Half-year Report - Part 3 of 4

RNS Number : 9880W

Standard Life Aberdeen plc

07 August 2018

Standard Life Aberdeen plc

Half year results 2018

Part 3 of 4

2. Statement of Directors' responsibilities

Each of the Directors, whose names and functions are listed on the Standard Life Aberdeen plc website, www.standardlifeaberdeen.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 by the EU

· 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 provision C1 of the UK Corporate Governance Code, the Half year results 2018 taken as a whole, present a fair, balanced and understandable position of the Company's 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

As previously announced, Julie Chakraverty, Lynne Peacock and Akira Suzuki retired as non-executive Directors at the conclusion of the Company's Annual General Meeting on 29 May 2018. In addition, the Company announced Cathleen Raffaeli's appointment to the Board, as a non-executive Director, with effect from 1 August 2018.

By order of the Board

Sir Gerry Grimstone

Chairman

7 August 2018

Bill Rattray

Chief Financial Officer

7 August 2018

3. Independent review report to Standard Life Aberdeen plc

Conclusion

We have been engaged by the Company to review the IFRS condensed consolidated financial information in the Half year results for the six months ended 30 June 2018 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 IFRS condensed consolidated financial information in the Half year results for the six months ended 30 June 2018 is not prepared, in all material respects, in accordance with IAS 34 Interim Financial Reporting as adopted by the EU 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 IFRS condensed consolidated financial information.

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 in accordance with the DTR of the UK FCA.

As disclosed in Note 4.1, the annual financial statements of the Group are prepared in accordance with International Financial Reporting Standards as adopted by the EU. The Directors are responsible for preparing the IFRS condensed consolidated financial information included in the Half year results in accordance with IAS 34 as adopted by the EU.

Our responsibility

Our responsibility is to express to the Company a conclusion on the IFRS condensed consolidated financial information 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

7 August 2018

4. Financial information

IFRS condensed consolidated income statement

For the six months ended 30 June 2018

		6 months 2018	6 months 2017 restated¹	Full year 2017 restated¹
	Notes	£m	£m	£m
Income
Investment return		10	77	238
Revenue from contracts with customers	4.4	1,019	514	1,486
Insurance and participating investment contract premium income		36	47	89
Profit on disposal of interests in associates		6	-	319
Other income		13	17	33
Total income		1,084	655	2,165

Expenses
Insurance and participating investment contract claims and change in liabilities		27	99	201
Change in non-participating investment contract liabilities		2	8	74
Administrative expenses
Restructuring and corporate transaction expenses	4.5	59	57	162
Other administrative expenses		883	429	1,295
Total administrative expenses	4.5	942	486	1,457
Change in liability for third party interest in consolidated funds		4	-	6
Finance costs		21	14	34
Total expenses		996	607	1,772

Share of profit from associates and joint ventures		39	46	45

Profit before tax		127	94	438
Tax expense	4.6	13	10	28
Profit for the period from continuing operations		114	84	410
Profit for the period from discontinued operations	4.2	79	214	322
Profit for the period		193	298	732

Attributable to:
Equity holders of Standard Life Aberdeen plc
From continuing operations		111	84	402
From discontinued operations		74	208	297
Equity holders of Standard Life Aberdeen plc		185	292	699
Non-controlling interests
From continuing operations - preference shares and perpetual notes		3	-	8
From discontinued operations - ordinary shares		5	6	25
		193	298	732
Earnings per share from continuing operations
Basic (pence per share)	4.7	3.8	4.3	17.1
Diluted (pence per share)	4.7	3.7	4.3	17.0
Earnings per share
Basic (pence per share)	4.7	6.3	14.8	29.8
Diluted (pence per share)	4.7	6.2	14.8	29.6

¹ Comparatives for the six months ended 30 June 2017 and 12 months ended 31 December 2017 have been restated to reflect the classification of the UK and European insurance business as discontinued operations. Refer to Note 4.2.

IFRS condensed consolidated statement of comprehensive income

For the six months ended 30 June 2018

		6 months 2018	6 months 2017 restated¹	Full year 2017 restated¹
	Notes	£m	£m	£m
Profit for the period		193	298	732
Less: profit from discontinued operations		(79)	(214)	(322)
Profit from continuing operations		114	84	410
Items that will not be reclassified subsequently to profit or loss:
Remeasurement losses on defined benefit pension plans		(84)	-	(18)
Equity holder tax effect of items that will not be reclassified subsequently to profit or loss	4.6	-	-	(10)
Total items that will not be reclassified subsequently to profit or loss		(84)	-	(28)

Items that may be reclassified subsequently to profit or loss:
Fair value gains/(losses) on cash flow hedges		15	-	(33)
Fair value losses on available-for-sale financial assets		(5)	-	-
Exchange differences on translating foreign operations		(9)	(5)	(31)
Share of other comprehensive (expense)/income of associates and joint ventures		(5)	2	4
Items transferred to the consolidated income statement
Realised (losses)/gains on cash flow hedges		(17)	-	13
Realised foreign exchange losses		-	-	(2)
Equity holder tax effect of items that may be reclassified subsequently to profit or loss	4.6	1	-	3
Total items that may be reclassified subsequently to profit or loss		(20)	(3)	(46)
Other comprehensive income for the period from continuing operations		(104)	(3)	(74)
Total comprehensive income for the period from continuing operations		10	81	336

Profit from discontinued operations	4.2	79	214	322
Other comprehensive income from discontinued operations	4.2	(2)	9	12
Total comprehensive income for the period from discontinued operations		77	223	334
Total comprehensive income for the period		87	304	670

Attributable to:
Equity holders of Standard Life Aberdeen plc
From continuing operations		7	81	328
From discontinued operations		72	217	309
Non-controlling interests
From continuing operations -- preference shares and perpetual notes		3	-	8
From discontinued operations - ordinary shares		5	6	25
		87	304	670

Reconciliation of consolidated adjusted profit before tax to IFRS profit for the period

For the six months ended 30 June 2018

		6 months 2018			6 months 2017 restated¹
		Continuing operations	Discontinued operations	Total	Continuing operations	Discontinued operations	Total
	Notes	£m	£m	£m	£m	£m	£m
Adjusted profit/(loss) before tax
Aberdeen Standard Investments		317	-	317	189	-	189
Pensions and Savings		1	167	168	-	167	167
India and China life		35	-	35	33	-	33
Other		(42)	-	(42)	(30)	(1)	(31)
Adjusted profit before tax	4.3	311	167	478	192	166	358
Adjusted for the following items
Restructuring and corporate transaction expenses		(59)	(51)	(110)	(57)	(4)	(61)
Amortisation and impairment of intangible assets acquired in business combinations		(108)	-	(108)	(10)	-	(10)
Profit on disposal of interests in associates		6	-	6	-	-	-
Short-term fluctuations in investment return and economic assumption changes		-	(61)	(61)	-	59	59
Other²		(5)	38	33	(24)	-	(24)
Total adjusting items	4.3	(166)	(74)	(240)	(91)	55	(36)
Share of associates' and joint ventures' tax expense	4.3	(18)	-	(18)	(7)	-	(7)
Profit attributable to non-controlling interests - ordinary shares	4.3	-	5	5	-	6	6
Profit before tax³		127	98	225	94	227	321
Tax (expense)/credit attributable to
Adjusted profit	4.3	(48)	(29)	(77)	(31)	1	(30)
Adjusting items	4.3	35	10	45	21	(14)	7
Total tax expense		(13)	(19)	(32)	(10)	(13)	(23)
Profit for the period		114	79	193	84	214	298

¹ Following completion of the merger the Group has changed the calculation of adjusted profit (previously named operating profit). Short-term fluctuations in investment return and economic assumption changes are now only adjusted for insurance entities. Previously these adjustments also applied to non-insurance entities. This has resulted in a £3m reduction to the adjusted profit of the other segment, a £1m reduction to the Aberdeen Standard Investments segment and a corresponding £4m adjustment to short-term fluctuations in investment return and economic assumption changes within adjusting items, for the six months ended 30 June 2017.

² Other adjusting items for the six months ended 30 June 2018 includes £nil (six months ended 30 June 2017: £24m; 12 months ended 31 December 2017: £24m) in relation to the impairment of a disposal group classified as held for sale. The Other adjusting item in 2018 relating to discontinued operations is a held for sale accounting adjustment relating to the amortisation of intangible assets (primarily deferred acquisition costs) and depreciation of tangible assets of £38m. Following the classification of the UK and European Insurance business as held for sale, no amortisation or depreciation is recognised in accordance with applicable financial reporting standards.

³ For discontinued operations profit before tax expense attributable to equity holders consists of profit before tax of £122m (six months ended 30 June 2017: £280m; 12 months ended 31 December 2017: £526m) less tax expense attributable to policyholders' returns of £24m (six months ended 30 June 2017: £53m; 12 months ended 31 December 2017: £166m).

		Continuing operations	Discontinued operations	Total
Full year 2017	Notes	£m	£m	£m
Adjusted profit/(loss) before tax
Aberdeen Standard Investments		492	-	492
Pensions and Savings		1	380	381
India and China life		59	-	59
Other		(77)	(1)	(78)
Adjusted profit before tax	4.3	475	379	854
Adjusted for the following items
Restructuring and corporate transaction expenses		(162)	(11)	(173)
Amortisation and impairment of intangible assets acquired in business combinations		(138)	-	(138)
Provision for annuity sales practices		-	(100)	(100)
Coupons payable on perpetual notes classified as equity		10	-	10
Profit on disposal of interests in associates		319	-	319
Short-term fluctuations in investment return and economic assumption changes		-	67	67
Other		(25)	-	(25)
Total adjusting items	4.3	4	(44)	(40)
Share of associates' and joint ventures' tax expense	4.3	(41)	-	(41)
Profit attributable to non-controlling interests - ordinary shares	4.3	-	25	25
Profit before tax expense attributable to equity holders		438	360	798
Tax (expense)/credit attributable to
Adjusted profit	4.3	(77)	(31)	(108)
Adjusting items	4.3	49	(7)	42
Total tax expense attributable to equity holders		(28)	(38)	(66)
Profit for the period		410	322	732

The Group's key alternative performance measure is adjusted profit before tax. Refer to Note 4.8 for further details.

IFRS condensed consolidated statement of financial position

As at 30 June 2018

		30 June 2018	30 June 2017	31 December 2017
	Notes	£m	£m	£m
Assets
Intangible assets	4.10	4,401	566	4,514
Deferred acquisition costs		6	622	612
Investments in associates and joint ventures accounted for using the equity method¹		514	603	503
Investment property	4.15	-	10,038	9,749
Property, plant and equipment		51	117	146
Pension and other post-retirement benefit assets	4.13	1,032	1,107	1,099
Deferred tax assets		43	57	65
Reinsurance assets		-	5,155	4,811
Loans		-	197	91
Derivative financial assets	4.15	7	2,844	3,053
Equity securities and interests in pooled investment funds¹	4.15	3,196	94,538	99,020
Debt securities	4.15	469	63,887	61,565
Receivables and other financial assets		590	1,597	1,242
Current tax recoverable		30	226	192
Other assets		69	115	185
Assets held for sale	4.2	183,317	757	1,038
Cash and cash equivalents		935	8,025	10,226
Total assets		194,660	190,451	198,111
Equity
Share capital	4.11	364	242	364
Shares held by trusts	4.11	(76)	(14)	(61)
Share premium reserve	4.11	640	635	639
Retained earnings		2,857	2,909	3,162
Other reserves		4,472	611	4,500
Equity attributable to equity holders of Standard Life Aberdeen plc		8,257	4,383	8,604
Non-controlling interests
Ordinary shares		287	287	289
Preference shares		99	-	99
Total equity		8,643	4,670	8,992
Liabilities
Non-participating insurance contract liabilities		5	22,894	22,740
Non-participating investment contract liabilities	4.15	1,274	103,456	105,769
Participating contract liabilities		5	30,615	30,647
Deposits received from reinsurers		-	4,810	4,633
Third party interest in consolidated funds	4.15	227	16,080	16,457
Subordinated liabilities		1,909	1,327	2,253
Pension and other post-retirement benefit provisions	4.13	70	57	78
Deferred income		-	175	157
Deferred tax liabilities		109	254	367
Current tax liabilities		72	132	166
Derivative financial liabilities	4.15	32	894	813
Other financial liabilities		1,090	4,135	3,896
Provisions		30	217	316
Other liabilities		15	95	121
Liabilities of operations held for sale	4.2	181,179	640	706
Total liabilities		186,017	185,781	189,119
Total equity and liabilities		194,660	190,451	198,111

¹ At 31 December 2017, the presentation of the consolidated statement of financial position was changed to include associates measured at FVTPL within 'Equity securities and interests in pooled investment funds'. Previously these were included within 'Investments in associated and joint ventures' which has been renamed 'Investments in associates and joint ventures accounted for using the equity method'. The 30 June 2017 comparative has been updated to reflect the change in presentation.

IFRS condensed consolidated statement of changes in equity

For the six months ended 30 June 2018

								Non-controlling interests
		Share capital	Shares held by trusts	Share premium reserve	Retained earnings	Other reserves	Total equity attributable to equity holders of Standard Life Aberdeen plc	Ordinary shares	Preference shares	Total equity
2018	Notes	£m	£m	£m	£m	£m	£m	£m	£m	£m
1 January		364	(61)	639	3,162	4,500	8,604	289	99	8,992
Profit for the period from continuing operations		-	-	-	111	-	111	-	3	114
Profit for the period from discontinued operations	4.2	-	-	-	74	-	74	5	-	79
Other comprehensive income for the period from continuing operations		-	-	-	(89)	(15)	(104)	-	-	(104)
Other comprehensive income for the period from discontinued operations	4.2	-	-	-	-	(2)	(2)	-	-	(2)
Total comprehensive income for the period		-	-	-	96	(17)	79	5	3	87
Issue of share capital	4.11	-	-	1	-	-	1	-	-	1
Dividends paid on ordinary shares	4.9	-	-	-	(420)	-	(420)	-	-	(420)
Dividends paid on preference shares		-	-	-	-	-	-	-	(3)	(3)
Other movements in non-controlling interests in the period		-	-	-	-	-	-	(7)	-	(7)
Reserves credit for employee share-based payments		-	-	-	-	30	30	-	-	30
Transfer to retained earnings for vested employee share-based payments		-	-	-	41	(41)	-	-	-	-
Shares acquired by employee trusts		-	(35)	-	-	-	(35)	-	-	(35)
Shares distributed by employee and other trusts and related dividend equivalents		-	20	-	(21)	-	(1)	-	-	(1)
Sale of shares held by trusts		-	-	-	-	-	-	-	-	-
Aggregate tax effect of items recognised directly in equity	4.6	-	-	-	(1)	-	(1)	-	-	(1)
30 June		364	(76)	640	2,857	4,472	8,257	287	99	8,643

		Share capital	Shares held by trusts	Share premium reserve	Retained earnings	Other reserves	Total equity attributable to equity holders of Standard Life Aberdeen plc	Non-controlling interests	Total equity
2017	Notes	£m	£m	£m	£m	£m	£m	£m	£m
1 January		242	(2)	634	2,855	618	4,347	297	4,644
Profit for the period from continuing operations		-	-	-	84	-	84	-	84
Profit for the period from discontinued operations	4.2	-	-	-	208	-	208	6	214
Other comprehensive income for the period from continuing operations		-	-	-	2	(5)	(3)	-	(3)
Other comprehensive income for the period from discontinued operations	4.2	-	-	-	-	9	9	-	9
Total comprehensive income for the period		-	-	-	294	4	298	6	304
Issue of share capital	4.11	-	-	1	-	-	1	-	1
Dividends paid on ordinary shares	4.9	-	-	-	(263)	-	(263)	-	(263)
Reserves credit for employee share-based payments		-	-	-	-	10	10	-	10
Transfer to retained earnings for vested employee share-based payments		-	-	-	21	(21)	-	-	-
Shares acquired by employee trusts		-	(14)	-	-	-	(14)	-	(14)
Shares distributed by employee and other trusts		-	2	-	(2)	-	-	-	-
Sale of shares held by trusts		-	-	-	4	-	4	-	4
Other movements in non-controlling interests in the period		-	-	-	-	-	-	(16)	(16)
Aggregate tax effect of items recognised directly in equity	4.6	-	-	-	-	-	-	-	-
30 June		242	(14)	635	2,909	611	4,383	287	4,670

								Non-controlling interests
		Share capital	Shares held by trusts	Share premium reserve	Retained earnings	Other reserves	Total equity attributable to equity holders of Standard Life Aberdeen plc	Ordinary shares	Preference shares and perpetual notes	Total equity
2017	Notes	£m	£m	£m	£m	£m	£m	£m	£m	£m
1 January		242	(2)	634	2,855	618	4,347	297	-	4,644
Profit for the period from continuing operations		-	-	-	402	-	402	-	8	410
Profit for the period from discontinued operations	4.2	-	-	-	297	-	297	25	-	322
Other comprehensive income for the period from continuing operations		-	-	-	(24)	(50)	(74)	-	-	(74)
Other comprehensive income for the period from discontinued operations	4.2	-	-	-	-	12	12	-	-	12
Total comprehensive income for the year		-	-	-	675	(38)	637	25	8	670
Issue of share capital	4.11	122	(3)	5	-	3,877	4,001	-	-	4,001
Dividends paid on ordinary shares	4.9	-	-	-	(469)	-	(469)	-	-	(469)
Coupons paid on perpetual notes		-	-	-	-	-	-	-	(13)	(13)
Non-controlling interests acquired through business combinations		-	-	-	-	-	-	-	501	501
Reclassification of perpetual notes to liability		-	-	-	19	-	19	-	(399)	(380)
Other movements in non-controlling interests in the year		-	-	-	-	-	-	(33)	-	(33)
Reserves credit for employee share-based payments		-	-	-	-	96	96	-	-	96
Transfer to retained earnings for vested employee share-based payments		-	-	-	86	(54)	32	-	-	32
Shares acquired by employee trusts		-	(61)	-	-	-	(61)	-	-	(61)
Shares distributed by employee and other trusts and related dividend equivalents		-	5	-	(8)	-	(3)	-	-	(3)
Sale of shares held by trusts		-	-	-	4	-	4	-	-	4
Aggregate tax effect of items recognised directly in equity	4.6	-	-	-	-	1	1	-	2	3
31 December		364	(61)	639	3,162	4,500	8,604	289	99	8,992

IFRS condensed consolidated statement of cash flows

For the six months ended 30 June 2018

		6 months 2018	6 months 2017	Full year 2017
	Notes	£m	£m	£m
Cash flows from operating activities
Profit before tax from continuing operations		127	94	438
Profit before tax from discontinued operations	4.2	122	280	526
		249	374	964
Change in operating assets		3,262	665	1,351
Change in operating liabilities		(2,262)	415	(84)
Adjustment for non-cash movements in investment income		(37)	(17)	40
Change in unallocated divisible surplus		(49)	(2)	140
Other non-cash and non-operating items		139	39	3
Taxation paid		(155)	(135)	(220)
Net cash flows from operating activities		1,147	1,339	2,194

Cash flows from investing activities
Purchase of property, plant and equipment		(12)	(15)	(37)
Proceeds from sale of property, plant and equipment		1	-	-
Proceeds from sale of seeding investments		8	-	19
Acquisition of subsidiaries and unincorporated businesses net of cash acquired		(33)	-	495
Disposal of investments in associates and joint ventures		-	-	359
Purchase of intangible assets		(105)	(32)	(69)
Net cash flows from investing activities		(141)	(47)	767
Cash flows from financing activities
Repayment of subordinated liabilities	4.12	(363)	-	-
Repayment of other borrowings		(2)	(1)	(1)
Proceeds from issue of subordinated liabilities		-	-	565
Capital flows to third party interest in consolidated funds and non-controlling interests - ordinary shares		(358)	(848)	(1,011)
Distributions paid to third party interest in consolidated funds and non-controlling interests - ordinary shares		(55)	(56)	(109)
Shares acquired by trusts		(35)	(14)	(61)
Sale of shares held by trusts		-	4	4
Proceeds from issue of shares		1	1	5
Interest paid		(38)	(34)	(97)
Preference dividends paid		(3)	-	-
Ordinary dividends paid	4.9	(420)	(263)	(469)
Net cash flows from financing activities		(1,273)	(1,211)	(1,174)
Net (decrease)/increase in cash and cash equivalents		(267)	81	1,787
Cash and cash equivalents at the beginning of the period		9,715	7,900	7,900
Effects of exchange rate changes on cash and cash equivalents		2	33	28
Cash and cash equivalents at the end of the period¹		9,450	8,014	9,715
Supplemental disclosures on cash flows from operating activities
Interest paid		3	2	4
Interest received		848	841	1,710
Dividends received		1,321	1,141	2,086
Rental income received on investment property		251	257	503

¹ Comprises £9,790m (30 June 2017: £8,052m; 31 December 2017: £10,257m) of cash and cash equivalents, including cash and cash equivalents held for sale and (£340m) (30 June 2017: (£38m); 31 December 2017: (£542m)) of overdrafts which are reported in other financial liabilities and liabilities of operations held for sale in the IFRS condensed consolidated statement of financial position.

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 the Disclosure and Transparency Rules of the Financial Conduct Authority and IAS 34 Interim Financial Reporting issued by the International Accounting Standards Board as endorsed by the European Union (EU).

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 2017 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), International Accounting Standards (IASs), interpretations and amendments to existing standards, which are effective by EU endorsement for annual periods beginning on or after 1 January 2018:

IFRS 15 Revenue from Contracts with Customers and amendments to IAS 34 Interim Financial Reporting

IFRS 15 replaces IAS 18 Revenue and provides a new five-step revenue recognition model for determining recognition and measurement of revenue from contracts with customers. The Group's revenue generated from the following contracts is exempt from this standard:

· Lease contracts within the scope of IAS 17 Leases

· Insurance contracts within the scope of IFRS 4 Insurance Contracts

· Financial instruments within the scope of IAS 39 Financial Instruments: Recognition and Measurement or IFRS 9 Financial Instruments

The adoption of this standard has had no significant impact on the timing of revenue recognition of the Group. The Group's accounting policy for revenue within the scope of IFRS 15 has been updated to state that revenue is recognised as performance obligations are satisfied.

The standard introduces a number of new disclosure requirements which will be presented in the Group's Annual report and accounts for the year ended 31 December 2018.

Revenue from contracts with customers from continuing operations for the six months ended 30 June 2017 and 12 months ended 31 December 2017 consists of £511m and £1,479m respectively which was previously presented as fee income, and £3m and £7m respectively that was previously presented as other income on the face of the consolidated income statement.

The standard requires the incremental cost of obtaining contracts with customers to be recognised as an asset where it is expected that these costs will be recovered. These costs have been included as an intangible asset and are shown in Note 4.10.

The standard amends IAS 34 to require additional disclosures in interim accounts around disaggregated revenue and its relationship with revenue reported for each reportable segment. These disclosures are provided in Note 4.4.

IFRS 4 Insurance Contracts and IFRS 9 Financial Instruments

The Group has opted to defer implementation of IFRS 9 Financial Instruments, which is effective for annual periods beginning on or after 1 January 2018, as permitted under amendments to IFRS 4 Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts. Qualifying insurers are permitted to defer implementation of IFRS 9 until periods beginning on or after 1 January 2021.

Interpretations and amendments to other standards

· IFRIC 22 Foreign Currency Transactions and Advanced Consideration

· Amendments to IFRS 2 Share-based payment: Classification and Measurement of Share-based payment transactions

· Amendments to IAS 40 Investment Property: Transfers of Investment Property

· Annual Improvements 2014-2016 cycle

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

(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 2017 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 2018		6 months 2017		Full year 2017
	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	1.136	1.131	1.164	1.139	1.145	1.126
US Dollar	1.369	1.320	1.267	1.299	1.297	1.353
Indian Rupee	90.033	90.457	83.417	83.963	84.474	86.341
Chinese Renminbi	8.759	8.747	8.705	8.806	8.753	8.809
Hong Kong Dollar	10.727	10.358	9.854	10.140	10.104	10.575
Singapore Dollar	1.819	1.800	1.775	1.788	1.787	1.808

4.2 Acquisitions and disposals

(a) Acquisitions

(a)(i) Subsidiaries

On 27 April 2018, Aberdeen Asset Management Inc. purchased the US business of specialist commodity exchange traded product provider ETF Securities by purchasing the entire members' interests of ETF Securities USA LLC, ETF Securities (US) LLC and ETF Securities Advisers LLC. The acquisition broadens Aberdeen Standard Investments' suite of investment capabilities with the addition of a range of commodity-based Exchange Traded Funds. It also provides the platform and expertise to enable Aberdeen Standard Investments to grow its existing Smart Beta capability by launching strategies within an Exchange Traded Fund vehicle structure.

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

27 April 2018		£m¹
Cash		27
Fair value of earn-out payment		8
Consideration		35
Fair value of net assets acquired
Customer-related intangible assets		28
Receivables and other financial assets		1
Cash and cash equivalents		1
Total assets		30
Other financial liabilities		2
Total liabilities		2
Goodwill		7

¹ The fair values of assets and liabilities recognised, including intangibles, are provisional and are subject to the finalisation of completion accounts. The fair value of the earn-out payment of £8m has been calculated by reference to revenue retention and increases in assets under management and could range from £nil to £10m.

Customer-related intangible assets relate to the existing customer relationships in place at the acquisition date. The full amount of the goodwill is expected to be deductible for tax purposes.

The amounts of revenue and profit contributed to the Group's consolidated income statement for the period ended 30 June 2018 from the acquired ETF Securities business were £1m and £nil respectively. If the acquisition had occurred on 1 January 2018, the Group's total revenue for the period would have increased by £3m to £1,022m and the profit would have remained unchanged.

During the period, the Group's UK wide financial advice business, 1825, completed the purchase of the entire share capital of Fraser Heath Financial Management Ltd and Cumberland Place Financial Management Ltd on 1 March 2018 and 6 April 2018 respectively. The combined assets under advice totalled £750m at the respective acquisition dates. Additionally during the period, Aberdeen Standard Investments completed the acquisition of specialist financing company Hark Capital which provides loans to mid-life and end of life private equity and venture capital funds.

(a)(ii) Prior year acquisition

On 6 March 2017, the boards of Standard Life plc and Aberdeen Asset Management PLC (Aberdeen) announced that they had reached agreement on the terms of a recommended merger of Standard Life and Aberdeen, through the acquisition by Standard Life of the entire issued ordinary share capital of Aberdeen, to be effected by means of a court-sanctioned scheme of arrangement between Aberdeen and Aberdeen shareholders under Part 26 of the Companies Act 2006. The merger completed on 14 August 2017 and Standard Life plc was renamed Standard Life Aberdeen plc.

(b) Disposals

(b)(i) Prior year disposal

HDFC Standard Life Insurance Company Limited

On 17 November 2017, HDFC Standard Life Insurance Company Limited (HDFC Life) listed on the National Stock Exchange of India Limited and The Bombay Stock Exchange Limited following completion of an IPO. On opening, the equity shares in HDFC Life were listed at a price of Rs 290 per share. Through the IPO, Standard Life (Mauritius Holdings) 2006 Limited (MH06) sold 108m equity shares in HDFC Life for a total consideration of Rs 31,489m (£359m). MH06's shareholding in HDFC Life now stands at 590m equity shares or 29.3% of the issued equity share capital of HDFC Life. The gain on sale of £302m was calculated using the weighted-average cost method. On disposal £2m was recycled from the translation reserve and was included in determining the gain on sale.

(c)(i) Pension and savings discontinued operations

On 23 February 2018, the Group announced the proposed sale of the UK and European insurance business to Phoenix Group Holdings (Phoenix) (the Sale), conditional on shareholder and relevant regulatory approvals. The Sale will be implemented by selling the entire issued share capital of Standard Life Assurance Limited (SLAL).

On 30 May 2018, the Group published a circular related to the proposed Sale and gave notice of a general meeting to take place on 25 June 2018. The proposed Sale was approved by shareholders on 25 June 2018 with the shareholders of Phoenix also approving the transaction on the same date. Completion of the Sale is subject to regulatory and other necessary approvals and, if approved, is expected to complete in the third quarter of 2018.

Under the transaction the following businesses will be retained by the Group:

· UK retail platforms, including Wrap and Elevate

· 1825, our financial advice business

In addition, the assets and liabilities of both the UK and Ireland Standard Life staff defined benefit pension plans will be retained by the Group.

The total consideration payable to the Group by Phoenix in respect of the Sale comprises cash payable on closing of approximately £2.0bn, a dividend paid by SLAL to the Company of £312m in March 2018 and new shares issued at completion representing approximately 19.99% of the then issued share capital of Phoenix following the completion of the rights issue by Phoenix on 10 July 2018 to part finance the acquisition. The shareholding in Phoenix is subject to a lock-up of 12 months from completion.

The Group and Phoenix have also agreed to significantly expand their existing long-term strategic partnership whereby the Group continues as Phoenix's primary long-term asset management partner.

Under the terms of the Sale, the Group will provide indemnities in a number of areas. The Group estimates that the one off costs relating to the separation of the business being sold will be in the region of £250m.

Following the announcement, the disposal group was classified as held for sale and measured at its carrying amount. The results of the held for sale disposal group have been classified as discontinued operations.

(c)(ii) Standard Life (Asia) Limited

On 29 March 2017, the Group announced the proposed sale of its wholly owned Hong Kong insurance business, Standard Life (Asia) Limited (SL Asia) to the Group's Chinese joint venture business, Heng An Standard Life Insurance Company Limited, both of which are reported within the India and China life segment. The transaction is subject to obtaining local regulatory and other approvals in mainland China and Hong Kong.

Following the announcement, the disposal group was classified as held for sale and measured at fair value less costs to sell. Following the remeasurement of the disposal group to the lower of its carrying amount and its fair value less costs to sell, an impairment loss of £nil (30 June 2017: £24m; 31 December 2017: £24m) has been included in Other administrative expenses in the IFRS condensed consolidated income statement. Fair value has been determined by reference to the expected sale price.

(c)(iii) Analysis of assets and liabilities of operations held for sale

At 30 June 2018, the assets and liabilities of operations held for sale comprised the following. Comparatives for 30 June 2017 and 31 December 2017 consist solely of SL Asia.

	Pensions and savings discontinued operations	SL Asia	Total 30 Jun 2018	30 Jun 2017	31 Dec 2017
	£m	£m	£m	£m	£m
Assets of operations held for sale
Intangible assets	151	-	151	-	-
Deferred acquisition costs	611	-	611	-	-
Investment property	9,895	-	9,895	-	-
Property, plant and equipment	101	-	101	-	-
Deferred tax assets	14	3	17	3	3
Reinsurance assets	4,523	12	4,535	7	13
Loans	102	-	102	-	-
Derivative financial assets	2,588	-	2,588	-	-
Equity securities and interests in pooled investment funds	94,778	639	95,417	590	638
Debt securities	58,428	12	58,440	11	12
Receivables and other financial assets	2,167	4	2,171	13	6
Current tax recoverable	180	-	180	-	-
Other assets	59	-	59	-	-
Cash and cash equivalents	8,821	34	8,855	27	31
Total assets of operations held for sale	182,418	704	183,122	651	703
Liabilities of operations held for sale
Non-participating insurance contract liabilities	22,174	605	22,779	553	603
Non-participating investment contract liabilities	102,189	59	102,248	65	62
Participating contract liabilities	30,207	-	30,207	-	-
Deposits received from reinsurers	4,313	-	4,313	-	-
Third party interest in consolidated funds	15,691	-	15,691	-	-
Pension and other post-retirement benefit provisions	7	-	7	-	-
Deferred income	143	2	145	2	2
Deferred tax liabilities	213	3	216	3	3
Current tax liabilities	51	-	51	-	-
Derivative financial liabilities	897	-	897	-	-
Other financial liabilities	4,177	6	4,183	7	8
Provisions	270	-	270	-	-
Other liabilities	81	-	81	-	-
Total liabilities of operations held for sale	180,413	675	181,088	630	678
Net assets of operations held for sale	2,005	29	2,034	21	25

Net assets of operations held for sale are net of intercompany balances between the disposal group and the rest of the Group. The net assets of the pensions and savings discontinued operations on a gross basis are £1,403m at 30 June 2018.

In addition to the above, Assets held for sale of £183,317m (30 June 2017: £757m; 31 December 2017: £1,038m) includes £169m (30 June 2017: £72m; 31 December 2017: £91m) of investment vehicles; £26m (30 June 2017: £nil; 31 December 2017: £33m) being the portion of the paid-up equity share capital of HDFC AMC subject to IPO; and £nil (30 June 2017: £34m; 31 December 2017: £211m) of investment and owner occupied property. Total liabilities of operations held for sale of £181,179m (30 June 2017: £640m; 31 December 2017: £706m) also includes third party interests in investment vehicles of £91m (30 June 2017: £10m; 31 December 2017: £28m).

Insurance contracts, participating investment contracts and reinsurance contracts

The breakdown of participating contract liabilities included in operations held for sale is set out below:

	Pensions and savings discontinued operations	30 Jun 2018
	£m	£m
Participating insurance contract liabilities	14,568	14,568
Participating investment contract liabilities	15,012	15,012
Unallocated divisible surplus	627	627
Participating contract liabilities	30,207	30,207

The movement in insurance contract liabilities, participating investment contract liabilities and reinsurance contracts during the six months ended 30 June 2018 and the six months ended 30 June 2017 arising from changes in estimates are set out below:

	Participating insurance contract liabilities	Non- participating insurance contract liabilities	Participating investment contract liabilities	Total insurance and participating contracts	Reinsurance contracts	Net
6 months 2018	£m	£m	£m	£m	£m	£m
Changes in
Methodology/modelling	(5)	-	5	-	-	-
Economic assumptions	56	(242)	(60)	(246)	93	(153)
Non-economic assumptions	-	-	-	-	-	-

Due to changes in economic and non-economic factors, certain assumptions used in estimating insurance and investment contract liabilities have been revised. Therefore, the change in liabilities reflects actual performance over the period, changes in assumptions and, to a limited extent, improvements in modelling techniques.

Economic assumptions reflect changes in fixed income yields, leading to small changes in valuation interest rates for non-participating business, and other market movements.

	Participating insurance contract liabilities	Non- participating insurance contract liabilities	Participating investment contract liabilities	Total insurance and participating contracts	Reinsurance contracts	Net
6 months 2017	£m	£m	£m	£m	£m	£m
Changes in
Methodology/modelling	(11)	-	11	-	-	-
Economic assumptions	(2)	(86)	47	(41)	7	(34)
Non-economic assumptions	1	-	(4)	(3)	-	(3)

The movement in insurance contract liabilities, participating investment contract liabilities and reinsurance contracts during the year ended 31 December 2017 was as follows:

	Participating insurance contract liabilities	Non- participating insurance contract liabilities	Participating investment contract liabilities	Total insurance and participating contracts	Reinsurance contracts	Net
2017	£m	£m	£m	£m	£m	£m
1 January	15,151	23,422	15,537	54,110	(5,386)	48,724
Reclassified as held for sale during the year	-	(550)	-	(550)	7	(543)
Change in contract liabilities
Expected change	(896)	(898)	(1,034)	(2,828)	397	(2,431)
Methodology/modelling changes	(58)	10	51	3	-	3
Effect of changes in
Economic assumptions	(37)	(81)	79	(39)	8	(31)
Non-economic assumptions	(66)	(235)	6	(295)	154	(141)
Effect of
Economic experience	126	532	573	1,231	3	1,234
Non-economic experience	15	(381)	39	(327)	6	(321)
New business	-	878	33	911	-	911
Total change in contract liabilities	(916)	(175)	(253)	(1,344)	568	(776)
Foreign exchange adjustment	424	43	29	496	-	496
31 December	14,659	22,740	15,313	52,712	(4,811)	47,901

Provision for annuity sales practices relating to enhanced annuities

Included in provisions held for sale is a provision of £215m (30 June 2017: £164m; 31 December 2017: £229m) for annuity sales practices relating to enhanced annuities. There were no additional amounts charged to the income statement in respect of provisions for annuity sales practices relating to enhanced annuities during the six months ended 30 June 2018.

On 14 October 2016, the Financial Conduct Authority (FCA) published the findings of its thematic review of non-advised annuity sales practices. Standard Life Assurance Limited has been a participant in that review. The FCA looked at whether firms provided sufficient information to their customers about their potential eligibility for enhanced annuities.

At the request of the FCA, Standard Life Assurance Limited is conducting a review of non-advised annuity sales (with a purchase price above a minimum threshold) to customers eligible to receive an enhanced annuity from 1 July 2008 until 31 May 2016. The purpose of this review is to identify whether these customers received sufficient information about enhanced annuities to make the right decisions about their purchase, and, where appropriate, provide redress to customers who have suffered loss as a result of not having received sufficient information. Standard Life Assurance Limited worked with the FCA regarding the process for conducting this past business review and commenced customer contact during 2018.

The Group has provided for an estimate of the redress payable to customers, which may comprise both lump sum payments and enhancements to future annuity payments, the costs of conducting the review and other related expenses.

The Group has in place liability insurance and is seeking for up to £100m of the financial impact of the provision to be mitigated by this insurance. Discussions are ongoing with our insurers and, as a result, no insurance recovery has been recognised as an asset in these financial statements.

The Group expects the majority of the outflows associated with this provision, including outflows relating to establishing any reserves for future annuity payments, to have occurred by mid 2019.

The Group has not provided for any possible FCA-levied financial penalty relating to the review.

Contingent liabilities and contingent assets

At the request of the FCA, Standard Life Assurance Limited is conducting a past business review of non-advised annuity sales as described above. In relation to this review, the FCA is carrying out an investigation and it is possible that the FCA may impose a financial penalty on Standard Life Assurance Limited. At this stage it is not possible to determine an estimate of the financial effect, if any, of this contingent liability.

Disclosure of potential insurance recoveries relating to redress payable to customers, the costs of conducting the review and other related expenses is provided above. Any FCA levied financial penalties cannot be covered by such liability insurance.

(d) Discontinued operations

Discontinued operations relate solely to the UK and European insurance business held for sale. The consolidated income statement, other comprehensive income and cash flows from discontinued operations are shown below:

		6 months 2018	6 months 2017	Full year 2017
Consolidated income statement	Notes	£m	£m	£m
Income
Investment return		554	5,626	12,536
Revenue from contracts with customers		96	88	185
Insurance and participating investment contract premium income		952	1,009	2,054
Other income		7	10	18
Total income from discontinued operations		1,609	6,733	14,793

Expenses
Insurance and participating investment contract claims and change in liabilities		1,078	1,328	3,427
Change in non-participating investment contract liabilities		216	4,321	8,889
Administrative expenses
Restructuring and corporate transaction expenses	4.5	51	4	14
Other administrative expenses		258	303	665
Total administrative expenses		309	307	679
Provision for annuity sales practices		-	-	100
Change in liability for third party interest in consolidated funds		(143)	470	1,118
Finance costs		27	27	54
Total expenses from discontinued operations		1,487	6,453	14,267

Profit before tax from discontinued operations		122	280	526

Tax expense attributable to policyholders' returns		24	53	166

Profit before tax expense attributable to equity holders		98	227	360

Total tax expense		43	66	204
Less: Tax attributable to policyholders' returns		(24)	(53)	(166)
Tax expense attributable to equity holders		19	13	38
Profit for the period from discontinued operations		79	214	322

Intercompany income and expenses that will continue post completion are eliminated in discontinued operations, those that will not continue post completion are eliminated in continuing operations. Revenue from contracts with customers is shown net of elimination of intra-group revenue which will continue post completion.

The Group provides additional disclosure in relation to the total tax expense for discontinued operations. Certain products are subject to tax on policyholders' investment returns. This tax, 'policyholder tax', is accounted for as an element of income tax. To make the tax expense disclosure more meaningful, we disclose policyholder tax and tax payable on equity holders' profits separately. The policyholder tax expense is the amount payable in the period plus the movement of amounts expected to be payable in future periods by policyholders on their investment return. The remainder of the tax expense is attributed to equity holders as tax payable on equity holders' profit.

	6 months 2018	6 months 2017	Full year 2017
Other comprehensive income	£m	£m	£m
Items that will not be reclassified subsequently to profit or loss:
Revaluation of owner occupied property	2	1	1
Total items that will not be reclassified subsequently to profit or loss	2	1	1

Items that may be reclassified subsequently to profit or loss:
Exchange differences on translating foreign operations	(1)	2	(1)
Change in unallocated divisible surplus	(3)	6	12
Total items that may be reclassified subsequently to profit or loss	(4)	8	11
Other comprehensive income for the period from discontinued operations	(2)	9	12

	6 months 2018	6 months 2017	Full year 2017
Cash flows	£m	£m	£m
Net cash flows from operating activities	538	1,061	2,247
Net cash flows from financing activities	(451)	(1,032)	(1,309)
Net cash flows from investing activities	(13)	(24)	(38)
Total net cash flows	74	5	900

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'. The Chief Operating Decision Maker for the Group is the executive committee.

(a) Basis of segmentation

The Group's reportable segments are as follows:

Continuing operations:

Aberdeen Standard Investments

Following the merger with Aberdeen, Standard Life Investments and Aberdeen Asset Management combined under the Aberdeen Standard Investments brand. The combined business is managed and reported as one operating segment. Aberdeen Standard Investments provides a range of investment products and services for individuals and institutional customers through a number of different investment vehicles. Investment management services are also provided by Aberdeen Standard Investments to the Group's other reportable segments. This segment includes the Group's share of the results of HDFC Asset Management Company Limited.

Pensions and Savings

The Pensions and Savings segment includes our UK retail platforms Wrap and Elevate, as well as our financial planning and advice business 1825, and our distribution and marketing capabilities. The segment also includes the UK and Ireland Standard Life staff defined benefit pension plans.

India and China life

The businesses included in India and China life offer a range of insurance and savings products and comprise our life insurance associate in India, our life insurance joint venture in China and wholly owned operations in Hong Kong, the assets and liabilities of which are classified as held for sale.

Discontinued operations:

Pensions and Savings

On 23 February 2018, the Group announced the proposed sale of the UK and European insurance business. Refer to Note 4.2 (c) for further details. As a consequence, the results of this business have been presented as discontinued operations. Comparative amounts for the six months ended 30 June 2017 and the 12 months ended 31 December 2017 have been prepared on the same basis as 30 June 2018 to allow more meaningful comparison.

(b) Reportable segments - Group adjusted profit before tax and revenue information

(b)(i) Analysis of Group adjusted profit before tax

Adjusted profit before tax is the key alternative performance measure utilised by the Group's management in their evaluation of segmental performance and is therefore also presented by reportable segment.

		Aberdeen Standard Investments	Pensions and Savings	India and China life	Other¹	Total continuing operations	Discontinued operations	Eliminations	Total
6 months 2018	Notes	£m	£m	£m	£m	£m	£m	£m	£m
Fee based revenue		871	89	6	-	966	395	(69)	1,292
Spread/risk margin		-	-	-	-	-	55	-	55
Total adjusted operating income		871	89	6	-	966	450	(69)	1,347
Total adjusted operating expenses		(580)	(102)	(5)	(25)	(712)	(280)	69	(923)
Adjusted operating profit		291	(13)	1	(25)	254	170	-	424
Capital management		-	14	-	(17)	(3)	(3)	-	(6)
Share of associates' and joint ventures' profit before tax²		26	-	34	-	60	-	-	60
Adjusted profit/(loss) before tax		317	1	35	(42)	311	167	-	478
Tax on adjusted profit		(56)	3	-	5	(48)	(29)	-	(77)
Share of associates' and joint ventures' tax expense	4.6	(11)	-	(7)	-	(18)	-	-	(18)
Adjusted profit/(loss) after tax		250	4	28	(37)	245	138	-	383
Adjusted for the following items
Restructuring and corporate transaction expenses	4.5	(53)	(3)	-	(3)	(59)	(51)	-	(110)
Amortisation and impairment of intangible assets acquired in business combinations³		(92)	(13)	(3)	-	(108)	-	-	(108)
Profit on disposal of interests in associates		5	-	1	-	6	-	-	6
Short-term fluctuations in investment return and economic assumption changes	4.8	-	-	-	-	-	(61)	-	(61)
Other		(2)	-	-	(3)	(5)	38	-	33
Total adjusting items		(142)	(16)	(2)	(6)	(166)	(74)	-	(240)
Tax on adjusting items		33	2	-	-	35	10	-	45
Profit attributable to non-controlling interests (preference shares)		(3)	-	-	-	(3)	-	-	(3)
Profit/(loss) for the period attributable to equity holders of Standard Life Aberdeen plc		138	(10)	26	(43)	111	74	-	185
Profit attributable to non-controlling interests
Ordinary shares						-	5		5
Preference shares						3	-		3
Profit for the period						114	79		193

¹ Other primarily includes the corporate centre and related activities.

² Share of associates' and joint ventures' profit before tax comprises the Group's share of results of HDFC Standard Life Insurance Company Limited, Heng An Standard Life Insurance Company Limited and HDFC Asset Management Company Limited.

³ Amortisation and impairment of intangible assets acquired in business combinations includes £105m (six months ended 30 June 2017: £10m; 12 months ended 31 December 2017: £125m) included in Other administrative expenses, and £3m (six months ended 30 June 2017: £nil; 12 months ended 31 December 2017: £13m) relating to intangibles recognised on the part acquisition of associates and included in Share of profit from associates and joint ventures in the condensed consolidated income statement.

Each reportable segment reports total adjusted operating income as its measure of revenue in its analysis of adjusted profit before tax. Fee based revenue consists of income generated primarily from asset management charges, premium based charges and transactional charges. Spread/risk margin reflects the margin earned on spread/risk business and includes net earned premiums, claims and benefits paid, net investment return using long-term assumptions and actuarial reserving changes.

Adjusted operating income relates to revenues generated from external customers with the exception of £69m (30 June 2017: £66m; 31 December 2017: £136m) which primarily relates to investment management fees arising from intra-group transactions between Aberdeen Standard Investments and the Pensions and Savings business included in discontinued operations. At a Group level an elimination adjustment is required to remove intra-group impacts.

There are no customers whose revenue represents greater than 10% of fee based revenue.

		Aberdeen Standard Investments	Pensions and Savings	India and China life	Other	Total continuing operations	Discontinued operations	Eliminations	Total restated¹
6 months 2017	Notes	£m	£m	£m	£m	£m	£m	£m	£m
Fee based revenue		429	84	7	-	520	382	(66)	836
Spread/risk margin		-	-	-	-	-	49	-	49
Total adjusted operating income		429	84	7	-	520	431	(66)	885
Total adjusted operating expenses		(260)	(97)	(7)	(26)	(390)	(258)	66	(582)
Adjusted operating profit		169	(13)	-	(26)	130	173	-	303
Capital management		-	13	-	(4)	9	(7)	-	2
Share of associates' and joint ventures' profit before tax²		20	-	33	-	53	-	-	53
Adjusted profit/(loss) before tax		189	-	33	(30)	192	166	-	358
Tax on adjusted profit		(33)	(3)	-	5	(31)	1	-	(30)
Share of associates' and joint ventures' tax expense	4.6	(5)	-	(2)	-	(7)	-	-	(7)
Adjusted profit/(loss) after tax		151	(3)	31	(25)	154	167	-	321
Adjusted for the following items
Restructuring and corporate transaction expenses	4.5	(10)	(5)	-	(42)	(57)	(4)	-	(61)
Amortisation and impairment of intangible assets acquired in business combinations		(8)	(2)	-	-	(10)	-	-	(10)
Short-term fluctuations in investment return and economic assumption changes	4.8	-	-	-	-	-	59	-	59
Other		-	(1)	(24)	1	(24)	-	-	(24)
Total adjusting items		(18)	(8)	(24)	(41)	(91)	55		(36)
Tax on adjusting items		3	2	-	16	21	(14)	-	7
Profit/(loss) for the period attributable to equity holders of Standard Life Aberdeen plc		136	(9)	7	(50)	84	208	-	292
Profit attributable to non-controlling interests						-	6		6
Profit for the period						84	214		298

		Aberdeen Standard Investments	Pensions and Savings	India and China life	Other	Total continuing operations	Discontinued operations	Eliminations	Total
Full year 2017	Notes	£m	£m	£m	£m	£m	£m	£m	£m
Fee based revenue		1,260	175	12	-	1,447	800	(136)	2,111
Spread/risk margin		-	-	-	-	-	165	-	165
Total adjusted operating income		1,260	175	12	-	1,447	965	(136)	2,276
Total adjusted operating expenses		(811)	(201)	(11)	(61)	(1,084)	(579)	136	(1,527)
Adjusted operating profit		449	(26)	1	(61)	363	386	-	749
Capital management		2	27	-	(16)	13	(7)	-	6
Share of associates' and joint ventures' profit before tax¹		41	-	58	-	99	-	-	99
Adjusted profit/(loss) before tax		492	1	59	(77)	475	379	-	854
Tax on adjusted profit		(86)	(1)	-	10	(77)	(31)	-	(108)
Share of associates' and joint ventures' tax expense	4.6	(29)	-	(12)	-	(41)	-	-	(41)
Adjusted profit/(loss) after tax		377	-	47	(67)	357	348	-	705
Adjusted for the following items
Restructuring and corporate transaction expenses	4.5	(58)	(27)	-	(77)	(162)	(11)	-	(173)
Amortisation and impairment of intangible assets acquired in business combinations		(117)	(8)	(13)	-	(138)	-	-	(138)
Provision for annuity sales practices		-	-	-	-	-	(100)	-	(100)
Coupons payable on perpetual notes classified as equity²		10	-	-	-	10	-	-	10
Profit on disposal of interests in associates		14	-	305	-	319	-	-	319
Short-term fluctuations in investment return and economic assumption changes	4.8	-	-	-	-	-	67	-	67
Other		-	(1)	(24)	-	(25)	-	-	(25)
Total adjusting items		(151)	(36)	268	(77)	4	(44)	-	(40)
Tax on adjusting items		25	5	-	19	49	(7)	-	42
Profit attributable to non-controlling interests (preference shares and perpetual notes)		(8)	-	-	-	(8)	-	-	(8)
Profit/(loss) for the year attributable to equity holders of Standard Life Aberdeen plc		243	(31)	315	(125)	402	297	-	699
Profit attributable to non-controlling interests
Ordinary shares						-	25		25
Preference shares and perpetual notes						8	-		8
Profit for the year						410	322		732

¹ Share of associates' and joint ventures' profit before tax comprises the Group's share of results of HDFC Standard Life Insurance Company Limited, Heng An Standard Life Insurance Company Limited and HDFC Asset Management Company Limited.

² On 18 December 2017, perpetual capital notes issued by Aberdeen Asset Management PLC were reclassified as a subordinated liability. On merger these were classified as an equity instrument.

(b)(ii) Total income and expenses

The following table provides a reconciliation of total adjusted operating income and total adjusted operating expenses from continuing operations, as presented in the analysis of Group adjusted profit by segment, to total revenue and total expenses from continuing operations respectively, as presented in the IFRS condensed consolidated income statement:

	6 months 2018		6 months 2017		Full year 2017
	Income	Expenses	Income	Expenses	Income	Expenses
	£m	£m	£m	£m	£m	£m
Total adjusted operating income and adjusted operating expenses as presented in the analysis of Group adjusted profit by segment from continuing operations	966	(712)	520	(390)	1,447	(1,084)
Insurance and participating investment contract claims and change in liabilities	27	(27)	99	(99)	201	(201)
Change in non-participating investment contract liabilities	2	(2)	8	(8)	74	(74)
Change in liability for third party interest in consolidated funds	4	(4)	-	-	6	(6)
Other presentation differences	79	(79)	19	(19)	79	(79)
Adjusting items included in revenue and expenses	9	(172)	-	(91)	345	(328)
Capital management	(3)	-	9	-	13	-
Total income and expenses as presented in the IFRS condensed consolidated income statement from continuing operations	1,084	(996)	655	(607)	2,165	(1,772)

This reconciliation includes a number of reconciling items which arise due to presentation differences between IFRS reporting requirements and the determination of adjusted operating income and adjusted operating expenses. Adjusted operating income and expenses exclude items which have an equal and opposite effect on IFRS income and IFRS expenses in the consolidated income statement, such as investment returns which are for the account of policyholders. Other presentation differences include Aberdeen Standard Investments commission expenses which are presented in expenses in the consolidated income statement but are netted against adjusted operating income in the analysis of Group adjusted profit by segment.

4.4 Revenue from contracts with customers

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

	6 months 2018	6 months 2017	Full year 2017
	£m	£m	£m
Asset management
Management fee income - growth	764	329	1,023
Management fee income - mature	162	106	274
Performance fees	3	1	20
Revenue from contracts with customers for asset management	929	436	1,317
Fund platforms
Fee income	81	64	137
Other revenue from contracts with customers	9	14	32
Total revenue from contracts with customers from continuing operations	1,019	514	1,486

The majority of the revenue from contracts with customers for asset management is reported within the Aberdeen Standard Investments reportable segment. The following table provides a reconciliation of Revenue from contracts with customers for asset management as presented in the condensed consolidated income statement to fee based revenue, as presented in the analysis of adjusted profit before tax for the Aberdeen Standard Investments segment.

	6 months 2018	6 months 2017	Full year 2017
	£m	£m	£m
Revenue from contracts with customers for asset management as presented in the condensed consolidated income statement	929	436	1,317
Revenue from contracts with customers for asset management recognised in Pensions and Savings continuing segment	(3)	(2)	(4)
Fee income from fund platforms recognised in Aberdeen Standard Investments segment	10	-	6
Presentation differences
Commission expenses	(52)	-	(45)
Other differences	(13)	(5)	(14)
Fee based revenue as presented in the Aberdeen Standard Investments segment	871	429	1,260

Commission expenses are netted against fee based revenue but are included within expenses in the condensed consolidated income statement. Other presentation differences relates to amounts presented in a different income line item of the condensed consolidated income statement and intra-group revenue which is eliminated in the consolidated income statement but grossed up for the purposes of segmental reporting.

The Pension and Savings continuing segment's fee based revenue is primarily made up of Pension and Savings' fund platform fee income and the other revenue from contracts with customers as grossed up for intra-group revenue which is eliminated in the consolidated income statement.

4.5 Administrative expenses

	6 months 2018	6 months 2017¹	Full year 2017¹
	£m	£m	£m
Restructuring and corporate transaction expenses	59	57	162
Commission expenses	54	4	49
Staff costs and other employee-related costs	365	214	616
Impairment of disposal group classified as held for sale	-	24	24
Other administrative expenses	464	186	607
	942	485	1,458
Acquisition costs deferred during the period	(1)	(1)	(4)
Amortisation of deferred acquisition costs	1	2	3
Total administrative expenses from continuing operations	942	486	1,457

Total restructuring and corporate transaction expenses incurred from continuing operations during the period were £59m (six months ended 30 June 2017: £57m; 12 months ended 31 December 2017: £162m). The 2018 expenses mainly relate to Aberdeen integration and a number of other business unit restructuring programmes.

Restructuring and corporate transaction expenses of £51m (six months ended 30 June 2017: £4m; 12 months ended 31 December 2017: £11m) are used to determine adjusted profit before tax from discontinued operations. In 2018 these expenses mainly relate to the sale of the UK and European insurance business discussed in Note 4.2. An additional £nil (six months ended 30 June 20 2017: £nil; 12 months ended 31 December 2017: £3m) of restructuring and corporate transaction expenses were incurred by the Heritage With Profits Fund.

4.6 Tax expense

	6 months 2018	6 months 2017¹	Full year 2017¹
	£m	£m	£m
Current tax:
UK	13	(4)	12
Double tax relief	-	(1)	(2)
Overseas	18	4	19
Adjustment to tax expense in respect of prior years	(2)	(2)	(1)
Total current tax attributable to continuing operations	29	(3)	28

Deferred tax:
Deferred tax (credit)/expense arising from the current periods	(16)	13	-
Total deferred tax attributable to continuing operations	(16)	13	-
			28
Total tax expense attributable to continuing operations	13	10	28

The standard UK corporation tax rate for the accounting period is 19% (six months ended 30 June 2017: 19.25%; 12 months ended 31 December 2017: 19.25%). The UK corporation tax rate was reduced to 19% from 1 April 2017 and will reduce to 17% from 1 April 2020. These changes have been taken into account in the calculation of the UK deferred tax balance at 30 June 2018.

The share of associates' and joint ventures' tax expense is £18m (six months ended 30 June 2017: £7m; 12 months ended 31 December
2017: £41m) and is included in profit before tax in the IFRS condensed consolidated income statement in Share of profit from associates and joint ventures.

The Group has been party to litigation in the UK, in respect of which the Supreme Court issued a judgement on the lead case on 25 July 2018, that has successfully challenged the tax treatment of non-UK dividends received before 2009. In connection with this judgement, the Group is seeking to recover claims by group entities for certain recent periods where the outcome remains uncertain and is also pursuing additional and related claims in respect of earlier periods where very significant uncertainties remain.

These claims and proceedings predominantly relate to assets in policyholder funds, primarily SLAL's Heritage With Profits Fund which is part of discontinued operations. The claims are not expected to materially impact profit after tax attributable to equity holders or total equity. No amounts have been recognised at 30 June 2018, 30 June 2017 or 31 December 2017 in continuing or discontinued operations in the respect of these claims and proceedings.

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

	6 months 2018	6 months 2017¹	Full year 2017¹
	£m	£m	£m
Tax relating to defined benefit pension plan deficit	-	-	10
Equity holder tax effect relating to items that will not be reclassified subsequently to profit or loss	-	-	10
Current tax on net change in financial assets designated as available-for-sale	(1)	-	-
Tax relating to fair value losses recognised as cash flow hedges	-	-	(5)
Tax relating to cash flow hedge losses transferred to consolidated income statement	-	-	2
Equity holder tax effect relating to items that may be reclassified subsequently to profit or loss	(1)	-	(3)
Tax relating to other comprehensive income from continuing operations	(1)	-	7

All of the amounts presented above are in respect of equity holders of Standard Life Aberdeen plc.

Tax relating to items taken directly to equity is as follows:

	6 months 2018	6 months 2017	Full year 2017
	£m	£m	£m
Tax expense on reserves for employee share-based payments	1	-	(1)
Tax credit relating to coupons payable on perpetual notes classified as equity	-	-	(2)
Tax relating to items taken directly to equity	1	-	(3)

4.7 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 the Company 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 2018					6 months 2017			Full year 2017
	Continuing operations	Discontinued operations		Total		Continuing operations	Discontinued operations	Total restated¹	Continuing operations	Discontinued operations	Total
	£m	£m		£m		£m	£m	£m	£m	£m	£m
Adjusted profit before tax	311	167		478		192	166	358	475	379	854
Tax on adjusted profit	(48)	(29)		(77)		(31)	1	(30)	(77)	(31)	(108)
Share of associates' and joint ventures' tax expense	(18)	-		(18)		(7)	-	(7)	(41)	-	(41)
Adjusted profit after tax	245	138		383		154	167	321	357	348	705
Dividend paid on preference shares	(3)	-		(3)		-	-	-	-	-	-
Adjusted profit after tax attributable to equity holders of the Company	242	138		380		154	167	321	357	348	705
Adjusting items	(166)	(74)		(240)		(91)	55	(36)	4	(44)	(40)
Tax on adjusting items	35	10		45		21	(14)	7	49	(7)	42
Adjustment for coupons payable on perpetual notes classified as equity net of tax	-	-		-		-	-	-	(8)	-	(8)
Profit attributable to equity holders of the Company	111	74		185		84	208	292	402	297	699
	6 months 2018					6 months 2017			Full year 2017
	Millions					Millions			Millions
Weighted average number of ordinary shares outstanding				2,937				1,972			2,343
Dilutive effect of share options and awards				28				3			17
Weighted average number of diluted ordinary shares outstanding				2,965				1,975			2,360
	6 months 2018					6 months 2017 (restated)¹			Full year 2017
	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	3.8		2.5		6.3	4.3	10.5	14.8	17.1	12.7	29.8
Diluted earnings per share	3.7		2.5		6.2	4.3	10.5	14.8	17.0	12.6	29.6
Adjusted earnings per share	8.2		4.7		12.9	7.8	8.5	16.3	15.2	14.9	30.1
Adjusted diluted earnings per share	8.2		4.6		12.8	7.8	8.5	16.3	15.1	14.8	29.9

4.8 Adjusted profit and adjusting items

Adjusted profit before tax (previously named operating profit before tax) is the Group's key alternative performance measure. Adjusted profit excludes impacts arising from short-term fluctuations in investment return and economic assumption changes in the Group's insurance entities. It is calculated based on expected returns on investments backing equity holder funds, with consistent allowance for the corresponding expected movements in equity holder liabilities. Impacts arising from the difference between the expected return and actual return on investments, and the corresponding impact on equity holder liabilities except where they are directly related to a significant management action, are excluded from adjusted profit and are presented within profit before tax. The impact of certain changes in economic assumptions is also excluded from adjusted profit and is presented within profit before tax.

Adjusted profit also 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

· 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

Coupons payable on perpetual notes classified as non-controlling interests are included in adjusted profit before tax. For IFRS purposes, these are recognised directly in equity. Prior to these instruments being reclassified as a subordinated liability on 18 December 2017, this gave rise to an adjusting item relating to 'coupons payable on perpetual notes classified as equity'. Dividends payable on preference shares classified as non-controlling interests are excluded from adjusted profit in line with the treatment of ordinary dividends.

As disclosed in our Annual report and accounts 2017, the Group changed the calculation of adjusted profit in 2017. Short-term fluctuations in investment return and economic assumption changes are now only adjusted for insurance entities. Previously these adjustments also applied to holding companies and other non-insurance entities. Comparatives for the six months to 30 June 2017 have been restated to reflect this change.

(a) Short-term fluctuations in investment return and economic assumptions changes - insurance entities

Short-term fluctuations in investment return and economic assumption changes relate solely to wholly owned insurance businesses which in the current period are all classified as held for sale. The components of IFRS profit attributable to market movements and interest rate changes which give rise to variances between actual and expected returns on investments backing equity holder funds, with consistent allowance for the corresponding expected movement in equity holder liabilities, as well as the impact of changes in economic assumptions on equity holder liabilities, are excluded from adjusted profit for the Group's wholly owned insurance entities. Investments backing equity holder funds include investments backing annuities and subordinated debt, and investments from surplus capital in insurance companies.

For annuities this means that all fluctuations in liabilities and the assets backing those liabilities due to market interest rate (including credit risk) movements over the year are excluded from adjusted profit.

The expected rates of return for debt securities and equity securities are determined separately. The expected rates of return for equity securities are determined based on the gilt spot rates of an appropriate duration plus an equity risk premium of 3% (2017: 3%). Investments in pooled investment funds which target equity returns over the longer term, including absolute return funds, also use an expected rate of return determined based on the gilt spot rates of an appropriate duration plus a risk premium of 3% (2017: 3%).

In respect of debt securities at fair value through profit or loss, the expected rate of return is determined based on the average prospective yields for the debt securities actually held.

The expected rates of return used for both the assets backing subordinated liabilities and the subordinated liabilities themselves include a discount for expected credit defaults. This means that the interest expense included in adjusted profit for subordinated liabilities is after deducting a margin for own credit risk. Additionally, the effect of the accounting mismatch, where subordinated liabilities are measured at amortised cost and certain assets backing the liabilities are measured at fair value, is also excluded from adjusted profit.

There have been no defaults or impairments of assets backing subordinated liabilities during the six months ended 30 June 2018 or 30 June 2017 or the 12 months ended 31 December 2017. If these were to arise they would be excluded from adjusted profit.

Gains and losses on foreign exchange are deemed to represent short-term fluctuations in investment return and economic assumption changes and thus are excluded from adjusted profit.

Short-term fluctuations in investment return for the six months ended 30 June 2018 (six months ended 30 June 2017 and 12 months ended 31 December 2017) principally relate to the impact of interest rate changes on UK annuity liabilities and the assets backing those liabilities.

(b) Other

In the reconciliation of consolidated adjusted profit before tax to profit for the period the Other adjusting item sub-total includes £nil (six months ended 30 June 2017: £24m; 12 months ended 31 December 2017: £24m) in relation to the impairment of a disposal group classified as held for sale and £4m (six months ended 30 June 2017: (£1m); 12 months ended 31 December 2017: £1m) net fair value movements in contingent consideration.

The Other adjusting item in 2018 relating to discontinued operations includes a held for sale accounting adjustment relating to the amortisation of intangible assets (primarily deferred acquisition costs) and depreciation of tangible assets of £38m. Following the classification of the UK and European Insurance business as held for sale on the announcement of the proposed transaction on 23 February 2018, no amortisation or depreciation is recognised. This increase to profit has been recognised as an adjusting item.

4.9 Dividends on ordinary shares

	6 months 2018	6 months 2017		Full year 2017
	Pence per share	Pence per share	£m	Pence per share	£m
Dividends relating to reporting period
Interim dividend (2018 and 2017)	7.30	7.00	206	7.00	206
Final dividend (2017)	-	-	-	14.30	420
Total	7.30	7.00	206	21.30	626

Dividends paid in reporting period
Current year interim dividend	-	-	-	7.00	206
Final dividend for prior year	14.30	13.35	263	13.35	263
Total			263		469

Subsequent to 30 June 2018, the Directors have proposed an interim dividend for 2018 of 7.30 pence per ordinary share (interim 2017: 7.00 pence), an estimated £214m in total (interim 2017: £206m). The dividend is expected to be paid on 25 September 2018 and will be recorded as an appropriation of retained earnings in the financial statements for the year ended 31 December 2018.

4.10 Intangible assets

	30 Jun 2018	30 Jun 2017	31 Dec 2017
	£m	£m	£m
Acquired through business combinations:
Goodwill	3,419	224	3,427
Brand	77	-	86
Customer relationships and investment management contracts	727	145	774
Technology	32	1	40
Internally developed software	59	170	156
Purchased software and other	-	26	20
Cost of obtaining customer contracts	87	-	11
Total intangible assets	4,401	566	4,514

During the period, the Group acquired the right to provide asset management services to a number of US registered funds for a cash consideration of £77m. This payment is included within the cost of obtaining customer contracts.

4.11 Issued share capital, share premium and shares held by trusts

(a) Issued share capital

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

	6 months 2018		6 months 2017		Full year 2017
Issued shares fully paid	12 2/9p each	£m	12 2/9p each	£m	12 2/9p each	£m
At start of period	2,978,936,877	364	1,978,884,437	242	1,978,884,437	242
Shares issued in respect of business combinations	-	-	-	-	997,661,231	122
Shares issued in respect of share incentive plans	246,523	-	285,582	-	496,817	-
Shares issued in respect of share options	304,611	-	338,450	-	1,894,392	-
At end of period	2,979,488,011	364	1,979,508,469	242	2,978,936,877	364

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.

Shares issued in respect of business combinations in the year ended 31 December 2017 relates solely to the Aberdeen merger as discussed in Note 4.2.

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

(b) Share premium

	6 months 2018	6 months 2017	Full year 2017
	£m	£m	£m
At start of period	639	634	634
Shares issued in respect of share options	1	1	5
At end of period	640	635	639

(c) Shares held by trusts

Shares held by trusts relates to shares in Standard Life Aberdeen plc that are held by the Employee Share Trust (EST), the Aberdeen Asset Management Employee Benefit Trust 2003 (EBT) and the Unclaimed Asset Trust (UAT).

The EST and 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 EST or 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.

On completion of the merger on 14 August 2017, 31,483,948 Aberdeen Asset Management PLC shares held by the EBT were exchanged for 23,833,349 Standard Life Aberdeen plc shares at a total nominal value of £3m.

In July 2006, Standard Life demutualised and former members of the mutual company were allocated shares in the new listed Company. Some former members were yet to claim their shares and the UAT held these on their behalf. There was an off-setting obligation to deliver these shares which was also recognised in the shares held by trusts reserve. The shares and the off-setting obligation were both measured at £nil. The claim entitlement period for the UAT expired on 9 July 2016. Shares remaining in the UAT after 9 July 2016 continue to be measured at £nil.

The number of shares held in trust at 30 June 2018 was as follows:

	30 Jun 2018	30 Jun 2017	31 Dec 2017
Number of shares held in trust
Employee Share Trust	16,810,802	11,123,356	16,031,679
Aberdeen Asset Management Employee Benefit Trust 2003	23,589,384	-	23,704,305
Unclaimed Asset Trust	175,994	188,646	180,766

On expiry of the claim period on 9 July 2016, the entitlement to the unclaimed shares remaining in the UAT transferred to the Company. During the period to 30 June 2017, 11,719,073 shares were transferred from the UAT to the EST for £nil consideration. An amount equivalent to the fair value of the shares as at the date of transfer was donated by the Company to the Standard Life Foundation.

4.12 Subordinated liabilities

On 1 March 2018, 7% US Dollar fixed rate perpetual capital notes issued by Aberdeen Asset Management PLC with a principal amount of US$500m were redeemed.

4.13 Pension and other post-retirement benefit provisions

The Group operates a number of defined benefit pension plans, the largest of which being the UK Standard Life Group staff defined benefit pension plan (principal plan) which is closed to future accrual. Following the merger with Aberdeen, the Group also operates two additional UK plans. These two UK plans were in deficit when the last valuations were completed with the trustees, and the Group has agreed funding plans to eliminate these deficits. These two UK plans are included in Other along with the Ireland Standard Life plan, which is closed to new membership, and a number of smaller funded and unfunded 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 2018	6 months 2017¹	Full year 2017¹
	£m	£m	£m
Current service cost	34	18	46
Interest income	(14)	(15)	(28)
Administrative expenses	1	1	3
Expense recognised in the IFRS condensed consolidated income statement	21	4	21

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

	30 June 2018				30 June 2017			31 December 2017
	Principal plan	Other¹	Total	Held for sale	Principal plan	Other	Total	Principal plan	Other	Total
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
Present value of funded obligation	(2,776)	(345)	(3,121)	-	(2,762)	(121)	(2,883)	(2,839)	(345)	(3,184)
Present value of unfunded obligation	-	(3)	(3)	(7)	-	(10)	(10)	-	(9)	(9)
Fair value of plan assets	4,359	281	4,640	-	4,465	74	4,539	4,530	276	4,806
Effect of limit on plan surplus	(554)	-	(554)	-	(596)	-	(596)	(592)	-	(592)
Net asset/(liability)	1,029	(67)	962	(7)	1,107	(57)	1,050	1,099	(78)	1,021

¹ Included within Other is a defined benefit plan with a net asset position of £3m at 30 June 2018.

(c) Principal assumptions

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

	30 Jun 2018	30 Jun 2017	31 Dec 2017
	%	%	%
Discount rate	2.55	2.70	2.60
Rates of inflation
Consumer Price Index (CPI)	2.10	2.15	2.20
Retail Price Index (RPI)	3.10	3.15	3.20

4.14 Risk management

The Group's strategic objectives and performance against them is subject to a number of financial and non-financial risks. The principal risks and uncertainties that affect the business model are set out in detail in the Group's Annual report and accounts for the year ended 31 December 2017. Key developments in the Group's principal risks since the Annual report and accounts was published are discussed in the Risk oversight section of the Management report.

The Group's IFRS condensed consolidated half year financial information does not include the financial risk management information and disclosures required in the Group's Annual report and accounts. This note should therefore be read in conjunction with the Group's Annual report and accounts for the year ended 31 December 2017.

There have been no significant changes to the Group's risk management framework since 31 December 2017. From 1 January 2018 we enhanced the Group's qualitative risk appetites which received Board approval. The business continues to be managed through a range of risk, capital and profit metrics.

On 23 February 2018, the Group announced the proposed sale of the UK and European insurance business. Refer to Note 4.2. The assets and liabilities of this business were classified as held for sale from this date. Additionally, on 29 March 2017, the Group announced the proposed sale of Standard Life Asia (Limited), the assets and liabilities of this business were classified as held for sale from this date. The Group's balance sheet exposure to market, credit, and demographic and expense risk will be significantly reduced by the sale of these assets and liabilities.

Included within debt securities of £469m (30 June 2017: £63,887m; 31 December 2017: £61,565m) and equity securities and interests in pooled investment funds of £3,196m (30 June 2017: £94,538m; 31 December 2017: £99,020m) at 30 June 2018 is £104m (30 June 2017: £29,051m; 31 December 2017: £26,821m) and £1,625m (30 June 2017: £84,206m; 31 December 2017: £88,362m) respectively relating to unit linked funds and third party interest in consolidated funds. The shareholder's exposure to unit linked funds market and credit risk arises from the changes in the value of future fee based revenue earned on unit linked funds due to market movements. The shareholder is not exposed to the market or credit risk in respect of third party interest in consolidated funds since the financial risks of the assets are borne by third parties.

4.15 Fair value of assets and liabilities

(a) Determination of fair value hierarchy

To provide further information on the approach used to determine and measure the fair value of certain assets and liabilities, 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)

(b) Methods and assumptions used to determine fair value of assets and liabilities including those held for sale

Information on the methods and assumptions used to determine fair values for each major category of instrument measured at fair value is given below. These methods and assumptions include those used to fair value assets and liabilities held for sale, including the individual assets and liabilities of operations held for sale.

Investments in associates at FVTPL, equity securities and interests in pooled investment funds and amounts seeded into funds classified as held for sale

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

Equity instruments listed on a recognised exchange are valued using prices sourced from the primary exchange on which they are listed. These instruments are generally considered to be quoted in an active market and are therefore categorised as level 1 instruments within the fair value hierarchy.

Unlisted equities are valued using an adjusted net asset value. The Group's exposure to unlisted equity securities primarily relates to private equity investments. The majority of the Group's private equity investments are carried out through European fund of funds structures, where the Group receives valuations from the investment managers of the underlying funds.

The valuations received from investment managers of the underlying funds 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. The valuation of these securities is largely based on inputs that are not based on observable market data, and accordingly these instruments are categorised as level 3 instruments within the fair value hierarchy. Where appropriate, reference is made to observable market data.

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.

Investment property and owner occupied property

The fair value of investment property and all owner occupied property is based on valuations provided by external property valuation experts. The fair value of investment property is measured based on each property's highest and best use from a market participant's perspective and considers the potential uses of the property that are physically possible, legally permissible and financially feasible. No adjustment has been made for vacant possession for the Group's owner occupied property.

In the UK and Europe, valuations are completed in accordance with the Royal Institution of Chartered Surveyors (RICS) valuation standards. These are predominantly produced using an income capitalisation approach. The income capitalisation approach is based on capitalising an annual net income stream using an appropriate yield. The annual net income is based on both current and estimated future net income. The yield and future net income used is determined by considering recent transactions involving property with similar characteristics to the property being valued. Where it is not possible to use an income capitalisation approach, for example on property with no rental income, a market comparison approach is used by considering recent transactions involving property with similar characteristics to the property being valued. In both approaches where appropriate, adjustments will be made by the valuer to reflect differences between the characteristics of the property being valued and the recent market transactions considered.

As income capitalisation and market comparison valuations generally include significant unobservable inputs including unobservable adjustments to recent market transactions, these assets are categorised as level 3 within the fair value hierarchy.

Derivative financial assets and derivative financial liabilities

The majority of the Group's derivatives are over-the-counter derivatives which are measured at fair value using a range of valuation models including discounting future cash flows and option valuation techniques. The inputs are observable market data and over-the-counter derivatives are therefore categorised as level 2 in the fair value hierarchy.

Exchange traded derivatives are valued using prices sourced from the relevant exchange. They are considered to be instruments quoted in an active market and are therefore categorised as level 1 instruments within the fair value hierarchy.

Non-performance risk arising from the credit risk of each counterparty has been considered on a net exposure basis in line with the Group's risk management policies. At 30 June 2018, 30 June 2017 and 31 December 2017, the residual credit risk is considered immaterial and no credit risk adjustment has been made.

Debt securities

For debt securities, the Group has determined a hierarchy of pricing sources. The hierarchy consists of reputable external pricing providers who generally use observable market data. If prices are not available from these providers or are considered to be stale, the Group has established procedures to arrive at an internal assessment of the fair value. These procedures are based largely on inputs that are not based on observable market data. A further analysis by category of debt security is as follows:

· Government, including provincial and municipal, and supranational institution bonds

These instruments are valued using prices received from external pricing providers who generally base the price on quotes received from a number of market participants. They are categorised as level 1 or level 2 instruments within the fair value hierarchy depending upon the nature of the underlying pricing information used for valuation purposes.

· Corporate bonds listed or quoted in an established over-the-counter market including asset-backed securities

These instruments are generally valued using prices received from external pricing providers who generally consolidate quotes received from a panel of banks into a composite price. As the market becomes less active the quotes provided by some banks may be based on modelled prices rather than on actual transactions. These sources are based largely on observable market data, and therefore these instruments are categorised as level 2 instruments within the fair value hierarchy. When prices received from external pricing providers are based on a single broker indicative quote, the instruments are categorised as level 3 instruments.

For instruments for which prices are either not available from external pricing providers or the prices provided are considered to be stale, the Group performs its own assessment of the fair value of these instruments. This assessment is largely based on inputs that are not based on observable market data, principally single broker indicative quotes, and accordingly these instruments are categorised as level 3 instruments within the fair value hierarchy.

· Other corporate bonds including unquoted bonds, commercial paper and certificates of deposit

These instruments are valued using models. For unquoted bonds the model uses inputs from comparable bonds and includes credit spreads which are obtained from brokers or estimated internally. Commercial paper and certificates of deposit are valued using standard valuation formulas. The categorisation of these instruments within the fair value hierarchy will be either level 2 or 3 depending upon the nature of the underlying pricing information used for valuation purposes.

· Commercial mortgages

These instruments are valued using models. The models use a discount rate adjustment technique which is an income approach. The key inputs for the valuation models are contractual future cash flows, which are discounted using a discount rate that is determined by adding a spread to the current base rate. The spread is derived from a pricing matrix which incorporates data on current spreads for similar assets and which may include an internal underwriting rating. These inputs are generally observable with the exception of the spread adjustment arising from the internal underwriting rating. The classification of these instruments within the fair value hierarchy will be either level 2 or 3 depending on whether the spread is adjusted by an internal underwriting rating.

· Income strips

Income strips are transactions where an owner-occupier of a property has sold a freehold or long leasehold interest to the Group, and has signed a long lease (typically 30-45 years) or a ground lease (typically 45-175 years) and retains the right to repurchase the property at the end of the lease for a nominal sum (usually £1).

The valuation technique used by the Group to value these instruments is an income capitalisation approach, where the annual rental income is capitalised using an appropriate yield. The yield is determined by considering recent transactions involving similar income strips. Unlike, investment properties which typically are leased on shorter lease terms, the estimated rental value is not a significant unobservable input. This is due to the length of the lease together with the nature of the rent reviews where the annual rental increases over the term of the lease in line with inflation or fixed increases. As the income capitalisation valuations generally include significant unobservable inputs including unobservable adjustments to the yield observed in other income strip transactions, these assets are categorised as level 3 in the fair value hierarchy.

Contingent consideration assets and contingent consideration liabilities

Contingent consideration assets and liabilities have been recognised in respect of acquisitions. Generally valuations are based on unobservable assumptions regarding the probability weighted expected return and growth over the contractual period, discounted present value and therefore the assets and liabilities are classified as level 3 in the fair value hierarchy.

Non-participating investment contract liabilities

The fair value of the non-participating investment contract liabilities is calculated equal to the fair value of the underlying assets and liabilities in the funds. Thus, the value of these liabilities is dependent on the methods and assumptions set out above in relation to the underlying assets and liabilities in which these funds are invested. 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. Therefore, the liabilities are categorised within level 2 of the fair value hierarchy.

Liabilities in respect of third party interest in consolidated funds

The fair value of liabilities in respect of third party interest in consolidated funds is calculated equal to the fair value of the underlying assets and liabilities in the funds. Thus, the value of these liabilities is dependent on the methods and assumptions set out above in relation to the underlying assets in which these funds are invested. 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.

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

The table below presents the Group's assets measured at fair value by level of the fair value hierarchy.

							Fair value hierarchy
	As recognised in the consolidated statement of financial position line item		Classified as held for sale		Total		Level 1		Level 2		Level 3
	30 Jun 2018	31 Dec 2017	30 Jun 2018	31 Dec 2017	30 Jun 2018	31 Dec 2017	30 Jun 2018	31 Dec 2017	30 Jun 2018	31 Dec 2017	30 Jun 2018	31 Dec 2017
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
Investment property	-	9,749	9,895	200	9,895	9,949	-	-	-	-	9,895	9,949
Owner occupied property	2	81	82	11	84	92	-	-	-	-	84	92
Derivative financial assets	7	3,053	2,588	-	2,595	3,053	722	990	1,873	2,063	-	-
Equity securities and interests in pooled investment vehicles	3,196	99,020	95,581	763	98,777	99,783	97,730	98,750	26	36	1,021	997
Debt securities	469	61,565	58,440	14	58,909	61,579	23,676	25,230	33,792	34,905	1,441	1,444
Contingent consideration asset	2	6	-	-	2	6	-	-	-	-	2	6
Total assets at fair value	3,676	173,474	166,586	988	170,262	174,462	122,128	124,970	35,691	37,004	12,443	12,488

				Fair value hierarchy
	As recognised in the consolidated statement of financial position line item	Classified as held for sale	Total	Level 1	Level 2	Level 3
30 June 2017	£m	£m	£m	£m	£m	£m
Investment property	10,038	26	10,064	-	-	10,064
Owner occupied property	77	8	85	-	-	85
Derivative financial assets	2,844	-	2,844	851	1,993	-
Equity securities and interests in pooled investment vehicles	94,538	664	95,202	94,278	2	922
Debt securities	63,887	11	63,898	26,874	36,084	940
Contingent consideration asset	10	-	10	-	-	10
Total assets at fair value	171,394	709	172,103	122,003	38,079	12,021

There were no significant transfers between levels 1 and 2 during the period (six months ended 30 June 2017: none; 12 months ended 31 December 2017: none). Refer to 4.15 (b)(iii) for details of movements in level 3.

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

The table below presents the Group's liabilities measured at fair value by level of the fair value hierarchy.

							Fair value hierarchy
	As recognised in the consolidated statement of financial position line item		Classified as held for sale		Total		Level 1		Level 2		Level 3
	30 Jun 2018	31 Dec 2017	30 Jun 2018	31 Dec 2017	30 Jun 2018	31 Dec 2017	30 Jun 2018	31 Dec 2017	30 Jun 2018	31 Dec 2017	30 Jun 2018	31 Dec 2017
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
Non-participating investment contract liabilities	1,274	105,765	102,242	62	103,516	105,827	-	-	103,516	105,827	-	-
Liabilities in respect of third party interest in consolidated funds	227	16,457	15,781	28	16,008	16,485	-	-	14,734	15,187	1,274	1,298
Derivative financial liabilities	32	813	897	-	929	813	168	161	761	652	-	-
Contingent consideration liabilities	39	25	-	-	39	25	-	-	-	-	39	25
Total liabilities at fair value	1,572	123,060	118,920	90	120,492	123,150	168	161	119,011	121,666	1,313	1,323

		Fair value hierarchy
	As recognised in the consolidated statement of financial position line item	Level 1	Level 2	Level 3
30 June 2017	£m	£m	£m	£m
Non-participating investment contract liabilities	103,452	-	103,452	-
Liabilities in respect of third party interest in consolidated funds	16,080	-	14,857	1,223
Derivative financial liabilities	894	193	701	-
Contingent consideration liabilities	14	-	-	14
Total liabilities at fair value	120,440	193	119,010	1,237

There were no significant transfers between levels 1 and 2 during the six months ended 30 June 2018 (six months ended 30 June 2017: none; 12 months ended 31 December 2017: none). Refer to 4.15 (b)(iii) for details of movements in level 3.

(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 assets and liabilities held for sale, are analysed below.

	Investment property		Owner occupied property		Equity securities and interests in pooled investment funds		Debt securities		Liabilities in respect of third party interest in consolidated funds
	30 Jun 2018	31 Dec 2017	30 Jun 2018	31 Dec 2017	30 Jun 2018	31 Dec 2017	30 Jun 2018	31 Dec 2017	30 Jun 2018	31 Dec 2017
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
At start of period	9,749	9,929	81	58	994	958	1,444	868	(1,298)	(1,228)
Reclassified to held for sale	(9,749)	(225)	(79)	(4)	(882)	-	(1,443)	-	1,298	-
Reclassification between investment property and debt securities¹	-	(319)	-	-	-	-	-	319	-	-
Acquired through business combinations	-	-	-	2	-	100	-	-	-	-
Total gains/(losses) recognised in the consolidated income statement	-	485	-	4	4	72	-	35	-	(57)
Purchases	-	413	-	3	5	191	-	362	-	(88)
Settlement	-	-	-	-	-	-	-	-	-	75
Sales	-	(525)	-	-	(17)	(317)	-	(125)	-	-
Transfers in to level 3²	-	-	-	-	-	8	-	27	-	-
Transfers out of level 3²	-	-	-	-	-	(7)	-	(42)	-	-
Transfers between investment property and owner occupied property	-	(17)	-	17	-	-	-	-	-	-
Foreign exchange adjustment	-	11	-	-	-	(13)	-	-	-	-
Total gains recognised on revaluation of owner occupied property within other comprehensive income	-	-	-	1	-	-	-	-	-	-
Other	-	(3)	-	-	-	2	-	-	-	-
At end of period	-	9,749	2	81	104	994	1	1,444	-	(1,298)

	Investment property	Owner occupied property	Equity securities and interests in pooled investment funds	Debt securities	Liabilities in respect of third party interest in consolidated funds
2017	£m	£m	£m	£m	£m
1 January	9,929	58	958	868	(1,228)
Reclassified to held for sale	(26)	-	-	-	-
Total gains/(losses) recognised in the consolidated income statement	229	-	12	18	(18)
Purchases	234	1	103	103	-
Settlement	-	-	-	-	23
Sales	(327)	-	(152)	(60)	-
Transfers in to level 3²	-	-	8	27	-
Transfers out of level 3²	-	-	-	(16)	-
Transfers between investment property and owner occupied property	(17)	17	-	-	-
Foreign exchange adjustment	8	-	(7)	-	-
Total gains recognised on revaluation of owner occupied property within other comprehensive income	-	1	-	-	-
Other	8	-	-	-	-
30 June	10,038	77	922	940	(1,223)

¹ During 2017 income strips measured at £319m which were previously included within investment property were reclassified as debt securities to reflect the underlying nature of these instruments.

² 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 2018	30 Jun 2017	31 Dec 2017	30 Jun 2018	30 Jun 2017	31 Dec 2017
	£m	£m	£m	£m	£m	£m
At start of period	6	10	10	(25)	(15)	(15)
Acquired through business combinations	-	-	-	-	-	(39)
Total (losses)/gains recognised in the income statement	(4)	-	(4)	-	1	3
Additions	-	-	-	(17)	-	-
Settlements	-	-	-	3	-	26¹
At end of period	2	10	6	(39)	(14)	(25)

¹ Restated.

For the six months ended 30 June 2018, £4m of total gains from continuing operations (six months ended 30 June 2017: gains of £2m; 12 months ended 31 December 2017: gains of £3m) were recognised in the IFRS condensed consolidated income statement in respect of assets and liabilities held at fair value classified as level 3 at the period end, excluding assets and liabilities held for sale. These amounts are recognised in investment return.

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.

The table below presents quantitative information about the significant unobservable inputs for level 3 instruments:

	Fair value
30 June 2018	£m	Valuation technique	Unobservable input	Range (weighted average)
Investment property and owner occupied property	9,453	Income capitalisation	Equivalent yield Estimated rental value per square metre per annum	3.5% to 9.1% (5.1%) £31 to £1,716 (£317)
Investment property (hotels)	449	Income capitalisation	Equivalent Yield Estimated rental value per room per annum	3.9% to 6.6% (5.0%) £995 to £13,800 (£6,634)
Investment property and owner occupied property	77	Market comparison	Estimated value per square metre	£2 to £10,932 (£3,080)
Equity securities and interests in pooled investment funds	1,021	Adjusted net asset value	Adjustment to net asset value¹	N/A
Debt securities (commercial mortgages)	348	Discounted cash flow	Credit spread	1.9% to 2.6% (2.2%)
Debt securities (income strips)	538	Income capitalisation	Equivalent yield	4.1% to 6.4% (5.3%)
Debt securities (unquoted corporate bonds)	499	Discounted cash flow	Credit spread	0.8% to 2.4% (1.8%)
Debt securities (infrastructure loans)	56	Discounted cash flow	Credit spread	1.8% to 2.9% (2.4%)

¹ An adjustment is made to the valuation of private equity investments received from the investment managers of the underlying funds to estimate the effect of changes in market conditions between the date of their valuations and the end of the reporting period using market indices. The adjustment made at 30 June 2018 was £nil (30 June 2017: £40m; 31 December 2017: £nil).

	Fair value
30 June 2017	£m	Valuation technique	Unobservable input	Range (weighted average)
Investment property and owner occupied property	9,478	Income capitalisation	Equivalent yield Estimated rental value per square metre per annum	3.4% to 8.9% (5.3%) £16 to £1,711 (£319)
Investment property (hotels)	608	Income capitalisation	Equivalent yield Estimated rental value per room per annum	4.0% to 6.5% (5.2%) £995 to £13,750 (£5,596)
Investment property and owner occupied property	63	Market comparison	Estimated value per square metre	£2 to £10,932 (£3,246)
Equity securities and interests in pooled investment funds	922	Adjusted net asset value	Adjustment to net asset value¹	N/A
Debt securities (commercial mortgages)	447	Discounted cash flow	Credit spread	1.9% to 2.6% (2.1%)
Debt securities (unquoted corporate bonds)	449	Discounted cash flow	Credit spread	0.2% to 1.8% (1.6%)
Debt securities (infrastructure loans)	16	Discounted cash flow	Credit spread	1.4% (1.4%)
Debt securities (other)	28	Single broker	Single broker indicative price²	N/A

	Fair value
31 December 2017	£m	Valuation technique	Unobservable input	Range (weighted average)
Investment property and owner occupied property	9,571	Income capitalisation	Equivalent yield Estimated rental value per square metre per annum	3.3% to 9.0% (5.2%) £32 to £1,716 (£326)
Investment property (hotels)	402	Income capitalisation	Equivalent yield Estimated rental value per room per annum	3.8% to 6.6% (5.1%) £995 to £10,000 (£5,841)
Investment property and owner occupied property	68	Market comparison	Estimated value per square metre	£2 to £10,932 (£3,451)
Equity securities and interests in pooled investment funds	997	Adjusted net asset value	Adjustment to net asset value¹	N/A
Debt securities (commercial mortgages)	379	Discounted cash flow	Credit spread	1.9% to 2.6% (2.2%)
Debt securities (income strips)	520	Income capitalisation	Equivalent yield	4.1% to 6.5% (5.1%)
Debt securities (unquoted corporate bonds)	506	Discounted cash flow	Credit spread	0.7% to 2.1% (1.6%)
Debt securities (infrastructure loans)	39	Discounted cash flow	Credit spread	1.9% to 2.6% (2.3%)

² Debt securities which are valued using single broker indicative quotes are disclosed in level 3 in the fair value hierarchy. No adjustment is made to these prices.

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

The shareholder is directly exposed to movements in the value of level 3 instruments held by the shareholder business (to the extent they are not offset by opposite movements in investment and insurance contract liabilities). Movements in level 3 instruments held by the participating business and unit linked funds risk segments are offset by an opposite movement in investment and insurance contract liabilities and therefore the shareholder is not directly exposed to such movements unless they are sufficiently severe to cause the assets of the participating business to be insufficient to meet the obligations to policyholders. Movements in level 3 instruments held in the TPICF and NCI risk segment are offset by opposite movements in the liabilities in respect of third party interest in consolidated funds and in equity attributable to non-controlling interest and therefore the shareholder is not directly exposed to such movements.

Changing unobservable inputs in the measurement of the fair value of 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. The alternative assumptions used in this assessment for debt securities are:

	Reasonably possible alternative assumptions
	30 June 2018	30 June 2017 and 31 December 2017
Unquoted corporate bonds	Credit spread +/- 0.45%	Credit spread +/- 0.45%
Commercial mortgages	Credit spread +/- 0.40%	Credit spread +/- 0.40%

Profit attributable to non-controlling interests is exposed to movements in private equity investments, predominantly those held by Standard Life Private Equity Trust plc. The Group considers that a plausible range for the fair value of such private equity investments at 30 June 2018 is -10% to +25% of the 30 June 2018 valuation. The impact on profit attributable to non-controlling interests from discontinuing operations of £5m for the year to 30 June 2018 for such changes in fair value is to reduce or increase that profit by £25m or £63m respectively with no impact on profit attributable to equity holders.

Whilst not having an impact on profit for the year, the Group has also considered the plausible range for the fair value of investment property at 30 June 2018. Based on independent research that has considered the reasonableness of historic UK property values by comparing valuations with actual sales prices achieved a plausible range for the fair value of the Group's UK property portfolio, comprising over 90% of the Group investment property portfolio is considered to be -5% to +8.5% of the 30 June valuation.

(c) Assets and liabilities not carried at fair value

The table below presents estimated fair values by level of the fair value hierarchy of assets and liabilities whose carrying value does not approximate fair value. Fair values of assets and liabilities are based on observable market inputs where available, or are estimated using other valuation techniques.

	As recognised in the consolidated statement of financial position line item			Fair value
	30 Jun 2018	30 Jun 2017	31 Dec 2017	30 Jun 2018	30 Jun 2017	31 Dec 2017
	£m	£m	£m	£m	£m	£m
Assets
Loans secured by mortgages	-	63	57	-	71	64
Liabilities
Capital notes	-	-	377	-	-	377
Subordinated notes	1,081	500	1,056	1,113	558	1,128
Subordinated guaranteed bonds	519	519	502	691	626	650
Mutual Assurance Capital Securities	309	308	318	333	340	349

In addition to the above there are £52m (30 June 2017: £nil; 31 December 2017: £nil) of loans secured by mortgages classified as held for sale at 30 June 2018 with a fair value of £60m (30 June 2017: £nil; 31 December 2017: £nil) and £6m (30 June 2017: £4m; 31 December 2017: £4m) of non-participating investment contract liabilities classified as held for sale at 30 June 3018 with a fair value of £6m (30 June 2017: £4m; 31 December 2017: £4m).

The estimated fair values of the subordinated liabilities are based on the quoted market offer price. The estimated fair values of the other instruments detailed above are calculated by discounting the expected future cash flows at current market rates.

It is not possible to reliably calculate the fair value of participating investment contract liabilities. The assumptions and methods used in the calculation of these liabilities are set out in Note 31 of the Group's Annual report and accounts 2017. The carrying value of participating investment contract liabilities at 30 June 2018, which were entirely reclassified as held for sale in the period was £15,012m (30 June 2017: £15,300m; 31 December 2017: £15,313m).

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

4.16 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 insurance and investment 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 and regulatory 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.

4.17 Commitments

(a) Capital commitments

The Group's investment property is classified as held for sale at 30 June 2018. Capital expenditure that was authorised and contracted for, but not provided and incurred, was £260m at 30 June 2017 and £167m at 31 December 2017 in respect of investment property. At 30 June 2017 and 31 December 2017, £199m and £147m respectively, related to the contractual obligations to purchase, construct or develop investment property and, £61m and £20m respectively, related to the contractual obligations to repair, maintain or enhance investment property.

(b) Unrecognised financial instruments

The Group has committed £512m (30 June 2017: £449m; 31 December 2017: £447m) in respect of unrecognised financial instruments to customers and third parties. Of this amount £391m (30 June 2017: £357m; 31 December 2017: £360m) is committed by consolidated private equity funds classified as held for sale. These commitments will be funded through contractually agreed additional investments both by the Group, through its controlling interests, and the funds' non-controlling interests. The level of funding provided by each will not necessarily be in line with the current ownership profile of the funds.

The Group has entered into commercial non-cancellable leases on certain property, plant and equipment where it is not in the best interest of the Group to purchase these assets. Such leases have varying terms, escalation clauses and renewal rights.

The future aggregate minimum lease payments under non-cancellable operating leases are as follows:

	30 Jun 2018	30 Jun 2017 restated¹	31 Dec 2017 restated¹
	£m	£m	£m
Not later than one year	36	16	37
Later than one year and no later than five years	82	39	90
Later than five years	57	47	61
Total operating lease commitments for continuing operations	175	102	188

4.18 Related party transactions

In the normal course of business, the Group enters into transactions with related parties that relate to insurance and investment management business. 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 2017. There were no transactions with related parties that have materially affected the result or financial position of the Group during the period ended 30 June 2018, 30 June 2017 or 31 December 2017.

Details of the proposed sale of a subsidiary to our joint venture business are included in Note 4.2.

4.19 Events after the reporting date

HDFC Asset Management Company Limited (HDFC AMC), the Group's associate Indian asset management business announced in November 2017 that its board of directors had approved initiation of an initial public offering (IPO) with the Group offering up a portion of the paid up capital of HDFC AMC. On 6 August 2018, HDFC AMC listed on the National Stock Exchange of India Limited and the Bombay Stock Exchange Limited following completion of the IPO. Through the IPO, the Group sold 16,864,585 equity shares in HDFC AMC for a total net consideration of approximately Rs.16.2bn (approximately £180m). The gain on sale from the IPO is estimated to be £150m after tax and using the weighted-average cost method. Following the sale HDFC AMC will remain an associate of the Group and the Group's shareholding subsequent to the IPO is 63,650,615 equity shares or 30.03% of the issued share capital of HDFC AMC.

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.

END

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