SLA.L Regulatory News (SLA)

Standard Life Aberdeen plc

Full Year Results 2019

Part 2 of 8

Highlights

Key performance indicators from continuing operations1

Certain measures, such as fee based revenue, cost/income ratio and adjusted profit before tax are not defined under International Financial Reporting Standards (IFRS) and are therefore termed alternative performance measures (APMs). Further details on APMs are included in Supplementary information in Section 9.

The Annual report and accounts 2019 and the Strategic report and financial highlights 2019 are published on the Group's website at www.standardlifeaberdeen.com/annualreport

Access to the website is available outside the UK, where comparable information may be different.

Details of forward-looking statements are on page 259.

The integration of environmental, social and governance (ESG) factors is fundamental to us both operationally and within our investment process. Details of our approach to ESG are integrated throughout this report, and in our Corporate sustainability report 2019 which can be found at www.standardlifeaberdeen.com/annualreport

1 Continuing operations excludes the UK and European insurance business which was sold to Phoenix on 31 August 2018.

2 Percentage of AUM above benchmark over three years. Calculated on a Pro forma basis (which combines the results for Standard Life Group and Aberdeen prior to completion of the merger in 2017) and gross of fees. A full definition is included in the Glossary.

3 The Group has initially applied IFRS 9 and IFRS 16 at 1 January 2019. Under the transition methods chosen, comparative information is not restated. Refer to the basis of preparation section of the Group financial statements.

4 In accordance with IAS 33, earnings per share has not been restated following the share consolidation in 2018 as there was an overall corresponding change in resources. As a result of the share consolidation and share buybacks, earnings per share from continuing operations for the year ended 31 December 2019 is not directly comparable with the prior year. Refer to Note 12 of the Group financial statements for information relating to the calculation of diluted earnings per share.

5 Net outflows excluding Lloyds Banking Group (LBG) do not include the tranche withdrawals relating to the settlement of arbitration with LBG. Refer to Note 5 of the Group financial statements.

Together

we invest for a better futureWe do it to make a difference to the lives of our clients and customers, our employees, society and our shareholders

Our operations

We are headquartered in Scotland and listed in London, with around 6,000 employees in over 50 locations worldwide. We have operations in global financial capitals and important regional centres, which bring us closer to our clients and customers around the world, and provide invaluable knowledge and insight to share with our people.

Message from the Chairman

A business with purpose

2019 was, in many respects, a pivotal year in areas of great significance for our industry and for your company. We have more clarity on a number of geopolitical uncertainties; the finalisation of the agreement by which the UK departed from the European Union; a first stage agreement between the United States and China on trade matters which brought some relief to a trade war that had escalated during 2019; and, the election of a government in the UK with a sizeable majority, unlocking the potential for clear policy choices after a period of inactivity while the UK's position on exiting the EU was settled. In financial markets, we saw smooth leadership transitions at both the European Central Bank and the Bank of England. And finally, in investment markets, the importance of Environmental, Social and Governance (ESG) considerations was elevated into mainstream cognisance as the impact of human influence on climate change was compellingly exposed. Keith talks more about the market context for our business in his review.

Together we invest for a better future

Never has it been more important to recognise the impact we can have, not just in the financial returns we can deliver for our ultimate beneficiaries, but in the influence we have with the companies in which we invest and how this can contribute to a better future for all our stakeholders. In uncertain times, we have anchored our business with a common and unifying purpose to ensure that we deliver good financial outcomes responsibly, taking into account the concerns and aspirations of all our stakeholders.

I am pleased to report that the work we have done to improve investment performance for our clients and customers has made good progress. Equally important, I am proud of the culture we are building with our people and, through all of the above, our positive role in society and the communities of which we are a vital part.

To enable us to build on where we are, we have continued our progress in transforming our organisation to ensure that we are ready to embrace the challenges and opportunities of today and tomorrow. Nowhere is this more important than contributing to the transition to a lower carbon future and, as an active manager, we take our engagement responsibilities in this regard very seriously. Already we do a great deal, but we can and will do more. We look forward to COP26, the United Nations Climate Change Conference, in Glasgow later this year, at which we hope to demonstrate leadership in the discussions as to what more the investment industry can do.

Delivering value for shareholders

Last year I highlighted three priorities for 2019. First, improve investment performance; second, progress the integration and transformation of the two businesses into a coherent forward-looking entity; and third, unlock the revenue potential of the combined business.

I am pleased to report that investment performance has shown marked improvement; Keith will cover this in more detail. As regards integration, we made solid progress and while completion will now take a bit longer and cost more to deliver, the synergy benefits targeted have also increased; this is covered in detail in the financial review. Finally, we have been investing to grow our business and further diversify sources of revenue. This includes focusing on building our capabilities and assigning resources to markets where we see the most growth potential, and in the UK bringing together the proven capabilities in our Platforms and Wealth channel.

While the net fund flow of the business is improving, market conditions and competitive pricing are constraining the revenue growth we had expected. This had a consequential negative impact on the carrying value of goodwill on the Group balance sheet and resulted in a further impairment charge. Stephanie talks more about this in the Chief Financial Officer's review.

Market conditions however were very favourable to the unlocking of value from our Indian stakes. We completed four share sales with regard to HDFC Life, no longer regarded as strategic following the sale of our UK and European insurance business in 2018. In addition, we sold 3.02% of our stake in HDFC Asset Management, progressing towards the requirement to create a minimum free float. Together these stake sales realised £1.7bn and generated a profit of £1.5bn. We returned £0.5bn during 2019 through share buybacks. This was a contributing factor to our excellent share price performance over the year, resulting in a total shareholder return of 39%.

Together with the adjusted profits in 2019, these gains also allowed us, as planned, to maintain the dividend at a constant level while the business is transformed, cost synergies are delivered, and future financial performance confirms the sustainability of the level of distribution and provides line of sight to its future growth. As a consequence of this, your Board is proposing a final dividend of 14.3p, the same amount as last year. Assuming shareholders vote to approve this at the upcoming AGM, this would give a total dividend for 2019 of 21.6p, again the same as last year.

Board activity

Since we reported in August we have announced a number of important changes as we refresh and augment the skills and experience on the Board.

We welcomed Jonathan Asquith and Cecilia Reyes to the Board in September and October respectively. Jonathan brings a wealth of experience in the asset management industry and in financial services more generally and is chairing the Remuneration Committee as well as taking on the responsibilities of Senior Independent Director. Cecilia joins us after a long and distinguished career as Chief Investment Officer and Chief Risk Officer at one of Europe's leading insurance companies.

In his roles as Senior Independent Director and Remuneration Committee Chair, Jonathan has over the past six months spent time with many of our largest institutional shareholders to understand their views on the Company. One important outcome of this is that we will be proposing a new remuneration policy in 2020, a year ahead of the usual cycle. Jonathan shares more about this, and the approach we have taken, in his introduction to the Directors' remuneration report on page 78. We will be asking you to vote on the new proposed policy at our AGM in May.

In February of this year, we announced the appointment of Brian McBride, with effect from 1 May. As we position our business for a technology driven future, his direct experience of developing digital strategies and solutions in consumer-facing businesses tackling rapidly evolving markets will be of great benefit.

Turning to our executive Board directors, at the end of December, Rod Paris stepped down from the Board as part of simplifying our governance structure; he remains Chief Investment Officer and a key member of the executive leadership team.

In October we announced that Martin Gilbert will not seek re-election at the upcoming AGM and will retire from the Group at the end of September this year. This is a significant moment of transition for our business. As I said at the time, it is impossible to overstate Martin's achievement in building Aberdeen Asset Management over 37 years from virtually nothing into a truly global and widely respected investment firm. His foresight in recognising the factors that would reshape the industry and the opportunities that could be delivered from combining with Standard Life, led to the creation of Standard Life Aberdeen in 2017. We owe him a huge debt of gratitude and accept the significant responsibility to build on his legacy.

Looking ahead

At the opening to my statement I recognised that we now have more clarity, at least in the short term, on some key issues in the last year. Unsurprisingly in these times, other issues have emerged and a level of uncertainty remains for existing geopolitical tensions, all of which deserve continuing watchful oversight.

The spread of the COVID-19 coronavirus in China and beyond has already had a significant impact and could have a material disruptive effect on trade, supply chains and international travel.

In more traditional areas of concern, it is clear that the trade and diplomatic relationship between the United States and China will remain a source of friction for some time, particularly in the technology arena.

Likewise the resetting of the UK's trading relationships with the EU and the rest of the world will create both opportunities and challenges for national economies - and investment markets will respond accordingly.

Finally, the empowering yet disruptive impacts of technological innovation and data management will change many business models faster than we have seen in the past. It is for all these reasons we invest heavily in investment research, in our own technology and in human talent to build the agile and responsive active asset management capabilities that we believe are essential to meeting the demands of all our stakeholders.

Let me close by expressing on behalf of shareholders my gratitude to all my colleagues who have worked so hard in the past year to deliver the improved investment performance and organisational change needed to position Standard Life Aberdeen well for future success.

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 our stakeholders (including, for example, our clients and customers, our people, society 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 has discussed these obligations throughout the year, including how stakeholder engagement is incorporated intoour long-term decision-making with further details provided on page 59.

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.

A key example of stakeholder activity in 2019 was the appointment of Melanie Gee as the non-executive Director for employee engagement. Strong progress has been made in this area and regular communications will continue in 2020.

You can read more about how we connect with our stakeholders in the pages that follow.

Chief Executive's review

Transforming today, investing for tomorrow

2019 was another year of intense change for both our industry and our business. To take advantage of the undoubted opportunities that these changes bring, we continued to invest in transforming the business in order to ensure we are future fit. While there is still important work to be done, particularly on systems integration, I am pleased to report significant progress on the priorities highlighted by Sir Douglas in his report.

Investment performance improved throughout the year. We built on the work done to bring our people together and created a single executive leadership team. This has put strong foundations in place for the development of a shared culture across the business. The heavy lifting to integrate our systems is also well underway.

We started to see evidence of progress in the second half of the year as flows improved. Our progress was also recognised by the industry as we received external recognition for investment performance, the quality of our platforms, our innovation and HR practices.

We also took advantage of favourable market conditions to monetise some of the value of our listed investments in India, in order to extend our share buyback programme and improve our financial resilience.

Driving performance, delivering for clients and customers

Turning to the financial results, I am pleased with the improved momentum in the second half of the year. IFRS profit before tax from continuing operations increased to £243m (2018: loss of £787m) primarily reflecting the gains realised from the sale of shares in HDFC Life and HDFC Asset Management. Adjusted profit before tax from continuing operations of £584m was a 10% reduction on 2018, mainly due to the impact on revenue of the outflows in both 2018 and 2019.

We have seen a significant improvement in investment performance following a particularly challenging year in 2018. At the end of 2019 74%, 60% and 67% of AUM was outperforming its benchmark over one, three and five years respectively. The three-year metric reflects improved performance in Multi-asset and continued strong performance in Fixed income and Asia Pacific equities. This in turn reflects the work of the team on our process enhancement plans, which helped us review and refine our investment approach on an ongoing basis. We have also developed decision support tools and quantitative frameworks to aid portfolio construction.

It was pleasing then, at the start of 2020, to see this improvement recognised with a number of our funds featuring in Investment Week's coverage of the best performers of 2019. One of those included was our ASI UK Impact Employment Opportunities Equity fund, illustrating our long-held belief that a fund oriented towards ESG considerations does not mean a compromise on returns. Both Standard Life UK Smaller Companies and Aberdeen Smaller Companies were featured in the top ten performing investment trusts, marking an outstanding year for the team.

Our focus, of course, is on meeting the needs of our clients and customers, wherever they are in the world. To this end, as well as improving investment performance, we have maintained our commitment to innovation. We have developed and launched 36 products and 48 funds globally during the year, including our first tactical Emerging Markets Bond Fixed Maturity Product and our China OEIC and China Bond fund. We also launched new and highly innovative technology on our Wrap platform, which allows for greater client portfolio personalisation.

We have evolved our multi-channel approach to focus on four channels: Institutional, Wholesale, Strategic insurance and Platforms and Wealth. This model reflects the new shape of our business and gives a sharp focus to our activities and how we can best utilise our brands. We also work with our partners to get closer to more UK consumers. We made some significant developments in our business in the UK in 2019 including our joint venture with Virgin Money and the launch of a strategic partnership with Skipton Building Society.

Leadership, culture and strategy

Sustaining our performance, and meeting our ambitions, requires that our people are united - working together towards a common purpose with a shared culture. This starts with leadership. Over the last year we have made a significant investment in our people and have taken major steps forward in building the culture that will enable us to deliver our strategy.

I have realigned my executive leadership team to ensure we can be quick and effective in decision-making. I have also brought together a wider global leadership group, a team of our top leaders from across the organisation who hold collective responsibility for delivering our business plan. These leaders have a key role in achieving our strategy.

Our purpose is that together we invest for a better future. Importantly we do this as a single cohesive team and with the interests of all our stakeholders at the heart of our decision-making.

Given the context for our business - the pace of change, the final stages of our transformation plan and the need to align our people's focus and energy - we are continually evolving our strategy to accelerate our progress towards achieving our ambitions. Alongside our purpose, we have defined our strategic drivers, the imperatives that underline how we will deliver and move forward as a business. Our people are coming together behind this single, focused approach. Details of these strategic drivers are opposite, and on pages 32 to 33.

A transforming business

We are now over two years on from our merger, and over a year on from the sale of our UK and European insurance business to Phoenix. A great deal has been achieved over the last two years with some 700 milestones delivered as we integrated the two fund management businesses. The positive benefits were reflected in improved investment performance and flows, excluding Lloyds Banking Group, in the second half of the year. Expected cost synergies from integration and transformation have increased. However, given the increased complexity that the separation programme has added to the already challenging integration programme, the expected gross cost of delivery has also increased and the timing of the completion has lengthened. While we plan to complete the build-out of the integrated investment platform and commence migration of portfolios in 2020, migration of all portfolios will now complete in 2021.

Our plan is working but there is still more we need to do, and we will need to sustain our focus and energy on this work while also looking to the future for our business.

Not least in this programme of work is a significant project to complete the full separation of our business from the operations that transferred to Phoenix. As an important strategic partner we will continue to work closely with Phoenix, helping to grow their open book business and as their asset manager of choice.

Sustainable return for long-term shareholders

Through this period of transformation, we are focused on reshaping our cost base to match our transformed business, while also investing to build a business fit for the future. Our financial stability is supported by our strong balance sheet, including our valuable listed investments in successful third party businesses including HDFC Life, HDFC Asset Management and Phoenix.

In last year's annual report, we stated our intention to maintain our dividend at a stable level through our transformation. During this period, we have sustained the dividend, despite tough market conditions, and our shareholders have also benefited from a substantial return of capital: with £1.75bn returned over 2018/2019 through our 'B' share scheme and our on-market share buyback. In 2020, we also announced a further share buyback of up to £400m.

In 2021 we will be a very different business to what we were at the start of 2018. This will mean a sharp focus on our Asset management, Platforms and Wealth activity. For shareholders who have held our stock for ten years, this represents a total return of 162%. We believe that we are well placed to continue to reward our patient shareholders with long-term value.

A rapidly changing market

Our actions over the course of 2019 ensure we are in a strong position in a global market that continues to be volatile. The pace of change remains relentless and the coming year will naturally bring its own challenges. The outbreak of the COVID-19 coronavirus brings a unique set of risks for global businesses to deal with.

We will also have to deal with the practical challenges that Brexit, and retaining regulatory equivalence, will bring as we continue to serve our valued clients in the European Union. The negotiations on a Free Trade Agreement (FTA) between the UK and EU have begun. As part of our Brexit planning we have considered a range of scenarios and put in place arrangements to mitigate any potential disruption for our customers, clients and operations. We will continue to follow developments closely and regularly review the arrangements we have in place. As a global asset manager we have extensive experience of adapting to regulatory change and working across borders.

Importantly, we now have a government with a sizeable majority. This will bring political stability but also the ability to define and deliver its own economic and social agenda beyond Brexit.

In 2019 we took further action to improve our resilience so that our business is well placed to deal with the uncertainties the constantly changing external environment brings. We continue to invest in innovation, in our culture, our investment processes, our platforms and in the way we develop new funds, alongside the transformation programme, so that we can meet changing client and customer needs as they evolve.

A positive force for change

One area of notable change in 2019 was the increased attention on ESG factors in investment. Our responsible investment capabilities are nearly 30 years in the making and our impact on the companies we hold to account is important and necessary. In 2019, we voted on issues from human rights and employment practices to single-use plastics and pesticides. The number of environmental and social resolutions we voted on in 2019 increased by 26% compared to the previous year.

One issue that has characterised the past year, probably more than any before, is the overwhelming call to action by people around the world to address the urgent crisis of climate breakdown. We cannot underestimate the role our industry has in addressing this issue. Acting alone, governments around the world will not be able to provide the investment, or the will, to decarbonise the economy. It will need large scale realignment of capital. Through engagement and our voting rights, we can have a positive influence on companies around the world.

"We are innovating to meet our customers' and clients' needs, investing in our culture and championing positive change for society and the environment. We remain financially strong and resilient, delivering sustainable value for shareholders."

Looking ahead

Our strong financial position, capital generation potential and focus on operational efficiency enables us to invest in the business to drive profitable revenue growth and shareholder return.

The outlook for the markets and our industry in 2020 is turbulent with the additional complexity of COVID-19. We are focused on what we can control, namely: delivering for our clients, customers, colleagues and shareholders; diversifying our revenues; investing for the future,

and maintaining financial discipline. By doing this we will build a business that is fit for the future and well positioned to manage

through the uncertainties ahead.

Keith Skeoch

Chief Executive

Our strategic drivers

The foundations from which we deliver for all our stakeholders.

Read more about our strategic priorities on pages 32 to 33.

Understanding our market

2019 was unusual for financial markets, with both 'growth' and 'defensive' assets producing strong positive returns. Investors entered the year expecting rising interest rates, but rates actually fell. This, and a flood of central bank liquidity, lifted asset classes across the market.

Over 2019 we saw global equities rise over 20%, global bonds rise almost 7% and gold rise nearly 20% - a group of assets that rarely march in such close step.

It was also a year when many of the worries expressed by investors at the start of the year proved less taxing by the end. Trade wars, Brexit, a looming US recession and rising interest rates were all much discussed over the year - but all proved less troublesome to markets than many had feared.

That said, the central bank assistance was principally driven by disappointing economic data. Economies struggled to shake off the hangover from the financial crisis of 2008. So while the global economy did grow, it was at lower levels than most expected.

The rise and rise of technology stocks fuelled further significant outperformance of 'growth' over 'value' styles. Similarly, in debt markets the hunt for yield and increased risk appetite resulted in huge demand for emerging market and high yield debt compared to low or negative yielding developed market government debt.

At the start of 2020, many of these themes hold true, though we face the added challenge of dealing with the COVID-19 coronavirus and its potential impact on the world's economy and supply chains. We continue to see weak economic growth and little inflation. Meanwhile, interest rates look set to remain at the current very low levels. In this environment, and given more stretched valuations, we can expect more moderate returns for the year ahead. It continues to be an environment where careful diversification of portfolios is likely to be rewarded.

Key global trends

Democratisation of financial risk

Changes in regulation, legislation and demographics are shifting the savings landscape. Increasingly the financial risk of long-term saving is shifting away from governments and institutions towards the individual. In recognition of this, we are scaling up our advice business, which completed two significant acquisitions during 2019. Our strategic partnerships mean we have potential access to millions of UK savers.

Innovation, technology and digitalisation

Successful innovation is a key driver of value and the next generation of savers will expect a seamless digital customer experience. In 2019, we invested in new capabilities for our award-winning adviser platforms and launched 36 products and 48 new funds. One example is our new index of hedge funds which is a pioneering product in the market and has been one of the most successful UCITS fund launches in 2019.

Rebuilding trust in financial services

The global financial crisis damaged trust, and rebuilding this trust in the industry has not been helped by some poor corporate practices. We believe the best way we can help regain this trust is investing responsibly, encouraging diversity of thought and practising what we preach in how we act. It also means a continued focus on robust governance and risk management. As an example of acting on our principles, we are offsetting our operational carbon footprint to become carbon neutral in 2020.

Slow growth, low inflation, compressed return environment

Market volatility and uncertainty will be with us for some time and will continue to drive clients' and customers' demand for outcome-oriented products. We are a leader in 'new active' investment globally. This is an area of focus for us and we have brought together our private markets franchise with our real estate team, and we continue to invest in designing innovative funds.

Our stakeholders and business model

Creating and preserving stakeholder value

Sustainable stakeholder value

Our simple business model is designed to create value and deliver long-term sustainable benefits to all our stakeholders. Read more about our stakeholders on page 59.

For clients and customers

We focus on delivering outcomes that truly matter to our clients and customers, and are committed to active asset management. We draw on expertise and insight from our teams around the world to deliver long-term investment performance.

Our platforms and wealth management services help us respond to increasing demand for financial advice and guidance, and provide advisers with technology to support their customers effectively.

Read more: See pages 12 to 17

For our people

We aim to provide a market-leading proposition for our people. We have made significant steps in developing new UK terms and conditions and harmonised policies that are fair and consistent.

We are committed to investing in attracting, retaining and developing talent at every career stage and we offer development opportunities that link to our business needs.

Our aim is to understand our people's diverse perspectives and reflect their views in how we operate, through an inclusive and unifying culture.

Read more: See pages 18 to 21

For society

We have important responsibilities to society and the environment.

Through active engagement with the companies in which we invest, we maintain constructive relationships that help us understand their risks and opportunities, and positively influence their business practices. By investing responsibly, we play a critical role in financing the transition to a low-carbon economy, limiting environmental damage, protecting human rights and promoting fair work and pay.

We apply the same principles to our own corporate practices.

Read more: See pages 22 to 27

For shareholders

By combining diverse revenue growth from asset management, platform and wealth capabilities with a strong balance sheet and careful management of our costs, we can create sustainable shareholder value over the long term. The sale of part of our holdings in HDFC Life and HDFC Asset Management has strengthened our capital position.

We have a strong track record of returning value to shareholders which includes the payment of dividends and share buyback activity.

Read more: See pages 28 to 33

Our resources to create and preserve value

Client and customer relationships

We focus on relationships with our clients and customers based on mutual trust and our ability to effectively meet their needs.

We invest in products and services so that they are relevant to our clients and customers today and in the future.

High quality customer service is a key focus for our operations teams.

In addition, we have important brands that we continue to invest in.

Investment capabilities

We aim to deliver innovative solutions and achieve better long-term investment outcomes for our clients and customers, through a combination of local market knowledge and global oversight. Our capabilities span a broad range of markets, asset classes and strategies which create diversification of our services.

Talented people

Our ability to deliver for clients and customers relies on having people with the right skills and knowledge, drawn from diverse backgrounds and experiences and through encouraging a collaborative approach.

The skills and knowledge of our people cover a range of areas including planning and advice, investment management and customer service.

Financial strength

We have a strong capital position which is further supported by substantial listed investments.

We actively manage our balance sheet to ensure we hold enough capital to allow us to invest for future business growth and deliver returns to shareholders.

How we generate profits and shareholder returns

Generating revenue

Revenue is primarily generated from asset management and platform and advice fees we charge based on the value of the assets we look after for clients and customers.

Controlling costs

We control expenses and invest strategically to improve both the scalability and efficiency of our business. Our cost base has a high proportion of fixed costs and we remain focused on reducing and altering our cost base as we reshape our business to respond to the changing external environment.

Optimising the balance sheet

We ensure that we have the appropriate level of capital and liquidity to support and protect our operations while continuing to invest in our business.

Delivering profit and shareholder returns

Generating revenue and controlling costs enables us to drive our profit and cash flow that allow us to invest in our business and deliver returns to shareholders. Cash generation for our Asset management and Platforms and Wealth activity is closely aligned with profit.

We balance investing

for business growth, investing in our people and continuing to provide returns to shareholders.

Together we invest for a better future means

learning from our clients and customers so we build the solutions that meet their needs

How we engage with our clients and customers

We operate across the world, building and evolving relationships with over 12,000 institutional and wholesale clients globally, and over 500,000 customers through our platforms and wealth activity in the UK.

We aim for high-quality service and targeted interactions to build enduring relationships. Our clients and customers want to engage with us in different and evolving ways. Technology is a powerful enabler, so we utilise our digital capabilities, while others prefer a personal, tailored approach.

Our annual conferences, regular events, roadshows and sponsorship activity enable us to share knowledge and gain valuable feedback, while showcasing our capabilities and enhancing our relationships.

We go beyond providing products to act as a trusted adviser. This includes sharing high-impact market intelligence from our Research Institute and our adviser clients have access to our expert technical team. Importantly, it means we can act in partnership to build bespoke solutions that meet our clients' and customers' specific requirements for today and tomorrow.

Our multi-channel approach

We offer our clients and customers investment capabilities and services through four channels:

Institutional

We are a chosen investment partner for organisations ranging from financial institutions and pension funds to local authorities and charities.

Wholesale

We support private banks, wealth managers, and financial advisers, as well as making our products available directly to their underlying customers.

Strategic insurance

We provide investment solutions to manage assets on behalf of our strategic insurance partners.

Platforms and Wealth

We provide wealth management, financial planning and advice services, both directly to customers and through financial advisers.

Long-term savings and investments in the UK

Global investment capabilities

Working with our partners

Our strategic partnerships help us reach more clients and customers globally. In the UK, this includes our partnership with Phoenix, the largest life and pensions consolidator in Europe. Through this partnership we manage money on behalf of Phoenix's customers as their asset manager of choice. We have also established a joint venture with Virgin Money - with the ambition to combine their brand, scale and retail distribution with our market-leading investment solutions and digital expertise to meet the needs of retail investors.

We are also working with Skipton Building Society and their customers now have access to a new range of MyFolio Index funds using our Focus Solutions market-leading technologies.

We also have relationships with asset managers in some of the world's largest economies. We benefit from local expertise and together we are able to help drive product innovation and generate greater insights and active opportunities for clients and customers.

Our clients and customers

Building enduring relationships

Our investment capabilities

As an active asset manager, we look for ways to deepen our understanding of clientsand customers to meet and exceed their expectations, wherever they are in the world.

To do this we offer products and innovative solutions across a diverse range ofasset classes.

Equities

One of the world's largest active asset managers offering wide ranging equity strategies.

World-leading global fundamental research platform, providing deep company-level insights across a comprehensive suite of equity funds.

Particular strength across developed and emerging markets.

Fixed income

One of Europe's largest fixed income managers, offering capabilities across the full spectrum of fixed income markets.

Disciplined, research-driven and team-based approach, enabling us to target repeatable outcomes for clients.

Enhanced scale and resources providing a clear information advantage across global bond markets, allowing us to identify the best investment opportunities for client portfolios.

Multi-asset

Distinct and complementary multi-asset capabilities to meet a broad range of client needs.

Multi-manager and advanced strategies that constrain and control risk.

Scale, experience and structure to harness investment insight globally.

Private markets

One of the top ten largest managers of private markets (including real estate) assets globally.

Largest real estate manager in the UK and in the top three in Europe.

Capabilities across real estate, private equity, infrastructure, private credit and real assets, helping to deliver flexible solutions to clients.

Alternatives

Full range of global hedge fund and diversification strategies across the liquidity spectrum following active and passive approaches.

Outcome-orientated portfolios that use a disciplined and proven research-driven investment process.

Highly experienced team in alternative investing supported by global research coverage.

Quantitative

Experienced team managing assets across a range of strategies: traditional passive indexation, enhanced indexation, smart beta and active quant using artificial intelligence.

One of the first long-only asset managers to offer an active quantitative approach that uses machine learning to find potential sources of returns.

Cash/Liquidity

Managing assets for a diverse base of institutional clients.

Experienced team, delivering consistent returns through market cycles.

Offering pooled and tailored solutions to meet client needs.

How we consider clients and customers in strategic decisions: bringing together private markets

We work with our clients and customers to understand what they want from us and put this at the centre of the solutions we develop. Our ability to innovate and connect our different capabilities helps us to deliver better outcomes. This is what has driven our decision to take a fully integrated approach to private markets.

As global markets evolve, we are seeing a greater number of investors shifting assets from public to private markets. Access to private markets is increasingly considered essential to diversifying investors' portfolios, in order to benefit from areas of market growth.

We have a strong heritage in a wide range of private market capabilities. In 2019 we launched an integrated private markets franchise encompassing infrastructure, natural resources, private credit, private equity and real estate.

In combining real estate with the rest of our private markets capabilities, we believe it will help us improve cohesion and collaboration - leading to improved access to growth markets globally and best-in-class performance for clients.

Scale and growth

· More than 1,000 investment professionals worldwide

· Spanning a broad range of markets, asset classes and strategies

· Deep knowledge of local markets with the power of coordinated global oversight to drive better investment outcomes

· Across a full suite of asset class capabilities, we seek to provide the solutions to our clients at all stages of their investment life cycle

· Targeted approach to growth that concentrates on the markets where we have a strong track record

· Promotion of our strong brands

Active expertise

We continue to believe that active management and engagement

deliver superior outcomes for clients over the long term.

We believe in a connected team-based ethos and fundamental research delivering insights to exploit market inefficiencies.

To deliver solutions for clients and customers that focus on their desired outcomes, rather than on benchmarks, we believe that all investment approaches require active decision-making at some level. This could be through incorporating fundamental discretionary or through systematic quantitative techniques.

Responsible investing

For over two decades, we have led the way in embedding environmental, social and governance (ESG) considerations throughout our investment activities.

We encourage collaboration across asset classes, sharing research, experiences and understanding.

Regional investment teams are further supported by our centralised

ESG Investment & Stewardship team. We believe that ESG factors

have a material impact on a company's long term performance.

Our research process helps us to understand how well investee companies are managing ESG risks and opportunities alongside financial metrics and then whether the market has priced them accordingly. This insight allows us to make better investment decisions, leading to better outcomes for our clients.

In 2019 we were awarded 33 'Green Stars' across the real estate funds we manage by GRESB - the global ESG benchmark for real estate and infrastructure investments. Four funds achieved Five Star status, placing them in the top 20% of their peers. Additionally, three funds achieved the highest ESG performance of their peer group.

More information about our commitment to responsible investing, and the role our company plays in supporting positive change in society, is on pages 22 to 27.

Preparing for Brexit

Our priority is to ensure we are in the best possible position to provide our customers and clients with continuity of service, regardless of the scope and terms of any agreement which takes effect between the UK and the EU when the transition period comes to an end on 31 December 2020.

Arrangements that we have put in place to mitigate any potential disruption include the establishment of a fully staffed and operational EU MiFID firm in Dublin and we have also expanded the activities of our Luxembourg-based management company.

Platforms and Wealth

With changes in demographics and regulation, particularly in the UK, individuals are increasingly having to take responsibility for their savings and investments. As they do so, there is an increasing demand for advice and guidance to meet their needs. The financial adviser community has a vital support role to play.

· We provide financial advisers with intuitive technology to help them run their businesses effectively and efficiently. We innovate and develop platforms and services to keep pace with the changing lives of UK customers, and to help advisers deliver good quality advice in response. This means developing sustainable and scalable solutions that support them to meet their customers' savings goals.

· We also support customers directly to help them make informed and effective financial decisions. Through our UK-based wealth management services, we offer full financial planning and personal tax advice services to meet long-term financial goals.

"As individuals take greater responsibility for their financial future, demand for quality support and guidance increases. We enable advisers to meet that challenge, as well as support customers directly with their planning."

Keith Skeoch, Chief Executive

Making it easier for financial advisers

The highly rated and award-winning platforms we offer in the UK provide differentiated services to suit the full range of customer needs.

To help customers with complex investment requirements, Wrap offers financial advisers one of the fullest and most flexible adviser platforms on the market. Combining technology with customer service, it enables advisers to deliver high-quality financial planning to large numbers of customers.

Elevate is a lower-cost proposition for advisers. Elevate provides advisers with the core services to deliver advice at scale, offering an extensive range of investment options from across the market.

Parmenion integrates discretionary investment management, a range of platform services and intuitive technology. It is well suited to advisers who seek to outsource investment decisions and focus on core financial planning. It is intended that Parmenion will also provide the platform to support customers through our joint venture with Virgin Money.

We focus on continually innovating and improving the functionality across our platforms, all with the intent of making them easier for advisers to use. During 2019 we made progress in a number of areas:

· We repriced our Wrap and Elevate platforms and launched our drawdown price lock on Wrap - which allows advisers to lock their customers charges at their lowest level, with customers benefiting from reduced fees throughout their retirement.

· We launched Individually Managed Accounts on the Wrap platform - a cost-effective and scalable solution that, for the first time, allows advisers to personalise investment solutions for individual customers.

· We launched Parmenion's Sterling Solution in response to demand from advisers - whose customers are looking to diversify their portfolio by investing in a low-risk solution that still has the potential for positive returns.

Leveraging the value of our strategic partnerships

When we completed the sale to Phoenix of our UK and European insurance business in 2018, we created a strategic partnership with Phoenix in respect of our activity in the UK savings market. Wrap, Elevate and 1825 are all part of the Standard Life brand, through which we already have a relationship with millions of individuals throughout the UK, and are key to this strategic partnership.

Our strategic partnership with Phoenix provides us with the potential access to up to 10 million of their customers in the UK. Under our partnership, Phoenix also uses the Standard Life brand under licence from our company.

The partnership creates the potential for us to offer these customers products and services through our Platforms and Wealth channel. These products are complementary to those provided directly by Phoenix, which are typically workplace and individual pensions. The partnership has also created the potential for revenue growth that will allow us to further invest in our capabilities, including how we innovate and develop our offering to advisers and customers.

Financial advice and planning for individuals

Our financial planning and advice activity is undertaken through 1825, which brings together experienced professionals from across the UK to help people make sound financial decisions and plan effectively for their futures.

During 2019, we completed two acquisitions that accelerated our growth plans and strengthened our UK-wide presence:

· In July, we completed the acquisition of BDO Northern Ireland's wealth management business

· In November, we completed the acquisition of the wealth advisory business of Grant Thornton UK LLP

Combined, these deals resulted in a £1.8bn increase in assets under advice to a total of £5.7bn. 1825 now has over 110 financial planners and increased reach across the UK.

We continue to see strong opportunity for growth in other areas, particularly retirement advice. We announced our digital retirement advice proposition in 2019 and we will continue to develop this in 2020.

Discretionary investment management clients

Through Aberdeen Standard Capital we provide a discretionary investment management service across the UK and internationally.

Aberdeen Standard Capital manages investment portfolios for private clients, intermediaries acting for clients, charities and trustees, who can use these services either directly or through a professional adviser.

For professional advisers, there is also a managed portfolio service, available via a variety of well-known platforms.

In 2019 we further evolved our responsible investing offering, as we launched Aberdeen Standard Capital's Global Impact Strategy and fossil-fuel-free income unconstrained strategy. These strategies invest in companies whose activities or products are designed to have a positive social and environmental impact.

Together we invest for a better future means

engaging with our people to create a business where everyone can thrive

How we engage with our people

Our people around the world are encouraged to share their views openly and honestly with our leadership team, through our 'In Conversation with' and 'Meet the Board' sessions, as well as their local and department leaders.

In the UK, our people are represented by an Employee Forum which engages with the leadership team on key decisions. Globally, our people can join one of our diverse employee networks or regional inclusion committees.

In 2019 we continued the development of our digital workplace programme. Due to launch in 2020, it represents a modern and intuitive digital interface for our people across the world. Employees' insight is central to the work which will help foster the culture of the business while providing a seamless experience for our workforce.

You can find out more about our employee engagement activities in the Directors' report on page 58.

Building a workplace fit for the future

Extraordinary change in our industry means ongoing change for our people. We must ensure that how we work, our capabilities and the culture we foster are right for today, tomorrow and the future.

We recognise each of our colleagues is unique and our workforce is drawn from a variety of age groups, family circumstances and career aspirations.

Building an inclusive culture is central to how we operate and our efforts are recognised by our people. We undertook a survey in 2019 to seek views on our inclusive culture. The chart opposite shows the responses from 1,071 of our people. We will reflect their responses in our inclusion activities.

Read more about our approach to diversity and inclusion in our Corporate sustainability report, available on our website www.standardlifeaberdeen.com/annualreport

Leading through change and developing our people

In common with most companies, change is constant and leaders at all levels have a critical role in supporting their teams through this change.

Good leadership has great people management as its foundation. In 2019 we have made this a key focus, which we will continue in 2020.

In 2019, employees accessed 66,000 leadership, management and personal development resources.

More than 700 of our managers have benefited from workshops to help them understand what we expect from our people.

In January 2020, we also launched our new system for learning and development, providing an improved experience for our people.

Central to this new proposition is the importance we place on providing access to the training and development to succeed in our organisation.

Our people

All our people contribute to our success

Our success depends on our ability to retain and attract the right talent to drive business performance.

Our employee proposition

In 2019 we undertook significant work to develop our employment proposition in the UK, where the majority of our employees are based, that will enable our people to drive our business forward. It has been the foundation for a new, unified set of UK terms and conditions, which has also been a significant step on our journey towards full integration. We also moved all of our people onto a single HR system for the first time.

Through this piece of work we considered our employment proposition and supporting policies and how to balance our overall offer. Comparisons with our competitors helped us decide where we would choose to be market-leading.

A set of key principles underpinned the detailed development of the new UK terms and conditions and our harmonised policies. As an example it was important that they were fair and consistent, irrespective of how long someone has worked here.

We designed our proposition to support our multi-generational workforce and the upcoming generation that will take our business forward. We are leading the industry in designing a family friendly proposition that is fully inclusive and helps our people to manage their personal and professional responsibilities in a flexible way.

Our new market-leading parent policy

From 1 January 2020, all of our employees in the UK welcoming a child into their family are entitled to:

· 52 weeks' leave in total

· 40 weeks of full paid leave

· The option to take these 52 weeks as one, two or three periods of leave, during the two years following the birth or placement

· Additional paid leave if they have a pre-term baby

The policy means that the primary caregiver does not have to share their entitlement and end their leave early. The policy applies whether the mother gives birth to the baby, the baby is born via surrogacy, or if the child is adopted. All new parents are eligible, regardless of gender, family set-up or how long they have been at the company.

By equalising the opportunity to take paid leave for parents of all genders, the policy is a tangible step towards ensuring that becoming a parent does not limit their career potential.

The policy has generated positive feedback both from our people and the market. In January 2020 members of the Scottish Parliament lodged a cross-party motion congratulating us on our new parent leave policy.

Employee feedback

As we reported last year, 69% of our workforce responded to our global employee survey at the end of 2018. The engagement score was 56%.

The main themes that emerged from the survey included the need to improve how we communicate our strategy to colleagues, and how we minimise factors that can prevent people from doing their jobs as effectively as possible.

Positive feedback centred on how our managers lead through change, people feeling able to be themselves at work and our continued focus on all aspects of inclusion.

During 2019, we put actions in place to address this employee feedback. This included a focused programme of internal communications activity to engage our people on our strategy. Our next employee survey, to measure progress, is planned for later in 2020.

"Our purpose, together we invest for a better future, is the North Star for our colleagues that ensures we are truly building a one-team culture across all our businesses and geographies."

Rose Thomson, Chief HR Officer

Employee voice at the Board table

The UK Corporate Governance Code has established new requirements for Boards of UK listed companies to set out how employees' views have been considered in Board discussions and decision-making. Melanie Gee is our non-executive Director responsible for leading this work.

In 2019 she set up a Board Employee Engagement Group, which met twice in 2019 and will continue to meet in 2020. The group includes representatives from our UK employee forum, our global employee networks, and our HR function.

Melanie has implemented a programme of face-to-face activity with non-executive Directors, which has included 'Meet the Board' sessions in Edinburgh, London and Philadelphia.

In tandem, Melanie initiated a series of deep-dive surveys on issues of interest to employees. In 2019 we undertook two surveys focused on ESG and diversity. 1,021 employees responded to the first survey on ESG issues. Climate change came out as the most important issue for our people. You can find out about our response to climate change on page 25.

Read more about Board employee engagement on page 58.

Gender representation

Balanced representation of men and women is vital to building an inclusive culture and effective business. As part of our HM Treasury Women in Finance Charter pledge, we have set targets for representation of women.

In 2019 our progress was recognised by the Hampton-Alexander Review in which we ranked tenth in the FTSE 100, up from ranking 92nd in 2018. We are pleased with this progress but we are not complacent. We know that sustaining improvement is vital.

A key driver of our gender pay and bonus gaps is the lower number of women in senior roles and the higher number of women in junior roles; and we believe progress against our senior leadership targets will result in a reduction of these gaps.

This is the second year we have disclosed a gender pay gap. Progress has been slow and this pace of change does not meet our aspirations. We are carrying out in-depth analysis to understand where we should be prioritising efforts to make a sustainable and significant change.

Hampton-Alexander Review 2019

10th position and most improved company in FTSE 100

Our Women in Finance Charter targets

1 Data shown as at 7 January 2020.

2 Targets are set for our senior leadership population CEO-1 and CEO-2 (leaders one and two levels below CEO, minus administration roles).

3 Relates to Directors of the Company's principal subsidiaries as defined in the Standard Life Aberdeen plc Board Charter and not classified above as Board Directors or CEO-1 or CEO-2.

Our full pay gap disclosure and more information about our work on gender equality can be found in our Gender Report www.standardlifeaberdeen.com/annualreport

Together we invest for a better future means

championing positive change in business and society

How we engage with society

At a time when trust in businesses remains low, and people are having to take more responsibility for their own financial futures, it is important that we engage with how today's investment choices can determine the world we live in tomorrow:

We promote global economic development that is sustainable for the planet and society. As a signatory to the UN Global Compact, we integrate the UN Sustainable Development Goals into our business. These goals offer a clear shared vision for a better future, and a framework that helps us align to client and customer interests.

· We aim to take a lead role in addressing key societal issues, through our investment approach and innovative products and services. An example is impact investing - strategies that seek to generate attractive returns while having a measurable, positive environmental and societal impact.

· We also engage with and support communities and charitable causes - for example, by running programmes that help to promote fair employment and social inclusion

· To protect stakeholder interests, and understand material risks and opportunities we need to address, we collaborate with initiatives both within our industry and more widely

· We worked with an external organisation to gather views of our stakeholders, including our employees and charities, to review our approach to charitable giving. We also carried out a materiality survey to understand the ESG topics that are most important to our stakeholders.

Shareholder meetings 2019 - environmental and social topics we voted on

As investors, we always pay close attention to the strategy, financial resilience and management performance of the companies in which we invest. We also believe environmental and social factors have a material impact on a company's long-term performance. The number of environmental and social resolutions we voted on in 2019 increased by 26% compared to the previous year. Climate change, environmental reporting and renewable energy topics made up the highest percentage of such resolutions we voted on.

Read more about active engagement at www.aberdeenstandard.com/responsible-investing

Active stewards and owners

As an active steward of our customers' and clients' capital, we support the principles of good stewardship set out in the UK Stewardship Code. As part of our regular interactions with investee companies, we seek to provide constructive challenge to management and boards.

Voting at shareholder meetings represents one of our most important duties, and we cast our votes in line with our investment views. During the year we voted at 5,193 shareholder meetings, and on 58,839 resolutions.

Unlike certain passive investment strategies, where research may be limited, we review proposed resolutions and where appropriate engage with stakeholders, including proxy advisors, investee companies and the proponents of resolutions, before reaching a decision.

We conduct independent internal research to ensure we are comfortable with our voting positions rather than outsource decisions and simply follow a proxy voting service's recommendations.

Our role in society

Investing responsibly

Environmental, social and governance (ESG) investment focuses on active engagement, with the goal of improving the performance of assets we manage around the world.

There are numerous academic studies and research that examine the relationship between integrating ESG considerations and strong stewardship with investment performance. We believe, supported by strong evidence, that

· Long-term responsible investing is important for all investment managers in order to fulfil their fiduciary duties

· There is no trade-off in terms of financial return

· Funds with strong ESG characteristics, and effective management of material ESG risks, typically are at lower risk of suffering losses

This is consistent with our investment approach in looking to generate sustainable, consistent and positive risk-adjusted returns for clients and customers over the long term.

Active engagement

We engage actively with investee companies for two core reasons:

· To understand more about company management, which enables us to learn more about a company's strategy and performance

· To encourage best practice and drive change

Through our discussions we share insights from our experiences and knowledge across geographies and asset classes.

We expect the companies in which we invest to be good corporate

citizens. Where we believe we need to encourage change we do so

through constructive dialogue, engagement, voting, and other

stewardship tools depending on the asset class.

In 2019, we challenged, advocated, or made recommendations to companies around the world on topics including climate change and the transition to a low carbon economy, executive remuneration, deforestation, labour practices, plastics recycling and board composition.

Using our influence

To help encourage best practice where we operate, we are actively involved, directly and indirectly, in the ongoing development of policy initiatives on a broad range of topics, including stewardship, sustainable finance, ESG integration, audit quality, the audit market, gender diversity and climate change.

We participate in a number of influential committees, including the Investment Association's committees on Stewardship and on Sustainable and Responsible Investment. Through our membership of the Stewardship, Market Integrity & ESG investment standing committee - which is part of the European Fund and Asset Management Association - we take an active role in monitoring and seeking to influence European policy developments.

We seek opportunities to engage with policymakers directly by replying to calls for evidence and feedback on policy developments, and also by meeting with officials to discuss changes to policy relating to sustainable finance, ESG integration and corporate governance.

We have also been involved in several policy consultations that have provided opportunities to share information and collaborate within our industry. The purpose of these is to promote the best interests of our clients:

· In the UK, for example, we contributed to consultations in 2019 by the Department for Business, Energy & Industrial Strategy, aiming to improve quality and competition in the audit market

· We also took part in the German Regierungskommission consultation on proposed amendments to the Deutscher Corporate Governance Kodex, which proposes improvements to governance arrangements in German companies

"Our objective is to deliver the best outcomes for our clients and customers, and that is why we make ESG considerations core to our investment approach."

Euan Stirling, Global Head of Stewardship and ESG Investment

Our approach to tackling climate change

The risks of climate change, and the implications for individuals, businesses and investors, are increasing. We believe companies should be transparent on the financial implications of climate change for their business, and set out what action they are taking.

The Taskforce on Climate-Related Financial Disclosures (TCFD) encourages company disclosure of material climate-related risks and opportunities. We are fully supportive of the recommendations and have published our first TCFD report, detailing our approach.

Governance

Our Chief Executive is the overall executive lead for our work on climate change. He delegates operational oversight to the Chief Operating Officer and investment oversight to the Chief Investment Officer. We have a working group that addresses the impact of climate change risks and opportunities on our investment activities, and another to ensure we have the governance, strategy and metrics to manage our material climate-related risks and opportunities.

Strategy

Through our operations and investments, we have a strategy to support the transition to a low-carbon future. We believe that understanding climate-related risks and opportunities leads to better investment decisions. In 2019 we published a report setting out our approach to this, titled 'Climate Change: Our approach for investments'. We also published two white papers for investors: 'Investing in a changing climate' and 'Going Green: A climate policy toolkit for investors'.

Providing climate-related research and data to understand its financial materiality is a core part of our strategy. We have developed capabilities to assess the carbon footprint across our Equity and Credit portfolios. We have also selected a specialist provider to help deepen our understanding of the financial impact of different climate change scenarios on our portfolios.

Operationally, we focus on the material areas of our carbon footprint and have long-term targets to reduce our emissions. We aim to reduce where we can, then offset what remains. We have pledged to offset our entire operational footprint in 2020 by supporting projects around the world that help to reduce carbon emissions - such as renewable energy and social impact projects.

Risk and opportunity management

We monitor risks and opportunities related to climate change and align these with the TCFD framework. For our investments, we assess the financial materiality of transition and physical risks across regions, sectors and companies. Our aim is to influence and assess which companies will perform well in a low-carbon world, so stewardship and engagement are critical.

Metrics and targets

We have been measuring our operational carbon footprint since 2006. It is mostly comprised of the energy we use in our buildings and air travel, and the data is independently assured. From a baseline year of 2018, we aim to reduce emissions from our fleet of cars and from energy use in our buildings by 50% by 2030, and our energy use in Megawatt hours (MWh) by 30% by 2030. We also pledge to procure 100% renewable electricity at the offices we operate across the globe by the end of 2020.

Our total greenhouse gas emissions are down 39% in comparison to 2018. Greenhouse gas emissions from our fleet and energy use are down 32%, and energy use (MWh) is down by 33%.

Having reliable climate-related data is critical to effective investment decisions. We currently provide a carbon footprint for portfolios in Equities, Fixed income and Real estate. This helps identify carbon-intensive companies and drive corporate engagement, but has limitations as a backwards-looking measure. As of 2020 we introduced an ESG House Score for each listed company to create a consistent framework for analysing and communicating our ESG company views across our listed company investments. One quadrant of the scorecard is climate change, providing both backward (carbon footprint) and forward looking data (such as targets and projects) to assess a company's response to its climate risks.

Read more in our TCFD report, available on our website www.standardlifeaberdeen.com/annualreport

1 2019 emissions data have been independently assured by Bureau Veritas. Bureau Veritas assurance can be found at www.standardlifeaberdeen.com/annualreport

2 Emissions have been calculated using renewable energy contracts, residual mix emissions factors for European sites, and grid mix emissions factors for all other sites.

"Active investors have a critical role to play in accelerating the transition to a low-carbon economy. We do not have much time."

Keith Skeoch, Chief Executive

Our role in society

Working collaboratively for a better society

We want to drive meaningful social and environmental change, but we know we cannot do this alone. Collaborating with others is key to delivering innovative solutions that address key societal issues.

We are taking direct action relating to a number of the UN's 17 Sustainable Development Goals (SDGs). SDG 17, Partnerships for the Goals, underpins everything we do as we believe collaborating with others enables greater impact. We work to understand the material risks and opportunities for our business and stakeholders, and link up with others to take targeted action - whether as part of investor groups or in multi-partner charity projects.

We believe that people have a right to equality of opportunity, for work to pay fairly, and to find routes out of poverty. Promoting fair work and inclusive employment is an area of particular focus for us, and aligns with SDG 8 - Decent Work and Economic Growth.

Living Hours

Our company is one of four organisations piloting the Living Wage Foundation's 'Living Hours' programme. Living Hours provides a new standard for ensuring more certainty over working hours, and more predictable work patterns and pay. It calls on employers to provide the right to fair notice periods, and contracts offering guaranteed minimum hours of work unless the worker requests otherwise.

Our company has also been part of the Living Wage Foundation's steering group, providing strategic guidance on this project.

Big Issue Invest

We aim to provide investment strategies that reflect society's concerns about key issues, and promote societal as well as financial returns.

We collaborate with Big Issue Invest, the social investment arm of The Big Issue, and an example of our work with them is our UK Impact Employment Opportunities Equity Fund. The fund aims to promote 'decent jobs' - stable employment, with wages that enable people to live at a socially acceptable standard, and opportunities for learning and progression - particularly in the UK's most deprived communities.

In 2019 we published the fund's first annual report assessing the impact it has made since it was launched in 2018, which highlights the positive progress the fund is making towards its societal aims. A percentage of the fund's annual management charge also goes to Big Issue Invest, to help finance social enterprises that deliver business solutions to social problems.

Read more in our Corporate sustainability report, available on our website www.standardlifeaberdeen.com/annualreport

Our impact through charitable giving

During 2019 we reviewed the social and environmental impact of our approach to charitable giving. Combined with data from measurement of past community investment programmes and philanthropy, we conducted stakeholder interviews and analysed activities taking place externally.

Some of our key charity partnerships in recent years have highlighted the significant value they get from our strategic support and in-kind expertise. These include:

· Career Ready and The Prince's Trust in the UK - which focus on building skills and confidence in young people, to help break down barriers to employment

· Primary school breakfast clubs in the UK and MANNA, a nutrition services provider in the USA - which help to support wellbeing and social inclusion

· AbleChildAfrica, a UK charity that works with local partners in Africa to improve the lives of children with disabilities.

Additionally, there is clear demand from our people and the public for us to do more to respond to climate and ecological breakdown. We aim to reflect the insights built up in our new social and environmental impact strategy later in 2020.

We are also committed to maintaining our charitable contribution at a consistent level, both directly and through the Standard Life Aberdeen Charitable Foundation.

£3.4m total charitable contribution in 2019

(2018: £3.2m)

17,921 total number of volunteering hours donated by our people in 2019

(2018: 15,118)

A responsible business

Global code of conduct

Our global code of conduct, which details the standards of behaviour we expect in our business, is reviewed and updated annually. All our employees are required to read, agree and adhere to the principles of the code which focuses on doing the right thing and putting our clients and customers at the heart of our business.

In 2019, 100% of employees confirmed they understand and will comply with the code. Reminders are sent to individuals who have not completed the confirmation and these are escalated through line management. A six-monthly report is presented to our Conduct and Conflicts Committee. If employees have any concerns relating to issues covered by the code such as bribery and corruption, environmental or human rights issues, we encourage them to speak to their manager in the first instance. If they feel they cannot raise their concern in this way, or wish to raise it anonymously, we provide an independent and confidential hotline that they can use.

Working with our suppliers

We aim to build effective and supportive relationships with our suppliers. Our supplier code of conduct sets out the standards and principles we require our suppliers to follow, and that we expect them to demand from their own supply chains.

We also recognise the importance of prompt payment. Our organisation has gone through significant change and bringing together two businesses has meant operating two finance systems. Whilst in general our payment turnaround times have been maintained within Prompt Payment Code requirements, for one of our entities we have fallen short of the standards we committed to. We have put actions in place to put this back on track. We are moving to one combined payment system with well-defined supplier terms. This will include a renewed commitment to our policy of prompt payment.

Modern slavery statement

We want to do all we can to help tackle human trafficking, forced labour, bonded labour and child slavery. We worked to raise awareness of modern slavery issues with a new employee training module in 2019, which was completed by 92% of employees, and we continue to encourage good practices among our suppliers and the companies in which we invest. Our 2019 statement and outcomes are published on our website, reinforcing our commitment to this important issue.

Human rights policy

Our policy summarises our approach to identifying and upholding the human rights of our people, clients and customers, community and those impacted by our suppliers, partners and the companies we invest in. As an investor, we assess the management of human rights impacts and engage when appropriate to highlight issues and promote good practice. We publish the outcomes of our ESG engagements with investee companies in a quarterly summary available on our website.

Financial crime prevention

We have a zero-tolerance approach to financial crime, bribery and corruption. Policies, frameworks and controls are in place to help ensure that we only receive or pay money to or from clients, third parties, partners and suppliers that we've identified as suitable to do business with. Mandatory annual training is held for our employees, which requires passing a test that confirms their understanding of both our policies and the part our people play. We also maintain a register for gifts and entertainment we receive or provide. Processes for reporting and reviewing breaches of our policies are in place. In 2019 we had no breaches. Further information on our approach to managing the risk of fraud and financial crime is included within the Risk management section.

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 is available in our Corporate sustainability report. Details of our principal risks and how we manage those risks are included in the Risk management section.

Together we invest for a better future means

creating long-term sustainable value for shareholders

How we engage with our investors and shareholders

We have an extensive programme of investor engagement involving Directors and members of our executive leadership team. This includes meeting with institutional investors, fund managers, analysts and shareholder representative groups to discuss a wide range of topics including business strategy, financial performance, operational activities and corporate governance.

We are equally committed to the interests of our one million individual retail shareholders, engaging through a variety of channels including regular direct communications, the information that we publish on our website and a dedicated shareholder phone line.

Read more about how we engage with shareholders on page 59.

Using strength of balance sheet to create value for shareholders

"Our strong capital position has enabled us to reward shareholders through the period of transformation of the business."

As well as the payment of regular dividends, we have also returned an additional £1.75bn to shareholders during 2018 and 2019 through the 'B' share scheme and the share buyback programme. On 7 February 2020 we announced a further share buyback of up to £400m.

Read more on page 41.

The strength of our capital position and balance sheet supports ongoing investment in the business and continuing returns to shareholders

Investing in the business:

Growing our platforms and wealth proposition

Enhancing our investment capabilities and global coverage

Attracting, retaining and developing talented people

Continuing returns to shareholders:

Maintaining dividend through period of transformation

Over £1bn returned to shareholders in 2019

Creating strong capital surplus and distributable reserves

Associate and joint venture businesses

Key source of further shareholder value

We have significant and valuable investments in leading companies in the UK, India and China. As well as representing substantial potential for future growth and giving insight into important markets, these investments are a source of earnings and dividends, further strengthen our balance sheet and provide a strong source of value for shareholders.

1 As at 9 March 2020.

Realising the value of our listed investments

The successful public listings of HDFC Life in 2017 and HDFC Asset Management in 2018, resulted in greater transparency of the value of these investments.

During 2019, we reduced our stake in HDFC Life through sales totalling 14.49%, realising £1.5bn of net proceeds. We also sold a 3.02% share of HDFC Asset Management.

Over the last three years we have generated total cash proceeds of £2.2bn which allows us to invest for future business growth and deliver returns to shareholders.

Our investment case

Transforming today, investing for tomorrow

We are transforming our business and continue to invest for future growth.

We aim to:

Drivers of our business

We believe that we are well positioned for future growth.

1 Stated prior to eliminations.

2 Listed value as at 9 March 2020.

Strategy dashboard

The foundation for long-term growth

Read more about risk management on pages 44 to 48.

Key risks

Chief Financial Officer's overview

Focus on profitable growth and financial discipline

"We continue to focus on financial discipline through a period of change internally and as a result of the impact of ongoing external pressures. We have intensified our focus on profitable growth to ensure the business is fit for our future strategies."

Stephanie Bruce

2019 has been a busy year across the business:

· The focus on delivering value for clients has generated much improved investment performance across one, three and five-year benchmarks and we have enhanced our focus on client and customer service. These have contributed to the improving trend in the pattern of flows into and from the business. 

· We are seeing growth in new services and from past investments

· We have continued to progress with the transformation activity, which incorporates both the aspects arising from the corporate transactions in 2017/18, and the development of the business in line with our strategic priorities for success in these more volatile market conditions

· We have invested in the business to support new opportunities which align to our strategic priorities, including growing our Platforms and Wealth proposition, enhancing our investment capabilities and global coverage and attracting, retaining and developing talented people

· We have realised value from our listed investments in India which has benefited our balance sheet

· We have completed the £750m share buyback programme

IFRS profit benefited from India stake sales:

We delivered IFRS profit before tax from continuing operations of £243m in 2019, an increase of £1bn from the loss of £787m in 2018. This principally reflects the gains realised from the sale of shares in HDFC Life and HDFC Asset Management of £1.5bn. In addition, the arbitration case with Lloyds Banking Group (LBG) was resolved in our favour, resulting in receipt of compensation of £140m. In 2019 there was an asset management goodwill impairment of £1,569m (2018: £880m) partly offset by a reversal of the impairment relating to our investment in Phoenix of £243m (2018: loss on impairment £228m).

Looking forward we will continue to focus on:

· Diversification of revenue streams to drive profitable growth

· Ensuring our cost base is future fit

· Capital generation to support investment in the business and shareholder returns

The following commentary provides more detail on our financial results.

Alternative performance measures

We assess our financial performance using a variety of measures. Some of these measures are defined under IFRS such as IFRS profit. Others, such as adjusted profit, are not defined under IFRS and are therefore termed alternative performance measures (APMs). APMs are used to help provide a fuller understanding of the performance of our business.

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 alternative performance measures including reconciliations to relevant IFRS metrics are provided in the Supplementary information in Section 9.

All figures are shown on a continuing operations basis unless otherwise stated.

Adjusted profit before tax of £584m is a decrease of 10% on 2018, reflecting principally the impact on revenue of the outflows in both 2018 and 2019. The fee based revenue decrease of 13% has been driven by a 19% reduction in revenue in the institutional and wholesale channels, with revenue in Platforms and Wealth channel increasing by 4%. Revenue has been adversely impacted by flows and margin, partly offset by a benefit from markets.

· Continued net outflows are disappointing, however the trend is improving. In 2019, net outflows reflect the expected LBG tranche withdrawal of £41bn. Excluding this item, net outflows reduced by 57% on 2018 to £17bn and H2 2019 net outflows of £1.5bn was an improvement of 91% on H1 2019 of £15.9bn. This trend includes the benefit of both the continued strengthening of investment performance, albeit there is a time lag until such improvements are reflected in flows, and the continued high levels of client and customer service we provide. Stronger investment performance also contributed to an increase in revenue from performance fees to £37m (2018: £9m).

· On margins, the overall average revenue yield has decreased to 27.9bps (2018: 31.1bps) which principally reflects the lower proportion of assets that we manage for our clients in Equities and Multi-asset

· Fee based revenue, particularly in relation to equities, benefited from positive market movements. The average daily MSCI World Index was 2% higher in 2019 than 2018.

Adjusted operating expenses are 4% lower than 2018. We are undertaking a targeted cost reduction programme of which more details are provided below and also continuing to invest in the business to support future sustainable growth. However, our cost income ratio at 71% remains too high, reflecting the fact that our cost base has a high proportion of fixed costs. Our focus will continue on reducing and altering our cost base as we reshape our business in order that it is set up to take advantage of the trends impacting our industry globally.

Adjusted diluted earnings per share was 19.3p. We have continued to deliver value to shareholders through a substantial return of capital which continues to benefit earnings per share. This includes £515m returned in 2019 in respect of the previously announced £750m share buyback programme which completed in 2019. On 7 February 2020, we announced a further share buyback of up to £400m and expect that it will complete in the second half of 2020. 

With the proposed final dividend of 14.3p, the full year dividend per share will be the same as 2018. This is aligned with the Board's stated intention for the period of transformation. 

1 Percentage of AUM above benchmark. Calculated on a Pro forma basis and gross of fees. A full definition is included in the Glossary on page 257.

2 The Group has initially applied IFRS 9 and IFRS 16 at 1 January 2019. Under the transition methods chosen, comparative information is not restated. Refer to the basis of preparation section of the Group financial statements.

3 In accordance with IAS 33, earnings per share has not been restated following the share consolidation as there was an overall corresponding change in resources. As a result of the share consolidation and share buyback earnings per share from continuing operations for the year ended 31 December 2019 is not directly comparable with the prior year. Refer to Note 12 of the Group financial statements for information relating to the calculation of diluted earnings per share.

4 Net outflows excluding LBG do not include the tranche withdrawals relating to the settlement of arbitration with LBG. Refer to Note 5 of the Group financial statements.

Asset management, Platforms and Wealth

Reduction in revenue reflects impact of net outflows in Institutional and Wholesale. Positive impact of synergies on operating expenses.

1 Wealth fee revenue yield calculation excludes revenue of £13m (2018: £16m) for which there are no attributable assets.

2 Restated to include revenue and assets under advice relating to our 1825 advice business. Previously AUMA excluded assets under advice.

Restated to include revenue and assets under advice relating to our 1825 advice business. Previously AUMA excluded assets under advice.

Fee based revenue

Institutional and Wholesale

Fee based revenue in Institutional and Wholesale reduced by 19% to £1,011m (2018: £1,253m) reflecting outflows which were concentrated in Equities and Multi-asset. The average fee revenue yield decreased to 42.8bps (2018: 47.9bps), reflecting the lower proportion of higher margin Multi-asset and Equity assets.

Performance fees, which primarily relate to Institutional and Wholesale, increased to £37m (2018: £9m) reflecting improved investment performance and included £12m in relation to maturing Real estate funds.

Strategic insurance partners

Revenue from Strategic insurance partners reduced to £317m (2018: £347m) as a result of net outflows, in particular the £41bn LBG tranche withdrawals.

Platforms and Wealth

Platforms and Wealth comprises our Wrap and Elevate platforms, our Parmenion discretionary investment management platform, our 1825 financial planning and advice business, and the Aberdeen Standard Capital discretionary investment management business. It also includes assets relating to our joint venture with Virgin Money which will utilise Parmenion platform technology. 

Revenue from Wrap and Elevate increased by 6% to £150m (2018: £142m) reflecting the continuing growth in our platform offering.

Wealth fee based revenue increased to £107m (2018: £105m) largely due to higher average assets. The average revenue yield decreased to 48.4bps (2018: 57.5bps), as a result of £3.5bn of lower margin assets in this channel from Virgin Money in Q1 2019.

Further information on the fee revenue yield is included in the Supplementary information section of this report.

Adjusted operating expenses

Movement in adjusted operating expenses

Adjusted operating expenses decreased by 4% to £1,333m (2018: £1,395m) mainly due to further synergies of £114m which included lower staff, premises and infrastructure costs arising through the ongoing integration process. In addition we realised further efficiencies of £62m from investing in transforming our business, from improving the efficiency of how we work and enhancing our infrastructure.

Cost inflation of £68m includes wage inflation as well as investment in enhanced capabilities. There were also £16m of higher costs following acquisitions in our 1825 advice business, acquisitions in the US and Asia during 2018 and early 2019, and expenses relating to our new partnership with Virgin Money.

The cost/income ratio, which includes our share of associates' and joint ventures' profit, was 71% (2018: 68%) reflecting principally the fall in revenue. Excluding our share of associates' and joint ventures' profit, the cost/income ratio was 82% (2018: 75%).

We remain focused on financial discipline and actions are underway to align our cost base to the current revenue outlook. This includes completion of the integration activity and modernising and improving the efficiency and scalability of our Platforms and Wealth business.

Synergies

We have made solid progress with the integration and we are advanced in implementing our simplified operating model. We now expect to deliver £400m of annual synergies, £350m by end of 2020 and an additional £50m during 2021.

However, the integration of our investment platform is proving more complex and is now expected to take until 2021 to complete due to additional complexity resulting from the separation of technology infrastructures required following the sale of our UK and European insurance business to Phoenix.

As at 31 December 2019, actions have been taken which will deliver £283m of annualised synergies, benefiting 2019 operating expenses by £234m (2018: £120m) with further benefits to come in 2020 and 2021. Cost synergies have been realised from a reduction in staff costs, rationalisation of premises, and efficiencies in supplier spend.

The related implementation costs, which are included in restructuring expenses, incurred to date are £436m, of which £214m were incurred in 2019. We expect that the total costs to deliver the £400m of annualised synergies will be £555m, compared to the previous estimate of £430m to deliver £350m of synergies, reflecting additional costs relating to the investment platform integration.

Capital management

Capital management generated a profit of £37m (2018: loss £9m) mainly due to the positive impact of markets on pooled investment fund holdings and the benefit of lower finance costs following the repurchase of £408m of subordinated debt in 2019.

Asset management associates and joint ventures

Our share of profit from asset management associates and joint ventures increased to £57m (2018: £46m) due to strong revenue growth in HDFC Asset Management.

Our percentage ownership of HDFC Asset Management at 31 December 2019 reduced to 26.91% (2018: 29.96%) due to the sale of 3.02% of the shares in December 2019 in order to increase the public shareholding towards the minimum required under Indian listing rules by August 2021. This sale generated net cash proceeds of £195m.

Insurance associates and joint ventures

Adjusted profit before tax in our insurance associates and joint ventures increased by 35% to £189m (2018: £140m) mainly due to the inclusion of a full 12-month share of Phoenix adjusted profit in 2019 arising from our stake in Phoenix following the sale of our UK and European insurance business on 31 August 2018. Our share of Phoenix adjusted profit before tax included a reduced benefit from actuarial assumption changes of £30m (2018: £42m).

HDFC Life profits increased in 2019 due to strong premium growth. However, our share of profits decreased to £36m (2018: £42m) due to the reduction in our shareholding from 29.23% to 14.73%. Our combined sales of 14.49% of HDFC Life generated net cash proceeds of £1.5bn.

Our share of HASL profits increased to £17m (2018: £12m) mainly due to favourable investment returns.

Profitability

IFRS profit before tax from continuing operations increased to £243m (2018: loss £787m) mainly due to the gain on sale of shares in both HDFC Life and HDFC Asset Management.

1 2019 includes £38m (2018: £3m) relating to a tax credit on adjusting items.

Adjusting items are shown in the table below.

The profit on disposal of interests in associates of £1,542m includes £1,337m relating to the combined sales of 14.49% of the shares in HDFC Life and £204m, pre-tax, from the sale of 3.02% of the shares in HDFC Asset Management.

Restructuring and corporate transaction expenses were £407m (2018: £239m) primarily reflecting ongoing transformation costs for integration, separation from Phoenix, and implementing our simplified operating model. 2019 also included £49m relating to the repurchase of subordinated debt. Further details on restructuring and corporate transaction expenses are provided in the Supplementary information section.

The amortisation and impairment of intangible assets acquired in business combinations and through the purchase of customer contracts increased to £1,844m (2018: £1,155m) mainly due to the £1,569m (2018: £880m) impairment of the asset management goodwill intangible asset in 2019. The impairment reflects the impact of 2019 net outflows, market conditions and competitive pricing on future revenue projections and excludes expected significant benefits from planned future expense savings. Further details are provided in Note 15 of the Group financial statements.

The reversal of impairment of associates of £243m relates to our investment in Phoenix. The Phoenix share price has recovered in 2019 and the impairment recognised in 2018 has therefore been reversed. Further details are provided in Note 16.

Investment return variances and economic assumption changes loss of £25m relates to our share of Phoenix adjusting items. Further details are provided in Note 13.

Other adjusting items of £158m include £140m relating to the settlement of arbitration with LBG. Restructuring and corporate transaction costs above include £20m of variable compensation funded from the settlement.

See pages 123 and 152 for further details on adjusted profit and reconciliation of adjusted profit to IFRS profit.

Settlement of arbitration with Lloyds Banking Group/ Scottish Widows

On 24 July 2019, the Group announced that it had agreed a final settlement with LBG in relation to the arbitration proceedings concerning LBG's attempt to terminate investment management arrangements with the Group.

We are pleased with the settlement with LBG and believe that it represents a fair and positive outcome. The retention of c£35bn of assets in our passive strategies as well as active real estate portfolios, positions us to benefit from scale and growth in these growing parts of the asset management industry. As part of the settlement we received an upfront payment of £140m. Further details are included in Note 5 of the Group financial statements.

The initial withdrawals of £41bn of the previously announced c£70bn of transferring LBG AUM were made in H2 2019. An additional c£25bn is expected to be withdrawn by the end of March 2020. The remaining tranche withdrawals are expected to be made over the following 12 months.

IFRS profit from discontinued operations

The IFRS profit from discontinued operations of £56m in 2019 reflects a change in the value of indemnities relating to the sale of the UK and European insurance business to Phoenix. 2018 included the £1,780m gain on sale of the insurance business.

The FCA announced in July 2019 that they had fined SLAL £31m for failures relating to non-advised sales of annuities. As part of the sale of SLAL we provided an indemnity to Phoenix covering this fine, and provided for an estimate of the financial impact of this indemnity in our 2018 results. As a result of this indemnity provision there was no adverse impact of the fine on our 2019 results.

Phoenix separation costs

We announced in May 2018 that we expected to incur one-off costs relating to the separation of the UK and European insurance business sold to Phoenix of approximately £250m. As this work has progressed additional complexity has been identified relating to the separation of the technology infrastructure and as a result these one-off separation costs are now expected to be £310m. Total separation costs accounted for to date amount to £170m and include £37m in 2019 (£133m in 2018).

Tax expense from continuing operations

The total IFRS tax expense attributable to the profit for the year was £28m (2018: £43m) including a credit of £41m (2018: credit £52m) relating to adjusting items. The effective tax rate on total IFRS profit is 11.5% (2018: negative 5.5%). The main factors that have caused the effective tax rate to be below the UK rate of corporation tax of 19% are:

· The gains arising from the sales of shares in HDFC Life did not give rise to taxable gains due to reliefs available under India's tax legislation and its international tax treaties, and the long-term capital gain arising from the sale of shares in HDFC Asset Management was subject to tax in India at a lower rate than the UK corporation tax rate

· The reversal of the loss on the impairment of investments in associates is not taxable and our share of profit from our associate and joint venture holdings is already included on a net of tax basis and so no further amount is included in the tax expense

These factors are partially offset by:

· Impairment losses on intangible assets are not tax deductible

· Deferred tax assets have not been recognised on tax losses in some jurisdictions in which we operate and existing deferred tax assets relating to certain overseas tax losses brought forward have been written down due to uncertainty of recovery

The tax expense attributable to adjusted profit before tax totalled £115m (2018: £138m), of which £46m (2018: £43m) represents equity holders' share of tax which is borne directly by our associates and joint ventures. The effective tax rate on adjusted profit is 19.7% (2018: 21.2%). This difference to the 19% UK rate primarily reflects the deferred tax not recognised on certain tax losses and the write down of deferred tax assets.

Total tax contribution from continuing operations

Total tax contribution is a measure of all the taxes the Group pays to and collects on behalf of governments in the territories in which we operate. Our total tax contribution for continuing business was £526m (2018: £538m). Of the total £211m (2018: £218m) was borne by Standard Life Aberdeen whilst £315m (2018: £320m) represents tax collected by us on behalf of the tax authorities. Taxes borne by the Group 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.

Tax policy

Understanding tax risk, how to manage it, and how it impacts all our stakeholders are important elements of running our business responsibly and as a responsible business we recognise the contribution the taxes we pay and collect make to wider society. The tax environment is also dynamic and to ensure we meet our responsibilities we employ an in-house tax team to oversee the tax affairs of the Group and have a tax risk management policy that is approved annually by the Board.

You can read our tax strategy on our website www.standardlifeaberdeen.com/annualreport

Investment performance

Investment performance over three years improved in 2019 to 60% (2018: 50%).

1 Investment performance excludes non-discretionary portfolios and funds, where no applicable index is available. Includes strategic insurance partners.

Our investment teams have a continuous improvement philosophy, with the initiatives identified over the past two years supporting the improved investment outcomes across a range of strategies.

Three-year investment performance improved in 2019, with 60% (2018: 50%) of total assets under management ahead of benchmark on a gross of fees basis. This reflects improved investment performance within Multi-asset, in particular in absolute return strategies such as GARS, and strong performances for Fixed income, Cash/Liquidity and Alternatives. This was partly offset by weaker performance in Real estate and Quantitatives.

Weaker three-year performance continued in most Equity classes, although strong performance continued in Asia Pacific equities. Shorter-term equity performance over one year improved in most Equity classes with Emerging markets equities particularly strong. A number of capabilities such as Smaller Companies and European Long-Term Quality equities have maintained strong performance resulting in top decile ranking relative to peers.

We are encouraged by additional strategies receiving positive ratings from investment consultants, bringing the total to 46 strategies. The new ratings were in liability driven investments, Alternatives/Private markets and Fixed income.

The investment performance calculation covers 79% of total AUM, with certain assets excluded where no applicable index is available, such as private markets and Aberdeen Standard Capital funds. Further details about the calculation of investment performance are included in the Glossary.

Assets under management and administration and net flows

AUMA at £545bn is lower than 2018 (£552bn) due to redemptions, including LBG tranche withdrawals of £41bn, partly offset by increased gross inflows and positive market movements. Net outflows continued but slowed to £17bn excluding LBG tranche withdrawals.

1 Net outflows excluding Lloyds Banking Group (LBG) do not include the tranche withdrawals relating to the settlement of arbitration with LBG. Refer to Note 5 of the Group financial statements.

Gross and net flows

Institutional and Wholesale

Institutional gross inflows improved significantly in 2019 to £27.1bn (2018: £19.3bn) with a higher level of inflows in Quantitatives, Fixed income and Alternatives, which benefited from a win of £5.5bn in Q4 of a lower margin US advisory mandate. Wholesale gross inflows increased to £20.2bn (2018: £18.4bn).

Net outflows continued reflecting investor sentiment towards emerging markets and equity markets more generally, as well as weaker 2018 investment performance in both Equities and Multi-asset. However, net outflows for Institutional and Wholesale significantly reduced to £21.5bn (2018: £39.8bn) due to lower redemptions in Equities and Multi-asset, strong Cash/Liquidity flows and the higher gross inflows described above.

Multi-asset redemptions were dominated by GARS, despite the significant improvement in investment performance, with GARS net outflows of £10.6bn (2018: £16.7bn) reducing GARS AUM in Institutional and Wholesale channels to £10.6bn (2018: £19.9bn).

Strategic insurance partners

Gross inflows of £26.9bn (2018: £28.6bn) continued to benefit from additional assets from our strategic partnership with Phoenix and included £10.6bn (2018: £8.5bn) from LBG. Net outflows were £3.4bn (2018: £5.5bn) reflecting redemptions from maturing insurance business in long-term run-off, partly offset by the gross inflows.

Tranche withdrawals of LBG funds were £41bn (£27bn in Q3 2019 and £14bn in Q4 2019).

Platforms and Wealth

Net inflows continued on Wrap and Elevate at £2.3bn (2018: £4.2bn). This is an encouraging level of inflows given the weak market sentiment caused by the political uncertainty in the UK during 2019, as well as a further reduction in defined benefit to defined contribution transfers. Wealth had strong net inflows of £4.7bn (2018: £0.4bn) including £3.5bn from Virgin Money in H1 2019.

Further information on AUMA and net flows are included in the Supplementary information section of this report.

AUMA

Movement in AUMA

For 2019, we changed our definition of AUMA to include assets under advice as we continue to build scale in the 1825 business. Opening assets under advice of £4.0bn are included within market and other movements in the chart above.

AUMA has benefited from positive market movements supported by robust investment performance, primarily within Equities andMulti-asset.

Corporate actions include £1.8bn of assets under advice following 1825's acquisition of Grant Thornton's wealth advisory business and BDO Northern Ireland's wealth management business. These acquisitions increase Wealth assets and help to drive forward our advice capability in alignment with the strategic ambitions for our financial planning and advice business in the UK.

Financial strength and liquidity

Strong balance sheet and capital generation to support investment and shareholder returns.

Shareholder equity

IFRS equity attributable to equity holders of Standard Life Aberdeen plc decreased to £6.6bn (2018: £7.4bn) mainly due to distributions to shareholders including the return of capital. This was partly offset by profitability in the year which included the gain on sale of shares in both HDFC Life and HDFC Asset Management.

Intangible assets of £1.7bn (2018: £3.4bn) primarily relate to goodwill, customer relationships, technology and brands from acquired businesses. The reduction in intangibles is due to the impairment of asset management goodwill of £1.6bn, further details are provided in Note 15 of the Group financial statements.

The principal defined benefit staff pension scheme, which is closed to future accrual, continues to have a significant surplus of £1.1bn (2018: £1.1bn). Further details are provided in Note 34.

Subordinated liabilities reduced to £0.7bn (2018: £1.1bn) reflecting the repurchase of debt in March 2019. Further details are provided in Note 33.

We hold £275m (2018: £179m) in newly established investment vehicles which the Group has seeded and co-investments of £84m (2018: £37m). The Group sets limits for investing in seed capital and co-investment activity and regularly monitors exposures arising from these investments. Additional detail is provided in Note 38.

Surplus regulatory capital

Capital resources comprise shareholders' equity reduced by a number of deductions (including deductions for intangible assets, defined benefit pension plan surpluses and significant investments in certain associates). Under regulatory rules, the vast majority of the value of our shareholdings in listed associates is not recognised in capital resources. At 31 December 2019, the indicative regulatory capital position was as follows:

The £1.7bn capital surplus above includes a deduction to allow for the proposed final dividend in 2019 which will be paid in May 2020. Capital resources includes c£0.3bn from holdings in insurance associates and JVs that will no longer be eligible following changes to the capital regime during 2021. The position is also shown before a deduction for the further share buyback of up to £400m announced in February 2020.

Note 46 of the Group financial statements of this report includes a reconciliation between IFRS equity and surplus regulatory capital and also details of our capital management policies.

Capital generation

Our strong capital position supports ongoing investment in the business and delivering shareholder returns.

Adjusted capital generation

This measure aims to show how adjusted profit contributes to regulatory capital, and therefore provides insight into our ability to generate capital to support the payment of dividends to shareholders. As explained further in Section 9, Supplementary information, adjusted capital generation is a new APM that we are reporting for the first time.

Adjusted capital generation reduced to £333m (2018: £395m) as a result of the lower revenue in 2019. The increase in dividends was primarily due to holding our Phoenix associate for a full year.

Net movement in surplus regulatory capital

In addition to the adjusted capital generation, significant capital was generated in 2019 through the £1.7bn of proceeds from the sale of shares in HDFC Life and HDFC Asset Management.

The primary uses of capital in 2019 related to £0.5bn for the payment of the interim and final dividends to shareholders and £0.4bn for funding the remainder of the £750m share buyback programme which commenced in 2018.

Liquidity management

Cash and liquid resources

Cash and liquid resources were £2.7bn at 31 December 2019 (2018: £2.6bn) which includes cash and cash equivalents of £1.3bn (2018: £0.9bn), short-term debt securities (Certificates of Deposit) of £0.9bn (2018: £1.2bn), bonds of £0.3bn (2018: £0.3bn) and holdings in pooled investment funds of £0.2bn (2018: £0.2bn). Of these cash and liquid resources £1.4bn were held in the Standard Life Aberdeen plc holding company (2018: £1.3bn).

Net cash inflows

Following the sale of the UK and European insurance business in 2018, the IFRS consolidated statement of cash flows now presents a shareholder view of cash generation, and therefore the Group no longer reports adjusted cash generation as an alternative performance measure. Further details are provided in Section 9, Supplementary information.

Net cash inflows from operating activities were £201m which includes outflows from restructuring costs, net of tax, of £242m and the LBG settlement inflow, net of tax, of £113m.

Cash inflows from investing activities of £1.8bn includes proceeds of £1.7bn from the sale of shares in HDFC Life and HDFC Asset Management.

Cash outflows from financing activities of £1.6bn primarily relate to the repayment of subordinated debt of £0.5bn, the purchase of shares as part of the buyback programme of £0.5bn and £0.5bn for dividends paid in the year.

Shareholder return

Total shareholder return (TSR)

TSR represents the total return to shareholders in a period and includes share price growth and the reinvestment of dividends. The TSR was 39%, 5% and 162% over one-year, five-years and ten-years respectively.

Earnings per share1

Adjusted diluted earnings per share was 19.3p and diluted earnings per share from continuing operations was 8.8p. This reflects our focus on financial discipline and a 22% reduction in our share count arising from the £1.75bn capital return to shareholders via the 'B' share scheme and related share consolidation, and share buyback programme.

1 In accordance with IAS 33, earnings per share have not been restated following the share consolidation as there was an overall corresponding change in resources. As a result of the share consolidation and share buyback earnings per share from continuing operations for the year ended 31 December 2019 is not directly comparable with the prior year. Refer to Note 12 of the Group financial statements for information relating to the calculation of diluted earnings per share.

Dividends

Dividend policy

Management actions, in terms of improving underlying profitability and reducing the share count, are designed to deliver a level of dividend that is sustainable and progressive over the medium term. As disclosed in last year's Annual report and accounts, it is the Board's current intention that the total annual dividend per share will be held at the 2018 level of 21.6p while the business is transformed, cost synergies are delivered and future financial performance confirms the sustainability of this level of distribution and provides line of sight to its future growth.

Proposed dividend

The Board is recommending a final dividend for 2019 of 14.3p (2018: 14.3p) per share. Subject to shareholder approval, this will be paid on 19 May 2020 to shareholders on the register at close of business on 3 April 2020.

The dividend payment is expected to be £322m. At 31 December 2019 Standard Life Aberdeen plc held £1.4bn of cash and liquid resources and £2.3bn of distributable reserves, which will be used to support the dividend.

The final dividend, combined with the 2019 interim dividend of 7.3p, brings the total dividend for the year to 21.6p. Adjusted capital generation for 2019 was £333m, with a further £1,698m of capital generated from HDFC stake sales.

How the dividend is funded

External dividends are funded from the cumulative dividend income that Standard Life Aberdeen plc receives from its subsidiaries and associates. To provide some protection against fluctuations in these dividends, Standard Life Aberdeen plc holds a buffer of distributable cash and liquid resources. 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 of this Strategic report.

Return of capital

The general meeting on 25 June 2018 approved a return of capital of £1bn via a 'B' share scheme, and a return of up to £750m by a share buyback programme. The 'B' share scheme return took place in November 2018 and the £750m share buyback was completed in December 2019. A total of 273m shares have been repurchased in 2018 and 2019 at an average price of £2.75 per share.

Following the sale of shares in HDFC Asset Management in December 2019, we announced that we intended to undertake a further share buyback programme. On 7 February 2020 we announced a further share buyback of up to £400m and expect that it will complete in the second half of 2020.

Viability statement

In accordance with the UK Corporate Governance Code, the Directors have carried out a robust assessment of the key risks facing the Group in considering the Group's viability and longer-term prospects. This assessment is based on information known today.

Viability

We consider that three years is an appropriate period for this viability assessment as this is in line with our business planning horizon and the period over which strategic actions such as the launch of new investment propositions are typically delivered.

The key processes used by the Board to assess viability are set out below.

The business planning process includes the projection of Group profitability, regulatory capital and liquidity over a three year period, under a range of scenarios. The most severe economic scenario assumes a significant global recession in 2020 with a sharp fall in global equity markets of around 45% before recovering by 15% in 2021 and by 15% in 2022; bond yields fall and remain at lower levels throughout the forecast period. Viability was not threatened under any of the scenarios explored.

Stress testing and scenario analysis looks at the key risk exposures of the business and the financial resilience of the business to severe, and in some cases extreme, individual and combined stresses. We explored a broad range of stresses that could adversely impact future profitability, capital and liquidity including:

· Individual stresses applied to fixed interest, equity and property market values, reduction in bps fees and increased costs

· Combined stress scenarios considering severe economic conditions, poor fund performance, adverse flows, a spike in operational errors, integration/ separation/ transformation stalling and pressure on fees

The most onerous scenario incorporated the severe economic scenario with flows being 20% worse than experienced in 2018 and transformation stalling resulting in transformation costs increasing by 50% and the cost-savings anticipated from this activity being deferred by 12 months.

Whilst capital was eroded and liquidity fell under all scenarios, the strength and quality of our capital base and the diverse range of management actions available mean that the Group is able to withstand these extreme stresses and remain viable. The range of possible management actions that are available includes reducing costs, deferring project expenditure, realising the value of our holdings in joint ventures and listed associates, and reducing dividends.

Reverse stress testing gives a quantitative and qualitative understanding of extreme but plausible risk scenarios which could threaten business model viability.

In 2019 we explored three scenarios which were:

· A market shock with adverse impacts on our joint ventures and listed associates: this work highlighted that viability was only threatened under a specific set of assumptions and the likelihood of this scenario occurring was considered very remote.

· A significant breakdown in the SLA-Phoenix relationship: this work highlighted that, in the event of a breakdown in the relationship, SLA's viability was not expected to be threatened over the short to medium-term as a result of any commercial impacts; the work also highlighted the importance of actions being taken to reduce the operational reliance on Phoenix for certain outsourced services.

· The outage of a key payment mechanism: SLA's viability was considered most at risk from a prolonged outage impacting one or more of SLA's significant customer / client segments or SLA's main corporate banking counterparty. Mitigants are in place to reduce this risk including contingency plans to respond to short-term outages and controls around the use of outsourced service providers.

Developments relating to reverse stress tests performed in previous years were also reassessed to support the Board in their assessment of viability.

Reverse stress tests are, by their very nature, intended to explore scenarios that could potentially threaten viability. However, the remoteness of the scenarios reviewed and the mitigants that are in place mean the viability assessment is supported and no qualification is considered necessary.

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.

Longer-term prospects

The Directors have determined that three years is an appropriate period over which to assess 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 be sustainable and resilient in the long term as described on pages 10 to 11 and 13 to 17 of this report.

The Directors' assessment of prospects also takes into account:

· The Group's strong surplus regulatory capital, as set out on page 41

· The substantial holdings of Group cash and liquid resources as set out on page 42

· The Group's holdings in listed associates as set out on page 30

Assessment of prospects

· Based on the above, the Directors consider the Group's focus on operational and strategic delivery, including the completion of transformation activity, will deliver the environment, capability and focus to grow revenue sources and manage the cost base. The Group's financial position and business model are considered to support the assumptions within the business plan regarding maintaining a strong capital position and the dividend policy described on the previous page.

Risk management

Strong risk management focused on delivering the right outcomes

Our approach to risk management

A strong risk and compliance culture flows from our strategic drivers and behaviours and is fundamental to how we manage the business. Effective risk-based decision-making is essential to the delivery of the right outcomes for our clients, customers and all our stakeholders. Ultimate accountability for risk management rests with the Board who oversee the effectiveness of the Enterprise Risk Management (ERM) framework.

Three lines of defence

We operate 'three lines of defence' in the management of risk so that there are clearly defined roles and responsibilities within our ERM framework:

· First line: Day-to-day risk management, including identification and mitigation of risks and maintaining appropriate controls

· Second line: Risk oversight is provided by the Risk and Compliance function which reports to the Chief Risk Officer

· Third line: Independent verification of the adequacy and effectiveness of our risk and control management systems is provided by our Internal audit function under the direction of the Chief Internal Auditor

Enterprise Risk Management framework

As part of our corporate transformation, we have continued to strengthen the ERM framework and embed it in the activities of our business. This ensures that the framework keeps pace with industry standards and is appropriate for the risk profile of the business.

During 2019, key improvements to the ERM framework included:

· Streamlining the policy framework to support the management of risk in all locations

· Completing the roll-out of our risk system, Shield, so that it can be used by all our people

· Strengthening our risk appetite framework by introducing new risk tolerances to support governance and risk management

· Extending and refining our risk taxonomy to support better articulation and discussion of the risks

· Continuing the programme to refresh risk-control self-assessments across our global functions

· Implementing a single internal capital adequacy assessment process across Standard Life Aberdeen

· Extending the Senior Manager and Certification Regime across all of our UK regulated subsidiaries, including training and support for our senior managers and certified staff

Business risk environment

Our commercial risk profile improved in 2019. Investment performance strengthened in contrast to a particularly challenging year in 2018. Gross inflows strengthened across a range of asset classes. However, net flows have remained negative and revenue margins across the industry continue to be under pressure.

We have strengthened our capital and liquidity positions while also returning capital to our shareholders through our buyback programme.

In the near-term, operational stretch continues to exist as work is progressing to transform the business. It is proving complex to undertake the separation activity and associated consequences and will require further cost to do so. Ongoing actions are in place to retain talent and support staff engagement. We have undertaken careful resource planning with executive ownership and accountability for delivery of our transformation programmes, alongside delivery of our business as usual activities.

Following the ratification of the EU/UK Withdrawal Agreement in January, the Brexit process has entered a transition period up to 31 December 2020. We will closely monitor developments in relation to the negotiations for the UK's future relationship with the EU and actively engage with industry groups such as the Investment Association. This phase of Brexit presents the prospect of further political and commercial uncertainty in the UK.

We maintain a heightened level of vigilance to risks to our operations from cyber intrusion. Dedicated teams of internal experts, augmented by external expert input, help to ensure we actively manage this continually evolving risk.

We are managing the impact of COVID-19 coronavirus, utilising business continuity and resilience processes where appropriate. Its spread could begin to materially impact the global economy and delivery of our business plan. Our joint venture in China, HASL, is similarly managing its operations given its exposure to risks impacting the wider Chinese market.

We continue to strengthen our conduct risk framework and ensure that we bring the interests of our clients and customers to every conversation.

We are committed to managing our direct impact on climate change and are very mindful of the positive influence we can have as a global active fund manager, for example, to encourage positive change by companies in which we choose to invest. You can read more about our approach to tackling climate change on page 25.

Emerging risks

We are vigilant to emerging risks which could impact our strategy and operations. Many of these have geopolitical, economic, societal, technological, legal/regulation and environmental themes. We draw on internal experts and external specialist reports to build a picture of how these risks could crystallise in the future and inform our approach to addressing them. Specifically, emerging risks include availability of talent in our future workplace, new cyber threats, disruptive technologies, unprecedented market shifts and climate change.

Our principal risks and uncertainties

The specific risks we face as a business are driven by what we choose to do and how we do it, as well as the wider environment in which we operate. We group these under 12 principal risks which form the basis of our detailed risk taxonomy. This sets the framework for assessing, monitoring, controlling and governing the risks of the business. Our principal and emerging risks were subject to robust assessment by the Board and the principal risks are described in the following pages.

Pages 2 to 49 constitute the Strategic report which was approved by the Board and signed off on its behalf by:

Kenneth A Gilmour

Company Secretary,

Standard Life Aberdeen plc (SC286832)

10 March 2020