REG - abrdn PLC - Final Results - Part 5 of 8
28/02/2023 07:16
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RNS Number : 2637R abrdn PLC 28 February 2023
abrdn plc
Full Year Results 2022
Part 5 of 8
6. Independent auditor's report to the members of abrdn plc
1. Our opinion is unmodified
In our opinion:
- The financial statements of abrdn plc give a true and fair view of
the state of the Group's and of the parent company's affairs as of 31 December
2022, and of the Group's loss 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.
- The Group and parent company financial statements have been prepared
in accordance with the requirements of the Companies Act 2006.
What our opinion covers
We have audited the Group and parent company financial statements of abrdn plc
('the parent company' or 'the Company') for the year ended 31 December 2022
(FY22) included in the Annual report and accounts, which comprise:
Group Parent company (abrdn plc)
Consolidated income statement Company statement of financial position
Consolidated statement of comprehensive income Company statement of changes in equity
Consolidated statement of financial position Notes A to R to the parent company financial statements, including the
accounting policies in the Company accounting policies section.
Consolidated statement of changes in equity
Consolidated statement of cash flows
Notes 1 to 45 to the Group financial statements, including the accounting
policies within those notes and in the Presentation of consolidated financial
statements section.
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 and matters included in
this report are consistent with those discussed and included in our reporting
to the Audit Committee (AC).
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.
2. Overview of our audit
Factors driving our view of risks Following our FY21 audit and considering developments affecting the abrdn plc Key audit matters vs FY21 Item
Group since then, we have updated our risk assessment.
There has been increased uncertainty in the macro-economic environment,
including increased market turbulence which has adversely impacted the Group's
fee-based revenue over the financial year, in addition to the wider
performance challenges faced by the Group (in particular within the
Investments vector).
The resultant impact on loss before tax has impacted our determination of
the appropriate materiality benchmark and wider risk assessment. Our
materiality levels are reduced from the prior year and this has affected our
Key Audit Matters identified which are explained below.
- The significance of the acquisition of Interactive Investor in
May 2022 has resulted in the recognition of a new Key Audit Matter over the
related accounting implications, specifically the identification of intangible
assets to be recognised with a corresponding impact on the goodwill recognised
and the allocation of that goodwill to the relevant cash generating units.
This replaces the event driven Key Audit Matter relating to the Tritax
acquisition that was reported in the prior year.
- Given the challenging global economic environment as well as
the Group's wider financial performance, we identified that the risks around
the recoverability of certain of the Group's goodwill balances and certain of
the parent company's investments in subsidiaries have increased. As a result,
the recoverability of certain goodwill was added to the Key Audit Matter on
the recoverability of certain investments in subsidiaries that we had
identified as a Key Audit Matter in the prior year. We identified the risks
associated with the key assumptions used in determining the estimated
recoverable amount for the applicable cash generating units supporting
recognised goodwill and the estimated recoverable amount of investments in
subsidiaries (including forecast cash flows, market multiples (and applicable
premiums/discounts) and discount rates (as applicable)) as significant.
- As part of our risk assessment, we maintained our focus on
future economic and operational assumptions used by the Group in estimates.
The most significant area that these could impact the financial statements
(outside of goodwill and investment in subsidiaries as noted above) is in the
valuation of the defined benefit pension obligation. As a result, this was
maintained as a Key Audit Matter.
- We identified a new Key Audit Matter in respect of recognition
of management fee revenue from contracts with customers. Our assessment is
that the risk is increased from 2021. In our view, the nature and complexity
of management fee calculations has increased year on year, at the same time as
market volatility and uncertainty has driven increased revenue focus.
While not reported as Key Audit Matters, we also identified that the Group's
ongoing cost control transformation programme and corporate transactions would
have financial reporting implications that would require consideration in the
Group and parent company financial statements, including judgments around the
classification of assets as held for sale and the presentation of expenses as
restructuring expenses.
Accounting implications of the acquisition of Interactive Investor Ì 4.1
Recoverability of certain goodwill and of certain of the parent company's é 4.2
investments in subsidiaries
Valuation of the çè 4.3
UK defined
benefit pension
scheme present
value of funded
obligation
Revenue recognition: management fee revenue from contracts with customers 4.4
Ì
Audit Committee interaction During the year, the AC met 7 times. KPMG are invited to attend all AC
meetings and are provided with an opportunity to meet with the AC in private
sessions without the Executive Directors being present. The Group engagement
partner met with the Audit Committee Chair privately before each AC and also
attended all Risk and Capital Committee meetings held during the year. For
each Key Audit Matter, we have set out communications with the AC in Section 4
, including matters that required particular judgment for each.
The matters included in the Audit Committee Chair's report on page 86 are
materially consistent with our observations of those meetings.
Our Independence We have fulfilled our ethical responsibilities under, and we remain Total audit fee £6.2m
independent of the Group in accordance with, UK ethical requirements including
the FRC Ethical Standard as applied to listed public interest entities.
We have not performed any non-audit services during FY22 or subsequently which
are prohibited by the FRC Ethical Standard.
We were first appointed as auditor by the shareholders for the year ended 31
December 2017. The period of total uninterrupted engagement is for the six
financial years ended 31 December 2022.
The Group engagement partner is required to rotate every 5 years. As these are
the first set of the Group's financial statements signed by Richard Faulkner,
he will be required to rotate off after the FY26 audit.
The average tenure of partners and directors responsible for component audits
as set out in Section 7 below is 3 years, with the shortest being the first
year of involvement and the longest being five years.
Audit related fees (including interim review) £2.3m
Other services £1.3m
Non-audit fee as a % of total audit and audit related fee % 15%
Date first appointed 16 May 2017
Uninterrupted audit tenure 6 years
Next financial period which requires a tender FY27
Tenure of Group engagement partner 1 year
Average tenure of component signing partners and directors 3 years
Materiality (item 6 below) The scope of our work is influenced by our view of materiality and our Diagram removed for the purposes of this announcement. However it can be
assessed risk of material misstatement. viewed in full in the pdf document
We have determined overall materiality for the Group financial statements as a
whole at £14m (FY21: £19m) and for the parent company financial statements
as a whole at £5.6m (FY21: £7.6m).
For FY22, we determined that total revenue is the benchmark for Group. In
previous years we have based our materiality on a normalised profit benchmark,
however as the Group's underlying performance is lower year on year, we
assessed that using a normalised profit measure would indicate a materiality
which is inappropriate for the size and scale of the wider business.
As such, we based our Group materiality on total revenue of which it
represents 0.9% (FY21: 5% of normalised profit before tax).
Materiality for the parent company financial statements was set as 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% (FY21: 0.1%).
Group Scope We have performed risk assessment and planning procedures to determine which Diagram removed for the purposes of this announcement. However it can be
of the Group's components are likely to include risks of material misstatement viewed in full in the pdf document
(Item 7 Below) to the Group financial statements, the type of procedures to be performed at
these components and the extent of involvement required from our component
auditors around the world.
Of the Group's 311 (FY21: 301) reporting components, we subjected 19 (FY21:
17) to full scope audits for Group purposes, and 2 (FY21: 4) 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. The components within the scope
of our work accounted for the percentages illustrated opposite.
In addition, we have performed Group level analysis on the remaining
components to determine whether further risks of material misstatement exist
in those components.
We consider the scope of our audit, as communicated to the Audit Committee, to
be an appropriate basis for our audit opinion.
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 and accounts.
As disclosed in Note 35, the Group's direct exposure to climate change in the
financial statements is primarily through its 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. 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. As such, the impact of climate change was
limited to the valuation of level 3 investment holdings; 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 did not consider the potential impact of
climate change on the sustainability of earnings or cashflow forecasts to be
material.
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 and accounts as set out on
pages 28 to 47 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.
3. Going concern, viability and principal risks and uncertainties
The Directors have prepared the financial statements on the going concern
basis as they do not intend to liquidate the Group or the parent company or to
cease their operations, and as they have concluded that the Group's and the
parent 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).
Going Concern
We used our knowledge of the Group, its industry and operating model, and the Our conclusions
general economic environment to identify the inherent risks to its business
model and analysed how those risks might affect the Group's and the parent - We consider that the Directors' use of the going concern basis
company's financial resources or ability to continue operations over the going of accounting in the preparation of the financial statements is appropriate.
concern period. The risk that we considered most likely to adversely affect
the Group's and parent company's available financial resources over this - We have not identified and concur with the Directors'
period was increased market volatility. assessment that there is not, a material uncertainty related to events or
conditions that, individually or collectively, may cast significant doubt on
We considered whether these risks could plausibly affect the liquidity in the the Group's or parent company's ability to continue as a going concern for the
going concern period by assessing the degree of downside assumption that, going concern period.
individually and collectively, could result in a liquidity issue, taking into
account the Group's and parent company's current and projected cash and - We have nothing material to add or draw attention to in
facilities (a reverse stress test). We also assessed the completeness of the relation to the Directors' statement in Note (a)(v) to the financial
going concern disclosure. statements on the use of the going concern basis of accounting with no
material uncertainties that may cast significant doubt over the Group's and
Accordingly, based on those procedures, we found the Directors' use of the the parent company's use of that basis for the going concern period, and we
going concern basis of accounting without any material uncertainty for the found the going concern disclosure in Note (a)(v) to be acceptable.
Group and parent company to be acceptable. However, as we cannot predict all
future events or conditions and as subsequent events may result in outcomes - The related statement under the Listing Rules set out on page
that are inconsistent with judgments that were reasonable at the time they 136 is materially consistent with the financial statements and our audit
were made, the above conclusions are not a guarantee that the Group or the knowledge.
parent company will continue in operation.
Disclosures of emerging and principal risks and longer-term viability
Our Responsibility Our Reporting
We are required to perform procedures to identify whether there is a material We have nothing material to add or draw attention to in relation to these
inconsistency between the Directors' disclosures in respect of emerging and disclosures.
principal risks and the viability statement, and the financial statements and
our audit knowledge. We have concluded that these disclosures are materially consistent with 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 on
page 62 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 Evolving and emerging risks and Principal risks and
uncertainties disclosures describing these risks and how emerging risks are
identified and explaining how they are being managed and mitigated.
- 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 62
under the Listing Rules.
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 judgments 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 parent company's longer-term viability.
4. Key audit matters
What we mean
Key audit matters are those matters that, in our professional judgment, 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.
- Directing the efforts of the engagement team.
We include below the Key Audit Matters in decreasing order of audit
significance, 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 for the purpose of our audit of the financial statements
as a whole. We do not provide a separate opinion on these matters.
4.1 Accounting implications of the acquisition of Interactive Investor (group)
Financial Statement Elements Our assessment of risk vs FY21 Our findings
FY22 Ì 2022 event driven Key Audit Matter FY22: Balanced
Goodwill: £993m
Intangible assets : £469m
Description of the Key Audit Matter Our response to the risk
Subjective judgment and estimate We performed the procedures below rather than seeking to rely on any of the
Group's controls because the nature of the balance is such that we would
In May 2022, abrdn completed the acquisition of Interactive Investor (ii). expect to obtain audit evidence primarily through the detailed procedures
There are a number of accounting estimates and judgments associated with the described.
acquisition accounting for this transaction.
Our procedures to address the risk included:
On acquisition, separate intangible assets must be identified and valued. Both
the identification of intangible assets to be recognised and the valuation of Our business combination and sector expertise: We considered the rationale for
these assets are subjective, and involve judgment (e.g. determination of the the acquisition, reviewed the terms of the acquisition, including Board papers
useful economic life of acquired intangible assets) and estimation uncertainty and other available information and challenged the Group, and their third
(e.g. the determination of the discount rate or cash flow forecasts to be used party experts, on the identification of intangible assets.
in their valuation).
Our valuation expertise: Using our own valuation specialists, we challenged
The recognition of intangible assets, and other acquired assets/ liabilities, the identification and valuation analysis prepared by the Group (and the third
have a corresponding impact on the goodwill recognised on acquisition. In party valuations experts who assisted the Group), including the assessment of
addition, the allocation of total recognised goodwill to the relevant cash the useful economic life of identified intangibles and the allocation of the
generating units (CGUs) is also subjective and involves judgement. purchase price between goodwill and separately identifiable intangible assets.
We assessed the appropriateness of input assumptions used in the valuation
The effect of these matters is that, as part of our risk assessment, we analysis, including performing a critical assessment of the reliability of the
determined that the fair value of the identified intangible assets and the Group's forecasts and comparing the discount rate assumption used with our own
related goodwill recognised on acquisition have a high degree of estimation expected range.
uncertainty, with a potential range of reasonable outcomes greater than our
materiality for the financial statements as a whole and possibly many times Our sector expertise: We critically assessed the methodology and input
that amount. assumptions (in respect of forecast earnings, including synergies) used by the
Group in determining the allocation of recognised goodwill to relevant CGUs.
Sensitivity analysis: We 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 the separately
identifiable intangible assets and corresponding allocation of the purchase
price to goodwill.
Assessing transparency: We assessed the Group's disclosures in respect of the
acquisition, including the determination of applicable input assumptions.
Communications with the abrdn plc Audit Committee
Our discussions with and reporting to the Audit Committee included:
- Our definition of the key audit matter relating to the accounting
implications of the acquisition of Interactive Investor.
- Our audit response to the key audit matter which included the use of
specialists to challenge key aspects of the Group's identification and
valuation of intangible assets.
- The findings of our procedures.
Areas of particular auditor judgment
We identified the following as the areas of particular auditor judgment:
- Subjective and complex auditor judgment was required in evaluating
the key assumptions used by the Group (including the discount rate and cash
flow forecasts) and in assessing the judgment in respect of separate
intangibles identified and the allocation of goodwill to the relevant CGUs.
Our findings
In determining the allocation of goodwill to the relevant CGUs and the useful
economic life of identified intangibles there is room for judgement and we
found that within that, the Group's judgement was balanced(FY21: n/a). We also
found the Group's valuation of the fair value of the intangible assets and
goodwill recognised on the acquisition of ii to be balanced (FY21: n/a) with
proportionate (FY21: n/a) disclosures of the related assumptions.
Further information in the Annual report and accounts: See the Audit Committee
Report on page 89 for details on how the Audit Committee considered the
accounting implications of the acquisition of ii as an area of significant
attention, page 167 for the accounting policy on the accounting implications
of the acquisition of ii, and Note 1 for the financial disclosures.
4.2 Recoverability of certain goodwill (group) and of certain of the parent company's investments in subsidiaries (parent)
Financial Statement Elements Our assessment of risk vs FY21 Our findings
FY22 FY21 é Our assessment is that the risk has increased compared to FY21. This reflects FY22: Balanced FY21: Balanced
the increased market volatility and the resulting impact on the performance of
the Group, in addition to the wider performance challenges faced by the Group
(in particular within the Investments vector). The recoverability of certain
goodwill has been added to the Key Audit Matter as a result of this increase
in the risk.
Included within Goodwill of: £935m £331m
Impairment of goodwill: (£340m) -
Investment in subsidiaries: £3,843m £5,065m
Impairment of investments in subsidiaries: (£923m) (£45m)
Description of the Key Audit Matter Our response to the risk
As noted in the Strategic report, the results in the Investments vector have We performed the procedures below rather than seeking to rely on any of the
been impacted by the external market environment in addition to wider Group's controls because the nature of the balance is such that we would
performance challenges and businesses and subsidiaries aligned to that vector expect to obtain audit evidence primarily through the detailed procedures
experienced indicators of impairment. described.
In addition to the Investments vector, there is focus on the following Our procedures included:
businesses:
Our sector expertise: We critically assessed the Group's assessment of whether
- Interactive Investor, given the size of the acquisition which there were any impairment indicators for the parent company's investment in
occurred in the period prior to the largest market volatility. subsidiaries, including comparing the carrying value of parent company's net
assets with the Group's market capitalisation and considering the
- Finimize, given the underperformance of 2022 revenue against subsidiaries' business performance.
forecast.
Our sector expertise: We assessed the appropriateness of the Group's
- The financial planning business, given its performance. conclusion that the recoverable amount of goodwill and investment in
subsidiaries should be based on FVLCD.
These factors increased the risk associated with the recoverability of the
goodwill allocated to these cash generating units (CGUs) or groups of CGUs and Our valuation expertise: Using our own valuation specialists, we assessed the
the investments in the associated subsidiaries. appropriateness of the Group's FVLCD methodology and the appropriateness of
the input assumptions used in calculating the FVLCD of the CGUs or groups of
Investments in subsidiaries - subjective judgment CGUs to which certain goodwill is allocated and of certain of the parent
company's investment in subsidiaries.
As a result of the factors identified above, and additionally as the net
assets attributable to equity holders of the parent company exceeded the Benchmarking assumptions: We compared the Group's assumptions to externally
Group's market capitalisation at the balance sheet date, the parent company derived data in relation to key inputs such market multiples and discount
applied judgment to identify which subsidiaries were at risk of impairment. As rates.
a result, it subjected the investments in abrdn Holdings Limited, abrdn
Investments (Holdings) Limited and abrdn Financial Planning Limited to an Sensitivity analysis: We performed our own sensitivity analysis which included
impairment review. assessing the effect of reasonable alternative assumptions in respect of
forecast cash flows, market multiples (and applicable premiums/discounts) and
Goodwill and Investment in Subsidiaries - subjective estimate discount rates (as applicable) to evaluate the impact on the FVLCD of the CGUs
or groups of CGUs to which certain goodwill is allocated and of certain of the
Goodwill is tested for impairment at least annually whether or not indicators parent company's investment in subsidiaries.
of impairment exist.
For goodwill the impairment assessment is performed by comparing the carrying
amount of each CGU or group of CGUs to which goodwill is allocated with its Assessing transparency: We assessed whether the Group's disclosures (in
recoverable amount being the higher of its value in use (VIU) or fair value respect of goodwill) and the parent company's disclosures (in respect of
less costs of disposal (FVLCD). Similarly for investments in subsidiaries the investment in subsidiaries) about the sensitivity of the outcome of the
carrying value of the investment in the subsidiaries is compared with impairment assessment to changes in key assumptions reflect the risks inherent
recoverable amount of that investment being the higher of its VIU or FVLCD. in the recoverable amount of goodwill and investment in subsidiaries.
In determining the VIU, which is calculated using a discounted cash flow
method, the key assumptions are forecast cash flows and discount rates. In
determining the FVLCD the key assumptions are forecast cash flows, market
multiples (including applicable premiums/discounts) and discount rates (as
applicable).
The resulting recoverable amounts, in particular for the CGUs, groups of CGUs
and investments in subsidiaries set out above, are subjective due to the
inherent uncertainty in determining these assumptions and are therefore also
susceptible to management bias.
The effect of these matters is that, as part of our risk assessment, we
determined that the recoverable amount of certain goodwill and of certain
investments in subsidiaries have 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. The
financial statements (Note 13 and A) disclose the sensitivity estimated by the
Group and parent company.
Communications with the abrdn plc Audit Committee
Our discussions with and reporting to the Audit Committee included:
- Our definition of the key audit matter relating to the
recoverability of certain goodwill and certain investments in subsidiaries.
- Our audit response to the key audit matter which included the use of
specialists to challenge key aspects of the Group's and parent company's
determination of the recoverable amount and level of impairment.
- The findings of our procedures.
Areas of particular auditor judgment
We identified the following as the areas of particular auditor judgment:
- Subjective and complex auditor judgment was required in evaluating
the key assumptions used by the Group and parent company (including forecast
cash flows, market multiples (and applicable premiums/discounts) and discount
rates (as applicable)).
Our findings
We found Group's carrying value of goodwill and the related impairment charges
to be balanced (FY21: balanced) with proportionate (FY21: proportionate)
disclosures of the related assumptions and sensitivities.
We found parent company's carrying value of its investments in subsidiaries
and the related impairment charges to be balanced (FY21: balanced) with
proportionate (FY21: proportionate) disclosures of the related assumptions and
sensitivities.
Further information in the Annual report and accounts: See the Audit Committee
Report on pages 89 to 90 for details on how the Audit Committee considered the
Group's goodwill and the parent company's investments in subsidiaries as areas
of significant attention, pages 188 to 193 for the goodwill accounting policy
and financial disclosures, page 268 for the investment in subsidiaries
accounting policy and pages 270 to 272 for the investment in subsidiaries
financial disclosures.
4.3 Valuation of the UK defined benefit pension scheme present value of funded obligation (group)
Financial Statement Elements Our assessment of risk vs FY21 Our findings
FY22 FY21 çè Our assessment is that the risk is similar to FY21. While there has been FY22: Balanced FY21: Balanced
increased market volatility compared to the prior year, the risk associated
with the selection of economic assumptions remains similar to FY21.
Present value of funded obligation: £1,755m £2,899m
Description of the Key Audit Matter Our response to the risk
Subjective valuation We performed the procedures below rather than seeking to rely on any of the
Group's controls because the nature of the balance is such that we would
The present value of the Group's funded obligation for the UK defined benefit expect to obtain audit evidence primarily through the procedures described
pension scheme is an area that involves significant judgment over the below.
uncertain future settlement value. The Group is required to use judgment in
the selection of key assumptions covering both operating assumptions and Our procedures to address the risk included:
economic assumptions.
Assessing actuaries' credentials: We evaluated the competency and objectivity
The key operating assumptions are base mortality and mortality improvement. of the Group's experts who assisted them in determining the actuarial
The key economic assumptions are the discount rate and inflation. The risk is assumptions used to calculate the defined benefit obligation.
that inappropriate assumptions are used in determining the present value of
the funded obligation. Benchmarking assumptions: We considered, with the support of our own actuarial
specialists, the appropriateness of the base mortality assumption by reference
The effect of these matters is that, as part of our risk assessment, we to scheme and industry data on historical mortality experience and the outcome
determined that the valuation of the pension scheme obligation has a high of the latest triennial report. We considered, with the support of our own
degree of estimation uncertainty, with a potential range of reasonable actuarial specialists, the appropriateness of the mortality improvement
outcomes greater than our materiality for the financial statements as a whole assumptions by reference to industry-based expectations of future mortality
and possibly many times that amount. The financial statements (Note 31) improvements and the appropriateness of the discount rate and inflation
disclose the sensitivity estimated by the Group. assumptions by reference to industry practice.
Assessing transparency: In conjunction with our own actuarial specialists, we
considered whether the Group's disclosures in relation to the assumptions used
in the calculation of the present value of the funded obligation appropriately
represent the sensitivities of the obligation to the use of alternative
assumptions.
Communications with the abrdn plc Audit Committee
Our discussions with and reporting to the Audit Committee included:
- Our identification of the key audit matter relating to the
valuation of the defined benefit pension obligation.
- Our audit response to the key audit matter which included the
use of specialists to challenge key aspects of the Group's actuarial
valuation.
- The findings of our procedures.
Areas of particular auditor judgment
We identified the following as the areas of particular auditor judgment:
- Subjective and complex auditor judgment was required in
evaluating the key assumptions used by the Group (including the discount rate,
inflation and mortality assumptions).
Our findings
We found the Group's valuation of the UK defined benefit pension scheme
obligation to be balanced (FY21: balanced) with proportionate (FY21:
proportionate) disclosures of the related assumptions and sensitivities.
Further information in the Annual report and accounts: See the Audit Committee
Report on page 90 for details on how the Audit Committee considered the
valuation of the UK defined benefit pension scheme obligation as an area of
significant attention, page 218 for the accounting policy on the valuation of
the UK defined benefit pension scheme obligation, and Note 31 for the
financial disclosures.
4.4 Revenue recognition: management fee revenue from contracts with customers (group)
Financial Statement Elements Our assessment of risk vs FY21 Our findings
Revenue recognition: management fee revenue from contracts with customers: FY22 FY21 Ì Our assessment is that the risk is increased from 2021 and so this should be FY22 and FY21: We found no significant items, either unadjusted or adjusted
included as a new Key Audit Matter. In our view, the nature and complexity of for.
management fee calculations has increased year on year, at the same time as
market volatility and uncertainty has driven increased revenue focus.
£1,068m £1,243m
Description of the Key Audit Matter Our response to the risk
Data capture and calculation error Our procedures included:
Revenue from contracts with customers is the most significant item in the Procedures in relation to fee rates
consolidated statement of comprehensive income and represents one of the areas
that had the greatest effect on the overall group audit. In addition, market We performed the detailed procedures below in relation to fee rates rather
volatility and uncertainty has driven increased revenue focus. The balance than seeking to rely on the Group's controls as our knowledge indicated that
comprises various different revenue streams as outlined in Note 3a. we would be unlikely to obtain the required evidence to support reliance on
the controls.
As a result of the revenue diversification in the period, notably the
acquisition of ii, there are new revenue streams in the period. However, the
area of revenue which had the greatest effect on our overall group audit and
audit effort in the current period is management fee income (institutional, Test of details: We agreed a selection of fee rates used in the calculation to
wholesale and insurance) which is the most significant and, in certain areas, the investment management agreements (IMAs), fee letters or fund prospectuses
for example for segregated account management fee calculations, complex item. outlining the effective fee rates.
In our view, the nature and complexity of management fee calculations has
increased year on year. Procedures in relation to AUM
The two key components in calculating management fee income are fee rates to Control design and operation: We tested the design and operating effectiveness
be applied and the amount of assets under management (AUM) resulting in the of controls at third party service providers over the production of AUM data
following key risks: that is used in calculating management fees. This included inspecting the
internal controls reports prepared by relevant outsourced service
- Fee rates: There is a risk that fee rates have not been organisations covering the design and operation of key controls over the
entered appropriately into the fee calculation and billing systems when production of AUM data used in the calculation of management fees.
clients are onboarded or agreements are amended.
Enquiry of clients: Where AUM data is produced by a client appointed
- AUM: There is a risk that AUM data from third-party service administrator and/or custodian we obtained AUM data directly from the client
providers or client appointed administrators and/or custodians does not exist or custodian and used this in our management fee recalculations and tests of
and is not accurate. detail below.
- Calculation: There is a risk that management fee income, Calculation Procedures
including accrued income balances, is incorrectly calculated.
Tests of details and substantive analytical procedures: Where AUM data was
obtained from third party service organisations (and where we had tested the
controls over the AUM data) we independently recalculated in-scope management
fees. Where AUM data was obtained from a client appointed administrator and/or
custodian (and so we could not test controls over the AUM data) we
independently recalculated in-scope management fees and/or agreed a selection
of amounts billed and received to invoice and bank statements.
Communications with the abrdn plc Audit Committee
Our discussions with and reporting to the Audit Committee included:
- Our definition of the key audit matter relating to revenue
recognition: management fee revenue from contracts with customers.
- Our audit response to the key audit matter which included use
of data and analytics technology to complete certain of the
recalculations.
- The findings of our procedures.
Areas of particular auditor judgment
We identified the following as the areas of particular auditor judgment:
- We performed an assessment of whether the matters identified
in respect of management fee revenue from contracts with customers were
material.
Our findings
- We found no significant items, either unadjusted or adjusted for, in
the Group's management fee revenue from contracts with customers (FY21: no
significant items either unadjusted or adjusted for).
Further information in the Annual report and accounts: See the page 175 for
the accounting policy on revenue from contracts with customers, and Note 3 for
the financial disclosures.
We continue to perform procedures over the fair value of the contingent
consideration liability recognised on the acquisition of Tritax Management LLP
(Tritax). However, as the acquisition occurred in the prior year we do not
need to perform procedures over the fair value of intangible assets recognised
on the acquisition of Tritax and taking into account the relative size of the
contingent consideration liability, 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.
5. Our ability to detect irregularities, and our response
Fraud - identifying and responding to risks of material misstatement due to
fraud
Fraud risk assessment 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 the 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 Capital Committee meetings.
- Considering the findings of Group Internal Audit's reviews in
the period.
- Considering remuneration incentive schemes and performance
targets for management and the Directors.
Risk communications 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 audit team 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.
Fraud risks 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 judgments 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 also identified fraud risks related to:
- The recoverability of certain of the Group's goodwill and
certain of the parent company's investment in subsidiaries in response to the
high degree of estimation uncertainty due to increased market volatility and
business performance in the year, and the impact of these on the profit of the
Group, and the susceptibility of these estimates to management bias.
- The classification of expenses as restructuring, given the
extent of restructuring in the Group's cost base, and the level of market
interest in the delivery of both transformation programmes and cost savings,
the impact of these on both the incentive to classify items as restructuring
expenses and the consequences of an error in classification.
Link to KAMS Further detail in respect of the risk of fraud over the recoverability of
certain of the Group's goodwill and certain of the parent company's investment
in subsidiaries, including our procedure to compare certain key input
assumptions to external market data, is set out in the key audit matter
disclosures in section 4.2 of this report.
Procedures to address fraud risks Our audit procedures included evaluating the design, implementation, and where
relevant operating effectiveness of internal controls relevant to mitigate
these risks.
To address the risk of fraud over the classification of restructuring expenses
we tested a sample of expenses, and challenged management in relation to the
classification of those selected expenses against the Group's adjusted profit
methodology. Based on the evidence obtained, we assessed whether each sampled
expense related to a transaction or event met the definition of restructuring
or adjusting, to determine whether there were indications of inconsistent
classification or indicators of management bias. We also performed substantive
audit 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.
- Evaluating the business purpose of significant unusual
transactions.
- Assessing significant accounting estimates for bias, including
whether the judgments made in making accounting estimates are indicative of a
potential bias.
Laws and regulations - identifying and responding to risks of material
misstatement relating to compliance with laws and regulations
Laws and regulations risk assessment We identified areas of laws and regulations that could reasonably be expected
to have a material effect on the financial statements. For this risk
assessment matters considered included the following:
- Our general commercial and sector experience.
- Discussion with the Directors and other management (as
required by auditing standards).
- Inspection of the Group's regulatory and legal correspondence.
- Inspection of the policies and procedures regarding compliance
with laws and regulation.
- Relevant discussions with the Directors and other management.
As the Group and many of its subsidiaries are 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.
Risk communications We communicated identified laws and regulations throughout the audit team and
remained alert to any indications of non-compliance throughout the audit. This
included communication from the Group audit team to full scope component audit
teams of relevant laws and regulations identified at 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 Group level. The potential effect of these laws
and regulations on the financial statements varies considerably.
Direct laws context and link to audit 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.
Most significant indirect law/ regulation areas 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.
- 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.
Known actual or suspected matters We assessed the disclosure of provisions in Note 34 and contingent liabilities
in Note 39 in light of our understanding gained through the procedures above.
Actual or suspected breaches discussed with AC 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.
Context
Context of the ability of the audit to detect fraud or breaches of law or Owing to the inherent limitations of an audit, there is an unavoidable risk
regulation 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
fraud 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.
6. Our determination of materiality
The scope of our audit was influenced by our application of materiality. We
set quantitative thresholds and overlay qualitative considerations to help us
determine the scope of our audit and the nature, timing and extent of our
procedures, and in evaluating the effect of misstatements, both individually
and in the aggregate, on the financial statements as a whole.
£14m What we mean
(FY21: £19m) A quantitative reference for the purpose of planning and performing our audit.
Materiality for the group financial statements as a whole
Basis for determining materiality and judgments applied
Materiality for the Group financial statements as a whole was set at £14m
(FY21: £19m). This was determined with reference to a benchmark of revenue.
We determined that revenue is the appropriate benchmark for the Group given
the performance of the entity, the sector in which the entity operates, its
ownership and financing structure, and the focus of users. In previous years
we have based our materiality on a normalised profit before tax benchmark,
however, as the Group's underlying performance is lower year on year, we
assessed using a normalised profit measure would indicate a materiality which
is inappropriate for the size and scale of the wider business.
Our Group materiality of £14m, was determined by applying a percentage to the
Group revenue (FY21: Group normalised profit before tax). When using a revenue
benchmark to determine overall materiality, KPMG's approach for listed
entities considers a guideline range 0.5% to 1% (FY21: 3% to 5%) of the
measure. In setting overall Group materiality, we applied a percentage of 1%
(FY21: 3.5% of Group normalised profit before tax which equated to 1.7% of
Group profit before tax) to the projected benchmark at planning, which equates
to 0.9% of the full year benchmark.
Materiality for the parent company financial statements as a whole was set at
£5.6m (FY21: £7.6m), which is component materiality for the parent company
determined by the Group audit engagement team (FY21: same). This is lower than
the materiality we would otherwise have determined with reference to parent
company total assets, of which it represents 0.1% (FY21: 0.1%).
£9.1m What we mean
(FY21: £14.25m) Our procedures on individual account balances and disclosures were performed
to a lower threshold, performance materiality, so as to reduce to an
Performance materiality 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.
Basis for determining performance materiality and judgments applied
We have considered performance materiality at a level of 65% (FY21: 75%) of
materiality for abrdn plc's Group financial statements as a whole to be
appropriate.
The parent company performance materiality was set at £3.6m (FY21: £5.7m),
which equates to 65% (FY21: 75%) of materiality for the parent company
financial statements as a whole.
We applied this reduced percentage in our determination of performance
materiality for the Group and parent company financial statements in the
current year as we identified specific factors indicating an elevated level of
aggregation risk. These factors included the ongoing level of restructuring
and change impacting the Group.
£0.7m What we mean
(FY21: £0.95m) This is the amount below which identified misstatements are considered to be
clearly trivial from a quantitative point of view. We may become aware of
Audit misstatement posting threshold misstatements below this threshold which could alter the nature, timing and
scope of our audit procedures, for example if we identify smaller
misstatements which are indicators of fraud.
This is also the amount above which all misstatements identified are
communicated to abrdn plc's Audit Committee.
Basis for determining the audit misstatement posting threshold and judgments
applied
We set our audit misstatement posting threshold at 5% (FY21: 5%) of our
materiality for the Group financial statements. We also report to the Audit
Committee any other identified misstatements that warrant reporting on
qualitative grounds.
The overall materiality for the Group financial statements of £14m (FY21:
£19m) compares as follows to the main financial statement caption amounts:
Total Group revenue Group profit/(loss) before tax Total Group assets
FY22 FY21 FY22 FY21 FY22 FY21
Financial statement caption £1,538m £1,685m (£615m) £1,115m £9,247m £11,418m
Group materiality as % of caption 0.9% 1.1% 2.3% 1.7% 0.2% 0.2%
7. Scope of our audit
Group Scope What we mean
How the Group audit team determined the procedures to be performed across the
Group.
The Group has 311 (FY21: 301) reporting components. In order to determine the
work performed at the reporting component level, we identified those
components which we considered to be of individual financial significance,
those which were significant due to risk and those remaining components on
which we required procedures to be performed to provide us with the evidence
we required in order to conclude on the group financial statements as a whole.
We determined individually financially significant components as those
contributing at least 10% (FY21: 10%) of Group total revenue, Group net assets
or total profits and losses that made up Group profit before tax. We selected
these metrics because these are the most representative of the relative size
of the components. We identified 7 (FY21: 7) components as individually
financially significant components and performed full scope audits on all of
these components (FY21: 6). In FY21 specific risk-focused audit procedures
included procedures over one component that became financially significant due
to the gains recognised on an investment, and the year end carrying value of
this investment.
In addition to the individually financially significant components, we
identified 2 (FY21: 2) components as significant, owing to significant risks
of material misstatement affecting the group financial statements. Of the 2
(FY21: 2) components identified as significant due to risk, we performed full
scope audits for 2 components (FY21: 2).
In addition, to enable us to obtain sufficient appropriate audit evidence for
the group financial statements as a whole, we selected 12 (FY21: 12) further
components on which to perform procedures. Of these components, we performed
full scope audits for 10 components (FY21: 9) and performed specific
risk-focused audit procedures over revenue on 1 component (FY21: 1) and
investment valuation and fair value gains and losses on 1 component (FY21: 2).
The components within the scope of our work accounted for the following
percentages of the Group's results, with the prior year comparatives indicated
in brackets:
Scope Number of components Range of materiality applied Group revenue Total profits and losses that made up Group PBT Group net assets
Full scope audits 19 (17) £0.7m - £6.3m 83% (73%) 82% (63%) 89% (84%)
(£1m - £8.6m)
Specific risk-focused audit procedures 2 (4) £1.4m - £2.8m 3% (16%) 2% (26%) 4% (6%)
(£19m)
Total 21 (21) 86% (90%) 84% (89%) 93% (90%)
Specific risk-focused procedures over total profits and losses that made up
Group profit before tax for FY21 included those procedures performed by the
Group team in respect of the gains recognised on an investment.
The remaining 14% (FY21: 10%) of total Group revenue, 16% (FY21: 11%) of total
profits and losses that made up Group profit before tax and 7% (FY21: 10%) of
net Group assets is represented by 290 (FY21: 280) reporting components, none
of which individually represented more than 2% (FY21: 5%) of any of total
Group revenue, total profits and losses that made up Group profit before tax
or net Group assets. For these 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.
The work on 17 of the 21 components (FY21: 8 of the 21 components) was
performed by component auditors and the rest, including the audit of the
parent company, was performed by the Group team.
Testing over all KAMs included in Section 4 was performed by the Group team,
with the exception of testing over management fee revenue from contracts with
customers, which is performed by our component auditors. In addition, the
Group team has also performed audit procedures on the following areas on
behalf of the components:
- Testing of IT Systems in those instances where Group and
components use common systems.
- Testing over the completeness of journal postings in the
period in those instances where Group and components use common systems.
These items were audited by the Group team because the consistency of these
systems and processes meant that this was the most effective way to obtain
audit evidence. The Group team communicated the results of these procedures to
the component teams.
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, as
detailed in the table above, having regard to the mix of size and risk profile
of the Group across the components.
The scope of the audit work performed was predominately substantive as we
placed limited reliance upon the Group's internal control over financial
reporting.
Group audit team oversight What we mean
The extent of the Group audit team's involvement in component audits.
In working with component auditors, the Group audit team:
- Held a virtual global planning and risk assessment meeting led
by the Group audit engagement partner to discuss key audit risks and obtain
input from component teams.
- Held planning calls and meetings with component audit teams to
discuss the significant areas of the audit relevant to the components,
including the key audit matter identified in respect of recognition of
management fee revenue from contracts with customers.
- Issued Group audit instructions to component auditors, on the
scope of their work, including specifying the minimum procedures to perform in
their audit of revenue within the Investments vector and cash.
- Visited three (FY21: zero) of the four component teams not
located in the UK (FY21: four), to assess the audit risk and strategy. Video
and telephone conference meetings were also held with these component auditors
(in Luxembourg and Singapore) and the other component (in the United States)
not located in the UK that was not physically visited. At these subsequent
virtual meetings, the findings reported to the Group team were discussed in
more detail, and any further work required by the Group team was then
performed by the component audit teams.
- Inspection of component audit team's key working papers within
component audit files (using remote technology capabilities) to understand and
challenge the audit approach and audit findings of each component.
Specific risk-focused procedures over total profits and losses that made up
Group profit before tax for FY21 included those procedures performed by the
Group team in respect of the gains recognised on an investment.
The remaining 14% (FY21: 10%) of total Group revenue, 16% (FY21: 11%) of total
profits and losses that made up Group profit before tax and 7% (FY21: 10%) of
net Group assets is represented by 290 (FY21: 280) reporting components, none
of which individually represented more than 2% (FY21: 5%) of any of total
Group revenue, total profits and losses that made up Group profit before tax
or net Group assets. For these 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.
The work on 17 of the 21 components (FY21: 8 of the 21 components) was
performed by component auditors and the rest, including the audit of the
parent company, was performed by the Group team.
Testing over all KAMs included in Section 4 was performed by the Group team,
with the exception of testing over management fee revenue from contracts with
customers, which is performed by our component auditors. In addition, the
Group team has also performed audit procedures on the following areas on
behalf of the components:
- Testing of IT Systems in those instances where Group and
components use common systems.
- Testing over the completeness of journal postings in the
period in those instances where Group and components use common systems.
These items were audited by the Group team because the consistency of these
systems and processes meant that this was the most effective way to obtain
audit evidence. The Group team communicated the results of these procedures to
the component teams.
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, as
detailed in the table above, having regard to the mix of size and risk profile
of the Group across the components.
The scope of the audit work performed was predominately substantive as we
placed limited reliance upon the Group's internal control over financial
reporting.
Group audit team oversight
What we mean
The extent of the Group audit team's involvement in component audits.
In working with component auditors, the Group audit team:
- Held a virtual global planning and risk assessment meeting led
by the Group audit engagement partner to discuss key audit risks and obtain
input from component teams.
- Held planning calls and meetings with component audit teams to
discuss the significant areas of the audit relevant to the components,
including the key audit matter identified in respect of recognition of
management fee revenue from contracts with customers.
- Issued Group audit instructions to component auditors, on the
scope of their work, including specifying the minimum procedures to perform in
their audit of revenue within the Investments vector and cash.
- Visited three (FY21: zero) of the four component teams not
located in the UK (FY21: four), to assess the audit risk and strategy. Video
and telephone conference meetings were also held with these component auditors
(in Luxembourg and Singapore) and the other component (in the United States)
not located in the UK that was not physically visited. At these subsequent
virtual meetings, the findings reported to the Group team were discussed in
more detail, and any further work required by the Group team was then
performed by the component audit teams.
- Inspection of component audit team's key working papers within
component audit files (using remote technology capabilities) to understand and
challenge the audit approach and audit findings of each component.
8. 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.
All other information
Our responsibility Our reporting
Our responsibility is to read the other information and, in doing so, consider Based solely on that work we have not identified material misstatements or
whether, based on our financial statements audit work, the information therein inconsistencies in the other information.
is materially misstated or inconsistent with the financial statements or our
audit knowledge.
Strategic report and Directors' report
Our responsibility and reporting
Based solely on our work on the other information described above we report to
you as follows:
· 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.
· In our opinion those reports have been prepared in accordance with
the Companies Act 2006.
Directors' remuneration report
Our responsibility Our reporting
We are required to form an opinion as to whether the part of the Directors' In our opinion the part of the Directors' remuneration report to be audited
remuneration report to be audited has been properly prepared in accordance has been properly prepared in accordance with the Companies Act 2006.
with the Companies Act 2006.
Corporate governance disclosures
Our responsibility and reporting Our reporting
We are required to perform procedures to identify whether there is a material Based on those procedures, we have concluded that each of these disclosures is
inconsistency between the financial statements and our audit knowledge, and: 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 and accounts 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.
· The section of the Annual report and accounts that describes the
review of the effectiveness of the Group's risk management and internal
control systems.
We are also required to review the part of the Corporate Governance Statement We have nothing to report in this respect.
relating to the Group's compliance with the provisions of the UK Corporate
Governance Code specified by the Listing Rules for our review.
Other matters on which we are required to report by exception
Our responsibility Our reporting
Under the Companies Act 2006, we are required to report to you if, in our We have nothing to report in these respects.
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; or
· 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; or
· Certain disclosures of Directors' remuneration specified by law are
not made; or
· We have not received all the information and explanations we
require for our audit.
9. Respective responsibilities
Directors' responsibilities
As explained more fully in their statement set out on page 137, 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) .
The Company is required to include these financial statements in an annual
financial report prepared using the single electronic reporting format
specified in the TD ESEF Regulation. This auditor's report provides no
assurance over whether the annual financial report has been prepared in
accordance with that format.
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.
Richard Faulkner (Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
Saltire Court
20 Castle Terrace
Edinburgh
EH1 2EG
28 February 2023
7. Group financial statements
Consolidated income statement
For the year ended 31 December 2022
2022 2021
Notes £m £m
Revenue from contracts with customers 3 1,538 1,685
Cost of sales 3 (82) (142)
Net operating revenue 1,456 1,543
Restructuring and corporate transaction expenses 5 (214) (259)
Impairment of intangibles acquired in business combinations and through the 5 (369) -
purchase of customer contracts
Amortisation of intangibles acquired in business combinations and through the 5 (125) (99)
purchase of customer contracts
Staff costs and other employee-related costs 5 (549) (604)
Other administrative expenses 5 (662) (594)
Total administrative and other expenses (1,919) (1,556)
Net gains or losses on financial instruments and other income
Fair value movements and dividend income on significant listed investments 4 (119) (227)
Other net gains or losses on financial instruments and other income 4 (3) 44
Total net gains or losses on financial instruments and other income (122) (183)
Finance costs (29) (30)
Profit on disposal of subsidiaries and other operations 1 - 127
Profit on disposal of interests in associates 1 6 1,236
Loss on impairment of interests in associates 14 (9) -
Share of profit or loss from associates and joint ventures 14 2 (22)
(Loss)/profit before tax (615) 1,115
Tax credit/(expense) 9 66 (120)
(Loss)/profit for the year (549) 995
Attributable to:
Equity shareholders of abrdn plc (561) 994
Other equity holders 28 11 -
Non-controlling interests - ordinary shares 28 1 1
(549) 995
Earnings per share
Basic (pence per share) 10 (26.8) 46.8
Diluted (pence per share) 10 (26.8) 46.0
The Notes on pages 163 to 264 are an integral part of these consolidated
financial statements.
Consolidated statement of comprehensive income
For the year ended 31 December 2022
2022 2021
Notes £m £m
(Loss)/profit for the year (549) 995
Items that will not be reclassified subsequently to profit or loss:
Remeasurement (losses)/gains on defined benefit pension plans 31 (793) 117
Share of other comprehensive income of associates and joint ventures 14 - 12
Equity holder tax effect of items that will not be reclassified subsequently 9 - 3
to profit or loss
Total items that will not be reclassified subsequently to profit or loss (793) 132
Items that may be reclassified subsequently to profit or loss:
Fair value gains on cash flow hedges 18 85 19
Exchange differences on translating foreign operations 36 (2)
Share of other comprehensive income of associates and joint ventures 14 (28) (4)
Items transferred to the consolidated income statement
Fair value (gains) on cash flow hedges 18 (78) (10)
Realised foreign exchange losses 1 - 18
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 (2) (3)
profit or loss
Total items that may be reclassified subsequently to profit or loss 13 9
Other comprehensive income for the year (780) 141
Total comprehensive income for the year (1,329) 1,136
Attributable to:
Equity shareholders of abrdn plc (1,341) 1,135
Other equity holders 28 11 -
Non-controlling interests - ordinary shares 28 1 1
(1,329) 1,136
The Notes on pages 163 to 264 are an integral part of these consolidated
financial statements.
Consolidated statement of financial position
As at 31 December 2022
2022 2021
Notes £m £m
Assets
Intangible assets 13 1,619 704
Pension and other post-retirement benefit assets 31 831 1,607
Investments in associates and joint ventures accounted for using the equity 14 267 274
method
Property, plant and equipment 15 201 187
Deferred tax assets 9 212 168
Financial investments 17 2,939 4,316
Receivables and other financial assets 19 907 680
Current tax recoverable 9 7 2
Other assets 20 92 105
Assets held for sale 21 87 -
Cash and cash equivalents 22 1,133 1,904
8,295 9,947
Assets backing unit linked liabilities 23
Financial investments 924 1,430
Receivables and other unit linked assets 5 8
Cash and cash equivalents 23 33
952 1,471
Total assets 9,247 11,418
2022 2021
Notes £m £m
Liabilities
Third party interest in consolidated funds 29 242 104
Subordinated liabilities 30 621 644
Pension and other post-retirement benefit provisions 31 12 38
Deferred income 32 3 5
Deferred tax liabilities 9 211 165
Current tax liabilities 9 11 27
Derivative financial liabilities 29 1 5
Other financial liabilities 33 1,198 1,046
Provisions 34 97 49
Other liabilities 34 8 8
Liabilities of operations held for sale 21 14 -
2,418 2,091
Unit linked liabilities 23
Investment contract liabilities 773 1,088
Third party interest in consolidated funds 173 378
Other unit linked liabilities 6 5
952 1,471
Total liabilities 3,370 3,562
Equity
Share capital 24 280 305
Shares held by trusts 25 (149) (171)
Share premium reserve 24 640 640
Retained earnings 26 5,021 5,775
Other reserves 27 (129) 1,094
Equity attributable to equity shareholders of abrdn plc 5,663 7,643
Other equity 28 207 207
Non-controlling interests - ordinary shares 28 7 6
Total equity 5,877 7,856
Total equity and liabilities 9,247 11,418
The Notes on pages 163 to 264 are an integral part of these consolidated
financial statements.
The consolidated financial statements on pages 156 to 264 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 2023 28 February 2023
Consolidated statement of changes in equity
For the year ended 31 December 2022
Share capital Shares held by trusts Share premium reserve Retained earnings(1) Other reserves(1) 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 2022 305 (171) 640 5,775 1,094 7,643 207 6 7,856
Loss for the year - - - (561) - (561) 11 1 (549)
Other comprehensive income for the year - - - (821) 41 (780) - - (780)
Total comprehensive income for the year 26,27 - - - (1,382) 41 (1,341) 11 1 (1,329)
Issue of share capital 24 - - - - - - - - -
Dividends paid on ordinary shares 12 - - - (307) - (307) - - (307)
Interest paid on other equity 28 - - - - - - (11) - (11)
Share buyback 24, 26, 27 (25) - - (302) 25 (302) - - (302)
Cancellation of capital redemption reserve 26, 27 - - - 1,059 (1,059) - - - -
Other movements in non-controlling interests in the year 28 - - - - - - - - -
Reserves credit for employee share-based payments 27 - - - - 24 24 - - 24
Transfer to retained earnings for vested employee share-based payments 26,27 - - - 63 (63) - - - -
Transfer between reserves on disposal of subsidiaries - - - 1 (1) - - - -
Transfer between reserves on impairment of subsidiaries - - - 207 (207) - - - -
Shares acquired by employee trusts 25 - (46) - - - (46) - - (46)
Shares distributed by employee and other trusts and related dividend 25, 26 - 68 - (70) - (2) - - (2)
equivalents
Other movements(1) 26, 27 - - - (23) 17 (6) - - (6)
31 December 2022 280 (149) 640 5,021 (129) 5,663 207 7 5,877
1. Other movements include the transfer of (£17m) previously recognised in
the foreign currency translation reserve (which is part of Other reserves) to
Retained earnings. In prior years we have considered the functional currency
of an intermediate subsidiary holding the Group's investment in HDFC Life to
be US Dollars. We now consider that the functional currency should have been
GBP, resulting in the current period transfer between reserves. Prior periods
have not been restated as the impact on prior periods is not considered
material. There is no impact on net assets for any period presented.
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 - - - 994 - 994 - 1 995
Other comprehensive income for the year - - - 119 22 141 - - 141
Total comprehensive income for the year 26,27 - - - 1,113 22 1,135 - 1 1,136
Issue of share capital 24 - - - - - - - - -
Issue of other equity 28 - - - - - - 207 - 207
Dividends paid on ordinary shares 12 - - - (308) - (308) - - (308)
Share buyback 24, 26, 27 (1) - - - 1 - - - -
Other movements in non-controlling interests in the year 28 - - - 6 - 6 - 2 8
Reserves credit for employee share-based payments 27 - - - - 43 43 - - 43
Transfer to retained earnings for vested employee share-based payments 26,27 - - - 36 (36) - - - -
Shares acquired by employee trusts 25 - (41) - - - (41) - - (41)
Shares distributed by employee and other trusts and related dividend 25, 26 - 40 - (42) - (2) - - (2)
equivalents
31 December 2021 305 (171) 640 5,775 1,094 7,643 207 6 7,856
The Notes on pages 163 to 264 are an integral part of these consolidated
financial statements.
Consolidated statement of cash flows
For the year ended 31 December 2022
2022 2021
Notes £m £m
Cash flows from operating activities
(Loss)/profit before tax (615) 1,115
Change in operating assets 38 916 214
Change in operating liabilities 38 (725) (209)
Other non-cash and non-operating items 38 570 (1,099)
Dividends received from associates and joint ventures 14 - 15
Taxation paid(1) (36) (22)
Net cash flows from operating activities 110 14
Cash flows from investing activities
Purchase of property, plant and equipment (21) (12)
Acquisition of subsidiaries and unincorporated businesses net of cash acquired 1(b) (1,378) (145)
Disposal of subsidiaries net of cash disposed of 38 - 112
Acquisition of investments in associates and joint ventures 14 (20) (11)
Proceeds in relation to contingent consideration(2) 37 18 54
Payments in relation to contingent consideration 37 (7) (28)
Disposal of investments in associates and joint ventures 1(c) 6 304
Taxation paid on disposal of investments in associates and joint ventures(1) - (33)
Purchase of financial investments (297) (368)
Proceeds from sale or redemption of financial investments 17 1,633 938
Taxation paid on sale or redemption of financial investments(1) (28) -
Prepayment in respect of potential acquisition of customer contracts 1(c)(iii) 14 (56)
Acquisition of intangible assets (6) -
Net cash flows from investing activities (86) 755
Cash flows from financing activities
Proceeds from issue of perpetual subordinated notes - 208
Repayment of subordinated liabilities 30 (92) -
Payment of lease liabilities - principal (46) (27)
Payment of lease liabilities - interest (6) (6)
Shares acquired by trusts (46) (41)
Interest paid on subordinated liabilities and other equity (34) (28)
Other interest paid (2) -
Cash received relating to collateral held in respect of derivatives hedging 74 -
subordinated liabilities
Share buyback 24 (302) (41)
Ordinary dividends paid 12 (307) (308)
Net cash flows from financing activities (761) (243)
Net (decrease)/increase in cash and cash equivalents (737) 526
Cash and cash equivalents at the beginning of the year 1,875 1,358
Effects of exchange rate changes on cash and cash equivalents 28 (9)
Cash and cash equivalents at the end of the year 22 1,166 1,875
Supplemental disclosures on cash flows from operating activities
Interest paid - 1
Interest received 38 22
Dividends received 110 122
Rental income received on investment property 2 2
1. Total taxation paid was £64m in 2022 (2021: £55m).
2. Proceeds in relation to contingent consideration for the year ended 31
December 2021 included £34m in relation to discontinued operations (2022:
£nil).
The Notes on pages 163 to 264 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 for annual periods beginning on or after 1 April 2021 and 1
January 2022.
Amendments to existing standards
- COVID-19 - Related Rent Concessions beyond 30 June 2021 - Amendment
to IFRS 16.
- Reference to the Conceptual Framework - Amendments to IFRS 3.
- Property, Plant and Equipment: Proceeds before Intended Use -
Amendments to IAS 16.
- Onerous Contracts - Costs of Fulfilling a Contract - Amendments to
IAS 37.
- Annual Improvements 2018-2020 cycle.
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 2022. 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.
The standard was endorsed by the UK Endorsement Board on 16 May 2022. 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 material 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, and the related adoption by HASL of IFRS 9, with a resulting
restatement of the carrying value of the joint venture as at 1 January 2022.
The amount of the restatement is not currently known.
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) 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 31
surplus.
Treatment of tax relating to the surplus.
Intangible assets Identification, valuation and allocation to cash generating units of Note 13
intangible assets arising from business combinations, and the determination of
useful lives .
Provisions Determining whether a provision is required for separation costs. Note 34
The following changes have been made to the Group's critical judgements:
- Determining whether the investments in Phoenix and HDFC Asset
Management should continue to be classified as associates is no longer a
critical judgement for the Group, following their reclassifications during
2021 (refer Note 1(c)(iii)).
- 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 is also no
longer a critical judgement for the Group, following the reclassification of
Phoenix during 2021.
- In relation to the acquisition of ii (refer Note 1(b)(i)), the
allocation to cash generating units of goodwill arising from the acquisition
was a critical judgement during 2022 in addition to identification and
valuation of the intangible assets.
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
Intangible assets Determination of the recoverable amount in relation to the impairment of Note 13
goodwill
Financial instruments at fair value through profit or loss Determination of the fair value of contingent consideration Notes 35 and 37
liabilities relating to the acquisition of Tritax
Defined benefit pension plans Determination of principal UK pension plan assumptions for mortality, discount Note 31
rate and inflation
The following changes have been made to the Group's critical estimates and
assumptions:
- As a result of market and macroeconomic conditions and acquisitions
in the period the determination of the recoverable amount in relation to the
impairment of goodwill is now considered a critical accounting estimate.
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)(iv) 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 or losses 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.
(a)(v) 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 impacts of the macroeconomic environment and higher inflation,
the Ukraine conflict and COVID-19 on these principal risks. In addition, these
financial statements include notes on the Group's subordinated liabilities
(Note 30), management of its risks including market, credit and liquidity risk
(Note 35), its contingent liabilities and commitments (Notes 39 and 40), and
its capital structure and position (Note 43).
In preparing these financial statements on a going concern basis, the
Directors have considered the following matters and have taken into account
market uncertainty.
- The Group has cash and liquid resources of £1.7bn at 31 December
2022. In addition, the Company has a revolving credit facility of £400m as
part of our contingency funding plans which is due to mature in 2026 and
remains undrawn.
- The Group's indicative regulatory capital surplus on an IFPR basis
was £0.7bn in excess of capital requirements at 31 December 2022. 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 2022 Viability statement. 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.
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.
Notes to the Group financial statements
1. Group structure
(a) Composition
The following diagram is an extract of the Group structure at 31 December 2022
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 45.
(b) Acquisitions
(b)(i) Current year acquisitions of subsidiaries
Interactive Investor (ii)
On 27 May 2022, abrdn plc purchased 100% of the issued share capital of Antler
Holdco Limited (Antler), the parent company for the Interactive Investor group
of companies. ii is the no.1 UK subscription-based trading platform and the
no.2 UK direct investing platform, by assets under administration. The cash
outflow at the completion of the acquisition was £1,496m, which comprised
consideration of £1,485m and payments of £11m made by abrdn to fund the
settlement of ii transaction liabilities as part of the transaction. The
acquisition of ii provides abrdn with direct entry to the high-growth
digitally enabled direct investing market, accessing new customer segments and
capabilities. This will allow abrdn customers to choose from a wide spectrum
of wealth services, spanning self-directed investing through to high-touch
financial advice, depending on their specific needs over their financial life.
2. At the acquisition date the consideration, net assets acquired and
resulting goodwill were as follows:
27 May 2022 £m
Cash consideration(1,2) 1,485
Fair value of net assets acquired
Intangible assets
Customer relationships 421
Brand 16
Technology and other intangibles 32
Property, plant and equipment 8
Deferred tax assets 5
Receivables and other financial assets(3) 411
Other assets 7
Cash and cash equivalents 107
Total assets 1,007
Other financial liabilities (400)
Provisions (1)
Deferred tax liabilities (114)
Total liabilities (515)
Goodwill 993
1. Cash consideration includes £61m paid by abrdn to redeem discount notes
issued by Antler as part of the acquisition transaction. Not included in the
cash consideration is £11m of payments made by abrdn to fund the settlement
of ii transaction liabilities. These liabilities are included within other
financial liabilities of ii at the acquisition date.
2. Cash consideration includes £10m paid to Richard Wilson the CEO of ii
which is subject to a Reinvestment Agreement. Under the Reinvestment Agreement
Mr Wilson was required to invest at least £5m in abrdn shares and at least a
further £3m in abrdn shares or funds managed by the abrdn group. The
Reinvestment Agreement contains restrictions on the sale of abrdn shares and
fund units acquired which fall away in three equal tranches over a three-year
period following completion.
3. The estimated contractual cash flow not expected to be collected is not
material and therefore the gross contractual amounts receivable is materially
in line with the fair value.
The cash outflow shown in the consolidated statement of cash flows of £1,378m
comprises cash consideration of £1,485m less cash and cash equivalents
acquired of £107m.
Intangible assets acquired in the business combination consist of customer
relationships, brand and technology and other intangibles. Refer Note 13 for
details of the key assumptions used in measuring the fair value of these
intangibles at the acquisition date.
The goodwill arising on acquisition of ii is mainly attributable to expected
future cash flows from new customers, the quality and experience of the ii
executive team and employees, and revenue synergies in our Investments and
Personal segments. The goodwill is not expected to be deductible for tax
purposes. The goodwill has been primarily allocated to the ii cash-generating
unit in the Personal segment (£819m), with £132m and £42m allocated to the
asset management group of cash-generating units in the Investments segment and
a cash-generating unit in the Personal segment respectively for the revenue
synergies noted above.
The revenue from contracts with customers and post tax profit contributed to
the Group's consolidated income statement for the year ended 31 December 2022
from the acquired ii business were £117m and £41m respectively. The profit
contributed excludes amortisation of intangible assets acquired through
business combinations. If the acquisition had occurred on 1 January 2022, the
Group's total revenue from contracts with customers for the period would have
increased by £65m to £1,603m and the loss would have increased by £4m to
£553m. This increase in the loss includes increased amortisation of
intangible assets acquired through business combinations (net of deferred tax)
of £24m.
As part of the transaction, abrdn plc has also agreed the following retention
incentive schemes which are not recognised as part of the business
combination:
- A retention scheme for senior ii executives. These are awards over
abrdn plc shares with a vesting period of up to 3 years and are subject to
pre-determined performance metrics. The value of abrdn plc shares subject to
these awards was c£25m at date of grant. The awards are accounted for as post
completion share based payments and spread over the relevant vesting periods
and will be recognised in Restructuring and corporate transaction expenses in
the consolidated income statement.
- Cash and share incentive retention awards to the wider ii workforce
with vesting periods of up to c3 years. These awards are funded by the
proceeds received by the ii employee benefit trust as part of the transaction.
These are accounted for as post completion share based payments and
remuneration and are spread over the relevant vesting periods and will be
recognised in Restructuring and corporate transaction expenses in the
consolidated income statement.
Corporate transaction deal costs amounted to £27m of which £13m and £14m
were included within Restructuring and corporate transaction expenses in the
year ended 31 December 2022 and 31 December 2021 respectively.
On 1 September 2022, Antler made a dividend in specie to abrdn plc of its
investment in Interactive Investor Limited which is now a direct subsidiary of
abrdn plc. Refer Note A of the Company financial statements for further
details.
(b)(ii) Prior year acquisitions of subsidiaries
On 1 April 2021, abrdn Holdings Limited (formerly named Aberdeen Asset
Management PLC )(aHL) 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 is 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 is 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. Refer
Note 37(a)(iv) for further details on the contingent consideration liability.
In addition, on 29 October 2021, aHL purchased 100% of the issued share
capital of the investing insights platform 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.
Refer Note 13 for details of the goodwill impairment in 2022.
(c) Disposals
(c)(i) Prior year disposal of subsidiaries and other operations
During 2021, the Group made two material disposals of subsidiaries and other
operations:
- On 30 June 2021, the Group completed the sale of Parmenion Capital
Partners LLP (Parmenion) to Preservation Capital Partners.
- On 30 September 2021, the Group completed the sale of its Bonaccord
US private market business (Bonaccord) to P10 Holdings Inc. (P10).
Other disposals included the sale of the Nordics real estate business to DEAS
Asset Management A/S on 31 May 2021, and the sale of Hark Capital US private
market business to P10 on 30 September 2021.
Profit on disposal of subsidiaries and other operations in prior periods have
been summarised below.
2021
£m
Disposal of Parmenion 73
Disposal of Bonaccord 39
Other disposals 15
Profit on disposal of subsidiaries and other operations for the year ended 31 127
December 2021
On disposal, a loss of £1m was recycled from the translation reserve and was
included in determining the profit on disposal of subsidiaries and other
operations for the year ended 31 December 2021.
(c)(ii) Current year disposal of associates
Profit on disposal of interests in associates for the year ended 31 December
2022 of £6m relates to the sale of the Group's interest in Origo Services
Limited in May 2022.
(c)(iii) Prior period disposal and reclassification of associates
Profit on disposal of associates in prior periods have been summarised below.
2021
£m
Reclassification of Phoenix Group Holdings plc (Phoenix) 68
Sale of equity shares in HDFC Asset Management and reclassification 1,168
Profit on disposal of interests in associates for the year ended 31 December 1,236
2021
On disposal and reclassification, a loss of £17m was recycled from the
translation reserve and was included in determining the profit on disposal of
interests in associates for the year ended 31 December 2021. In addition,
other comprehensive income gains of £9m were recycled from retained earnings
and were included in determining the profit on disposal of interests in
associates for the year ended 31 December 2021.
Phoenix
On 23 February 2021, the Group announced details of the simplification and
extension of the strategic partnership between the Group and Phoenix.
Following the changes to the commercial agreements, in particular in relation
to the licencing of the 'Standard Life' brand, our judgement was 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.
As part of the agreement, 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 transaction is not expected to complete before
2024 and is subject to regulatory and court approvals. The upfront
consideration paid by the Group in February 2021 was £62.5m, which is 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 is included in prepayments in the consolidated statement of
financial position with cash movements in relation to the consideration
included in prepayment in respect of potential acquisition of customer
contracts in the consolidated statement of cash flows.
HDFC Asset Management
On 29 September 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 gain on sale 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
Following the sale, the Group's shareholding in HDFC Asset Management was
34,578,305 equity shares or 16.22% and HDFC Asset Management was therefore 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.
The Group's shareholdings in Phoenix and HDFC Asset Management are considered,
along with HDFC Life, as significant listed investments for the purpose of
determining the Group's adjusted profit. Refer Note 11(a) for changes in the
Group's significant listed investments in the year ended 31 December 2022.
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 ended 31 December 2021.
Adviser
Our market-leading UK financial adviser business which provides platform
services to wealth managers and advisers.
Personal
Our Personal business comprises Personal Wealth (which combines our financial
planning business abrdn Financial Planning, our digital direct-to-consumer
services and discretionary fund management services provided by abrdn Capital)
and Interactive Investor following the completion of the acquisition on 27 May
2022. Refer Note 1(b)(i) for further details.
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. The comparative
period also includes a business held for sale (Parmenion, the sale of which
completed on 30 June 2021).
The segments are reported to the level of adjusted operating profit.
(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 2022 Notes £m £m £m £m £m
Net operating revenue(1) 1,070 185 201 - 1,456
Adjusted operating expenses (956) (99) (129) (9) (1,193)
Adjusted operating profit 114 86 72 (9) 263
Adjusted net financing costs and investment return (10)
Adjusted profit before tax 253
Tax on adjusted profit (22)
Adjusted profit after tax 231
Adjusted for the following items
Restructuring and corporate transaction expenses 8 (214)
Amortisation and impairment of intangible assets acquired in business 5 (494)
combinations and through the purchase of customer contracts
Profit on disposal of interests in associates 1 6
Change in fair value of significant listed investments 4 (187)
Dividends from significant listed investments 4 68
Share of profit or loss from associates and joint ventures(2) 14 2
Impairment of interests in associates 14 (9)
Other 11 (40)
Total adjusting items including results of associates and joint ventures (868)
Tax on adjusting items 88
Profit attributable to other equity holders (11)
Profit attributable to non-controlling interests - ordinary shares (1)
Loss for the year attributable to equity shareholders of abrdn plc (561)
Profit attributable to other equity holders 11
Profit attributable to non-controlling interests - ordinary shares 1
Loss for the year (549)
1. The Group's measure of segmental revenue has been renamed from fee based
revenue to net operating revenue.
2. Share of associates' and joint ventures' profit or loss primarily
comprises the Group's share of results of HASL, Virgin Money Unit Trust
Managers (Virgin Money UTM) and Tenet.
Net operating 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 2022, transactions with one external customer
amounted to more than 10% of net operating revenue (2021: one). This net
operating revenue of £180m (2021: £195m) is included in the Investments
segment.
Adjusted operating expenses includes depreciation and amortisation of £41m
(2021: £47m); £36m (2021: £37m) for the Investments segment; £2m (2021:
£4m) for the Adviser segment; £3m (2021: £4m) for the Personal segment; and
£nil (2021: £2m) for Corporate/strategic. Interest income, interest expense
and income tax expense are not analysed by segment in the information provided
to the executive leadership team.
Assets and liabilities by segment is not required to be presented as such
information is not presented on a regular basis to the executive leadership
team.
Investments Adviser Personal Corporate/ Total
strategic
31 December 2021 Notes £m £m £m £m £m
Net operating revenue(1) 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 -
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 5 (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 4 (298)
Dividends from significant listed investments 4 71
Share of profit or loss from associates and joint ventures(2) 14 (22)
Other 11 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. The Group's measure of segmental revenue has been renamed from fee based
revenue to net operating revenue. This measure of segmental revenue excludes
£28m of net operating revenue as presented in the IFRS consolidated income
statement for the year ended 31 December 2021 which was classified as
adjusting items. The adjusting items primarily relate to the net release of
deferred income of £25m. Refer Note 32.
2. Share of associates' and joint ventures' profit or loss comprises the
Group's share of results of HASL, Virgin Money UTM, Phoenix (until 22 February
2021) and HDFC Asset Management (until 29 September 2021).
(b)(ii) Reconciliation to the IFRS consolidated income statement
Net operating revenue
The reconciliation of net operating 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.
2022 2021
£m £m
Total administrative and other expenses as presented in the IFRS consolidated (1,919) (1,556)
income statement
Restructuring and corporate transaction expenses included in adjusting items 214 259
Amortisation and impairment of intangible assets acquired in business 494 99
combinations and through the purchase of customer contracts included in
adjusting items
Administrative and other expenses relating to the unit linked business 1 3
Other differences 17 3
Adjusted operating expenses as presented in the analysis of Group adjusted (1,193) (1,192)
profit by segment
Other differences relate to items presented in adjusted net financing costs
and investment return for segment reporting (see commentary under table below)
and other items classified as adjusting items (refer Note 11).
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 or losses on financial instruments and other income,
as presented in the IFRS consolidated income statement.
2022 2021
£m £m
Net gains or losses on financial instruments and other income as presented in (122) (183)
the IFRS consolidated income statement
Finance costs separately disclosed in the IFRS consolidated income statement (29) (30)
Change in fair value of significant listed investments included in adjusting 187 298
items
Dividends from significant listed investments included in adjusting items (68) (71)
Net gains or losses on financial instruments and other income relating to the (5) (7)
unit linked business
Other differences 27 (7)
Adjusted net financing costs and investment return as presented in the (10) -
analysis of Group adjusted profit by segment
Other differences primarily relate to amounts presented in a different line
item of the IFRS consolidated income statement and other items classified as
adjusting items. This includes the net interest credit relating to the staff
pension schemes of £29m (2021: £17m) which is presented in total
administrative and other expenses in the IFRS consolidated income statement
and in adjusted net financing costs and investment return in the analysis of
Group adjusted profit by segment.
(c) Total net operating revenue by geographical location
Total net operating revenue(1) split by geographical location is as follows:
2022 2021
£m £m
UK 1,041 1,015
Europe, Middle East and Africa 114 132
Asia Pacific 164 209
Americas 137 159
Total 1,456 1,515
1. Net operating revenue is allocated based on legal entity revenue
recognition.
(d) Non-current non-financial assets by geographical location
2022 2021
£m £m
UK 1,745 808
Europe, Middle East and Africa 10 9
Asia Pacific 8 13
Americas 57 61
Total 1,820 891
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 32).
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.
2022 2021
£m £m
Investments
Management fee income - Institutional and Wholesale(1) 901 1,043
Management fee income - Insurance(1) 167 200
Performance fees and carried interest 41 99
Other revenue from contracts with customers 38 54
Revenue from contracts with customers for the Investments segment 1,147 1,396
Adviser
Platform charges 176 179
Treasury income 11 1
Revenue from contracts with customers for the Adviser segment 187 180
Personal
Fee income - Advice and Discretionary 87 92
Account fees 32 -
Trading transactions 27 -
Treasury income 58 -
Revenue from contracts with customers for the Personal segment 204 92
Corporate/strategic - Parmenion fund platform fee income - 17
Total revenue from contracts with customers 1,538 1,685
1. 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.
In addition, Adviser receives treasury income for providing management and
administration of cash held in platform cash accounts. The performance
obligation for cash management and administration is performed over time with
the revenue recognised as the obligation is performed. The customer receives
interest on their cash balances after deduction of a cash management
administration charge which is generally calculated as a percentage of their
cash held in relevant accounts. The percentage varies depending on the
interest received from the banks used to provide the cash accounts. There are
no significant payment terms.
Personal
Through a number of its subsidiaries, the Group also 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. 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.
Through its subsidiary Interactive Investor Services Limited (ii), the Group
offers a subscription-based trading and direct investing platform. The
services that ii offers are provided on both a point in time and an over time
basis.
Customers pay monthly account fees as part of ii's subscription model. Account
fees are invoiced monthly and are payable immediately from the customer's
account, with receivables recognised if there are insufficient funds
available. The account fees cover the performance obligation to provide the
customer with access to the platform and custody services. For certain
subscription levels, the account fee also entitles the customer to receive
trading credits which can be redeemed against future trades. For these
subscription levels, the account fees also cover ii's performance obligation
to perform these future trades. In accordance with IFRS 15, the account fees
are allocated to the two performance obligations. Access to the platform and
custody services is provided over time and the account fees revenue allocated
to this performance obligation is recognised over the calendar month as the
customer receives the benefit of these services. Trading credits need to be
used by the customer within 31 days of the credit arising, therefore the
revenue is recognised over the calendar month as a reasonable approximation of
when the performance obligation is satisfied at a point in time within the
month.
In addition, ii performs additional trades and foreign exchange transactions
for its customers. These are performed at a point in time with the revenue
recognised at the trade date of the transaction. Trading fees for transactions
not covered by trading credits are generally charged on a flat fee basis with
larger international share trades charged based on a percentage of the trade
value. These are added to the cost of purchasing shares or deducted from the
proceeds from the sale of shares with receivables recognised for unsettled
trades. For foreign exchange trades, ii receives a margin (varying depending
on the size of the transaction) via a third party in the month following the
transaction, with receivables recognised prior to the payment.
In addition, ii is entitled to receive treasury income in relation to its
performance obligations to the customer. Treasury income is the interest
earned on cash balances less the interest paid to customers based on the
client money balances held with third party banks and by reference to the
applicable interest rates. Treasury income is recognised on an over time basis
with accrued income recognised for unpaid interest.
(b) Cost of sales
The following table provides a breakdown of total cost of sales.
2022 2021
£m £m
Cost of sales
Commission expenses 66 87
Other cost of sales 16 55
Total cost of sales 82 142
Other cost of sales includes amounts payable to employees and others relating
to carried interest and performance fee revenue. Cost of sales for each of the
Group's reportable segments is disclosed in Section (c) below.
(c) Reconciliation of revenue from contracts with customers to net operating revenue as presented in the analysis of adjusted operating profit
The following table provides a reconciliation of revenue from contracts with
customers as presented in the consolidated income statement to net operating
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
2022 £m £m £m £m £m
Revenue from contracts with customers 1,147 187 204 - 1,538
Cost of sales (77) (2) (3) - (82)
Net operating revenue 1,070 185 201 - 1,456
Investments Adviser Personal Corporate/strategic Total
2021 £m £m £m £m £m
Revenue from contracts with customers 1,396 180 92 17 1,685
Cost of sales (137) (2) - (3) (142)
Net operating revenue as presented in the IFRS consolidated income statement 1,259 178 92 14 1,543
Other differences (28) - - - (28)
Net operating revenue as presented in the analysis of Group adjusted profit by 1,231 178 92 14 1,515
segment
There are no differences between net operating revenue as presented in the
IFRS consolidated income statement and the analysis of Group adjusted profit
by segment for the year ended 31 December 2022.
Other differences for the year ended 31 December 2021 primarily related to the
net release of deferred income of £25m which was classified as an adjusting
item (refer Note 32).
(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 2021 1 January
2021
2022
Notes £m £m £m
Amounts receivable from contracts with customers 19 161 135 115
Accrued income from contracts with customers 19 273 260 221
Cost of obtaining customer contracts 13 27 37 49
Deferred acquisition costs 20 1 3 4
Total contract receivables and assets 462 435 389
31 December 31 December 2021 1 January
2021
2022
Notes £m £m £m
Deferred Income 32 3 5 73
Total contract liabilities 3 5 73
The increase in amounts receivable from contracts with customers and accrued
income from contracts with customers is primarily due to the inclusion of
balances relating to ii which was acquired during the year ended 31 December
2022. Refer Note 1(b)(i) for further details.
Refer Note 32 for details of the release of £57m of deferred income in the
year ended 31 December 2021.
4. Net gains or losses 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 and fair value
movements in contingent consideration.
2022 2021
Notes £m £m
Fair value movements and dividend income on significant listed investments
Fair value movements on significant listed investments (other than dividend (187) (298)
income)
Dividend income from significant listed investments 68 71
Total fair value movements and dividend income on significant listed (119) (227)
investments
Non-unit linked business - excluding significant listed investments
Net gains or losses on financial instruments at fair value through profit or (83) 20
loss
Interest and similar income from financial instruments at amortised cost 25 10
Foreign exchange gains or losses on financial instruments at amortised cost 9 (1)
Other income 41 8
Net gains or losses on financial instruments and other income - non-unit (8) 37
linked business - excluding significant listed investments
Unit linked business
Net gains or losses on financial instruments at fair value through profit or
loss
Net gains or losses on financial assets at fair value through profit or loss (130) 174
Change in non-participating investment contract financial liabilities 112 (124)
Change in liability for third party interests in consolidated funds 23 (43)
Total net gains or losses on financial instruments at fair value through 5 7
profit or loss
Net gains or losses on financial instruments and other income - unit linked 23 5 7
business(1)
Total other net gains or losses on financial instruments and other income (3) 44
Total net gains or losses on financial instruments and other income (122) (183)
1. In addition to the Net gains or losses on financial instruments and other
income - unit linked business of £5m (2021: £7m), there are administrative
expenses and policyholder tax of £1m (2021: £3m) and £4m (2021: £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
(2021: £nil). Refer Note 23 for further details.
Fair value movements on significant listed investments (other than dividend
income) of losses of £187m (2021: losses of £298m) comprises losses of £38m
relating to HDFC Life (2021: losses of £52m), losses of £105m relating to
HDFC Asset Management (2021: losses of £164m) and losses of £44m relating to
Phoenix (2021: losses of £82m).
Dividend income from significant listed investments of £68m (2021: £71m)
comprises £52m (2021: £69m) relating to Phoenix, £15m (2021: £nil)
relating to HDFC Asset Management and £1m (2021: £2m) relating to HDFC Life.
5. Administrative and other expenses
2022 2021
Notes £m £m
Restructuring and corporate transaction expenses 8 214 259
Impairment of intangibles acquired in business combinations and through the
purchase of customer contracts
Impairment of intangibles acquired in business combinations 13 368 -
Impairment of intangibles acquired through the purchase of customer contracts 13 1 -
Total impairment of intangibles acquired in business combinations and through 369 -
the purchase of customer contracts
Amortisation of intangibles acquired in business combinations and through the
purchase of customer contracts
Amortisation of intangibles acquired in business combinations 13 115 87
Amortisation of intangibles acquired through the purchase of customer 13 10 12
contracts
Total amortisation of intangibles acquired in business combinations and 125 99
through the purchase of customer contracts
Staff costs and other employee-related costs 6 549 604
Other administrative expenses(1,2) 662 594
Total administrative and other expenses(3) 1,919 1,556
1. Other administrative expenses includes expense relating to a single
process execution event provision, refer Note 34.
2. Other administrative expenses includes interest expense of £2m (2021:
£1m). In addition, interest expense of £23m (2021: £24m) was incurred in
respect of subordinated liabilities and the related cash flow hedge (refer
Note 18) and interest expense of £6m (2021: £6m) in respect of lease
liabilities (refer Note 16) which are included in Finance costs in the
consolidated income statement.
3. Total administrative and other expenses includes £1m (2021: £3m)
relating to unit linked business. Refer Note 23 for further details.
6. Staff costs and other employee-related costs
2022 2021
Notes £m £m
The aggregate remuneration payable in respect of employees:
Wages and salaries 452 469
Social security costs 50 56
Pension costs
Defined benefit plans (29) (17)
Defined contribution plans 56 53
Employee share-based payments and deferred fund awards 41 20 43
Total staff costs and other employee-related costs 549 604
In addition, wages and salaries of £25m (2021: £27m), social security costs
of £3m (2021: £3m), pension costs - defined benefit plans of less than £1m
(2021: less than £1m), pension costs - defined contribution plans of £1m
(2021: £1m), employee share-based payments and deferred fund awards relating
to transformation, leavers and corporate transactions of £6m (2021: £16m)
and termination benefits of £53m (2021: £50m) have been included in
restructuring and corporate transaction expenses. Refer Note 8. A further
£11m (2021: £53m) 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. The average number of staff for the
year ended 31 December 2021 included roles classified as Operations, IT and
support functions which from 1 January 2022 have been allocated directly to
the reportable segment as a result of changes to reporting lines.
2022 2021
Investments 2,344 1,683
Adviser 658 136
Personal 928 626
Operations, IT and support functions 1,369 3,018
Total employees 5,299 5,463
Information in respect of Directors' remuneration is provided in the
Directors' remuneration report on pages 103 to 130.
7. Auditors' remuneration
The following table shows the auditors' remuneration during the year.
2022 2021
£m £m
Fees payable to the Company's auditors for the audit of the Company's 1.5 1.0
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 4.7 4.1
Audit related assurance services 2.3 2.0
Total audit and audit related assurance fees 8.5 7.1
Other assurance services 1.0 1.2
Other non-audit fee services 0.3 0.9
Total non-audit fees 1.3 2.1
Total auditors' remuneration 9.8 9.2
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 2022 no audit fees were payable in respect
of defined benefit plans to the Group's principal auditor (2021: £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 during the year were
£214m (2021: £259m). Restructuring expenses of £169m (2021: £224m) mainly
relate to transformation costs including severance, platform transformation
and specific costs to effect savings in Investments. Corporate transaction
expenses were £45m (2021: £35m) and include deal costs relating to
acquisitions for the year ended 31 December 2022 of £14m (2021: £16m).
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 it is probable that
the tax deduction will be capable of being offset against taxable profits and
gains in future periods. 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. Any tax consequences of distributions on other equity
instruments are credited to the statement in which the profit distributed
originally arose.
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 are 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
2022 2021
£m £m
Current tax:
UK 5 5
Overseas 45 60
Adjustment to tax expense in respect of prior years (8) 11
Total current tax 42 76
Deferred tax:
Deferred tax (credit)/expense arising from the current year (104) 36
Adjustment to deferred tax in respect of prior years (4) 8
Total deferred tax (108) 44
Total tax (credit)/expense (1) (66) 120
1. The tax credit of £66m (2021: tax expense of £120m) includes a tax
expense of £4m (2021: £4m) relating to unit linked business. Refer Note 23
for further details.
In 2022 unrecognised tax losses from previous years were used to reduce the
current tax expense by £3m (2021: £15m).
Current tax recoverable and current tax liabilities at 31 December 2022 were
£7m (2021: £2m) and £11m (2021: £27m) respectively. In addition current
tax recoverable and current tax liabilities in relation to unit linked
business were less than £1m (2021: £1m) and less than £1m (2021: £1m)
respectively. Current tax assets and liabilities are expected to be
recoverable or payable in less than 12 months at both 31 December 2022 and 31
December 2021.
(a)(ii) Reconciliation of tax expense
2022 2021
£m £m
(Loss)/profit before tax (615) 1,115
Tax at 19% (2021: 19%) (117) 212
Remeasurement of deferred tax due to rate changes (15) (24)
Permanent differences(1) 1 1
Non-taxable dividends from significant listed investments(1) (13) (14)
Non-taxable fair value movements on significant listed investments 21 7
Tax effect of accounting for Share of profit or loss from associates and joint (1) 4
ventures
Tax effect of distributions on other equity instruments (2) -
Impairment losses on goodwill 65 -
Impairment of investment in associates and joint ventures 2 -
Differences in overseas tax rates 5 (70)
Adjustment to current tax expense in respect of prior years (8) 11
Recognition of previously unrecognised deferred tax credit (3) (15)
Deferred tax not recognised 4 2
Adjustment to deferred tax expense in respect of prior years (4) 8
Non-taxable profit or loss on sale of subsidiaries, associates and significant (5) (5)
listed investments
Other 4 3
Total tax (credit)/expense for the year (66) 120
1. 2021 figures were previously disclosed as a single line - permanent
differences (£13m).
The standard UK Corporation Tax rate for the accounting period is 19%. The
rate of UK Corporation Tax will increase from 19% to 25% with effect from 1
April 2023. The increased rate for future periods has been taken into account
in the calculation of UK deferred tax balances.
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:
- Dividends from significant listed investments not being subject to tax
in the UK.
- Losses on fair value movements on HDFC Life and Phoenix not deductible
for tax purposes.
- Goodwill impairments that are not deductible for tax purposes.
- Certain profits are taxed at rates which differ from the UK Corporation
Tax rate. The difference in overseas tax rates includes a reconciling item
relating to the fair value movements and gain on sale of our investment in
HDFC Asset Management. This arises because the Indian rate of tax on long-term
capital gains is less than the UK Corporation Tax rate.
(b) Tax relating to components of other comprehensive income
Tax relating to components of other comprehensive income is as follows:
2022 2021
£m £m
Tax relating to defined benefit pension plan deficits - (3)
Equity holder tax effect relating to items that will not be reclassified - (3)
subsequently to profit or loss
Tax relating to fair value gains and losses recognised on cash flow hedges 21 6
Tax relating to cash flow hedge gains and losses transferred to consolidated (19) (3)
income statement
Equity holder tax effect relating to items that may be reclassified 2 3
subsequently to profit or loss
Tax relating to other comprehensive income 2 -
All of the amounts presented above are in respect of equity holders of abrdn
plc.
(c) Deferred tax assets and liabilities
(c)(i) Analysis of recognised deferred tax
2022 2021
£m £m
Deferred tax assets comprise:
Losses carried forward 170 129
Depreciable assets 33 25
Employee benefits 26 30
Provisions and other temporary timing differences 5 4
Gross deferred tax assets 234 188
Less: Offset against deferred tax liabilities (22) (20)
Deferred tax assets 212 168
Deferred tax liabilities comprise:
Unrealised gains on investments 60 104
Deferred tax on intangible assets acquired through business combinations 162 72
Other 11 9
Gross deferred tax liabilities 233 185
Less: Offset against deferred tax assets (22) (20)
Deferred tax liabilities 211 165
Net deferred tax asset at 31 December 1 3
A deferred tax asset of £170m (2021: £129m) has been recognised by the Group
in respect of losses of the parent company and various subsidiaries. The
increase in this deferred tax asset in 2022 largely reflects the effect of
restructuring expenses incurred during the year.
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. The financial forecasts
considered were consistent with those used for the assessment of the Group's
intangible assets (refer Note 13). 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 four and six years.
Deferred tax liabilities relating to unrealised gains on investments of £60m
(2021: £104m) include £52m (2021: £92m) relating to our investment in HDFC
Asset Management which was reclassified from an associate during 2021.
Deferred tax assets and liabilities are expected to be recovered or settled
after more than 12 months.
(c)(ii) Movements in deferred tax assets and liabilities
Losses carried forward Depreciable assets Employee benefits Provisions and other temporary timing differences Unrealised gains on investments Deferred tax on intangible assets acquired through business combinations Other Net deferred tax asset
£m £m £m £m £m £m £m £m
At 1 January 2022 129 25 30 4 (104) (72) (9) 3
Acquired through business combinations - 5 - - - (114) - (109)
Amounts (expensed) in/credited to the consolidated income statement 41 3 (5) 1 44 24 - 108
Tax on cash flow hedge - - - - - - (2) (2)
Other - - 1 - - - - 1
At 31 December 2022 170 33 26 5 (60) (162) (11) 1
Losses carried forward Depreciable assets Employee benefits Provisions and other temporary timing differences Unrealised gains on investments Deferred tax on intangible assets acquired through business combinations Other Net deferred tax asset
£m £m £m £m £m £m £m £m
At 1 January 2021 89 12 28 2 (4) (52) (10) 65
Acquired through business combinations - - - - - (19) - (19)
Amounts (expensed) in/credited to the consolidated income statement 40 13 (1) 2 (100) (2) 4 (44)
Tax on defined benefit pension plan deficits - - 3 - - - - 3
Tax on cash flow hedge - - - - - - (3) (3)
Other - - - - - 1 - 1
At 31 December 2021 129 25 30 4 (104) (72) (9) 3
(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 £81m in the UK and cumulative
losses and other temporary differences of £318m overseas (2021: £78m, £361m
respectively).
Of these unrecognised deferred tax assets, certain losses have expiry dates as
follows:
- US losses of £79m with expiry dates between 2027-2037 (2021: £104m).
- Other overseas losses of £27m with expiry dates between 2022-2036
(2021: £43m).
The following table provides an analysis of the losses with expiry dates for
unrecognised deferred tax assets.
2022 2021
£m £m
Less than 1 year 5 17
Greater than or equal to 1 year and less than 5 years 11 13
Greater than or equal to 5 years and less than 10 years 11 13
Greater than 10 years 79 104
Total losses with expiry dates 106 147
There is no unrecognised deferred tax relating to temporary timing differences
associated with investments in subsidiaries, branches and associates and
interests in joint arrangements (2021: none).
10. Earnings per share
Basic earnings per share is calculated by dividing profit or loss attributable
to ordinary equity holders by the weighted average number of ordinary shares
in issue during the period excluding shares owned by the employee trusts that
have not vested unconditionally to employees.
Diluted earnings per share is calculated by adjusting the weighted average
number of ordinary shares in issue during the period to assume the conversion
of all dilutive potential ordinary shares, such as share options granted to
employees. Details of the share options and awards issued under the Group's
employee plans are provided in Note 41.
Adjusted earnings per share is calculated on adjusted profit after tax
attributable to ordinary equity holders of the Company.
Basic earnings per share was (26.8p) (2021: 46.8p) and diluted earnings per
share was (26.8p) (2021: 46.0p) for the year ended 31 December 2022. The
following table shows details of basic, diluted and adjusted earnings per
share.
2022 2021
£m £m
Adjusted profit before tax 253 323
Tax on adjusted profit (22) (26)
Adjusted profit after tax 231 297
Attributable to:
Other equity holders (11) -
Non-controlling interests - ordinary shares (1) (1)
Adjusted profit after tax attributable to equity shareholders of abrdn plc 219 296
Total adjusting items including results of associates and joint ventures (868) 792
Tax on adjusting items 88 (94)
(Loss)/profit attributable to equity shareholders of abrdn plc (561) 994
2022 2021
Millions Millions
Weighted average number of ordinary shares outstanding 2,094 2,123
Dilutive effect of share options and awards 16 36
Weighted average number of diluted ordinary shares outstanding 2,110 2,159
In accordance with IAS 33, no share options and awards have been treated as
dilutive for the year ended 31 December 2022 due to the loss attributable to
equity holders of abrdn plc in that period. This resulted in the adjusted
diluted earnings per share being calculated using a weighted average number of
ordinary shares of 2,094 million.
2022 2021
Pence Pence
Basic earnings per share (26.8) 46.8
Diluted earnings per share (26.8) 46.0
Adjusted earnings per share 10.5 13.9
Adjusted diluted earnings per share 10.5 13.7
11. 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 (a) 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) Significant listed investments
During 2021, the Group's investments in Phoenix and HDFC Asset Management were
reclassified from associates to equity securities. Refer Note 1(c)(iii) for
further details. The Group's investment in HDFC Life was similarly
reclassified in 2020 and all three are now considered significant listed
investments of the Group. Fair value movements on these investments are
included as adjusting items, which 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
these result in fair value movements.
During the year ended 31 December 2022:
- The Group's holding in Phoenix reduced by 4% to 10.4% following the
sale of 39,981,442 ordinary shares on 28 January 2022. The total consideration
net of taxes and expenses was £263m.
- The Group's holding in HDFC Asset Management reduced by 6% to 10.2%
following the sale of 12,800,000 million equity shares through a Bulk Sale on
16 August 2022. The total consideration net of taxes, expenses and related
foreign exchange hedging was £229m.
- The Group's holding in HDFC Life reduced by 2% to 1.7% following the
sale of 43,000,000 equity shares through a Bulk Sale on 13 September 2022. The
total consideration net of taxes, expenses and related foreign exchange
hedging was £261m.
(b) Other
Other adjusting items in 2022 primarily relates to a single process execution
event provision of £41m, refer Note 34. Other adjusting items for the year
ended 31 December 2022 also includes a net gain on fair value movements in
contingent consideration of £35m (2021: loss of £3m). The net gain primarily
relates to a £37m gain from a reduction in the fair value of the contingent
consideration liability relating to the Tritax acquisition in 2021 and
reflects lower revenue expectations as a result of logistic market falls and a
higher discount rate due to higher market interest rates. Further information
on the valuation of this contingent consideration liability and related
sensitivities is included in Note 37.
Other adjusting items for the year ended 31 December 2022 also includes a fair
value loss of £11m (2021: £nil) on a financial instrument liability related
to a prior period acquisition and a loss of £13m (2021: profit of £10m) in
relation to market losses on the investments held by the abrdn Financial
Fairness Trust which is consolidated by the Group. The assets of the abrdn
Financial Fairness Trust are restricted to be used for charitable purposes.
Other adjusting items for the year ended 31 December 2021 also included a net
release of deferred income of £25m (2022: £nil) following the transfer of
workplace pensions marketing staff to Phoenix in May 2021 (refer Note 32).
12. 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.
2022 2021
Pence per share £m(1) Pence per share £m
Prior year's final dividend paid 7.30 154 7.30 154
Interim dividend paid 7.30 153 7.30 154
Total dividends paid on ordinary shares 307 308
Current year final recommended dividend 7.30 142 7.30 154
1. Estimated for current year final recommended dividend.
The final recommended dividend will be paid on 16 May 2023 to shareholders on
the Company's register as at 31 March 2023, subject to approval at the 2023
Annual General Meeting. After the current year final recommended dividend, the
total dividend in respect of the year ended 31 December 2022 is 14.60p (2021:
14.60p).
13. 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 and other 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 2021 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
Reclassified as held for sale during the year (49) - (28) - - - - (77)
Disposals and adjustments - - 2 - - - 1 3
Additions - ii 993 16 421 32 - - - 1,462
Additions - other - - - - 6 - - 6
At 31 December 2022 4,665 110 1,483 101 137 5 105 6,606
Accumulated amortisation and impairment
At 1 January 2021 (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)
Reclassified as held for sale during the year - - 19 - - - - 19
Amortisation charge for the year(2) - (14) (91) (10) (3) (1) (10) (129)
Impairment losses recognised(3) (340) - (28) - - - (1) (369)
At 31 December 2022 (3,730) (96) (874) (74) (130) (5) (78) (4,987)
Carrying amount
At 1 January 2021 85 30 314 3 17 3 49 501
At 31 December 2021 331 12 314 5 4 1 37 704
At 31 December 2022 935 14 609 27 7 - 27 1,619
1. Included in the internally developed software of £7m (2021: £4m) is
£5m (2021: £nil) relating to intangible assets not yet ready for use.
2. For the year ended 31 December 2022, £125m (2021: £99m) of the
amortisation charge is recognised in Amortisation of intangibles acquired in
business combinations and through the purchase of customer contracts with £4m
(2021: £9m) recognised in Other administrative expenses.
3. For the year ended 31 December 2022, £369m (2021: £nil) of impairment
is recognised in Impairment of intangibles acquired in business combinations
and through the purchase of customer contracts with £nil (2021: £8m)
recognised in Restructuring and corporate transaction expenses.
At 31 December 2022, there was £nil (2021: £167m) of goodwill attributable
to the asset management group of cash-generating units and £31m (2021: £72m)
of goodwill attributable to the Finimize cash-generating unit, both in the
Investments segment. There was £819m (2021: £nil) of goodwill attributable
to the ii cash generating unit in the Personal segment. Refer Note 1(b)(i) for
further details on the acquisition of ii. The remaining goodwill of £85m
(2021: £92m) is attributable to a number of smaller cash-generating units in
the Personal segment. Goodwill of £49m relating to the Personal segment was
classified as held for sale at 31 December 2022 (refer Note 21).
ii intangible assets
On acquisition of ii, customer relationships, brand and technology and other
intangibles of £421m, £16m and £32m respectively were recognised.
Identification and valuation of intangible assets acquired in business
combinations is a key judgement. The description of the individually material
intangible asset including the estimated useful life at the acquisition date
of 27 May 2022 was as follows:
Customer relationship intangible asset Description Useful life at acquisition date Fair value on acquisition date Carrying Carrying
value
value
2022 2021
£m £m £m
Customer base ii's customer base at the date of acquisition 15 years 421 390 N/A
The key assumptions in measuring the fair value of this intangible asset at
acquisition date were as follows:
- Revenue per customer growth - comprises expected growth in account
fees, treasury income and trading transactions revenue from ii business plans.
Treasury income is the interest earned on cash balances less the interest paid
to customers and was assumed to grow in line with assets under administration.
Market interest rates were assumed to remain at or above 1%.
- Customer attrition - customer attrition represents the expected rate
of existing customers leaving ii. This assumption was primarily based on
historical attrition rates and was assumed to remain constant over time.
- Operating margin - this assumption was based on the current
operating margins adjusted for marketing costs which are not attributable to
the servicing of existing customers. Expected future operating margins are
adjusted to take into account that increased treasury income does not result
in higher costs.
- Discount rate - this assumption was based on a market participant
weighted average cost of capital.
The above assumptions, and in particular the customer attrition assumption,
were also used to determine the 15 year useful economic life at the
acquisition date. There has been no change to the useful life and therefore
the residual useful life of the customer relationships intangible asset is
14.4 years. The reducing balance method of amortisation is considered
appropriate for this intangible, consistent with the attrition rate being
constant over time.
The technology intangible asset relates to ii's internally generated
technology which has been valued based on the replacement cost method. The
brand intangible asset relates to the ii brand and has been valued based on
applying an assumed royalty rate to revenue forecasts.
As set out in Note 1(b)(i) following the valuation of the ii intangibles
discussed above goodwill of £993m was recognised. The allocation of this
goodwill to cash-generating units was a key judgement in 2022. The goodwill
was allocated to cash-generating units based on expected earnings
contribution, including in relation to revenue synergies, at the time of the
transaction. We considered an earnings contribution method of allocation to be
appropriate as earnings multiples are a primary valuation method for
businesses such as ii. This resulted in the goodwill being primarily allocated
to the ii cash-generating unit in the Personal segment (£819m), with £132m
and £42m allocated to the asset management group of cash-generating units in
the Investments segment and a cash-generating unit in the Personal segment
respectively.
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 Description Useful life at acquisition date Fair value on acquisition date Carrying Carrying
contract intangible asset
value
value
2022 2021
£m £m £m
Tritax Big Box REIT plc Investment management contract with Tritax Big Box REIT plc 13 years 50 43 47
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 11.25 years.
abrdn Holdings Limited (formerly named Aberdeen Asset Management PLC (aHL)) intangibles
On the acquisition of aHL 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 aHL 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
aHL and open ended fund customers, rather than an intangible asset relating to
investment management agreements between aHL and aHL'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
2022 2021
£m £m £m
Open ended funds Separate vehicle group - open ended investment vehicles 11 years 223 45 62
Segregated and similar All other vehicle groups dominated by segregated mandates which represent 75% 12 years 427 63 83
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 5.6 years and the residual life of the Segregated and similar
customer relationship intangible asset is 6.6 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 the asset management and
Finimize cash-generating units was a key estimate in relation to these 2022
accounts. However, following the impairments in 2022, including the full
impairment of asset management goodwill, the determination of the recoverable
amount for these cash-generating units is not considered a source of
estimation uncertainty at 31 December 2022 with a significant risk of
resulting in material adjustments to the carrying amount in the next financial
year.
The determination of the recoverable amount of the interactive investor and
the abrdn financial planning business cash-generating units is a key area of
estimation, and further details of assumptions and sensitivities are disclosed
in this section.
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 or FVLCD measured using a discounted cash flow
approach, expected future cash flows are discounted to their present value
using a pre-tax discount rate for VIU or a post-tax discount rate for FVLCD.
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
In 2022 impairments of goodwill of £340m (2021: £nil) have been recognised.
The goodwill impairment comprises £299m relating to the asset management
group of cash generating units and £41m relating to the Finimize
cash-generating unit. Both impairments relate to assets included in the
Investments segment. The impairments are included within Impairment of
intangibles acquired in business combinations and through the purchase of
customer contracts in the consolidated income statement.
Asset management
The asset management group of cash generating units comprises the Investments
segment (excluding Finimize) which is the lowest group of cash generating
units to which asset management goodwill has been allocated. The impairment of
£299m (2021: £nil) resulted from lower future revenue projections and
further work being required to reduce Investments costs given this level of
revenue. The lower future revenue projections primarily resulted from the
impact of lower equity market levels during 2022 and forecast equity market
falls in 2023 on assets under management, net outflows in 2022 particularly in
the equity asset class and lower forecasts of net inflows in future periods
reflecting both macroeconomic conditions and business performance, and the
expected reduction in Phoenix revenue as a result of certain active equity and
fixed income strategies moving to lower yielding passive quantitative
strategies and related pricing changes. Following the impairment the goodwill
allocated to the asset management group of cash generating units was £nil
(2021: £167m). The goodwill prior to impairment of £299m included additions
of £132m allocated to the asset management group of cash generating units for
revenue synergies in our Investments segment in relation to the acquisition of
ii. Refer Note 1(b)(i) for further details.
The recoverable amount of this group of cash-generating units at 31 December
2022 was £1,532m which was based on FVLCD. This was also the carrying value
of this group of cash-generating units at 31 December 2022. The FVLCD
considered a number of valuation approaches, with the primary approach being a
discounted cash flow approach. This is a level 3 measurement as it is measured
using inputs which are not based on observable market data. 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 and assume institutional and wholesale flows move to a net inflow
position over the business plan cycle. Market assumptions assume equity market
falls in 2023 with recovery during 2024 and 2025. Fee revenue yield
assumptions are adjusted to take into account an expected contraction in the
yield on Phoenix assets.
- Expenses in the management forecasts were based on past
experience adjusted for planned expense savings and inflation impacts and take
into account related restructuring costs.
Cash flow projections were extrapolated using a 5% revenue growth in years 4
and 5, and then a 2% terminal rate profit growth based on long-term inflation
forecasts. A post tax discount rate of 15.35% was used based on the Group/peer
companies cost of equity adjusted for forecasting risk.
The recoverable amount at 31 December 2021 was based on VIU. The reason for
the change in 2022 was that, at 31 December 2022, FVLCD was assessed by
management as being higher than VIU. The VIU is significantly reduced by the
IFRS requirement to add back certain staff and property expense savings to
management's expectation of the level of future operating expenses, where
these expense savings require provisions to be made in future years.
Finimize
The impairment of goodwill allocated to the Finimize cash-generating unit,
which comprises the Finimize business, was £41m. The impairment resulted from
a significant fall in market multiples and lower projected revenues as a
result of macroeconomic conditions and 2022 revenues being lower than previous
expectations. Following the impairment the goodwill allocated to the Finimize
cash-generating unit was £31m (2021: £72m).
The recoverable amount of the Finimize cash-generating unit at 31 December
2022 was £35m which was based on FVLCD. This was also the carrying value of
the Finimize cash-generating unit at 31 December 2022. 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 key assumptions used in determining the revenue multiple valuation were
future revenue projections, which were based on management forecasts and
assumed a continued level of revenue growth, and market multiples. Market
multiples were based on comparable listed companies, with appropriate
discounts applied to take into account profitability, track record, revenue
growth potential, and net premiums for control.
Following the impairment the residual goodwill allocated to the Finimize
cash-generating unit is not significant in comparison to the total carrying
amount of goodwill.
interactive investor
Goodwill of £819m (2021: £nil) is allocated to the interactive investor cash
generating unit which comprises the interactive investor business in the
Personal segment. The recoverable amount of this cash-generating unit was
determined based on FVLCD. The FVLCD was based on an earnings multiple
approach. This is a level 3 measurement as it is measured using inputs which
are not based on observable market data.
The key assumptions used in determining the earnings multiple valuation were
future post tax adjusted earnings, which were based on management's business
plan projections and reflected past experience and market price to earnings
multiples, which were based on multiples of a peer group of comparable listed
direct-to-consumer investment platform providers.
Sensitivities of key assumptions
The business plan projections used to determine the future earnings are based
on macroeconomic forecasts including interest rates and inflation, and
forecast levels of client activity, market pricing, the percentage of client
funds held in cash and expenses. The projections are therefore sensitive to
these assumptions. The interactive investor treasury income forecast is
sensitive to interest rate levels and the level of interest paid to customers
and would be expected to reduce if market interest rates fell below 1% and
returned to the historic lows seen in 2021. The business plan projections were
based on market forward interest rates and assumed that market interest rates
remained above 1% over the plan period. Given current macroeconomic
uncertainties a 20% reduction in forecast earnings has been provided as a
sensitivity.
The market price to earnings multiple used in the valuation is 20x based on
multiples of a peer group of comparable listed direct-to-consumer investment
platform providers. This assumption is sensitive to general equity market
fluctuations and to market views on UK direct-to-consumer investment platform
companies. Taking into account historic equity market fluctuations a 25%
sensitivity to an earnings multiple has been provided as a sensitivity.
The recoverable amount at 31 December 2022 exceeds the carrying amount of the
cash-generating unit by £400m. The impact of sensitivities to a single
variable and the change required to reduce headroom to zero are shown in the
tables below.
Reduction in headroom for illustrative sensitivities £m
20% reduction in forecast post tax adjusted earnings (335)
25% reduction in market multiple (419)
Change required to reduce headroom to zero %
Change in forecast post tax adjusted earnings (24)
Reduction in market multiple (24)
We consider the 24% reduction in market multiple assumption to 15x to reduce
the headroom to zero to be a reasonably possible change.
Other goodwill
Goodwill of £85m (2021: £92m) is attributable to a number of smaller
cash-generating units in the Personal 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.
Included in this balance is £60m of goodwill allocated to the abrdn financial
planning business cash-generating unit. The year end carrying value of this
cash-generating unit is equal to the recoverable amount. The recoverable
amount was based on FVLCD which considered a number of valuation approaches,
with the primary approach being a multiples approach based on price to revenue
and price to assets under advice (AUAdv). Multiples were based on recent
transactions, adjusted to take into account profitability where appropriate,
and were benchmarked against trading multiples for peer companies. Revenue and
AuAdv were based on 2022 results. The expected cost of disposal was based on
past experience of previous transactions. This is a level 3 measurement as it
is measured using inputs which are not based on observable market data. As the
year end carrying value is the recoverable amount any downside sensitivity
will lead to a further impairment loss. A 20% reduction in recurring revenue
and AUAdv would result in an impairment of £17m. A 20% reduction in market
transaction multiples for similar businesses, adjusted to be appropriate to
the abrdn financial planning business, would also result in an impairment of
£17m.
Customer relationship and investment management contract intangibles
In 2022 an impairment of £28m (2021: £nil) has been recognised in relation
to customer relationship and investment management contract intangibles. The
impairment is included within Impairment of intangibles acquired in business
combinations and through the purchase of customer contracts in the
consolidated income statement. The impairment relates to the Phoenix Life
business intangible asset which was recognised on the acquisition of Ignis
Asset Management in 2014, and is part of the Investments segment. The assets
under management relating to this Phoenix Life intangible are c£34bn at 31
December 2022 and are therefore less than 25% of the total assets managed for
Phoenix. The impairment resulted from the expected reduction in revenue from
these Phoenix assets as a result of certain active equity and fixed income
strategies moving to lower yielding passive quantitative strategies and
related pricing changes. Following the impairment the recoverable amount of
the asset is £nil based on FVLCD. This is also the carry value at 31 December
2022 (2021: £31m). FVLCD was based on a discounted cash flow approach based
on expected future cashflows for the Phoenix Life business and a post tax
discount rate of 15.35%. This is a level 3 measurement as it is measured using
inputs which are not based on observable market data. The key assumption
related to expected future profitability and was based on management
forecasts.
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 15 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 and other intangibles acquired through business
combinations - between 1 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
There was no impairment of internally developed software in 2022. In 2021, an
impairment of internally developed software of £8m 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.
14. 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
2022 2021
Associates Joint ventures Total Associates Joint ventures Total
£m £m £m £m £m £m
At 1 January 10 264 274 1,134 237 1,371
Exchange translation adjustments - 8 8 - 7 7
Additions 18 2 20 - 11 11
Disposals - - - (29) - (29)
Profit/(loss) after tax (5) 7 2 (35) 13 (22)
Other comprehensive income - (28) (28) 12 (4) 8
Impairment (9) - (9) - - -
Distributions of profit - - - (15) - (15)
Reclassified to equity securities and interests in pooled investments funds - - - (1,057) - (1,057)
At 31 December 14 253 267 10 264 274
The following joint venture is considered to be material to the Group as at 31
December 2022.
Name Nature of relationship Principal place of business Measurement method Interest held by Interest held by
the Group at 31 December 2022
the Group at 31 December 2021
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.
(b) Investments in associates accounted for using the equity
method
2022 2021
Other Total Phoenix HDFC Asset Management Other Total
£m £m £m £m £m £m
Carrying value of associates accounted for using the equity method 14 14 - - 10 10
Dividends received - - - 15 - 15
Share of profit/(loss) after tax (5) (5) (56) 21 - (35)
The Group's investments 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). The Group continues to have no material associates
at 31 December 2022.
Other primarily relates to the Group's interests in Archax Holdings Limited
and Tenet Group Limited. During the year ended 31 December 2022, the Group
recognised an impairment of £9m in relation to its interest in Tenet Group
Limited.
HDFC Asset Management
HDFC Asset Management manages a range of mutual funds and provides portfolio
management and advisory services.
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 was 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
considered 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 was 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.
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.
Phoenix
Phoenix is the largest life and pensions consolidator in Europe.
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%. 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 was 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.
(c) Investments in joint ventures
HASL Other Total
2022 2021 2022 2021 2022 2021
£m £m £m £m £m £m
Carrying value of joint ventures accounted for using the equity method 245 258 8 6 253 264
Dividends received - - - - - -
Share of profit/(loss) after tax 7 19 - (6) 7 13
For the years ended 31 December 2022 and 2021, the carrying value of joint
ventures accounted for using the equity method for Other primarily relates to
the Group's interest in Virgin Money UTM.
HASL
The Group has a 50% share in HASL, one of China's leading life insurance
companies offering life and health insurance products. HASL is an investment
which gives the Group access to one of the world's largest markets.
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
2022 2021
£m £m
Summarised financial information of joint venture:
Revenue 861 612
Depreciation and amortisation 6 4
Interest income 93 68
Interest expense 2 2
Income tax credit/(expense) 5 (3)
Profit after tax 14 39
Other comprehensive income (56) (11)
Total comprehensive income (42) 28
Total assets(1) 4,482 3,787
Total liabilities(1) 3,992 3,271
Cash and cash equivalents 130 102
Net assets 490 516
Attributable to investee's shareholders 490 516
Interest held 50% 50%
Share of net assets 245 258
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.
HASL will adopt IFRS 9 and IFRS 17 for the purposes of the preparation of the
Group's consolidated financial statements from 1 January 2023. Refer Section
(a)(ii) of the basis of preparation for further details.
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 2022 that remain
under IAS 39 for equity accounting purposes and the change in fair value
during the year ended 31 December 2022 are as follows:
Fair value as at Fair value as at
31 December 2022
31 December 2021
£m £m
Financial assets with contractual cash flows that are solely payments of 2,544 2,384
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) 1,114 562
Total 3,658 2,946
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 2022 is £2,444m (2021: £2,320m). No securities
are rated below BBB (2021: none).
2. The change in fair value in the year to 31 December 2022 for financial
assets that are SPPI (excluding those held for trading or managed on a fair
value basis) is a gain of £22m (2021: £136m). The change in fair value for
all other financial assets is a loss of £97m (2021: gain of £45m).
(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 17) at
31 December 2022 is £46m (2021: £63m) none of which are considered
individually material to the Group.
15. 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 16 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 2021 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
Reclassified as held for sale during the year - - (1) - (1)
Additions - 24 36 1 61
Disposals and adjustments(1) - (11) (41) - (52)
Derecognition of right-of-use assets relating to subleases classified as - - (6) - (6)
finance leases
Foreign exchange adjustment - 3 11 - 14
At 31 December 2022 2 120 321 4 447
Accumulated depreciation and impairment
At 1 January 2021 (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)
Reclassified as held for sale during the year - - 1 - 1
Depreciation charge for the year(2) - (18) (20) (1) (39)
Disposals and adjustments(1) - 10 38 - 48
Derecognition of right-of-use assets relating to subleases classified as - - 3 - 3
finance leases
Impairment(3) - - (7) - (7)
Foreign exchange adjustment - (3) (5) - (8)
At 31 December 2022 (1) (65) (177) (3) (246)
Carrying amount
At 1 January 2021 1 59 175 1 236
At 31 December 2021 1 50 135 1 187
At 31 December 2022 1 55 144 1 201
1. For the year ended 31 December 2022, £1m (2021: £8m) 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
2022 is £14m (2021: £21m). This comprises a gross carrying value of £49m
(2021: £81m) and accumulated depreciation and impairment of £35m (2021:
£60m). During the year to 31 December 2022 there were no transfers to
investment property (2021: £19m), depreciation of (£2m) (2021: (£2m)),
derecognition related to new subleases classified as finance leases of (£1m)
(2021: (£6m)), impairments of (£3m) (2021: (£15m)) and disposals and
adjustments of (£1m) (2021: nil) related to these assets. Rental income
received and direct operating expenses incurred to generate that rental income
in the year to 31 December 2022 were £3m (2021: £2m) and £3m (2021: £3m)
respectively. In addition, there were direct expenses of £1m (2021: £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 2022 is £14m
(2021: £21m). 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
37.
If owner occupied property was measured using the cost model, the historical
cost before impairment would be £1m (2021: £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 16 below.
16. 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 15). 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 33) 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 19) 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 16 years (2021: less than 1 year to 17 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 committed to two leases at 31
December 2022 which had not commenced at this date. The expected lease
liability for these leases is not significant to the Group.
The Group has recognised the following assets and liabilities in relation to
these leases where the Group is a lessee:
2022 2021
£m £m
Right-of-use assets:
Property 144 135
Equipment 1 1
Total right-of-use assets 145 136
Lease liabilities (224) (225)
Details of the movements in the Group's right-of-use assets including
additions and depreciation are included in Note 15.
The interest on lease liabilities is as follows:
2022 2021
£m £m
Interest on lease liabilities 6 6
The total cash outflow for lease liabilities recognised in the consolidated
statement of cash flows for the year ended
31 December 2022 was £52m (2021: £33m). Refer Note 38(f) for further
details.
The following table provides a maturity analysis of the contractual
undiscounted cash flows for the lease liabilities.
2022 2021
£m £m
Less than 1 year 29 28
Greater than or equal to 1 year and less than 2 years 24 28
Greater than or equal to 2 years and less than 3 years 23 24
Greater than or equal to 3 years and less than 4 years 24 23
Greater than or equal to 4 years and less than 5 years 23 21
Greater than or equal to 5 years and less than 10 years 99 93
Greater than or equal to 10 years and less than 15 years 38 33
Greater than or equal to 15 years 4 7
Total undiscounted lease liabilities 264 257
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 2022 were £3m (2021:
£2m). The Group lease commitment for short-term leases was £nil at 31
December 2022 (2021: £nil).
(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 2022, the Group had a net investment in finance leases asset of
£29m (2021: £30m) 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.
(b)(i) Finance leases
During the year ended 31 December 2022, the Group received finance income on
the net investment in finance leases asset of less than £1m (2021: less than
£1m). The Group recorded an initial gain of £1m in relation to new subleases
entered into during the year ended 31 December 2022 (2021: £8m).
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.
2022 2021
£m £m
Less than 1 year 3 3
Greater than or equal to 1 year and less than 2 years 3 3
Greater than or equal to 2 years and less than 3 years 4 3
Greater than or equal to 3 years and less than 4 years 4 3
Greater than or equal to 4 years and less than 5 years 4 3
Greater than or equal to 5 years and less than 10 years 12 14
Greater than or equal to 10 years and less than 15 years 2 3
Total contractual undiscounted cash flows under finance leases 32 32
Unearned finance income (3) (2)
Total net investment in finance leases 29 30
(b)(ii) Operating leases
During the year ended 31 December 2022, the Group received property rental
income from operating leases of £3m (2021: £2m).
The following table provides a maturity analysis of the future contractual
undiscounted cash flows for subleases classified as operating leases.
2022 2021
£m £m
Less than 1 year 1 3
Greater than or equal to 1 year and less than 2 years 1 1
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 1
Total contractual undiscounted cash flows under operating leases 4 6
17. 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 or losses 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 18.
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 37.
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 always equal to the lifetime expected credit loss.
The table below sets out an analysis of financial assets excluding those
assets backing unit linked liabilities which are set out in Note 23.
At fair value through profit or loss(1) Cash flow At amortised cost Total
hedge(2)
2022 2021 2022 2021 2022 2021 2022 2021
Notes £m £m £m £m £m £m £m £m
Derivative financial assets 18 19 6 85 8 - - 104 14
Equity securities and interests in pooled investment funds 37 2,033 3,115 - - - - 2,033 3,115
Debt securities 37 592 961 - - 210 226 802 1,187
Financial investments 2,644 4,082 85 8 210 226 2,939 4,316
Receivables and other financial assets 19 19 31 - - 888 649 907 680
Cash and cash equivalents 22 - - - - 1,133 1,904 1,133 1,904
Total 2,663 4,113 85 8 2,231 2,779 4,979 6,900
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.
2. Changes in fair value are recognised in the Cash Flow Hedges Reserve
(refer Note 27) but may be reclassified subsequently to profit or loss.
The amount of debt securities expected to be recovered or settled after more
than 12 months is £2m (2021: £63m). 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 £669m (2021: £1,947m).
Included in Proceeds from sale or redemption of financial investments of
£1,633m (2021: £938m) within the consolidated statement of cash flows are
£789m (2021: £655m) in relation to sales of significant listed investments.
Refer Note 11 for further details of the sales in 2022.
18. 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.
2022 2021
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 17,29 623 85 - 554 8 -
FVTPL 17,29 638 19 1 889 6 5
Derivative financial instruments 37 1,261 104 1 1,443 14 5
Derivative financial instruments backing unit linked liabilities 23 258 1 2 399 7 3
Total derivative financial instruments 1,519 105 3 1,842 21 8
Derivative assets of £85m (2021: £8m) are expected to be recovered after
more than 12 months. Derivative liabilities of £nil (2021: £nil) 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 £85m (2021: £8m
asset). During the year ended 31 December 2022 fair value gains of £85m
(2021: gains of £19m) were recognised in other comprehensive income in
relation to the cross-currency swap. Gains of £70m (2021: gains of £5m) were
transferred from other comprehensive income to Net gains or losses 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 (2021: £6m) and gains of £2m (2021: losses of £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.
2022 2021
Contract amount Fair value assets Fair value liabilities Contract amount Fair value assets Fair value liabilities
£m £m £m £m £m £m
Equity derivatives:
Futures 137 3 - 336 3 4
Variance swaps - - - 6 6 -
Interest rate derivatives:
Swaps 18 1 - 11 - -
Futures - - - 40 - -
Foreign exchange derivatives:
Forwards 678 16 3 806 4 3
Other derivatives:
Inflation rate swaps - - - - - -
Credit default swaps 63 - - 89 - 1
Derivative financial instruments at FVTPL 896 20 3 1,288 13 8
(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
2022 2021 2022 2021 2022 2021 2022 2021 2022 2021 2022 2021 2022 2021
£m £m £m £m £m £m £m £m £m £m £m £m £m £m
Cash inflows
Derivative financial assets 569 66 107 94 637 589 - - - - - - 1,313 749
Derivative financial liabilities 138 13 - - - - - - - - - - 138 13
Total 707 79 107 94 637 589 - - - - - - 1,451 762
Cash outflows
Derivative financial assets (541) (60) (91) (73) (578) (596) - - - - - - (1,210) (729)
Derivative financial liabilities (141) (13) - - - - - - - - - - (141) (13)
Total (682) (73) (91) (73) (578) (596) - - - - - - (1,351) (742)
Net derivative financial instruments cash inflows 25 6 16 21 59 (7) - - - - - - 100 20
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
2022 2021 2022 2021 2022 2021 2022 2021 2022 2021 2022 2021 2022 2021
£m £m £m £m £m £m £m £m £m £m £m £m £m £m
Cash inflows 26 24 106 94 637 589 - - - - - - 769 707
Cash outflows (18) (18) (91) (73) (578) (596) - - - - - - (687) (687)
Net cash flow hedge cash inflows 8 6 15 21 59 (7) - - - - - - 82 20
Cash inflows and outflows are presented on a net basis where the Group is
required to settle cash flows net.
19. Receivables and other financial assets
2022 2021
Notes £m £m
Amounts receivable from contracts with customers 3(d) 161 135
Accrued income 278 263
Amounts due from counterparties and customers for unsettled trades and fund 317 113
transactions(1)
Net investment in finance leases 29 30
Collateral pledged in respect of derivative contracts 35 14 26
Contingent consideration assets 37 19 31
Other 89 82
Receivables and other financial assets 907 680
1. The 2021 figure was previously disclosed as cancellation of units
awaiting settlement.
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 £34m
(2021: £35m).
Accrued income includes £273m (2021: £260m) of accrued income from contracts
with customers (refer Note 3(d)).
20. Other assets
2022 2021
£m £m
Prepayments 89 100
Deferred acquisition costs 1 3
Other 2 2
Other assets 92 105
The amount of other assets expected to be recovered after more than 12 months
is £21m (2021: £48m).
Prepayments includes £43m (2021: £56m) relating to the Group's future
purchase of certain products in the Phoenix Group's savings business offered
through abrdn's adviser platforms 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 for the year was £2m (2021: £1m).
21. 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.
2022 2021
£m £m
Assets of operations held for sale
abrdn Capital Limited 87 -
Assets held for sale 87 -
Liabilities of operations held for sale
abrdn Capital Limited 14 -
Liabilities of operations held for sale 14 -
(a) abrdn Capital Limited
abrdn Capital Limited, in the Personal segment, was classified as an operation
held for sale at 31 December 2022 as at that point a sale of the business was
considered highly probable. Refer Note 44 for details of the agreed sale.
2022
£m
Assets of operations held for sale
Intangible assets 58
Property, plant and equipment -
Receivables and other financial assets 15
Other assets 1
Cash and cash equivalents 13
Total assets of operations held for sale 87
Liabilities of operations held for sale
Other financial liabilities 14
Total liabilities of operations held for sale 14
Net assets of operations held for sale 73
Net assets of operations held for sale are net of intercompany balances
between abrdn Capital Limited and other group entities, the net assets of
abrdn Capital Limited on a gross basis as at 31 December 2022 are £70m.
22. 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.
2022 2021
£m £m
Cash at bank and in hand 783 638
Money at call, term deposits, reverse repurchase agreements and debt 236 1,122
instruments with less than three months to maturity from acquisition
Money market funds 114 144
Cash and cash equivalents 1,133 1,904
2022 2021
Notes £m £m
Cash and cash equivalents 1,133 1,904
Cash and cash equivalents backing unit linked liabilities 23 23 33
Cash and cash equivalents classified as held for sale 21 13 -
Bank overdrafts 33 (3) (62)
Total cash and cash equivalents for consolidated statement of cash flows 1,166 1,875
Cash at bank, money at call and short notice and deposits are subject to
variable interest rates.
At 31 December 2022, the Group has no cash and cash equivalents and bank
overdrafts within a cash pooling facility or similar arrangement. Included in
cash and cash equivalents and bank overdrafts at 31 December 2021 were £82m
and £62m respectively relating to balances within a cash pooling facility in
support of which cross guarantees were 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.
23. Unit linked liabilities and assets backing unit linked
liabilities
The Group operates unit linked life assurance businesses through an insurance
subsidiary. This subsidiary provides 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 or loss 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
2022 2021
Notes £m £m
Net gains or losses on financial instruments and other income 4 5 7
Other administrative expense 5 (1) (3)
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 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 37. Refer Note 37 for details of valuation
techniques used.
Level 1 Level 2 Level 3 Not at fair value Total
2022 2021 2022 2021 2022 2021 2022 2021 2022 2021
£m £m £m £m £m £m £m £m £m £m
Financial investments 601 974 322 455 1 1 - - 924 1,430
Receivables and other financial assets - - - - - - 5 7 5 7
Cash and cash equivalents - - - - - - 23 33 23 33
Total financial assets backing unit linked liabilities 601 974 322 455 1 1 28 40 952 1,470
Investment contract liabilities - - 772 1,087 1 1 - - 773 1,088
Third party interest in consolidated funds - - 173 378 - - - - 173 378
Other unit linked financial liabilities - 1 2 2 - - 4 1 6 4
Total unit linked financial liabilities - 1 947 1,467 1 1 4 1 952 1,470
In addition to financial assets backing unit linked liabilities and unit
linked financial liabilities shown above there is a current tax asset of less
than £1m (2021: £1m) included in unit linked assets and a current tax
liability of less than £1m (2021: £1m) included in unit linked liabilities.
The financial investments backing unit linked liabilities comprise equity
securities and interests in pooled investment funds of £811m (2021:
£1,232m), debt securities of £112m (2021: £191m) and derivative financial
assets of £1m (2021: £7m).
The fair value of financial instruments not held at fair value approximates to
their carrying value at both 31 December 2022 and 31 December 2021.
There were transfers of £52m (2021: £nil) from level 1 to level 2 during the
year ended 31 December 2022. The Group now considers government bonds not
issued by the G7 countries or the European Union as level 2. There were no
significant transfers from level 2 to level 1 during the year ended 31
December 2022 (2021: £nil).
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
2022 2021 2022 2021
£m £m £m £m
At start of period 1 18 (1) (18)
Total gains/(losses) recognised in the consolidated income statement - - - -
Purchases - 1 - (1)
Sales - (18) - 18
Transfers in to level 3(1) - - - -
At end of period 1 1 (1) (1)
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:
2022 2021
£m £m
At 1 January 1,088 1,042
Contributions 36 119
Account balances paid on surrender and other terminations in the year (237) (195)
Change in non-participating investment contract liabilities recognised in the (112) 124
consolidated income statement
Recurring management charges (2) (2)
At 31 December 773 1,088
(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 35. 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
2022 2021 2022 2021 2022 2021 2022 2021
£m £m £m £m £m £m £m £m
Financial assets
Derivatives(1) 1 4 - (1) - - 1 3
Total financial assets 1 4 - (1) - - 1 3
Financial liabilities
Derivatives(1) (1) (2) - 1 - - (1) (1)
Total financial liabilities (1) (2) - 1 - - (1) (1)
1. Only OTC derivatives subject to master netting agreements have been
included above.
24. 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:
2022 2021
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 2,180,724,786 305 640 2,194,115,616 306 640
Shares issued in respect of share incentive plans 2,381 - - 2,032 - -
Share buyback (178,835,268) (25) - (13,392,862) (1) -
At 31 December 2,001,891,899 280 640 2,180,724,786 305 640
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 6 July 2022 the Company announced that it would commence a £300m return to
shareholders. During the year ended 31 December 2022, the Company bought back
and cancelled 178,835,268 shares. The total consideration was £302m which
includes transaction costs.
During the year ended 31 December 2021, the Company completed its 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. The
total consideration was £41m which included transaction costs.
The share buyback has resulted in a reduction in retained earnings of £302m
(2021: £nil). In relation to the share buyback completed in 2021, there was
an irrevocable contractual obligation at 31 December 2020 with a third party
to purchase the Company's own shares of £40m and consequently the 2021
consideration had already been recognised as a part of the share buyback
reduction to retained earnings of £402m for the year ended 31 December 2020.
In addition, an amount of £25m (2021: £1m) 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 41.
25. Shares held by trusts
Shares held by trusts relates to shares in abrdn plc that are held by the
abrdn Employee Benefit Trust (formerly named the Standard Life Aberdeen
Employee Benefit Trust) (abrdn EBT), Standard Life Employee Trust (ET) and the
Aberdeen Asset Management Employee Benefit Trust 2003 (AAM EBT).
The abrdn 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. Where new shares are issued to the
abrdn 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.
2022 2021
Number of shares held by trusts
abrdn Employee Benefit Trust 36,112,240 39,630,532
Standard Life Employee Trust 22,629,035 22,688,815
Aberdeen Asset Management Employee Benefit Trust 2003 2,264,591 2,647,359
The number of shares held by trusts was as follows:
26. Retained earnings
The following table shows movements in retained earnings during the year.
2022 2021
Notes £m £m
At 1 January 5,775 4,970
Recognised in comprehensive income
Recognised in (loss)/profit for the year attributable to equity holders (561) 994
Recognised in other comprehensive income
Remeasurement (losses)/gains on defined benefit pension plans 31 (793) 117
Share of other comprehensive income of associates and joint ventures (28) (1)
Equity holder tax effect of items that will not be reclassified subsequently 9 - 3
to profit or loss
Total items recognised in comprehensive income (1,382) 1,113
Recognised directly in equity
Dividends paid on ordinary shares (307) (308)
Other movements in non-controlling interests in the year 28 - 6
Share buyback 24 (302) -
Cancellation of capital redemption reserve 27 1,059 -
Transfer for vested employee share-based payments 63 36
Transfer between reserves on disposal of subsidiaries 1 -
Transfer between reserves on impairment of subsidiaries 27 207 -
Shares distributed by employee and other trusts (70) (42)
Other movements(1) (23) -
Aggregate tax effect of items recognised directly in equity - -
Total items recognised directly in equity 628 (308)
At 31 December 5,021 5,775
1. Other movements in 2022 include the transfer of (£17m) previously
recognised in the foreign currency translation reserve (which is part of Other
reserves) to Retained earnings. In prior years we have considered the
functional currency of an intermediate subsidiary holding the Group's
investment in HDFC Life to be US Dollars. We now consider that the functional
currency should have been GBP, resulting in the current period transfer
between reserves. Prior periods have not been restated as the impact on prior
periods is not considered material.
27. 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 Aberdeen Asset
Management 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 Aberdeen Asset Management 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 the capital redemption reserve was created. Additional
capital redemption reserve is created by subsequent buybacks (refer Note 24).
See below for the cancellation of the capital redemption reserve as at 1 July
2022.
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 2022 18 17 483 87 115 (685) 1,059 1,094
Recognised in other comprehensive income
Fair value gains on cash flow hedges 85 - - - - - - 85
Exchange differences on translating foreign operations - 36 - - - - - 36
Items transferred to profit or loss (78) - - - - - - (78)
Aggregate tax effect of items recognised in other comprehensive income (2) - - - - - - (2)
Total items recognised in other comprehensive income 5 36 - - - - - 41
Recognised directly in equity
Share buyback 24 - - - - - - 25 25
Cancellation of capital redemption reserve - - - - - - (1,059) (1,059)
Reserves credit for employee share-based payments - - - 24 - - - 24
Transfer to retained earnings for vested employee share-based payments - - - (63) - - - (63)
Transfer between reserves on disposal of subsidiaries - - (1) - - - - (1)
Transfer between reserves on impairment of subsidiaries - - (207) - - - - (207)
Other movements(1) - 17 - - - - - 17
Total items recognised directly within equity - 17 (208) (39) - - (1,034) (1,264)
At 31 December 2022 23 70 275 48 115 (685) 25 (129)
1. Other movements include the transfer of (£17m) previously recognised in
the foreign currency translation reserve to Retained earnings. In prior years
we have considered the functional currency of an intermediate subsidiary
holding the Group's investment in HDFC Life to be US Dollars. We now consider
that the functional currency should have been GBP, resulting in the current
period transfer between reserves. Prior periods have not been restated as the
impact on prior periods is not considered material. There is no impact on net
assets for any period presented.
The merger reserve includes £263m (2021: £470m) in relation to the Group's
asset management businesses. Following the impairment of the Company's
investments in abrdn Holdings Limited and abrdn Investments (Holdings) Limited
(refer Section 8), £207m (2021: £nil) was transferred from the merger
reserve to retained earnings.
On 1 July 2022, the Company's capital redemption reserve at this date was
cancelled in accordance with section 649 of the Companies Act 2006 resulting
in a transfer of £1,059m to retained earnings.
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 (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 24 - - - - - - 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
28. 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.
(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'). These were
classified as other equity and initially recognised at £207m (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 five 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 profit for the year attributable to other equity was £11m (2021: £nil).
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 every five
years thereafter. The Notes are convertible to ordinary shares in abrdn plc at
a conversion price of £1.6275 (fixed subject to adjustment for share
corporate actions e.g. share consolidations 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 2022 was 408% (2021: 774%).
(b) Non-controlling interests - ordinary shares
Non-controlling interests - ordinary shares of £7m were held at 31 December
2022 (2021: £6m). The profit for the year attributable to non-controlling
interests - ordinary shares was £1m (2021: £1m).
29. Financial liabilities
Management determines the classification of financial liabilities at initial
recognition. Financial liabilities which are managed and whose performance is
evaluated on a fair value basis are designated as at fair value through profit
or loss. Changes in the fair value of these financial liabilities are
recognised in the consolidated income statement.
Derivatives are also measured at fair value. Changes in the fair value of
derivatives are recognised in Net gains or losses on financial instruments and
other income in the consolidated income statement except for derivative
instruments that are designated as a cash flow hedge or net investment hedge.
The classification of derivatives and the accounting treatment of derivatives
designated as a hedging instrument are set out in Note 18.
Except for contingent consideration liabilities which are measured at fair
value, other financial liabilities are classified as being subsequently
measured at amortised cost. Amortised cost is calculated, and the related
interest expense is recognised in the consolidated income statement, using the
effective interest method.
All financial liabilities are initially recognised at fair value less, in the
case of financial liabilities subsequently measured at amortised cost,
transaction costs that are directly attributable to the issue of the
liability.
Where the terms of a financial liability measured at amortised cost are
modified and the modification does not result in the derecognition of the
liability, the liability is adjusted to the net present value of the future
cash flows less transaction costs with a modification gain or loss recognised
in the income statement.
The methods and assumptions used to determine fair value of financial
liabilities measured at fair value through profit or loss and derivatives are
discussed in Note 37.
The table below sets out an analysis of financial liabilities excluding unit
linked financial liabilities which are set out in Note 23.
At fair value through profit or loss(1) Cash flow hedge At amortised cost Total
2022 2021 2022 2021 2022 2021 2022 2021
Notes £m £m £m £m £m £m £m £m
Third party interest in consolidated funds 242 104 - - - - 242 104
Subordinated liabilities 30 - - - - 621 644 621 644
Derivative financial liabilities 18 1 5 - - - - 1 5
Other financial liabilities 33 143 165 - - 1,055 881 1,198 1,046
Total 386 274 - - 1,676 1,525 2,062 1,799
1. All financial liabilities measured at fair value through profit or loss
have been classified at FVTPL on a mandatory basis except for third party
interest in consolidated funds which the Group has designated as at FVTPL.
30. Subordinated liabilities
Subordinated liabilities are debt instruments issued by the Company which rank
below its other obligations in the event of liquidation but above the share
capital. Subordinated liabilities are initially recognised at the value of
proceeds received after deduction of issue expenses. Subsequent measurement is
at amortised cost using the effective interest rate method.
2022 2021
Notes Principal Carrying Principal Carrying
amount
value
amount
value
Subordinated notes
4.25% US Dollar fixed rate due 30 June 2028 $750m £621m $750m £552m
5.5% Sterling fixed rate due 4 December 2042 - - £92m £92m
Total subordinated liabilities 37 £621m £644m
A description of the key features of the Group's subordinated liabilities as
at 31 December 2022 is as follows:
4.25% US Dollar fixed rate(1)
Principal amount $750m
Issue date 18 October 2017
Maturity date 30 June 2028
Callable at par at option of the Company from Not applicable
If not called by the Company interest will reset to Not applicable
1. The cash flows arising from the US dollar subordinated notes give rise to
foreign exchange exposure which the Group manages with a cross-currency swap
designated as a cash flow hedge. Refer Note 18 for further details.
The difference between the fair value and carrying value of the subordinated
liabilities is presented in Note 37. A reconciliation of movements in
subordinated liabilities in the year is provided in Note 38.
The principal amount of the subordinated liabilities is expected to be settled
after more than 12 months. There is no accrued interest on the subordinated
liabilities at 31 December 2022 (2021: less than £1m).
During the year ended 31 December 2022, the Group redeemed subordinated
liabilities with the following key features:
5.5% Sterling fixed rate
Principal amount £92m
Issue date 4 December 2012
Maturity date 4 December 2042
Callable at par at option of the Company from 4 December 2022 and on every interest
payment date (semi-annually) thereafter
If not called by the Company interest will reset to 4.85% over the five-year gilt rate
(and at each fifth anniversary)
The 5.5% Sterling fixed rate subordinated notes with a principal amount of
£92m were redeemed on 4 December 2022.
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