are included in the Group's AUMA. The transaction is targeted to complete in late 2022 and is subject to regulatory and court approvals. The upfront consideration paid by the Group in February 2021 was £62.5m, which will be offset in part by payments from Phoenix to the Group relating to profits of the business prior to completion of the legal transfer. The net amount of consideration paid up to 30 June 2021 is included in prepayments in the condensed consolidation statement of financial position and in acquisition of intangible assets in the condensed consolidated statement of cash flows.

· The sale of the 'Standard Life' brand to Phoenix, replacing the existing agreement to licence the brand for no fee to Phoenix, the transfer of related brand employees to Phoenix, and the transfer of workplace pensions marketing staff to Phoenix who were employed by the Group but provided services to Phoenix. The sale of the brand, the staff transfers, and a related £32m payment from the Group to Phoenix took place in May 2021. Refer Note 4.16 for details of the release of related deferred revenue.

· The strategic asset management partnership with Phoenix has been extended and will now operate for at least 10 years up to February 2031.

· The resolution of legacy issues with Phoenix relating to the operation of certain aspects of the agreements that were entered into at the time of the sale of SLAL to Phoenix and which impacted the value of certain indemnities and other payments under the transaction terms. The impact of the resolution of these legacy matters was included in the 2020 results and resulted in the Group receiving a cash inflow of £34m in February 2021. Refer Note 4.17 (b)(iv).

Following the changes to the commercial agreements set out above, in particular in relation to the licencing of the 'Standard Life' brand, our judgement is that Phoenix should no longer be accounted for as an associate with effect from 23 February 2021. The Group's shareholding in Phoenix, which remains at 14.4%, has therefore been reclassified from an investment in associates accounted for using the equity method to equity securities measured at fair value. A reclassification gain of £68m is included in the profit on disposal of interests in associates for the six months ended 30 June 2021 as the fair value on 22 February 2021 of £1,023m was higher than the previous carrying value as an associate of £964m. On disposal, other comprehensive income gains of £9m were recycled from retained earnings and included in determining the gain on sale.

The Group's shareholding in Phoenix is now considered, along with HDFC Life (refer Note 4.2(b)(iv)), as a significant listed investment for the purpose of determining the Group's adjusted profit. Refer to Note 4.10(b) for other changes in the Group's significant listed investments in the six months ended 30 June 2021.

(b)(iv)  Prior period disposal and reclassification of associates

Profit on disposals of interests in associates for the six months ended 30 June 2020 of £651m includes £388m of gains in relation to the sale of equity shares in HDFC Life and £263m of gains in relation to the sale of equity shares in HDFC Asset Management.

Profit on disposals of interests in associates for the 12 months ended 31 December 2020 of £1,858m includes £1,591m of gains in relation to the sale of equity shares in HDFC Life and its reclassification from an investment in associate, £263m of gains in relation to the sale of equity shares in HDFC Asset Management and a £4m dilution gain in Phoenix.

HDFC Life

During 2020, the Group completed sales of equity shares in HDFC Life on the National Stock Exchange of India Limited and BSE Limited. The gains on sales and the gain on reclassification from an associate to an equity investment can be summarised as follows:

 

 

2020

£m

Gain on sale of 50,000,000 equity shares in HDFC Life sold through a Bulk Sale on 27 March 2020

 

206

Gain on sale of 40,000,000 equity shares in HDFC Life sold through a Bulk Sale on 4 June 2020

 

182

Gains on disposals of HDFC Life for the six months ended 30 June 2020

 

388

Gain on sale of 27,772,684 equity shares in HDFC Life sold through a Bulk Sale on 3 December 2020

 

152

Gain on reclassification of remaining 179,539,209 equity shares in HDFC Life from an associate to equity investment on 3 December 2020

 

 

1,051

Gains on disposals and reclassification of HDFC Life for the 12 months ended 31 December 2020

 

1,591

In the six months to 30 June 2020, in total, 4.46% of the issued equity share capital of HDFC Life was sold for a combined total consideration net of taxes and expenses of Rs 41,526m (£444m). The combined gain on sale of £388m was calculated using the weighted-average cost method. On disposal a loss of £3m was recycled from the translation reserve and was included in determining the gain on sale.

In the 12 months to 31 December 2020, in total, 5.83% of the issued equity share capital of HDFC Life was sold for a combined total consideration net of taxes and expenses of Rs 58,561m (£616m). The combined gain on sale of £540m was calculated using the weighted-average cost method. On disposal a loss of £5m was recycled from the translation reserve and was included in determining the gain on sale.

Following the 3 December 2020 sale, the Group's shareholding in HDFC Life was 179,539,209 equity shares or 8.89% and HDFC Life is no longer considered to be an associate of the Group. The Group's investment in HDFC Life was reclassified from an investment in associates accounted for using the equity method to equity securities measured at fair value. A reclassification gain of £1,051m was included in the profit on disposal of interests in associates for the year ended 31 December 2020 as the fair value on 3 December 2020 of £1,168m was higher than the previous carrying value as an associate of £111m. On reclassification a loss of £6m was recycled from the translation reserve and was included in determining the gain.

HDFC Asset Management

During 2020, the Group completed the following sale of equity shares in HDFC Asset Management on the National Stock Exchange of India Limited and BSE Limited:

· 12,000,000 equity shares in HDFC Asset Management sold through an Offer for Sale on 17 and 18 June 2020.

Through the sale, 5.64% of the issued equity share capital of HDFC Asset Management was sold for a total consideration net of taxes and expenses of Rs 25,404m (£265m). The gain on sale of £263m before tax was calculated using the weighted-average cost method. On disposal a loss of £3m was recycled from the translation reserve and was included in determining the gain on sale.

Phoenix

On 22 July 2020, Phoenix, announced the completion of its acquisition of ReAssure Group plc. Under the terms of the transaction, Phoenix issued 277,277,138 new ordinary shares as part consideration for the acquisition. Completion of the transaction resulted in the Group's holding in Phoenix becoming 14.43% of the enlarged Phoenix Group. A dilution gain of £4m was recognised within the Profit on disposal of interests in associates in the condensed consolidated income statement as a result of the transaction.

(c)  Discontinued operations

The condensed consolidated income statement profit, other comprehensive income and cash flows from discontinued operations relate solely to the UK and European insurance business which was sold in 2018 to Phoenix. For the six months ended 30 June 2021, the profit from discontinued operations was £nil (six months ended 30 June 2020: £nil). For the 12 months ended 31 December 2020, the loss from discontinued operations was £15m which reflected changes in the value of contingent consideration relating to the sale including the impact of the resolution of certain legacy issues with Phoenix, refer section (b)(iii) above. For the six months ended 30 June 2021, net cash flows from discontinued operations of £34m are included in net cash flows from investing activities (six months ended 30 June 2020: £nil; 12 months ended 31 December 2020: (£42m)). There was no other comprehensive income from discontinued operations for the six months ended 30 June 2021 (six months ended 30 June 2020: £nil; 12 months ended 31 December 2020: £nil).

4.3  Segmental analysis

The Group's reportable segments have been identified in accordance with the way in which the Group is structured and managed. IFRS 8 Operating Segments requires that the information presented in the financial statements is based on information provided to the 'Chief Operating Decision Maker' which for the Group is the executive leadership team.

(a)  Basis of segmentation

(a)(i)  Current reportable segments

The Group's reportable segments are as follows:

Investments

Our global asset management business which provides investment solutions for Institutional, Wholesale and Insurance clients.

Adviser

Our market-leading UK financial adviser business which provides services through the Wrap and Elevate platforms to wealth managers and advisers.

Personal

Our Personal business which combines our financial planning business 1825, our digital direct-to-consumer services and discretionary fund management services provided by Aberdeen Standard Capital.

Corporate/strategic

This segment mainly comprises certain corporate costs and businesses held for sale (Parmenion, the sale of which was completed on 30 June 2021, and SL Asia which was sold in June 2020).

The segments are reported to the level of adjusted operating profit and therefore, as described in section a(ii) below, no longer include the results relating to the Group's associates and joint ventures.

(a)(ii)  Changes to reportable segments

Previously, we reported our results under two reportable segments.

· Asset management, platforms and wealth which comprised all wholly owned business, HDFC Asset Management our Indian asset management associate, and the Virgin Money joint venture.

· Insurance associates and joint ventures which comprised our life assurance associates and joint ventures - HDFC Life, Phoenix and HASL.

The business is now operating under three growth vectors of Investments, Adviser and Personal as set out in section (a)(i) above and accordingly, in 2021, the Group changed the way we report the performance of the business to the executive leadership team.

Reportable segments are now reported to the level of adjusted operating profit in line with the updated management reporting, and therefore our share of the results of associates and joint ventures are no longer part of the Group's reportable segments.

Comparative amounts for the six months ended 30 June 2020 and the 12 months ended 31 December 2020 have been prepared on the same basis as the six months ended 30 June 2021 to allow more meaningful comparison.

(b)   Reportable segments - adjusted profit and revenue information

(b)(i)  Analysis of adjusted profit

Adjusted operating profit is presented by reportable segment in the table below.

 

 

Investments

Adviser

Personal

Corporate/

strategic

Total

6 months 2021

Notes

£m

£m

£m

£m

£m

Fee based revenue


613

87

41

14

755

Adjusted operating expenses


(487)

(50)

(37)

(21)

(595)

Adjusted operating profit


126

37

4

(7)

160

Adjusted net financing costs and investment return1


 

 

 

 

3

Adjusted profit before tax


 

 

 

 

163

Tax on adjusted profit


 

 

 

 

(13)

Adjusted profit after tax

 

 

 

 

 

150

Adjusted for the following items

 

 

 

 

 

 

Restructuring and corporate transaction expenses

4.7

 

 

 

 

(113)

Amortisation and impairment of intangible assets acquired in business combinations and through the purchase of customer contracts

 

 

 

 

 

(51)

Profit on disposal of interests in subsidiaries

4.2

 

 

 

 

84

Profit on disposal of interests in associates

4.2

 

 

 

 

68

Change in fair value of significant listed investments

 

 

 

 

 

(72)

Dividends from significant listed investments

 

 

 

 

 

35

Other

4.10

 

 

 

 

32

Adjusting items


 

 

 

 

(17)

Share of profit from associates and joint ventures2

 

 

 

 

 

(33)

Total adjusting items including results of associates and joint ventures


 

 

 

 

(50)

Tax on adjusting items


 

 

 

 

2

Profit for the period


 

 

 

 

102

Capital management has been renamed Adjusted net financing costs and investment return.

Share of associates' and joint ventures' profit comprises the Group's share of results of HDFC Asset Management, HASL, VMUTM and Phoenix (until 22 February 2021).

Fee based revenue is reported as the measure of revenue in the analysis of adjusted operating profit and relates to revenues generated from external customers. Refer Note 4.5 for a reconciliation of fee based revenue to revenue from contracts with customers.

 

 

Investments

Adviser

Personal

Corporate/

strategic

Total

6 months 2020

Notes

£m

£m

£m

£m

£m

Fee based revenue


581

69

38

18

706

Adjusted operating expenses


(486)

(46)

(42)

(27)

(601)

Adjusted operating profit


95

23

(4)

(9)

105

Adjusted net financing costs and investment return1


 

 

 

 

(13)

Adjusted profit before tax


 

 

 

 

92

Tax on adjusted profit


 

 

 

 

(13)

Adjusted profit after tax

 

 

 

 

 

79

Adjusted for the following items

 

 

 

 

 

 

Restructuring and corporate transaction expenses

4.7

 

 

 

 

(131)

Amortisation and impairment of intangible assets acquired in business combinations and through the purchase of customer contracts

 

 

 

 

 

(1,124)

Profit on disposal of interests in subsidiaries

4.2

 

 

 

 

8

Profit on disposal of interests in associates

4.2

 

 

 

 

651

Adjusting items


 

 

 

 

(596)

Share of profit from associates and joint ventures2

 

 

 

 

 

136

Impairment of associates and joint ventures

4.13

 

 

 

 

(130)

Total adjusting items including results of associates and joint ventures

 

 

 

 

 

(590)

Tax on adjusting items

 

 

 

 

7

Profit attributable to non-controlling interests (preference shares)


 

 

 

 

(5)

Loss for the period attributable to equity shareholders of abrdn plc


 

 

 

 

(509)

Profit attributable to non-controlling interests


 

 

 

 

 

Preference shares


 

 

 

 

5

Loss for the period


 

 

 

 

(504)

Capital management has been renamed Adjusted net financing costs and investment return.

Share of associates' and joint ventures' profit comprises the Group's share of results of HDFC Life, HDFC Asset Management, Phoenix, HASL and VMUTM.

 

 

Investments

Adviser

Personal

Corporate/

strategic

Total

Full year 2020

Notes

£m

£m

£m

£m

£m

Fee based revenue


1,176

137

80

32

1,425

Adjusted operating expenses


(990)

(89)

(85)

(42)

(1,206)

Adjusted operating profit


186

48

(5)

(10)

219

Adjusted net financing costs and investment return1


 

 

 

 

21

Adjusted profit before tax


 

 

 

 

240

Tax on adjusted profit


 

 

 

 

(38)

Adjusted profit after tax

 

 

 

 

 

202

Adjusted for the following items

 

 

 

 

 

 

Restructuring and corporate transaction expenses

4.7

 

 

 

 

(316)

Amortisation and impairment of intangible assets acquired in business combinations and through the purchase of customer contracts

 

 

 

 

 

(1,180)

Profit on disposal of interests in subsidiaries

4.2

 

 

 

 

8

Profit on disposal of interests in associates

4.2

 

 

 

 

1,858

Change in fair value of significant listed investments

 

 

 

 

 

65

Other

4.10

 

 

 

 

14

Adjusting items

 

 

 

 

 

449

Share of profit from associates and joint ventures2

 

 

 

 

 

194

Impairment of associates and joint ventures

4.13

 

 

 

 

(45)

Total adjusting items including results of associates and joint ventures

 

 

 

 

 

598

Tax on adjusting items

 

 

 

 

 

53

Profit attributable to non-controlling interests (preference shares)

 

 

 

 

 

(5)

Profit for the year attributable to equity shareholders of abrdn plc from continuing operations

 

 

 

 

 

848

Loss for the year from discontinued operations

4.2

 

 

 

 

(15)

Profit for the year attributable to equity shareholders of abrdn plc


 

 

 

 

833

Profit attributable to non-controlling interests


 

 

 

 

 

Preference shares


 

 

 

 

5

Profit for the year


 

 

 

 

838

Capital management has been renamed Adjusted net financing costs and investment return.

Share of associates' and joint ventures' profit comprises the Group's share of results of HDFC Asset Management, Phoenix, HASL, VMUTM and HDFC Life
(until 3 December 2020).

4.4  Investment return

Included in investment return from continuing operations of £71m (six months ended 30 June 2020: (£87m); 12 months ended 31 December 2020: £163m) is £92m (six months ended 30 June 2020: (£88m); 12 months ended 31 December 2020: £49m) in relation to unit linked business including £nil (six months ended 30 June 2020: (£13m); 12 months ended 31 December 2020: (£13m)) relating to operations held for sale. Investment returns relating to our life insurance subsidiary unit linked business are for the account of policyholders and are excluded from adjusted operating income as they have an equal and opposite effect on IFRS income and IFRS expenses in the condensed consolidated income statement.

4.5   Revenue from contracts with customers

The following table provides a breakdown of total revenue from contracts with customers:

 

6 months
2021

6 months
2020

restated1

Full year
2020

restated1

 

£m

£m

£m

Investments

 

 

 

Management fee income - Institutional and Wholesale2

525

481

971

Management fee income - Insurance2

97

110

216

Performance fees and carried interest

51

12

30

Other revenue from contracts with customers

34

12

24

Revenue from contracts with customers for the investments segment

707

615

1,241

Adviser

88

87

169

Personal

41

38

80

Corporate/strategic - Parmenion fund platform fee income

17

13

37

Total revenue from contracts with customers

853

753

1,527

The breakdown of revenue from contracts with customers for the six months ended 30 June 2020 and 12 months ended 31 December 2020 have been restated in line with the changes to the Group's reportable segments. Refer Note 4.3 for further details.

In addition to revenues earned as a percentage of AUM, management fee income includes certain other revenues such as registration fees.

The following table provides a reconciliation of revenue from contracts with customers as presented in the condensed consolidated income statement to fee based revenue, as presented in the analysis of adjusted operating profit (see Note 4.3 (b)) for each of the Group's reportable segments:

 

Investments

Adviser

Personal

Corporate/strategic

 

30 Jun 2021

30 Jun 2020

31 Dec 2020

30 Jun 2021

30 Jun 2020

31 Dec 2020

30 Jun 2021

30 Jun 2020

31 Dec 2020

30 Jun 2021

30 Jun 2020

31 Dec 2020

 

£m

£m

£m

£m

£m

£m

£m

£m

£m

£m

£m

£m

Revenue from contracts with customers

707

615

1,241

88

87

169

41

38

80

17

13

37

Presentation differences

 

 

 

 

 

 

 

 

 

 

 

 

Commission expenses

(43)

(35)

(71)

-

(1)

-

-

-

-

(3)

(2)

(6)

Other cost of sales

(29)

-

-

(1)

(13)

(27)

-

-

-

-

-

-

Other differences

(22)

1

6

-

(4)

(5)

-

-

-

-

7

1

Fee based revenue

613

581

1,176

87

69

137

41

38

80

14

18

32

Commission expenses and other costs of sales are netted against fee based revenue in the segment reporting but are included within expenses in the condensed consolidated income statement. Other cost of sales includes amounts payable to employees and others relating to carried interest and performance fee revenue. Other differences primarily relate to amounts presented in a different income line item of the condensed consolidated income statement and items classified as adjusting items by the Group and for the six months ended 30 June 2021 primarily relate to the release of deferred income (refer Note 4.16).

4.6  Other Income

The Group's other income for the six months ended 30 June 2021 of £92m (six months ended 30 June 2020: £13m; 12 months ended 31 December 2020: £30m) includes the £73m gain on the sale of Parmenion (refer Note 4.2). Other income for the six months ended 30 June 2020 and the 12 months ended 31 December 2020 included the £8m gain on the sale of SL Asia (refer Note 4.2).

4.7  Administrative expenses


6 months
2021

6 months
2020

Full year
2020


£m

£m

£m

Restructuring and corporate transaction expenses

106

131

297

Impairment of goodwill - asset management

-

915

915

Commission expenses

46

38

77

Other costs of sales

30

13

27

Staff costs and other employee-related costs

305

297

625

Other impairment losses on intangible assets

-

134

149

Impairment losses on disposal group classified as held for sale

-

1

1

Impairment losses on property right-of-use assets

5

-

2

Other administration expenses

342

384

725


834

1,913

2,818

Acquisition costs deferred during the period

-

-

-

Amortisation of deferred acquisition costs

1

1

2

Total administrative expenses from continuing operations

835

1,914

2,820

The 2021 restructuring and corporate transaction expenses of £106m mainly relate to ongoing transformation costs for integration, separation from Phoenix and implementing our simplified operating model. For the purposes of determining adjusted profit from continuing operations restructuring and corporate transaction expenses are £113m, as they also include £7m relating to the impairment of internally generated software and property, plant and equipment assets as a result of restructuring which are included in other administrative expenses in the table above (six months ended 30 June 2020: £nil; 12 months ended 31 December 2020: £19m).

4.8   Tax expense


6 months
2021

6 months
2020

Full year
2020


£m

£m

£m

Current tax:




UK

3

2

(1)

Overseas

13

44

55

Adjustment to tax expense in respect of prior years

6

2

9

Total current tax attributable to continuing operations

22

48

63

Deferred tax:



 

Deferred tax (credit) arising from the current periods

(13)

(54)

(76)

Adjustment to deferred tax in respect of prior years

2

12

(2)

Total deferred tax attributable to continuing operations

(11)

(42)

(78)

Total tax expense/(credit) attributable to continuing operations

11

6

(15)

On 3 March 2021, the UK Government announced its intention to increase the rate of UK corporation tax rate from 19% to 25% with effect from 1 April 2023. This change was substantively enacted on 24 May 2021. The effect of this change in the rate of UK corporation tax at this date was to increase the deferred tax assets and deferred tax liabilities in the statement of financial position by £23m and £12m respectively and increase the tax credit in the income statement by £11m.

Tax relating to components of other comprehensive income is as follows:

 

6 months
2021

6 months
2020

Full year
2020

 

£m

£m

£m

Tax relating to defined benefit pension plan deficits

(4)

-

(2)

Equity holder tax effect relating to items that will not be reclassified subsequently to

profit or loss

(4)

-

(2)

Tax relating to fair value losses recognised as cash flow hedges

-

15

(1)

Tax relating to cash flow hedge losses transferred to condensed consolidated income statement

1

(8)

3

Equity holder tax effect relating to items that may be reclassified subsequently to profit or loss

1

7

2

Tax relating to other comprehensive income from continuing operations

(3)

7

-

All of the amounts presented above are in respect of equity holders of abrdn plc.

4.9   Earnings per share

Basic earnings per share is calculated by dividing profit attributable to ordinary equity holders by the weighted average number of ordinary shares in issue during the period excluding shares owned by the employee trusts that have not vested unconditionally to employees.

Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares in issue during the period to assume the conversion of all dilutive potential ordinary shares, such as share options granted to employees.

Adjusted earnings per share is calculated on adjusted profit after tax attributable to ordinary equity holders of abrdn plc, i.e. adjusted profit net of dividends paid on preference shares.

The following table shows details of basic, diluted and adjusted earnings per share for the period:


6 months

2021

6 months

2020

restated1

Full year

2020

restated1


£m

£m

£m

Adjusted profit before tax

163

92

240

Tax on adjusted profit

(13)

(13)

(38)

Adjusted profit after tax

150

79

202

Dividend paid on preference shares

-

(5)

(5)

Adjusted profit after tax attributable to equity shareholders of abrdn plc

150

74

197

Total adjusting items including results of associates and joint ventures

(50)

(590)

598

Tax on adjusting items

2

7

53

Profit/(loss) attributable to equity shareholders of abrdn plc from continuing operations

102

(509)

848

Loss for the period from discontinued operations 

-

-

(15)

Profit/(loss) attributable to equity shareholders of abrdn plc

102

(509)

833

Comparatives for the six months ended 30 June 2020 and the 12 months ended 31 December 2020 have been restated in relation to changes to the Group's reportable segments and the change to the Group's key alternative performance measure. Refer Notes 4.3 and 4.10 for further details.

 

6 months

2021

6 months

2020

Full year

2020

 

Millions

Millions

Millions

Weighted average number of ordinary shares outstanding

2,115

2,244

2,202

Dilutive effect of share options and awards

41

30

37

Weighted average number of diluted ordinary shares outstanding

2,156

2,274

2,239

 

 

6 months

2021

6 months

2020

Restated2

Full year

2020

Restated2

 

Continuing operations

Discontinued operations

Total

Continuing operations

Discontinued operations

Total

Continuing operations

Discontinued operations

Total

 

Pence

Pence

Pence

Pence

Pence

Pence

Pence

Pence

Pence

Basic earnings per share

4.8

-

4.8

(22.7)

-

(22.7)

38.5

(0.7)

37.8

Diluted earnings per share

4.7

-

4.7

(22.7)

-

(22.7)

37.9

(0.7)

37.2

Adjusted earnings per share

7.1

-

7.1

3.3

-

3.3

8.9

-

8.9

Adjusted diluted earnings per share

7.0

-

7.0

3.3

-

3.3

8.8

-

8.8

Comparatives for adjusted earnings per share and adjusted diluted earnings per share for the six months ended 30 June 2020 and the 12 months ended 31 December 2020 have been restated in relation to the change to the Group's key alternative performance measure. Refer Note 4.10 for further details.

In accordance with IAS 33, no share options and awards were treated as dilutive for the six months ended 30 June 2020 due to the loss attributable to equity holders of abrdn plc from continuing operations in that period. This resulted in the adjusted diluted earnings per share from continuing operations being calculated using a weighted average number of ordinary shares of 2,244 million.

4.10   Adjusted profit and adjusting items

Adjusted profit excludes the impact of the following items:

· Restructuring costs and corporate transaction expenses. Restructuring includes the impact of major regulatory change.

· Amortisation and impairment of intangible assets acquired in business combinations and through the purchase of customer contracts.

· Profit or loss arising on the disposal of a subsidiary, joint venture or associate accounted for using the equity method.

· Change in fair value of/dividends from significant listed investments (see (b) below).

· Fair value movements in contingent consideration.

· Items which are one-off and, due to their size or nature, are not indicative of the long-term operating performance of the Group.

In addition, adjusted profit excludes the Group's share of profit from associates and joint ventures and impairment losses recognised/reversed on investments in associates and joint ventures. These items are included in the reconciliation of consolidated adjusted profit to IFRS profit for the period based on the values included in the IFRS condensed consolidated income statement.

(a)  Changes to the Group's adjusted profit

· The Group has changed the definition of adjusted profit in 2021.

· Previously adjusted profit included the pre-tax adjusted results from the Group's associates and joint ventures accounted for using the equity method. Adjusting items previously also included adjusting items in relation to the results from the Group's associates and joint ventures.

· The reason for the change is to make the results more understandable, following the reclassification of HDFC Life and Phoenix from associates to equity investments.

· Comparative information on adjusted profit for the six months ended 30 June 2020 and the 12 months ended 31 December 2020 have been prepared on the same basis as the six months ended 30 June 2021 to allow more meaningful comparison.

· A reconciliation to previously reported information is included in Section 5, Supplementary Information.

(b)  Significant listed investments

· Following the reclassification of HDFC Life and Phoenix from associates to equity securities, fair value movements on these investments are included as adjusting items. Excluding fair value movements on significant listed investments for the purpose of adjusted profit is aligned with our treatment of gains on disposal for these holdings when they were classified as associates.

· Dividends from significant listed investments are also included as adjusting items, as such dividends result in fair value movements.

· In addition to fair value movements, the other changes to the Group's significant listed investments in the six months ended 30 June 2021 were as follows:

· The reclassification of Phoenix (refer Note 4.2(b)(iii) for further details).

· The Group's holding in HDFC Life reduced by 4.99% to 3.89% following the sale of 100,845,104 equity shares in HDFC Life through a Bulk Sale on 29 June 2021. The total consideration net of taxes and expenses was £653m. The sale settled on 1 July 2021 and the consideration of £653m was included in receivables and other financial assets at 30 June 2021 of £1,521m (30 June 2020: £621m; 31 December 2020: £621m).

( c)  Other

Other adjusting items for the six months ended 30 June 2021 includes a net release of deferred income of £25m, refer Note 4.16. Other adjusting items for the 12 months ended 31 December 2020 included £5m for net fair value movements in contingent consideration relating to continuing operations. There were no net fair value movements in contingent consideration relating to continuing operations for the six months ended 30 June 2021 or 30 June 2020.

4.11  Dividends on ordinary shares


6 months 2021

6 months

2020

Full year

2020


Pence per
share

Pence per
share

£m

Pence per
share

£m

Dividends relating to reporting period

 





Interim dividend (2021 and 2020)

7.30

7.30

159

7.30

159

Final dividend (2020)

-

-

-

7.30

154

Total

7.30

7.30

159

14.60

313


 

 




Dividends paid in reporting period

 

 




Current year interim dividend

-

-

-

7.30

159

Final dividend for prior year

7.30

14.30

320

14.30

320

Total

 


320


479

Subsequent to 30 June 2021, the Board has declared an interim dividend for 2021 of 7.30 pence per ordinary share (interim 2020:
7.30 pence), an estimated £154m in total (interim 2020: £159m). The dividend is expected to be paid on 28 September 2021 and will be recorded as an appropriation of retained earnings in the financial statements for the year ended 31 December 2021.

  4.12   Intangible assets

 

 

30 Jun
2021

30 Jun
2020

31 Dec
2020

 

£m

£m

£m

Acquired through business combinations

 

 

 

Goodwill

249

85

85

Brand

20

39

30

Customer relationships and investment management contracts

346

352

314

Technology

-

8

3

Internally developed software

15

41

17

Purchased software and other

1

3

3

Cost of obtaining customer contracts

43

51

49

Total intangible assets

674

579

501

The additions in intangible assets in the six months ended 30 June 2021 predominately relate to the acquisition of Tritax. Refer Note 4.2 for further details.

No impairments of intangible assets were recognised for the six months ended 30 June 2021. For the six months ended 30 June 2020 and 12 months ended 31 December 2020, an impairment of goodwill of £915m and an impairment of customer relationships and investment management contracts of £134m were recognised. In addition, an impairment of internally developed software of £14m was recognised for the 12 months ended 31 December 2020 (six months ended 30 June 2020: £nil). All impairments relate to assets included in the Investments segment (previously the Asset management, platforms and wealth segment) and were included within administrative expenses in the condensed consolidated income statement.

4.13  Investments in associates and joint ventures accounted for using the equity method

 

 

30 Jun
2021

30 Jun
2020

31 Dec
2020

 

£m

£m

£m

Associates

 

 

 

Phoenix Group Holdings plc (Phoenix)

-

928

1,008

HDFC Asset Management Company Limited (HDFC Asset Management)

127

122

116

HDFC Life Insurance Company Limited (HDFC Life)

-

125

-

Other

10

10

10

Joint ventures

 

 

 

Heng An Standard Life Insurance Company Limited (HASL)

237

224

236

Other

7

-

1

Total investments in associates and joint ventures accounted for using the equity method

381

1,409

1,371

The Group's interests in Phoenix and HDFC Life were reclassified from investments in associates accounted for using the equity method to equity securities measured at fair value on 23 February 2021 and 3 December 2020 respectively. Refer Note 4.2 for further details of the reclassifications and details of the partial disposals of HDFC Asset Management, HDFC Life and Phoenix in 2020.

Loss on impairment of interests in associates and joint ventures in the condensed consolidated income statement was £nil in the six months ended 30 June 2021, £130m in the six months ended 30 June 2020 (of which £85m related to Phoenix and £45m to Virgin Money Unit Trust Managers (VMUTM)), and £45m in the 12 months ended 31 December 2020 (of which £45m related to VMUTM).

4.14   Issued share capital and share premium, shares held by trusts, retained earnings and other reserves

(a)  Issued share capital and share premium

The movement in the issued ordinary share capital of the Company is:


6 months 2021

6 months 2020

Full year 2020


Ordinary share capital

Share premium

Ordinary share capital

Share premium

Ordinary share capital

Share premium

Issued shares fully paid

13 61/63p each

£m

£m

13 61/63p each

£m

£m

13 61/63p each

£m

£m

At start of period

2,194,115,616

306

640

2,338,723,724

327

640

2,338,723,724

327

640

Shares issued in respect of share incentive plans

960

-

-

947

-

-

2,188

-

-

Shares bought back on-market and cancelled

(13,392,862)

(1)

-

(69,831,713)

(10)

-

(144,610,296)

(21)

-

At end of period

2,180,723,714

305

640

2,268,892,958

317

640

2,194,115,616

306

640

All ordinary shares in issue in the Company rank pari passu and carry the same voting rights and entitlement to receive dividends and other distributions declared or paid by the Company.

On 7 February 2020, the Company announced a share buyback of up to £400m through on-market purchases which commenced on 10 February 2020 and was completed on 12 February 2021. During the six months ended 30 June 2021, the Company bought back and cancelled 13,392,862 shares (six months ended 30 June 2020: 69,831,713 shares; 12 months ended 31 December 2020: 144,610,296 shares). The total consideration was £41m (six months ended 30 June 2020: £175m; 12 months ended 31 December 2020: £362m) which includes transaction costs and any unsettled purchases of shares already transacted. At 30 June 2021, there were no unsettled purchases of shares (six months ended 30 June 2020: 1,523,060 shares; 12 months ended 31 December 2020: 507,757 shares).

The share buyback has resulted in a reduction in retained earnings of £nil (six months ended 30 June 2020: £401m (restated - refer Note 4.1(a)(iii) for further details); 12 months ended 31 December 2020: £402m). At 30 June 2021, there were no irrevocable contractual obligations with a third party to purchase the Company's own shares. At 30 June 2020 and 31 December 2020, there were irrevocable contractual obligations with a third party to purchase the Company's own shares of £226m and £40m respectively. These obligations were recognised as a part of the share buyback reduction to retained earnings of £401m (as restated) and £402m, for the six months ended 30 June 2020 and 12 months ended 31 December 2020 respectively with corresponding liabilities of £226m (as restated) and £40m included within other financial liabilities. An amount of £1m (six months ended 30 June 2020: £10m; 12 months ended 31 December 2020: £21m) has been credited to the capital redemption reserve relating to the nominal value of the shares cancelled.

The Company can issue shares to satisfy awards granted under employee incentive plans which have been approved by shareholders.

(b)  Shares held by trusts

Shares held by trusts relates to shares in abrdn plc that are held by the Standard Life Aberdeen Employee Benefit Trust (SLA EBT), Standard Life Employee Trust (ET) and the Aberdeen Asset Management Employee Benefit Trust 2003 (AAM EBT).

The SLA EBT, ET and AAM EBT purchase 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 SLA EBT, ET or AAM EBT 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.

The number of shares held by trusts at 30 June 2021 was as follows:


6 months
2021

6 months
2020

Full year
2020

Number of shares held by trusts




Standard Life Aberdeen Employee Benefit Trust

39,279,020

35,749,816

37,667,681

Standard Life Employee Trust

23,083,609

25,261,712

23,773,359

Aberdeen Asset Management Employee Benefit Trust 2003

3,294,476

8,333,162

6,294,765

 

(c)  Retained earnings and other reserves

Other reserves of £1,041m (30 June 2020: £1,096m; 31 December 2020: £1,064m) includes a merger reserve of £483m (30 June 2020: £483m; 31 December 2020: £483m).The merger reserve includes £470m (30 June 2020: £470m; 31 December 2020: £470m) in relation to the Group's asset management businesses. There were no movements in the merger reserve in the six months ended 30 June 2021. During the six months ended 30 June 2020 and the 12 months ended 31 December 2020, £1,834m was transferred from the merger reserve to retained earnings following an impairment of the Company's investments in its asset management entities.

 

4.15  Pension and other post-retirement benefit provisions

The Group operates a number of defined benefit pension plans, the largest of which is the UK Standard Life Group plan (principal plan) which is closed to future accrual. The Group also operates two other UK defined benefit plans, which are closed to future accrual, the Ireland Standard Life plan, which has fewer than 10 employees accruing future benefits, and a number of smaller funded and unfunded defined benefit plans in other countries.

For the UK plans the trustees set the plan investment strategy to protect the ratio of plan assets to the trustees' measure of technical provisions. Technical provisions represent the trustees' prudent view of the amount of assets needed to pay future benefits. The investment strategy does not aim to protect the IAS 19 surplus or ratio of plan assets to the IAS 19 measure of liabilities.

(a)   Analysis of amounts recognised in the IFRS condensed consolidated income statement

The amounts recognised in the IFRS condensed consolidated income statement for defined contribution and defined benefit plans are as follows:


6 months
2021

6 months
2020

Full year
2020


£m

£m

£m

Current service cost

28

29

59

Past service cost

-

-

-

Net interest income

(10)

(11)

(23)

Administrative expenses

2

1

3

Expense from continuing operations recognised in the IFRS condensed consolidated income statement

20

19

39

 

( b)  Analysis of amounts recognised on the IFRS condensed consolidated statement of financial position

Pension and other post-retirement benefit assets at 30 June 2021 of £1,454m (30 June 2020: £1,382m; 31 December 2020: £1,474m) includes the following amounts in relation to the principal plan:

 

6 months
2021

6 months
2020

Full year
2020

 

£m

£m

£m

Present value of funded obligation

(2,775)

(3,175)

(3,015)

Fair value of plan assets

4,987

5,263

5,253

Effect of limit on plan surplus

(774)

(731)

(783)

Net asset

1,438

1,357

1,455

 

(c)   Principal assumptions

The key economic assumptions for the principal plan which are based in part on current market conditions are as follows:


30 Jun
2021

30 Jun
2020

31 Dec
 2020


%

%

%

Discount rate

2.00

1.50

1.45

Rates of inflation



 

Consumer Price Index (CPI)

2.65

2.00

2.40

Retail Price Index (RPI)

3.15

2.75

2.90

The changes in economic assumptions over the period reflect changes in both corporate bond prices and market implied inflation.

The population of corporate bond prices used at 30 June 2021 and 31 December 2020 excludes bonds issued by UK universities which is a change in methodology for calculating the discount rate and therefore a change to the accounting estimate compared to 30 June 2020. Refer to Note 34(e) of the Group's Annual report and accounts for the year ended 31 December 2020 for more information.

The inflation assumption reflects the future reform of RPI effective from 2030 and this is the primary driver of the increase in the CPI assumption between 30 June 2020 and 31 December 2020. Refer to Note 34(g)(i) of the Group's Annual report and accounts for the year ended 31 December 2020 for more information.

4.16  Deferred income

As detailed in Note 4.2(b)(iii), in May 2021 the Group transferred workplace pensions marketing staff to Phoenix, who were employed by the Group but provided services to Phoenix, and made an associated payment of £32m to Phoenix. As a result, the Group released related deferred income of £57m in May 2021. The release of deferred income has been recognised in revenue from contracts with customers in the condensed consolidated income statement net of the £32m payment.

4.17   Fair value of assets and liabilities

(a)  Fair value hierarchy

In determining fair value, the following fair value hierarchy categorisation has been used:

· Level 1: Fair values measured using quoted prices (unadjusted) in active markets for identical assets or liabilities. An active market exists where transactions take place with sufficient frequency and volume to provide pricing information on an ongoing basis.

· Level 2: Fair values measured using inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).

· Level 3: Fair values measured using inputs that are not based on observable market data (unobservable inputs).

· Information on the methods and assumptions used to determine fair values for equity securities and interests in pooled investment funds, debt securities and derivatives measured at fair value is given below:

 

Equities and interests in pooled investment funds1,2

Debt securities

Derivatives3

Level 1

Equity instruments listed on a recognised exchange valued using prices sourced from their primary exchange.

Debt securities listed on a recognised exchange valued using prices sourced from their primary exchange.

Exchange traded derivatives valued using prices sourced from the relevant exchange.

Level 2

Pooled investment funds where daily unit prices are available and reference is made to observable market data.

Debt securities valued using prices received from external pricing providers based on quotes received from a number of market participants.

 

Debt securities valued using models and standard valuation formulas based on observable market data4.

Over-the-counter derivatives measured using a range of valuation models including discounting future cash flows and option valuation techniques.

Level 3

These relate primarily to interests in private equity, real estate and infrastructure funds which are valued at net asset value. Underlying real estate and private equity investments are generally valued in accordance with independent professional valuation reports or International Private Equity and Venture Capital Valuation Guidelines where relevant. The underlying investments in infrastructure funds are generally valued based on the phase of individual projects forming the overall investment and discounted cash flow techniques based on project earnings.

 

Where net asset values are not available at the same date as the reporting date, these valuations are reviewed and, where appropriate, adjustments are made to reflect the impact of changes in market conditions between the date of the valuation and the end of the reporting period.

 

Other unlisted equity securities are generally valued at indicative share prices from off market transactions.

Debt securities valued using prices received from external pricing providers based on a single broker indicative quote.

 

Debt securities valued using models and standard valuation formulas based on unobservable market data4.

N/A

Investments in associates at FVTPL are valued in the same manner as the Group's equity securities and interests in pooled investment funds.

Where pooled investment funds have been seeded and the investment in the funds have been classified as held for sale, the costs to sell are assumed to be negligible. The fair value of pooled investment funds held for sale is calculated as equal to the observable unit price.

Non-performance risk arising from the credit risk of each counterparty is also considered on a net exposure basis in line with the Group's risk management policies. At 30 June 2021, 31 December 2020 and 30 June 2020, the residual credit risk is considered immaterial and no credit risk adjustment has been made.

If prices are not available from the external pricing providers or are considered to be stale, the Group has established procedures to arrive at an internal assessment of the fair value.

The fair value of liabilities in respect of third party interest in consolidated funds and non-participating investment contracts are calculated equal to the fair value of the underlying assets and liabilities.

Thus, the value of these liabilities is dependent on the methods and assumptions set out above in relation to the underlying assets and liabilities:

· For third party interest in consolidated funds, when the underlying assets and liabilities are valued using readily available market information the liabilities in respect of third party interest in consolidated funds are treated as level 2. Where the underlying assets and liabilities are not valued using readily available market information the liabilities in respect of third party interest in consolidated funds are treated as level 3.

· For non-participating investment contracts, the underlying assets and liabilities are predominately categorised as level 1 or 2 and as such, the inputs into the valuation of the liabilities are observable and these liabilities are predominately categorised within level 2 of the fair value hierarchy. Where the underlying assets are categorised as level 3, the liabilities are also categorised as level 3.

In addition, contingent consideration assets and contingent consideration liabilities are also categorised as level 3 in the fair value hierarchy. Contingent consideration assets and liabilities have been recognised in respect of acquisitions and disposals. Generally valuations are based on unobservable assumptions regarding the probability weighted cash flows and, where relevant, discount rate.

(b)   Fair value hierarchy for assets and liabilities measured at fair value other than assets backing unit linked liabilities and unit linked liabilities

(b)(i)  Fair value hierarchy for assets measured at fair value in the statement of financial position other than assets backing unit linked liabilities

The table below presents the Group's assets, other than assets backing unit linked liabilities, measured at fair value by level of the fair value hierarchy (refer Note 4.17(c) for fair value hierarchy analysis in relation to assets backing unit linked liabilities).

 

 

Fair value hierarchy

 

Total

Level 1

Level 2

Level 3

 

30 Jun 2021

30 Jun 2020

31 Dec 2020

30 Jun 2021

30 Jun 2020

31 Dec 2020

30 Jun 2021

30 Jun 2020

31 Dec 2020

30 Jun 2021

30 Jun 2020

31 Dec 2020

 

£m

£m

£m

£m

£m

£m

£m

£m

£m

£m

£m

£m

Derivative financial assets

6

95

18

-

-

-

6

95

18

-

-

-

Equity securities and interests in pooled investment vehicles1

2,259

730

1,981

1,749

218

1,422

414

422

458

96

90

101

Debt securities2

626

972

787

2

2

2

623

969

784

1

1

1

Financial Investments

2,891

1,797

2,786

1,751

220

1,424

1,043

1,486

1,260

97

91

102

Owner occupied property3

1

1

1

-

-

-

-

-

-

1

1

1

Contingent consideration asset4

21

1

28

-

-

-

-

-

-

21

1

28

Total assets at fair value

2,913

1,799

2,815

1,751

220

1,424

1,043

1,486

1,260

119

93

131

Includes £975m (30 June 2020: £nil; 31 December 2020: £nil) and £526m (30 June 2020: £nil; 31 December 2020: £1,216m) for the Group's listed equity investments in Phoenix and HDFC Life respectively, both of which are classified as significant listed investments (refer Note 4.10) and £nil (30 June 2020: £2m; 31 December 2020: £1m) for equity securities and interests in pooled investment vehicles classified as held for sale.

Excludes debt securities measured at amortised cost of £261m (30 June 2020: £368m; 31 December 2020: £325m) - refer Note 4.17(d).

Presented in Property, plant and equipment in the condensed consolidated statement of financial position.

Presented in Receivables and other financial assets in the condensed consolidated statement of financial position.

There were no significant transfers from level 1 to level 2 during the six months ended 30 June 2021 (six months ended 30 June 2020: £361m; 12 months ended 31 December 2020: £355m). There were also no significant transfers from level 2 to level 1 during the six months ended 30 June 2021 (six months ended 30 June 2020: £5m; 12 months ended 31 December 2020: £7m). Transfers from level 1 to level 2 for the six months ended 30 June 2020 and the 12 months ended 31 December 2020 primarily related to interests in pooled investment vehicles which are priced daily but where the daily price is only offered by the fund manager. As disclosed in the prior year, the Group now considers these investments to be level 2. All other transfers relate to assets where changes in the frequency of observable market transactions resulted in a change in whether the market was considered active. Refer Note 4.17(b)(iii) for details of movements in level 3 assets.

(b)(ii)  Fair value hierarchy for liabilities measured at fair value in the statement of financial position other than unit linked liabilities

The table below presents the Group's liabilities, other than unit linked liabilities, measured at fair value by level of the fair value hierarchy (refer 4.17(c) for fair value hierarchy analysis in relation to unit linked liabilities).

 

Fair value hierarchy

 

Total

Level 1

Level 2

Level 3

 

30 Jun 2021

30 Jun 2020

31 Dec 2020

30 Jun 2021

30 Jun 2020

31 Dec 2020

30 Jun 2021

30 Jun 2020

31 Dec 2020

30 Jun 2021

30 Jun 2020

31 Dec 2020

 

£m

£m

£m

£m

£m

£m

£m

£m

£m

£m

£m

£m

Liabilities in respect of third party interest in consolidated funds

101

184

77

-

-

-

101

184

77

-

-

-

Derivative financial liabilities

15

8

13

-

-

2

15

8

11

-

-

-

Contingent consideration liabilities1

164

11

6

-

-

-

-

-

-

164

11

6

Total liabilities at fair value

280

203

96

-

-

2

116

192

88

164

11

6

Presented in Other financial liabilities in the condensed consolidated statement of financial position.

There were no significant transfers between levels 1 and 2 during the six months ended 30 June 2021 (six months ended 30 June 2020: none; 12 months ended 31 December 2020: none). Refer Note 4.17(b)(iii) for details of movements in level 3 liabilities.

(b)(iii)  Reconciliation of movements in level 3 instruments

The movements during the period of level 3 assets and liabilities held at fair value, excluding unit linked assets and liabilities and assets and liabilities held for sale, are analysed below.

 

Owner occupied property

Equity securities and interests in pooled investment funds

Debt securities

 

30 Jun 2021

30 Jun 2020

31 Dec 2020

30 Jun 2021

30 Jun 2020

31 Dec 2020

30 Jun 2021

30 Jun 2020

31 Dec 2020


£m

£m

£m

£m

£m

£m

£m

£m

£m

At start of period

1

2

2

101

82

82

1

1

1

Total gains/(losses) recognised in the condensed consolidated income statement

-

(1)

-

5

1

2

-

-

-

Purchases

-

-

-

5

13

29

-

-

-

Sales and other adjustments

-

-

(1)

(11)

(9)

(13)

-

-

-

Foreign exchange adjustment

-

-

-

(4)

1

-

-

-

-

Transfers in to level 31

-

-

-

-

2

1

-

-

-

At end of period

1

1

1

96

90

101

1

1

1

Transfers are deemed to have occurred at the end of the calendar quarter in which they arose.

 

Contingent consideration asset

Contingent consideration liabilities

 

30 Jun
2021

30 Jun
2020

31 Dec
2020

30 Jun
2021

30 Jun
2020

31 Dec
2020

 

£m

£m

£m

£m

£m

£m

At start of period

28

1

1

(6)

(14)

(14)

Total amounts recognised in the income statement

-

-

(12)

-

-

2

Additions

21

-

-

(155)

-

-

Settlements

(34)

-

39

6

3

6

Other movements

(3)

-

-

-

-

-

Transfer to contingent consideration liability

9

-

-

(9)

-

-

At end of period

21

1

28

(164)

(11)

(6)

The additions in the six months ended 30 June 2021 relate to the disposal of Parmenion and the acquisition of Tritax. Refer Note 4.2 for further details.

For the six months ended 30 June 2021, gains of £5m (six months ended 30 June 2020: gains of £2m; 12 months ended 31 December 2020: losses of £13m) were recognised in the IFRS condensed consolidated income statement in respect of non-unit linked assets and liabilities held at fair value classified as level 3 at the period end, excluding assets and liabilities held for sale. Of this amount, gains of £5m (six months ended 30 June 2020: gains of £2m; 12 months ended 31 December 2020: gains of £2m) were recognised in investment return, no gains or losses were recognised in other income (six months ended 30 June 2020: £nil; 12 months ended 31 December 2020: £nil), or in respect of discontinued operations (six months ended 30 June 2020: £nil; 12 months ended 31 December 2020: losses of £15m).

Transfers of equity securities and interests in pooled investment funds and debt securities into level 3 generally arise when external pricing providers stop providing a price or where the price provided is considered stale. Transfers of equity securities and interests in pooled investment funds and debt securities out of level 3 arise when acceptable prices become available from external pricing providers.

(b)(iv) Significant unobservable inputs in level 3 instrument valuations

The table below identifies the significant unobservable inputs in relation to equity securities and interests in pooled investment funds categorised as level 3 instruments at 30 June 2021 with a fair value of £96m (30 June 2020: £90m; 31 December 2020: £101m).

 

 

Fair value

 

 

 

30 Jun 2021

 

30 Jun 2020

31 Dec 2020

Valuation technique

Unobservable input

Range (weighted average)

 

£m

£m

£m

 

 

 

Private equity, real estate and infrastructure funds

80

75

85

Net asset value

Net asset value statements provided for five significant funds (fair value >£5m) and a large number of smaller funds.

A range of unobservable inputs is not applicable as we have determined that the reported NAV represents fair value at the end of the reporting period.

Other unlisted equity securities

16

15

16

Indicative share price

Recent off market capital raising transactions.

A range of unobservable inputs is not applicable as we have determined that the indicative share price from off market transactions represents fair value at the end of the reporting period.

 

The table below identifies the significant unobservable inputs in relation to contingent consideration assets and liabilities categorised as level 3 instruments at 30 June 2021 with a fair value of (£143m) (30 June 2020: (£10m); 31 December 2020: £22m).

 

Fair value £m

Valuation technique

Unobservable input

Input used

30 June 2021

Contingent consideration assets and liabilities

(143)

Probability weighted cash flow and where applicable discount rates

Unobservable inputs relate to probability weighted cash flows and, where relevant, discount rates.

The most significant unobservable inputs relate to assumptions used to value the contingent consideration related to the acquisition of Tritax. For Tritax a number of scenarios were prepared, around a base case, with probabilities assigned to each scenario (based on an assessment of the likelihood of each scenario). The value of the contingent consideration was determined for each scenario, and these were then probability weighted, with this probability weighted valuation then discounted from the payment date to the balance sheet date. It was assumed that the timing of the exercise of the earn out put options (refer Note 4.2(a)(i)) between 2024, 2025 and 2026 would be that which is most beneficial to the holders of the put options. 

 

 

 

The base scenario for Tritax contingent consideration used a revenue compound annual growth rate (CAGR) from 2021 to 2026 of 21%, with other scenarios using a range of revenue growth rates around this base. The base scenario used a cost/income ratio of c50% with other scenarios using a range of cost/income ratios around this base.

The risk adjusted contingent consideration cash flows have been discounted using a primary discount rate of 1.9%.

30 Jun 2020

Contingent consideration assets and liabilities

(10)

Probability weighted cash flows and where applicable discount rates

Unobservable inputs relate to probability weighted cash flows and, where relevant, discount rates. The most significant unobservable inputs relate to assumptions used to value the contingent consideration related to the sale of SLAL to Phoenix, in particular those related to:

 




SLAL's annuity sales practices provision.

Expected amount receivable based on the SLAL release of the provision that it recognised at
31 December 2017.




Future lapse rates on relevant UK unit linked products of SLAL.

 

Management's assessment of the outcome of ongoing discussions  with Phoenix in respect of disagreements over the operation of certain aspects of the governing contracts that were entered into at the time of the sale of SLAL to Phoenix.

Expected amount payable based on lapse experience data for 2018 and 2019 provided by Phoenix.

Our assessment of the expected resolution taking into account our legal advice.

31 Dec 2020

Contingent consideration assets and liabilities

22

Probability weighted cash flows

Unobservable inputs relate to probability weighted cash flows; and where relevant, discount rates. The most significant unobservable inputs relate to assumptions used to value the contingent consideration related to the sale of SLAL to Phoenix.

Amount expected to be received from Phoenix at 31 December 2020. This was in line with the £34m received in February 2021. Refer note 4.2(b)(iii). The residual fair value relates to a number of smaller contingent consideration liabilities for which the input used is expected payments based on earn-out terms and indemnity assessments.

 

(b)(v)  Sensitivity of level 3 instruments measured at fair value on the statement of financial position to changes in key assumptions

At 30 June 2021 the shareholder is directly exposed to movements in the value of all non-unit linked level 3 instruments. As noted above, the most significant unobservable inputs for level 3 instruments relate to assumptions used to value the contingent consideration related to the purchase of Tritax. Sensitivities are provided in the table below.

Assumption

Change in assumption

Consequential increase/(decrease) in contingent consideration liability

Revenue compound annual growth rate (CAGR) from 2021 to 2026

Decreased by 5%

(£25m)

 

Increased by 5%

£18m

Cost/income ratio

Decreased by 5%

£9m

 

Increased by 5%

(£12m)

Discount rate

Increased by 1% 

(£7m)

Changing unobservable inputs in the measurement of the fair value of the other level 3 financial assets and financial liabilities to reasonably possible alternative assumptions would not have a significant impact on profit attributable to equity holders or on total assets. No level 3 instruments are held in in consolidated structured entities. See Note 4.17(c) for unit linked level 3 instruments.

(c) Fair value hierarchy for assets backing unit linked liabilities and unit linked liabilities measured at fair value

The table below presents the Group's assets backing unit linked liabilities and unit linked liabilities measured at fair value by level of the fair value hierarchy.

 

 

Fair value hierarchy

 

Total

Level 1

Level 2

Level 3

 

30 Jun 2021

30 Jun 2020

31 Dec 2020

30 Jun 2021

30 Jun 2020

31 Dec 2020

30 Jun 2021

30 Jun 2020

31 Dec 2020

30 Jun 2021

30 Jun 2020

31 Dec 2020


£m

£m

£m

£m

£m

£m

£m

£m

£m

£m

£m

£m

Financial investments

1,396

1,313

1,395

908

787

832

488

506

545

-

20

18

Total assets at fair value backing unit linked liabilities

1,396

1,313

1,395

908

787

832

488

506

545

-

20

18

Investment contract liabilities

1,034

990

1,042

-

-

-

1,034

970

1,024

-

20

18

Third party interest in consolidated funds

399

376

388

-

-

-

399

376

388

-

-

-

Other unit linked liabilities1

7

17

9

2

8

7

5

9

2

-

-

-

Total unit linked liabilities at fair value

1,440

1,383

1,439

2

8

7

1,438

1,355

1,414

-

20

18

Excludes other unit linked liabilities not measured at fair value of £1m (30 June 2020: £13m; 31 December 2020: £2m).

The financial investments backing unit linked liabilities comprise equity securities and interests in pooled investment funds of £1,240m (30 June 2020: £1,144m; 31 December 2020: £1,244m), debt securities of £152m (30 June 2020: £164m; 31 December 2020: £145m) and derivative financial assets of £4m (30 June 2020: £5m; 31 December 2020: £6m).

There were no significant transfers from level 1 to level 2 during the six months ended 30 June 2021 (six months ended 30 June 2020: £274m; 12 months ended 31 December 2020: £309m). There were also no significant transfers from level 2 to level 1 during the six months ended 30 June 2021 (six months ended 30 June 2020: £nil; 12 months ended 31 December 2020: £nil). Transfers from level 1 to level 2 for the six months ended 30 June 2020 and the 12 months ended 31 December 2020 primarily related to interests in pooled investment vehicles which are priced daily but where the daily price is only offered by the fund manager. As disclosed in the prior year, the Group now considers these investments to be level 2. All other transfers relate to assets where changes in the frequency of observable market transactions resulted in a change in whether the market was considered active.

The movements during the period of level 3 unit linked assets and liabilities held at fair value are analysed below.

 

Equity securities and interests in

pooled investment funds

Investment contract liabilities

 

30 Jun

2021

30 Jun

2020

31 Dec

2020

30 Jun

2021

30 Jun

2020

31 Dec

2020


£m

£m

£m

£m

£m

£m

At start of period

18

-

-

(18)

-

-

Total gains/(losses) recognised in the condensed consolidated income statement

-

(1)

(2)

-

1

2

Sales

(18)

-

(1)

18

-

1

Transfers in to level 31

-

21

21

-

(21)

(21)

At end of period

-

20

18

-

(20)

(18)

Transfers are deemed to have occurred at the end of the calendar quarter in which they arose.

Unit linked level 3 assets relate to holdings in real estate funds. No individual unobservable input is considered significant. Changing unobservable inputs in the measurement of the fair value of these unit linked level 3 financial assets and liabilities to reasonably possible alternative assumptions would have no impact on profit attributable to equity holders or on total assets.

Transfers of unit linked assets and liabilities to level 3 generally arise when external pricing providers stop providing prices for the underlying assets and liabilities in the funds or where the price provided is considered stale.

(d)   Financial assets and financial liabilities not carried at fair value

The table below presents estimated fair values of financial assets and financial liabilities whose carrying value does not approximate fair value.

 

As recognised in the consolidated statement of financial position

Fair value

 

30 Jun
2021

30 Jun
2020

31 Dec
2020

30 Jun
2021

30 Jun
2020

31 Dec
2020

 

£m

£m

£m

£m

£m

£m

Assets

 

 

 

 

 

 

Debt securities

261

368

325

267

378

335

Liabilities

 

 

 

 

 


Subordinated liabilities

632

798

638

683

817

688

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

4.18  Contingent liabilities and contingent assets

Legal proceedings, complaints and regulations

The Group is subject to regulation in all of the territories in which it operates investment management and insurance businesses. In the UK, where the Group primarily operates, the FCA has broad powers, including powers to investigate marketing and sales practices.

The Group, like other financial organisations, is subject to legal proceedings, complaints, regulatory and tax discussions, reviews and challenges 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 Group 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.

4.19  Commitments

(a)  Unrecognised financial instruments

As at 30 June 2021, the Group has committed to investing an additional £50m (30 June 2020: £50m; 31 December 2020: £35m) into funds in which it holds a co-investment interest.

(b)  Capital commitments

As at 30 June 2021, the Group has capital commitments other than in relation to financial instruments of £6m (30 June 2020: £12m; 31 December 2020: £7m). In addition, commitments relating to future acquisitions are disclosed in Note 4.2(b)(iii).

4.20  Related party transactions

In the normal course of business, the Group enters into transactions with related parties that relate to investment management and insurance businesses. There have been no changes in the nature of these transactions during the period to those reported in the Group's Annual report and accounts for the year ended 31 December 2020.

In the six months ended 30 June 2021, for associates accounted for using the equity method, the Group recognised sales primarily in relation to management fees of £36m (six months ended 30 June 2020: £93m1; 12 months ended 31 December 2020: £195m) and purchases in relation to services received of £2m (six months ended 30 June 2020: £34m; 12 months ended 31 December 2020: £79m). There were also sales to joint ventures accounted for using the equity method of £2m (six months ended 30 June 2020: £2m; 12 months ended 31 December 2020: £10m) and purchases from joint ventures of £nil (six months ended 30 June 2020: £nil; 12 months ended 31 December 2020: £nil).

During the six months ended 30 June 2021, the Group committed to providing £6m of additional funding to a joint venture subject to the fulfilment of specified conditions (six months ended 30 June 2020: £12m; 12 months ended 31 December 2020: £12m). The capital contributions to this joint venture during the six months ended 30 June 2021 were £7m (six months ended 30 June 2020: £nil; 12 months ended 31 December 2020: £5m) with an outstanding commitment of £6m at 30 June 2021 (30 June 2020: £12m; 12 months ended 31 December 2020: £7m).

Comparative for the six months ended 30 June 2020 restated to include sales where the selection of the Group as the asset manager is made by the underlying policyholder.

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