REG - abrdn PLC - Final Results - Part 5 of 8
01/03/2022 07:15
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RNS Number : 1200D abrdn PLC 01 March 2022
abrdn plc
Full Year Results 2021
Part 5 of 8
6. Independent auditors' report to the members of abrdn plc
1. Our opinion is unmodified
We have audited the financial statements of abrdn plc ("the Company") for the
year ended 31 December 2021 which comprise the Consolidated income statement,
Consolidated statement of comprehensive income, Consolidated statement of
financial position, Consolidated statement of changes in equity, Consolidated
statement of cash flows, Company statement of financial position, Company
statement of changes in equity, and the related notes, including the
accounting policies in the Basis of preparation. In our opinion:
- the financial statements give a true and fair view of the state of the
Group's and of the parent Company's affairs as at 31 December 2021 and of the
Group's profit for the year then ended;
- the Group financial statements have been properly prepared in
accordance with UK-adopted international accounting standards;
- the parent Company financial statements have been properly prepared in
accordance with UK accounting standards, including FRS 101 Reduced Disclosure
Framework; and
- the financial statements have been prepared in accordance with the
requirements of the Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing
(UK) ("ISAs (UK)") and applicable law. Our responsibilities are described
below. We believe that the audit evidence we have obtained is a sufficient and
appropriate basis for our opinion. Our audit opinion is consistent with our
report to the audit committee.
We were first appointed as auditor by the shareholders on 16 May 2017. The
period of total uninterrupted engagement is for the five financial years ended
31 December 2021. We have fulfilled our ethical responsibilities under, and we
remain independent of the Group in accordance with, UK ethical requirements
including the FRC Ethical Standard as applied to listed public interest
entities. No non-audit services prohibited by that standard were provided.
Overview
Materiality: Group financial statements as a whole
£19m (2020: £25m)
3.5% (2020: 2.7%) of normalised profit before tax
Coverage 89% (2020: 90%) of profits and losses that made up Group profit before tax
Key audit matters vs 2020
Recurring risks Valuation of UK defined benefit pension scheme obligation < >
Recoverability of certain of the parent's investment in subsidiaries
Event driven risk New: Fair value of the contingent consideration liability and intangible ∆
assets recognised on the acquisition of Tritax Management LLP
2. Key audit matters: our assessment of risks of material misstatement
Key audit matters are those matters that, in our professional judgement, were
of most significance in the audit of the financial statements and include the
most significant assessed risks of material misstatement (whether or not due
to fraud) identified by us, including those which had the greatest effect on:
the overall audit strategy; the allocation of resources in the audit; and
directing the efforts of the engagement team. We summarise below the key
audit matters , in decreasing order of audit significance, in arriving at our
audit opinion above, together with our key audit procedures to address those
matters and our findings from those procedures in order that the Company's
members, as a body, may better understand the process by which we arrived at
our audit opinion. These matters were addressed, and our findings are based
on procedures undertaken, in the context of, and solely for the purpose of,
our audit of the financial statements as a whole, and in forming our opinion
thereon, and consequently are incidental to that opinion, and we do not
provide a separate opinion on these matters.
The risk Our response
Valuation of the UK defined benefit pension scheme present value of funded Subjective Valuation We performed the tests below rather than seeking to rely on any of the Group's
obligation
controls because the nature of the balance is such that we would expect to
The present value of the Group's funded obligation for the UK defined benefit obtain audit evidence primarily through the detailed procedures described.
(£2,899m, 2020: £3,015m) ('DB') pension scheme is an area that involves significant judgement over the
uncertain future settlement value. The Group is required to use judgment in
Refer to page 87 (Audit Committee Report), page 206 (accounting policy) and the selection
page 207 (financial disclosures).
of key assumptions covering both operating assumptions and economic Our procedures included:
assumptions.
Test of detail and our sector experience: We evaluated the competency and
The key operating assumptions are base mortality and mortality improvement. objectivity of the Group's experts who assisted them in determining the
The key economic assumptions are the discount rate and inflation. The risk is actuarial assumptions used to calculate the defined benefit obligation.
that inappropriate assumptions are used in determining the present value of
the funded obligation.
We considered, with the support of internal actuarial specialists, the
appropriateness of the base mortality assumption by reference to scheme and
The effect of these matters is that, as part industry data on historical mortality experience and the outcome of the latest
of our risk assessment, we determine that the valuation of the pension scheme triennial report.
obligation has a high degree of estimation uncertainty, with a potential range
of reasonable outcomes greater than our materiality for the financial
statements as
a whole and possibly many times that amount. We considered, with the support of internal actuarial specialists, the
appropriateness of the mortality improvement assumptions by reference to
industry-based expectations of future mortality improvements and the
appropriateness of the discount rate and inflation assumptions by reference to
The financial statements (Note 33) industry practice.
disclose the sensitivity estimated by the Group.
Assessing transparency: In conjunction with internal actuarial specialists, we
considered whether the Group's disclosures in relation to the assumptions used
in the calculation of present value of the funded obligation appropriately
represent the sensitivities of the obligation to the use of alternative
assumptions.
Our findings
We found the estimated valuation of the UK defined benefit pension scheme
obligation to be balanced (2020: balanced) with proportionate (2020:
proportionate) disclosures of the related assumptions and sensitivities.
The risk Our response
Fair value of the contingent consideration liability and intangible assets Subjective Estimate We performed the tests below rather than seeking to rely on any of the Group's
recognised on the acquisition of
controls because the nature of the balance is such that we would expect to
In April 2021, abrdn completed the acquisition of 60% of the membership obtain audit evidence primarily through the detailed procedures described.
Tritax Management LLP interests of Tritax Management LLP ("Tritax"); there are a number of
accounting estimates associated with
(Contingent consideration liability on acquisition: £155m, 2020: £nil;
the acquisition accounting for this transaction.
Intangible assets recognised on acquisition: £71m, 2020: £nil)
Our procedures included:
Refer to page 87 (Audit Committee
The contingent consideration liabilities recognised on acquisition must be
Report), page 148 (accounting policy) and page 149 (financial disclosures). recognised at fair value; the valuation of these liabilities contains Our business combination and sector expertise: We considered the rationale for
estimation uncertainty (including through the determination of the cash flow the acquisition, reviewed the terms of the acquisition, board minutes and
forecasts and the discount rate used in the other available information in order to challenge the identification of
valuation). intangible assets.
On acquisition, separate intangible assets must be identified and valued. Both Assessing principles: We assessed management's analysis of accounting
the identification of each category of principles against the provisions of the LLP agreement in respect of the
intangible asset to be recognised and the valuation of these assets are treatment of payments made to former owners as either remuneration or
subjective, consideration, and whether these should be reflected within the fair value of
and involve judgement (e.g. determination of the useful economic life) and the contingent consideration liability.
estimation uncertainty (e.g. the determination of the discount rate or cash
flow forecasts to be used in the valuation).
Our valuation expertise: Using our valuation specialists we challenged the
identification and valuation analysis prepared by management (and the third
The effect of these matters is that, as part of our risk assessment, we party valuations experts who assisted management), including the assessment of
determined that the fair value of contingent consideration payable and the the useful economic life of identified intangibles and the allocation of the
fair value of identified intangibles have a high degree of estimation purchase price between goodwill and separately identifiable intangible assets.
uncertainty, with a potential range of reasonable outcomes greater than our We assessed the appropriateness of input assumptions to the valuation
materiality for the financial statements as a whole. analysis. This included performing a critical assessment of the reliability of
management's forecasts and comparing the discount rate assumption with our own
expected range.
The financial statements (note 39) disclose the sensitivities estimated by the
Group in respect of the contingent consideration liability.
We assessed the appropriateness of the valuation model proposed by management
with respect to the valuation of the contingent consideration and assessed the
input assumptions into the valuation, assisted by our valuation specialists.
This included performing a critical assessment of the reliability of
management's forecasts (including their determination of the forecast period)
and an assessment of the applicable scenario probability weightings against
our own sector experience.
Sensitivity analysis: We have performed our own sensitivity analysis, which
included assessing the effect of reasonably possible changes in input
assumptions to evaluate the impact on the valuation of both the contingent
consideration and the separately identifiable intangible assets (and
corresponding allocation of the purchase price to goodwill).
Assessing transparency: We have assessed the transparency of the Group's
disclosures in respect of the acquisitions, including in respect of applicable
estimation uncertainty.
Our findings
We found the estimated valuation of the fair value of the contingent
consideration liability and intangible assets recognised on the acquisition of
Tritax Management LLP to be balanced (2020: n/a) with proportionate (2020:
n/a) disclosures of the related assumptions and sensitivities.
The risk Our response
Recoverability of certain of the parent's investments in subsidiaries: Subjective Judgement We performed the tests below rather than seeking to rely on any of the Group's
controls because the nature of the balance is such that we would expect to
(Parent Company: Certain investments in subsidiaries: included within the As disclosed in note A of the parent Company financial statements, the net obtain audit evidence primarily through the detailed procedures described.
total investments in subsidiaries balance of £5,065m (2020: £4,013m); assets attributable to equity holders of the parent Company exceeded the
Impairment of investment in subsidiaries: £45m (2020: £1,873m)) Group's market capitalisation at the balance sheet date and the Company
applied judgement to identify which subsidiaries were at risk of impairment.
Refer to page 88 (Audit Committee Report), page 255 (accounting policy) and As a result, the Company subjected the investment in Aberdeen Asset Management Our procedures included:
page 257 (financial disclosures). plc to a full impairment review. The identification of the at-risk investments
is inherently subjective.
Our valuation expertise and sector expertise: Having considered the
application of the impairment trigger in respect of market capitalisation, we
The Company also subjected abrdn Financial Planning Limited to a full identified that it existed for certain subsidiaries. In evaluating which
impairment review, given, in their judgement, performance in the business in subsidiaries required further analysis, we performed a critical assessment of
the period indicated impairment. the business performance, such as flows of assets under management and changes
in revenue and other financial performance during the period.
In addition, given the historic impairments recognised in respect of the asset
management subsidiaries in previous periods, there is a risk of impairment Where impairment reviews were completed, we assessed the appropriateness of
reversals not recognised, driven by improvements in underlying business the fair value less costs of disposal ("FVLCD") or value in use ("VIU)
performance. valuation basis proposed by management. We engaged our own valuation
specialists to assist us in assessing the appropriateness of the applied
valuation model and assumptions applied.
Considering indications of impairment or impairment reversal requires
subjective judgement.
Sensitivity analysis: We performed our own sensitivity analysis which included
assessing the effect of reasonable alternative assumptions in respect of
applicable price to earnings multiples, discount rates and cash flow forecasts
Subjective Estimate (as applicable) to evaluate the impact on the carrying value of the investment
in subsidiaries.
Where an impairment review is required the estimated recoverable amount of
these balances is subjective due to the inherent uncertainty involved in
assessing the recoverable amount of the subsidiaries, either using a value in
use or fair value less cost of disposal analysis. Assessing transparency: We assessed whether the parent Company's disclosures
in respect of investment in subsidiaries reflect the risks inherent in the
impairment assessment performed.
As part of our risk assessment, we determined that the recoverable amount of
certain investments in subsidiaries has a high degree of estimation
uncertainty, with a potential range of reasonable outcomes greater than our Our findings
materiality for the financial statements as a whole.
We found the parent Company's carrying value of certain of the investments in
subsidiaries and the related impairment charge to be balanced (2020: cautious)
with proportionate (2020: proportionate) disclosures of the related
The parent Company financial statements (note A) disclose the sensitivity assumptions and sensitivities.
estimated by the parent company.
We have summarised below the changes to our key audit matters from the 31
December 2020 year end audit.
We continue to perform procedures over the carrying value of the investment in
Phoenix Group Holdings plc and the share of profit received during the period
in which it was an equity accounted associate (financial disclosure page 152).
However, following reclassification of the equity accounted investment to fair
value investment in February 2021, we do not consider there to be a
significant risk associated with the carrying value at 31 December 2021 or the
share of profit received in the year to 31 December 2021.
We previously reported a key audit matter in respect of the impairment of
intangible assets. Given improved performance in the applicable books of
business, and the effect of amortisation on the carrying value of the assets,
there were no impairment triggers identified during the year to 31 December
2021 and therefore we no longer consider this a key audit matter.
In the prior year, we considered the risk associated with the recoverability
of certain of the parent's investments in subsidiaries in conjunction with the
goodwill recognised on consolidation at the group level. We continue to
perform procedures over goodwill recognised on consolidation. However,
following the full impairment of the asset management goodwill at 30 June
2020, we have not assessed this as one of the most significant risks in our
current year audit and, therefore, it is not separately identified in our
report this year.
3. Our application of materiality and an overview of the scope of our audit
Materiality for the Group financial statements as a whole was set at £19m
(2020: £25m), determined with reference to a benchmark of our estimate of
Group profit before tax made at the planning stage, normalised for our
expectation of the level of adjusting items including impairment,
restructuring costs and the profits arising on disposal of associate or past
associate shareholdings (of which it represents 5% (2020: 5%)). This equates
to 3.5% (2020: 2.7%) of reported Group profit normalised on a consistent basis
and to 1.7% (2020: 2.9%) of Group IFRS profit before tax from continuing
operations of £1,115m (2020: £853m). Materiality for the parent Company
financial statements as a whole was set at £7.6m (2020: £8.8m), which is the
component materiality for the parent Company determined by the group audit
engagement team. This is lower than the materiality we would otherwise have
determined with reference to parent Company total assets, of which it
represents 0.1% (2020: 0.1%).
In line with our audit methodology, our procedures on individual account
balances and disclosures were performed to a lower threshold, performance
materiality, so as to reduce to an acceptable level the risk that individually
immaterial misstatements in individual account balances add up to a material
amount across the financial statements as a whole.
Performance materiality was set at 75% (2020: 75%) of materiality for the
financial statements as a whole, which equates to £14.25m (2020: £18.75m)
for the Group and £5.7m (2020: £6.6m) for the parent Company. We applied
this percentage in our determination of performance materiality because we did
not identify any factors indicating an elevated level of risk.
We agreed to report to the Audit Committee any corrected or uncorrected
identified misstatements exceeding £0.95m (2020: £1.25m), in addition to
other identified misstatements that warranted reporting on qualitative
grounds.
Of the Group's 301 (2020: 295) reporting components, we subjected 17 (2020:
15) to full scope audits for Group purposes and 4 (2020: none) to specified
risk-focused audit procedures. The latter were not financially significant
enough to require an audit for group reporting purposes, but did present
specific individual risks that needed to be addressed.
For those items excluded from normalised group profit before tax, the
component teams performed procedures on items relating to their components.
The group team performed procedures on the remaining excluded items.
The components within the scope of our work accounted for the percentages
illustrated opposite. The remaining 21% (2020: 27%) of total Group fee income,
11% (2020: 10%) of the total profits and losses that made up Group profit
before tax and 10% (2020: 23%) of net Group assets is represented by 280
(2020: 280) reporting components, none of which individually represented more
than 5% of any of total Group fee income, Group profit before tax or of
net Group assets. For these residual components, we performed analysis at an
aggregated Group level to re-examine our assessment that there were no
significant risks of material misstatement within these.
For those items excluded from group fee income, the component teams performed
procedures on items relating to their components. The group team performed
procedures on the remaining excluded items.
The Group team instructed component auditors as to the significant areas to be
covered, including the relevant risks detailed above and the information to be
reported back. The Group team approved the component materialities, which
ranged from £1m to £8.55m (2020: £1.25m to £18.2m), having regard to the
mix of size and risk profile of the Group across the components. The work on 8
of the 17 components (2020: 5 of the 15 components) was performed by component
auditors and the rest, including the audit of the parent Company, was
performed by the Group team.
Diagrams removed for the purposes of this announcement. However they can be
viewed in full in the pdf document
The Group team had planned to visit component locations in the United States,
Luxembourg, and Singapore. However, these visits were prevented by movement
restrictions relating to the COVID-19 pandemic. Instead, video conferences
were held to discuss the audit risk and strategy and the component audit
findings reported to the Group team. Any further work required by the Group
team was then performed by the component auditor.
The scope of the audit work performed was predominately substantive as we
placed limited reliance upon the Group's internal control over financial
reporting.
4. The impact of climate change on our audit
In planning our audit we have considered the potential impacts of climate
change on the Group's business and its financial statements. Climate change
impacts the Group in a number of ways: through its own operations (including
potential reputational risk associated with the Group's delivery of its
climate related initiatives), through its portfolio of investments and its
stewardship role, and the greater emphasis on climate related narrative and
disclosure in the annual report.
As disclosed in Note 37, the Group's direct exposure to climate change in the
financial statements is primarily through its level 3 investment holdings, as
the key valuation assumptions and estimates may be impacted by climate risks.
As part of our audit we have made enquiries of Directors and the Group's
Corporate Sustainability team to understand the extent of the potential impact
of climate change risk on the Group's financial statements and the Group's
preparedness for this.
We have performed a risk assessment of how the impact of climate change may
affect the financial statements and our audit, in particular with respect to
investment holdings, in particular level 3 investments. We consider that the
impact of climate risk on level 1 and level 2 investments is already reflected
in the market prices used to value these holdings at year end; taking into
account the relative size of the level 3 investments balance , we assessed
that the impact of climate change was not a significant risk for our audit nor
does it constitute a key audit matter. We held discussions with our own
climate change professionals to challenge our risk assessment. We have also
read the Group's disclosure of climate related information in the front half
of the annual report as set out on pages 32 to 37, and considered consistency
with the financial statements and our audit knowledge.
We have not been engaged to provide assurance over the accuracy of these
disclosures.
5. Going concern
The Directors have prepared the financial statements on the going concern
basis as they do not intend to liquidate the Group or the Company or to cease
their operations, and as they have concluded that the Group's and the
Company's financial position means that this is realistic. They have also
concluded that there are no material uncertainties that could have cast
significant doubt over their ability to continue as a going concern for at
least a year from the date of approval of the financial statements ("the going
concern period").
We used our knowledge of the Group, its industry and operating model, and the
general economic environment to identify the inherent risks to its business
model and analysed how those risks might affect the Group' and Company's
financial resources or ability to continue operations over the going concern
period. The risk that we considered most likely to adversely affect the
Group's and Company's available financial resources over this period was
market volatility, including any associated with COVID-19.
We considered whether these risks could plausibly affect the liquidity in the
going concern period by assessing the degree of downside assumption that,
individually and collectively, could result in a liquidity issue, taking into
account the Group's and Company's current and projected cash and facilities (a
reverse stress test).
We also assessed the completeness of the going concern disclosure.
Our conclusions based on this work:
- we consider that the directors' use of the going concern basis of
accounting in the preparation of the financial statements is appropriate;
- we have not identified, and concur with the directors' assessment that
there is not, a material uncertainty related to events or conditions that,
individually or collectively, may cast significant doubt on the Group's or
Company's ability to continue as a going concern for the going concern period;
- we have nothing material to add or draw attention to in relation to
the directors' statement in Note (a)(vi) to the financial statements on the
use of the going concern basis of accounting with no material uncertainties
that may cast significant doubt over the Group and Company's use of that basis
for the going concern period, and we found the going concern disclosure in
note (a)(vi) to be acceptable; and
- the related statement under the Listing Rules set out on page 122 is
materially consistent with the financial statements and our audit knowledge.
However, as we cannot predict all future events or conditions and as
subsequent events may result in outcomes that are inconsistent with judgements
that were reasonable at the time they were made, the above conclusions are not
a guarantee that the Group or the Company will continue in operation.
6. Fraud and breaches of laws and regulations - ability to detect
Identifying and responding to risks of material misstatement due to fraud
To identify risks of material misstatement due to fraud ("fraud risks") we
assessed events or conditions that could indicate an incentive or pressure to
commit fraud or provide an opportunity to commit fraud. Our risk assessment
procedures included:
- Enquiring of directors, the Group Audit Committee, Group Internal
Audit and the Group's Legal team and inspection of policy documentation as to
the Group's high-level policies and procedures to prevent and detect fraud,
including the internal audit function, and the Group's channel for
'whistleblowing', as well as whether they have knowledge of any actual,
suspected or alleged fraud.
- Reading Board minutes and attending Group Audit Committee and Risk and
Compliance Committee meetings.
- Considering the findings of Group Internal Audit's reviews in the
period.
- Considering remuneration incentive schemes and performance targets for
management and directors.
We communicated identified fraud risks throughout the audit team and remained
alert to any indications of fraud throughout the audit. This included
communication from the group to full scope component audit teams of relevant
fraud risks identified at the Group level and request to full scope component
audit teams to report to the Group audit team any instances of fraud that
could give rise to a material misstatement at the Group level.
As required by auditing standards, and taking into account possible pressures
to meet profit targets and our overall knowledge of the control environment,
we perform procedures to address the risk of management override of controls,
in particular the risk that Group and component management may be in a
position to make inappropriate accounting entries and the risk of bias in
accounting estimates and judgements such as impairment and pension
assumptions.
On this audit we do not believe there is a fraud risk related to revenue
recognition, given the relative simplicity of the most significant revenue
streams and the separation of duties between management and third party
service providers.
We did not identify any additional fraud risks.
We performed procedures including:
- Identifying journal entries and other adjustments to test for all full
scope components based on risk criteria and comparing the identified entries
to supporting documentation. These included those posted by senior finance
management and those posted to unusual accounts, as well as those which
comprised unexpected posting combinations.
- Evaluated the business purpose of significant unusual transactions.
- Assessing significant accounting estimates for bias, including whether
the judgements made in making accounting estimates are indicative of a
potential bias.
Identifying and responding to risks of material misstatement related to compliance with laws and regulations
We identified areas of laws and regulations that could reasonably be expected
to have a material effect on the financial statements from our general
commercial and sector experience, through discussion with the directors and
other management (as required by auditing standards), and from inspection of
the Group's regulatory and legal correspondence and discussed with the
directors and other management the policies and procedures regarding
compliance with laws and regulations.
As the Group is regulated, our assessment of risks involved gaining an
understanding of the control environment including the entity's procedures for
complying with regulatory requirements, how they analyse identified breaches
and assessing whether there were any implications of identified breaches on
our audit.
We communicated identified laws and regulations throughout our team and
remained alert to any indications of non-compliance throughout the audit. This
included communication from the group to full scope component audit teams of
relevant laws and regulations identified at the Group level, and a request for
full scope component auditors to report to the Group audit team any instances
of non-compliance with laws and regulations that could give rise to a material
misstatement at the Group level.
The potential effect of these laws and regulations on the financial statements
varies considerably.
Firstly, the Group is subject to laws and regulations that directly affect the
financial statements including financial reporting legislation (including
related companies legislation), distributable profits legislation, taxation
legislation and pensions regulations and we assessed the extent of compliance
with these laws and regulations as part of our procedures on the related
financial statement items.
Secondly, the Group is subject to many other laws and regulations where the
consequences of non-compliance could have a material effect on amounts or
disclosures in the financial statements, for instance through the imposition
of fines or litigation. We identified the following areas as those most likely
to have such an effect: specific areas of regulatory capital and liquidity,
conduct including Client Assets, anti-money laundering, and market abuse
regulations and certain aspects of company legislation recognising the
financial and regulated nature of the Group's activities and its legal form.
Auditing standards limit the required audit procedures to identify
non-compliance with these laws and regulations to enquiry of the directors and
other management and inspection of regulatory and legal correspondence, if
any. Therefore if a breach of operational regulations is not disclosed to us
or evident from relevant correspondence, an audit will not detect that breach.
We discussed with the audit committee matters related to actual or suspected
breaches of laws or regulations, for which disclosure is not necessary, and
considered any implications for our audit.
We assessed the disclosure of provisions in Note 36 and contingent liabilities
in Note 41 in light of our understanding gained through the procedures above.
Context of the ability of the audit to detect fraud or breaches of law or regulation
Owing to the inherent limitations of an audit, there is an unavoidable risk
that we may not have detected some material misstatements in the financial
statements, even though we have properly planned and performed our audit in
accordance with auditing standards. For example, the further removed
non-compliance with laws and regulations is from the events and transactions
reflected in the financial statements, the less likely the inherently limited
procedures required by auditing standards would identify it.
In addition, as with any audit, there remained a higher risk of non-detection
of fraud, as these may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal controls. Our audit procedures
are designed to detect material misstatement. We are not responsible for
preventing non-compliance or fraud and cannot be expected to detect
non-compliance with all laws and regulations.
7. We have nothing to report on the other information in the Annual Report and Accounts
The directors are responsible for the other information presented in the
Annual Report together with the financial statements. Our opinion on the
financial statements does not cover the other information and, accordingly, we
do not express an audit opinion or, except as explicitly stated below, any
form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider
whether, based on our financial statements audit work, the information therein
is materially misstated or inconsistent with the financial statements or our
audit knowledge. Based solely on that work we have not identified material
misstatements in the other information.
Strategic report and directors' report
Based solely on our work on the other information:
- we have not identified material misstatements in the Strategic report
and the Directors' report;
- in our opinion the information given in those reports for the
financial year is consistent with the financial statements; and
- in our opinion those reports have been prepared in accordance with the
Companies Act 2006.
Directors' remuneration report
In our opinion the part of the Directors' Remuneration Report to be audited
has been properly prepared in accordance with the Companies Act 2006.
Disclosures of emerging and principal risks and longer-term viability
We are required to perform procedures to identify whether there is a material
inconsistency between the directors' disclosures in respect of emerging and
principal risks and the viability statement, and the financial statements and
our audit knowledge.
Based on those procedures, we have nothing material to add or draw attention
to in relation to:
- the directors' confirmation within the Viability Statement and Risk
Management report that they have carried out a robust assessment of the
emerging and principal risks facing the Group, including those that would
threaten its business model, future performance, solvency and liquidity;
- the Emerging and Principal Risks disclosures describing these risks
and how emerging risks are identified, and explaining how they are being
managed and mitigated; and
- the directors' explanation in the Viability Statement of how they have
assessed the prospects of the Group, over what period they have done so and
why they considered that period to be appropriate, and their statement as to
whether they have a reasonable expectation that the Group will be able to
continue in operation and meet its liabilities as they fall due over the
period of their assessment, including any related disclosures drawing
attention to any necessary qualifications or assumptions.
We are also required to review the Viability Statement, set out on page 59
under the Listing Rules. Based on the above procedures, we have concluded that
the above disclosures are materially consistent with the financial statements
and our audit knowledge.
Our work is limited to assessing these matters in the context of only the
knowledge acquired during our financial statements audit. As we cannot predict
all future events or conditions and as subsequent events may result in
outcomes that are inconsistent with judgements that were reasonable at the
time they were made, the absence of anything to report on these statements is
not a guarantee as to the Group's and Company's longer-term viability.
Corporate governance disclosures
We are required to perform procedures to identify whether there is a material
inconsistency between the directors' corporate governance disclosures and the
financial statements and our audit knowledge.
Based on those procedures, we have concluded that each of the following is
materially consistent with the financial statements and our audit knowledge:
- the directors' statement that they consider that the annual report and
financial statements taken as a whole is fair, balanced and understandable,
and provides the information necessary for shareholders to assess the Group's
position and performance, business model and strategy;
- the section of the annual report describing the work of the Audit
Committee, including the significant issues that the audit committee
considered in relation to the financial statements, and how these issues were
addressed; and
- the section of the annual report that describes the review of the
effectiveness of the Group's risk management and internal control systems.
We are required to review the part of Corporate Governance Statement relating
to the Group's compliance with the provisions of the UK Corporate Governance
Code specified by the Listing Rules for our review. We have nothing to report
in this respect.
8. We have nothing to report on the other matters on which we are required to report by exception
Under the Companies Act 2006, we are required to report to you if, in our
opinion:
- Adequate accounting records have not been kept by the parent Company,
or returns adequate for our audit have not been received from branches not
visited by us.
- The parent Company financial statements and the part of the Directors'
Remuneration Report to be audited are not in agreement with the accounting
records and returns.
- Certain disclosures of directors' remuneration specified by law are
not made.
- We have not received all the information and explanations we require
for our audit.
We have nothing to report in these respects.
9. Respective responsibilities
Directors' responsibilities
As explained more fully in their statement set out on page 123, the directors
are responsible for: the preparation of the financial statements including
being satisfied that they give a true and fair view; such internal control as
they determine is necessary to enable the preparation of financial statements
that are free from material misstatement, whether due to fraud or error;
assessing the Group and parent Company's ability to continue as a going
concern, disclosing, as applicable, matters related to going concern; and
using the going concern basis of accounting unless they either intend to
liquidate the Group or the parent Company or to cease operations, or have no
realistic alternative but to do so.
Auditor's responsibilities
Our objectives are to obtain reasonable assurance about whether the financial
statements as a whole are free from material misstatement, whether due to
fraud or error, and to issue our opinion in an auditor's report. Reasonable
assurance is a high level of assurance, but does not guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and
are considered material if, individually or in aggregate, they could
reasonably be expected to influence the economic decisions of users taken on
the basis of the financial statements.
A fuller description of our responsibilities is provided on the FRC's website
at www.frc.org.uk/auditorsresponsibilities
(http://www.frc.org.uk/auditorsresponsibilities)
10. The purpose of our audit work and to whom we owe our responsibilities
This report is made solely to the Company's members, as a body, in accordance
with Chapter 3 of Part 16 of the Companies Act 2006 and the terms of our
engagement by the company. Our audit work has been undertaken so that we might
state to the Company's members those matters we are required to state to them
in an auditor's report, and the further matters we are required to state to
them in accordance with the terms agreed with the company, 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 and the Company's members, as
a body, for our audit work, for this report, or for the opinions we have
formed.
Jonathan Mills (Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
Saltire Court
20 Castle Terrace
Edinburgh
EH1 2EG
28 February 2022
7. Group financial statements
Consolidated income statement
For the year ended 31 December 2021
2021 2020(1)
Notes £m £m
Revenue from contracts with customers 3 1,685 1,527
Cost of sales 3 (142) (104)
Net operating revenue 1,543 1,423
Restructuring and corporate transaction expenses 5 (259) (316)
Impairment of goodwill - asset management 5 - (915)
Amortisation and impairment of other intangibles acquired in business 5 (99) (265)
combinations and through the purchase of customer contracts
Staff costs and other employee-related costs 5 (604) (625)
Other administrative expenses 5 (594) (595)
Total administrative and other expenses (1,556) (2,716)
Net gains on financial instruments and other income
Fair value movements and dividend income on significant listed investments 4 (227) 65
Other net gains on financial instruments and other income 4 44 81
Total net gains on financial instruments and other income (183) 146
Finance costs (30) (30)
Profit on disposal of subsidiaries and other operations 1 127 8
Profit on disposal of interests in associates 1 1,236 1,858
Loss on impairment of interests in joint ventures 15 - (45)
Share of profit or loss from associates and joint ventures 15 (22) 194
Profit before tax from continuing operations 1,115 838
Tax (expense)/credit attributable to continuing operations 9 (120) 15
Profit for the year from continuing operations 995 853
Loss for the year from discontinued operations 10 - (15)
Profit for the year 995 838
Attributable to:
Equity shareholders of abrdn plc
From continuing operations 994 848
From discontinued operations - (15)
Equity shareholders of abrdn plc 994 833
Non-controlling interests
From continuing operations - ordinary shares 29 1 -
From continuing operations - preference shares 29 - 5
995 838
Earnings per share from continuing operations
Basic (pence per share) 11 46.8 38.5
Diluted (pence per share) 11 46.0 37.9
Earnings per share
Basic (pence per share) 11 46.8 37.8
Diluted (pence per share) 11 46.0 37.2
1. The Group has made changes to the presentation of the consolidated income
statement in 2021. Refer Section (a)(iii) of the Basis of Preparation for
further details.
The Notes on pages 143 to 251 are an integral part of these consolidated
financial statements.
Consolidated statement of comprehensive income
For the year ended 31 December 2021
2021 2020
Notes £m £m
Profit for the year 995 838
Less: loss from discontinued operations 10 - 15
Profit from continuing operations 995 853
Items that will not be reclassified subsequently to profit or loss:
Remeasurement gains on defined benefit pension plans 33 117 280
Share of other comprehensive income of associates and joint ventures 15 12 (13)
Equity holder tax effect of items that will not be reclassified subsequently 9 3 2
to profit or loss
Total items that will not be reclassified subsequently to profit or loss 132 269
Items that may be reclassified subsequently to profit or loss:
Fair value gains/(losses) on cash flow hedges 19 19 (3)
Exchange differences on translating foreign operations (2) (8)
Share of other comprehensive income of associates and joint ventures 15 (4) 13
Items transferred to the consolidated income statement
Fair value (gains)/losses on cash flow hedges 19 (10) 13
Realised foreign exchange losses 1 18 6
Share of other comprehensive income of associates and joint ventures 1 (9) -
Equity holder tax effect of items that may be reclassified subsequently to 9 (3) (2)
profit or loss
Total items that may be reclassified subsequently to profit or loss 9 19
Other comprehensive income for the year from continuing operations 141 288
Total comprehensive income for the year from continuing operations 1,136 1,141
Loss from discontinued operations 10 - (15)
Total comprehensive income for the year from discontinued operations - (15)
Total comprehensive income for the year 1,136 1,126
Attributable to:
Equity shareholders of abrdn plc
From continuing operations 1,135 1,136
From discontinued operations - (15)
Non-controlling interests
From continuing operations - ordinary shares 1 -
From continuing operations -- preference shares - 5
1,136 1,126
The Notes on pages 143 to 251 are an integral part of these consolidated
financial statements.
Consolidated statement of financial position
As at 31 December 2021
2021 2020
Notes £m £m
Assets
Intangible assets 14 704 501
Pension and other post-retirement benefit assets 33 1,607 1,474
Investments in associates and joint ventures accounted for using the equity 15 274 1,371
method
Property, plant and equipment 16 187 236
Deferred tax assets 9 168 131
Financial investments 18 4,316 3,110
Receivables and other financial assets 18 680 621
Current tax recoverable 9 2 9
Other assets 21 105 46
Assets held for sale 22 - 19
Cash and cash equivalents 18 1,904 1,519
9,947 9,037
Assets backing unit linked liabilities 24
Financial investments 1,430 1,395
Receivables and other unit linked assets 8 8
Cash and cash equivalents 33 38
1,471 1,441
Total assets 11,418 10,478
The Notes on pages 143 to 251 are an integral part of these consolidated
financial statements.
2021 2020
Notes £m £m
Liabilities
Third party interest in consolidated funds 31 104 77
Subordinated liabilities 31 644 638
Pension and other post-retirement benefit provisions 33 38 55
Deferred income 34 5 73
Deferred tax liabilities 9 165 66
Current tax liabilities 9 27 15
Derivative financial liabilities 31 5 13
Other financial liabilities 31 1,046 1,177
Provisions 36 49 93
Other liabilities 36 8 6
Liabilities of operations held for sale 22 - 11
2,091 2,224
Unit linked liabilities 24
Investment contract liabilities 1,088 1,042
Third party interest in consolidated funds 378 388
Other unit linked liabilities 5 11
1,471 1,441
Total liabilities 3,562 3,665
Equity
Share capital 25 305 306
Shares held by trusts 26 (171) (170)
Share premium reserve 25 640 640
Retained earnings 27 5,775 4,970
Other reserves 28 1,094 1,064
Equity attributable to equity shareholders of abrdn plc 7,643 6,810
Other equity 29 207 -
Non-controlling interests
Ordinary shares 29 6 3
Total equity 7,856 6,813
Total equity and liabilities 11,418 10,478
The Notes on pages 143 to 251 are an integral part of these consolidated
financial statements.
The consolidated financial statements on pages 136 to 251 were approved by the
Board and signed on its behalf by the following Directors:
Sir Douglas Flint Stephanie Bruce
Chairman Chief Financial Officer
28 February 2022 28 February 2022
Consolidated statement of changes in equity
For the year ended 31 December 2021
Share capital Shares held by trusts Share premium reserve Retained earnings Other reserves Total equity attributable Other equity Non-controlling interests - ordinary shares Total equity
to equity
shareholders of abrdn plc
Notes £m £m £m £m £m £m £m £m £m
1 January 2021 306 (170) 640 4,970 1,064 6,810 - 3 6,813
Profit for the year from continuing operations - - - 994 - 994 - 1 995
Other comprehensive income for the year from continuing operations - - - 119 22 141 - - 141
Total comprehensive income for the year 27,28 - - - 1,113 22 1,135 - 1 1,136
Issue of share capital 25 - - - - - - - - -
Issue of other equity 29 - - - - - - 207 - 207
Dividends paid on ordinary shares 13 - - - (308) - (308) - - (308)
Share buyback 25,28 (1) - - - 1 - - - -
Other movements in non-controlling interests in the year 29 - - - 6 - 6 - 2 8
Reserves credit for employee share-based payments 28 - - - - 43 43 - - 43
Transfer to retained earnings for vested employee share-based payments 27,28 - - - 36 (36) - - - -
Shares acquired by employee trusts - (41) - - - (41) - - (41)
Shares distributed by employee and other trusts and related dividend 27 - 40 - (42) - (2) - - (2)
equivalents
Aggregate tax effect of items recognised directly in equity 9 - - - - - - - - -
31 December 2021 305 (171) 640 5,775 1,094 7,643 207 6 7,856
Non-controlling interests
Share capital Shares held by trusts Share premium reserve Retained earnings Other reserves Total equity attributable Ordinary shares Preference shares Total equity
to equity shareholders of abrdn plc
Notes £m £m £m £m £m £m £m £m £m
1 January 2020 327 (134) 640 2,886 2,845 6,564 3 99 6,666
Profit for the year from continuing operations - - - 848 - 848 - 5 853
Loss for the year from discontinued operations - - - (15) - (15) - - (15)
Other comprehensive income for the year from continuing operations - - - 282 6 288 - - 288
Other comprehensive income for the year from discontinued operations - - - - - - - - -
Total comprehensive income for the year 27,28 - - - 1,115 6 1,121 - 5 1,126
Issue of share capital 25 - - - - - - - - -
Dividends paid on ordinary shares 13 - - - (479) - (479) - - (479)
Dividends paid on preference shares 29,32 - - - - - - - (3) (3)
Reclassification of preference shares to liability 29,32 - - - (1) - (1) - (101) (102)
Share buyback 25,28 (21) - - (402) 21 (402) - - (402)
Reserves credit for employee share-based payments 28 - - - - 64 64 - - 64
Transfer to retained earnings for vested employee share-based payments 27,28 - - - 38 (38) - - - -
Transfer between reserves on impairment of subsidiaries 27,28 - - - 1,834 (1,834) - - - -
Shares acquired by employee trusts - (54) - - - (54) - - (54)
Shares distributed by employee and other trusts and related dividend 27 - 18 - (21) - (3) - - (3)
equivalents
31 December 2020 306 (170) 640 4,970 1,064 6,810 3 - 6,813
The Notes on pages 143 to 251 are an integral part of these consolidated
financial statements.
Consolidated statement of cash flows
For the year ended 31 December 2021
2021 2020
Notes £m £m
Cash flows from operating activities
Profit before tax from continuing operations 1,115 838
Loss before tax from discontinued operations 10 - (15)
1,115 823
Change in operating assets 40 214 817
Change in operating liabilities 40 (209) (991)
Adjustment for non-cash movements in investment income - 6
Other non-cash and non-operating items 40 (1,099) (646)
Dividends received from associates and joint ventures 15 15 80
Taxation paid(1) (22) (33)
Net cash flows from operating activities 14 56
Cash flows from investing activities
Purchase of property, plant and equipment 16 (12) (13)
Acquisition of subsidiaries and unincorporated businesses net of cash acquired 1(b) (145) -
Disposal of subsidiaries net of cash disposed of 40 112 (8)
Acquisition of investments in associates and joint ventures 15 (11) (5)
Proceeds in relation to contingent consideration 39 54 3
Payments in relation to contingent consideration 39 (28) (48)
Disposal of investments in associates and joint ventures 1 304 914
Taxation paid on disposal of investments in associates and joint ventures(1) (33) (33)
Purchase of financial investments (368) (521)
Proceeds from sale or redemption of financial investments 938 737
Prepayment in respect of potential acquisition of customer contracts 1(c)(iii) (56) -
Acquisition of intangible assets - (12)
Net cash flows from investing activities 755 1,014
Cash flows from financing activities
Proceeds from issue of perpetual subordinated notes 208 -
Repayment of preference shares - (100)
Payment of lease liabilities - principal (27) (29)
Payment of lease liabilities - interest (6) (6)
Shares acquired by trusts (41) (54)
Interest paid (28) (30)
Share buyback 25 (41) (361)
Preference dividends paid - (5)
Ordinary dividends paid 13 (308) (479)
Net cash flows from financing activities (243) (1,064)
Net increase in cash and cash equivalents 526 6
Cash and cash equivalents at the beginning of the year 1,358 1,347
Effects of exchange rate changes on cash and cash equivalents (9) 5
Cash and cash equivalents at the end of the year 23 1,875 1,358
Supplemental disclosures on cash flows from operating activities
Interest paid 1 2
Interest received 22 30
Dividends received 122 122
Rental income received on investment property 2 3
1. Total taxation paid was £55m in 2021 (2020: £66m).
The Notes on pages 143 to 251 are an integral part of these consolidated
financial statements.
Presentation of consolidated financial statements
The Group's significant accounting policies are included at the beginning of
the relevant notes to the consolidated financial statements. This section sets
out the basis of preparation, a summary of the Group's critical accounting
estimates and judgements in applying accounting policies, and other
significant accounting policies which have been applied to the financial
statements as a whole.
(a) Basis of preparation
These consolidated financial statements have been prepared in accordance with
UK-adopted international accounting standards. The consolidated financial
statements have been prepared on a going concern basis and under the
historical cost convention, as modified by the revaluation of owner occupied
property, derivative instruments and other financial assets and financial
liabilities at fair value through profit or loss (FVTPL).
The principal accounting policies set out in these consolidated financial
statements have been consistently applied to all financial reporting periods
presented except as described below.
(a)(i) New standards, interpretations and amendments to existing standards that have been adopted by the Group
The Group has adopted the following new International Financial Reporting
Standards (IFRSs), interpretations and amendments to existing standards, which
are effective by EU endorsement for annual periods beginning on or after 1
June 2020 and 1 January 2021.
Amendments to existing standards
- Amendments to IFRS 16 COVID-19-related rent concessions.
- Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 Interest rate
benchmark reform - phase 2.
The Group's accounting policies have been updated to reflect these amendments.
Management considers the implementation of the above amendments to existing
standards has had no significant impact on the Group's financial statements.
(a)(ii) Standards, interpretations and amendments to existing standards that are not yet effective and have not been early adopted by the Group
Certain new standards, interpretations and amendments to existing standards
have been published that are mandatory for the Group's annual accounting
periods beginning after 1 January 2021. The Group has not early adopted the
standards, amendments and interpretations described below:
IFRS 17 Insurance Contracts (effective for annual periods beginning on or after 1 January 2023)
IFRS 17 was issued in May 2017 and will replace IFRS 4 Insurance Contracts.
IFRS 4 is an interim standard which permits the continued application of
accounting policies, for insurance contracts and contracts with discretionary
participation features, which were being used at transition to IFRS except
where a change satisfies criteria set out in IFRS 4. IFRS 17 introduces new
required measurement and presentation accounting policies for such contracts
which reflect the view that these contracts combine features of a financial
instrument and a service contract.
IFRS 17's measurement model, which applies to groups of contracts, combines a
risk-adjusted present value of future cash flows and an amount representing
unearned profit. On transition retrospective application is required unless
impracticable, in which case either a modified retrospective approach or a
fair value approach is required. IFRS 17 introduces a new approach to
presentation in the income statement and statement of comprehensive income.
The Group has no direct exposure to insurance contracts and contracts with
discretionary participating features which will be impacted by the adoption of
IFRS 17. However, the results of the Group's joint venture, Heng An Standard
Life Insurance Company Limited (HASL), are expected to be impacted by IFRS 17.
The standard has not yet been endorsed by the UK Endorsement Board.
Other
There are no other new standards, interpretations and amendments to existing
standards that have been published that are expected to have a significant
impact on the consolidated financial statements of the Group.
(a)(iii) Income statement presentational change
The presentation of the Group's consolidated income statement has been revised
in 2021 following a review of the financial statements. The reason for the
change is to make the financial statements more relevant to users as the
consolidated income statement is now more consistent with asset management
peers. The change includes a revised presentation relating to unit linked
business returns which we consider makes the results easier to understand.
The table below sets out the impact of adopting the revised income statement
format:
2020 as previously presented Presentation changes 2020 revised format
£m £m £m Notes
Income
Investment return 163 (163) - b
Revenue from contracts with customers 1,527 - 1,527
Cost of sales - (104) (104) a
Net operating revenue 1,423 a
Insurance contract premium income 31 (31) - b
Profit on disposal of interests in associates 1,858 (1,858) - e
Other income 30 (30) - b
Total income from continuing operations 3,609 -
Expenses
Insurance contracts claims and change in liabilities (17) 17 - b
Change in non-participating investment contract liabilities (56) 56 - b
Administrative and other expenses
Restructuring and corporate transaction expenses (297) (19) (316) d
Impairment of goodwill - asset management (915) - (915)
Amortisation and impairment of other intangibles acquired in business - (265) (265) c
combinations and through the purchase of customer contracts
Staff costs and other employee-related costs - (625) (625) c
Other administrative expenses (1,608) 1,013 (595) c
Total administrative and other expenses (2,820) (2,716)
Net gains on financial instruments and other income
Fair value movements and dividend income on significant listed investments - 65 65 b
Other net gains on financial instruments and other income - 81 81 b
Total net gains on financial instruments and other income - 146 146 b
Change in liability for third party interest in consolidated funds 3 (3) - b
Finance costs (30) - (30)
Total expenses from continuing operations (2,920)
Profit on disposal of subsidiaries and other operations - 8 8 f
Profit on disposal of interests in associates - 1,858 1,858 e
Loss on impairment of interests in joint ventures (45) - (45)
Share of profit or loss from associates and joint ventures 194 - 194
Profit before tax from continuing operations 838 838
Note a: A new income statement line Net operating revenue has been presented
(2020: £1,423m). Net operating revenue is the net of revenue from contracts
with customers and cost of sales. Cost of sales includes commission expenses
and other cost of sales which were previously presented within other
administrative expenses.
Note b: A new income statement line of Net gains on financial instruments and
other income has also been presented (2020: £146m). This combines a number of
line items previously shown separately on the face of the income statement
with a more detailed breakdown disclosed in Note 4 of the financial
statements.
Given the significance of the Fair value movements and dividend income on
significant listed investments, these have been disclosed separately from
Other net gains on financial instruments and other income on the face of the
consolidated income statement.
The table below reconciles Net gains on financial instruments and other income
to previous line items:
31 December 2020 £m
Income items previously disclosed on the face of the consolidated income
statement
Investment return 163
Insurance contract premium income 31
Other income 30
Total income items previously disclosed on the face of the consolidated income 224
statement
Expense items previously disclosed on the face of the consolidated income
statement
Insurance contract claims and change in liabilities (17)
Change in non-participating investment contract liabilities (56)
Change in liability for third party interest in consolidated funds 3
Total expense items previously disclosed on the face of the consolidated (70)
income statement
Total net gains on financial instruments and other income before 154
reclassifications
Less: Other income now separately disclosed as Profit on disposal of (8)
subsidiaries and other operations
Total net gains on financial instruments and other income after 146
reclassifications
Split as:
Fair value movements and dividend income on significant listed investments 65
Net gains on financial instruments and other income from continuing operations 72
- non-unit linked business - excluding significant listed investments
Net gains on financial instruments and other income from continuing operations 9
- unit linked business
Total other net gains on financial instruments and other income 81
Total net gains on financial instruments and other income 146
The expense items included in the table above relate to unit linked business.
We consider that offsetting the net gains/losses on unit linked financial
assets (included in investment return in the table above) and the net
gains/losses on unit linked financial liabilities (included in change in
non-participating investment contract liabilities in the table above) on the
face of the consolidated income statement reflects the substance of the
transactions, as changes in the value of the unit linked assets results in
corresponding changes in the value of unit linked liabilities with no net
impact on profit after tax (refer Note 24(a)).
Profit on disposal of subsidiaries and other operations has been shown
separately in 2021 due to materiality and therefore the 2020 balance has been
reclassified from other income.
Note c: Presentational changes have also been made to administrative and other
expenses. The following table reconciles other administrative expenses as
previously presented at 31 December 2020 to the re-presented 2020 other
administrative expenses.
31 December 2020 £m
Other administrative expenses as previously presented 1,608
Less:
Cost of sales now included in net operating revenue (see Note a above) (104)
Staff costs and other employee-related costs now presented separately in the (625)
consolidated income statement
Amortisation and impairment of other intangibles acquired in business (265)
combinations and through the purchase of customer contracts now presented
separately in the consolidated income statement
Other administrative expenses reclassified to restructuring and corporate (19)
transaction expenses (see Note d below)
Re-presented other administrative expenses 595
Note d: Restructuring and corporate transaction expenses was already
separately presented but, as shown above, we have reclassified £19m of 2020
other administrative expenses to restructuring and corporate transaction
expenses:
31 December 2020 £m
Restructuring and corporate transaction expenses as previously presented 297
Add: Impairment of internally developed software and right-of-use assets as a 19
result of restructuring
Re-presented restructuring and corporate transaction expenses 316
This additional element of restructuring costs was disclosed in the Note 9 of
the prior year Group financial statements, but has now been included on the
face of the consolidated income statement.
Note e: The Profit on disposal of interests in associates line item(2020:
£1,858m) is unchanged, but is now presented with the Profit on disposal of
subsidiaries and other operations and the other income statement items
relating to associates and joints ventures, namely Loss on impairment of joint
ventures and Share of profit or loss from associates and joint ventures.
Note f: As described in Note b above, Profit on disposal of subsidiaries and
other operations (2020: £8m) which was previously included in other income is
now separately disclosed on the face of the consolidated income statement.
(a)(iv) Critical accounting estimates and judgements in applying accounting policies
The preparation of financial statements requires management to exercise
judgements in applying accounting policies and make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses arising
during the year. Judgements and sources of estimation uncertainty are
continually evaluated and based on historical experience and other factors,
including expectations of future events that are believed to be reasonable
under the circumstances.
The areas where judgements have the most significant effect on the amounts
recognised in the consolidated financial statements are as follows:
Financial statement area Critical judgements in applying accounting policies Related note
Defined benefit pension plans Assessment of whether the Group has an unconditional right to a refund of the Note 33
surplus.
Treatment of tax relating to the surplus.
Investments in associates Determining whether the investments in Phoenix and HDFC Asset Management Note 15
should continue to be classified as associates.
Identification, valuation and determination of useful lives for equity
accounting purposes, of the Group's share of its associate's intangible assets
at the date of acquisition of an investment in the associate.
Intangible assets Identification and valuation of intangible assets arising from business Note 14
combinations and the determination of useful lives .
Provisions Determining whether a provision is required for separation costs. Note 36
The following change has been made to the Group's critical judgements:
- As a result of the partial sale of HDFC Asset Management (refer Note
1(c)(iii) for further details), determining whether the investment in HDFC
Asset Management should continue to be classified as an associate is a
critical judgement in the year ended 31 December 2021. Determining whether the
investment in HDFC Life should be classified as an associate is no longer
considered a critical judgement following its reclassification in the year
ended 31 December 2020 (refer Note 1(c)(iv) for further details).
There are no other changes to critical judgements in applying accounting
policies from the prior year.
The areas where assumptions and other sources of estimation uncertainty at the
end of the reporting period have a significant risk of resulting in a material
adjustment to the carrying amounts of assets and liabilities within the next
financial year are as follows:
Financial statement area Critical accounting estimates and assumptions Related note
Financial instruments at fair value through profit or loss Determination of the fair value of contingent consideration Notes 35 and 39
liabilities relating to the acquisition of Tritax
Defined benefit pension plans Determination of principal UK pension plan assumptions for mortality, discount Note 33
rate and inflation
The following changes have been made to the Group's critical estimates and
assumptions:
- As a result of the acquisition of Tritax in 2021 (refer Note 1(b)(i) for
further details), the determination of the fair value of related contingent
consideration liabilities is considered a critical area of estimation
uncertainty.
- The determination of the recoverable amount in relation to the
impairment assessment of investments in associates
is no longer considered to be a critical area of estimation uncertainty
following the reclassification of Phoenix
(refer Note 1(c)(iii) for further details).
- The determination of the recoverable amount in relation to the
impairment assessment of the segregated and similar customer relationship
intangible asset is no longer considered a source of estimation uncertainty at
the end of the reporting period as a result of amortisation and market
movements.
All other critical accounting estimates and assumptions are the same as the
prior year.
Further detail on critical accounting estimates and assumptions is provided in
the relevant note
(a)(v) Foreign currency translation
The consolidated financial statements are presented in million pounds
Sterling.
The statements of financial position of Group entities, including associates
and joint ventures accounted for using the equity method, that have a
different functional currency than the Group's presentation currency are
translated into the presentation currency at the year end exchange rate and
their income statements and cash flows are translated at average exchange
rates for the year. All resulting exchange differences arising are recognised
in other comprehensive income and the foreign currency translation reserve in
equity. On disposal of a Group entity the cumulative amount of any such
exchange differences recognised in other comprehensive income is reclassified
to profit or loss.
Foreign currency transactions are translated into the functional currency at
the exchange rate prevailing at the date of the transaction. Gains and losses
arising from such transactions and from the translation at year end exchange
rates of monetary assets and liabilities denominated in foreign currencies are
recognised in the relevant line in the consolidated income statement.
Translation differences on non-monetary items, such as equity securities held
at fair value through profit or loss, are reported as part of the fair value
gain or loss within Net gains on financial instruments and other income in the
consolidated income statement. Translation differences on financial assets and
liabilities held at amortised cost are included in the relevant line in the
consolidated income statement.
The income statements and cash flows, and statements of financial position of
Group entities that have a different functional currency from the Group's
presentation currency have been translated using the following principal
exchange rates:
2021 2020
Income statement and cash flows (average rate) Statement of financial position (closing rate) Income statement and cash flows (average rate) Statement of financial position (closing rate)
Euro 1.166 1.191 1.127 1.117
US Dollar 1.375 1.355 1.292 1.367
Indian Rupee 101.471 100.685 95.602 99.880
Chinese Renminbi 8.858 8.632 8.905 8.940
Hong Kong Dollar 10.690 10.560 10.024 10.599
Singapore Dollar 1.847 1.826 1.778 1.807
(a)(vi) Going concern
The Group's business activities, together with the factors likely to affect
its future development, performance and financial position, are set out in the
Strategic report. This includes details on our liquidity and capital
management and our viability statement in the Chief Financial Officer's
overview section and our principal risks in the Risk management section
including the impact of COVID-19 on these principal risks. In addition, these
financial statements include notes on the Group's subordinated liabilities
(Note 32), management of its risks including market, credit and liquidity risk
(Note 37), its contingent liabilities and commitments (Notes 41 and 42), and
its capital structure and position (Note 45).
In preparing these financial statements on a going concern basis, the
Directors have considered the following matters and have taken into account
the uncertainty created by COVID-19.
- The fundamental basis of our business has not been impacted by COVID-19.
We consider that COVID-19 will accelerate the key global trends already
underway in our industry and already factored into our strategy which are
discussed further in the Strategic report on pages 16 and 17, and that the
Group is well placed to manage its business risks successfully.
- The Group has robust cash and liquid resources of £3.1bn at 31 December
2021. In addition the Company has a revolving credit facility of £400m as
part of our contingency funding plans which is due to mature in 2025 and
remains undrawn.
- The Group's indicative regulatory capital surplus on an IFPR basis was
£1.8bn in excess of capital requirements at
31 December 2021. The regulatory capital surplus does not include the value of
the Group's significant listed investments HDFC Asset Management, HDFC Life
and Phoenix.
- The Group performs regular stress and scenario analysis as described in
the Annual report and accounts 2021 Viability statement. The market stresses
considered in these analyses are considerably more severe than experienced as
a result of COVID-19, and the diverse range of management actions available
meant the Group was able to withstand these extreme stresses.
- The Group's operational resilience processes have operated effectively
during the period including the provision of services by key outsource
providers. We have put in place additional processes to monitor key outsource
providers during this remote working environment.
Based on a review of the above factors the Directors are satisfied that the
Group and Company have and will maintain sufficient resources to enable them
to continue operating for at least 12 months from the date of approval of the
financial statements. Accordingly, the financial statements have been prepared
on a going concern basis. There were no material uncertainties relating to
this going concern conclusion.
(b) Basis of consolidation
The Group's financial statements consolidate the financial statements of the
Company and its subsidiaries.
Subsidiaries are all entities (including investment vehicles) over which the
Group has control. Control arises when the Group is exposed, or has rights, to
variable returns from its involvement with the entity and has the ability to
affect those returns through its power over the entity. For operating entities
this generally accompanies a shareholding of 50% or more in the entity. For
investment vehicles, including structured entities, the control assessment
also considers the removal rights of other investors and whether the Group
acts as principal or agent in assessing the link between power and variable
returns. In determining whether the Group acts as principal, and therefore
controls the entity, the removal rights of other investors and the magnitude
of the variability associated with the returns are also taken into account. As
a result, the Group often is considered to control investment vehicles in
which its shareholding is less than 50%.
Where the Group is considered to control an investment vehicle, such as an
open-ended investment company, a unit trust or a limited partnership, and it
is therefore consolidated, the interests of parties other than the Group are
assessed to determine whether they should be classified as liabilities or as
non-controlling interests. The liabilities are recognised in the third party
interest in consolidated funds line in the consolidated statement of financial
position and any movements are recognised in the consolidated income
statement. The financial liability is designated at fair value through profit
or loss (FVTPL) as it is implicitly managed on a fair value basis as its value
is directly linked to the market value of the underlying portfolio of assets.
The interests of parties other than the Group in all other types of entities
are recorded as non-controlling interests.
All intra-group transactions, balances, income and expenses are eliminated in
full.
The Group uses the acquisition method to account for acquisitions of
businesses. At the acquisition date the assets and liabilities of the business
acquired and any non-controlling interests are identified and initially
measured at fair value on the consolidated statement of financial position.
When the Group acquires or disposes of a subsidiary, the profits and losses of
the subsidiary are included from the date on which control was transferred to
the Group until the date on which it ceases, with consistent accounting
policies applied across all entities throughout.
When the Group sells a subsidiary to an associate, the gain on sale of the
subsidiary is recognised in full, with no elimination being made for the
continuing interest in the subsidiary.
Notes to the Group financial statements
1. Group structure
(a) Composition
The following diagram is an extract of the Group structure at 31 December 2021
and gives an overview of the composition of the Group.
Diagram removed for the purposes of this announcement. However it can be
viewed in full in the pdf document.
A full list of the Company's subsidiaries is provided in Note 47.
(b) Acquisitions
(b)(i) Current year acquisitions of subsidiaries
Tritax Management LLP (Tritax)
On 1 April 2021, Aberdeen Asset Management PLC (AAM PLC) purchased 60% of the
membership interests in Tritax, a specialist logistics real estate fund
manager (the acquisition of Tritax). The initial cash consideration payable at
the completion of the acquisition was £64m. Subject to the satisfaction of
certain conditions, an additional contingent deferred earn-out is expected to
be payable to acquire the remaining 40% of membership interests in Tritax
should the selling Tritax partners choose to exercise three put options in
each of years ended 31 March 2024, 2025 and 2026. The amount payable is linked
to the EBITDA of the Tritax business in the relevant period. The Group will
also have the right to purchase any outstanding membership interests at the
end of the five-year period through exercising a call option.
Based on the transaction terms, Tritax has been fully consolidated from 1
April 2021 and no non-controlling interest has been recognised in the Group's
total equity in relation to the 40% of the membership interests in Tritax
subject to the put and call options. A contingent consideration financial
liability has been recognised at fair value in relation to the earn-out
payments (under the put and call options) and the expected non-discretionary
allocation of profit payments to the holders of the 40% membership interests
up to the date of the exercise of the options. This contingent consideration
financial liability is included in the table below as part of the
consideration paid. The acquisition of Tritax strengthens the Group's combined
offering in the growing logistics real estate market and fulfils the Group's
strategy of providing deep sector specialism for our clients in this key
growth area. The assets under management of Tritax were £6bn at the
completion date.
At the acquisition date the consideration, net assets acquired and resulting
goodwill from the Tritax acquisition were as follows:
1 April 2021 £m
Cash consideration 64
Fair value of contingent consideration(1) 155
Consideration(2) 219
Fair value of net assets acquired
Customer relationships and investment management contracts 71
Property, plant and equipment 2
Receivables and other financial assets 6
Cash and cash equivalents 3
Other assets 1
Total assets 83
Other financial liabilities (11)
Deferred tax liabilities (17)
Total liabilities (28)
Goodwill 164
1. The fair value of contingent consideration includes £113m relating to
the fair value of the earn-out payments (under the put and call options) and
£42m relating to the fair value of the expected non-discretionary allocation
of profit payments to the holders of the 40% membership interests up to the
date of the exercise of the options. These are calculated by reference to
earnings before interest, taxes, depreciation, and amortisation (EBITDA). The
earn-out payments could range from £nil to £140m. The expected distribution
of profit payments to the holders of the 40% membership interests up to the
date of the exercise of the options could range from £nil and have no maximum
value.
2. Not included in the consideration is an additional payment in 2023 of up
to £25m for an earn-up linked to EBITDA for the years ended 31 March 2022 and
2023. The expected payment is being accrued over two years as remuneration and
is included in Staff costs and other employee-related costs in the IFRS
consolidated income statement.
Intangible assets acquired in the business combination consist of customer
relationships and investment management contracts. Refer Note 14 for details
of the key assumptions used in measuring the fair value of these intangibles
at the acquisition date.
The key assumptions used to value the contingent consideration at the date of
acquisition are the same as the inputs used to value this contingent
consideration liability at 31 December 2021 and set out in Note 39(a)(iv). The
valuation assumes that the timing of the exercise of the earn out put options
between 2024, 2025 and 2026 would be that which is most beneficial to the
holders of the put options.
The goodwill arising on acquisition is mainly attributable to expected cash
flows from future fund raisings for existing and new funds and products, which
are not included in the valuation of the investment management contract
intangibles, revenue synergies from the Group's distribution capabilities and
existing real estate investment management expertise, and the quality and
experience of the Tritax executive team and employees. The goodwill has been
allocated to the asset management group of cash-generating units which
comprises the Investments segment (excluding Finimize). The goodwill is not
expected to be deductible for tax purposes.
The amounts of revenue from contracts with customers and profit after tax
contributed to the Group's consolidated income statement for the year ended 31
December 2021 from the acquired Tritax business were £23m and £2m
respectively. The profit contributed excludes amortisation of intangible
assets acquired through business combinations. If the acquisition had occurred
on 1 January 2021, the Group's total revenue from contracts with customers for
the year would have increased by £7m to £1,692m and the profit after tax
would have been unchanged.
Transaction costs were not material and were accounted for as part of
restructuring and corporate transaction expenses in the year ended 31 December
2020.
Finimize Limited (Finimize)
On 29 October 2021, AAM PLC purchased 100% of the issued share capital of
Finimize, a modern investing insights platform (the acquisition of Finimize).
The cash outflow at the completion of the acquisition was £87m, which
comprised consideration of £75m and payments made to settle debt and other
liabilities on behalf of Finimize as part of the transaction of £12m.
Finimize empowers retail investors by equipping them with information to make
their own informed investment decisions, without any jargon, in less than
fifteen minutes a day. The acquisition of Finimize is aligned with abrdn's
strategy to invest in technology to accelerate the pace and focus on
innovation to meet changing investor needs.
At the acquisition date the consideration, net assets acquired and resulting
goodwill from the Finimize acquisition were as follows:
29 October 2021 £m
Cash consideration(1, 2) 75
Fair value of net assets acquired
Technology and other intangible assets 7
Receivables and other financial assets 2
Cash and cash equivalents 3
Total assets 12
Other financial liabilities(1) (17)
Deferred tax liabilities (2)
Total liabilities (19)
Goodwill 82
1. Not included in the consideration is £12m of payments made to settle
debt and other liabilities on behalf of Finimize as part of the transaction.
These amounts were included within other financial liabilities at the
acquisition date. This cash outflow is included in Acquisition of subsidiaries
and unincorporated businesses net of cash acquired in the consolidated
statement of cash flows.
2. Not included in the consideration are three additional payments of £1.8m
in 2022, 2023 and 2024. The expected payments are being accrued over one, two
and three years respectively as remuneration and are included in Staff costs
and other employee-related costs in the IFRS consolidated income statement.
The goodwill arising on acquisition of Finimize is mainly attributable to
expected future cash flows from new retail and corporate customers, the
quality and experience of the Finimize executive team and employees, and
revenue synergies including those arising from partnering with abrdn wholesale
customers in the Group's investment business and from the deployment of
Finimize content in the Group's Personal business. The goodwill has been
primarily allocated to the Finimize cash-generating unit in the Investments
segment (£72m) with £3m and £7m allocated to the asset management group of
cash-generating units and a new cash-generating unit in the Personal segment
respectively. The goodwill is not expected to be deductible for tax purposes.
The amounts of revenue from contracts with customers and profit after tax
contributed to the Group's consolidated income statement for the year ended 31
December 2021 from the acquired Finimize business were £1m and £nil
respectively. The profit contributed excludes amortisation of intangible
assets acquired through business combinations. If the acquisition had occurred
on 1 January 2021, the Group's total revenue from contracts with customers for
the year would have increased by £3m to £1,688m and the profit after tax
would have decreased by £2m to £993m.
Transaction costs of £2m were accounted for as part of restructuring and
corporate transaction expenses in the year ended 31 December 2021.
(c) Disposals
(c)(i) Current year disposal of subsidiaries and other operations
Profit on disposals of subsidiaries and other operations for the year ended 31
December 2021 of £127m includes a gain of £73m on the disposal of Parmenion
Capital Partners LLP (Parmenion), £39m for the disposal of the Bonaccord
Capital Partners (Bonaccord ) US private market business and £15m from other
disposals.
On disposal, a loss of £1m was recycled from the translation reserve and was
included in determining the profit on disposals of subsidiaries.
Parmenion
On 9 March 2021, the Group announced the sale of Parmenion to Preservation
Capital Partners. Parmenion is reported in the Corporate/strategic segment
(previously Asset management, platforms and wealth segment). The sale was
completed on 30 June 2021.
The gain on sale, which is included in profit on disposals of subsidiaries and
other operations in the consolidated income statement for the year ended 31
December 2021 was calculated as follows:
30 June 2021 £m
Total assets of operations disposed of (36)
Total liabilities of operations disposed of 13
Net assets of operations disposed of (23)
Cash consideration (less transaction costs) and outstanding loan(1) 75
Fair value of earn-out payments 21
Gain on sale before tax 73
1. Following the completion of the sale, the intercompany loan from abrdn
plc to Parmenion of £9m which previously eliminated on consolidation is now
recognised as an asset of the Group.
The taxable gain which arose on the sale has been computed in accordance with
the tax rules applicable to UK partnerships.
Parmenion was classified as an operation held for sale at 31 December 2020.
Bonaccord
On 30 September 2021, the Group completed the sale of its Bonaccord US private
market business to P10 Holdings Inc. (P10) through a number of asset sale
agreements.
The gain on sale, which is included in profit on disposal of subsidiaries and
other operations in the consolidated income statement for the year ended 31
December 2021 was calculated as follows:
30 September 2021 £m
Total assets of operations disposed of (2)
Total liabilities of operations disposed of 2
Net assets of operations disposed of -
Cash consideration (less transaction costs) 30
Fair value of earn-out payments and retained interest(1) 9
Gain on sale before tax 39
1. Following the completion of the sale, the Group has retained a reduced
interest in future carried interest entitlement which has been recognised in
the consolidated statement of financial position at fair value.
The taxable gain which arose on the sale has been computed in accordance with
the tax rules applicable to US companies.
Nordics real estate business
On 31 May 2021, the Group completed the sale of its Nordics real estate
business to DEAS Asset Management A/S through a number of share and asset sale
agreements. The disposal is not considered material to the Group.
Hark
On 30 September 2021, in addition to the Bonaccord sale, the Group also
completed the sale of its Hark Capital US private market business to P10
through a number of asset sale agreements. The disposal is not considered
material to the Group.
(c)(ii) Prior year disposal of subsidiaries
Standard Life (Asia) Limited (SL Asia)
On 30 June 2020, the Group completed the sale of the entire issued share
capital of its wholly owned Hong Kong insurance business, SL Asia, to the
Group's Chinese joint venture business, HASL. SL Asia was reported in the
Corporate/Strategic segment (previously the Asset management, platforms and
wealth segment) and HASL is not included in the Group's reportable segments
(previously reported within the Insurance associates and joint ventures
segment). Refer Note 2 for further details.
Total consideration received comprised cash of £19m and the Group recognised
a gain on disposal of £8m in respect of the sale within other income from
continuing operations in the consolidated income statement for the year ended
31 December 2020. On disposal a gain of £8m was recycled from the translation
reserve and was included in determining the gain on sale.
Prior to the completion of the sale, SL Asia was classified as an operation
held for sale.
The accounting for the acquisition of SL Asia by HASL at 30 June 2020 was
based on provisional amounts as allowed under IFRS 3 Business combinations.
(c)(iii) Current year reclassification of associates and other related transactions
Profit on disposal of interests in associates for the year ended 31 December
2021 of £1,236m includes a gain of £68m on the reclassification of Phoenix
and £1,168m of gains in relation to the sale of equity shares in HDFC Asset
Management and its reclassification from an investment in associate.
On disposal and reclassification, a loss of £17m was recycled from the
translation reserve and other comprehensive income gains of £9m were recycled
from retained earnings and were included in determining the profit on
disposals of associates.
Phoenix Group Holdings plc (Phoenix)
On 23 February 2021, the Group announced details of the simplification and
extension of the strategic partnership between the Group and Phoenix. The key
details were:
- The Group announced the purchase of certain products in the Phoenix
Group's savings business offered through abrdn's Wrap platform, comprising a
self-invested pension plan (SIPP) and an onshore bond product; together with
the Phoenix Group's trustee investment plan (TIP) business for UK pension
scheme clients. The assets relating to these products at 31 December 2020 were
£38bn and are included in the Group's AUMA. The transaction is targeted to
complete in 2023 and is subject to regulatory and court approvals. The upfront
consideration paid by the Group in February 2021 was £62.5m, which will be
offset in part by payments from Phoenix to the Group relating to profits of
the products prior to completion of the legal transfer. The net amount of
consideration paid up to 31 December 2021 is included in prepayments in the
consolidated statement of financial position and in prepayment in respect of
potential acquisition of customer contracts in the consolidated statement of
cash flows.
- The sale of the 'Standard Life' brand to Phoenix, replacing the existing
agreement to licence the brand for no fee to Phoenix, the transfer of related
brand employees to Phoenix, and the transfer of workplace pensions marketing
staff to Phoenix who were employed by the Group but provided services to
Phoenix. The sale of the brand, the staff transfers, and a related £32m
payment from the Group to Phoenix took place in May 2021. Refer Note 34 for
details of the release of related deferred revenue.
- The strategic asset management partnership with Phoenix has been
extended and will now operate for at least 10 years up to February 2031.
- The resolution of legacy issues with Phoenix relating to the operation
of certain aspects of the agreements that were entered into at the time of the
sale of SLAL to Phoenix and which impacted the value of certain indemnities
and other payments under the transaction terms. The impact of the resolution
of these legacy matters was included in the 2020 results and resulted in the
Group receiving a cash inflow of £34m in February 2021. Refer Note 39(a)(iv).
Following the changes to the commercial agreements set out above, in
particular in relation to the licencing of the 'Standard Life' brand, our
judgement is that Phoenix should no longer be accounted for as an associate
with effect from 23 February 2021. The Group's shareholding in Phoenix, which
remained at 14.4%, was therefore reclassified from an investment in associates
accounted for using the equity method to equity securities and interests in
pooled investment funds measured at fair value. A reclassification gain of
£68m is included in the profit on disposal of interests in associates for the
year ended 31 December 2021 as the fair value on 22 February 2021 of £1,023m
was higher than the previous carrying value as an associate of £964m. On
disposal, other comprehensive income gains of £9m were recycled from retained
earnings and included in determining the gain on sale.
HDFC Asset Management
During 2021, the Group completed a sale of equity shares in HDFC Asset
Management on the National Stock Exchange of India Limited and BSE Limited.
The gains on sales and the gain on reclassification from an associate to an
equity investment can be summarised as follows:
2021
£m
Gain on sale of 10,650,000 equity shares in HDFC Asset Management sold through
a Bulk Sale on
29 September 2021 271
Gain on reclassification of remaining 34,578,305 equity shares in HDFC Asset
Management from an associate to equity investment on 29 September 2021
897
Gains on disposal and reclassification of HDFC Asset Management for the year 1,168
ended 31 December 2021
Through the sale, 5% of the issued equity share capital of HDFC Asset
Management was sold for a total consideration net of taxes and expenses of Rs
27,071m (£271m). The gain on sale of £271m before tax was calculated using
the weighted-average cost method. On disposal a loss of £4m was recycled from
the translation reserve and was included in determining the gain on sale.
Following the sale, the Group's shareholding in HDFC Asset Management was
34,578,305 equity shares or 16.22% and HDFC Asset Management is no longer
considered to be an associate of the Group. The Group's investment in HDFC
Asset Management was reclassified from an investment in associates accounted
for using the equity method to equity securities and interests in pooled
investment funds measured at fair value. A reclassification gain of £897m was
included in the profit on disposal of interests in associates for the year
ended 31 December 2021 as the fair value on 29 September 2021 of £1,003m was
higher than the previous carrying value as an associate of £93m. On
reclassification a loss of £13m was recycled from the translation reserve and
was included in determining the gain.
The Group's shareholdings in Phoenix and HDFC Asset Management are now
considered, along with HDFC Life (refer Note 1(c)(iv)), as significant listed
investments for the purpose of determining the Group's adjusted profit. Refer
Note 12(b) for other changes in the Group's significant listed investments in
the year ended 31 December 2021.
(c)(iv) Prior year disposal and reclassification of associates
Profit on disposals of associates for the year ended 31 December 2020 of
£1,858m includes £1,591m of gains in relation to the sale of equity shares
in HDFC Life and its reclassification from an investment in associate, £263m
of gains in relation to the sale of equity shares in HDFC Asset Management and
a £4m dilution gain in Phoenix.
HDFC Life
During 2020, the Group completed sales of equity shares in HDFC Life on the
National Stock Exchange of India Limited and BSE Limited. The gains on sales
and the gain on reclassification from an associate to an equity investment can
be summarised as follows:
2020
£m
Gain on sale of 50,000,000 equity shares in HDFC Life sold through a Bulk Sale 206
on 27 March 2020
Gain on sale of 40,000,000 equity shares in HDFC Life sold through a Bulk Sale 182
on 4 June 2020
Gain on sale of 27,772,684 equity shares in HDFC Life sold through a Bulk Sale 152
on 3 December 2020
Gain on reclassification of remaining 179,539,209 equity shares in HDFC Life
from an associate to equity investment on 3 December 2020
1,051
Gains on disposals and reclassification of HDFC Life for the year ended 31 1,591
December 2020
During 2020, in total, 5.83% of the issued equity share capital of HDFC Life
was sold for a combined total consideration net of taxes and expenses of Rs
58,561m (£616m). The combined gain on sale of £540m was calculated using the
weighted-average cost method. On disposal a loss of £5m was recycled from the
translation reserve and was included in determining the gain on sale.
Following the 3 December 2020 sale, the Group's shareholding in HDFC Life was
179,539,209 equity shares or 8.89% and HDFC Life is no longer considered to be
an associate of the Group. The Group's investment in HDFC Life was
reclassified from an investment in associates accounted for using the equity
method to equity securities and interests in pooled investment funds measured
at fair value. A reclassification gain of £1,051m was included in the profit
on disposal of interests in associates for the year ended 31 December 2020 as
the fair value on 3 December 2020 of £1,168m was higher than the previous
carrying value as an associate of £111m. On reclassification a loss of £6m
was recycled from the translation reserve and was included in determining the
gain.
HDFC Asset Management
During 2020, the Group completed the following sale of equity shares in HDFC
Asset Management on the National Stock Exchange of India Limited and BSE
Limited:
- 12,000,000 equity shares in HDFC Asset Management sold through an Offer
for Sale on 17 and 18 June 2020.
Through the sale, 5.64% of the issued equity share capital of HDFC Asset
Management was sold for a total consideration net of taxes and expenses of Rs
25,404m (£265m). The gain on sale of £263m before tax was calculated using
the weighted-average cost method. On disposal a loss of £3m was recycled from
the translation reserve and was included in determining the gain on sale.
Phoenix
On 22 July 2020, Phoenix, announced the completion of its acquisition of
ReAssure Group plc. Under the terms of the transaction, Phoenix issued
277,277,138 new ordinary shares as part consideration for the acquisition.
Completion of the transaction resulted in the Group's holding in Phoenix
becoming 14.43% of the enlarged Phoenix Group. A dilution gain of £4m was
recognised within the Profit on disposal of interests in associates in the
consolidated income statement as a result of the transaction.
2. Segmental analysis
The Group's reportable segments have been identified in accordance with the
way in which the Group is structured and managed. IFRS 8 Operating Segments
requires that the information presented in the financial statements is based
on information provided to the 'Chief Operating Decision Maker' which for the
Group is the executive leadership team.
(a) Basis of segmentation
(a)(i) Current reportable segments
Investments
Our global asset management business which provides investment solutions for
Institutional, Wholesale and Insurance clients. The Investment segment
includes the Tritax and Finimize businesses following their acquisitions
during the year.
Adviser
Our market-leading UK financial adviser business which provides services
through the Wrap and Elevate platforms to wealth managers and advisers.
Personal
Our Personal business which combines our financial planning business abrdn
Financial Planning, our digital direct-to-consumer services and discretionary
fund management services provided by abrdn Capital.
In addition to the Group reportable segments above, the analysis of adjusted
profit in Section b(i) below also reports the following:
Corporate/strategic
Corporate/strategic mainly comprises certain corporate costs and businesses
held for sale (Parmenion, the sale of which was completed on 30 June 2021, and
SL Asia which was sold in June 2020).
The segments are reported to the level of adjusted operating profit and
therefore, as described in Section a(ii) below, no longer include the results
relating to the Group's associates and joint ventures.
(a)(ii) Changes to reportable segments
Previously, we reported our results under two reportable segments.
- Asset management, platforms and wealth which comprised all wholly owned
business, the Virgin Money joint venture and HDFC Asset Management our Indian
asset management associate.
- Insurance associates and joint ventures which comprised our life
assurance associates and joint ventures - HDFC Life, Phoenix and HASL.
The business is now operating under three growth vectors of Investments,
Adviser and Personal as set out in Section (a)(i) above and accordingly, in
2021, the Group changed the way we report the performance of the business to
the executive leadership team.
Reportable segments are now reported to the level of adjusted operating profit
in line with the updated management reporting, and therefore our share of the
results of associates and joint ventures are no longer part of the Group's
reportable segments.
Comparative amounts for the year ended 31 December 2020 have been prepared on
the same basis as the year ended 31 December 2021 to allow more meaningful
comparison.
(b) Reportable segments - adjusted profit and revenue
information
(b)(i) Analysis of adjusted profit
Adjusted operating profit is presented by reportable segment in the table
below.
Investments Adviser Personal Corporate/ Total
strategic
31 December 2021 Notes £m £m £m £m £m
Fee based revenue 1,231 178 92 14 1,515
Adjusted operating expenses (978) (104) (84) (26) (1,192)
Adjusted operating profit 253 74 8 (12) 323
Adjusted net financing costs and investment return(1) -
Adjusted profit before tax 323
Tax on adjusted profit (26)
Adjusted profit after tax 297
Adjusted for the following items
Restructuring and corporate transaction expenses 8 (259)
Amortisation and impairment of intangible assets acquired in business (99)
combinations and through the purchase of customer contracts
Profit on disposal of subsidiaries and other operations 1 127
Profit on disposal of interests in associates 1 1,236
Change in fair value of significant listed investments (298)
Dividends from significant listed investments 71
Share of profit or loss from associates and joint ventures(2) (22)
Other 12 36
Total adjusting items including results of associates and joint ventures 792
Tax on adjusting items (94)
Profit attributable to non-controlling interests (ordinary shares) (1)
Profit for the year attributable to equity shareholders of abrdn plc 994
Profit attributable to non-controlling interests (ordinary shares) 1
Profit for the year 995
1. Capital management has been renamed Adjusted net financing costs and
investment return.
2. Share of associates' and joint ventures' profit or loss comprises the
Group's share of results of HASL, Virgin Money Unit Trust Managers (Virgin
Money UTM), Phoenix (until 22 February 2021) and HDFC Asset Management (until
29 September 2021).
Fee based revenue is reported as the measure of revenue in the analysis of
adjusted operating profit and relates to revenues generated from external
customers.
In the year ended 31 December 2021, transactions with one external customer
amounted to more than 10% of fee based revenue (2020: one). This fee based
revenue of £195m (2020: £195m) is included in the Investments segment
(previously part of the Asset management, platforms and wealth segment).
Adjusted operating expenses includes depreciation and amortisation of £47m
(2020: £67m): £37m (2020: £51m) for the Investments segment; £4m (2020:
£4m) for the Adviser segment; £4m (2020: £3m) for the Personal segment; and
£2m (2020: £9m) for the Corporate/strategic segment. Interest income,
interest expense and income tax expense are not analysed by segment in the
information provided to the Chief Operating Decision Maker.
Assets and liabilities by segment is not required to be presented as such
information is not presented on a regular basis to the Chief Operating
Decision Maker.
Investments Adviser Personal Corporate/ Total
strategic
Full year 2020 Notes £m £m £m £m £m
Fee based revenue 1,176 137 80 32 1,425
Adjusted operating expenses (990) (89) (85) (42) (1,206)
Adjusted operating profit 186 48 (5) (10) 219
Adjusted net financing costs and investment return(1) 21
Adjusted profit before tax 240
Tax on adjusted profit (38)
Adjusted profit after tax 202
Adjusted for the following items
Restructuring and corporate transaction expenses 8 (316)
Amortisation and impairment of intangible assets acquired in business (1,180)
combinations and through the purchase of customer contracts
Profit on disposal of subsidiaries and other operations 1 8
Profit on disposal of interests in associates 1 1,858
Change in fair value of significant listed investments 65
Share of profit or loss from associates and joint ventures(2) 194
Impairment of interests in joint ventures 15 (45)
Other 12 14
Total adjusting items including results of associates and joint ventures 598
Tax on adjusting items 53
Profit attributable to non-controlling interests (preference shares) (5)
Profit for the year attributable to equity shareholders of abrdn plc from 848
continuing operations
Loss for the year from discontinued operations 10 (15)
Profit for the year attributable to equity shareholders of abrdn plc 833
Profit attributable to non-controlling interests
Preference shares 5
Profit for the year 838
1. Capital management has been renamed Adjusted net financing costs and
investment return.
2. Share of associates' and joint ventures' profit or loss comprises the
Group's share of results of HDFC Asset Management, Phoenix, HASL, Virgin Money
UTM and HDFC Life (until 3 December 2020).
(b)(ii) Reconciliation to the IFRS consolidated income statement
Fee based revenue
The reconciliation of fee based revenue, as presented in the analysis of Group
adjusted profit by segment to revenue from contracts with customers, as
presented in the IFRS consolidated income statement, is included in Note 3.
Adjusted operating expenses
The following table provides a reconciliation of adjusted operating expenses,
as presented in the analysis of Group adjusted profit by segment, to total
administrative and other expenses, as presented in the IFRS consolidated
income statement.
2021 2020
£m £m
Total administrative and other expenses as presented in the IFRS consolidated (1,556) (2,716)
income statement from continuing operations
Restructuring and corporate transaction expenses included in adjusting items 259 316
Amortisation and impairment of intangible assets acquired in business 99 1,180
combinations and through the purchase of customer contracts included in
adjusting items
Administrative and other expenses relating to the unit linked business 3 5
Other differences 3 9
Adjusted operating expenses as presented in the analysis of Group adjusted (1,192) (1,206)
profit by segment from continuing operations
Adjusted net financing costs and investment return
The following table provides a reconciliation of adjusted net financing costs
and investment return, as presented in the analysis of Group adjusted profit
by segment, to Net gains on financial instruments and other income, as
presented in the IFRS consolidated income statement.
2021 2020
£m £m
Net gains on financial instruments and other income as presented in the IFRS (183) 146
consolidated income statement from continuing operations
Finance costs separately disclosed in the IFRS consolidated income statement (30) (30)
Change in fair value of significant listed investments included in adjusting 298 (65)
items
Dividends from significant listed investments included in adjusting items (71) -
Net gains on financial instruments and other income relating to the unit (7) (9)
linked business
Other differences (7) (21)
Adjusted net financing costs and investment return as presented in the - 21
analysis of Group adjusted profit by segment from continuing operations
Other differences primarily relate to amounts presented in a different line
item of the consolidated income statement and other items classified as
adjusting items.
(c) Total fee based revenue by geographical location
Total fee based revenue(1) split by geographical location is as follows:
2021 2020(1)
£m £m
UK 1,015 954
Europe, Middle East and Africa 132 137
Asia Pacific 209 192
Americas 159 142
Total 1,515 1,425
1. Previously a geographical split of total income from continuing
operations as presented in the consolidated income statement was provided. In
line with the changes to income statement presentation in the current year
(refer Section (a)(iii) of the Basis of Preparation for further details), a
geographical split of total fee based revenue which, as noted above, relates
to revenues generated from external customers is now provided.
Fee based revenue is allocated based on where the revenue is earned.
(d) Non-current non-financial assets by geographical location
2021 2020
£m £m
UK 808 629
Europe, Middle East and Africa 9 15
Asia Pacific 13 17
Americas 61 76
Total 891 737
Non-current non-financial assets for this purpose consist of property, plant
and equipment and intangible assets.
3. Net operating revenue
Net operating revenue represents revenue from contracts with customers after
deduction of cost of sales.
Revenue from contracts with customers is recognised as services are provided
i.e. as the performance obligation is satisfied. Performance fees and carried
interest are only recognised once it is highly probable that a significant
reversal will not occur in future periods. Where revenue is received in
advance (front-end fees), this income is deferred and recognised as a deferred
income liability until the services have been provided (refer Note 34).
Revenue from contracts with customers excludes premium written and earned on
insurance and participating investment contracts
(Refer Note 30).
Commission and other fee expenses which relate directly to revenue are
presented as cost of sales. These expenses include ongoing commission expenses
payable to financial institutions, investment platform providers and financial
advisers that distribute the Group's products which are generally based on an
agreed percentage of AUM and are recognised in the income statement as the
service is received. Other cost of sales also includes amounts payable to
employees and others relating to carried interest and performance fee revenue.
(a) Revenue from contracts with customers
The following table provides a breakdown of total revenue from contracts with
customers.
2021 2020
restated(1)
£m £m
Investments
Management fee income - Institutional and Wholesale(2) 1,043 971
Management fee income - Insurance(2) 200 216
Performance fees and carried interest 99 30
Other revenue from contracts with customers 54 24
Revenue from contracts with customers for the investments segment 1,396 1,241
Adviser 180 169
Personal 92 80
Corporate/strategic - Parmenion fund platform fee income 17 37
Total revenue from contracts with customers 1,685 1,527
1. The breakdown of revenue from contracts with customers for the year ended
31 December 2020 has been restated in line with the changes to the Group's
reportable segments. Refer Note 2 for further details.
2. In addition to revenues earned as a percentage of AUM, management fee
income includes certain other revenues such as registration fees.
Investments
Through a number of its subsidiaries, the Group provides asset management
services to its customers. This performance obligation is performed over time
with the revenue recognised as the obligation is performed. The Group
generally receives asset management fees based on the percentage of the assets
under management. The percentage varies depending on the level and nature of
assets under management. Asset management fees are either deducted from assets
or invoiced. Deducted fees are generally calculated, recognised and collected
on a daily basis. Other asset management fees are invoiced to the customer
either monthly or quarterly with receivables recognised for unpaid invoices.
The payment terms for invoiced revenue vary but are typically 30 days from
receipt of invoice. Accrued income is recognised to account for income earned
but not yet invoiced which is not dependent on any future performance. There
is also some use of performance fees and carried interest arrangements.
Performance fees and carried interest are earned from some investment mandates
when contractually agreed performance levels are exceeded within specified
performance measurement periods. Performance fees and carried interest are
only recognised once it is highly probable that a significant reversal will
not occur in future periods. Given the unpredictability of future performance,
the risk of a significant reversal occurring will typically only be considered
low enough to make recognition appropriate upon the crystallisation event
occurring.
Adviser
Through a number of its subsidiaries, the Group offers customers access to
fund platforms. The platforms give customers the ongoing functionality to
manage and administer their investments. This performance obligation is
performed over time with the revenue recognised as the obligation is
performed. Customers pay a platform charge which is generally calculated as a
percentage of their assets. The percentage varies depending on the level of
assets on the specific platform. The main platform charges are calculated
either daily or monthly and are collected and recognised monthly. The charges
are collected directly from assets on the platform. There are no significant
payment terms.
Adviser revenue from contracts with customers includes revenue passed to the
product provider and included below in other cost of sales.
Personal
Through a number of its subsidiaries, the Group offers financial planning and
discretionary fund management services. Financial planning is either provided
on a one-off basis or on an ongoing basis. The performance obligation for
one-off advice is performed at a point in time with the revenue recognised
when the advice is provided. The performance obligation for ongoing financial
planning is performed over time with the revenue recognised as the obligation
is performed. The Group generally receives ongoing financial planning fees
based on the percentage of the assets under advice. One-off financial planning
fees are invoiced to the customer following delivery of the advice to the
customer. Ongoing financial planning fees are invoiced to the customer or a
designated financial provider either monthly or quarterly. Receivables are
recognised for unpaid invoices. The payment terms for invoiced revenue vary
but are typically 30 days from receipt of invoice. Accrued income is
recognised to account for income earned but not yet invoiced which is not
dependent on any future performance. The performance obligation for
discretionary fund management services is also performed over time with the
revenue recognised as the obligation is performed. The Group generally
receives discretionary fund management services fees based on the percentage
of the assets under management. The percentage varies depending on the level
and nature of assets under management. Discretionary fund management services
fees are deducted from assets. Deducted fees are generally calculated,
recognised and collected on a daily basis.
(b) Cost of sales
The following table provides a breakdown of total cost of sales.
2021 2020
£m £m
Cost of sales
Commission expenses 87 77
Other cost of sales 55 27
Total cost of sales 142 104
Other cost of sales includes amounts payable to employees and others relating
to carried interest and performance fee revenue.
(c) Reconciliation of revenue from contracts with customers to fee based revenue
The following table provides a reconciliation of revenue from contracts with
customers as presented in the consolidated income statement to fee based
revenue, as presented in the analysis of adjusted operating profit (see Note
2(b) for each of the Group's reportable segments).
Investments Adviser Personal Corporate/strategic Total
2021 2020 2021 2020 2021 2020 2021 2020 2021 2020
£m £m £m £m £m £m £m £m £m £m
Revenue from contracts with customers 1,396 1,241 180 169 92 80 17 37 1,685 1,527
Cost of sales (137) (71) (2) (27) - - (3) (6) (142) (104)
Net operating revenue 1,259 1,170 178 142 92 80 14 31 1,543 1,423
Other differences (28) 6 - (5) - - - 1 (28) 2
Fee based revenue 1,231 1,176 178 137 92 80 14 32 1,515 1,425
Other differences primarily relate to amounts presented in a different line
item of the consolidated income statement and items classified as adjusting
items and for the year ended 31 December 2021 primarily relate to the net
release of deferred income of £25m (refer Note 34).
(d) Contract receivables, assets and liabilities
The Group has recognised the following receivables, assets and liabilities in
relation to contracts with customers.
31 December 31 December 2020 1 January
2020
2021
Notes £m £m £m
Amount receivable from contracts with customers 20 135 115 130
Accrued income from contracts with customers 20 260 221 227
Cost of obtaining customer contracts 14 37 49 60
Deferred acquisition costs 21 3 4 6
Total contract receivables and assets 435 389 423
31 December 31 December 2020 1 January
2020
2021
Notes £m £m £m
Deferred Income 34 5 73 67
Accruals 35 - - 3
Total contract liabilities 5 73 70
Refer Note 34 for details of the release of £57m of deferred income in May
2021.
4. Net gains on financial instruments and other income
Gains and losses resulting from changes in both market value and foreign
exchange on investments classified as fair value through profit or loss are
recognised in the consolidated income statement in the period in which they
occur. The gains and losses include investment income received such as
interest payments and dividend income. Dividend income is recognised when the
right to receive payment is established.
Interest income on financial instruments measured at amortised cost is
separately recognised in the consolidated income statement using the effective
interest rate method. The effective interest rate method allocates interest
and other finance costs at a constant rate over the expected life of the
financial instrument, or where appropriate a shorter period, by using as the
interest rate the rate that exactly discounts the future cash receipts over
the expected life to the net carrying value of the instrument.
Other income includes income related to vacant property.
2021 2020(1)
Notes £m £m
Fair value movements and dividend income on significant listed investments
Fair value movements on significant listed investments (other than dividend (298) 65
income)
Dividend income from significant listed investments 71 -
Total fair value movements and dividend income on significant listed (227) 65
investments
Non-unit linked business - excluding significant listed investments
Net gains on financial instruments at fair value through profit or loss 20 40
Interest and similar income from financial instruments at amortised cost 10 19
Foreign exchange losses on financial instruments at amortised cost (1) (10)
Other income 8 20
Insurance contract premium income 30 - 3
Net gains on financial instruments and other income from continuing operations 37 72
- non-unit linked business - excluding significant listed investments
Unit linked business
Net gains on financial instruments at fair value through profit or loss
Net gains on financial assets at fair value through profit or loss 174 48
Change in non-participating investment contract financial liabilities (124) (56)
Change in liability for third party interests in consolidated funds (43) 3
Total net gains on financial instruments at fair value through profit or loss 7 (5)
Foreign exchange losses on financial instruments at amortised cost - 1
Other income - 2
Insurance contract premium income 30 - 28
Insurance contract claims and change in liabilities - (17)
Net gains on financial instruments and other income from continuing operations 24 7 9
- unit linked business(2)
Total other net gains on financial instruments and other income from 44 81
continuing operations
Total net gains on financial instruments and other income from continuing (183) 146
operations
1. The Group has made changes to the presentation of the consolidated income
statement in 2021. Refer Section (a)(iii) of the Basis of Preparation for
further details.
2. In addition to the Net gains on financial instruments and other income
from continuing operations - unit linked business of £7m (2020: £9m), there
are administrative expenses and policyholder tax of £3m (2020: £5m) and £4m
(2020: £4m) respectively relating to unit linked business for the account of
policyholders so the result attributable to unit linked business for the year
is £nil (2020: £nil). Refer Note 24 for further details.
Fair value movements on significant listed investments (other than dividend
income) of losses of £298m (2020: gains of £65m) comprises losses of £52m
relating to HDFC Life (2020: gains of £65m), losses of £164m relating to
HDFC Asset Management (2020: £nil) and losses of £82m relating to Phoenix
(2020: £nil).
Dividend income from significant listed investments of £71m (2020: £nil)
comprises £69m (2020: £nil) relating to Phoenix and £2m (2020: £nil)
relating to HDFC Life.
5. Administrative and other expenses
2021 2020(1)
Notes £m £m
Restructuring and corporate transaction expenses(2) 8 259 316
Impairment of goodwill - asset management 14 - 915
Amortisation and impairment of other intangibles acquired in business
combinations and through the purchase of customer contracts
Impairment of other intangibles acquired in business combinations 14 - 135
Amortisation of intangibles acquired in business combinations 14 87 111
Amortisation of intangibles acquired through the purchase of customer 14 12 19
contracts
Total Amortisation and impairment of other intangibles acquired in business 99 265
combinations and through the purchase of customer contracts
Staff costs and other employee-related costs 6 604 625
Other administrative expenses(2,3) 594 595
Total administrative and other expenses from continuing operations(4) 1,556 2,716
1. The Group has made changes to the presentation of the consolidated income
statement in 2021. Refer Section (a)(iii) of the Basis of Preparation for
further details.
2. For the year ended 31 December 2020, £19m of expenses previously
presented in other administrative expenses have been reclassified as
restructuring and corporate transaction expenses. Refer Section (a)(iii) of
the Basis of Preparation for further details.
3. Other administrative expenses includes interest expense of £1m (2020:
£2m). In addition, interest expense of £24m (2020: £24m) was incurred in
respect of subordinated liabilities and the related cash flow hedge (refer
Note 19) and interest expense of £6m (2020: £6m) in respect of lease
liabilities (refer Note 17) which are included in Finance costs in the
consolidated income statement.
4. Total administrative and other expenses includes £3m (2020: £5m)
relating to unit linked business. Refer Note 24 for further details.
6. Staff costs and other employee-related costs
The following table shows the staff costs and other employee-related costs
aggregated for both continuing and discontinued operations.
2021 2020
Notes £m £m
The aggregate remuneration payable in respect of employees:
Wages and salaries 469 465
Social security costs 56 55
Pension costs
Defined benefit plans (17) (19)
Defined contribution plans 53 58
Employee share-based payments and deferred fund awards 43 43 66
Total staff costs and other employee-related costs 604 625
In addition, wages and salaries of £27m (2020: £28m), social security costs
of £3m (2020: £4m), pension costs - defined benefit plans of less than £1m
(2020: less than £1m), pension costs - defined contribution plans of £1m
(2020: £1m), employee share-based payments and deferred fund awards relating
to transformation and leavers of £16m (2020: £27m) and termination benefits
of £50m (2020: £31m) have been included in restructuring and corporate
transaction expenses. Refer Note 8. A further £53m (2020: £nil) of expenses
are included in other cost of sales in relation to amounts payable to
employees and former employees relating to carried interest and performance
fee revenue. Refer Note 3.
The following table provides an analysis of the average number of staff
employed by the Group during the year.
2021 2020
Investments 1,683 1,809
Adviser 136 118
Personal 626 576
Operations, IT and support functions 3,018 3,526
Total employees 5,463 6,029
Information in respect of Directors' remuneration is provided in the
Directors' remuneration report on pages 100 to 116.
7. Auditors' remuneration
The following table shows the auditors' remuneration aggregated for both
continuing and discontinued operations.
2021 2020
£m £m
Fees payable to the Company's auditors for the audit of the Company's 1.0 1.1
individual and consolidated financial statements
Fees payable to the Company's auditors for other services
The audit of the Company's consolidated subsidiaries pursuant to legislation 4.1 4.1
Audit related assurance services 2.0 2.3
Total audit and audit related assurance fees 7.1 7.5
Other assurance services 1.2 0.8
Other non-audit fee services 0.9 -
Total non-audit fees 2.1 0.8
Total auditors' remuneration 9.2 8.3
Auditors' remuneration disclosed above excludes audit and non-audit fees
payable to the Group's principal auditor by Group managed funds which are not
controlled by the Group, and therefore not consolidated in the Group's
financial statements.
During the year ended 31 December 2021 no audit fees were payable in respect
of defined benefit plans to the Group's principal auditor (2020: £nil).
For more information on non-audit services, refer to the Audit Committee
report in Section 3 - Corporate governance statement.
8. Restructuring and corporate transaction expenses
Total restructuring and corporate transaction expenses incurred from
continuing operations during the year were £259m (2020: £316m). The expenses
mainly relate to transformation costs including severance, asset management
integration, separation from Phoenix, and finance and platform
transformation. Deal costs relating to acquisitions included in restructuring
and corporate transaction expenses for the year ended 31 December 2021 were
£16m (2020: £1m).
The restructuring and corporate transaction expenses of £316m for the year
ended 31 December 2020 includes £19m of expenses previously presented in
other administrative expenses. Refer Section (a)(iii) of the Basis of
Preparation for further details.
9. Taxation
The Group's tax expense comprises both current tax and deferred tax expense.
Current tax is the expected tax payable on taxable profit for the year and is
calculated using tax rates and laws substantively enacted at the balance sheet
date.
A deferred tax asset represents a tax deduction that is expected to arise in a
future period. It is only recognised to the extent that there is expected to
be future taxable profit or investment return to offset the tax deduction. A
deferred tax liability represents taxes which will become payable in a future
period as a result of a current or prior year transaction. Where local tax law
allows, deferred tax assets and liabilities are netted off on the statement of
financial position. The tax rates used to determine deferred tax are those
enacted or substantively enacted at the balance sheet date that are expected
to apply when the deferred tax asset or liability are realised.
Deferred tax is recognised on temporary differences arising from investments
in subsidiaries and associates unless the timing of the reversal is in our
control and it is expected that the temporary difference will not reverse in
the foreseeable future.
Current tax and deferred tax is recognised in the consolidated income
statement except when it relates to items recognised in other comprehensive
income or directly in equity, in which case it is credited or charged to other
comprehensive income or directly to equity respectively.
The Group operates in a large number of territories and during the normal
course of business will be subject to audit or enquiry by local tax
authorities. At any point in time the Group will also be engaged in commercial
transactions the tax outcome of which may be uncertain due to their complexity
or uncertain application of tax law. Tax provisions, therefore, are subjective
by their nature and require management judgement based on the interpretation
of legislation, management experience and professional advice. As such, this
may result in the Group recognising provisions for uncertain tax positions.
Management will provide for uncertain tax positions where they judge that it
is probable there will be a future outflow of economic benefits from the Group
to settle the obligation. In assessing uncertain tax positions management
considers each issue on its own merits using their judgement as to the
estimate of the most likely outcome. When making estimates, management
considers all available evidence. This may include forecasts of future
profitability, the frequency and severity of any losses, and statutory carry
forward and carry back provisions as well as management experience of tax
attributes expiring without use. Where the final outcome differs from the
amount provided this difference will impact the tax charge in future periods.
Management re-assesses provisions at each reporting date based upon latest
available information.
(a) Tax charge in the consolidated income statement
(a)(i) Current year tax expense
2021 2020
£m £m
Current tax:
UK 5 (1)
Overseas 60 55
Adjustment to tax expense in respect of prior years 11 9
Total current tax attributable to continuing operations 76 63
Deferred tax:
Deferred tax expense/(credit) arising from the current year 36 (76)
Adjustment to deferred tax in respect of prior years 8 (2)
Total deferred tax attributable to continuing operations 44 (78)
Total tax expense/(credit) attributable to continuing operations(1) 120 (15)
1. The tax expense of £120m (2020: tax credit of £15m) includes a tax
expense of £4m (2020: £4m) relating to unit linked business. Refer Note 24
for further details.
The share of associates' and joint ventures' tax credit for the year is £5m
(2020: £17m expense) and is included in profit before tax in the consolidated
income statement in Share of profit or loss from associates and joint
ventures.
In 2021 unrecognised tax losses from previous years were used to reduce the
current tax expense by £15m (2020: £1m). Unrecognised tax losses and timing
differences were used to reduce the deferred tax expense by £nil (2020:
£1m).
Current tax recoverable and current tax liabilities at 31 December 2021 were
£2m (2020: £9m) and £27m (2020: £15m) respectively. In addition current
tax recoverable and current tax liabilities in relation to unit linked
business were £1m (2020: £1m) and £1m (2020: £1m) respectively. Current
tax assets and liabilities at 31 December 2021 and 31 December 2020 are
expected to be recoverable or payable in less than 12 months.
(a)(ii) Reconciliation of tax expense
2021 2020
£m £m
Profit before tax from continuing operations 1,115 838
Tax at 19% (2020: 19%) 212 159
Remeasurement of deferred tax due to rate changes (24) 9
Permanent differences (13) (20)
Non-taxable fair value movements on significant listed investments 7 -
Tax effect of accounting for Share of profit or loss from associates and joint 4 (37)
ventures
Impairment losses on intangible assets - 174
Impairment/(reversal of impairment) of investment in associates and joint - 9
ventures
Differences in overseas tax rates (70) (21)
Adjustment to current tax expense in respect of prior years 11 9
Recognition of previously unrecognised tax credit (15) (2)
Deferred tax not recognised 2 7
Adjustment to deferred tax expense in respect of prior years 8 (2)
Non-taxable profit or loss on sale of subsidiaries, associates and significant (5) (303)
listed investments
Other 3 3
Total tax expense/(credit) from continuing operations for the year 120 (15)
The standard UK Corporation Tax rate for the accounting period is 19%. On 3
March 2021, the UK Government announced its intention to increase the rate of
UK Corporation Tax from 19% to 25% with effect from 1 April 2023. This change
was substantively enacted on 24 May 2021. The effect of this change in the
rate of UK Corporation Tax at this date was to increase the deferred tax
assets and deferred tax liabilities in the statement of financial position by
£34m and £10m respectively and reduce the tax expense in the consolidated
income statement by £24m.
The accounting for certain items in the consolidated income statement results
in certain reconciling items in the table above, the values of which vary from
year to year depending upon the underlying accounting values.
Details of significant reconciling items are as follows:
- Permanent differences in 2021 include non-taxable dividends from
significant listed investments and other accounting items that are not subject
to Corporation Tax. Permanent differences also include the difference between
the tax basis and accounting value for employee share-based awards.
- Fair value movements in our investments in HDFC Life and Phoenix are not
subject to tax.
- The share of profit or loss from associates and joint ventures is
presented net of tax in the consolidated income statement and therefore gives
a reconciling item.
- Certain profits are taxed at rates which differ from the UK Corporation
Tax rate. In 2021 the effect of different overseas tax rates is driven mainly
by a non-recurring reconciling item associated with the gain arising on both
the sale and reclassification of shares in our associate HDFC Asset
Management. This arose because the Indian rate of tax on long-term capital
gains is less than the UK corporate tax rate.
- The ability to value tax losses and other tax assets also affects the
tax charge. We have not recognised a deferred tax asset of £2m on tax losses
arising in the year due to uncertainty as to when these losses will be
utilised. In addition, we have utilised £15m of previously unrecognised
deferred tax assets to offset against taxable profits arising in the year.
- Non-taxable profit or loss on disposal of subsidiaries, associates and
significant listed investments includes the impact of the taxable gains
arising on the disposals of our Nordic and Parmenion businesses being less
than the accounting gains. Furthermore, the partial disposal of the Group's
significant listed investment in HDFC Life is not subject to tax.
(b) Tax relating to components of other comprehensive income
Tax relating to components of other comprehensive income is as follows:
2021 2020
£m £m
Tax relating to defined benefit pension plan deficits (3) (2)
Equity holder tax effect relating to items that will not be reclassified (3) (2)
subsequently to profit or loss
Tax relating to fair value gains and losses recognised on cash flow hedges 6 (1)
Tax relating to cash flow hedge gains and losses transferred to consolidated (3) 3
income statement
Equity holder tax effect relating to items that may be reclassified 3 2
subsequently to profit or loss
Tax relating to other comprehensive income from continuing operations - -
All of the amounts presented above are in respect of equity holders of abrdn
plc.
(c) Deferred tax assets and liabilities
(c)(i) Movements in net deferred tax asset/(liability)
2021 2020
£m £m
Net deferred tax asset/(liability) at 1 January 65 (13)
Acquired through business combinations (19) -
Amounts (expensed)/credited to the consolidated income statement (44) 78
Tax on defined benefit pension plan deficits 3 2
Tax on cash flow hedge (3) (2)
Other 1 -
Net deferred tax asset at 31 December 3 65
(c)(ii) Analysis of recognised deferred tax
2021 2020
£m £m
Deferred tax assets comprise:
Losses carried forward 129 89
Depreciable assets 25 12
Employee benefits 30 28
Provisions and other temporary timing differences 4 2
Gross deferred tax assets 188 131
Less: Offset against deferred tax liabilities (20) -
Deferred tax assets 168 131
Deferred tax liabilities comprise:
Unrealised gains on investments 104 4
Deferred tax on intangible assets acquired through business combinations 72 52
Other 9 10
Gross deferred tax liabilities 185 66
Less: Offset against deferred tax assets (20) -
Deferred tax liabilities 165 66
Net deferred tax asset at 31 December 3 65
A deferred tax asset of £129m (2020: £89m) for the Group has been recognised
in respect of losses of various subsidiaries. Deferred tax assets are
recognised to the extent that it is probable that the losses will be capable
of being offset against taxable profits and gains in future periods. The value
attributed to them takes into account the certainty or otherwise of their
recoverability. Their recoverability is measured against the reversal of
deferred tax liabilities and anticipated taxable profits and gains based on
business plans. The deferred tax asset recognised on losses relates to UK
entities where there is currently no restriction on the period of time over
which losses can be utilised. Recognition of this deferred tax asset requires
that management must consider if it is more likely than not that this asset
will be recoverable in future periods against future profits arising in the
UK. In making this assessment management have considered future operating
plans and forecast taxable profits and are satisfied that, following
completion of transformation activities, forecast taxable profits will be
sufficient to enable recovery of the UK tax losses. Based upon the level of
forecast taxable profits management do not consider there is significant risk
of a material adjustment to the carrying amount of the deferred tax asset on
UK tax losses within the next financial year. Management expect the deferred
tax asset to be utilised over a period of between 4 and 6 years. No reasonably
possible change in any of the key assumptions would result in a significant
reduction in projected taxable profits such that the recognised tax asset
would not be recognised. The increase in this deferred tax asset in 2021
primarily reflects the enacted increase in the future UK tax rate from 19% to
25%.
Deferred tax liabilities relating to unrealised gains on investments of £104m
include £92m (2020: £nil) relating to our investment in HDFC Asset
Management following the reclassification of this holding from an associate
during 2021.
Deferred tax assets and liabilities are expected to be recovered or settled
after more than 12 months.
(d) Unrecognised deferred tax
Due to uncertainty regarding recoverability, deferred tax assets have not been
recognised in respect of the following:
- Cumulative losses carried forward of £78m in the UK and cumulative
losses and other temporary differences of £361m overseas (2020: £80m, £287m
respectively).
Of these unrecognised deferred tax assets, certain losses have expiry dates as
follows:
- US losses of £104m with expiry dates between 2027-2037 (2020: £164m).
- Other overseas losses of £43m with expiry dates between 2022-2036
(2020: £48m).
10. Discontinued operations
The Group classifies as discontinued operations areas of business which have
been disposed of or are classified as held for sale at the year end and which
either, represent a separate major line of business or geographical area, or
are part of a plan to dispose of one. The results of discontinued operations
are shown separately on the face of the consolidated income statement from the
results of the remaining (continuing) parts of the Group's business.
The consolidated income statement profit or loss, other comprehensive income
and cash flows from discontinued operations relate solely to the UK and
European insurance business which was sold in 2018 to Phoenix. For the year
ended 31 December 2021, the profit from discontinued operations was £nil. For
the year ended 31 December 2020, the loss from discontinued operations was
£15m which reflected changes in the value of contingent consideration
relating to the sale including the impact of the resolution of certain legacy
issues with Phoenix, refer Note 1(c)(iii). For the year ended 31 December
2021, net cash flows from discontinued operations of £34m (2020: (£42m)) are
included in net cash flows from investing activities. There was no other
comprehensive income from discontinued operations for the year ended 31
December 2021 (2020: £nil).
11. Earnings per share
Basic earnings per share is calculated by dividing profit attributable to
ordinary equity holders by the weighted average number of ordinary shares in
issue during the year excluding shares owned by the employee trusts that have
not vested unconditionally to employees.
Diluted earnings per share is calculated by adjusting the weighted average
number of ordinary shares in issue during the year to assume the conversion of
all dilutive potential ordinary shares, such as share options granted to
employees.
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.
Basic earnings per share was 46.8p (2020: 37.8p) and diluted earnings per
share was 46.0p (2020: 37.2p) for the year ended 31 December 2021. The
following table shows details of basic, diluted and adjusted earnings per
share.
2021 2020
restated(1)
£m £m
Adjusted profit before tax 323 240
Tax on adjusted profit (26) (38)
Adjusted profit after tax 297 202
Adjusted profit after tax attributable to non-controlling interests (ordinary (1) -
shares)
Dividend paid on preference shares - (5)
Adjusted profit after tax attributable to equity shareholders of abrdn plc 296 197
Total adjusting items including results of associates and joint ventures 792 598
Tax on adjusting items (94) 53
Profit attributable to equity shareholders of abrdn plc from continuing 994 848
operations
Loss for the year from discontinued - (15)
operations
Profit attributable to equity shareholders of abrdn plc 994 833
1. Comparatives for the year ended 31 December 2020 have been restated in
relation to changes to the Group's reportable segments and the change to the
Group's key alternative performance measure. Refer Notes 2 and 12 for further
details.
2021 2020
Millions Millions
Weighted average number of ordinary shares outstanding 2,123 2,202
Dilutive effect of share options and awards 36 37
Weighted average number of diluted ordinary shares outstanding 2,159 2,239
'
2021 2020
Restated(2)
Continuing operations Discontinued operations Total Continuing operations Discontinued operations Total
Pence Pence Pence Pence Pence Pence
Basic earnings per share 46.8 - 46.8 38.5 (0.7) 37.8
Diluted earnings per share 46.0 - 46.0 37.9 (0.7) 37.2
Adjusted earnings per share 13.9 - 13.9 8.9 - 8.9
Adjusted diluted earnings per share 13.7 - 13.7 8.8 - 8.8
2. Comparatives for adjusted earnings per share and adjusted diluted
earnings per share for the year ended 31 December 2020 have been restated in
relation to the change to the Group's key alternative performance measure.
Refer Note 12 for further details.
12. Adjusted profit and adjusting items
Adjusted profit excludes the impact of the following items:
- Restructuring costs and corporate transaction expenses. Restructuring
includes the impact of major regulatory change.
- Amortisation and impairment of intangible assets acquired in business
combinations and through the purchase of customer contracts.
- Profit or loss arising on the disposal of a subsidiary, joint venture or
equity accounted associate.
- Change in fair value of/dividends from significant listed investments
(see (b) below).
- Share of profit or loss from associates and joint ventures.
- Impairment loss/reversal of impairment loss recognised on investments in
associates and joint ventures accounted for using the equity method.
- 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.
The tax charge or credit allocated to adjusting items is based on the tax
treatment of each adjusting item.
The operating, investing and financing cash flows presented in the
consolidated statement of cash flows are for both adjusting and non-adjusting
items.
(a) Changes to the Group's adjusted profit
The Group has changed the definition of adjusted profit in 2021.
Previously adjusted profit included the pre-tax adjusted results from the
Group's associates and joint ventures accounted for using the equity method.
Adjusting items previously also included adjusting items such as restructuring
costs in relation to the results from the Group's associates and joint
ventures.
The reason for the change is to make the results more understandable,
following the reclassification of HDFC Life and Phoenix from associates to
equity investments.
Comparative information on adjusted profit for the year ended 31 December 2020
has been prepared on the same basis as the year ended 31 December 2021 to
allow more meaningful comparison.
A reconciliation to previously reported information is included in Section 9,
Supplementary information.
(b) Significant listed investments
Following the reclassification of HDFC Life, Phoenix and HDFC Asset Management
from associates to equity securities, fair value movements on these
investments are included as adjusting items. Excluding fair value movements on
significant listed investments for the purpose of adjusted profit is aligned
with our treatment of gains on disposal for these holdings when they were
classified as associates.
Dividends from significant listed investments are also included as adjusting
items, as such dividends result in fair value movements.
In addition to fair value movements, the other changes to the Group's
significant listed investments in the year ended 31 December 2021 were as
follows:
- The reclassification of Phoenix and HDFC Asset Management (refer Note
1(c)(iii) for further details).
- The Group's holding in HDFC Life reduced by 4.99% to 3.89% following the
sale of 100,845,104 equity shares in HDFC Life through a Bulk Sale on 29 June
2021. The total consideration net of taxes and expenses was £653m.
(c) Other
Other adjusting items for the year ended 31 December 2021 includes a net
release of deferred income of £25m, refer Note 34. Other adjusting items for
the year ended 31 December 2021 also included £8m for initial gains on
derecognition of right-of-use assets relating to subleases classified as
finance leases (2020: £2m) and a loss of £3m (2020: gain of £5m) for net
fair value movements in contingent consideration relating to continuing
operations.
13. Dividends on ordinary shares
Dividends are distributions of profit to holders of abrdn plc's share capital
and as a result are recognised as a deduction in equity. Final dividends are
announced with the Annual report and accounts and are recognised when they
have been approved by shareholders. Interim dividends are announced with the
Half year results and are recognised when they are paid.
2021 2020
Pence per share £m(1) Pence per share £m
Prior year's final dividend paid 7.30 154 14.30 320
Interim dividend paid 7.30 154 7.30 159
Total dividends paid on ordinary shares 308 479
Current year final recommended dividend 7.30 155 7.30 154
1. Estimated for current year final recommended dividend.
The final recommended dividend will be paid on 24 May 2022 to shareholders on
the Company's register as at 8 April 2022, subject to approval at the 2022
Annual General Meeting. After the current year final recommended dividend, the
total dividend in respect of the year ended 31 December 2021 is 14.60p (2020:
14.60p).
14. Intangible assets
Goodwill is created when the Group acquires a business and the consideration
exceeds the fair value of the net assets acquired. In determining the net
assets acquired in business combinations, intangible assets are recognised
where they are separable or arise from contractual or legal rights. Intangible
assets acquired by the Group through business combinations consist mainly of
customer relationships and investment management contracts, technology and
brands. Any remaining value that cannot be identified as a separate intangible
asset on acquisition forms part of goodwill.
In addition to intangible assets acquired through business combinations, the
Group recognises as intangible assets software which has been developed
internally and other purchased technology which is used in managing and
executing our business. Costs to develop software internally are capitalised
after the research phase and when it has been established that the project is
technically feasible and the Group has both the intention and ability to use
the completed asset.
Intangible assets are recognised at cost and amortisation is charged to the
income statement over the length of time the Group expects to derive benefits
from the asset. The allocation of the income statement charge to each
reporting period is dependent on the expected pattern over which future
benefits are expected to be derived. Where this pattern cannot be determined
reliably the charge is allocated on a straight-line basis.
Goodwill is not charged to the income statement unless it becomes impaired.
The Group also recognises the cost of obtaining customer contracts (refer Note
3) as an intangible asset. These costs primarily relate to the cost of
acquiring existing investment management contracts from other asset managers
and commission costs for initial investors into new closed end funds where
these are borne by the Group. For the cost of obtaining customer contracts,
the intangible asset is amortised on the same basis as the transfer to the
customer of the services to which the intangible asset relates.
Acquired through business combinations
Goodwill Brand Customer relationships and investment management contracts Technology Internally developed software(1) Purchased software Cost of obtaining customer contracts Total
and other
£m £m £m £m £m £m £m £m
Gross amount
At 1 January 2020 3,475 93 1,031 67 131 3 96 4,896
Reclassified as held for sale during the year - - - (3) (2) - - (5)
Additions - - - - 2 2 8 12
At 31 December 2020 3,475 93 1,031 64 131 5 104 4,903
Disposals and adjustments - - (15) - - - - (15)
Additions 246 1 72 5 - - - 324
At 31 December 2021 3,721 94 1,088 69 131 5 104 5,212
Accumulated amortisation and impairment
At 1 January 2020 (2,475) (45) (497) (55) (80) (1) (36) (3,189)
Reclassified as held for sale during the year - - - 2 1 - - 3
Amortisation charge for the year(2) - (18) (86) (7) (21) (1) (19) (152)
Impairment losses recognised(3) (915) - (134) (1) (14) - - (1,064)
At 31 December 2020 (3,390) (63) (717) (61) (114) (2) (55) (4,402)
Disposals and adjustments - - 10 (2) 2 - - 10
Amortisation charge for the year(2) - (19) (67) (1) (7) (2) (12) (108)
Impairment losses recognised(3) - - - - (8) - - (8)
At 31 December 2021 (3,390) (82) (774) (64) (127) (4) (67) (4,508)
Carrying amount
At 1 January 2020 1,000 48 534 12 51 2 60 1,707
At 31 December 2020 85 30 314 3 17 3 49 501
At 31 December 2021 331 12 314 5 4 1 37 704
1. Included in the internally developed software of £4m (2020: £17m) is
£nil (2020: £8m) relating to intangible assets not yet ready for use.
2. For the year ended 31 December 2021, £99m (2020: £130m) of the
amortisation charge is recognised in Amortisation and impairment of other
intangibles acquired in business combinations and through the purchase of
customer contracts with £9m (2020: £22m) recognised in Other administrative
expenses.
3. For the year ended 31 December 2021, £nil (2020: £135m) of impairment
is recognised in Amortisation and impairment of other intangibles acquired in
business combinations and through the purchase of customer contracts with £8m
(2020: £14m) recognised in Restructuring and corporate transaction expenses.
For the year ended 31 December 2020, the impairment losses of £915m relating
to asset management goodwill were presented separately in the consolidated
income statement.
At 31 December 2021, there was £167m (2020: £nil) of goodwill attributable
to the asset management group of cash-generating units and £72m (2020: £nil)
of goodwill attributable to the Finimize cash-generating unit, both in the
Investments segment. Refer Note 1(b)(i) for further details on the
acquisitions of Tritax and Finimize. The remaining goodwill of £92m (2020:
£85m) is attributable to a number of smaller cash-generating units in the
Personal segment.
Both the Investments and Personal segments were formerly part of the Asset
management, platforms and wealth segment.
Tritax investment management contract intangible assets
On acquisition of Tritax, £71m of customer relationships and investment
management contracts intangibles were recognised. These assets primarily
relate to Tritax's investment management contracts with Tritax Big Box REIT
plc and Tritax Euro Box plc which are listed closed-end real estate funds. The
description of the individually material intangible asset including the
estimated useful life at the acquisition date of 1 April 2021 was as follows:
Investment management contract intangible asset Description Useful life at acquisition date Fair value on acquisition date Carrying Carrying
value
value
2021 2020
£m £m £m
Tritax Big Box REIT plc Investment management contract with Tritax Big Box REIT plc 13 years 50 47 N/A
The key assumptions, other than the useful life, in measuring the fair value
of the investment contract intangible assets at acquisition date were as
follows:
- Revenue growth - this assumption was based on the fund growth (from
markets and investment performance) included in the Tritax business plan as
adjusted for the impact of fund raisings which commenced prior to the
acquisition date. Management fee rates are assumed to stay in line with
current rates.
- Operating margin - this assumption was based on the current operating
margins adjusted for expected cost synergies.
- Discount rate - this assumption was based on a market participant
weighted average cost of capital.
As the investment management contracts relate to closed-end funds, the
straight-line method of amortisation is considered appropriate for these
intangibles. There has been no change to the useful lives and therefore the
residual useful life of these investment management contract intangible assets
is 12.25 years.
Aberdeen Asset Management PLC (AAM PLC) intangibles
On the acquisition of AAM PLC in 2017, we identified intangible assets in
relation to customer relationships, brand and technology as being separable
from goodwill. Identification and valuation of intangible assets acquired in
business combinations is a key judgement.
The customer relationships acquired through AAM PLC were grouped where the
customer groups have similar economic characteristics and similar useful
economic lives. This gave rise to three separate intangible assets which we
termed Lloyds Banking Group, Open ended funds, and Segregated and similar.
In relation to the Open ended funds we considered that it was most appropriate
to recognise an intangible asset relating to customer relationships between
AAM PLC and open ended fund customers, rather than an intangible asset
relating to investment management agreements between AAM PLC and AAM PLC's
open ended funds. Our judgement was that the value associated with the open
ended fund assets under management was predominantly derived from the
underlying customer relationships, taking into account that a significant
proportion of these assets under management are from institutional clients.
The intangible asset for Lloyds Banking Group had a carrying value of £nil at
the end of 2019. The description of the remaining two separate intangible
assets including their estimated useful life at the acquisition date of 14
August 2017 was as follows:
Customer relationship intangible asset Description Useful life at acquisition date Fair value on acquisition date Carrying Carrying
value
value
2021 2020
£m £m £m
Open ended funds Separate vehicle group - open ended investment vehicles 11 years 223 62 87
Segregated and similar All other vehicle groups dominated by segregated mandates which represent 75% 12 years 427 83 107
of this group
Measuring the fair value of intangible assets acquired in business
combinations required further assumptions and judgements. Customer
relationships were valued using discounted cash flow projections. The key
assumptions in measuring the fair value of the customer relationships at the
acquisition date were as follows:
- Net attrition - net attrition represents the expected rate of outflows
of assets under management net of inflows from existing customers. This
assumption was primarily based on recent experience.
- Market growth - a market growth adjustment was applied based on the
asset class.
- Operating margin - this assumption was consistent with forecast margins
and included the impact of synergies that would be expected by any market
participant and impacted the Aberdeen customer relationship cash flows.
- Discount rate - this assumption was based on the internal rate of return
(IRR) of the transaction and is consistent with a market participant discount
rate.
The above assumptions, and in particular the net attrition assumption, were
also used to determine the useful economic life at the acquisition date of
each asset used for amortisation. The reducing balance method of amortisation
is considered appropriate for these intangibles, consistent with the attrition
pattern on customer relationships which means that the economic benefits
delivered from the existing customer base will reduce disproportionately over
time.
There has been no change to the useful lives of the Open ended funds and
Segregated and similar customer relationship intangible assets. Therefore the
residual useful life of the Open ended funds customer relationship intangible
asset is 6.6 years and the residual life of the Segregated and similar
customer relationship intangible asset is 7.6 years.
Estimates and assumptions
The key estimates and assumptions in relation to intangible assets are:
- Determination of the recoverable amount of goodwill and customer
intangibles.
- Determination of useful lives.
The determination of the recoverable amount of asset management goodwill was a
significant judgement in relation to the 2020 accounts. However, as the
Group's asset management goodwill was fully impaired at 30 June 2020, this is
no longer a source of estimation uncertainty at the end of the reporting
period.
Similarly, the determination of the recoverable amount of the segregated and
similar customer relationship intangible was an area of estimation uncertainty
at 30 June 2020 (at which point it was impaired) and 31 December 2020. However
as a result of amortisation and market movements this was not considered a
source of estimation uncertainty at 31 December 2021 with a significant risk
of resulting in material adjustment to the carrying amount in the next
financial year.
Determination of the recoverable amount of goodwill and customer intangibles
For all intangible assets including goodwill, an assessment is made at each
reporting date as to whether there is an indication that the goodwill or
intangible asset has become impaired. If any indication of impairment exists
then the recoverable amount of the asset is determined. In addition, the
recoverable amount for goodwill must be assessed annually.
The recoverable amounts are defined as the higher of fair value less costs of
disposal (FVLCD) and the value in use (VIU) where the value in use is based on
the present value of future cash flows. Where the carrying value exceeds the
recoverable amount then the carrying value is written down to the recoverable
amount.
In assessing value in use, expected future cash flows are discounted to their
present value using a pre-tax discount rate. Judgement is required in
assessing both the expected cash flows and an appropriate discount rate which
is based on current market assessments of the time value of money and the
risks associated with the asset.
Goodwill
No impairments of goodwill were recognised in 2021.
Goodwill of £167m (2020: £nil) is allocated to the asset management group of
cash-generating units which comprises the Investments segment (excluding
Finimize). The recoverable amount of this group of cash-generating units was
determined based on value in use. Cash flows were based on the three year
financial budgets approved by management. The key assumptions used by
management in setting the three-year profit forecasts are:
- Revenue in the management forecasts reflects past experience and
modelling based on assets under management and fee revenue yields by asset
class.
- Assets under management is modelled from future net flow assumptions and
market movements. Net flow assumptions take into account past experience, the
withdrawal of residual LBG assets, and assume institutional and wholesale
flows move to a net inflow position. Market assumptions assume equity market
growth over the plan period.
- Expenses in the management forecasts were based on past experience.
Where expense savings relating to staff and property require provisions to be
made in future years, these expense savings (and the related implementation
costs) have, for the purposes of the VIU calculation, been added back to
management's expectation of the future operating expenses.
The value in use used a pre-tax discount rate of 14.3%. This is based on the
Group/peer companies cost of equity adjusted for forecasting risk. A terminal
growth rate of 2% was used based on long-term inflation. No reasonably
possible change in a key assumption would cause the carrying amount to exceed
the value in use.
In 2020, an impairment of £915m was recognised at 30 June 2020 relating to an
impairment of asset management goodwill, the group of cash-generating units
for which was our asset management business excluding HDFC Asset Management
and Virgin Money UTM. The recoverable amount of this group of cash-generating
units at 30 June 2020 was £1,654m, which is based on FVLCD. The impairment
resulted from the impact on reported revenue and future revenue projections of
global equity market falls and a shift in asset mix towards lower margin
assets. Both the fall in equity markets and the shift in asset mix were global
market impacts primarily resulting from COVID-19. Additional projections were
prepared to take into account these COVID-19 impacts, and uncertainties over
future financial markets, and these projections were a key input to the
impairment review process. This asset management goodwill was fully impaired
at 30 June 2020 and 31 December 2020.
Goodwill of £72m (2020: £nil) is allocated to the Finimize cash-generating
unit in the Investments segment. The recoverable amount of this
cash-generating unit was determined based on fair value less costs of disposal
(FVLCD). The FVLCD considered a number of valuation approaches, with the
primary approach being a revenue multiple approach. This is a level 3
measurement as it is measured using inputs which are not based on observable
market data. The assumptions used in determining the revenue multiple
valuation were future revenue projections which were based on the model used
in the acquisition process and assumed a continued level of future revenue
growth, and market multiples for precedent private transactions. The
recoverable amount exceeds the carrying amount of the cash-generating unit by
£10m. The key assumption relates to future revenue growth. The acquisition
model assumes revenue growth of CAGR (compound annual growth rate) of c90%
over the period to 2025. A revenue CAGR of c85%, which we consider a
reasonably possible change in this key assumption, would reduce the
recoverable amount to the carrying amount.
Goodwill of £92m is attributable to a number of smaller cash-generating units
in the Personal segment (which was formerly part of the Asset management,
platforms and wealth segment). No goodwill amounts are significant in
comparison to the total carrying amount of goodwill and the recoverable
amounts are not based on the same key assumptions.
Customer relationship and investment management contract intangibles
No impairments of customer intangibles were recognised in 2021. At 31 December
2021, there was no indication that any of the Group's customer relationship
and investment management contract intangibles were impaired.
In 2020, an impairment of £134m was recognised at 30 June 2020 relating to
the Segregated and similar customer relationship intangible asset which was
recognised on the acquisition of AAM PLC. The Segregated and similar customer
relationship intangible asset is included in the Investments segment. The
recoverable amount of this asset at 30 June 2020 was £119m which was its VIU
calculated using a pre-tax discount rate of 14.8%. The impairment resulted
from the impact of markets, net outflows and a fall in revenue yield on future
earnings expectations. At 31 December 2021, there is no indication that the
Segregated and similar customer relationship intangible asset has become
further impaired. There was also no indication of further impairment at 31
December 2020.
Determination of useful lives
The determination of useful lives requires judgement in respect of the length
of time that the Group expects to derive benefits from the asset and considers
for example expected duration of customer relationships and when technology is
expected to become obsolete for technology based assets. The amortisation
period and method for each of the Group's intangible asset categories is as
follows:
- Customer relationships acquired through business combinations -
generally between 7 and 12 years, generally reducing balance method.
- Investment management contracts acquired through business combinations -
between 10 and 17 years,
straight-line.
- Brand acquired through business combinations - between 2 and 5 years,
straight-line.
- Technology acquired through business combinations - between 3 and 6
years, straight-line.
- Internally developed software - between 2 and 6 years. Amortisation is
on a straight-line basis and commences once the asset is available for use.
- Purchased software - between 2 and 6 years, straight-line.
- Costs of obtaining customer contracts - between 3 and 12 years,
generally reducing balance method.
Internally developed software
In 2021, an impairment of internally developed software of £8m (2020: £14m)
was recognised. The impairment in 2021 primarily related to an impairment of a
digital advice application in the Personal segment as a result of a reduction
in expected future cash flows. The impairment in 2020 related to software made
obsolete as a result of the development of the new investment platform in the
Investments segment.
15. Investments in associates and joint ventures
Associates are entities where the Group can significantly influence decisions
made relating to the financial and operating policies of the entity but does
not control the entity. For entities where voting rights exist, significant
influence is presumed where the Group holds between 20% and 50% of the voting
rights. Where the Group holds less than 20% of voting rights, consideration is
given to other indicators and entities are classified as associates where it
is judged that these other indicators result in significant influence.
Joint ventures are strategic investments where the Group has agreed to share
control of an entity's financial and operating policies through a
shareholders' agreement and decisions can only be taken with unanimous
consent.
Associates, other than those accounted for at fair value through profit or
loss, and joint ventures are accounted for using the equity method from the
date that significant influence or shared control, respectively, commences
until the date this ceases with consistent accounting policies applied
throughout.
Under the equity method, investments in associates and joint ventures are
initially recognised at cost. When an interest is acquired at fair value from
a third party, the value of the Group's share of the investee's identifiable
assets and liabilities is determined applying the same valuation criteria as
for a business combination at the acquisition date. This is compared to the
cost of the investment in the investee. Where cost is higher the difference is
identified as goodwill and the investee is initially recognised at cost which
includes this component of goodwill. Where cost is lower a bargain purchase
has arisen and the investee is initially recognised at the Group's share of
the investee's identifiable assets and liabilities unless the recoverable
amount for the purpose of assessing impairment is lower, in which case the
investee is initially recognised at the recoverable amount.
Subsequently the carrying value is adjusted for the Group's share of
post-acquisition profit or loss and other comprehensive income of the
associate or joint venture, which are recognised in the consolidated income
statement and other comprehensive income respectively. The Group's share of
post-acquisition profit or loss includes amortisation charges based on the
valuation exercise at acquisition. The carrying value is also adjusted for any
impairment losses.
On partial disposal of an associate, a gain or loss is recognised based on the
difference between the proceeds received and the equity accounted value of the
portion disposed of. Indicators of significant influence are reassessed based
on the remaining voting rights. Where significant influence is judged to have
been lost, the investment in associate is reclassified to interests in equity
securities and pooled investment funds measured at fair value. If an entity is
reclassified, the difference between the fair value and the remaining equity
accounted value is accounted for as a reclassification gain or loss on
disposal.
Where the Group has an investment in an associate, a portion of which is held
by, or is held indirectly through, a mutual fund, unit trust or similar
entity, including investment-linked insurance funds, that portion of the
investment is measured at FVTPL. In general, investment vehicles which are not
subsidiaries are considered to be associates where the Group holds more than
20% of the voting rights.
The level of future dividend payments and other transfers of funds to the
Group from associates and joint ventures accounted for using the equity method
could be restricted by the regulatory solvency and capital requirements of the
associate or joint venture, certain local laws or foreign currency transaction
restrictions.
(a) Investments in associates and joint ventures accounted
for using the equity method
2021 2020
Associates Joint ventures Total Associates Joint ventures Total
£m £m £m £m £m £m
At 1 January 1,134 237 1,371 1,257 252 1,509
Exchange translation adjustments - 7 7 (11) 8 (3)
Additions - 11 11 - 5 5
Disposals (29) - (29) (102) - (102)
Profit/(loss) after tax (35) 13 (22) 177 17 194
Other comprehensive income 12 (4) 8 - - -
Dilution gains - - - 4 - 4
Impairment - - - - (45) (45)
Distributions of profit (15) - (15) (80) - (80)
Reclassified to equity securities and interests in pooled investments funds (1,057) - (1,057) (111) - (111)
At 31 December 10 264 274 1,134 237 1,371
The following joint venture is considered to be material to the Group as at 31
December 2021.
Name Nature of relationship Principal place of business Measurement method Interest held by Interest held by
the Group at 31 December 2021
the Group at 31 December 2020
Heng An Standard Life Insurance Company Limited (HASL) Joint venture China Equity accounted 50.00% 50.00%
The country of incorporation or registration is the same as the principal
place of business. The interest held by the Group is the same as the
proportion of voting rights held. HASL is not listed.
The Group's investment in the following companies were considered to be
material associates at 31 December 2020 but were reclassified to equity
securities and interest in pooled investment funds during 2021. Refer Section
(b) below for further details.
Name Nature of relationship Principal place of business Measurement method Interest held by Fair value of interest held by the Group at
the Group at 31 December 2020
31 December 2020
HDFC Asset Management Company Limited (HDFC Asset Management) Associate India Equity accounted 21.24% 1,321
Phoenix Group Holdings plc (Phoenix) Associate United Kingdom Equity accounted 14.42% 1,010
The country of incorporation or registration is the same as their principal
place of business. The interest held by the Group was the same as the
proportion of voting rights held. These companies are both listed.
(b) Investments in associates accounted for using the equity method
The Group has no material associates at 31 December 2021. The table below
provides summarised financial information for those associates which were
considered to be material to the Group at 31 December 2020. The summarised
financial information reflects the amounts presented in the financial
statements or management accounts of the relevant associates amended to
reflect adjustments made when using the equity method, including fair value
adjustments on acquisition and not the Group's share of those amounts.
2020
Phoenix(1) HDFC Asset Management(1)
£m £m
Summarised financial information of associate:
Revenue 4,704 220
Profit after tax (all from continuing operations) 690 132
Other comprehensive income 25 -
Total comprehensive income 715 132
Total assets(2) 334,193 474
Total liabilities(2) 326,441 28
Net assets 7,752 446
Attributable to NCI and other equity holders 835 -
Attributable to investee's shareholder 6,917 446
Interest held 14.42% 21.24%
Share of net assets 998 95
2021 2020
Phoenix(1) HDFC Asset Management(1) Other(4) Total Phoenix HDFC Asset Management Other(3,4) Total
£m £m £m £m £m £m £m £m
Carrying value of associates accounted for using the equity method - - 10 10 1,008 116 10 1,134
Dividends received(3) - 15 - 15 67 13 - 80
Share of profit/(loss) after tax(3) (56) 21 - (35) 110 48 19 177
1. As noted above, the Group's investment in Phoenix and HDFC Asset
Management were reclassified to equity securities and interests in pooled
investment funds in 2021 so were not material associates at 31 December 2021
(refer below for further details of the reclassification).
2. As a liquidity presentation is used by insurance companies when
presenting their statement of financial position, an analysis of total assets
and total liabilities between current and non-current was not provided for
Phoenix. The majority of HDFC Asset Management's assets and liabilities were
current.
3. For the year ended 31 December 2020 the share of profit/(loss) after tax
of £19m for Other relates to HDFC Life for the period from 1 January 2020 to
3 December 2020 prior to its reclassification to equity securities and
interests in pooled funds (refer below for further details of the
reclassification).
4. For the years ended 31 December 2021 and 2020, the carrying value of
associates accounted for using the equity method for Other primarily relates
to the Group's interest in Tenet Group Limited.
HDFC Asset Management
HDFC Asset Management manages a range of mutual funds and provides portfolio
management and advisory services. The investment in HDFC Asset Management
allows the Group to benefit from an investment in a leading asset manager in
India, one of the world's fastest growing markets.
On 29 September 2021 the Group reduced its interest in HDFC Asset Management
to 16.22% (2020: 21.24%). Refer Note 1(c)(iii) for further details of the
sale.
Following the sale, HDFC Asset Management is no longer considered to be an
associate of the Group and the Group's interest in HDFC Asset Management was
reclassified from an investment in associates accounted for using the equity
method to equity securities and interests in pooled investment funds measured
at fair value on 29 September 2021. The sale reduced the Group's interest in
HDFC Asset Management below 20%, which is the threshold where significant
influence is presumed. While the Group does retain board representation, there
are no significant decisions that require unanimous board approval under the
articles of association and the Group has no significant contractual
relationships with HDFC Asset Management. We consider that the Group no longer
has significant influence over HDFC Asset Management after the sale, and
therefore should no longer be classified as an associate.
On 29 September 2021, the equity accounted value of HDFC Asset Management was
£93m and the fair value of the Group's investment in HDFC Asset Management
was £1,003m based on the share price on this date. A reclassification gain of
£897m has been recognised in the consolidated income statement. On
reclassification a loss of £13m was recycled from the translation reserve and
was included in determining the gain.
Prior to reclassification, the difference between the carrying value of this
associate and the Group's share of net assets was due primarily to goodwill
arising on the buyback of shares by HDFC Asset Management from employees.
The year end date of HDFC Asset Management is 31 March which is different from
the Group's year end date of
31 December. For the purposes of the preparation of the Group's consolidated
financial statements, financial information for the period from 1 January 2021
to 29 September 2021 was used for HDFC Asset Management for equity accounting
purposes (2020: 1 January 2020 to 31 December 2020).
Phoenix
Phoenix is the largest life and pensions consolidator in Europe. Our
investment in Phoenix supports our strategic partnership.
Following the completion of the Sale of the Group's UK and European insurance
business in August 2018, as part of the total consideration, the Group was
issued with new Phoenix shares representing 19.98% of the issued share capital
of Phoenix.
During the year ended 31 December 2020, the Group's interest in Phoenix was
reduced to 14.4%. On 22 July Phoenix announced the completion of its
acquisition of ReAssure Group plc. Under the terms of the transaction, Phoenix
issued 277,277,138 new ordinary shares as part consideration for the
acquisition. Phoenix have recognised a gain on acquisition of £372m
reflecting the excess of the fair value of the net assets acquired over the
consideration paid and the Group's share of this gain is recognised in our
share of profit from Phoenix. Completion of the transaction resulted in the
Group's holding in Phoenix becoming 14.4% of the enlarged Phoenix Group. A
dilution gain of £4m was recognised within the Profit on disposal of
interests in associates in the 2020 consolidated income statement as a result
of the transaction. Refer Note 1(c)(iv) for further details. Although our
interest in Phoenix had reduced to 14.4%, taking into account our continued
representation on Phoenix's board and, in particular, the contractual
relationships with Phoenix, including the licensing to Phoenix of the Standard
Life brand, our judgement was that Phoenix should continue to be classified as
an associate.
On 23 February 2021, the Group announced a simplification and extension of the
strategic partnership between the Group and Phoenix. Refer Note1(c)(iii). The
announcement included the sale of the 'Standard Life' brand to Phoenix,
replacing the existing agreement to licence the brand for no fee to Phoenix.
Following the changes to the commercial agreements, in particular in relation
to the licensing of the 'Standard Life' brand, our judgement is that Phoenix
should no longer be accounted for as an associate with effect from 23 February
2021. The changes simplified the agreements between abrdn and Phoenix such
that the Group was no longer able to control Phoenix's use of the Standard
Life brand. The Group's shareholding in Phoenix, which remained at 14.4%, was
therefore reclassified from an investment in associates accounted for using
the equity method to equity securities and interests in pooled investment
funds measured at fair value. A reclassification gain of £68m is included in
the profit on disposal of interests in associates for the year ended 31
December 2021 as the fair value on 22 February 2021 of £1,023m was higher
than the previous carrying value as an associate of £964m. On disposal, other
comprehensive income gains of £9m were recycled from retained earnings and
included in determining the gain on sale.
Determination of fair value and useful lives of intangible assets on acquisition of the 19.98% interest in Phoenix in August 2018
The identification, valuation and determination of useful lives for equity
accounting purposes, of the Group's share of Phoenix's intangible assets was a
key judgement in the determination of Phoenix profits up to the date of
reclassification in 2021 and therefore the Group's carrying value of Phoenix
at the date of the reclassification (and therefore gain on reclassification)
and share of profits for the period from 1 January 2021 to 22 February 2021.
At acquisition the value of the Group's share of Phoenix's identifiable assets
and liabilities was determined. This value was determined using the same
valuation bases as required for a business combination under which most of the
identifiable assets and liabilities of the enlarged Phoenix group (including
Standard Life Assurance Limited (SLAL)) were measured at fair value. The most
significant assets that were not measured at fair value were Phoenix's defined
benefit pension schemes which were measured at their IAS 19 value.
As noted above, a key judgement was the identification, valuation and
determination of useful lives, of the Group's share of Phoenix's intangible
assets at the date of acquisition. The main intangible assets identified were
the acquired present value of in-force business (AVIF) for both SLAL and other
Phoenix entities. AVIF comprised the difference between the fair value and
IFRS carrying value of insurance contracts together with the fair value of
future profits expected to arise on investment contracts. The valuation of the
AVIF was determined using the application of present value techniques to the
best estimate cash flows expected to arise from policies that were in-force at
the acquisition date, adjusted to reflect the price of bearing the uncertainty
inherent in those cash flows. This approach incorporated a number of
judgements and assumptions which impacted the resultant valuation, the most
significant of which were mortality rates, expected policy lapses, the
expenses associated with servicing the policies, future investment returns,
the discount rate and the risk adjustment for uncertainty, determined using a
cost of capital approach. The Group's share of profit after acquisition until
the date of reclassification under the equity method reflects the amortisation
of these intangible assets. This differs from the amortisation recognised in
Phoenix's own IFRS financial statements due to the revaluation of the existing
Phoenix intangible assets at August 2018 for equity method purposes. The
amortisation method reflects the expected emergence of economic benefits which
results in higher amortisation in earlier periods.
Following the completion of the ReAssure transaction, the Group's share of
Phoenix's intangible assets recognised at the date of acquisition reduced from
19.98% to 14.4%. The notional partial disposal of these intangible assets
results in a reduction in the corresponding amortisation recognised in the
Group's share of profit under the equity method.
Intangible Asset Useful life at Fair value at Group's share at
acquisition date
acquisition date
acquisition date(1)
Years £m £m
SLAL AVIF 24 2,931 586
Existing Phoenix AVIF 15 1,503 300
1. Based on Group's share at the date of acquisition (19.98%).
There had been no change to the useful lives of the SLAL AVIF and Existing
Phoenix AVIF.
Phoenix has taken advantage of the temporary exemption granted to insurers in
IFRS 4 Insurance Contracts from applying IFRS 9 as a result of meeting the
exemption criteria as at 31 December 2015. As the Group's investment in
Phoenix is now measured at fair value, we are no longer applying the temporary
exemption from IFRS 9 in relation to Phoenix at 31 December 2021.
The financial assets with contractual cash flows that were solely payments of
principal and interest (excluding those held for trading or managed on a fair
value basis) that remained under IAS 39 for equity accounting purposes at 31
December 2020 are set out below together with all other financial assets,
measured at fair value through profit and loss:
Fair value as at
31 December 2020
£m
Financial assets with contractual cash flows that are solely payments of 13,436
principal and interest (SPPI) excluding those held for trading or managed on a
fair value basis
Financial assets other than those above(1) 298,176
Total 311,612
1. The change in fair value in the year to 31 December 2020 of all other
financial assets that are FVTPL was a gain of £11,087m.
An analysis of credit ratings of financial assets with contractual cash flows
that are SPPI, excluding those held for trading or managed on a fair value
basis at 31 December 2020, is also provided below:
AAA AA A BBB BB and below Non-rated Unit linked Total
2020 2020 2020 2020 2020 2020 2020 2020
Carrying value £m £m £m £m £m £m £m £m
Loans and deposits - 6 195 - - 368 78 647
Cash and cash equivalents 30 1,728 7,035 193 - 4 2,008 10,998
Accrued income - - - - - 251 - 251
Other receivables - - - - - 1,540 - 1,540
30 1,734 7,230 193 - 2,163 2,086 13,436
HDFC Life
HDFC Life is one of India's leading life insurance companies. The investment
in HDFC Life allows the Group to benefit from the life insurance market in one
of the world's fastest growing economies.
During the year ended 31 December 2020, the Group's interest in HDFC Life was
reclassified from an investment in associates accounted for using the equity
method to equity securities and interests in pooled investment funds measured
at fair value.
During 2020 the Group further reduced its interest in HDFC Life to 8.89%.
Refer Note 1(c)(iv) for further details of the sales during 2020. While the
Group's remaining interest at 31 December 2019 of 14.73% was less than 20%,
being the threshold where significant influence is presumed, our judgement was
that HDFC Life should continue to be classified as an associate. This
judgement took into account other key indicators of significant influence
including the Group's representation on the board of HDFC Life and the Group's
ability to participate in policy-making processes including decisions about
dividends or other distributions that require unanimous board approval under
the articles of association. The sale on 3 December 2020 reduced the Group's
interest from 10.27% to 8.89% and the Group was no longer entitled to
representation on the board of HDFC Life and, from this date, HDFC Life was no
longer considered to be an associate of the Group.
On 3 December 2020, the equity accounted value of HDFC Life was £111m and the
fair value of the Group's investment in HDFC Life was £1,168m based on the
share price on this date. A reclassification gain of £1,051m was recognised
in the consolidated income statement for the year ended 31 December 2020. On
reclassification a loss of £6m was recycled from the translation reserve and
was included in determining the gain.
The year end date for HDFC Life is 31 March which is different from the
Group's year end date of 31 December. For the purposes of the preparation of
the Group's 2020 consolidated financial statements, financial information for
the period from 1 January 2020 to 3 December 2020 was used for HDFC Life for
equity accounting purposes.
(c) Investments in joint ventures
HASL Other Total
2021 2020 2021 2020 2021 2020
£m £m £m £m £m £m
Carrying value of joint ventures accounted for using the equity method 258 236 6 1 264 237
Dividends received - - - - - -
Share of profit/(loss) after tax 19 23 (6) (6) 13 17
HASL
The Group has a 50% share in HASL, one of China's leading life insurance
companies offering life and health insurance products. The investment in HASL
is a strategic investment giving the Group access to one of the world's
largest markets.
On 30 June 2020, HASL completed the acquisition of SL Asia. Refer Note
1(c)(ii) for further details.
The table below provides summarised financial information for HASL, the joint
venture which is considered to be material to the Group. The summarised
financial information reflects the amounts presented in the financial
statements of HASL amended to reflect adjustments made when using the equity
method.
HASL
2021 2020
£m £m
Summarised financial information of joint venture:
Revenue 612 481
Depreciation and amortisation 4 3
Interest income 68 57
Interest expense 2 2
Income tax (expense)/income (3) (3)
Profit after tax (all from continuing operations) 39 46
Other comprehensive income (11) 1
Total comprehensive income 28 47
Total assets(1) 3,787 3,156
Total liabilities(1) 3,271 2,685
Cash and cash equivalents 102 122
Net assets 516 471
Attributable to investee's shareholder 516 471
Interest held 50% 50%
Share of net assets 258 236
1. As a liquidity presentation is used by insurance companies when
presenting their statement of financial position, an analysis of total assets
and total liabilities between current and non-current has not been provided
for HASL.
At 31 December 2015 HASL had significant insurance liabilities and its
liabilities arising from contracts within the scope of IFRS 4 and liabilities
connected with insurance were over 90% of its total liabilities. Therefore
HASL was eligible to defer the implementation of IFRS 9 for equity accounting
purposes.
The fair value of HASL's financial assets at 31 December 2021 that remain
under IAS 39 for equity accounting purposes and the change in fair value
during the year ended 31 December 2021 are as follows:
Fair value as at Fair value as at
31 December 2021
31 December 2020
£m £m
Financial assets with contractual cash flows that are solely payments of 2,384 1,862
principal and interest (SPPI) excluding those held for trading or managed on a
fair value basis(1,2)
Financial assets other than those above(2) 562 431
Total 2,946 2,293
1. Financial assets that are SPPI (excluding those held for trading or
managed on a fair value basis) are predominantly AAA debt instruments. Their
carrying value at 31 December 2021 is £2,320m (2020: £1,378m). No securities
are rated below BBB (2020: none).
2. The change in fair value in the year to 31 December 2021 for financial
assets that are SPPI (excluding those held for trading or managed on a fair
value basis) is a gain of £136m (2020: £129m). The change in fair value for
all other financial assets is a gain of £45m (2020: gain of £23m).
Virgin Money UTM
Other joint ventures carrying value of £6m (2020: £1m) includes £6m (2020:
£1m) for Virgin Money UTM.
No impairment of the Group's interest in Virgin Money UTM was recognised in
2021. In 2020, an impairment loss of £45m was recognised at 30 June 2020 in
the Asset management, platforms and wealth segment and was included in loss on
impairment of interests in joint ventures in the consolidated income
statement. Virgin Money UTM's recoverable amount at 30 June 2020 was £nil
which was its VIU and which was calculated using a pre-tax discount rate of
14.9%.The impairment resulted from a reduction in projected future revenues as
a result of a business plan reassessment by the joint venture which took into
account the fall in UK equity markets due to COVID-19, and an increase in
projected costs to develop a new retail customer proposition.
(d) Investments in associates measured at FVTPL
The aggregate fair value of associates accounted for at FVTPL included in
equity securities and interests in pooled investment funds (refer Note 18) at
31 December 2021 is £63m (2020: £54m) none of which are considered
individually material to the Group.
16. Property, plant and equipment
Property, plant and equipment consists primarily of property owned and
occupied by the Group and the computer equipment used to carry out the Group's
business along with right-of-use assets for leased property and equipment.
Owner occupied property: Owner occupied property is initially recognised at
cost and subsequently revalued to fair value at each reporting date.
Depreciation, being the difference between the carrying amount and the
residual value of each significant part of a building, is charged to the
consolidated income statement over its useful life. The useful life of each
significant part of a building is estimated as being between 30 and 50 years.
A revaluation surplus is recognised in other comprehensive income unless it
reverses a revaluation deficit which has been recognised in the consolidated
income statement.
Equipment: Equipment is initially recognised at cost and subsequently measured
at cost less depreciation. Depreciation is charged to the income statement
over 2 to 15 years depending on the length of time the Group expects to derive
benefit from the asset.
Right-of-use asset: Refer Note 17 below for the accounting policies for
right-of-use assets.
Owner occupied property Equipment Right-of-use assets - property Right-of-use assets - equipment Total
£m £m £m £m £m
Cost or valuation
At 1 January 2020 2 125 404 2 533
Reclassified as held for sale during the year - (4) (7) - (11)
Additions - 13 16 1 30
Disposals and adjustments(1) - (26) (38) - (64)
Derecognition of right-of-use assets relating to subleases classified as - - (5) - (5)
finance leases
At 31 December 2020 2 108 370 3 483
Additions - 12 4 - 16
Disposals and adjustments(1) - (16) (44) - (60)
Derecognition of right-of-use assets relating to subleases classified as - - (6) - (6)
finance leases
Foreign exchange adjustment - - (2) - (2)
At 31 December 2021 2 104 322 3 431
Accumulated depreciation and impairment
At 1 January 2020 - (59) (207) (1) (267)
Reclassified as held for sale during the year - 2 2 - 4
Depreciation charge for the year(2) - (19) (26) (1) (46)
Disposals and adjustments(1) (1) 27 36 - 62
Derecognition of right-of-use assets relating to subleases classified as - - 3 - 3
finance leases
Impairment(3) - - (2) - (2)
Foreign exchange adjustment - - (1) - (1)
At 31 December 2020 (1) (49) (195) (2) (247)
Depreciation charge for the year(2) - (18) (21) - (39)
Disposals and adjustments(1) - 13 42 - 55
Derecognition of right-of-use assets relating to subleases classified as - - 1 - 1
finance leases
Impairment(3) - - (15) - (15)
Foreign exchange adjustment - - 1 - 1
At 31 December 2021 (1) (54) (187) (2) (244)
Carrying amount
At 1 January 2020 2 66 197 1 266
At 31 December 2020 1 59 175 1 236
At 31 December 2021 1 50 135 1 187
1. For the year ended 31 December 2021 £8m (2020: £26m) of disposals and
adjustments relates to equipment with net book value of £nil which is no
longer in use.
2. Included in other administrative expenses.
3. Included in restructuring and corporate transaction expenses.
Included in property right-of-use assets, are right-of-use assets that meet
the definition of investment property. Their carrying amount at 31 December
2021 is £21m (2020: £25m). This is made up a gross carrying value of £81m
(2020: £47m) and accumulated depreciation and impairment of £60m (2020:
£22m). During the year to 31 December 2021 there were transfers to investment
property of £19m (2020: £5m), depreciation of (£2m) (2020: (£2m)),
derecognition related to new subleases classified as finance leases of (£6m)
(2020: (£2m)), impairments of (£15m) (2020: (£2m)) related to these assets.
There were no disposals and adjustments (2020: (£2m)) related to these
assets. Rental income received and direct operating expenses incurred to
generate that rental income in the year to 31 December 2021 were £2m (2020:
£3m) and £3m (2020: £2m) respectively. In addition, there were direct
expenses of £1m (2020: £1m) in relation to investment properties not
currently generating income.
The transfers to investment property in 2021 of £19m relate to right-of-use
assets that are no longer being used operationally by the Group. The
right-of-use assets were assessed for impairment at the point of transfer. The
recoverable amount which was based on value in use was £4m using a pre-tax
discount rate of 3%. The right-of-use assets related to the Investment segment
(£6m impairment) and Corporate/strategic (£9m impairment).
The fair value of these right-of-use assets at 31 December 2021 is £21m
(2020: £25m). The valuation technique used to determine the fair value
considers the rental income expected to be received under subleases during the
term of the lease and the direct expenses expected to be incurred in managing
the leased property, discounted using a discount rate that reflects the risks
inherent in the cash flow estimates. It is not based on valuations by an
independent valuer. This is a Level 3 valuation technique as defined in Note
39.
If owner occupied property was measured using the cost model, the historical
cost before impairment would be £1m (2020: £1m). As the expected residual
value of owner occupied property is in line with the current fair value, no
depreciation is currently charged.
Further details on the leases under which the Group's right-of-use assets are
recognised are provided in Note 17 below.
17. Leases
A contract is, or contains, a lease if the contract conveys the right to
control the use of an identified asset for a period of time in exchange for
consideration. At inception of a contract, the Group assesses whether a
contract is, or contains, a lease. In 2019, on adoption of IFRS 16 the Group
used the practical expedient permitted to apply the new standard at transition
solely to leases previously identified in accordance with IAS 17 and IFRIC 4
Determining whether an Arrangement Contains a Lease.
Right-of-use assets are measured at cost less accumulated depreciation and
impairment losses and are presented in property, plant and equipment (refer
Note 16). The Group does not revalue its right-of-use assets. This applies to
all right-of-use assets, including those that are assessed as meeting the
definition of investment property. The cost comprises the amount of the
initial measurement of the lease liability plus any initial direct costs and
expected restoration costs not relating to wear and tear. Costs relating to
wear and tear are expensed over the term of the lease. Depreciation is charged
on right-of-use assets on a straight -line basis from the lease commencement
date to the earlier of the end of the useful life of the right-of-use asset or
the end of the lease term. The Group assesses right-of-use assets for
impairment when such indicators exist, and where required, reduces the value
of the right-of-use asset accordingly.
The related lease liability (included in other financial liabilities - refer
Note 35) is calculated as the present value of the future lease payments. The
lease payments are discounted using the rate implicit within the lease where
readily available or the Group's incremental borrowing rate where the implicit
rate is not readily available. Interest is calculated on the liability using
the discount rate and is charged to the consolidated income statement under
finance costs.
In determining the value of the right-of-use assets and lease liabilities, the
Group considers whether any leases contain lease extensions or termination
options that the Group is reasonably certain to exercise.
Where a leased property has been sublet, the Group assesses whether the
sublease has transferred substantially all the risk and rewards of the
right-of-use asset to the lessee under the sublease. Where this is the case,
the right-of-use asset is derecognised and a net investment in finance leases
(included in Receivables and other financial assets - refer Note 20) is
recognised, calculated as the present value of the future lease payments
receivable under the sublease. Where a property is only partially sublet, only
the portion of the right-of-use asset relating to the sublet part of the
property is derecognised and recognised as a net investment in finance leases.
Any difference between the initial value of the net investment in finance
leases and the right-of-use asset derecognised is recognised in the
consolidated income statement (within other income or expenses). Interest is
calculated on the net investment in finance lease using the discount rate and
is recognised in the consolidated income statement as interest income.
Where the sublease does not transfer substantially all the risk and rewards of
the right-of-use assets to the lessee under the sublease, the Group continues
to recognise the right-of-use asset. The sublease is accounted for as an
operating lease with the lease payments received recognised as property rental
income in other income in the consolidated income statement. Lease incentives
granted are recognised as an integral part of the property rental income and
are spread over the term of the lease.
The Group does not recognise right-of-use assets and lease liabilities for
short-term leases (less than one year from inception) and leases where the
underlying asset is of low value.
(a) Leases where the Group is lessee
The Group leases various offices and equipment used to carry out its business.
Leases are generally for fixed periods but may be subject to extensions or
early termination clauses. The remaining periods for current leases range from
less than 1 year to 17 years (2020: less than 1 year to 18 years). A number of
leases which are due to end in 2031 contain options that would allow the Group
to extend the lease term. The Group reviews its property use on an ongoing
basis and these extensions have not been included in the right-of-use asset or
lease liability calculations.
The Group has recognised the following assets and liabilities in relation to
these leases where the Group is a lessee:
2021 2020
£m £m
Right-of-use assets:
Property 135 175
Equipment 1 1
Total right-of-use assets 136 176
Lease liabilities (225) (249)
The following table provides a maturity analysis of the contractual
undiscounted cash flows for the lease liabilities.
2021 2020
£m £m
Less than 1 year 28 30
Greater than or equal to 1 year and less than 2 years 28 30
Greater than or equal to 2 years and less than 3 years 24 28
Greater than or equal to 3 years and less than 4 years 23 24
Greater than or equal to 4 years and less than 5 years 21 22
Greater than or equal to 5 years and less than 10 years 93 98
Greater than or equal to 10 years and less than 15 years 33 44
Greater than or equal to 15 years 7 10
Total undiscounted lease liabilities 257 286
Details of the movements in the Group's right-of-use assets including
additions and depreciation are included in Note 16.
The interest on lease liabilities for the year ended 31 December 2021 was £6m
(2020: £6m).
The Group does not recognise right-of-use assets and lease liabilities for
short-term leases and leases where the underlying asset is of low value. The
expenses for these leases for the year ended 31 December 2021 were £2m (2020:
£3m).The Group lease commitment for short-term leases was £nil at 31
December 2021 (2020: £nil).
The total cash outflow for lease liabilities recognised in the consolidated
statement of cash flows for the year ended 31 December 2021 was £33m (2020:
£35m).
(b) Leases where the Group is lessor (subleases)
Where the Group no longer requires a leased property, the property may be
sublet to a third party. The sublease may be for the full remaining term of
the Group's lease or only part of the remaining term.
At 31 December 2021, the Group had a net investment in finance leases asset of
£30m (2020: £18m) for subleases which had transferred substantially all the
risk and rewards of the right-of-use assets to the lessee under the sublease.
All other subleases are accounted for as operating leases. The increase during
the year ended 31 December 2021 was mainly due to four new subleases entered
into during the year.
(b)(i) Finance leases
During the year ended 31 December 2021, the Group received finance income on
the net investment in finance leases asset of less than £1m (2020: less than
£1m). The Group recorded an initial gain of £8m in relation to new subleases
entered into during the year ended 31 December 2021 (2020: £2m).
The following table provides a maturity analysis of the future contractual
undiscounted cash flows for the net investment in finance leases and a
reconciliation to the net investment in finance leases asset.
2021 2020
£m £m
Less than 1 year 3 3
Greater than or equal to 1 year and less than 2 years 3 2
Greater than or equal to 2 years and less than 3 years 3 2
Greater than or equal to 3 years and less than 4 years 3 2
Greater than or equal to 4 years and less than 5 years 3 2
Greater than or equal to 5 years and less than 10 years 14 9
Greater than or equal to 10 years and less than 15 years 3 -
Total contractual undiscounted cash flows under finance leases 32 20
Unearned finance income (2) (2)
Total net investment in finance leases 30 18
(b)(ii) Operating leases
During the year ended 31 December 2021, the Group received property rental
income from operating leases of £2m (2020: £3m).
The following table provides a maturity analysis of the future contractual
undiscounted cash flows for subleases classified as operating leases.
2021 2020
£m £m
Less than 1 year 3 2
Greater than or equal to 1 year and less than 2 years 1 2
Greater than or equal to 2 years and less than 3 years 1 1
Greater than or equal to 3 years and less than 4 years 1 -
Total contractual undiscounted cash flows under operating leases 6 5
18. Financial assets
Financial assets are initially recognised at their fair value. Subsequently
all equity securities and interests in pooled investment funds and derivative
instruments are measured at fair value. All equity securities and interests in
pooled investment funds are classified as FVTPL on a mandatory basis. Changes
in their fair value are recognised in Net gains on financial instruments and
other income in the consolidated income statement. The classification of
derivatives and the accounting treatment of derivatives designated as a
hedging instrument are set out in Note 19.
The subsequent measurement of debt instruments depends on whether their cash
flows are solely payments of principal and interest and the nature of the
business model they are held in as follows:
SPPI(1) test satisfied? Business model Classification
Yes A: Objective is to hold to collect contractual cash flows Amortised cost(2)
Yes B: Objective is achieved by both collecting contractual cash flows and selling Fair value through other comprehensive income (FVOCI)(2)
Yes C: Objective is neither A nor B FVTPL
No N/A FVTPL
1. Solely payments of principal and interest.
2. May be classified as FVTPL if doing so eliminates or significantly
reduces a measurement or recognition inconsistency (sometimes referred to as
an 'accounting mismatch') that would otherwise arise from measuring assets or
liabilities or recognising the gains and losses on them on different bases.
The Group has no debt instruments that are managed within a business model
whose objective is achieved both by collecting contractual cash flows and
selling and therefore there are no debt instruments classified as FVOCI. Debt
instruments classified as FVTPL are classified as such due to the business
model they are managed under, predominantly being held in consolidated
investment vehicles.
The methods and assumptions used to determine fair value of financial assets
at FVTPL are discussed in Note 39.
Amortised cost is calculated, and related interest is credited to the
consolidated income statement, using the effective interest method. Impairment
is determined using an expected credit loss impairment model which is applied
to all financial assets measured at amortised cost. Financial assets measured
at amortised cost attract a loss allowance equal to either:
- 12 month expected credit losses (losses resulting from possible default
within the next 12 months).
- Lifetime expected credit losses (losses resulting from possible defaults
over the remaining life of the financial asset).
Financial assets attract a 12 month ECL allowance unless the asset has
suffered a significant deterioration in credit quality or the simplified
approach for calculation of ECL has been applied. As permitted under IFRS 9
Financial Instruments, the Group has applied the simplified approach to
calculate the ECL allowance for trade receivables and contract assets
recognised under IFRS 15 Revenue from Contracts with Customers and lease
receivables recognised under IFRS 16 Leases. Under the simplified approach the
ECL is calculated over the remaining life of the asset.
The table below sets out an analysis of financial assets excluding those
assets backing unit linked liabilities which are set out in Note 24.
At fair value through profit or loss(1) Cash flow At amortised cost Total
hedge
2021 2020 2021 2020 2021 2020 2021 2020
Notes £m £m £m £m £m £m £m £m
Derivative financial assets 19 6 18 8 - - - 14 18
Equity securities and interests in pooled investment funds 39 3,115 1,980 - - - - 3,115 1,980
Debt securities 39 961 787 - - 226 325 1,187 1,112
Financial investments 4,082 2,785 8 - 226 325 4,316 3,110
Receivables and other financial assets 20 31 28 - - 649 593 680 621
Cash and cash equivalents 23 - - - - 1,904 1,519 1,904 1,519
Total 4,113 2,813 8 - 2,779 2,437 6,900 5,250
1. All financial assets measured at fair value through profit or loss have
been classified at FVTPL on a mandatory basis. The Group has not designated
any financial assets as FVTPL.
The amount of debt securities expected to be recovered or settled after more
than 12 months is £63m (2020: £231m). Due to the nature of equity securities
and interests in pooled investment funds, there is no fixed term associated
with these securities. The amount of equity securities and interests in pooled
investment funds expected to be recovered or settled after more than 12 months
is £1,947m (2020: £1,297m).
19. Derivative financial instruments
A derivative is a financial instrument that is typically used to manage risk
and whose value moves in response to an underlying variable such as interest
or foreign exchange rates. The Group uses derivative financial instruments in
order to match subordinated debt liabilities and to reduce the risk from
potential movements in foreign exchange rates on seed capital and
co-investments and potential movements in market rates on seed capital.
Certain consolidated investment vehicles may also use derivatives to take and
alter market exposure, with the objective of enhancing performance and
controlling risk.
Management determines the classification of derivatives at initial
recognition. All derivative instruments are classified as at FVTPL except
those designated as part of a cash flow hedge or net investment hedge.
Derivatives at FVTPL are measured at fair value with changes in fair value
recognised in the consolidated income statement.
On adoption of IFRS 9 Financial instruments in 2019, the Group has elected to
continue applying the hedge accounting requirements of IAS 39. The accounting
treatment below applies to derivatives designated as part of a hedging
relationship.
Using derivatives to manage a particular exposure is referred to as hedging.
For a derivative to be considered as part of a hedging relationship its
purpose must be formally documented at inception. In addition, the
effectiveness of the hedge must be initially high and be able to be reliably
measured on a regular basis. Derivatives used to hedge variability in future
cash flows such as coupons payable on subordinated liabilities or revenue
receivable in a foreign currency are designated as cash flow hedges, while
derivatives used to hedge currency risk on investments in foreign operations
are designated as net investment hedges.
Where a derivative qualifies as a cash flow or net investment hedge, hedge
accounting is applied. The effective part of any gain or loss resulting from
the change in fair value is recognised in other comprehensive income, and in
the cash flow or net investment hedge reserve in equity, while any ineffective
part is recognised immediately in the consolidated income statement. If a
derivative ceases to meet the relevant hedging criteria, hedge accounting is
discontinued.
For cash flow hedges, the amount recognised in the cash flow hedge reserve is
transferred to the consolidated income statement (recycled) in the same period
or periods during which the hedged item affects profit or loss and is
transferred immediately if the cash flow is no longer expected to occur. For
net investment hedges, the amount recognised in the net investment hedge
reserve is transferred to the consolidated income statement on disposal of the
investment.
2021 2020
Contract amount Fair value assets Fair value liabilities Contract amount Fair value assets Fair value liabilities
Notes £m £m £m £m £m £m
Cash flow hedges 18,31 554 8 - 549 - 6
FVTPL 18,31 889 6 5 687 18 7
Derivative financial instruments 39 1,443 14 5 1,236 18 13
Derivative financial instruments backing unit linked liabilities 24 399 7 3 463 6 9
Total derivative financial instruments 1,842 21 8 1,699 24 22
Derivative assets of £8m (2020: £nil) are expected to be recovered after
more than 12 months. Derivative liabilities of £nil (2020: £5m) are expected
to be settled after more than 12 months.
(a) Hedging strategy
The Group generally does not hedge the currency exposure relating to revenue
and expenditure, nor does it hedge translation of overseas profits in the
income statement. Where appropriate, the Group may use derivative contracts to
reduce or eliminate currency risk arising from individual transactions or seed
capital and co-investment activity.
(a)(i) Cash flow hedges
On 18 October 2017, the Group issued subordinated notes with a principal
amount of US$750m. In order to manage its foreign exchange risk relating to
the principal and coupons payable on these notes the Group entered into a
cross-currency swap which is designated as a cash flow hedge. The cash flow
hedge was fully effective during the year. The cross-currency swap has the
effect of swapping the 4.25% US Dollar fixed rate subordinated notes into 3.2%
Sterling fixed rate subordinated notes with a principal amount of £569m. The
cross-currency swap has a fair value asset position of £8m (2020: £6m
liability). During the year ended 31 December 2021 fair value gains of £19m
(2020: losses of £3m) were recognised in other comprehensive income in
relation to the cross-currency swap. Gains of £5m (2020: losses of £19m)
were transferred from other comprehensive income to Net gains on financial
instruments and other income in the consolidated income statement in relation
to the cross-currency swap during the year. In addition, forward points of
£6m (2020: £6m) and losses of £1m (2020: less than £1m) were transferred
from other comprehensive income to Finance costs in the consolidated income
statement.
(a)(ii) FVTPL
Derivative financial instruments classified as FVTPL include those that the
Group holds as economic hedges of financial instruments that are measured at
fair value. FVTPL derivative financial instruments are also held by the Group
to match contractual liabilities that are measured at fair value or to achieve
efficient portfolio management in respect of instruments measured at fair
value.
2021 2020
Contract amount Fair value assets Fair value liabilities Contract Fair value assets Fair value liabilities
amount
£m £m £m £m £m £m
Equity derivatives:
Futures 336 3 4 100 1 9
Variance swaps 6 6 - 6 6 -
Interest rate derivatives:
Swaps 11 - - 52 - 4
Futures 40 - - 34 - -
Foreign exchange derivatives:
Forwards 806 4 3 859 15 2
Other derivatives:
Inflation rate swaps - - - 18 2 -
Credit default swaps 89 - 1 81 - 1
Derivative financial instruments at FVTPL 1,288 13 8 1,150 24 16
(b) Maturity profile
The maturity profile of the contractual undiscounted cash flows in relation to
derivative financial instruments is as follows:
Within 1 1-5 5-10 10-15 15-20 Greater than 20 years Total
year
years
years
years
years
2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020
£m £m £m £m £m £m £m £m £m £m £m £m £m £m
Cash inflows
Derivative financial assets 66 367 94 - 589 - - - - - - - 749 367
Derivative financial liabilities 13 183 - 93 - 607 - - - - - - 13 883
Total 79 550 94 93 589 607 - - - - - - 762 1,250
Cash outflows
Derivative financial assets (60) (360) (73) - (596) - - - - - - - (729) (360)
Derivative financial liabilities (13) (187) - (73) - (614) - - - - - - (13) (874)
Total (73) (547) (73) (73) (596) (614) - - - - - - (742) (1,234)
Net derivative financial instruments cash inflows 6 3 21 20 (7) (7) - - - - - - 20 16
Included in the above maturity profile are the following cash flows in
relation to cash flow hedge assets:
Within 1 1-5 5-10 10-15 15-20 Greater than 20 years Total
year
years
years
years
years
2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020
£m £m £m £m £m £m £m £m £m £m £m £m £m £m
Cash inflows 24 23 94 93 589 607 - - - - - - 707 723
Cash outflows (18) (18) (73) (73) (596) (614) - - - - - - (687) (705)
Net cash flow hedge cash inflows 6 5 21 20 (7) (7) - - - - - - 20 18
Cash inflows and outflows are presented on a net basis where the Group is
required to settle cash flows net.
20. Receivables and other financial assets
2021 2020
Notes £m £m
Amounts receivable from contracts with customers 3(d) 135 115
Accrued income 263 227
Cancellations of units awaiting settlement 113 126
Net investment in finance leases 30 18
Collateral pledged in respect of derivative contracts 37 26 28
Contingent consideration asset 39 31 28
Other 82 79
Receivables and other financial assets 680 621
The carrying amounts disclosed above reasonably approximate the fair values as
at the year end.
The amount of receivables and other financial assets expected to be recovered
after more than 12 months is £35m (2020: £33m).
Accrued income includes £260m (2020: £221m) of accrued income from contracts
with customers (refer Note 3(d)).
21. Other assets
2021 2020
£m £m
Prepayments 100 40
Deferred acquisition costs 3 4
Other 2 2
Other assets 105 46
The amount of other assets expected to be recovered after more than 12 months
is £48m (2020: £4m).
Prepayments includes £56m (2020: £nil) relating to the Group's future
purchase of certain products in the Phoenix Group's savings business offered
through abrdn's Wrap platform together with the Phoenix Group's trustee
investment plan business for UK pension scheme clients. Refer Note 1(c)(iii)
for further details.
All deferred acquisition costs above are costs deferred on investment
contracts (deferred origination costs) which relate to contracts with
customers (refer Note 3(d)). The amortisation charge for deferred origination
costs relating to contracts with customers from continuing operations for the
year was £1m (2020: £2m).
22. Assets and liabilities held for sale
Assets and liabilities held for sale are presented separately in the
consolidated statement of financial position and consist of operations and
individual non-current assets whose carrying amount will be recovered
principally through a sale transaction (expected within one year) and not
through continuing use.
Operations held for sale, being disposal groups, and investments in associates
accounted for using the equity method are measured at the lower of their
carrying amount and their fair value less disposal costs. No depreciation or
amortisation is charged on assets in a disposal group once it has been
classified as held for sale.
Operations held for sale include newly established investment vehicles which
the Group has seeded but is actively seeking to divest from. For these
investment funds, which do not have significant liabilities or non-financial
assets, financial assets continue to be measured based on the accounting
policies that applied before they were classified as held for sale. The Group
classifies seeded operations as held for sale where the intention is to
dispose of the investment vehicle in a single transaction. Where disposal of a
seeded investment vehicle will be in more than one tranche the operations are
not classified as held for sale in the consolidated statement of financial
position.
Certain amounts seeded into funds are classified as interests in pooled
investment funds. Investment property and owner occupied property held for
sale relates to property for which contracts have been exchanged but the sale
had not completed during the current financial year. Interests in pooled
investment funds and investment property held for sale continue to be measured
based on the accounting policies that applied before they were classified as
held for sale.
2021 2020
£m £m
Assets of operations held for sale
Parmenion Capital Partners LLP - 18
Investment vehicles - 1
Assets held for sale - 19
Liabilities of operations held for sale
Parmenion Capital Partners LLP - 11
Investment vehicles - -
Liabilities of operations held for sale - 11
(a)(i) Parmenion Capital Partners LLP (Parmenion)
On 30 June 2021, the Group completed the sale of Parmenion. Refer Note 1(c)(i)
for further details. Parmenion is reported in the Corporate/strategic segment
(formerly part of the Asset management, platforms and wealth segment).
At 31 December 2020, this disposal group was measured at its carrying amount
and comprised the following assets and liabilities:
2020
£m
Assets of operations held for sale
Intangible assets 2
Property, plant and equipment 7
Receivables and other financial assets 5
Other assets 1
Cash and cash equivalents 3
Total assets of operations held for sale 18
Liabilities of operations held for sale
Other financial liabilities 11
Total liabilities of operations held for sale 11
Net assets of operations held for sale 7
Net assets of operations held for sale were net of intercompany balances
between Parmenion and other group entities, the net assets of Parmenion on a
gross basis as at 31 December 2020 were £12m.
23. Cash and cash equivalents
Cash and cash equivalents include cash at bank, money at call and short notice
with banks, money market funds and any highly liquid investments with less
than three months to maturity from the date of acquisition. For the purposes
of the consolidated statement of cash flows, cash and cash equivalents also
include bank overdrafts which are included in other financial liabilities on
the consolidated statement of financial position.
Where the Group has a legally enforceable right of set off and intention to
settle on a net basis, cash and overdrafts are offset in the consolidated
statement of financial position.
2021 2020
£m £m
Cash at bank and in hand 638 788
Money at call, term deposits, reverse repurchase agreements and debt 1,122 615
instruments with less than three months to maturity from acquisition
Money market funds 144 116
Cash and cash equivalents 1,904 1,519
2021 2020
Notes £m £m
Cash and cash equivalents 1,904 1,519
Cash and cash equivalents backing unit linked liabilities 24 33 38
Cash and cash equivalents classified as held for sale 22 - 3
Bank overdrafts 35 (62) (202)
Total cash and cash equivalents for consolidated statement of cash flows 1,875 1,358
Cash at bank, money at call and short notice and deposits are subject to
variable interest rates.
Included in cash and cash equivalents and bank overdrafts are £82m (2020:
£230m) and £62m (2020: £202m) respectively relating to balances within a
cash pooling facility in support of which cross guarantees are provided by
certain subsidiary undertakings and interest is paid or received on the net
balance.
Cash and cash equivalents in respect of unit linked funds (including third
party interests in consolidated funds) are held in separate bank accounts and
are not available for general use by the Group.
24. Unit linked liabilities and assets backing unit linked
liabilities
The Group operates unit linked life assurance businesses through a number of
subsidiaries. These subsidiaries provide investment products through a life
assurance wrapper. These products do not contain any features which transfer
significant insurance risk and therefore are classified as investment
contracts. Unit linked non-participating investment contracts are separated
into two components being an investment management services component and a
financial liability. All fees and related administrative expenses are deemed
to be associated with the investment management services component (refer Note
3). The financial liability component is designated at FVTPL as it is
implicitly managed on a fair value basis as its value is directly linked to
the market value of the underlying portfolio of assets.
Where the Group is deemed to control an investment vehicle as a result of
holdings in that vehicle by subsidiaries to back unit linked non-participating
investment contract liabilities, the assets and liabilities of the vehicle are
consolidated within the Group's statement of financial position. The liability
for third party interest in such consolidated funds is presented as a unit
linked liability.
Unit linked liabilities and assets backing unit linked liabilities are
presented separately in the consolidated statement of financial position
except for those held in operations held for sale, which are presented in
assets and liabilities held for sale in the consolidated statement of
financial position.
Contributions received on non-participating investment contracts and from
third party interest in consolidated funds are treated as deposits and not
reported as revenue in the consolidated income statement.
Withdrawals paid out to policyholders on non-participating investment
contracts and to third party interest in consolidated funds are treated as a
reduction to deposits and not recognised as expenses in the consolidated
income statement.
Investment return and related benefits credited in respect of
non-participating investment contracts and third party interest in
consolidated funds are recognised in the consolidated income statement as
changes in investment contract liabilities and changes in liability for third
party interest in consolidated funds respectively. Investment returns relating
to unit linked business are for the account of policyholders and have an equal
and opposite effect on income and expenses in the consolidated income
statement with no impact on profit after tax.
Assets backing unit linked liabilities comprise financial investments, which
are all classified as FVTPL on a mandatory basis, and receivables and other
financial assets and cash and cash equivalents which are measured at amortised
cost.
(a) Result for the year attributable to unit linked business
2021 2020
Notes £m £m
Net gains on financial instruments and other income 4 7 9
Other administrative expense 5 (3) (5)
Profit before tax 4 4
Tax expense attributable to unit linked business 9 (4) (4)
Profit after tax - -
(b) Financial instrument risk management
The shareholder is not directly exposed to market risk or credit risk in
relation to the financial assets backing unit linked liabilities. The
shareholder's exposure to market risk on these assets is limited to variations
in the value of future fee based revenue as fees are based on a percentage of
fund value.
The shareholder is exposed to liquidity risk relating to unit linked funds.
For the unit linked business, liquidity risk is primarily managed by holding a
range of diversified instruments which are assessed against cash flow and
funding requirements. A core portfolio of assets is maintained and invested in
accordance with the mandates of the relevant unit linked funds. Given that
unit linked policyholders can usually choose to surrender, in part or in full,
their unit linked contracts at any time, the non-participating investment
contract unit linked liabilities are designated as payable within one year.
Such surrenders would be matched in practice, if necessary, by sales of
underlying assets. Policyholder behaviour and the trading position of asset
classes are actively monitored. The Group can delay settling liabilities to
unit linked policyholders to ensure fairness between those remaining in the
fund and those leaving the fund. The length of any such delay is dependent on
the underlying financial assets.
(c) Fair value measurement of unit linked financial liabilities and financial assets backing unit linked liabilities
Each of the unit linked financial liabilities and the financial assets backing
unit linked liabilities has been categorised below using the fair value
hierarchy as defined in Note 39. Refer Note 39 for details of valuation
techniques used.
Level 1 Level 2 Level 3 Not at fair value Classified as held for sale Total
2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020
£m £m £m £m £m £m £m £m £m £m £m £m
Financial investments 974 832 455 545 1 18 - - - - 1,430 1,395
Receivables and other financial assets - - - - - - 7 7 - - 7 7
Cash and cash equivalents - - - - - - 33 38 - - 33 38
Total financial assets backing unit linked liabilities 974 832 455 545 1 18 40 45 - - 1,470 1,440
Investment contract liabilities - - 1,087 1,024 1 18 - - - - 1,088 1,042
Third party interest in consolidated funds - - 378 388 - - - - - - 378 388
Other unit linked financial liabilities 1 7 2 2 - - 1 1 - - 4 10
Total unit linked financial liabilities 1 7 1,467 1,414 1 18 1 1 - - 1,470 1,440
In addition to financial assets backing unit linked liabilities and unit
linked financial liabilities shown above there is a current tax asset of £1m
(2020: £1m) included in unit linked assets and a current tax liability of
£1m (2020: £1m) included in unit linked liabilities.
The financial investments backing unit linked liabilities comprise equity
securities and interests in pooled investment funds of £1,232m (2020:
£1,244m), debt securities of £191m (2020: £145m) and derivative financial
assets of £7m (2020: £6m).
The fair value of financial instruments not held at fair value approximates to
their carrying value at 31 December 2021 and 31 December 2020.
There were no significant transfers from level 1 to level 2 during the year
ended 31 December 2021 (2020: £309m). There were also no significant
transfers from level 2 to level 1 during the year ended 31 December 2021
(2020: £nil). Transfers from level 1 to level 2 for the year ended 31
December 2020 primarily related to interests in pooled investment vehicles
which are priced daily but where the daily price is only offered by the fund
manager. As disclosed in the prior year, the Group now considers these
investments to be level 2. All other transfers relate to assets where changes
in the frequency of observable market transactions resulted in a change in
whether the market was considered active. Transfers are deemed to have
occurred at the end of the calendar quarter in which they arose.
The movements during the period of level 3 unit linked assets and liabilities
held at fair value are analysed below.
Equity securities and interests in pooled investment funds Investment contract
liabilities
31 Dec 31 Dec 31 Dec 31 Dec
2021 2020 2021 2020
£m £m £m £m
At start of period 18 - (18) -
Total gains/(losses) recognised in the consolidated income statement - (2) - 2
Purchases 1 - (1) -
Sales (18) (1) 18 1
Transfers in to level 3(1) - 21 - (21)
At end of period 1 18 (1) (18)
1. Transfers are deemed to have occurred at the end of the calendar quarter
in which they arose.
Unit linked level 3 assets relate to holdings in real estate funds. No
individual unobservable input is considered significant. Changing unobservable
inputs in the measurement of the fair value of these unit linked level 3
financial assets and liabilities to reasonably possible alternative
assumptions would have no impact on profit attributable to equity holders or
on total assets.
Transfers of unit linked assets and liabilities to level 3 generally arise
when external pricing providers stop providing prices for the underlying
assets and liabilities in the funds or where the price provided is considered
stale.
(d) Change in non-participating investment contract liabilities
The change in non-participating investment contract liabilities was as
follows:
2021 2020
£m £m
At 1 January 1,042 1,152
Contributions 119 83
Account balances paid on surrender and other terminations in the year (195) (249)
Change in non-participating investment contract liabilities recognised in the 124 58
consolidated income statement(1)
Recurring management charges (2) (2)
At 31 December 1,088 1,042
1. Change in non-participating investment contract liabilities recognised in
the consolidated income statement in the table above excludes £nil (2020:
(£2m)) in relation to non-participating investment contract liabilities
classified as held for sale.
(e) Derivatives
The treatment of collateral accepted and pledged in respect of financial
instruments and the Group's approach to offsetting financial assets and
liabilities is described in Note 37. The following table presents the impact
of master netting agreements and similar arrangements for derivatives backing
unit linked liabilities.
Related amounts not offset on the consolidated
statement of financial position
Gross amounts of financial instruments as presented on the consolidated Financial Financial collateral pledged/(received) Net position
statement of financial position
instruments
2021 2020 2021 2020 2021 2020 2021 2020
£m £m £m £m £m £m £m £m
Financial assets
Derivatives(1) 4 5 (1) - - - 3 5
Total financial assets 4 5 (1) - - - 3 5
Financial liabilities
Derivatives(1) (2) (2) 1 - - - (1) (2)
Total financial liabilities (2) (2) 1 - - - (1) (2)
1. Only OTC derivatives subject to master netting agreements have been
included above.
25. Issued share capital and share premium
Shares are classified as equity instruments when there is no contractual
obligation to deliver cash or other assets to another entity on terms that may
be unfavourable. The Company's share capital consists of the number of
ordinary shares in issue multiplied by their nominal value. The difference
between the proceeds received on issue of the shares and the nominal value of
the shares issued is recorded in share premium.
The movement in the issued ordinary share capital and share premium of the
Company was:
2021 2020
Ordinary share capital Share premium Ordinary share capital Share premium
Issued shares fully paid 13 61/63p each £m £m 13 61/63p each £m £m
At 1 January 2,194,115,616 306 640 2,338,723,724 327 640
Shares issued in respect of share incentive plans 2,032 - - 2,188 - -
Share buyback (13,392,862) (1) - (144,610,296) (21) -
At 31 December 2,180,724,786 305 640 2,194,115,616 306 640
All ordinary shares in issue in the Company rank pari passu and carry the same
voting rights and entitlement to receive dividends and other distributions
declared or paid by the Company.
On 7 February 2020, the Company announced a share buyback of up to £400m
through on-market purchases which commenced on 10 February 2020 and was
completed on 12 February 2021. During the year ended 31 December 2021, the
Company bought back and cancelled 13,392,862 shares (2020: 144,610,296
shares). The total consideration was £41m (2020: £362m) which includes
transaction costs and any unsettled purchases of shares already transacted. At
31 December 2021, there were no unsettled purchases of shares (2020: 507,757
shares).
The share buyback has resulted in a reduction in retained earnings of £nil
(2020: £402m). At 31 December 2020, there was an irrevocable contractual
obligation with a third party to purchase the Company's own shares of £40m.
This obligation was recognised as a part of the share buyback reduction to
retained earnings of £402m for the year ended 31 December 2020, with a
corresponding liability of £40m included within other financial liabilities
at 31 December 2020. At 31 December 2021, there were no irrevocable
contractual obligations with a third party to purchase the Company's own
shares.
An amount of £1m (2020: £21m) has been credited to the capital redemption
reserve relating to the nominal value of the shares cancelled.
The Company can issue shares to satisfy awards granted under employee
incentive plans which have been approved by shareholders. Details of the
Group's employee plans are provided in Note 43.
26. Shares held by trusts
Shares held by trusts relates to shares in abrdn plc that are held by the
Standard Life Aberdeen Employee Benefit Trust (SLA EBT), Standard Life
Employee Trust (ET) and the Aberdeen Asset Management Employee Benefit Trust
2003 (AAM EBT).
The SLA EBT, ET and AAM EBT purchase shares in the Company for delivery to
employees under employee incentive plans. Purchased shares are recognised as a
deduction from equity at the price paid for them. Where new shares are issued
to the SLA EBT, ET or AAM EBT the price paid is the nominal value of the
shares. When shares are distributed from the trust their corresponding value
is released to retained earnings.
The number of shares held by trusts was as follows:
2021 2020
Number of shares held by trusts
Standard Life Aberdeen Employee Benefit Trust 39,630,532 37,667,681
Standard Life Employee Trust 22,688,815 23,773,359
Aberdeen Asset Management Employee Benefit Trust 2003 2,647,359 6,294,765
27. Retained earnings
The following table shows movements in retained earnings during the year. The
2020 movements are aggregated for both continuing and discontinued operations.
2021 2020
Notes £m £m
At 1 January 4,970 2,886
Recognised in comprehensive income
Recognised in profit for the year attributable to equity holders 994 833
Recognised in other comprehensive income
Remeasurement gains on defined benefit pension plans 33 117 280
Share of other comprehensive income of associates and joint ventures (1) -
Equity holder tax effect of items that will not be reclassified subsequently 9 3 2
to profit or loss
Total items recognised in comprehensive income 1,113 1,115
Recognised directly in equity
Dividends paid on ordinary shares (308) (479)
Other movements in non-controlling interests in the year 29 6 -
Reclassification of preference shares to liability 29,32 - (1)
Shares buyback 25 - (402)
Transfer between reserves on impairment of subsidiaries 28 - 1,834
Transfer for vested employee share-based payments 36 38
Shares distributed by employee and other trusts (42) (21)
Total items recognised directly in equity (308) 969
At 31 December 5,775 4,970
28. Movements in other reserves
In July 2006 Standard Life Group demutualised and during this process the
merger reserve, the reserve arising on Group reconstruction and the special
reserve were created.
Merger reserve: the merger reserve consists of two components. Firstly at
demutualisation in July 2006 the Company issued shares to former members of
the mutual company. The difference between the nominal value of these shares
and their issue value was recognised in the merger reserve. The reserve
includes components attaching to each subsidiary that was transferred to the
Company at demutualisation based on their fair value at that date. Secondly
following the completion of the merger of Standard Life plc and AAM PLC on 14
August 2017, an additional amount was recognised in the merger reserve
representing the difference between the nominal value of shares issued to
shareholders of AAM PLC and their fair value at that date. On disposal or
impairment of a subsidiary any related component of the merger reserve is
released to retained earnings.
Reserve arising on Group reconstruction: The value of the shares issued at
demutualisation was equal to the fair value of the business at that date. The
business's assets and liabilities were recognised at their book value at the
time of demutualisation. The difference between the book value of the
business's net assets and its fair value was recognised in the reserve arising
on Group reconstruction. The reserve comprises components attaching to each
subsidiary that was transferred to the Company at demutualisation. On disposal
of such a subsidiary any related component of the reserve arising on Group
reconstruction is released to retained earnings.
Special reserve: Immediately following demutualisation and the related initial
public offering, the Company reduced its share premium reserve by court order
giving rise to the special reserve. Dividends can be paid out of this reserve.
Capital redemption reserve: In August 2018, as part of the return of capital
and share buyback (refer Note 25) the capital redemption reserve was created.
The following tables show the movements in other reserves during the year.
Cash flow hedges Foreign currency translation Merger reserve Equity compensation reserve Special reserve Reserve arising on Group reconstruction Capital redemption reserve Total
Notes £m £m £m £m £m £m £m £m
1 January 2021 12 1 483 80 115 (685) 1,058 1,064
Recognised in other comprehensive income
Fair value gains on cash flow hedges 19 - - - - - - 19
Exchange differences on translating foreign operations - (2) - - - - - (2)
Items transferred to profit or loss from continuing operations (10) 18 - - - - - 8
Aggregate tax effect of items recognised in other comprehensive income (3) - - - - - - (3)
Total items recognised in other comprehensive income 6 16 - - - - - 22
Recognised directly in equity
Share buyback 25 - - - - - - 1 1
Reserves credit for employee share-based payments - - - 43 - - - 43
Transfer to retained earnings for vested employee share-based payments - - - (36) - - - (36)
Total items recognised directly within equity - - - 7 - - 1 8
At 31 December 2021 18 17 483 87 115 (685) 1,059 1,094
The merger reserve includes £470m (2020: £470m) in relation to the Group's
asset management businesses. There were no movements in the merger reserve in
the year ended 31 December 2021. During the year ended 31 December 2020,
£1,834m was transferred from the merger reserve to retained earnings
following an impairment of the Company's investments in its asset management
subsidiaries (refer Section 8).
Cash flow hedges Foreign currency translation Merger reserve Equity compensation reserve Special reserve Reserve arising on Group reconstruction Capital redemption reserve Total
Notes £m £m £m £m £m £m £m £m
1 January 2020 4 3 2,317 54 115 (685) 1,037 2,845
Recognised in other comprehensive income
Fair value losses on cash flow hedges (3) - - - - - - (3)
Exchange differences on translating foreign operations - (8) - - - - - (8)
Items transferred to profit or loss from continuing operations 13 6 - - - - - 19
Aggregate tax effect of items recognised in other comprehensive income (2) - - - - - - (2)
Total items recognised in other comprehensive income 8 (2) - - - - - 6
Recognised directly in equity
Share buyback 25 - - - - - - 21 21
Reserves credit for employee share-based payments - - - 64 - - - 64
Transfer to retained earnings for vested employee share-based payments - - - (38) - - - (38)
Transfer between reserves on impairment of subsidiaries - - (1,834) - - - - (1,834)
Total items recognised directly within equity - - (1,834) 26 - - 21 (1,787)
At 31 December 2020 12 1 483 80 115 (685) 1,058 1,064
29. Other equity and non-controlling interests
Perpetual subordinated notes issued by abrdn plc are classified as other
equity where no contractual obligation to deliver cash exists. Non-controlling
interests included preference shares issued by AAM PLC.
(a) Other equity - perpetual subordinated notes
5.25% Fixed Rate Reset Perpetual Subordinated Contingent Convertible Notes
On 13 December 2021, the Company issued £210m of 5.25% Fixed Rate Reset
Perpetual Subordinated Contingent Convertible Notes (the "Notes"). The Notes
are classified as other equity and have been initially recognised at £207m
(the proceeds received less issuance costs of £3m).
The Notes initially bear interest on their principal amount at 5.25% per annum
payable semi-annually in arrears on 13 June and 13 December in each year. The
interest rate is subject to reset on 13 June 2027 and then every 5 years
thereafter. The payments of interest are discretionary and non-cumulative. The
interest paid is recognised as profit attributable to other equity when paid.
The Notes have no fixed redemption date. The Company has the option to redeem
the Notes (in full) between 13 December 2026 and 13 June 2027 and on each
interest reset date thereafter. The Notes are convertible to ordinary shares
in abrdn plc at a conversion price of £1.6275 (subject to adjustment in
accordance with the terms and conditions of the Notes) if the Group IFPR CET1
Ratio falls below 70%. The IFPR CET1 ratio at 31 December 2021 was 774%.
(b) Non-controlling interests - ordinary shares
Non-controlling interests - ordinary shares of £6m were held at 31 December
2021 (2020: £3m). The profit for the year attributable to non-controlling
interests - ordinary shares was £1m (2020: less than £1m).
(c) Non-controlling interests - preference shares
Until 4 June 2020, the Group recognised preference shares issued by AAM PLC as
non-controlling interests. On 4 June 2020, AAM PLC notified the holders of the
redeemable preference shares of its irrevocable intention to redeem the
preference shares. Following notification the preference shares were
reclassified as subordinated liabilities as an obligation to deliver cash was
created. Refer Note 32.
The profit attributable to these non-controlling interests from continuing
operations for the year ended 31 December 2020 was £5m. Preference share
dividends were discretionary and where declared, were paid in arrears in two
tranches at a rate of 5% per annum and were non-cumulative. No interest
accrued on any cancelled or unpaid dividends. During the year ended 31
December 2020 preference share dividends of £5m were paid including £2m paid
as part of the redemption of the preference shares on 8 July 2020. Refer Note
32.
30. Insurance contracts, investment contracts and reinsurance
contracts
Insurance contracts, participating investment contracts and reinsurance
contracts related to SL Asia which was sold on 30 June 2020 (refer Note
1(c)(ii)).
SL Asia held non-participating insurance and investment contracts. A contract
is classified as an insurance contract only if it transfers significant
insurance risk. Insurance risk is significant if an insured event could cause
an insurer to pay significant additional benefits to those payable if no
insured event occurred, excluding scenarios that lack commercial substance.
Life and pensions business contracts that are not classified as insurance
contracts are classified as investment contracts.
SL Asia's insurance and investment contracts did not contain any discretionary
participating features so were classified as non-participating.
SL Asia's non-participating investment contracts were unit linked and details
of the accounting policies for these contracts are given in Note 24. The
accounting policies for SL Asia's non-participating insurance contracts are
given below.
(a)(i) Premiums, claims and change in insurance contract liabilities
Premiums received on insurance contracts are recognised as revenue in the
consolidated income statement when due for payment except for unit linked
premiums which are accounted for when the corresponding liabilities are
recognised. For single premium business, this is the date from which the
policy is effective. For regular (and recurring) premium contracts,
receivables are established at the date when payments are due.
Claims paid on insurance contracts are recognised as expenses in the
consolidated income statement. Maturity claims and annuities are accounted for
when due for payment. Surrenders are accounted for when paid or, if earlier,
on the date when the policy ceases to be included within the calculation of
the insurance liability. Death claims and all other claims are accounted for
when notified. Claims payable include the direct costs of settlement.
Reinsurance recoveries are accounted for in the same period as the related
claim.
The change in insurance and participating investment contract liabilities,
comprising the full movement in the corresponding liabilities during the
period, is recognised in the consolidated income statement.
(a)(ii) Measurement - non-participating insurance contract liabilities
The Group's policy for measuring liabilities for non-participating insurance
contracts issued by overseas subsidiaries is to apply the valuation technique
used in the issuing entity's local statutory or regulatory reporting.
The Group applies a liability adequacy test at each reporting date to ensure
that the insurance contract liabilities (less related deferred acquisition
costs) are adequate in the light of the estimated future cash flows. This test
is performed by comparing the carrying value of the liability and the
discounted projections of future cash flows. If a deficiency is found in the
liability (i.e. the carrying value amount of its insurance liabilities is less
than the future expected cash flows), that deficiency is provided for in full.
The deficiency is recognised in the consolidated income statement.
(a)(iii) Measurement - reinsurance contracts
Reinsurance contracts are measured using valuation techniques and assumptions
that are consistent with the valuation techniques and assumptions used in
measuring the underlying policy benefits and taking into account the terms of
the reinsurance contract.
(a) Insurance contract premium income
2021 2020
£m £m
Gross earned premium - 32
Premium ceded to reinsurers - (1)
Insurance contract premium income from continuing operations - 31
(b) Insurance contract claims and change in liabilities
2021 2020
£m £m
Claims and benefits paid - 28
Claim recoveries from reinsurers - -
Net insurance claims - 28
Change in reinsurance assets and liabilities - (3)
Change in insurance contract liabilities - (8)
Insurance contract claims and change in liabilities from continuing operations - 17
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