REG - Standard Life Aberdn - Final Results - Part 2 of 8
09/03/2021 07:00
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RNS Number : 5738R Standard Life Aberdeen plc 09 March 2021
Standard Life Aberdeen plc
Full Year Results 2020
Part 2 of 8
KPI Investment performance
(three years)
66%
2019: 60%
KPI Adjusted profit
before tax
£487m
2019: £584m
KPI IFRS profit
before tax
£838m
2019: £243m
KPI Full year dividend
per share
14.6p
2019: 21.6p
Net flows (Excl LBG
tranche withdrawals)
£3.1bn outflow
2019: £17.4bn outflow
The Annual report and accounts 2020 and the Strategic report and financial
highlights 2020 are published on the Group's website at
www.standardlifeaberdeen.com/annualreport
(http://www.standardlifeaberdeen.com/annualreport)
Access to the website is available outside the UK, where comparable
information may be different.
Certain measures such as fee based revenue and adjusted profit before tax are
not defined under International Financial Reporting Standard (IFRS) and are
therefore termed alternative performance measures (APMs).
APMs should be read together with the Group's IFRS consolidated income
statement, IFRS consolidated statement of financial position and IFRS
consolidated statement of cash flows, which are presented in the Group
financial statements section of this report. Further details on APMs are
included in Supplementary information.
All figures are shown on a continuing operations basis unless otherwise
stated.
KPI See page 31 for details on all of our financial key performance indicators
(KPIs) and page 21 for details on our employee engagement KPI. See
Supplementary information for details about the investment performance
calculation.
We are futurists enabling our clients to be better investors
Our business
Our client-focused business
We operate across three vectors that reflect how our clients interact with us.
Through these vectors, and using time, technology and talent, Standard Life
Aberdeen has the full ecosystem of capabilities to enable our clients to be
better investors.
We provide services across three growth vectors
Investments
Our global asset management capability thrives on curiosity and collaboration.
It is powered by technology so that the investment decisions we make today
enable the outcomes our clients expect tomorrow.
Our clients want solutions that meet complex requirements over multiple
durations, including those for retirement planning, healthcare and education.
As our core business, our goal is to leverage our global presence and our
meticulous research to consistently deliver superior outcomes for our clients.
£457bn AUM(1)
Fee based revenue
£1,146m
Adviser
Our market-leading UK financial adviser business provides services through the
Wrap and Elevate platforms to wealth managers and advisers.
Our platforms enable our clients to deliver their core services, access
high-quality financial planning technology, simplify the services and enable
the scale of their businesses.
Our goal is to excel on experience, as well as the efficiency of our services
to wealth managers and advisers.
£67bn AUMA(1)
Fee based revenue
£137m
Personal
Our Personal business combines our financial planning business 1825, our
digital direct-to-consumer services and discretionary fund management services
from Aberdeen Standard Capital. Our range of services includes ISAs and
investment accounts.
We deliver advice and outcomes for a growing population of charities, advisers
and individuals who are seeking guidance at the moments of time that matter to
them.
Our goal is to provide good advice and high-quality and accessible services
direct to consumers to help them plan for, and meet, their financial futures.
£13bn AUMA(1)
Fee based revenue
£80m
(1) Total AUMA at 31 December 2020 was £534.6bn including Parmenion of
£8.1bn less Eliminations of £10.7bn. See page 33 for more information.
Message from the Chairman
Delivering for our stakeholders through unprecedented times
2020 was a year like no other. The COVID-19 pandemic touched every corner of
society, affecting lives to an extent not experienced for generations,
changing the ways we live and work. Resilience and adaptability were essential
to our continuing to deliver for our clients and customers and I am proud of
the way the leadership of the company, with the support of all our colleagues,
stepped up to meet the challenges.
It was also a year of further transition in our businesses as we welcomed
Stephen Bird as our new Chief Executive Officer and, building on the
transformation progress delivered following our merger and the sale of our UK
and European insurance business, we tasked him with positioning the company
for growth. This has generated a fresh excitement within the company,
notwithstanding the difficult external environment.
Responding to the pandemic
Before I talk more broadly about progress in our business, I must reflect on
the context in which we continue to operate. When I wrote about the outlook in
my statement in last year's annual report, the pandemic was only in its early
stages and the extent of the human and economic loss, and the restrictions on
our ways of working and living that we have seen over the last year, were then
unimaginable.
From the outset, we prioritised both the safety and wellbeing of our
colleagues, and equipped them with the tools and resources to work remotely to
meet the needs of our clients and customers. Virtually all our colleagues are
still working from home, and we are evolving safe, new, working practices for
people who need to collaborate with their colleagues face-to-face. We have
taken the opportunity to redesign and re-purpose our main offices. When
restrictions ease, we will be back working in a new way, making time spent in
the office more collaborative and constructive.
Everyone, of course, is still concerned about the wellbeing of their loved
ones and many are juggling caring responsibilities. On top of this, turbulent
markets and a faltering economy have led to mental stress and uncertainty
around finances and futures. Some of our colleagues are caring for vulnerable
family members and friends, others have been negotiating home schooling, or
feelings of isolation. The vaccine roll-out brings hope, but until the
programme is complete and we can find our way back to a new version of normal
life, my deepest thanks to all our colleagues who continue to deliver in these
difficult circumstances.
Positioning for growth
The economic backdrop caused by the pandemic meant we did not build revenue in
2020 but we made encouraging progress in related areas. Notably, we reduced
net outflows, improved both consultant ratings and investment performance and
met major milestones in delivering the technology framework needed to underpin
future growth. Additionally, following Stephen Bird's appointment, we
repositioned the company around three growth vectors. We added emphasis to our
personal business and adviser platforms, increased our commitment to
technology-driven investment solutions and repositioned our real estate
business through the planned sale of our direct real estate business in the
Nordics. In December, we announced the acquisition of one of Europe's leading
logistics real estate fund managers, Tritax. On top of this, we announced the
intention to sell Parmenion, one of our three adviser platform businesses, in
order to bring clarity to our adviser platform strategy.
With market conditions in India favourable, we continued, as previously
indicated, to sell down our stake in HDFC Life realising a further £0.6bn in
proceeds and generating a profit of £0.5bn from the share sales. This
disposal also resulted in a one-off accounting gain of £1,051m due to a
change in classification of our investment in HDFC Life. We continue to have
valuable stakes in Phoenix, HDFC Life and HDFC Asset Management. Together
these stakes are worth £3.7bn as at 5 March 2021. Reflecting the impact on
reported and future revenues from projections of global equity markets and a
change in mix with a higher proportion of lower margin assets, an impairment
of £915m in the asset management goodwill was reported during the year.
Our capital resources and liquidity position remain strong. At the end of
December capital resources stood at £3.4bn, an excess over regulatory
requirements of £2.3bn. During 2020 we returned £0.5bn to shareholders
through dividends and a further £0.4bn by way of share buyback.
The Board remains committed to delivering a dividend that is sustainable over
the medium term. Having reflected on current operating profitability and
industry trends, together with residual economic and market uncertainties as
the global economy deals with the aftermath of the pandemic, the Board has
concluded it should take this opportunity to rebase the dividend to a level
from which it is confident the dividend can be grown in due course. This
decision also reflects the Board's assessment of opportunities to deploy the
Group's current capital strength in growth opportunities as it builds the
strategy around the three growth vectors set out in our Strategic report.
The Board is therefore recommending a final dividend in respect of 2020 of
7.3p, bringing the total dividend for the year to 14.6p, a 32% reduction from
the total dividend paid in respect of 2019 (21.6p). It is the Board's current
intention to maintain the total dividend at this level (with the interim and
final at the same amount per share), until it is covered at least 1.5 times by
adjusted capital generation, at which point the Board will seek to grow the
dividend in line with its assessment of the underlying medium term growth in
profitability.
New leadership
In terms of Board changes, as previously intimated, we welcomed Brian McBride
to the Board in May. Brian's experience in digital business, and in particular
using technology effectively in markets facing disruptive new entrants, is
proving extremely valuable as we build our adviser and personal growth
vectors.
The second and major change last year was of course the appointment of Stephen
Bird as our new CEO. Early in 2020, Keith Skeoch and I initiated conversations
on succession planning. Keith was instrumental in leading the business as the
pandemic took hold and as we moved from the initial stage of managing the
impacts to looking at the longer term, we both felt the timing was right.
The Board was extremely fortunate to identify and recruit an outstanding
successor in Stephen Bird who had enjoyed, until he retired, a long and
distinguished career at Citigroup, latterly serving as CEO of its Global
Consumer Banking business - I was delighted to welcome him as our new CEO.
Stephen officially took over the role in September, after joining the Board in
July.
I have known Stephen for many years and have admired his leadership experience
and skills. He tackles complexity fearlessly, has an ability to create
valuable partnerships and is expert at guiding businesses through periods of
major change. He also has a great track record in leading businesses to
harness digital technology. Now his task is to prepare our business to do this
- to improve both productivity and client and customer experience. The latter
is particularly relevant as the trend towards individual savers taking more
responsibility for managing their money continues to develop at pace.
Stephen's global experience, building businesses in both Asia and the US, will
also be invaluable as we reposition our business for growth in these markets.
Furthermore, his experience of managing through many downturns, including the
global financial crisis, means he is well placed to lead the business at this
critical juncture.
Stephen has already made a significant impact. He has made a careful
evaluation of our business based on dialogue with all of our stakeholders and,
as a result, reformulated his leadership team and realigned our strategy for
long-term growth. He shares more detail in the following pages.
I want to take this opportunity to thank Keith Skeoch and recognise his
accomplished leadership as our Chief Executive and, for a period, Co-Chief
Executive over five years. Given the scale and range of his contributions,
transitioning away from his leadership was always going to be a challenge.
Keith was central in the creation of Standard Life Investments and led the
business to being a global asset manager in its own right. Foreseeing the
industry trends which would force complex strategic choices, Keith, alongside
Martin Gilbert, guided the business through the merger between Standard Life
and Aberdeen Asset Management - as well as the deal with Phoenix Group -
reconfiguring the business at a time of significant change within our
industry. He was a decisive and empathetic leader during the COVID-19 crisis
and has supported the transition to the new leadership selflessly. For all
this we owe him a huge debt of gratitude. Martin Gilbert, whose retirement was
announced at this time last year, left the Board at last year's AGM and
finally retired in September. We wish them both well in their future
endeavours.
Our role in society
The global pandemic reminds us that the major challenges facing society can
only be solved through global co-ordination and cooperation. Companies are,
rightly, under mounting pressure to conduct business in a way that is not only
economically sound, but also socially and environmentally responsible. This
means ensuring that a company is governed in the interests of all
stakeholders, including employees, customers, society as a whole and the
planet.
Many of the social issues and inequalities evident today are not new. However,
they have been starkly highlighted and are deepening as a result of the
pandemic. The negative impact is greater in some groups than others, with
younger workers, minority ethnic communities, women and those already
disadvantaged, suffering disproportionately.
We are very conscious of the wider contribution we can make to the communities
we serve. This ranges from directing funds to communities most in need, to
investing in the skills of the next generation that will be critical for
long-term economic recovery.
Environmental, social and governance (ESG) considerations have always been and
remain an integral part of our decision-making process. Now, more than ever,
the impact of COVID-19 underlines the need for this. Tackling climate change
must remain a priority. We will pursue this in the businesses in which we
invest and in our own operations. Companies like ours have a critical role to
play in accelerating the transition to a sustainable, net zero economy. We are
committed to achieving net zero and we will be setting out our plans later
this year.
As we look ahead to the important UN Climate Conference (COP26) meeting in
Glasgow this year, we are taking further steps to ensure our ESG strategy is
fully and transparently integrated into how our business operates and that our
approach demonstrates leadership within our industry. Stephen shares more
about this on page 7.
Looking ahead
Global change brings opportunity for active asset management. Our businesses
operate on the world stage, and we see the world in 2021 providing both great
challenges and great opportunities. The roll-out of effective vaccine
programmes raises hopes for a return to a more 'normal' life. However,
manufacture, distribution and vaccination of the entire global population is
no simple task; it will be a multi-year, sustained effort.
In this context some industries will be winners, while others will shrink or
need to rapidly adapt. Investment opportunities in infrastructure, technology,
life sciences and the transition to a net zero future will attract great
support. As active managers, we play an important role in identifying
opportunities for clients in these challenging global markets, providing the
capital to help rebuild and reshape the post-pandemic recovery, and ensuring
that capital is prioritised to businesses with sustainable futures as part of
global commitments to 'build back better'.
Importantly, many of last year's uncertainties are now resolved. We have a new
president in the White House, the UK has agreed a Trade and Cooperation
Agreement with the EU avoiding a 'no deal' Brexit, a variety of vaccines to
counter the threatening impact of the coronavirus pandemic are being rolled
out and economic forecasts are predicting a bounce-back in consumption and
activity once a normalisation of daily life is achieved. On the other side of
the world, Asia led by China is already well underway with relatively stronger
economic growth. The US economy is also now projected to bounce back strongly
given the fiscal stimulus support recently approved.
I remain hugely optimistic for the future success of this business. With our
leadership succession secured, a refreshed strategic focus, and investment in
our growth vectors, innovation and talent, we have everything we need to meet
the challenges and opportunities ahead and deliver for our stakeholders today,
and in the future.
Sir Douglas Flint
Chairman
Section 172 statement
The Board recognises that the long-term success of our business is dependent
on the way it works with a large number of important stakeholders. The
Directors have had regard to the interests of all our stakeholders (including,
for example, our clients, our people, our communities and our shareholders)
while complying with their obligations to promote the success of the Company
in line with section 172 of the Companies Act.
The Board's decision-making considers both risk and reward in pursuit of
delivering long-term value for all of our stakeholders, and protecting their
interests. Awareness and understanding of the current and the potential risks
to the business, including both financial and non-financial risks, are
fundamental to how we manage the business. Further information on how risks
are appropriately assessed, monitored, controlled and governed is provided in
the Risk management section.
During 2020, some of the Board's stakeholder engagement plans had to be
altered to comply with COVID-19 restrictions. For example, the Board Employee
Engagement Group, led by non-Executive Director Melanie Gee, continued to
engage with employees through online channels - both directly and as part of
regular meetings with employee representative groups.
Chief Executive Officer's review
Building the future, starting now
Strong businesses that grow sustainably obsess over consistently providing
exceptional client value. We are in the process of strengthening that client
obsession and optimistic sense of urgency to put Standard Life Aberdeen in its
best possible competitive position as we prepare to enter our third century of
serving clients in 2025. This is the reason I joined the company, and why I
test every decision we make against that goal. It is a privilege to have this
leadership responsibility and I am confident that we as a team are already
moving quickly in the right direction.
Our one true north is enabling our clients to be better investors. That is the
value we bring, we harness the power of time, technology and talent to enable
our clients to achieve their goals. Different clients with different goals and
different solutions, all powered by meticulous research, a global perspective,
sound judgement and a relentless drive to both understand and shape the
future.
When I joined the company in summer last year, my priority was to get under
the skin of the firm so I could begin to understand it inside out. I met with
and listened carefully to our clients, colleagues and shareholders so that I
could understand the journey we were on and the expectations each group had of
us. My goal was to form a realistic picture of our strengths and weaknesses,
combined with opportunities and threats.
What I quickly came to understand was that we have a great company, with
talented people, a proud heritage and real financial strength. We also have
deep relationships with our clients, based on providing a great service and a
broad range of diversified products and solutions.
On the other side, revenues were declining and our costs were too high,
resulting in a squeeze on our profitability. The company is still processing
two large transactions - the merger and the sale of the Standard Life
long-term insurance business to our largest client Phoenix - and we have been
too slow to determine our future growth strategy and therefore invest in some
key areas. The strategy I am setting out today will address these challenges
so we can return to sustainable growth.
Client led growth
Our strategy is to deliver client led growth. Client led growth is always the
highest quality growth. This is because it is rooted in understanding client
outcomes, driven by needs, wants and aspirations - which in turn allows the
delivery of intuitive, satisfying client experiences.
We are futurists. This means we harness the compounding power of time, we
leverage technology to connect with our clients and to invest intelligently
and we channel the relentless curiosity of our team so that we keep learning
and improving every day. The talent of our team when harnessed to enable
client goals is the core of our business. I know that we must continue to
invest in making this a great place to work, attracting and nurturing talent.
We operate across three 'vectors' that reflect how our clients interact with
us: Investments - a truly global asset management business serving
institutional and wholesale clients; Adviser - a UK financial adviser
technology platform that helps financial advisers and the firms they work for
deliver advice over the length and breadth of the UK; and Personal - a
high-potential UK wealth and savings business. Through these three vectors,
and using time, technology and talent, Standard Life Aberdeen has the full
ecosystem of capabilities to enable our clients to be better investors.
In our Investments vector, we use our research, judgement and experience to
deliver outcomes that meet client expectations as they continually evolve.
This is not about any individual asset class though each one is a critical
part of the solution, rather, it is all about fully understanding client
objectives and delivering optimal solutions in a dynamic ecosystem which is
asset-agnostic and highly efficient. In doing so, as we do for Phoenix and
other key clients, we provide compelling value, and we create long-term,
sophisticated growth partnerships.
In our Adviser vector, we understand the importance of time to advisers, their
businesses and their clients. Our core strategy is to be the easiest platform
to do business with and to use well designed technology to deliver great
experience for advisers and their clients.
In our Personal vector, we are driven by delivering positive outcomes for
clients at the moments of time that matter most to them. Our technology will
support ease of access and transacting in ways that our clients value. We have
an organic growth plan and we are executing against it with vigour. We also
recognise that scale is important and there may be inorganic or partnership
opportunities that will allow us to achieve greater relevance and scale more
quickly.
On pages 16 to 19 we share more detail about the opportunities in each.
In realigning around these three growth vectors, we are also taking out
complexity and inefficiencies. Our integration programme has progressed well
in 2020 and we are committed to getting it done in 2021.
In 2020, revenues have declined by 13%, while costs have reduced by 10%,
resulting in an adjusted operating profit of £219m (2019: £301m), with an
adjusted profit before tax of £487m (2019: £584m). Our cost/income ratio
remains too high. In order to address this, we must have a laser focus on
increasing revenue through sustainable growth, whilst eliminating duplication,
sub scale activities and unnecessary costs. To do this, we will optimise our
operating system to power the business, make smarter use of technology, get
more from our strategic partnerships with suppliers and simplify the business,
giving colleagues at all levels more responsibility for decision making. Doing
this will give us the headroom to invest where we have the greatest potential
for growth. The IFRS profit before tax is £838m (2019: £243m), reflecting
principally increased profit on disposal of interests in associates, offset by
impairments.
A single brand to build on
We have different groups of clients but our business model is still greatly
interconnected. To make the most of this ecosystem, our clients need to have a
consistent experience when they interact with us. When I joined the company we
had at least five client facing brands plus a different corporate identity.
Clients, colleagues and partners told me our branding is confusing and needs
to be fixed.
In response to this feedback, we will be rebranding to use one consistent
brand name for our publicly listed company and for all our client facing
businesses. Our brand will make a promise that we will fulfil and having a
single brand will allow us to get a better return on the investments we make
in marketing and sales.
In February, we announced that we had reshaped and refocused our relationship
with Phoenix such that we both could be strong independent partners for the
next 10 years, focused on growing our own respective businesses and growing
our partnership in asset management. To this end, we have agreed to sell the
Standard Life brand to Phoenix Group which simplifies and clarifies the
original sale of our Standard Life long-term insurance business.
Our new identity is one of the key projects for the year ahead and I am
excited about this bold step. Not only does it mean a more consistent
experience for our clients, it also ensures we get better value from every
pound we spend on our brand. It also means all of our colleagues will work
under the same banner, reinforcing our team performance culture.
A culture of curiosity and ownership
As a team we have already implemented a series of decisions to drive long-term
success. We have a growth strategy and structure that supports this goal. Of
course all change starts with personal change and I am asking our people to
think and act differently too. As futurists, we need to be incredibly curious
about the changing world around us. Huge change is taking place in the world
right now, technological, environmental and social changes are disrupting
companies and industries - behaviour and society is changing quickly, all of
these changes impact our clients and their investment needs. We are actively
and constantly evaluating these trends and understanding what they mean for
our clients and our business model - our capabilities must and will keep pace
with these changes.
We also need to encourage an ethos of acting and thinking as an owner, right
across our business. We will treat shareholder capital as if it is our own.
Every time we make a decision, we will ask ourselves what we would do if we
had a personal stake in the outcome, because we do.
Responsible investment is in our DNA. This is the very essence of being better
investors. Our leading ESG framework and investment process must have a
real-world impact and drive positive change. This means not only improving
long-term returns, but also building a world that is more sustainable, just,
inclusive and diverse. Our credentials are already excellent. Now the impact
of the pandemic makes achieving our ESG goals all the more urgent.
In 2021 we are building on our long-term commitment to responsible investing
through a number of actions, nowhere more important than in our efforts to
combat climate change. Our activities include bespoke climate change scenario
research to take a view on the impact of climate change on future asset
pricing and the creation of a proprietary ESG 'House Score' across public
markets. We are working with clients on solutions that will allow them to
achieve their future goals in this space, including support for institutional
clients in the transition to net zero, and the launch of sustainability and
climate thematic funds. Our influence as an active owner of assets, and
commitment to enhancing transparency in ESG activity, will also continue to
inform our approach. You can read more on page 17.
Looking ahead
2020 was an unprecedented year for everyone, and I echo the Chairman in my
deep gratitude for how our colleagues responded, and for Keith's leadership.
Standard Life Aberdeen acted responsibly in the interests of all of our
stakeholders and, in an incredibly challenging year, investment performance
was strong and our overall business performance held up. Stephanie Bruce talks
more about our performance for the year in her Chief Financial Officer's
review.
I want to look ahead now and, in the context of our new strategy, tell you
about the key elements of our plan for Standard Life Aberdeen.
Firstly, our integrated ecosystem of Investments, Adviser and Personal
businesses allows us to operate at scale leveraging shared research, data
sources and analytics, investment management, technology development,
infrastructure, brand and partnerships.
The combination of our investment and technology capabilities puts us in a
strong position to anticipate and deliver against clients' evolving needs.
This is an important area for ongoing investment as simple technology and ease
of access becomes expected by clients whenever they engage with us. Our
Personal vector will be a key focus for this ongoing investment as we seek to
create solutions that are intuitive and deliver, particularly at the moments
that matter.
Our future-focused talent - I have worked in this industry for a long time,
all over the world, and I know we have some of the best people at Standard
Life Aberdeen. We can see this in the strength of our investment performance
and in the quality of our client propositions. We will continue to augment and
empower this talent through a culture of collaboration, innovation and a focus
on delivery, powered by a passion for clients.
Importantly, we now have a clear path to revenue growth. The business has been
reshaped and each vector's contribution to revenue growth has been clearly
defined. In support of our overall goal of client led growth we will invest
our time and resources into seven strategic priorities: UK adviser and
consumer market; growth in Asia; technology; solutions; client ecosystems;
investing responsibly; and private markets.
We continue to work hard on our cost base. Finishing integration and
completing our operational and technological separation from Phoenix Group
will enable us to deliver improved efficiency. This is fundamental to
delivering the right returns for our investors through time.
We will make effective use of our capital. Our capital resources at £3.4bn
are strong and we have continued to strengthen through actions that we have
taken over the last six months. As well as the proposed sale of our Nordics
real estate business and Parmenion, the closing of our business in Indonesia
adds to the examples of tightening our focus on our core growth opportunities.
We have also invested in the business, and the proposed acquisition of Tritax
is an example of our willingness to search for and execute upon opportunities
that enhance our growth prospects. Our goal is to pursue efficient and
sustainable client led growth and to deliver improved shareholder returns.
My belief in the strengths and potential of our company is one of the key
reasons I chose to take the role at Standard Life Aberdeen. I have been in the
job now a little over six months and we have already taken decisive action,
and there is a lot more to do so that this business can deliver on its full
potential. I am really looking forward to meeting more colleagues, clients and
shareholders face to face to talk more about the work we are doing, and I am
incredibly excited about the opportunities we have before us.
Stephen Bird
Chief Executive Officer
Our strategy for growth
We are futurists
We harness the We leverage The curiosity of our talent
power of
technology
creates opportunity
time
to connect
enabling our clients to be
better investors
Investments Adviser Personal
We are focused on growth markets and on clients who are actively investing. We Our platforms are designed to deliver a great service experience and we are Asset management is converging with wealth management and this trend, together
are prioritising growth in Asia. investing to make it even easier. with the empowerment that technology brings, is our opportunity.
We are building our capabilities in growing asset classes reflecting changing We are growing in the UK by earning the right to be the primary platform for We are growing in the UK, and through further acquisition and investment in
investment aspirations. This business is powered by data and technology and we our clients. We will relentlessly improve our platform through time, technology, we will maximise synergies across our business model.
will invest in our technology to enable our clients to be better investors now consistently delivering great service.
and in the future.
Our strategy is to deliver superior investment performance consistently Our strategy is to power our growth through excellent technology, lead the Our strategy is to connect these businesses in a model that is central to
through time, deepening our client relationships. market and be a natural consolidator as the market changes. meeting the needs of the UK savings and wealth market.
Enablers Technology
Brand
Research
Partnerships
Investing responsibly to build a better world
Our strategic priorities
Delivering client led growth
Our strategy has been designed to capture the upside and protect against the
downside risk of significant market opportunities. By focusing our global
resources on the following strategic priorities, Standard Life Aberdeen is
building a long-term, sustainable business, whilst delivering for our clients
today.
UK adviser and consumer market
The population is ageing and advancements in life sciences are improving
health and longevity. Responsibility for providing for a longer retirement is
increasingly being passed to the individual. On top of this, the pandemic has
reinforced the need for personal financial resilience to provide a buffer
against unexpected events. Fundamentally, individuals need to save more and
start earlier.
Our UK Adviser platforms and Personal vectors are already focused on helping
financial advisers and individuals invest and we are focused on making their
experience even easier, providing a full range of products and solutions
aligned to their desired outcomes.
Growth in Asia
The economic centre of gravity continues to move East and building on our
strong legacy there is a major strategic focus. Demand for global capabilities
in Asia will continue to grow quickly as the expanding middle class saves and
invests more in the coming years and the savings institutions into which they
entrust their funds expand their investment horizons beyond their own markets.
Likewise, this higher rate of growth and economic development will continue to
attract significant investment from the rest of the world.
We are reconfiguring our business for faster growth in Asia, bringing global
capabilities and local expertise.
Technology
We will complete our integration and yield the full operational and cost
benefits of a simplified technology infrastructure. We are committed to
continuous improvement knowing that agile technology development, advanced
data analytics, machine learning and cloud computing are essential
capabilities for an efficient, client driven investor.
We will enhance our capabilities, to allow us to better match our solutions to
client needs and support our investment teams' focus on continuously improving
performance and a sustainable and efficient pattern of growth.
Solutions
Our institutional and wholesale clients are facing an increasing array of
complex challenges and are focused on being able to achieve specific outcomes
that meet their unique circumstances and objectives. These challenges range
from understanding technology and business model disruption, through to the
impact of long-term low interest rates and managing the transition to a net
zero future.
We will build on our existing capabilities to bring comprehensive needs
analysis and an integrated risk management approach on a whole of portfolio,
asset-agnostic basis, focused on designing and delivering customised
solutions.
Client ecosystems
Data analytics and connected systems allow us to deliver the right solution,
to the right client, at the right time. In well-designed ecosystems it is no
longer necessary to own all parts of the value chain.
Our technology ecosystem consists of strong, trusted partners and operates as
a seamless extension of our own capabilities and is a key source of
competitive advantage. It allows us to efficiently access new and growing
client segments and provide efficient delivery mechanisms for our clients.
We will harness this ecosystem to leverage shared research, data sources and
analytics, technology development and infrastructure.
Investing responsibly
In a rapidly changing world on a path to net zero, we believe targeting
sustainability improves our clients' long-term returns. As futurists, we are
relentlessly curious and seek to identify those technologies, companies and
sectors that will thrive in the economy, environment and society of tomorrow.
In a constantly changing world, investing in sustainable solutions and
engaging with companies seeking to transform drives positive change.
We will develop our products and solutions to target sustainability in
improving long-term returns and empowering clients to make better informed
investment decisions to help them navigate this era of rapid change.
Private markets
In a world of low expected returns from liquid asset classes, fewer public
companies and where traditional approaches to portfolio diversification are
less efficient, private market and real estate opportunities are playing an
increasingly important part in making our clients better investors.
We are focused on the growth themes which will be better accessed via private
markets and real estate investments and we are strengthening and leveraging
our business in this strategically important area.
Our business model helps us to deliver strategic success and stakeholder value
Our business model is designed to enable our clients to be better investors,
deliver for our shareholders and provide an environment where our talent can
thrive - and make a positive, lasting contribution to the future world.
Our areas of strength
A global asset manager with diverse capabilities: research-led and innovative,
with strength in private and public markets
ESG in our DNA
Strong client relationships, based on trust and experience
Investment platform with enhanced technology and simplified processes
Leading technology for advisers in the UK
Specialist planning and advice services for UK clients
Strong balance sheet to support growth opportunities
How we do it
Growth vectors
We focus on three vectors of growth to deliver strategic ambitions,
profitably, simply and efficiently, both organically and inorganically. We
earn revenue primarily from fees charged based on AUMA.
World-class operations
We are building an operating model for agility, speed and efficiency.
Technology-driven, it will deliver a world-class experience with a focus on
low costs, high quality and value.
Control
Our strong control environment helps us to manage risk effectively, ensure
business security and maintain operational resilience.
Talent
Our talent model constantly strives for excellence, has the right people for
the right roles, and offers clear pathways for growth and development. It also
has diversity and inclusion at its core.
Our strategic priorities are described on pages 10-11. Our execution
priorities for 2021 are described below.
What we deliver
For our clients
· Broad range of solutions designed to meet clients' current and future
needs
· Long-term investment performance
· ESG considerations embedded in our investment processes
Three-year investment performance 66%
For our people
· Performance-driven culture where we listen to, and act on, our people's
views
· Technology to develop talent and improve collaboration
· A refreshed framework to guide our diversity and inclusion priorities
Overall employee engagement score 72%
For society and our communities
· Fair and inclusive employment, removing barriers to realising potential
· A response to the interlinked crises of climate change and biodiversity
loss
· ESG focus running through our operations and our investments
DJSI World index top 2% for our sector
For our shareholders
· Sustainable shareholder value
· Financial resilience in uncertain and challenging market conditions
· Continued investment in our business to further diversify our sources of
revenue
Group capital surplus of £2.3bn
Our execution priorities for 2021
Operating leverage
Investing in our growth priorities, while reducing our commitment to non-core
areas.
Finish transformation
Completing transformation in 2021, enabling us to realise further cost savings
and free up resources for our growth agenda.
Brand clarity
Creating a single brand with clear values, optimising marketing investment.
Stewardship of capital
Maintaining our strong capital position to enable resilience in uncertain
times, while investing selectively to accelerate growth.
Business simplification
Simplifying and further localising decision making, removing unnecessary
layers and costs, empowering our people and creating efficiencies.
Building solutions today that clients need tomorrow
In our rapidly changing world, clients rely on us to provide a service that keeps pace with their needs while delivering strong investment performance. Global investors, UK-based advisers, wealth managers and individuals all need seamless, intuitive solutions.
We are building the future now, by enhancing the technologies we use, as well as simplifying data sources and processes. This makes our institutional-grade investment expertise easy to access. It also enables assessment of investee companies against ESG risks and opportunities to be more straightforward. We are providing our clients with the solutions they need, now and for the future.
Performing for clients
Net outflows improved to
(Excluding LBG tranche withdrawals)
(£3.1bn)
Innovation Award
for Aberdeen Standard Capital at the PAM Awards 2020
Wrap
Best platform provider under £25bn
Elevate
Schroders UK Platform Awards 2020
Investment performance
66%
AUM ahead of benchmark over 3 years
Best Thought Leadership Paper
Investment Week Sustainable & ESG Investment Awards
Pension Transfer Gold Standard
for 1825, as endorsed by Personal Finance Society
Our vectors of growth
Investments
Our Investments vector is a core growth engine for the group. Our client led
approach is to use our broad investment expertise to enable our clients to be
better investors.
We do this through our global network of investment professionals with
products and solutions spanning a broad range of markets, asset classes and
investment strategies. In 2020, we continued to provide a breadth of
capabilities across key markets of growth and client needs whilst also
reconfiguring and simplifying our business.
Our client led strategy is underpinned by three enablers:
Innovative products and solutions, a relevant product and solution range is
vital for our clients and we continue to evolve our range with innovative
solutions that are co-created with our clients. In 2020 we enhanced our
strategies further with global risk mitigation, passive hedge fund indices,
and a key range of sustainable ESG funds. We are focused on simplifying our
range as clients' needs change and will continue to remove sub-scale funds.
Collaborative partnerships are important for client led growth, where deep
understanding allows us to tailor our products and solutions to meet client
needs. We have strengthened our relationship with our key partner Phoenix with
over £170bn of their assets being managed by our skilled team. We continue to
innovate together to support their ongoing needs. In 2020, we collaborated
with several clients and platforms such as China Construction Bank
International in Hong Kong, HUB24 in Australia, FAPES in Brazil and Skipton
Building Society in the UK, to provide bespoke solutions.
Research, data and technology underpin our investment decision-making. We
continue to make improvements to our infrastructure, enhancing the way we
invest on behalf of clients to meet their desired outcomes. In the last year,
we have integrated our operational investment systems, improved our research
capabilities with our ESG House Score, and have launched our proprietary data
capability to support our deep understanding of our clients.
Enhancing our client led innovation
Looking to 2021 we will develop our capabilities to support our strategic
priorities for our Investments vector:
Growth in Asia
Reconfiguring our footprint in Asia for faster growth.
We will bring our global capabilities to the world's fastest growing markets
through deep local expertise
Private markets
Further enhancing our direct alpha capabilities and diversifying further into
Asia and North America, taking advantage of attractive market conditions such
as strong growth and resilient fundamentals.
Responsible investing
Targeting sustainability to improve our clients' long term returns.
Empowering clients to make better informed investment decisions to help them
navigate this era of rapid change.
Solutions
Building on our existing 'liability aware' heritage, broad investment and
technology capability set, and the strength of our client ecosystem to deliver
bespoke and 'whole of portfolio solutions' to solve clients' increasingly
complex investment problems.
Exchange Traded Funds (ETFs)
Expanding our existing ETF capabilities beyond the US, combining our active
and passive expertise through a range of European UCITS ETFs with a specific
focus on thematic strategies.
Technology and data
Continuing to invest in agile technology, advanced data analytics and next
generation computing as critical capabilities to enhance our wide range of
outcomes and efficiencies as a global, client led investment manager.
We are entrusted to manage assets on behalf of a broad client base of governments, pension funds, insurers, companies, charities, foundations and individuals across 80 countries
Top 3(1) position with China A, Euro Corp, Equities Small & Mid Cap and
Global Corporate Bond
>40% of funds with
>£100m AUM
AUM of largest client, Phoenix
£171.5bn
>2,000
Institutional Clients
(1) Source: Broadridge, AUM as at 31 Dec 2020.
We combine our deep knowledge of local markets with the power of coordinated
global oversight to drive better investment outcomes and deliver long term
sustainable benefits for all stakeholders.
Robust investment performance with 66% of AUM ahead of benchmark over 3 years
1 year 3 years 5 years
71% 66% 68%
(2019: 74%) (2019: 60%) (2019: 67%)
Responsible investing assets - Strong foundations
1. Strong in sustainable Fixed income which is a differentiator in the
market
2. Expanding our existing franchise across public and private market asset
classes to establish a platform for flows
3. Launching 15 sustainability funds in 2021 including four climate funds
that build on our research strengths
4. Working with our strategic partner Phoenix Group on transitioning their
investments to net zero by 2050
5. Empowering our global institutional client base through portfolio level
ESG reporting and net zero solutions
Responsible investing
We are continuing to build on our long-term commitment to responsible
investing through a number of actions including:
· Our bespoke climate change scenario research which allows us to take a
view on the impact of climate change on future asset pricing and embed this
into our thinking
· The creation of a proprietary ESG House Score, across public markets,
combining external data with our internal insights and forward looking
research
· Increasing transparency for our clients, empowering them to purposefully
place responsible investing at the core of their investment decisions
Sustainable options to empower our clients
We are working with clients on solutions that allow them to achieve their
future goals whilst 'dialling up' the impact of their investments. For
example, we can provide our clients with higher exposure to companies or
assets that are solving the climate and environmental crisis. In line with
this, we are working with Phoenix and other institutional clients on the
transition to net zero.
Expanding on our existing sustainable fund range, we have a strong pipeline of
options catering for a range of different client sustainability requirements
due for launch throughout 2021.
To support transparency in 2021, we will disclose portfolio-level ESG
information to many of our major institutional clients and across a range of
our public market funds. This will cover climate, ESG risk, and stewardship
data. We will continue to evolve the ability to provide data on outcomes to
clients, in line with rapid regulatory change and their fast-evolving needs.
Progressing our investment thinking in 2021
This year, we will increase active targeting of sustainable outcomes across
our asset classes and strengthen our active ownership, reviewing and
publishing a framework for managing exclusions, watch lists, and engagement
escalations. We will be expanding carbon foot printing, climate scenario
analysis and engagement tracking tools including to non-public markets asset
classes where data has traditionally presented more of a challenge. We will
further integrate emerging external and augmented, bespoke ESG data points
into the investment process.
Continuing to use our influence
As a committed active owner, we continue to constructively use our influence
to engage with companies and use our voting rights. For our investments, we
publish quarterly engagement reports and we make our voting data available on
our website. Additionally, at a corporate level, we publish an annual
stewardship report, a Taskforce on Climate-Related Financial Disclosures
(TCFD) report and a Corporate ESG Disclosure document.
We believe that integrating sustainability will deliver better long-term
outcomes for our clients - and create real world impact, building a world that
is more sustainable, just, inclusive, and diverse. You can read about our work
during 2020 to promote a positive future for society on pages 24 to 27.
Our vectors of growth
Adviser
Our ambition is to create an effortless experience for advisers. We will
maintain our position as a leading provider by continuously improving and
offering solutions that empower advisers to work efficiently, and at scale.
AUMA
No.1 Adviser Platform in the UK
£67bn
More than
50%
of UK advice businesses use our platforms
80,000
straight-through transactions per day processed through FNZ
We will become the easiest business for wealth managers and advisers. This
will give wealth managers and advisers more time to spend with their clients,
maximising their service and revenue streams.
We do this by providing platform solutions based on different client and
adviser needs:
· Wrap enables advisers to deliver high-quality financial planning to large
numbers of clients with complex investment requirements
· Elevate is a lower-cost proposition which, through a range of investment
options, offers advisers the core features they need to deliver their services
at scale
In 2020, we launched our Platform Experience Programme to further improve
adviser experience. The programme has driven significant change for the
business with its three core aims:
1. Modernising platform components, as we separate operational activity from
Phoenix
2. Aligning our operating system to adviser needs and expectations
3. Consistent innovation and incremental improvements
The programme ensures we keep advisers ahead of their game, so they can
deliver high-quality financial advice at scale, and across a broad spectrum of
clients.
The strategy is underpinned by our revised and extended strategic relationship
with technology provider FNZ. This partnership allows us to combine
best-in-class platform services with a commercial model that ensures
sustainable growth.
In 2021, we will continue to enhance our solutions so they become even more
flexible, more efficient for clients and more insight-led. Advisers' needs
will be the starting point for all improvements and design.
Advisers will be at the heart of what we do, with their actions and viewpoints
forming the core of our design. To underline this adviser-centricity, we have
made four commitments to them that are embedded across our business:
1. Always efficient
2. Aim to be right first time
3. Listen and understand
4. Provide leading functionality
Enhancing client service with FNZ strategic partnership
Advisers need a range of technology and services. They also need a provider
who creates the solutions they need today, and that they will need in the
future. To be this provider, we have partnered with FNZ.
The combination of FNZ's leading platform technology and our in-house
expertise provides agility, scalability and stability. We have entered into a
new, 10-year relationship with FNZ, instead of a one-year rolling agreement.
The new agreement offers our clients access to a wider range of technology and
services through our framework.
We are working with FNZ to consider additional services that could become
available through the new partnership. This includes the FNZ app store and
enhanced insights. We can also make these services available through
direct-to-consumer channels, providing opportunities for growth in our
Personal business.
The enhanced partnership has resulted in immediate cost savings. We will also
see future cost reductions as AUMA grows within our Adviser and Personal
businesses, and as we hit milestones in our new tiered pricing model with FNZ.
Our vectors of growth
Personal
From the moment our clients first consider their financial futures, our
tailored products and solutions will be available to them in a seamless,
technology-powered experience. From the start of their financial journey, all
the way through to legacy planning, it will be easy, intuitive and integrated.
To provide this whole financial life cycle service, we offer:
· Services directly through digital channels and through 1825, our
financial planning business
· Discretionary investment management to high-net-worth individuals through
Aberdeen Standard Capital
We have grown our advice business substantially since 2015, through various
acquisitions. This has given us a complete UK-wide footprint, and improved our
ability to deliver advice at scale.
In 2020 we embedded our digital retirement advice service. This automation
significantly increases our capacity and effectiveness, and frees us up to
focus on the human touchpoints that make a real difference to our clients.
Within our discretionary fund management business, we have seen substantial
AUM growth. In our Charities business, for example, AUM is up over 60% in the
last two years.
Our Personal business seamlessly connects our capabilities to help clients be
in a better position to achieve their goals. Where relevant, we can also
leverage the power of our adviser platforms and investment product range to
help them achieve the best outcomes.
To reach clients who are at the very beginning of their financial journey,
we're launching new direct-to-consumer solutions. Our new mobile app, Choices,
helps clients to manage their money more effectively. Its open banking
technology gives them a clear overview of all their finances in one place, and
makes it easy for them to access and see the relevance of our own products as
they plan for the future.
Leveraging technology to enable better investment is something we think of as:
· Saving with ambition - highlighting seamless, straightforward paths to
building wealth
· Spending with intelligence - taking the onerous work out of preparing for
big spending decisions
Choices will integrate with our newly launched, direct-to-customer ISA, and
more products and features will be added to it over time.
The UK savings gap affects more than 20 million people. We are opening up ways
to save and invest across the whole spectrum, to drive better outcomes in the
long term.
AUMA(1)
£13.3bn
(1 )Includes assets that are reflected in both Aberdeen Standard Capital
and Advice businesses. This impact (31 Dec 2020: £0.9bn) is removed within
Eliminations.
£7.8bn
Highest ever Aberdeen Standard Capital AUM
Top 10
Ranking for 1825 in FTAdviser's Top 100 UK Advisers list
Building our Personal vector brand
In February 2021, we confirmed that we would sell the Standard Life brand to
Phoenix Group, having licensed it to Phoenix since 2018. In the UK, Standard
Life has strong recognition as a life insurance and workplace pensions brand,
which is closely aligned with Phoenix's strategy and customer base.
The sale allows us to invest in a single client facing brand. As an
interconnected business, this is vital across all our vectors. It is
particularly important in our Personal vector where, to date, we have a number
of direct-to-customer propositions which have very different brand identities.
Our new brand identity will be a core enabler in bringing these businesses
together into a proposition that connects more deeply with clients and
provides consistency as their needs evolve.
This does not mean we will be taking a 'one-size-fits-all' approach. Instead
we will be developing one core recognisable business that provides options for
all clients who want to deal with us direct, from those who want a simple
app-enabled savings proposition, to retirement advice, and those clients who
need more specialist or bespoke support.
Creating opportunities for our talented people to thrive
An organisation of futurists has to be able to unlock the full potential of
its people. It needs to attract, nurture and retain the very best, and its
thinking needs to be diverse, energetic and future focused.
We are actively creating opportunities for our people to thrive, giving them
the environment, tools and support they need to feed their curiosity, achieve
their ambitions and take ownership of their ideas.
To engage our people effectively, we are actively listening to what they need,
want and aspire to. Through actions such as our employee engagement survey, we
are able to better understand how well we are supporting and developing our
teams and our culture.
Overall employee engagement score
72%
A 16-point increase since our previous engagement survey in 2018
I feel motivated to go beyond my official job responsibilities I enjoy working at Standard Life Aberdeen I believe Standard Life Aberdeen is an inclusive organisation Defining a clear
strategic vision
74% 74% 75% Colleagues told us that improving on this should be our number one priority,
and this was a key focus during the second half of 2020
A 12-point increase since 2018, four points higher than the financial services A 17-point increase since 2018, two points higher than the sector norm An eight-point increase since 2018, no direct sector benchmark
sector norm
Our people
Investing in our people to support a better future
Building a culture of curiosity and ownership
To deliver better futures, we need to nurture talent, giving our colleagues
every opportunity to grow, be heard and perform. We need to enable
collaboration, encourage innovation, and help our people feel engaged and
empowered to be at their best.
Listening to colleagues
Our 2020 employee engagement survey asked for views about our business as an
employer, ways of working, strategy and direction, senior leadership and
management. Our overall engagement score was 72%. While we saw very positive
findings in several areas, the results also highlighted particular areas for
us to improve. These included defining a clear strategic vision, as well as
making it easier to get things done and get decisions made. The work on our
strategy, led by our executive leadership team, is helping us address the
points raised.
Tools for self-development
Following successful pilot programmes, we launched our new global Career
Development proposition. It gives our colleagues the tools and resources they
need to take control of their self-development. The initial focus was on
colleagues at early and mid-career stages, and the pilot was hugely
successful. All 260 colleagues who signed up reported that it had a positive
impact on them personally and to the business.
Mentoring
Our global mentoring programme offers all colleagues an opportunity to find a
mentor inside the business, or to share their skills and experience by
becoming one. We use algorithms based on development interests and preferences
to match mentees with appropriate mentors. At the end of 2020 we had
established about 100 internal mentoring relationships, and we expect this
number to grow significantly in 2021.
Developing our leaders
We know that effective leadership is critical if we are to unlock the full and
true potential of our talent. In 2020, we adapted our People Management
Academy to be delivered online. This is the learning framework that helps our
people managers to develop and enhance the behaviours and skills we expect
from them. We measure its effectiveness through the employee engagement
survey. In 2020, these were some of the results:
· 83% said they felt their manager is a role model for our behaviours, and
creates a collaborative and inclusive environment where colleagues can be
themselves and perform to their potential
· 79% said their manager motivates and engages, and that colleagues know
what is expected of them, how they are performing and how their role supports
the business
· 73% said their manager leads authentically, adapting their style to
changing circumstances, and that they actively seek feedback to improve and
lead change well
Identifying, attracting and retaining talent
A diverse and inclusive workplace
To attract the best talent, and to grow leadership for the future, diversity
is vital. At the end of 2019, our Board Employee Engagement Group, led by
non-executive Director, Melanie Gee, ran an employee survey on diversity and
inclusion.
Over 1,000 employees took part. Survey feedback stressed the importance of
diversity of thinking across our teams and leadership, and the role it plays
in building an inclusive culture. We combined these findings with feedback
from networks and regional groups, as well as insights from external research
and benchmarking. Based on all of this, we refreshed the framework that guides
our diversity and inclusion priorities.
With the pandemic and the Black Lives Matter movement shining a light on
societal disparities, we are maintaining our focus on creating inclusive
environments in which all types of diversity can thrive. Our leaders, our
Global Inclusion Committee, our colleague-led networks and regional groups
work collaboratively to turn discussion into action, and to influence others
to do the same.
Young talent
In 2020 we upheld our commitment to taking on 22 new trainees in the UK, as
part of our traineeship programme for school leavers, as well as 37 new
university graduates across our global programmes. Full-scale assessments,
selections, onboarding and induction processes were carried out online.
We have also been using technology to enhance the recruitment process itself.
This includes building metrics into our HR system to monitor diversity and
inclusion at all points.
Top 50
Top 50 Rankings for undergraduate and apprenticeships programmes
The Rate My Placement awards are based on the feedback and experiences of our
people who participate in our programmes.
For 2020 our undergraduate programme was rated 2nd in Investment Management
and 48th overall. We also had our first ever placing for apprenticeships - we
were rated 31st overall.
Family-friendly
We are leading the industry in designing an employee proposition that is fully
inclusive and helps our people to manage their personal and professional
responsibilities flexibly. In January 2020 our new Parent Leave policy came
into effect. All UK-based colleagues welcoming a new child into their family
are now entitled to 52 weeks' leave, including 40 weeks of fully-paid leave,
regardless of their gender. It includes parents who adopt or who have a child
by surrogate. In the first year of the new policy 171 colleagues took parent
leave, 55% of whom were men.
A fully supported and successful shift to remote working
Throughout 2020, there was minimal disruption from the pandemic to our
clients. We achieved this by empowering our colleagues and giving them the
flexibility and support to deliver. In a fast-moving situation, we swiftly:
· Made rapid improvements to technology to boost connection and
collaboration, particularly for new colleagues
· Created remote induction programmes
· Offered advice and support for safe and healthy remote working
· Shifted our entire learning and development offering online, leveraging
technology to provide interactive, virtual learning
· Provided an allowance so colleagues could buy home working equipment
We knew our people were having to balance competing demands on their time,
especially caring and working. We therefore empowered managers to help their
teams adapt their ways of working where needed.
Colleagues' physical, emotional and financial wellbeing was paramount, so we
communicated extensively about support available inside and outside the
organisation. This included highlighting counselling resources for anyone who
needed them. We also made it mandatory for colleagues to use their entire 2020
holiday allocation.
To measure the mood around our business during the pandemic, we conducted
several 'pulse' surveys. These asked colleagues about work, worries, the
support they were receiving and how they were adapting. We also asked about
thoughts on a future return to the office.
Achieving targets
We have had gender targets in place since 2016, and achieved these in 2020.
For the percentage of women in roles at Board and senior leadership levels,
both targets were 33%. We reached 45% at Board level and 37% among senior
leadership.
The Board will continue to track progress in diversity and inclusion over the
coming years, and our targets will help us to maintain progress. From 1
January 2021, we have new targets which build on our progress and reflect our
ongoing commitment to improving ethnic diversity. These will run to the end of
2025, with regular review by our Board and Executive Leadership Team. The
targets are structured differently for these reasons:
· To align them with our external engagement approach and voting standards
· To be sure we maintain our policy of always appointing the best person
for a role
· Recognising that gender is not limited to male and female identities
· The ethnic diversity targets we have put in place follow the
recommendations of the Sir John Parker Review (2017) for all FTSE 100
companies. We met the recommendation to have at least one qualifying Board
member in 2019, and have set a target to have an additional qualifying Board
member by 2025.
Current position at 31 Dec 2020 Target by 31 Dec 2020 Target by 31 Dec 2025
Gender diversity(1)
PLC Board 45% (5 out of 11) 33% 40% male; 40% female;
20% any gender
Senior leadership(2) 37% (56 out of 152) 33% 40% male; 40% female;
20% any gender
Subsidiary directors3 50% (10 out of 20) N/A N/A
UK workforce 45% (2,156 of 4,817) 50% (+/-3% tolerance) N/A
Global workforce 45% (2,777 out of 6,132) 50% (+/-3% tolerance) 50% (+/-3% tolerance)
Ethnic diversity(4)
PLC Board (UK ethnicity categories) 9% (1 out of 11) 18% (or +1 director)
(1 ) Relates to percentage of women in roles within the different groups.
(2 ) Relates to leaders one and two levels below CEO, minus
administration roles.
(3 ) Relates to Directors of the Company's direct subsidiaries as listed
in Note 48 (a) of the Group financial statements and not classified above as
Board Directors or senior leadership.
(4 ) Relates to percentage of Board members who identify as ethnic
minority.
Data measuring progress against gender targets for 31 December 2020 has been
independently assured by Bureau Veritas. Bureau Veritas assurance can be found
at www.standardlifeaberdeen.com/annualreport
(http://www.standardlifeaberdeen.com/annualreport)
More information about our work on gender equality, including our gender pay
gap disclosure, can be found in our Gender Report
www.standardlifeaberdeen.com/annualreport
(http://www.standardlifeaberdeen.com/annualreport)
Promoting a positive future for society
Our commitment to ESG gives us a framework to make decisions that create
positive outcomes for our people, our investors and the communities in which
we operate. This approach runs through all our activities, from our business
operations to our investments.
Across the world, societies are also turning their attention to economic
recovery, in the wake of the pandemic. We are looking at the role we can play
in rebuilding in ways that are both green and fair. This ranges from making
sure employment is fair, inclusive and free of barriers, to actively
responding to the interlinked crises of climate change and biodiversity loss.
A responsible business
We became carbon neutral
A+
ratings in six investment categories
UN Principles for Responsible Investment (PRI) report
One of the first companies to sign the C-19 Business Pledge
for businesses committed to tackling
the effects of the pandemic
Top 2%
of companies in our sector in the DJSI World Index
Accredited as a UK
Living Hours
employer
A new standard for employers who want to do more than provide a Living Wage
500
colleagues in pilot to monitor home working emissions with eco-tech business
Pawprint
Our society
Building a sustainable future
Asking more of ourselves
Every day we look for ways to go further for our clients, to be a better and
more inclusive employer, and to reduce our environmental impacts.
Our positive influence comes primarily through our investment approach. Client
demand for responsible investing continues to grow at a rapid pace, and
sustainability considerations are integral to all portfolio decisions. By
combining this with the positive impact we can have through our operations, we
can make a difference for our clients, society and the wider world.
Being a responsible steward of capital
We are a signatory to the Principles for Responsible Investment (PRI), a
globally recognised blueprint for responsible investing. In the most recent
PRI report, we achieved A+ ratings in six out of the eight investment
categories we submitted for. Overall, we improved on our rating from the
previous year - achieving the highest-possible ratings for strategy and
governance and also for our approach to equities, fixed income and property
investing.
As an active owner, responsible investing is about more than simply selecting
appropriate investment opportunities. Engaging with companies to ensure they
retain the standards we expect of them is just as important. Where companies
fail to achieve these standards, we may consider selling our holding.
For example, following allegations in 2020 of underpayment of statutory
minimum wages and poor working conditions in the supply chain of the UK-based
retailer Boohoo, we divested from them in all our actively managed funds. We
have engaged with Boohoo to improve its ESG standards since 2017, but found
their response to these allegations inadequate. We decided to divest after
considering a number of elements, including Boohoo's culture, control
mechanisms and business model, the Fund's investment process and its
investors' best interests. We are now considering how we engage with other
businesses facing similar labour-related risks.
Read our stewardship report at www.standardlifeaberdeen.com/annualreport
Supporting a sustainable economic recovery
As the UK Government plans its economic recovery from the pandemic, we are
supporting calls to ensure that the recovery is sustainable for people and
planet. In 2020 we became a signatory to an open letter, from business leaders
to the Prime Minister, outlining the importance of aligning these efforts with
the UK's legislated target by 2050 of net zero emissions. We supported another
open letter that asks for the recovery strategy to reflect the UN's
Sustainable Development Goals (SDGs). As a signatory to the UN Global Compact,
our business is committed to continue playing its part in achieving these
goals.
In the UK, we were one of the first companies to sign up to the C-19 Business
Pledge, which sees businesses demonstrate their commitment to tackling the
effects of the pandemic. The Pledge addresses immediate challenges, as well as
longer-term recovery.
We also engaged with our investee companies on the steps we expected them to
take during the pandemic. These included adapting strategy, considering
long-term impact, and supporting their wider communities. We also made it
clear how we would support them.
Through our Aberdeen Standard Investments brand we are a sponsor of Good Money
Week, an annual UK campaign to help people use sustainable, responsible and
ethical investment options. The theme for 2020, Clean Slate, Green Slate, made
the case that there has never been a more important time to think about the
social and environmental impact of wealth protection. We provided online
seminars, podcasts and articles covering the impact of the crisis on climate
policy, what it means for investors and what we are doing to support a fair
recovery.
Supporting our communities through the pandemic
From the start of the pandemic, we have recognised the significant effect on
our communities and that not everyone in our communities was equally impacted.
We therefore released £500,000 from our charitable budget, and focused our
donations on three key areas:
· Emergency and crisis supplies to deal with the immediate impact
· Supporting the most disadvantaged, for example, by funding food banks and
shelters
· Supporting elderly and other vulnerable groups who live alone or are
isolated
With help from our offices and teams around the world, we identified projects
with both new and existing partners. These included foodbanks in London,
Edinburgh and Aberdeen, and local charities supporting vulnerable groups or
individuals in Boston, New York, Philadelphia and Hong Kong.
Our business put in place a programme for matching donations that our people
chose to make to causes on an individual basis. This is in addition to our
existing matching schemes for employee fundraising and payroll giving. We also
worked with charities that needed specific support to adapt the ways they
worked. This included:
· Support for a financial education initiative to develop free online
resources for children and their families
· Helping food banks and supper clubs to be able to cook and deliver hot
meals
· Funding helplines for dementia carers
Our environment
The pandemic has highlighted the impact of human activity on our environment,
particularly climate change and biodiversity loss.
We believe that aligning our operations and investments to a net zero future
is essential for long-term performance, and are fully supportive of the
recommendations of TCFD. These encourage companies to disclose material
climate-related risks and opportunities and outline how these are governed and
managed. We publish a report showing how we align our climate change
disclosures to the TCFD framework, while encouraging the companies we invest
in to do the same.
Our approach to managing our operational emissions is to reduce as much as we
can, and we have long-term targets in place to achieve this. We then offset
what remains. A dramatic change in the nature of our carbon footprint took
place in 2020 as a result of the pandemic. Emissions from our offices and
business travel reduced, and emissions from home working became our biggest
emission source. You can read more on our carbon footprint, and our
environmental metrics and targets, on page 28.
Every year, we offset our greenhouse gas emissions by purchasing carbon
credits through our partnership with ClimateCare. We support accredited
projects that help people to engage with and protect nature, and to support
habitat and wildlife restoration. This in turn promotes wellbeing, builds
community and helps wildlife and ecosystems thrive for generations to come.
Our business has pledged support to the Gola Rainforest in Sierra Leone, a
global biodiversity hotspot, as well as a renewable wind and solar power
project in India. This helped us to achieve our aim of becoming carbon neutral
in 2020.
Climate change in our investment decisions
Climate-related risks and opportunities are wide reaching and evolving
quickly. We have a responsibility to understand the impact of climate change
on asset values to make better investment decisions. As asset managers, the
most material climate change risk for us is the potential for climate change
to negatively affect the performance of investments we make on our clients'
behalf. We also need to make sure that clients are able to invest in ways that
reflect their values and expectations. You can read more on page 16 about our
commitment to this in 2021.
The transition to a net zero world means we have to be able to assess which
companies and assets will perform well in a net zero environment. This
includes identifying where we need to influence to drive best practice. In
2020 we kept up engagement with peers and policymakers, and collaboration with
industry associations and initiatives.
For example, as members of the Institutional Investors Group on Climate
Change. we contribute to their Paris Aligned Investment Initiative and the Net
Zero Investment framework. We are using this as a foundation for developing
net zero solutions for our clients. The insights help our industry invest in
ways that aim to keep the global average temperature rises to well below 2°C
and ideally 1.5°C. We are also a founding signatory of Climate Action 100+, a
campaign group that works to improve standards, influence regulation and
develop capital allocation strategies. In 2020, we led the group's engagements
with energy companies such as E.On and Fortum.
A fair and inclusive future
We support initiatives that allow people to overcome barriers and reach their
potential. We drive positive change to support fair and inclusive work,
promote equality of opportunity, and connect with those isolated from society.
Our commitment to the Living Wage
Even before the pandemic, over five million workers in the UK had low-paid,
insecure work. There is a growing body of evidence that the inequalities this
causes negatively impact overall economic growth.
We have been a UK Living Wage employer for some time. In 2020, we became one
of the first employers accredited as a Living Hours employer. The Living Hours
programme sets a new standard for employers who want to do more than provide a
Living Wage. Accredited employers agree to offer decent notice periods for
shifts, as well as the right to a guaranteed minimum number of work hours each
week. This commitment covers our employees, interns and suppliers on our
premises.
We also supported the 'toolkit for responsible investors' initiative from the
Living Wage Foundation and ShareAction. This helps investors in UK markets
understand why and how to encourage portfolio companies to adopt the real
Living Wage.
Investing in young people
Today's environment is challenging for many workers, but particularly for
young people starting out in their careers. We believe that investing in young
people is critical for long-term economic recovery. Alongside our internship
and graduate recruitment programmes, we are continuing to recruit from schools
and colleges through our traineeship programme. We offer salaries above the
real Living Wage, with structured training and the opportunity to gain
qualifications. We also continue to collaborate with partners such as Career
Ready to support young people to build skills, confidence and connections.
Through our colleague-led network Unity, we partnered with and funded
charities that help young people from disadvantaged and ethnic minority
backgrounds. In the USA, we supported Oliver Scholars and EmbraceRace. In the
UK, we supported the Amos Bursary, Stephen Lawrence Charitable Trust and Youth
Community Support Agency. Through the Standard Life Aberdeen Charitable
Foundation, we also supported The Sutton Trust's Pathways to Banking and
Finance programme.
Thought leadership
Insight and thought leadership plays an important role in helping to influence
how the ESG agenda evolves. In 2020 we were recognised at Investment Week's
Sustainable & ESG Investment Awards, winning the prize for Best Thought
Leadership Paper. Strategic Asset Allocation: ESG's New Frontier focuses on
climate change. It sets out how an ESG-enhanced process for strategic asset
allocation can increase capital available for socially and environmentally
important projects, without compromising returns.
Non-financial information
A responsible business
Our environmental metrics and targets
Total CO(2)e emissions (tonnes)
14,443
Total energy use (MWh)
17,722
Data has been independently assured by Bureau Veritas. Bureau Veritas
assurance can be found at www.standardlifeaberdeen.com/annualreport
(http://www.standardlifeaberdeen.com/annualreport)
Our operational carbon footprint
We have been measuring our operational carbon footprint since 2006, and our
data is independently assured. More recently, in 2018, we set targets for
2030, and our 2018 figures act as the baseline against which we report our
progress in reducing emissions.
In 2020 we had reduced our total greenhouse gas emissions by 55%. Our
emissions per full-time equivalent (FTE) employee had fallen by 53% from 1.57
to 0.73 tonnes of CO(2)e per FTE (Scopes 1 and 2). We had also reduced our
energy use globally by 50% from 35,109 MWh to 17,722 MWh, and in the UK by
47%, from 26,658 MWh to 14,238 MWh.
Emissions from travel
The nature of our carbon footprint has changed drastically because of the
pandemic. Travel, which made up 65% of our footprint in 2019, represented only
14% of emissions in 2020. Globally, our business went from making 4,000 air
and rail journeys a month in February 2020, to fewer than 40 in May.
By building on the technology we have become accustomed to, we can reduce the
need for business travel in the future.
Emissions from premises
We have continued to roll out efficiency measures in our largest offices, and
we are demanding efficiencies in any new spaces we lease.
However, in 2020, we went from having under 1% of our colleagues working from
home, to over 95%. This meant energy use in our offices reduced, but home
working became our single largest source of emissions, accounting for 55% of
our carbon footprint. While our offices are mostly efficient, people's homes,
generally, are less so.
Making home working more energy efficient
We believe that home working is likely to be a lasting feature of working life
from now on. We have therefore started to develop a strategy to tackle
home-working emissions.
This is important, because our policy has always been to tackle the largest
emission sources first so that we can make the greatest impact.
We have calculated our working from home emissions based on accepted, robust
and audited models. We have also partnered with eco-tech business, Pawprint,
to monitor emissions from home working. A representative sample of 500
colleagues from around the world will be using the Pawprint for Business app
to help them measure, understand and reduce their carbon footprint. The data
from this will supplement the models we use and help to improve their
accuracy. It will also help us to offset home-working emissions.
Our next TCFD Report is available in Q2 2021. Read the current version at
www.standardlifeaberdeen.com/annualreport
Global code of conduct
Our global code of conduct describes the standards of behaviour we expect in
our business. It is reviewed and updated annually, and all our employees are
expected to read, agree and adhere to its principles.
The code focuses on doing the right thing and putting our clients at the heart
of our business. If employees have any concerns about issues covered, such as
bribery and corruption, environmental or human rights issues, we encourage
them to speak to their manager first. If they feel they cannot raise their
concern this way, or they want to raise it anonymously, there is an
independent and confidential hotline for them to use.
In 2020, 93% of employees completed the online training module to confirm they
had understood and would comply with the code. Where employees fail to
complete mandatory training, we have taken steps to ensure that managers and
HR are made aware. This has led to an improved completion rate for the updated
module, launched in December 2020, with 99% completing this by the end of
January 2021.
Working with third parties
We strive to build effective and supportive relationships with our third
parties. Our global third party code of conduct sets out the minimum standards
and principles we require third parties to follow, and that we expect them to
demand from their own supply chains.
On a regular and risk-proportionate basis, we carry out due diligence of our
third parties, covering key social issues such as modern slavery, equality and
environmental issues. We review the outcomes, and if any issues emerge, we
escalate them through our supplier relationship managers or the service owners
responsible for the goods or services being provided.
We understand the importance of treating our third parties fairly. This
includes a commitment to paying them on time, and to react in the right way to
environmental and social events, such as the pandemic. As part of our
response, we have worked to ensure that our ESG responsibilities and
commitments to, and via, our third parties continue to be met.
Modern slavery statement
In 2020 we continued to help tackle human trafficking, forced labour, bonded
labour and child slavery. In total, 99% of UK and Europe colleagues completed
training on modern slavery issues. We found no instances of modern slavery in
our supply chain. However, we have robust processes in place which would allow
any future issues to be escalated and remedied.
We further integrated considerations for tackling modern slavery into our
investment process. This included implementing a global programme targeting
companies in high-risk sectors and geographies. We have also used our
expertise to support cross-industry, anti-modern slavery collaborations. Our
2020 statement and outcomes reinforce our commitment to this important issue,
and it can be found on our website.
Human rights policy
Our policy summarises our approach to identifying and upholding the human
rights of our people, clients, communities and everyone impacted by our
suppliers, partners and the companies we invest in. As an investor, we use our
internally developed Human Rights Index to help identify high-risk geographies
- and we have published position statements on integrating human rights into
our investment approach. We assess the management of human rights impacts and,
whenever appropriate, engage to highlight issues and promote good practice. We
publish the outcomes of our ESG engagements with investee companies in a
quarterly summary, which is available on our website.
Financial crime prevention
We have a legal and regulatory duty to prevent, detect and deter financial
crime including bribery and corruption to protect our business and our
clients' information and assets. We aim to work with the highest levels of
integrity, so our approach to managing financial crime risks, within our
business and among suppliers and partners, involves:
· Systems and controls - to assist in managing the risk
· Staff training and awareness - ensuring that everyone understands the
risks presented and how to manage them
· Client Due Diligence - to ensure we understand our clients
· Ongoing monitoring - of both our systems and key processes to ensure
these are working as expected
· Routine risk assessments - to ensure we understand the risk in each area
and can improve processes where required
· Robust policies and procedures - to ensure a consistent approach in
managing the risks
In 2020 we had no breaches. An independent assessment of our anti-money
laundering framework was completed in 2020. We are now following the
recommendations that came out of the review, and will have an even stronger
control framework as a result.
Non-financial information statement
Standard Life Aberdeen aims to comply with the Non-Financial Reporting
requirements contained in sections 414CA and 414CB of the Companies Act 2006.
This information is intended to help stakeholders better understand how we
address key non-financial matters. This aligns with the work we already do in
support of the Taskforce on Climate-Related Financial Disclosures, UN Global
Compact and UN Sustainable Development Goals. Further details of the
activities we undertake in supporting these frameworks are available on our
website. Details of our principal risks and how we manage those risks are
included in the Risk management section.
Reporting requirement Relevant policies and publications Where to find more information
Environment Our environment and our environmental metrics and targets Our society (page 27)
Non-financial information (page 28)
Employees Global code of conduct1 Non-financial information (page 28)
Employee policies Our people (pages 22 to 23)
Anti-bribery and corruption Non-financial information (pages 28 to 29)
Human rights Human rights policy1 Non-financial information (page 29)
Modern slavery statement1 Non-financial information (page 29)
Social matters Social policies Our society (pages 24 to 27)
Third party code of conduct1 Non-financial information (page 29)
Other matters Business model Our strategy and business model (pages 9 to 13)
Non-financial KPIs Our people (page 21)
Non-financial information (page 28)
Group policy published on our website at
www.standardlifeaberdeen.com/annualreport
Chief Financial Officer's overview
Delivering for our shareholders
Managing our capital for the benefit of shareholders
Since the merger in 2017, we have returned a total of £3.9bn to shareholders
as we focused on integration and transformation. During this same period,
reflecting the pressures on the industry and lower performance in key
investment strategies, the business has not been growing. In 2020, while we
made progress on investment performance and addressing our cost base, the
impact of the pandemic on valuations in the mid part of the year, together
with a change in mix of flows with a higher proportion of lower yielding
assets constrained fee revenues which were lower by 13%. Fee revenue yields
overall were 26.9bps (2019: 27.9bps). Adjusted operating profit at £219m was
down 27% on the prior year. Conversely, our capital position has been
strengthening through the sale of further tranches of our Indian investments,
even after committing to a share buyback programme of £400m which has now
been completed. Our capital surplus over regulatory requirements grew to
£2.3bn at 31 December 2020, adding both to our resilience and strategic
options.
Financial aims of our strategy
The aim of our new strategy is to drive client led growth through focus on our
priorities as Stephen has outlined. Through a combination of organic revenue
growth, focus on efficiency and the prudent deployment of our capital, our aim
is to return the company to revenue and earnings growth, such that the
earnings profile generates value for shareholders, including a sustainable
level of dividends. We have previously been clear that over the period of
transformation, we would distribute some of our excess capital through the
annual dividend as it was not covered by our underlying earnings. This is
obviously not sustainable in the long-term and our strategy aims to address
this position.
A key objective of the strategy is to return to revenue growth and increase
the diversification of our business, particularly into higher yielding
activities such as Wholesale and Private markets (within Investments) and
Personal, and to drive benefits from growth in our Adviser business which has
a high operating leverage. By focusing on the individual growth strategies
within each vector, our aim is to arrest revenue decline in the near term,
inflecting to a high single digit three year revenue CAGR over the period to
2023. We expect stabilisation of revenue yield in the near term, subsequently
increasing as we meet client preferences for higher yielding assets.
Operating leverage
In 2020, our cost/income ratio remained higher than our peers and we will
continue to take action to reduce costs and improve the balance between fixed
and variable costs. We are on track to deliver the targeted £400m of
synergies and we continued to create further efficiencies in 2020 which will
benefit in 2021. In particular our focus is to complete transformation,
improving the operational leverage of our business through reductions in
operational and technology costs and non-permanent staff, resulting in near
term cost reductions. Specific actions also include reorganisations in the US
and APAC to address those areas of lower contribution, and the proposed
disposals of Parmenion and the Nordics real estate activity. As we move into
revenue growth, we expect growth-related increases in certain costs but we
will maintain the operating leverage created by the rebalanced cost base.
Overall we are targeting to exit 2023 at a cost/income ratio of around 70%. As
the transformation and separation processes complete towards the end of 2021,
we expect to see a reduction in the associated restructuring charges from
current levels to less than £50m in 2022.
Capital strength
In 2020, we continued to strengthen our balance sheet in terms of both capital
and liquidity. Our intention is to further strengthen our capital position by
monetising the remaining stake in HDFC Life over the next two years. In
addition, an improvement in profitability resulting from the successful
execution of our strategic plan will drive an increase in adjusted capital
generation and strengthen our capital position. However, our surplus
regulatory capital dictates the level of capital available for deployment and
is expected to reduce with the implementation of the Investment Firm
Prudential Regime (IFPR) in early 2022, as other assets are expected to be
excluded from regulatory capital. In addition, we will seek to maintain a
buffer reflecting our risk appetite for volatility and working capital.
In assessing our priorities for the deployment of our resources, we consider
robustly the return profile to ensure delivery of value for shareholders in
terms of earnings growth and a sustainable dividend policy. In 2020, our
review of our investments against this criteria led to the planned sales of
the Nordics real estate activity and Parmenion and the proposed acquisition of
Tritax. Our strategy is to deploy our capital both organically and
inorganically: organically, in areas such as seeding funds, co-investing in
private market opportunities, and the Platforms Experience Programme in our
Adviser vector; and inorganically through acquisition opportunities to augment
our capabilities in growth areas such as ETFs and private markets, and to
accelerate the scale of the Adviser and Personal vectors to improve our market
presence. We will apply rigorous hurdle and return rates to any investment and
will only invest in an opportunity if it will deliver revenue and earnings
growth and help us achieve relevance and scale.
Creating momentum for the future
While the results for 2020 reflect the impact of declining revenue due
principally to prior year outflows and market conditions, we have also seen
evidence of positive momentum in our performance which will support the
execution of the strategy.
· Investment performance drives success with our clients and has improved
to 66% on the three year benchmark
· We have seen an 82% improved position in net outflows of £3.1bn
(excluding LBG tranche withdrawals), as redemptions are significantly lower
than the prior year
· Our cost base reduced by £127m (10%), although the cost income ratio
remains too high at 85% due to the reduction in revenue of £209m and the high
proportion of fixed costs in our cost base
The following commentary and analysis provides more detail.
Analysis of profit
2020 2019
£m
£m
Fee based revenue 1,425 1,634
Adjusted operating expenses (1,206) (1,333)
Adjusted operating profit 219 301
Capital management 21 37
Asset management associates and joint ventures 44 57
Asset management, platforms and wealth 284 395
Insurance associates and joint ventures 203 189
Adjusted profit before tax 487 584
Adjusting items 368 (333)
Share of associates' and joint ventures' tax expense (17) (8)
IFRS profit before tax 838 243
Tax credit/(expense) 15 (28)
IFRS profit for the year 853 215
All figures are shown on a continuing operations basis unless otherwise
stated.
The IFRS profit before tax of £838m increased by 245% compared with 2019,
reflecting lower impairments of goodwill and intangibles of £1.1bn (2019:
£1.6bn) and increased profit on disposal of interests in associates of
£1.9bn (2019: £1.5bn) which included the benefit of a £1.1bn one-off
accounting gain.
Adjusted profit before tax of £487m decreased by 17% compared with 2019
largely due to lower revenue. The 13% reduction in revenue mainly reflects
2019 outflows, client preferences changing asset mix and expected LBG tranche
withdrawals.
KPI
Financial indicators(1) 2020 2019
Fee based revenue £1,425m £1,634m
Investment performance(2) 66% 60%
Cost/income ratio(3) 85% 82%
IFRS profit before tax £838m £243m
Adjusted profit before tax £487m £584m
Adjusted capital generation £262m £333m
Adjusted diluted earnings per share 18.1p 19.3p
Full year dividend per share 14.6p 21.6p
Diluted earnings per share 37.9p 8.8p
Other business indicators(1) 2020 2019
Gross inflows £74.3bn £86.2bn
Net flows
Excluding LBG(4) (£3.1bn) (£17.4bn)
Total (£29.0bn) (£58.4bn)
AUMA £534.6bn £544.6bn
All figures are shown on a continuing operations basis unless otherwise
stated.
Dividend policy
As referenced in the Chairman's statement, the Board has concluded it should
take this opportunity to rebase the dividend to a level from which it is
confident the dividend can be grown in due course and is therefore
recommending a final dividend for 2020 of 7.3p, bringing the total dividend
for the year to 14.6p. It is the Board's current intention to maintain the
total dividend at this level (with the interim and final at the same amount
per share), until it is covered at least 1.5 times by adjusted capital
generation, at which point the Board will seek to grow the dividend in line
with its assessment of the underlying medium term growth in profitability.
The recommended dividend of 7.3p (2019: 14.3p) is subject to shareholder
approval and will be paid on 25 May 2021 to shareholders on the register at
close of business on 16 April 2021. The dividend payment is expected to be
£154m. External dividends are funded from the cumulative dividend income that
Standard Life Aberdeen plc receives from its subsidiaries and associates (see
page 36 for details of cash and distributable reserves). The need to hold
appropriate regulatory capital is the primary restriction on the Group's
ability to pay dividends. Further information on the principal risks and
uncertainties that may affect the business and therefore dividends is provided
in the Risk management section.
(1 ) We assess our performance using a variety of performance measures
including APMs such as fee based revenue, cost/income ratio, adjusted profit
before tax and adjusted capital generation. Further details are included in
Supplementary information. All metrics within 'Financial indicators' are KPIs
except for diluted earnings per share.
(2 ) Percentage of AUM above benchmark over three years. Calculations for
investment performance are made gross of fees except where the stated
comparator is net of fees. Further details about the calculation of investment
performance are included in Supplementary information.
(3 ) Excludes the share of associates' and joint ventures' profit before
tax.
(4 ) Net outflows excluding LBG do not include the tranche withdrawals
relating to the settlement of arbitration with LBG. Refer to Glossary LBG
tranche withdrawals.
All fee based revenue, AUMA and flows relate to the Asset management,
platforms and wealth segment and are discussed below.
Investments(1)
Institutional and Wholesale
2020 2019
Fee based revenue £922m £1,027m
Fee revenue yield(2) 38.8bps 42.8bps
AUM £251.7bn £236.7bn
Gross inflows £49.8bn £50.9bn
Redemptions (£49.5bn) (£68.9bn)
Net flows £0.3bn (£18.0bn)
In 2020, the assets we manage for Institutional and Wholesale clients
increased despite the market volatility as a result of COVID-19. We have
maintained our focus on serving our clients globally, switching to digital
channels to maintain relationships, providing continuing client service,
launching products, generating sales and winning mandates. Our focus on
delivering for clients is particularly evident through continued robust
investment performance.
Our pipeline remains strong with mandates awarded but not yet funded across
Institutional and Wholesale of £4.6bn as at 31 December 2020. This includes
mandates across a broad range of capabilities including Fixed income, Equities
and Multi-asset.
Fee based revenue reduced by 10% reflecting the impact of 2019 outflows and
changes in client preferences towards lower risk asset classes such as
Cash/Liquidity in 2020. The revenue yield decreased to 38.8bps reflecting the
lower proportion of higher margin Equity and Multi-asset AUM. In addition, at
FY 2019 we reported that we had won a £5.5bn lower margin US advisory mandate
in Alternatives which has had a full year impact on the 2020 fee revenue
yield. Despite the volatility in financial markets, the average daily MSCI
World Index was 7% higher in 2020 compared with 2019, which benefited revenue
in the year.
AUM increased in 2020 by 6% to £251.7bn due to significantly lower
redemptions and positive market movements, including robust investment
performance in 2020.
In 2020, gross inflows remained stable at £49.8bn driven by demand for our
Cash/Liquidity funds where gross inflows were 95%, or £7.4bn higher than
2019. 2019 benefited from a one-off £3.5bn inflow from Virgin Money and the
£5.5bn advisory mandate mentioned above. There was also continued strong
momentum in our ETF fund range with inflows of £1.9bn
(2019: £0.6bn). Gross inflows in 2020 also included £1.8bn (2019: £1.8bn)
from new fund launches.
Net inflows improved to £0.3bn driven by a marked improvement in redemptions.
Redemptions in 2020 were the lowest seen since the merger and represented 21%
of opening assets (2019: 29%). Equities and Multi-asset redemptions were 26%
and 61% lower than 2019 respectively.
Insurance
2020 2019
Fee based revenue £224m £317m
Fee revenue yield 10.9bps 12.2bps
AUM £205.2bn £235.8bn
Gross inflows £17.6bn £26.9bn
Redemptions excluding LBG(3) (£24.5bn) (£30.3bn)
LBG tranche withdrawals(3) (£25.9bn) (£41.0bn)
Net flows excluding LBG(3) (£6.9bn) (£3.4bn)
Within Investments, Insurance comprises the assets we manage for Phoenix of
£171.5bn, as well as those we manage for others, including Lloyds Banking
Group. We have a deep understanding of the unique investment needs of
insurance companies and a comprehensive range of investment solutions to meet
their complex objectives.
As Phoenix's core strategic asset management partner, we received a further
£2bn of assets from bulk purchase annuity agreements during the year.
Overall, Insurance AUM decreased due to the LBG tranche withdrawals and net
outflows. Gross inflows are dependent on underlying policyholder activity and
the £9.3bn reduction is a reflection of the strong new business in 2019 and
lower LBG AUM. Redemptions (excluding LBG tranche withdrawals) decreased by
£5.8bn and largely reflect maturing insurance business in long-term run-off.
The remaining c£3bn of the previously announced tranche withdrawals for LBG
are expected to be made by the end of 2021.
Lower revenue from Insurance in 2020 is largely due to the expected LBG
tranche withdrawals which accounts for £77m of the decrease.
Adviser(1)
2020 2019
Fee based revenue £137m £150m
Fee revenue yield - gross(4) 26.7bps 29.6bps
Fee revenue yield - net of cost of sales(4) 22.3bps 25.3bps
AUMA £67.0bn £62.6bn
Gross inflows £6.3bn £7.0bn
Redemptions (£4.4bn) (£4.7bn)
Net flows £1.9bn £2.3bn
In April 2020, we introduced a simplified pricing structure on the Wrap
platform to make it more competitive and attractive to advisers. With effect
from April 2020, a Drawdown Price Lock feature, the first of its kind in the
UK, was made available for Wrap clients. This innovative feature allows Wrap
SIPP clients to lock in their platform charges so that the charges will not
increase as they draw down on their savings. Our pricing actions on the Wrap
platform in 2020 and on Elevate in 2019, combined with an enhanced digital
offering have had a positive impact on the number of overall Platform users.
The lower fee based revenue reflects the impact of the Wrap and Elevate
pricing changes, as well as the impact of COVID-19 on average UK market levels
and activity. AUMA increased due to positive market movements of £2.5bn and
continued net inflows of £1.9bn.
Personal(1,5)
2020 2019
Fee based revenue £80m £70m
Fee revenue yield(2) 58.5bps 59.2bps
AUMA £13.3bn £12.8bn
Gross inflows £1.1bn £1.1bn
Redemptions (£1.1bn) (£1.0bn)
Net flows - £0.1bn
Personal largely comprises our 1825 financial planning and advice business and
our Aberdeen Standard Capital discretionary investment management business.
The integration of Grant Thornton's wealth advisory business and BDO Northern
Ireland's wealth management business, which were acquired in 2019, was a key
focus during 2020. This added presence in 14 new UK locations and 34 financial
advisers. We also achieved organic growth in terms of new clients for both
1825 and Aberdeen Standard Capital despite the challenging market conditions.
Fee based revenue increased due to these acquisitions. This was partly offset
by the impact of lower average UK markets during 2020.
AUM in Aberdeen Standard Capital reached a record level of £7.8bn at 31
December 2020 (2019: £7.1bn). The AUAdv for 1825 decreased to £5.5bn (2019:
£5.7bn) due to the fall in UK equity markets.
Investment performance
Total AUM ahead of benchmark
1 year 3 years 5 years
71% 66% 68%
(2019: 74%) (2019: 60%) (2019: 67%)
Three-year investment performance saw further improvement during 2020, with
66% of assets under management covered by this metric ahead of benchmark. This
reflects continued improvement in three-year performance within Equities and
ongoing strong performance in Alternatives, Cash/Liquidity and the majority of
Fixed income franchises.
Most Equity classes delivered an improvement over one, three and five years.
There is ongoing strength in European, Small Cap and China A shares and in
2020 there was significant progress made in the performance of Global Emerging
Markets and Japanese Equities. This is partly offset by weaker performance in
Real estate and Quantitatives, reflecting challenging market conditions.
Although Multi-asset performance declined overall, our Absolute Return suite
continued to deliver strong investment performance.
We have also seen an increase in the number of our strategies receiving
positive ratings from investment consultants, bringing the total to 52
strategies (2019: 46 strategies).
Calculations for investment performance are made gross of fees except where
the stated comparator is net of fees. Further details about the calculation of
investment performance, AUMA and fee revenue yield are included in the
Supplementary information section of this report.
Analysis of Asset management, platforms Fee based revenue AUMA Net flows(3)
and wealth segment
2020 2019 2020 2019 2020 2019
£m
£m
£bn
£bn
£bn
£bn
Investments
Institutional and Wholesale 922 1,027 251.7 236.7 0.3 (18.0)
Insurance 224 317 205.2 235.8 (6.9) (3.4)
Adviser 137 150 67.0 62.6 1.9 2.3
Personal(5) 80 70 13.3 12.8 - 0.1
Parmenion 25 21 8.1 6.9 1.0 1.1
SL Asia 7 12
Performance fees 30 37
Eliminations(5) (10.7) (10.2) 0.6 0.5
1,425 1,634 534.6 544.6 (3.1) (17.4)
LBG tranche withdrawals (25.9) (41.0)
Total 1,425 1,634 534.6 544.6 (29.0) (58.4)
(1 ) Revenue, AUMA, and flows are now presented on a vector basis. 2019
comparatives restated on this basis. See further details in Supplementary
information.
(2 ) Institutional and Wholesale fee revenue yield excludes revenue of
£9m (2019: £6m) and Personal fee revenue yield excludes revenue of £7m
(2019: £7m), for which there are no attributable assets.
(3 ) Net flows excluding Lloyds Banking Group (LBG) do not include the
tranche withdrawals of £25.9bn (2019: £41.0bn) relating to the settlement of
arbitration with LBG.
(4 ) Adviser fee revenue yield calculated on both a gross and net of cost
of sales basis. See further details in Supplementary information.
(5 ) Eliminations remove the double count reflected in Investments,
Adviser and Personal. The Personal vector includes assets that are reflected
in both Aberdeen Standard Capital and Advice businesses. This double count is
also removed within Eliminations
Analysis of profit
The IFRS profit before tax of £838m (2019: £243m) mainly reflects the profit
on disposal of interests in associates partially offset by impairments of
goodwill and intangibles. Adjusted profit before tax of £487m (2019: £584m)
decreased by 17% largely due to the lower revenue.
Fee based revenue
Fee based revenue reduced by 13% to £1,425m (2019: £1,634m). The fall in
revenue primarily reflects the full year impact of outflows during 2019 and
LBG tranche withdrawals during 2019 and 2020, partly offset by a positive
impact from higher average market levels following the recovery of equity
markets in the second half of 2020.
Adjusted operating expenses
Adjusted operating expenses decreased by 10% to £1,206m driven by the
benefits of ongoing transformation activity, lower total staff costs,
discretionary spend savings (including COVID-19 related savings) and lower
change related spend.
Total staff and other related costs within adjusted operating expenses reduced
by £73m to £643m (2019: £716m) mainly due to the planned reduction from
transformation and lower spend on agency contractors, variable compensation
and recruitment.
Total non-staff costs reduced by £54m to £563m (2019: £617m) including a
c£20m benefit from lower discretionary spend including travel and events
during this period of COVID-19 restrictions, and also lower consultancy and
change costs.
At 31 December 2020, actions have been taken which are expected to deliver
£351m of annualised synergies, benefiting 2020 operating expenses by £287m
(2019: £234m) with further benefits expected in 2021. Cost synergies have
been realised from a reduction in staff costs, rationalisation of premises,
and efficiencies in supplier spend, including procurement and other actions to
avoid cost increases the benefits of which are not included in the £287m
above. We remain on track to meet the overall synergy target of £400m in
2021.
Costs incurred to date to deliver these synergies are £515m, of which £79m
were incurred in 2020 (2019: £214m). Our estimate for total costs remains at
£555m. These costs are included in restructuring expenses within adjusting
items, together with the costs of other restructuring programmes, such as
platform transformation and separation from Phoenix. Total restructuring costs
in 2021 are expected to remain broadly in line with the current level.
Capital management
Capital management generated a profit of £21m (2019: £37m) from:
· Investment gains of £18m (2019: £26m) including seed capital and
co-investment fund holdings
· Reduced net finance costs of £17m (2019: £18m)
· Reduced net interest credit relating to the staff pension schemes of
£20m (2019: £29m) reflecting a lower discount rate
Asset management associates and joint ventures
We reduced our shareholding in HDFC Asset Management in December 2019 and in
2020. This was the main factor in the 23% reduction in adjusted profit to
£44m (2019: £57m). Profitability was also impacted by adverse movements in
exchange rates and market conditions.
Our percentage ownership of HDFC Asset Management at 31 December 2020 was
21.24% (2019: 26.91%) and the value of our holding at 5 March 2021 was
£1.4bn.
Insurance associates and joint ventures
2020 2019
Value Stake Profit Stake Profit
£bn(1)
%(2)
£m
%(2)
£m
Phoenix 1.0 14.42 163 19.97 136
HDFC Life(3) 1.3 8.89 19 14.73 36
HASL 50.00 21 50.00 17
Total 2.3 203 189
(1 ) Listed value as at 5 March 2021.
(2 ) Ownership as at 31 December.
(3 ) From 3 December 2020, HDFC Life is no longer classified as an
associate of the Group.
Adjusted profit before tax in our insurance associates and joint ventures
increased to £203m. Our share of Phoenix adjusted profit before tax included
a benefit from actuarial assumption changes of £52m (2019: £30m). Our
holding in the enlarged Phoenix Group reduced to 14.42% following the
completion of its acquisition of ReAssure Group plc.
Our share of HASL profits increased to £21m mainly due to favourable
investment returns.
The lower share of HDFC Life profits primarily reflects the reduction in our
shareholding following the combined sales of 5.83% in 2020. Following the
share sale on 3 December 2020, our remaining shareholding in HDFC Life is no
longer classified as an associate of the Group. See Note 16 of the Group
financial statements for further details.
Adjusting items
2020 2019
£m
£m
Profit on disposal of interests in associates 1,858 1,542
Restructuring and corporate transaction expenses (355) (407)
Amortisation and impairment of intangible assets acquired in business (1,287) (1,844)
combinations and through the purchase of customer contracts
(Loss on)/reversal of impairment of associates and joint ventures (45) 243
Change in fair value of significant listed investments 65 -
Investment return variances and economic assumption changes 46 (25)
Other 86 158
Total adjusting items 368 (333)
See pages 117 and 141 for further details on adjusted profit and
reconciliation of adjusted profit to IFRS profit. Further details on adjusting
items are included in the Supplementary information section.
The profit on disposal of interests in associates of £1,858m includes a
one-off accounting gain of £1,051m following the reclassification of HDFC
Life from an investment in associates accounted for using the equity method to
equity securities measured at fair value (see Note 16). There was also a
£540m profit from the sale of 5.83% of the shares in HDFC Life and £263m
from the sale of 5.64% of the shares in HDFC Asset Management.
Restructuring and corporate transaction expenses were £355m primarily
reflecting ongoing transformation costs for integration, separation from
Phoenix and implementing our simplified operating model. 2019 included £49m
relating to the repurchase of subordinated debt. Total Phoenix separation
costs accounted for to date amount to £282m and include £112m in 2020. Our
estimate of the total of these one-off separation costs we expect to incur
remains £310m.
The amortisation and impairment of intangible assets acquired in business
combinations and through the purchase of customer contracts were £1,287m.
This includes impairment of goodwill of £915m (2019: £1,569m) relating to an
impairment of asset management goodwill and resulted from the impact on
reported revenue and future revenue projections of global equity market falls
and a change in mix with a higher proportion of lower margin assets. Both the
fall in equity markets and the change in asset mix were global market impacts
primarily resulting from COVID-19. The asset management goodwill is now fully
impaired. The impairment of customer relationship and investment management
contract intangibles of £134m resulted from the impact of markets, net
outflows and a fall in revenue yield on future earnings expectations. See Note
15 of the Group financial statements for further details.
The impairment of associates and joint ventures of £45m relates to our joint
venture with Virgin Money.
The change in fair value of significant listed investments of £65m represents
the impact of movements in the listed share price on our 8.89% holding in HDFC
Life from 3 December 2020 to 31 December 2020.
Investment return variances and economic assumption changes gain of £46m
relates to our share of Phoenix adjusting items.
Other adjusting items of £86m primarily relates to Insurance associate and
joint ventures, largely reflecting our share of Phoenix gains relating to the
acquisition of ReAssure.
IFRS loss from discontinued operations
The IFRS loss from discontinued operations of £15m (2019: profit £56m)
reflects a change in the value of contingent consideration relating to the
sale of the UK and European insurance business to Phoenix. The 2020 loss
includes the impact of the resolution of certain legacy issues with Phoenix.
Taxation
Our approach to tax plays a significant role in supporting our purpose. Our
tax strategy is guided by a commitment to ethical, legal and professional
standards and being open and transparent about what we are doing to meet those
standards.
The total IFRS tax credit attributable to the profit for the year was £15m
(2019: £28m expense), resulting in an effective tax rate of negative 2% on
the total IFRS profit (2019: positive 12%). The effective tax rate is lower
than the UK corporation tax rate of 19% due mainly to the sale of shares in
HDFC Asset Management being subject to tax in India at a lower rate than the
UK corporation tax rate and the sales of shares in HDFC Life not giving rise
to tax in India due to reliefs available under India's tax legislation and
international tax treaties. In addition, the gain relating to the HDFC Life
reclassification did not give rise to a tax charge. These factors are
partially offset by impairment losses on goodwill which are not deductible for
tax purposes.
The tax expense attributable to adjusted profit before tax totalled £76m
(2019: £115m), which includes £38m (2019: £46m) representing equity
holders' share of tax which is attributable to our share of the profits of
associates and joint ventures. The effective tax rate on adjusted profit is
15.6% (2019: 19.7%). This is lower than the 19% UK rate primarily due to the
reversal of planned reductions in the rate of UK corporation tax. This has a
beneficial effect in increasing the value of our deferred tax assets. There
was also a lower rate of tax on profits from associates and joint ventures.
Total tax contribution
Total tax contribution is a measure of all the taxes Standard Life Aberdeen
pays to and collects on behalf of governments in the territories in which we
operate. Our total tax contribution was £484m (2019: £526m). Of the total,
£203m (2019: £211m) was borne by Standard Life Aberdeen whilst £281m (2019:
£315m) represents tax collected by us on behalf of the tax authorities. Taxes
borne mainly consist of corporation tax, employer's national insurance
contributions and irrecoverable VAT. The taxes collected figure is mainly
comprised of pay-as-you-earn deductions from employee payroll payments,
employee's national insurance contributions, VAT collected and income tax
collected on behalf of HMRC on platform pensions business.
You can read our tax report on our website
www.standardlifeaberdeen.com/annualreport
(http://www.standardlifeaberdeen.com/annualreport)
Capital and liquidity
Our strong capital position and balance sheet supports ongoing investment in
the business and delivering shareholder returns.
Adjusted capital generation
Adjusted capital generation of £262m reduced as a result of the lower revenue
in 2020 and lower dividends received. Further information on adjusted capital
generation is provided in Supplementary information.
2020 2019
£m
£m
Adjusted profit after tax 411 469
Less net interest credit relating to the staff pension schemes (20) (29)
Less associates' and joint ventures' adjusted profit after tax (209) (200)
Add associates' and joint ventures' dividends received 80 93
Adjusted capital generation 262 333
Net movement in surplus regulatory capital
The key measure of available resources is surplus regulatory capital less an
appropriate buffer, rather than cash.
In addition to the adjusted capital generation, £0.9bn of additional capital
was generated in 2020 through the sale of shares in HDFC Life and HDFC Asset
Management. The £2.3bn indicative capital surplus below includes a deduction
to allow for the final dividend which will be paid in May 2021.
Analysis of movements in surplus regulatory capital 2020 2019
£bn
£bn
Opening 1 January 1.7 0.6
Sources of capital
Adjusted capital generation 0.3 0.3
HDFC Life and HDFC Asset
Management sale proceeds 0.9 1.7
Uses of capital
Restructuring and corporate transaction expenses (net of tax) (0.2) (0.3)
Dividends (0.3) (0.5)
Share buyback programme (0.4) (0.4)
Other 0.3 0.3
Closing 31 December 2.3 1.7
Other in 2020 includes a £0.5bn increase relating to HDFC Life following our
shareholding falling below 10%.
The Group's capital resources include c£0.8bn (2019: c£0.3bn) from holdings
in insurance entities that it is expected will no longer be eligible following
the implementation of the IFPR from 1 January 2022. The IFPR is also expected
to introduce constraints on the proportion of the minimum capital requirement
that can be met by each tier of capital. As a result, it is estimated that
c£0.3bn of existing Tier 2 capital, whilst continuing to be reported within
the Group's capital resources, would not be available to meet the current
minimum capital requirement from 1 January 2022.
Note 46 of the Group financial statements includes a reconciliation between
IFRS equity and surplus regulatory capital and also details of our capital
management policies.
Cash and liquid resources
Cash and liquid resources remained robust at £2.5bn at
31 December 2020 (2019: £2.7bn). These resources are high quality and mainly
invested in cash, money market instruments and short-term debt securities.
Cash and liquid resources is an APM, see Supplementary information for further
details.
IFRS net cash inflows
Net cash inflows from operating activities were £56m which includes outflows
from restructuring costs, net of tax, of £232m.
Cash inflows from investing activities of £1,014m includes net proceeds of
£616m from the sale of shares in HDFC Life and £265m from the sale of shares
in HDFC Asset Management.
Cash outflows from financing activities of £1,064m primarily relate to the
purchase of shares as part of the buyback programme of £361m and £479m for
dividends paid in the year.
The cash inflows and outflows described above resulted in closing cash and
cash equivalents of £1,358m (2019: £1,347m) as at 31 December 2020.
IFRS net assets
IFRS net assets were stable at £6.8bn (2019: £6.7bn) with profits offset by
dividends and the share buyback.
Intangible assets reduced to £0.5bn (2019: £1.7bn) as a result of
impairments and amortisation. See Note 15.
The principal defined benefit staff pension scheme, which is closed to future
accrual, continues to have a significant surplus of £1.5bn (2019: £1.1bn),
with the increase resulting from asset returns and non-economic assumption
changes offset by changes in economic assumptions. See Note 34.
Financial investments increased to £3.1bn (2019: £2.1bn) as a result of HDFC
Life being reclassified from an associate to an investment. Financial
investments also include holdings of £277m (2019: £275m) in newly
established investment vehicles which the Group has seeded and co-investments
of £86m (2019: £84m). Additional detail is provided in Note 38.
Earnings per share
Adjusted diluted earnings per share reduced by 6% to 18.1p (2019: 19.3p). This
reflects the 12% reduction in adjusted profit after tax, partly offset by the
benefit of 6% from the ongoing
share buybacks. Diluted earnings per share increased to 37.9p (2019: 8.8p).
Return of capital and distributable reserves
On 7 February 2020, we announced a share buyback of up to £400m. We completed
this buyback in February 2021, with 158m shares repurchased at an average
price of £2.53 per share.
At 31 December 2020 Standard Life Aberdeen plc had £2.1bn (2019: £2.3bn) of
distributable reserves.
Viability statement
The assessment set out below is based on information known today.
Longer-term prospects
The Directors have determined that three years is an appropriate period over
which to assess the Group's prospects. In addition to aligning with our
business planning horizon, this reflects the timescale over which changes to
major regulations and the external landscape affecting our business typically
take place.
The Group's prospects are primarily assessed through the strategic and
business planning process which considers our business model and how this is
designed to deliver efficient, sustainable growth. The assessment also
reflects the Group's strategic priorities as set out on pages 10 to 11.
In forming this assessment, the Directors have also taken into account:
· The Group's strong regulatory capital position as set out on page 36
· The substantial holdings of Group cash and liquid resources as set out on
page 36
· The Group's holdings in listed associates and other listed equity
investments as set out on page 34
· The Group's principal risks as set out on pages 38 to 40
Assessment of prospects
The Directors consider the Group's focus on delivering on its strategic
priorities will provide the environment to drive efficient, sustainable growth
while maintaining the Group's strong capital position and the dividend policy
described on page 31.
Viability
We consider that three years is an appropriate period for assessing viability
as this is in line with the horizon used for our business planning and stress
testing and scenario analysis processes. In considering the viability
statement, the Board performed a robust assessment of the Group's principal
risks and took account of these processes, the results of reverse stress
testing activity and the impact of COVID-19 as follows:
The business planning process includes the projection of profitability,
regulatory capital and liquidity over a three year period, based on a number
of assumptions. This includes assumptions regarding the economic outlook which
have been reshaped during 2020 as a result of the COVID-19 pandemic.
Stress testing and scenario analysis applies severe, and in some cases
extreme, stresses to the business plan to understand the financial resilience
of the business.
Our analysis performed in 2020 included the consideration of the impact of
scenarios based on a severe economic scenario with adverse flows and overlaid
with stresses which reflect our principal risks. This included a stress
involving a significant spike in operational errors which was considered
relevant in the context of heightened operational risk given the revised
working practices adopted across the Group due to COVID-19.
The scenarios we modelled assumed net outflows of 13% of AUMA per annum with
global equity markets falling on average around 45% from year-end levels and
notable falls in commercial property and corporate bond values. Whilst capital
was eroded and liquidity fell under all the scenarios we explored, the largest
falls occurred in the scenario where the flow and market stress was
accompanied by a stress to basis point fees charged to clients.
The Group had sufficient liquid resources to withstand all of the stresses and
the extent of management actions required in those scenarios with regulatory
capital shortfalls was moderate given the strength and quality of the Group's
financial position. The Group also has a diverse range of management actions
available to respond to stressed conditions. This includes management actions
wholly within the Group's control and of sufficient scale to ensure that none
of the scenarios explored threatened the Group's viability.
Reverse stress testing involves exploring the quantitative and/or qualitative
impacts of extreme but plausible risk scenarios which could threaten the
viability of our business model. In 2020, we explored two scenarios which
were:
· A cyber-attack manifested by a malware deployed on our systems
· An event such as a pandemic, building incident or travel disaster occurs
which impacts on the ability of a significant number of critical staff to
execute their responsibilities for a period of at least six weeks
A reassessment of reverse stress tests performed in prior years was also
undertaken to confirm there has been no material increase in risks to
viability.
Whilst the impact of all the scenarios explored meets the definition of
reverse stress tests, the scenarios were considered to have a very low
likelihood of occurrence. This, and the range of mitigants in place to respond
to the scenarios, supports the assessment of viability and no qualification is
considered necessary.
Impact of COVID-19
Further to the above, the Directors have explicitly considered the impact of
COVID-19 on the Group's viability recognising the measures taken in response
to the COVID-19 pandemic as set out on page 3. This highlighted that the Group
did not require government support and has demonstrated its ability to operate
successfully with the vast majority of employees working from home.
Assessment of viability
The Directors confirm that they have a reasonable expectation that Standard
Life Aberdeen will be able to continue in operation and meet its liabilities
as they fall due over the next three years.
Risk management
Identifying and managing risk to help us deliver better outcomes
Our approach to risk management
A strong risk and compliance culture is fundamental to managing our business,
and effective, risk-based decision-making is essential for delivering the
right outcomes for our clients and other stakeholders. Our Board has ultimate
responsibility for risk management, and it oversees the effectiveness of our
Enterprise Risk Management (ERM) framework.
Three lines of defence
We operate 'three lines of defence' in the management of risk with clearly
defined roles and responsibilities:
· First line: Day-to-day risk management, including identification and
mitigation of risks and maintaining appropriate controls
· Second line: Oversight from our Risk and Compliance function, which
reports to the Chief Risk Officer
· Third line: Our Internal Audit function, reporting to the Chief Internal
Auditor, independently verifies our systems of control
ERM framework
This underpins risk management throughout our business. We continually evolve
our framework to meet the changing needs of the group and to make sure it
keeps pace with industry best practice and the risk profile of the business.
In 2020, improvements to the framework included:
· Strengthening our risk appetite framework by introducing new risk
tolerances to support governance and risk management
· Extending and refining our risk taxonomy so we can describe risk more
accurately
· Extending the Senior Manager and Certification Regime across all of our
UK regulated subsidiaries including the roll-out of training on conduct rules
and other support for our senior managers and certified employees
Business risk environment
The major impact of COVID-19 on our operating environment will extend well
into 2021. We have shown resilience in the way we have dealt with the effects
of the pandemic and we continue to manage its market, operational and
financial impacts as we deliver our business plan.
The vast majority of our colleagues are working from home, using the enhanced
IT infrastructure that was implemented in response to the pandemic. We have
also put strict processes and safeguards in place to protect critical workers
who need to be in our offices.
The commercial environment remained challenging during 2020, exacerbated by
the impact of the pandemic. While investment performance continued to
strengthen and the pace of net outflows was materially reduced compared to
previous years, revenue margins across the industry remained under pressure
and net revenue declined.
We have strengthened our capital and liquidity positions, while also returning
capital to our shareholders through our buyback programme.
In the near term, there is still operational stretch as work continues on the
transformation of the business. Phoenix separation activity is complex and has
to be managed and coordinated with other transformation work, so that the
impact on business as usual is kept to a minimum.
We are actively working to retain talent and to promote colleague wellbeing
and engagement and you can read more about this in the people section of this
report. We have planned resources carefully, with clear executive ownership
and accountability for programmes. This has been achieved as we continued with
business as usual activities.
The UK's withdrawal from the EU caused political and commercial uncertainty in
2020 though we had prepared extensively for the UK's exit. This has been
partly addressed by the Trade and Cooperation Agreement although questions
still remain about the longer-term UK/EU relationship for financial services.
We also continue to closely monitor developments and actively engage with
industry groups, including the Investment Association.
We maintain heightened vigilance over risks to our operations from financial
crime and cyber intrusion. Our dedicated, expert internal teams monitor and
manage these risks as they evolve, with the support of external specialists.
Our conduct risk framework is something we strengthen continuously and client
interests are at the heart of this work. In 2020, we improved our processes in
relation to vulnerable customers.
ESG risks
We have a responsibility to shareholders, clients and all stakeholders to
assess, report on, manage and mitigate our ESG risks. For 'Environment', risks
are primarily related to climate change and these are an important aspect of
integrating ESG considerations in our portfolio management activities. In
addition, we continue to review climate-related risks and manage our own
business impact on climate change. Our TCFD report provides further
discussion. For 'Social', our risks primarily relate to our people engagement,
wellbeing, development and diversity and inclusion. For 'Governance', our
risks primarily relate to corporate governance, conduct, ethics and
cyber-crime. These ESG risks are discussed further under Principal risks and
throughout the Annual report and accounts.
We have a materiality review every 2-3 years to ensure we are focusing on the
right ESG risks and issues. Our latest review is included in our 2019
Corporate sustainability report.
Emerging risks
We are vigilant to emerging risks that could impact our strategy and
operations with a particular focus on our three vectors of growth. The nature
of these risks could be geopolitical, economic, societal, technological,
legal, regulatory or environmental. We distil internal and external research
to model how risks could emerge and potentially evolve, and to inform how we
address them as a company. Emerging risks to our business include the
availability of talent in our future workplace, new cyber threats, disruptive
technologies, unprecedented market shifts, climate change, emerging variants
of COVID-19 and indirect impacts resulting from the pandemic.
Principal risks and uncertainties
The risks we face as a business have as much to do with our actions and
approaches internally, as they do with the external environment. These risks
fall into 12 areas that form the basis of our ERM framework. This framework
gives us the structure to assess, monitor, control and govern the risks in our
business. Principal and emerging risks are subject to active oversight and
robust assessment by the Board, and the principal risks are described in the
following table.
Risk to our business and how this evolved in 2020 How we manage this risk
1 Strategic risk
These are risks that could prevent us from achieving our strategic aims and The ELT has been reorganised to align with our growth vectors. They are
the successful delivery of our business plans. They could include failing to working to establish areas of accountability, milestones, ways of working and
meet client expectations, poor strategic decision-making, poor implementation specific actions that will deliver against the strategic plan.
or failure to adapt. They could have short and long-term financial impact.
We actively scan and assess emerging risks so that we can take timely and
Our new CEO and the executive leadership team (ELT) have developed a three proportionate action.
year strategic plan, focusing on our vectors of growth. Our ability to deliver
for clients will depend on the progress we make against this plan.
2 Financial risk
This is the risk of having insufficient resources, suffering losses from We hold capital against our risks and review them on an ongoing basis. We
adverse markets or the failure or default of counterparties. It could be stress-test our resilience to market, operational and business risk. As
influenced by inflows and outflows, global market trends, as well as margins contingency, we maintain external liquidity as part of our liquidity
on investment mandates, platforms and wealth management services. For example, management framework. We manage our cost base and identify opportunities for
we have seen revenues impacted by reducing margins on flows. further cost reduction.
Our capital and liquidity position remains strong despite the economic effects
of the pandemic. As a result of the impact of COVID-19 and achieving
transformation milestones we have reduced non-staff costs.
3 Conduct risk
Our business relies on our ability to deliver fair client outcomes. There is a Our ERM framework supports the management of conduct risk with clear
risk that we fail to achieve this in our strategies, decisions and actions expectations around conduct goals and responsibilities. In 2020 we refreshed
which could lead to customer and client harm, reputational damage and loss of our Global Code of Conduct, for all employees.
income.
Drawing on the UK Senior Manager and Certification Regime, we rolled out
In response to COVID-19 we prioritised running our business with minimal training to our teams to understand how to apply our conduct rules in their
client impact while maintaining an effective control environment for remote roles.
working.
4 Regulatory and legal risk
High volumes of regulatory change can present implementation and We monitor the regulatory landscape globally so that we can engage in
interpretation challenges. This can lead to a risk of failing to comply with, potential areas of change early. We also invest in compliance and monitoring
or allow for changes in, law and legislation, contractual requirements or activity across the business. Our relationships with key regulators are based
regulations, globally. This in turn could lead to sanctions, reputational on trust and transparency while our Legal team supports senior managers across
damage and loss of income. our business.
With the impact of COVID-19 we engaged closely with our regulators throughout
2020 and were able to provide assurance around our ability to serve our
customers and clients without interruption. The risk of regulatory uncertainty
arising from Brexit was another important issue to manage.
Operational risks (5-12)
5 Process execution and trade errors
This is the risk that processes, systems or external events could produce We monitor underlying causes of error to identify areas for action, promoting
operational errors. During 2020 there was a rise in events requiring a culture of accountability and continuously improving how we address issues.
investigation and remediation. This has not led to material adverse impact on We also continue to update and improve the ERM framework. In addition, we have
clients. set up a taskforce to fast track issues that have the potential to impact
clients.
We dealt with potentially important systems outages using established incident
management processes. Senior risk committees have been reviewing the impact of
COVID-19 on these processes.
6 People
Engaging with our people, and supporting their wellbeing, is critical to our From the early stages of the pandemic, we successfully established new ways of
strategy and the overall success of the business. However, there is a risk of operating with most colleagues moving to home working. We provided tools to
resources and employment practices failing to align with strategic objectives. support remote working and collaboration and moved our learning and
development offer online. We also offered support for wellbeing, such as
During the pandemic, new risks emerged including the potential impacts on counselling, and asked colleagues to use their entire 2020 holiday allocation.
people's physical and emotional wellbeing. We monitored and took steps to
mitigate them.
Risk to our business and how this evolved in 2020 How we manage this risk
7 Technology
There is a risk that our technology may fail to adapt to business needs. There We have an ongoing programme to invest in, and enhance, our IT infrastructure
is also a risk of unauthorised users accessing our systems, and of our systems controls. We benchmark our IT systems environment to identify areas for
being subject to cyber attacks. improvement. IT resilience is monitored at senior executive committees.
This risk is relevant to a wide range of potential threats to the business We maintain a state of heightened vigilance for cyber intrusion, with
including weather events, internal failure, external intrusion and supplier dedicated teams actively monitoring and managing cyber security risks. We
failure. carry out regular testing on penetration and crisis management - including a
reverse stress test of a cyber-attack in 2020.
Our current IT estate is complex and will remain so until separation from
Phoenix is complete. Our dependence on third party suppliers also needs to be
managed in a dedicated way. 2020 only saw minor disruptions to service and
improvement plans are now in place.
8 Business resilience and continuity
A wide range of internal and external incidents can impact business resilience We continue to enhance our operational resilience framework and strengthen our
and continuity. Environmental issues, terrorism, economic instabilities, cyber response to disruption. Business continuity and contingency planning processes
attacks and operational incidents could all threaten our business. are regularly reviewed and tested, and have enabled us to minimise disruption
for people working from home. We also implemented protective controls to allow
The risk of disruption from inside the organisation remains broadly stable. critical workers to be in our offices.
However, tools for exploiting IT vulnerabilities are becoming more widely
available externally.
COVID-19 has been a real test of our business resilience. We have had to adapt
ways of working to protect client interests while working effectively from
home.
9 Fraud and financial crime
As a business that handles clients' money we are exposed to the risk of Sound processes are in place to identify client activity linked with financial
fraudulent and dishonest activity. crime, globally. These include controls for anti-money laundering,
anti-bribery, fraud and other areas of financial crime. We continue to invest
As we engage with a wide number of external parties, we have to be vigilant to in controls and processes to improve our monitoring of these risks.
the risk that these parties are connected with criminal behaviour, or subject
to sanctions by national or global authorities. We have maintained very low Along with other asset managers, a small number of our products were cloned by
levels of fraud in 2020 and we adapted successfully to the operational fraudsters. We worked with the financial authorities and industry peers to
challenges of COVID-19. We have commissioned an independent review to identify assist those who had been targeted by these scams.
any areas for improvement.
10 Change management
This is the risk of failing to manage strategic and operational change We manage major change projects centrally, with clear governance processes and
initiatives effectively. In 2020 we closely monitored and managed the impact consolidation of our change workload. Second and third lines have clear roles
of the pandemic on transformation timelines, particularly around technology in overseeing progress, and we deliver projects in ways that help us to
infrastructure. protect client outcomes.
We continued to implement significant change projects relating to embedding
ESG principles and the discontinuation of LIBOR. We also maintained a focus on
managing the impact of our transformation activity and the associated costs.
11 Third party management
We outsource activities to suppliers with specialist capabilities which means Our aim is to maintain strong relationships with suppliers. During 2020, we
we are exposed to the risk of third parties failing to deliver in line with rolled out a new programme to rationalise our supplier base and strengthen our
contractual obligations. It's our responsibility to make sure these firms oversight of our suppliers.
deliver, so we continue to streamline delivery and reduce complexity.
Our Third Party Code of Conduct requires third parties to acknowledge their
In 2020 we also monitored the potential impacts of COVID-19 and Brexit in our best practice responsibilities.
supply chain, to minimise the risk of disruption to the business.
12 Financial management process
Sound and reliable financial reporting informs our company's performance, Our financial reporting activities align to external reporting standards and
future planning and disclosures to external stakeholders. Failures in these industry best practice. Our Audit Committee reviews, and where necessary
processes would expose our business and shareholders to the risk of making challenges, our reporting. Our Chief Risk Officer also provides an independent
poorly informed decisions. In 2020, the workforce successfully moved to home review of our business plan to support decision-making.
working with minimal disruption to financial management processes.
The cover to page 41 constitute the Strategic report which was approved by the
Board and signed on its behalf by:
Stephen Bird
Chief Executive Officer
Standard Life Aberdeen plc (SC286832)
9 March 2021
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