SLA.L Regulatory News (SLA)

Standard Life Aberdeen plc

Half year results 2020

Part 2 of 3

 

2. Statement of Directors' responsibilities

Each of the Directors, whose names and functions are listed on the Standard Life Aberdeen plc website, www.standardlifeaberdeen.com, confirms to the best of his or her knowledge and belief that:

· The International Financial Reporting Standards (IFRS) condensed consolidated income statement, the IFRS condensed consolidated statement of comprehensive income, the IFRS condensed consolidated statement of financial position, the IFRS condensed consolidated statement of changes in equity and the IFRS condensed consolidated statement of cash flows and associated notes, have been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU

· The interim management report includes a fair review of the information required by:

- DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the IFRS condensed consolidated financial information and a description of the principal risks and uncertainties for the remaining six months of the year

- DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so

· As per principle N of the UK Corporate Governance Code, the Half year results 2020 taken as a whole, present a fair, balanced and understandable assessment of the Company's position and prospects

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Changes to Directors during the period

Brian McBride was appointed to the Board as a non-executive Director on 1 May 2020. As previously announced, Martin Gilbert stepped down from the Board at the conclusion of the Company's Annual General Meeting on 12 May 2020. The Company also announced the appointment of Stephen Bird on 1 July 2020 as Chief Executive-Designate. Following a handover period, and subject to regulatory approvals, Stephen will succeed Keith Skeoch as Group Chief Executive.

By order of the Board

 

Sir Douglas Flint Chairman 7 August 2020

Stephanie Bruce Chief Financial Officer 7 August 2020

 

3. Independent review report to Standard Life Aberdeen plc

Conclusion

We have been engaged by the Company to review the condensed set of financial statements in the Half year results for the six months ended 30 June 2020 which comprises the IFRS condensed consolidated income statement, IFRS condensed consolidated statement of comprehensive income, Reconciliation of consolidated adjusted profit before tax to IFRS profit for the period, IFRS condensed consolidated statement of financial position, IFRS condensed statement of changes in equity, IFRS condensed consolidated statement of cash flows and the related explanatory notes.

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the Half year financial report for the six months ended 30 June 2020 is not prepared, in all material respects, in accordance with IAS 34 Interim Financial Reporting as adopted by the EU and the Disclosure Guidance and Transparency Rules ('the DTR') of the UK's Financial Conduct Authority ('the UK FCA').

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use in the UK. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. We read the other information contained in the Half year financial report and consider whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Directors' responsibilities

The Half year financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the Half year financial report in accordance with the DTR of the UK FCA.

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

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the Half year financial report based on our review.

The purpose of our review work and to whom we owe our responsibilities

This report is made solely to the Company in accordance with the terms of our engagement to assist the Company in meeting the requirements of the DTR of the UK FCA. Our review has been undertaken so that we might state to the Company those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company for our review work, for this report, or for the conclusions we have reached.

Jonathan Mills

for and on behalf of KPMG LLP

Chartered AccountantsSaltire Court20 Castle TerraceEdinburghEH1 2EG

7 August 2020

 

4. Financial information

IFRS condensed consolidated income statement

For the six months ended 30 June 2020

		6 months2020	6 months2019	Full year2019
	Notes	£m	£m	£m
Income
Investment return	4.4	(87)	318	464
Revenue from contracts with customers	4.5	753	860	1,743
Insurance contract premium income		30	34	66
Profit on disposal of interests in associates		651	443	1,542
Other income		13	23	178
Total income from continuing operations		1,360	1,678	3,993
Expenses
Insurance contract claims and change in liabilities		17	95	156
Change in non-participating investment contract liabilities		(45)	197	265
Administrative expenses
Restructuring and corporate transaction expenses	4.6	131	192	374
Impairment of goodwill - asset management		915	-	1,569
Other administrative expenses		868	821	1,651
Total administrative expenses	4.6	1,914	1,013	3,594
Change in liability for third party interest in consolidated funds		(37)	5	21
Finance costs		15	20	36
Total expenses from continuing operations		1,864	1,330	4,072
Share of profit from associates and joint ventures		136	38	79
(Loss on)/reversal of impairment of interest in associates and joint ventures	4.12	(130)	243	243
(Loss)/profit before tax from continuing operations		(498)	629	243
Tax expense/(credit) attributable to continuing operations	4.7	6	(10)	28
(Loss)/profit for the period from continuing operations		(504)	639	215
Profit for the period from discontinued operations	4.2	-	25	56
(Loss)/profit for the period		(504)	664	271
Attributable to:
Equity shareholders of Standard Life Aberdeen plc
From continuing operations		(509)	636	210
From discontinued operations		-	25	56
Equity shareholders of Standard Life Aberdeen plc		(509)	661	266
Non-controlling interests
From continuing operations - preference shares	4.14	5	3	5
		(504)	664	271
Earnings per share from continuing operations
Basic (pence per share)	4.8	(22.7)	26.3	8.9
Diluted (pence per share)	4.8	(22.7)	26.0	8.8
Earnings per share
Basic (pence per share)	4.8	(22.7)	27.3	11.2
Diluted (pence per share)	4.8	(22.7)	27.0	11.1

 

The Notes on pages 23 to 43 are an integral part of this IFRS condensed consolidated financial information.

 

IFRS condensed consolidated statement of comprehensive income

For the six months ended 30 June 2020

		6 months2020	6 months2019	Full year2019
	Notes	£m	£m	£m
(Loss)/profit for the period		(504)	664	271
Less: profit from discontinued operations		-	(25)	(56)
(Loss)/profit from continuing operations		(504)	639	215
Items that will not be reclassified subsequently to profit or loss:
Remeasurement gains/(losses) on defined benefit pension plans		205	95	(23)
Share of other comprehensive income of associates and joint ventures		(16)	(3)	(17)
Equity holder tax effect of items that will not be reclassified subsequently to profit or loss		-	-	-
Total items that will not be reclassified subsequently to profit or loss		189	92	(40)
Items that may be reclassified subsequently to profit or loss:
Fair value gains/(losses) on cash flow hedges		76	18	(10)
Exchange differences on translating foreign operations		40	(2)	(46)
Share of other comprehensive income of associates and joint ventures		13	-	7
Items transferred to the condensed consolidated income statement
Fair value (gains)/losses on cash flow hedges		(40)	(4)	22
Equity holder tax effect of items that may be reclassified subsequently to profit or loss	4.7	(7)	(2)	(2)
Total items that may be reclassified subsequently to profit or loss		82	10	(29)
Other comprehensive income for the period from continuing operations		271	102	(69)
Total comprehensive income for the period from continuing operations		(233)	741	146
Profit from discontinued operations	4.2	-	25	56
Total comprehensive income for the period from discontinued operations		-	25	56
Total comprehensive income for the period		(233)	766	202
Attributable to:
Equity shareholders of Standard Life Aberdeen plc
From continuing operations		(238)	738	141
From discontinued operations		-	25	56
Non-controlling interests
From continuing operations - preference shares		5	3	5
		(233)	766	202

 

The Notes on pages 23 to 43 are an integral part of this IFRS condensed consolidated financial information.

 

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

For the six months ended 30 June 2020

		6 months 2020			6 months 2019			Full year 2019
		Continuing operations	Discontinued operations	Total	Continuing operations	Discontinued operations	Total	Continuing operations	Discontinued operations	Total
	Notes	£m	£m	£m	£m	£m	£m	£m	£m	£m
Adjusted profit before tax
Asset management, platforms and wealth		114	-	114	190	-	190	395	-	395
Insurance associates and joint ventures		81	-	81	90	-	90	189	-	189
Adjusted profit before tax	4.3	195	-	195	280	-	280	584	-	584
Adjusted for the following items
Restructuring and corporate transaction expenses		(147)	-	(147)	(198)	-	(198)	(407)	-	(407)
Amortisation and impairment of intangible assets acquired in business combinations and through the purchase of customer contracts		(1,175)	-	(1,175)	(144)	-	(144)	(1,844)	-	(1,844)
Profit on disposal of interests in associates		651	-	651	443	-	443	1,542	-	1,542
(Loss on)/reversal of impairment of associates and joint ventures		(130)	-	(130)	243	-	243	243	-	243
Investment return variances and economic assumption changes		124	-	124	(18)	-	(18)	(25)	-	(25)
Other1		4	-	4	22	25	47	158	56	214
Total adjusting items	4.3	(673)	-	(673)	348	25	373	(333)	56	(277)
Share of associates' and joint ventures' tax expense	4.3	(20)	-	(20)	1	-	1	(8)	-	(8)
(Loss)/profit before tax		(498)	-	(498)	629	25	654	243	56	299
Tax (expense)/credit attributable to
Adjusted profit	4.3	(13)	-	(13)	(31)	-	(31)	(69)	-	(69)
Adjusting items	4.3	7	-	7	41	-	41	41	-	41
Total tax (expense)/credit		(6)	-	(6)	10	-	10	(28)	-	(28)
(Loss)/profit for the period		(504)	-	(504)	639	25	664	215	56	271

1 The Other adjusting item in Full year 2019 relating to continuing operations includes £140m received in relation to the settlement of arbitration with Lloyds Banking Group.

The Group's key alternative performance measure is adjusted profit before tax. Refer Note 4.9 for further details.

The Notes on pages 23 to 43 are an integral part of this IFRS condensed consolidated financial information.

IFRS condensed consolidated statement of financial position

As at 30 June 2020

		30 June2020	30 June20191	31 December2019
	Notes	£m	£m	£m
Assets
Intangible assets	4.11	579	3,312	1,707
Pension and other post-retirement benefit assets	4.15	1,382	1,233	1,163
Investments in associates and joint ventures accounted for using the equity method	4.12	1,409	1,604	1,509
Property, plant and equipment		254	266	266
Deferred tax assets		111	80	74
Financial investments	4.16	2,163	1,425	2,115
Receivables and other financial assets		621	634	560
Current tax recoverable		8	8	9
Other assets		63	70	55
Assets held for sale		2	894	767
Cash and cash equivalents		1,752	1,236	1,615
		8,344	10,762	9,840
Assets backing unit linked liabilities (excluding held for sale)
Financial investments	4.16	1,313	1,940	1,528
Receivables and other financial assets		11	7	10
Cash and cash equivalents		72	48	44
		1,396	1,995	1,582
Total assets		9,740	12,757	11,422
Liabilities
Third party interest in consolidated funds	4.16	184	23	119
Subordinated liabilities	4.14	798	690	655
Pension and other post-retirement benefit provisions	4.15	57	46	55
Deferred income		64	71	67
Deferred tax liabilities		89	94	87
Current tax liabilities		18	19	19
Derivative financial liabilities	4.16	8	8	3
Other financial liabilities		1,217	1,336	1,315
Provisions		92	85	102
Other liabilities		7	14	5
Liabilities held for sale		-	731	747
		2,534	3,117	3,174
Unit linked liabilities (excluding held for sale)
Investment contract liabilities	4.16	990	1,600	1,152
Third party interest in consolidated funds	4.16	376	384	416
Other unit linked liabilities	4.16	30	11	14
		1,396	1,995	1,582
Total liabilities		3,930	5,112	4,756
Equity
Share capital	4.13	317	337	327
Shares held by trusts	4.13	(172)	(113)	(134)
Share premium reserve		640	640	640
Retained earnings	4.13	3,926	2,994	2,886
Other reserves	4.13	1,096	3,685	2,845
Equity attributable to equity holders of Standard Life Aberdeen plc		5,807	7,543	6,564
Non-controlling interests
Ordinary shares		3	3	3
Preference shares	4.14	-	99	99
Total equity		5,810	7,645	6,666
Total equity and liabilities		9,740	12,757	11,422

1 In line with the Group's Annual report and accounts for the year ended 31 December 2019, comparatives for 30 June 2019 reflect the presentational change made to show unit linked liabilities and the assets backing these liabilities separately.

The Notes on pages 23 to 43 are an integral part of this IFRS condensed consolidated financial information

 

IFRS condensed consolidated statement of changes in equity

For the six months ended 30 June 2020

								Non-controlling interests
		Share capital	Shares held by trusts	Share premium reserve	Retained earnings	Other reserves	Total equity attributable to equity shareholders of Standard Life Aberdeen plc	Ordinary shares	Preference shares	Total equity
	Notes	£m	£m	£m	£m	£m	£m	£m	£m	£m
1 January 2020		327	(134)	640	2,886	2,845	6,564	3	99	6,666
Loss for the period from continuing operations		-	-	-	(509)	-	(509)	-	5	(504)
Other comprehensive income for the period from continuing operations		-	-	-	202	69	271	-	-	271
Total comprehensive income for the period		-	-	-	(307)	69	(238)	-	5	(233)
Issue of share capital	4.13	-	-	-	-	-	-	-	-	-
Dividends paid on ordinary shares	4.10	-	-	-	(320)	-	(320)	-	-	(320)
Dividends paid on preference shares		-	-	-	-	-	-	-	(3)	(3)
Reclassification of preference shares to liability	4.14	-	-	-	(1)	-	(1)	-	(101)	(102)
Shares bought back on-market and cancelled	4.13	(10)	-	-	(175)	10	(175)	-	-	(175)
Reserves credit for employee share-based payments		-	-	-	-	26	26	-	-	26
Transfer to retained earnings for vested employee share-based payments		-	-	-	20	(20)	-	-	-	-
Transfer between reserves on impairment of subsidiaries		-	-	-	1,834	(1,834)	-	-	-	-
Shares acquired by employee trusts		-	(48)	-	-	-	(48)	-	-	(48)
Shares distributed by employee and other trusts and related dividend equivalents		-	10	-	(11)	-	(1)	-	-	(1)
30 June 2020		317	(172)	640	3,926	1,096	5,807	3	-	5,810

								Non-controlling interests
		Share capital	Shares held by trusts	Share premium reserve	Retained earnings	Other reserves	Total equity attributable to equity shareholders of Standard Life Aberdeen plc	Ordinary shares	Preference shares	Total equity
	Notes	£m	£m	£m	£m	£m	£m	£m	£m	£m
31 December 2018		353	(115)	640	2,778	3,782	7,438	2	99	7,539
Effect of change in accounting policy to IFRS 91		-	-	-	(5)	(7)	(12)	-	-	(12)
Effect of change in accounting policy to IFRS 161		-	-	-	(12)	-	(12)	-	-	(12)
1 January 2019		353	(115)	640	2,761	3,775	7,414	2	99	7,515
Profit for the period from continuing operations		-	-	-	636	-	636	-	3	639
Profit for the period from discontinued operations	4.2	-	-	-	25	-	25	-	-	25
Other comprehensive income for the period from continuing operations		-	-	-	92	10	102	-	-	102
Total comprehensive income for the period		-	-	-	753	10	763	-	3	766
Issue of share capital	4.13	-	-	-	-	-	-	-	-	-
Dividends paid on ordinary shares	4.10	-	-	-	(345)	-	(345)	-	-	(345)
Dividends paid on preference shares		-	-	-	-	-	-	-	(3)	(3)
Shares bought back on-market and cancelled	4.13	(16)	-	-	(180)	(110)	(306)	-	-	(306)
Other movements in non-controlling interests in the period		-	-	-	-	-	-	1	-	1
Reserves credit for employee share-based payments		-	-	-	-	21	21	-	-	21
Transfer to retained earnings for vested employee share-based payments		-	-	-	11	(11)	-	-	-	-
Shares acquired by employee trusts		-	(3)	-	-	-	(3)	-	-	(3)
Shares distributed by employee and other trusts and related dividend equivalents		-	5	-	(6)	-	(1)	-	-	(1)
30 June 2019		337	(113)	640	2,994	3,685	7,543	3	99	7,645

1 The Group initially applied IFRS 9 and IFRS 16 at 1 January 2019. Under the transition methods chosen, comparative information was not restated and the cumulative effect of initially applying these standards is recognised in retained earnings at the date of initial application.

								Non-controlling interests
		Share capital	Shares held by trusts	Share premium reserve	Retained earnings	Other reserves	Total equity attributable toequity shareholders of Standard Life Aberdeen plc	Ordinary shares	Preference shares	Total equity
	Notes	£m	£m	£m	£m	£m	£m	£m	£m	£m
31 December 2018		353	(115)	640	2,778	3,782	7,438	2	99	7,539
Effect of change in accounting policy to IFRS 91		-	-	-	(5)	(7)	(12)	-	-	(12)
Effect of change in accounting policy to IFRS 161		-	-	-	(12)	-	(12)	-	-	(12)
1 January 2019		353	(115)	640	2,761	3,775	7,414	2	99	7,515
Profit for the year from continuing operations		-	-	-	210	-	210	-	5	215
Profit for the year from discontinued operations	4.2	-	-	-	56	-	56	-	-	56
Other comprehensive income for the year from continuing operations		-	-	-	(33)	(36)	(69)	-	-	(69)
Total comprehensive income for the year		-	-	-	233	(36)	197	-	5	202
Issue of share capital	4.13	-	-	-	-	-	-	-	-	-
Dividends paid on ordinary shares	4.10	-	-	-	(518)	-	(518)	-	-	(518)
Dividends paid on preference shares		-	-	-	-	-	-	-	(5)	(5)
Shares bought back on-market and cancelled	4.13	(26)	-	-	(390)	(100)	(516)	-	-	(516)
Other movements in non-controlling interests in the year		-	-	-	-	-	-	1	-	1
Reserves credit for employee share-based payments		-	-	-	-	43	43	-	-	43
Transfer to retained earnings for vested employee share-based payments		-	-	-	57	(57)	-	-	-	-
Transfer between reserves on impairment of subsidiaries		-	-	-	780	(780)	-	-	-	-
Shares acquired by employee trusts		-	(50)	-	-	-	(50)	-	-	(50)
Shares distributed by employee and other trusts and related dividend equivalents		-	31	-	(38)	-	(7)	-	-	(7)
Transfer from the Standard Life Unclaimed Asset Trust	4.13	-	-	-	1	-	1	-	-	1
31 December 2019		327	(134)	640	2,886	2,845	6,564	3	99	6,666

1 The Group initially applied IFRS 9 and IFRS 16 at 1 January 2019. Under the transition methods chosen, comparative information was not restated and the cumulative effect of initially applying these standards is recognised in retained earnings at the date of initial application.

The Notes on pages 23 to 43 are an integral part of this IFRS condensed consolidated financial information.

 

IFRS condensed consolidated statement of cash flows

For the six months ended 30 June 2020

		6 months2020	6 months20191	Full year2019
	Notes	£m	£m	£m
Cash flows from operating activities
(Loss)/profit before tax from continuing operations		(498)	629	243
Profit before tax from discontinued operations	4.2	-	25	56
		(498)	654	299
Change in operating assets		167	(278)	158
Change in operating liabilities		(159)	190	(291)
Adjustment for non-cash movements in investment income		5	2	4
Other non-cash and non-operating items		517	(615)	(28)
Dividends received from associates and joint ventures		34	51	93
Taxation paid2		(14)	(20)	(34)
Net cash flows from operating activities		52	(16)	201
Cash flows from investing activities
Purchase of property, plant and equipment		(6)	(16)	(28)
Proceeds from sale of property, plant and equipment		-	1	2
Acquisition of subsidiaries and unincorporated businesses net of cash acquired		-	-	(40)
Disposal of subsidiaries net of cash disposed of		(8)	-	-
Acquisition of investments in associates and joint ventures		-	-	(51)
Proceeds from contingent consideration assets		-	95	63
Payments of contingent consideration liabilities		(3)	(7)	(18)
Disposal of investments in associates and joint ventures		742	510	1,720
Taxation paid on disposal of investments in associates and joint ventures2		(33)	-	(22)
Purchase of financial investments		(328)	(121)	(590)
Proceeds from sale or redemption of financial investments		415	784	800
Purchase of intangible assets		(3)	(12)	(15)
Net cash flows from investing activities		776	1,234	1,821
Cash flows from financing activities
Repayment of subordinated liabilities		-	(455)	(455)
Payment of lease liabilities		(18)	(18)	(32)
Shares acquired by trusts		(48)	(3)	(50)
Interest paid		(11)	(10)	(39)
Shares bought back on-market and cancelled		(172)	(306)	(516)
Preference dividends paid		(3)	(3)	(5)
Ordinary dividends paid	4.10	(320)	(345)	(518)
Net cash flows from financing activities		(572)	(1,140)	(1,615)
Net increase in cash and cash equivalents		256	78	407
Cash and cash equivalents at the beginning of the period		1,347	957	957
Effects of exchange rate changes on cash and cash equivalents		16	2	(17)
Cash and cash equivalents at the end of the period3		1,619	1,037	1,347
Supplemental disclosures on cash flows from operating activities
Interest paid		2	2	5
Interest received		24	19	34
Dividends received		58	78	143
Rental income received on investment property		2	-	3

1 Restated. Cash flows in relation to contingent consideration have been classified as investing activities consistent with the approach adopted in the Annual report and accounts for the year ended 31 December 2019. In the 2019 Half year results these cash flows were classified as operating activities.

2 Total taxation paid for the six months ended 30 June 2020 was £47m (six months ended 30 June 2019: £20m; 12 months ended 31 December 2019: £56m).

3 Comprises £1,824m (30 June 2019: £1,315m; 31 December 2019: £1,685m) of cash and cash equivalents, including cash and cash equivalents held for sale and backing unit linked liabilities and (£205m) (30 June 2019: (£278m); 31 December 2019: (£338m)) of overdrafts which are reported in other financial liabilities in the IFRS condensed consolidated statement of financial position.

The Notes on pages 23 to 43 are an integral part of this IFRS condensed consolidated financial information.

 

Notes to the IFRS condensed consolidated financial information

4.1 Accounting policies

(a) Basis of preparation

The IFRS condensed consolidated half year financial information has been prepared in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority and IAS 34 Interim Financial Reporting issued by the International Accounting Standards Board as endorsed by the European Union (EU).

The accounting policies for recognition, measurement, consolidation and presentation as set out in the Group's Annual report and accounts for the year ended 31 December 2019 have been applied in the preparation of the IFRS condensed consolidated half year financial information except as noted below.

(a)(i) New standards, interpretations and amendments to existing standards that have been adopted by the Group

The Group has adopted the following new International Financial Reporting Standards (IFRSs), interpretations and amendments to existing standards, which are effective by EU endorsement for annual periods beginning on or after 1 January 2020.

Amendments to existing standards

· Amendments to IFRS 3 Definition of a business

· Amendments to IFRS 9, IAS 39 and IFRS 7 Interest rate benchmark reform

· Amendments to IAS 1 and IAS 8 Definition of material

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

(b) IFRS condensed consolidated half year financial information

This IFRS condensed consolidated half year financial information does not comprise statutory accounts within the meaning of Section 434 of the Companies Act. Additionally, the comparative figures for the financial year ended 31 December 2019 are not the Company's statutory accounts for that financial year. The statutory accounts have been reported on by the Company's auditor and delivered to the Registrar of Companies. The report of the auditor was (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under Section 498 (2) or (3) of the Companies Act 2006. The IFRS condensed consolidated half year financial information has been reviewed, not audited.

(c) Exchange rates

The income statements and cash flows, and statements of financial position of Group entities that have a different functional currency from the Group's presentation currency have been translated using the following principal exchange rates:

	6 months 2020		6 months 2019		Full year 2019
	Income statement and cash flows (average rate)	Statement of financial position (closing rate)	Income statement and cash flows (average rate)	Statement of financial position (closing rate)	Income statement and cash flows (average rate)	Statement of financial position (closing rate)
Euro	1.147	1.100	1.143	1.118	1.142	1.180
US Dollar	1.270	1.236	1.294	1.273	1.280	1.325
Indian Rupee	93.729	93.292	90.531	87.850	90.106	94.563
Chinese Renminbi	8.937	8.741	8.777	8.741	8.830	9.228
Hong Kong Dollar	9.866	9.576	10.145	9.943	10.030	10.322
Singapore Dollar	1.768	1.724	1.757	1.722	1.745	1.781

(d) Going concern

The Group's business activities, together with the factors likely to affect its future development, performance and financial position, are set out in the Management report and in the Annual report and accounts 2019 Strategic report. This includes details on our liquidity and capital positions and our principal risks, including the impact of COVID-19 on these principal risks.

In preparing these half year results on a going concern basis, the Directors have considered the following matters and have taken into account the uncertainty created by COVID-19.

· As discussed in the Chief Executive's statement the fundamental basis of our business has not been impacted by COVID-19, although fee based revenue has been reduced as a result of the fall in global equity markets and the shift in client preferences to assets with lower fees. We consider that COVID-19 will accelerate the key global trends already underway in our industry and already factored into our strategy, and that the Group is well placed to manage its business risks successfully.

· The Group has robust cash and liquid resources of £2.8bn at 30 June 2020, which have increased over the period. In addition the Company has a revolving credit facility of £400m as part of our contingency funding plans which is due to mature in 2022 and remains undrawn.

· The Group's indicative regulatory capital surplus was £1.8bn in excess of capital requirements at 30 June 2020. The regulatory capital surplus does not include the majority of the value of the Group's listed associates, which was £3.4bn at 30 June 2020.

· The Group performs regular stress and scenario analysis as described in the Annual report and accounts 2019 Viability statement. The market stresses considered in these analyses are considerably more severe than experienced as a result of COVID-19, and the diverse range of management actions available meant the Group was able to withstand these extreme stresses.

· In addition, the Group has performed specific scenario analysis in the period taking into account COVID-19 impacts on revenue, asset mix, flows and listed associates. These scenarios assumed that key equity market indexes held at the lowest levels witnessed during the COVID-19 outbreak, with only modest growth during 2021. Liquidity and capital remained robust over the going concern period in these scenarios.

· The Group's operational resilience processes have operated effectively during the period including the provision of services by key outsource providers

Based on a review of the above factors the Directors are satisfied that the Group has and will maintain sufficient resources to enable it to continue operating for at least 12 months from the date of approval of the half year results. Accordingly, the interim financial information has been prepared on a going concern basis. There were no material uncertainties relating to this going concern conclusion.

4.2 Acquisitions and disposals

(a) Acquisitions

(a)(i) Prior period acquisitions of subsidiaries

On 29 November 2019, 1825 Financial Planning and Advice Limited (a subsidiary of 1825 Financial Planning Limited) purchased the wealth advisory business of Grant Thornton UK LLP through a business acquisition agreement under which the majority of the clients and employees of the wealth advisory business transferred to 1825 Financial Planning and Advice Limited. 1825 Financial Planning and Advice also purchased the wealth management business of BDO Northern Ireland through a similar business acquisition agreement on 1 July 2019.

On 15 February 2019, Aberdeen Asset Management PLC (AAM PLC) completed the purchase of the entire share capital of Orion Partners Holding Limited and Orion Partner Services Inc.

(a)(ii) Prior period acquisitions of joint ventures

On 31 July 2019, as part of the Group's strategic joint venture with Virgin Money, AAM PLC completed the acquisition of 50% (less one share) of Virgin Money Unit Trust Managers Limited (VMUTM) for an upfront cash payment of £40m plus 50% of the capital in the business and certain other costs.

(b) Disposals

(b)(i) Current period disposal of subsidiaries

Standard Life (Asia) Limited (SL Asia)

On 29 March 2017, the Group announced the proposed sale of its wholly owned Hong Kong insurance business, SL Asia, to the Group's Chinese joint venture business, Heng An Standard Life Insurance Company Limited (HASL). SL Asia is reported in the Asset management, platforms and wealth segment and HASL is reported within the Insurance associates and joint ventures segment. The sale to HASL of the entire issued share capital of SL Asia was completed on 30 June 2020.

Total consideration received comprised cash of £19m and the Group recognised a gain on disposal of £8m in respect of the sale within continuing operations in the condensed consolidated income statement for the six months ended 30 June 2020. On disposal a gain of £8m was recycled from the translation reserve and was included in determining the gain on sale.

Prior to the completion of sale, SL Asia was classified as an operation held for sale.

The accounting for the acquisition of SL Asia by HASL at 30 June 2020 is based on provisional amounts as allowed under IFRS 3 Business combinations.

(b)(ii) Current period disposal of associates

HDFC Life Insurance Company Limited (HDFC Life)

During the six months ended 30 June 2020, the Group completed the following sale of equity shares in HDFC Life on the National Stock Exchange of India Limited and BSE Limited:

· 50,000,000 equity shares in HDFC Life sold through a Bulk Sale on 27 March 2020

· 40,000,000 equity shares in HDFC Life sold through a Bulk Sale on 4 June 2020

In total, 4.46% of the issued equity share capital of HDFC Life was sold for a combined total consideration net of taxes and expenses of Rs 41,526m (£444m). The combined gain on sale of £388m was calculated using the weighted-average cost method. On disposal a loss of £3m was recycled from the translation reserve and was included in determining the gain on sale. The Group's shareholding in HDFC Life at 30 June 2020 is 207,311,893 equity shares or 10.27%.

HDFC Asset Management Company Limited (HDFC Asset Management)

During the six months ended 30 June 2020, the Group completed the following sale of equity shares in HDFC Asset Management on the National Stock Exchange of India Limited and BSE Limited:

· 12,000,000 equity shares in HDFC Asset Management sold through an Offer for Sale on 17 and 18 June 2020

Through the sale, 5.64% of the issued equity share capital of HDFC Asset Management was sold for a total consideration net of taxes and expenses of Rs 25,404m (£265m). The gain on sale of £263m before tax was calculated using the weighted-average cost method. On disposal a loss of £3m was recycled from the translation reserve and was included in determining the gain on sale. The Group's shareholding in HDFC Asset Management at 30 June 2020 is 45,228,305 equity shares or 21.25%.

 

(b)(iii) Prior period disposal of associates

HDFC Life

During 2019, the Group completed the following sales of equity shares in HDFC Life on the National Stock Exchange of India Limited and BSE Limited:

· 92,181,992 equity shares in HDFC Life sold through an Offer for Sale on 12 and 13 March 2019

· 33,032,381 equity shares in HDFC Life sold through an Offer for Sale from 3 to 6 May 2019

· 67,100,000 equity shares in HDFC Life sold through a Bulk Sale on 14 August 2019

· 100,000,000 equity shares in HDFC Life sold through a Bulk Sale on 30 October 2019

In total, 14.49% of the issued equity share capital of HDFC Life was sold for a combined consideration net of taxes and expenses ofRs 135,994m (£1,503m). The combined gain on sale of £1,337m was calculated using the weighted-average cost method.

HDFC Asset Management

During 2019, the Group completed the following sale of equity shares in HDFC Asset Management on the National Stock Exchange of India Limited and BSE Limited:

· 6,422,310 equity shares in HDFC Asset Management sold through an Offer for Sale on 4 and 5 December 2019

Through the sale, 3.02% of the issued equity share capital of HDFC Asset Management was sold for a total consideration net of taxes and expenses of Rs 18,279m (£195m). The gain on sale of £204m before tax was calculated using the weighted-average cost method.

(c) Discontinued operations

The condensed consolidated income statement profit, other comprehensive income and cash flows from discontinued operations relate solely to the UK and European insurance business which was sold in 2018 to Phoenix. For the six months ended 30 June 2020, the profit from discontinued operations was £nil. For the six months ended 30 June 2019 and the 12 months ended 31 December 2019, the profit from discontinued operations was £25m and £56m respectively which reflected changes in the value of contingent consideration relating to the sale.

4.3 Segmental analysis

The Group's reportable segments have been identified in accordance with the way in which the Group is structured and managed. IFRS 8 Operating Segments requires that the information presented in the financial statements is based on information provided to the 'Chief Operating Decision Maker' which for the Group is the executive leadership team.

(a) Basis of segmentation

The Group's reportable segments are as follows:

Continuing operations:

Asset management, platforms and wealth

This segment primarily relates to our asset management, platforms and wealth activities. Our asset management subsidiaries and our asset management associate in India, HDFC Asset Management, provide a range of investment products and services for individuals and institutional customers through a number of different investment vehicles. Our platforms include the Standard Life branded Wrap and Elevate platforms which provide administration services to advisers. Our Wealth activity primarily relates to: Aberdeen Standard Capital which manages assets for private clients, intermediaries acting for clients, charities and trustees; 1825 which undertakes our financial planning and advice activity; Parmenion which undertakes activities for clients and intermediaries; and our strategic joint venture with Virgin Money (VMUTM). The segment also includes other wholly owned activities of the Group including the corporate centre and related activities and the UK and Ireland Standard Life staff defined benefit pension plans.

Insurance associates and joint ventures

This segment comprises our life insurance associates and joint ventures in India (HDFC Life), the UK (Phoenix) and China (HASL). These businesses offer a range of pension, insurance and savings products to the Indian, UK, European and Chinese markets.

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

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

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

		Asset management, platforms and wealth	Insurance associates and joint ventures	Total continuing operations	Discontinued operations	Total
6 months 2020	Notes	£m	£m	£m	£m	£m
Fee based revenue		706	-	706	-	706
Adjusted operating expenses		(601)	-	(601)	-	(601)
Adjusted operating profit		105	-	105	-	105
Capital management		(13)	-	(13)	-	(13)
Share of associates' and joint ventures' profit before tax1		22	81	103	-	103
Adjusted profit before tax		114	81	195	-	195
Tax on adjusted profit		(13)	-	(13)	-	(13)
Share of associates' and joint ventures' tax expense	4.7	(7)	(12)	(19)	-	(19)
Adjusted profit after tax		94	69	163	-	163
Adjusted for the following items
Restructuring and corporate transaction expenses	4.6	(135)	(12)	(147)	-	(147)
Amortisation and impairment of intangible assets acquired in business combinations and through the purchase of customer contracts2		(1,124)	(51)	(1,175)	-	(1,175)
Profit on disposal of interests in associates	4.2	263	388	651	-	651
Impairment of associates and joint ventures	4.12	(45)	(85)	(130)	-	(130)
Investment return variances and economic assumption changes	4.9	-	124	124	-	124
Other		8	(4)	4	-	4
Total adjusting items		(1,033)	360	(673)	-	(673)
Tax on adjusting items		7	-	7	-	7
Share of associates' and joint ventures' tax expense on adjusting items	4.7	19	(20)	(1)	-	(1)
Profit attributable to non-controlling interests (preference shares)		(5)	-	(5)	-	(5)
(Loss)/profit for the period attributable to equity shareholders of Standard Life Aberdeen plc		(918)	409	(509)	-	(509)
Profit attributable to non-controlling interests
Preference shares				5	-	5
Loss for the period				(504)	-	(504)

1 Share of associates' and joint ventures' profit before tax comprises the Group's share of results of HDFC Life, HDFC Asset Management, Phoenix, HASL and VMUTM.

2 Amortisation and impairment of intangible assets acquired in business combinations and through the purchase of customer contracts includes £1,124m included in administrative expenses, and £51m relating to amortisation of intangibles recognised on the part acquisition of associates and joint ventures and included in Share of profit from associates and joint ventures in the condensed consolidated income statement.

Fee based revenue is reported as the measure of revenue in the analysis of adjusted profit before tax and relates to revenues generated from external customers. Refer Note 4.5 for a reconciliation of fee based revenue to revenue from contracts with customers.

All interest income, interest expense, depreciation and amortisation from continuing operations relates to the Asset management, platforms and wealth segment.

 

		Asset management, platforms and wealth	Insurance associates and joint ventures	Total continuing operations	Discontinued operations	Total
6 months 2019	Notes	£m	£m	£m	£m	£m
Fee based revenue		815	-	815	-	815
Adjusted operating expenses		(673)	-	(673)	-	(673)
Adjusted operating profit		142	-	142	-	142
Capital management		22	-	22	-	22
Share of associates' and joint ventures' profit before tax1		26	90	116	-	116
Adjusted profit before tax		190	90	280	-	280
Tax on adjusted profit		(31)	-	(31)	-	(31)
Share of associates' and joint ventures' tax expense	4.7	(11)	(16)	(27)	-	(27)
Adjusted profit after tax		148	74	222	-	222
Adjusted for the following items
Restructuring and corporate transaction expenses	4.6	(192)	(6)	(198)	-	(198)
Amortisation and impairment of intangible assets acquired in business combinations and through the purchase of customer contracts2		(89)	(55)	(144)	-	(144)
Profit on disposal of interests in associates	4.2	1	442	443	-	443
Reversal of impairment of associates		-	243	243	-	243
Investment return variances and economic assumption changes	4.9	-	(18)	(18)	-	(18)
Other		22	-	22	25	47
Total adjusting items		(258)	606	348	25	373
Tax on adjusting items		41	-	41	-	41
Share of associates' and joint ventures' tax expense on adjusting items	4.7	-	28	28	-	28
Profit attributable to non-controlling interests - preference shares		(3)	-	(3)	-	(3)
(Loss)/profit for the period attributable to equity shareholders of Standard Life Aberdeen plc		(72)	708	636	25	661
Profit attributable to non-controlling interests
Preference shares				3	-	3
Profit for the period				639	25	664

1 Share of associates' and joint ventures' profit before tax comprises the Group's share of results of HDFC Life, HDFC Asset Management, Phoenix and HASL.

2 Amortisation and impairment of intangible assets acquired in business combinations and through the purchase of customer contracts includes £89m included in administrative expenses, and £55m relating to intangibles recognised on the part acquisition of associates and included in Share of profit from associates and joint ventures in the condensed consolidated income statement.

 

		Asset management, platformsand wealth	Insurance associates and joint ventures	Total continuing operations	Discontinued operations	Total
Full year 2019	Notes	£m	£m	£m	£m	£m
Fee based revenue		1,634	-	1,634	-	1,634
Adjusted operating expenses		(1,333)	-	(1,333)	-	(1,333)
Adjusted operating profit		301	-	301	-	301
Capital management		37	-	37	-	37
Share of associates' and joint ventures' profit before tax1		57	189	246	-	246
Adjusted profit before tax		395	189	584	-	584
Tax on adjusted profit		(69)	-	(69)	-	(69)
Share of associates' and joint ventures' tax expense	4.7	(21)	(25)	(46)	-	(46)
Adjusted profit after tax		305	164	469	-	469
Adjusted for the following items
Restructuring and corporate transaction expenses	4.6	(379)	(28)	(407)	-	(407)
Amortisation and impairment of intangible assets acquired in business combinations and through the purchase of customer contracts2		(1,733)	(111)	(1,844)	-	(1,844)
Profit on disposal of interests in associates	4.2	205	1,337	1,542	-	1,542
Reversal of impairment of associates		-	243	243	-	243
Investment return variances and economic assumption changes	4.9	-	(25)	(25)	-	(25)
Other		160	(2)	158	56	214
Total adjusting items		(1,747)	1,414	(333)	56	(277)
Tax on adjusting items		41	-	41	-	41
Share of associates' and joint ventures' tax expense on adjusting items	4.7	(5)	43	38	-	38
Profit attributable to non-controlling interests - preference shares		(5)	-	(5)	-	(5)
(Loss)/profit for the year attributable to equity shareholders of Standard Life Aberdeen plc		(1,411)	1,621	210	56	266
Profit attributable to non-controlling interests
Preference shares				5	-	5
Profit for the year				215	56	271

1 Share of associates' and joint ventures' profit before tax comprises the Group's share of results of HDFC Life, HDFC Asset Management, Phoenix, HASL and VMUTM.

2 Amortisation and impairment of intangible assets acquired in business combinations and through the purchase of customer contracts includes £1,733m included in administrative expenses, and £111m relating to intangibles recognised on the part acquisition of associates and joint ventures and included in Share of profit from associates and joint ventures in the condensed consolidated income statement.

4.4 Investment return

Included in investment return from continuing operations of (£87m) (six months ended 30 June 2019: £318m; 12 months ended 31 December 2019: £464m) is (£88m) (six months ended 30 June 2019: £271m; 12 months ended 31 December 2019: £392m) in relation to unit linked business including (£13m) (six months ended 30 June 2019: £70m; 12 months ended 31 December 2019: £107m) relating to operations held for sale. Investment returns relating to unit linked business are for the account of policyholders and are excluded from adjusted operating income as they have an equal and opposite effect on IFRS income and IFRS expenses in the condensed consolidated income statement.

 

4.5 Revenue from contracts with customers

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

	6 months2020	6 months2019	Full year2019
	£m	£m	£m
Asset management
Management fee income - Strategic insurance partners1	110	166	312
Management fee income - Other clients1	498	559	1,122
Performance fees	12	6	37
Revenue from contracts with customers for asset management	620	731	1,471
Fund platforms
Fee income	97	98	204
Other revenue from contracts with customers	36	31	68
Total revenue from contracts with customers from continuing operations	753	860	1,743

1 In addition to revenues earned as a percentage of AUM, management fee income includes certain other revenues such as registration fees.

The revenue from contracts with customers is reported within the Asset management, platforms and wealth segment. The following table provides a reconciliation of revenue from contracts with customers as presented in the condensed consolidated income statement to fee based revenue, as presented in the analysis of adjusted profit before tax for the Asset management, platforms and wealth segment.

	6 months2020	6 months2019	Full year2019
	£m	£m	£m
Revenue from contracts with customers from continuing operations as presented in the condensed consolidated income statement	753	860	1,743
Presentation differences
Commission expenses	(38)	(45)	(89)
Other cost of sales	(13)	(12)	(26)
Other differences	4	12	6
Fee based revenue from continuing operations as presented in the Asset management, platforms and wealth segment	706	815	1,634

Commission expenses and other costs of sales are netted against fee based revenue in the segment reporting but are included within expenses in the condensed consolidated income statement. Other presentation differences relate to amounts presented in a different income line item of the condensed consolidated income statement and charges made to third parties for expenses incurred by the Group.

4.6 Administrative expenses

	6 months2020	6 months2019	Full year2019
	£m	£m	£m
Restructuring and corporate transaction expenses	131	192	374
Impairment of goodwill - asset management	915	-	1,569
Commission expenses	38	45	89
Staff costs and other employee-related costs	297	320	646
Other impairment losses on intangible assets	134	1	2
Impairment losses on disposal group classified as held for sale	1	2	-
Impairment losses on property right-of-use assets	-	-	16
Other administration expenses	397	453	898
	1,913	1,013	3,594
Acquisition costs deferred during the period	-	(1)	(2)
Amortisation of deferred acquisition costs	1	1	2
Total administrative expenses from continuing operations	1,914	1,013	3,594

The 2020 restructuring and corporate transaction expenses mainly relate to merger integration, separation from Phoenix and implementing our simplified operating model. For the purposes of determining adjusted profit from continuing operations, an additional £16m was recognised in the six months ended 30 June 2020 relating to our share of asset management joint venture and insurance associate restructuring and corporate transaction expenses (six months ended 30 June 2019: £6m; 12 months ended 31 December 2019: £33m).

4.7 Tax expense

	6 months2020	6 months2019	Full year2019
	£m	£m	£m
Current tax:
UK	2	4	6
Overseas	44	11	49
Adjustment to tax expense in respect of prior years	2	-	(1)
Total current tax attributable to continuing operations	48	15	54
Deferred tax:
Deferred tax (credit) arising from the current periods	(54)	(25)	(26)
Adjustment to deferred tax in respect of prior years	12	-	-
Total deferred tax attributable to continuing operations	(42)	(25)	(26)
Total tax expense/(credit) attributable to continuing operations	6	(10)	28

The share of associates' and joint ventures' tax expense is £20m (six months ended 30 June 2019: (£1m);12 months ended 31 December 2019: £8m) and is included in profit before tax in the IFRS condensed consolidated income statement in Share of profit from associates and joint ventures.

The standard UK corporation tax rate for the accounting period is 19%. In the Spring Budget 2020, the government announced that the standard UK corporation tax rate would remain at 19% from 1 April 2020 rather than reducing to 17% as previously enacted. This new legislation was substantively enacted on 17 March 2020 to repeal the planned reduction in the standard UK corporation tax rate and maintain the rate at 19%.

The Group operates in a large number of territories and during the normal course of business will be subject to audit or enquiry by local tax authorities. At any point in time the Group will also be engaged in commercial transactions the tax outcome of which may be uncertain due to their complexity or uncertain application of tax law. Tax provisions, therefore, are subjective by their nature and require management judgement based on the interpretation of legislation, management experience and professional advice. As such, this may result in the Group recognising provisions for uncertain tax positions. Management will provide for uncertain tax positions where they judge that it is probable there will be a future outflow of economic benefits from the Group to settle the obligation. In assessing uncertain tax positions management considers each issue on its own merits using their judgement as to the estimate of the most likely outcome. When making estimates, management considers all available evidence. This may include forecasts of future profitability, the frequency and severity of any losses, and statutory carry forward and carry back provisions as well as management experience of tax attributes expiring without use. Where the final outcome differs from the amount provided this difference will impact the tax charge in future periods. Management re-assesses provisions at each reporting date based upon latest available information.

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

	6 months2020	6 months2019	Full year2019
	£m	£m	£m
Tax relating to fair value losses recognised as cash flow hedges	15	3	(2)
Tax relating to cash flow hedge losses transferred to condensed consolidated income statement	(8)	(1)	4
Equity holder tax effect relating to items that may be reclassified subsequently to profit or loss	7	2	2
Tax relating to other comprehensive income from continuing operations	7	2	2

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

4.8 Earnings per share

Basic earnings per share is calculated by dividing profit attributable to ordinary equity holders by the weighted average number of ordinary shares in issue during the period excluding shares owned by the employee trusts that have not vested unconditionally to employees.

Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares in issue during the period to assume the conversion of all dilutive potential ordinary shares, such as share options granted to employees.

Adjusted earnings per share is calculated on adjusted profit after tax attributable to ordinary equity holders of the Company i.e. adjusted profit net of dividends paid on preference shares.

The following table shows details of basic, diluted and adjusted earnings per share for the period:

	6 months 2020			6 months 2019			Full year 2019
	Continuing operations	Discontinued operations	Total	Continuing operations	Discontinued operations	Total	Continuing operations	Discontinued operations	Total
	£m	£m	£m	£m	£m	£m	£m	£m	£m
Adjusted profit before tax	195	-	195	280	-	280	584	-	584
Tax on adjusted profit	(13)	-	(13)	(31)	-	(31)	(69)	-	(69)
Share of associates' and joint ventures' tax expense	(19)	-	(19)	(27)	-	(27)	(46)	-	(46)
Adjusted profit after tax	163	-	163	222	-	222	469	-	469
Dividend paid on preference shares	(5)	-	(5)	(3)	-	(3)	(5)	-	(5)
Adjusted profit after tax attributable to equity shareholders of the Company	158	-	158	219	-	219	464	-	464
Adjusting items	(673)	-	(673)	348	25	373	(333)	56	(277)
Tax on adjusting items	7	-	7	41	-	41	41	-	41
Share of associates' and joint ventures' tax expense on adjusting items	(1)	-	(1)	28	-	28	38	-	38
(Loss)/profit attributable to equity shareholders of the Company	(509)	-	(509)	636	25	661	210	56	266
	6 months 2020			6 months 2019			Full year 2019
	Millions			Millions			Millions
Weighted average number of ordinary shares outstanding			2,244			2,420			2,374
Dilutive effect of share options and awards			30			29			32
Weighted average number of diluted ordinary shares outstanding			2,274			2,449			2,406
	6 months 2020			6 months 2019			Full year 2019
	Continuing operations	Discontinued operations	Total	Continuing operations	Discontinued operations	Total	Continuing operations	Discontinued operations	Total
	Pence	Pence	Pence	Pence	Pence	Pence	Pence	Pence	Pence
Basic earnings per share	(22.7)	-	(22.7)	26.3	1.0	27.3	8.9	2.3	11.2
Diluted earnings per share	(22.7)	-	(22.7)	26.0	1.0	27.0	8.8	2.3	11.1
Adjusted earnings per share	7.0	-	7.0	9.0	-	9.0	19.5	-	19.5
Adjusted diluted earnings per share	7.0	-	7.0	8.9	-	8.9	19.3	-	19.3

In accordance with IAS 33, no share options and awards were treated as dilutive for the six months ended 30 June 2020 due to the loss attributable to equity holders of the Company from continuing operations in the period. This results in the adjusted diluted earnings per share from continuing operations being calculated using a weighted average number of ordinary shares of 2,244 million.

 

4.9 Adjusted profit and adjusting items

Adjusted profit before tax is the Group's key alternative performance measure. Adjusted profit excludes the impact of the following items:

· Restructuring costs and corporate transaction expenses. Restructuring includes the impact of major regulatory change.

· Amortisation and impairment of intangible assets acquired in business combinations and through the purchase of customer contracts

· Profit or loss arising on the disposal of a subsidiary, joint venture or associate

· Fair value movements in contingent consideration

· Items which are one-off and, due to their size or nature, are not indicative of the long-term operating performance of the Group

Adjusted profit also excludes impacts arising from investment return variances and economic assumption changes in the Group's insurance entities and also in the Group's associate and joint venture insurance entities where they have a policy for determining investment return variances and economic assumption changes. It is calculated based on expected returns on investments backing equity holder funds, with consistent allowance for the corresponding expected movements in equity holder liabilities. Impacts arising from the difference between the expected return and actual return on investments, and the corresponding impact on equity holder liabilities except where they are directly related to a significant management action, are excluded from adjusted profit and are presented within profit before tax. The impact of certain changes in economic assumptions is also excluded from adjusted profit and is presented within profit before tax.

Dividends payable on preference shares classified as non-controlling interests are excluded from adjusted profit in line with the treatment of ordinary shares. Similarly to preference shares, coupons paid on perpetual debt instruments classified as equity for which interest is only accounted for when paid is excluded from adjusted profit. This includes our share of interest payable on Tier 1 debt instruments held by associates. Coupons payable on perpetual debt instruments classified as equity for which interest is accrued are included in adjusted profit before tax.

(a) Investment return variances and economic assumption changes - insurance entities

Associates and joint ventures insurance entities

Where associates and joint ventures have a policy for determining investment return variances and economic assumption changes, the Group uses the policy of the associate or joint venture for including their results in the Group's adjusted profit. This currently applies only to the Group's investment in Phoenix. The Phoenix policy is described below.

The components of IFRS profit attributable to market movements and interest rate changes which give rise to variances between actual and expected returns on investments backing both owner and policyholder funds, with consistent allowance for the corresponding expected movement in liabilities, as well as the impact of changes in economic assumptions on liabilities, are excluded from adjusted profit. The impact of strategic asset allocation activities, such as investment in higher yielding illiquid assets, is also excluded from adjusted profit.

The expected return on investments backing both owner and policyholder funds is based on opening economic assumptions applied to the funds under management at the beginning of the reporting period. Expected investment return assumptions are derived actively based on market yields on risk-free fixed interest assets at the start of each financial year. Investment return variances, including those relating to owners' funds, also include gains and losses on derivatives held to hedge life company Solvency II surplus positions.

Adjusted profit includes the effect of variance in experience for non-economic items, for example mortality, persistency and expenses, and the effect of changes in non-economic assumptions. It also incorporates the impacts of significant management actions where such actions are consistent with Phoenix's core operating activities (for example, actuarial modelling enhancements and data reviews).

Wholly owned insurance entities

The Group's wholly owned insurance business, SL Asia, was sold on 30 June 2020 (refer Note 4.2). The policy applied to wholly owned insurance entities is similar to that used by Phoenix as described above. The main difference relevant to SL Asia is that Phoenix recognises charges on unit linked business based on expected investment returns, whereas wholly owned insurance entities use actual investment returns.

(b) Other

Other adjusting items for the six months ended 30 June 2020 includes the gain on disposal of SL Asia of £8m - refer Note 4.2.

Other adjusting items for the six months ended 30 June 2019 and 12 months ended 31 December 2019 included £38m and £61m respectively for net fair value movements in contingent consideration of which £25m and £56m was in relation to discontinued operations. The net fair value movements in contingent consideration for the six months ended 30 June 2020 were £nil.

Other adjusting items for the 12 months ended 31 December 2019 included £140m relating to the settlement of arbitration with Lloyds Banking Group, (£16m) in relation to the impairment of property right-of-use assets and £12m in relation to the alignment of the reporting period of HDFC Asset Management.

4.10 Dividends on ordinary shares

	6 months 2020	6 months 2019		Full year 2019
	Pence pershare	Pence pershare	£m	Pence pershare	£m
Dividends relating to reporting period
Interim dividend (2020 and 2019)	7.30	7.30	173	7.30	173
Final dividend (2019)	-	-	-	14.30	320
Total	7.30	7.30	173		493
Dividends paid in reporting period
Current year interim dividend	-	-	-	7.30	173
Final dividend for prior year	14.30	14.30	345	14.30	345
Total			345		518

Subsequent to 30 June 2020, the Board has declared an interim dividend for 2020 of 7.30 pence per ordinary share (interim 2019: 7.30 pence), an estimated £159m in total (interim 2019: £173m). The dividend is expected to be paid on 29 September 2020 and will be recorded as an appropriation of retained earnings in the financial statements for the year ended 31 December 2020.

4.11 Intangible assets

	30 Jun2020	30 Jun2019	31 Dec2019
	£m	£m	£m
Acquired through business combinations
Goodwill	85	2,532	1,000
Brand	39	58	48
Customer relationships and investment management contracts	352	571	534
Technology	8	18	12
Internally developed software	41	63	51
Purchased software and other	3	-	2
Cost of obtaining customer contracts	51	70	60
Total intangible assets	579	3,312	1,707

The key estimates and assumptions in relation to intangible assets include the determination of the recoverable amount of goodwill and customer intangibles.

For all intangible assets including goodwill, an assessment is made at each reporting date as to whether there is an indication that the goodwill or intangible asset has become impaired. If any indication of impairment exists then the recoverable amount of the asset is determined. The recoverable amounts are defined as the higher of fair value less costs of disposal (FVLCD) and the value in use (VIU) where the value in use is based on the present value of future cash flows. Where the carrying value exceeds the recoverable amount then the carrying value is written down to the recoverable amount.

For the six months ended 30 June 2020, an impairment of goodwill of £915m (six months ended 30 June 2019: £nil; 12 months ended 31 December 2019: £1,569m) and an impairment of customer relationships and investment management contracts of £134m (six months ended 30 June 2019: £nil; 12 months ended 31 December 2019: £nil) has been recognised. Both impairments relate to assets included in the Asset management, platforms and wealth segment. The impairments are included within administrative expenses in the condensed consolidated income statement.

Goodwill

The impairment of £915m relates to an impairment of asset management goodwill, the group of cash-generating units for which is our asset management business excluding HDFC Asset Management and VMUTM (six months ended 30 June 2019: £nil; 12 months ended 31 December 2019: £1,569m). The impairment resulted from the impact on reported revenue and future revenue projections of global equity market falls and a shift in asset mix towards lower margin assets. Both the fall in equity markets and the shift in asset mix were global market impacts primarily resulting from COVID-19. Additional projections were prepared to take into account these COVID-19 impacts, and uncertainties over future financial markets, and these projections were a key input to the impairment review process. Further details relating to H1 2020 fee based revenue, flows and fee revenue yield are included in the Management report section of these half year results. The asset management goodwill is now fully impaired.

The recoverable amount of this group of cash-generating units at 30 June 2020 was £1,654m, which is based on FVLCD. This is also the carrying value at 30 June 2020. The FVLCD considered a number of valuation approaches, with the primary approach being a price to earnings multiple approach. This is a level 3 measurement as it is measured using inputs which are not based on observable market data. Key assumptions used in the earnings multiples valuation approach were:

· Projected adjusted profits which were based on management forecasts of maintainable earnings and market consensus views. Revenues in the management forecasts reflected past experience and modelling based on assets under management and fee revenue yields by asset class. Equity markets in 2020 were assumed to stay broadly in line with 30 June levels. Expenses in the management forecasts were based on past experience adjusted for planned expense savings.

· Price to earnings multiples which were determined based on market data on multiples of a peer group of comparable European asset managers as at 30 June 2020

· Premiums for control and discounts for lack of liquidity which were determined based on comparable transactions adjusted to remove strategic control premiums

· The expected cost of disposal, which was based on past experience of previous transactions

In addition to the price to earnings multiple approach, other valuation approaches were considered including discounted cash flows and deriving the valuation from the market capitalisation of the Group, which gave a range of reasonable outcomes. The primary valuation approach was within this range of reasonable outcomes and reflects the current market uncertainties.

The recoverable amount of this group of cash-generating units at 31 December 2019 was £2,603m based on VIU, which was assessed by management as being higher than the FVLCD. The VIU continues to be significantly reduced by the IFRS requirement to add back certain expense savings to management's expectation of the level of future operating expenses, as was also the case at 31 December 2019. Considering this, and as a result of the increased market uncertainty in the COVID environment and the impact of reduced reported revenue and future revenue projections, management has now assessed that the FVLCD is higher.

As the asset management goodwill is now fully impaired it is no longer an area where assumptions and other sources of estimation uncertainty have a significant risk of resulting in a material adjustment within the next financial year to the carrying amounts of assets and liabilities.

For the remaining goodwill of £85m (30 June 2019: £48m; 31 December 2019: £85m), which is attributable to a number of smaller cash-generating units in the Asset management, platforms and wealth segment, we concluded that no impairment was required in the period.

Customer relationship and investment management contract intangibles

The recoverable amount for customer relationship intangible assets for which there were indicators of impairment is VIU. In assessing VIU, expected future cash flows are discounted to their present value using a pre-tax discount rate. Judgement is required in assessing both the expected cash flows and an appropriate discount rate which is based on current market assessments of the time value of money and the risks associated with the asset.

The impairment of £134m (six months ended 30 June 2019: £nil; 12 months ended 31 December 2019: £nil) relates to the Segregated and similar customer relationship intangible asset which was recognised on the acquisition of Aberdeen Asset Management PLC. The impairment resulted from the impact of markets, net outflows and a fall in revenue yield on future earnings expectations. The recoverable amount of this asset which is its VIU is £119m and was calculated using a pre-tax discount rate of 14.8%.

The other key assumptions in the VIU were:

· Future assets under management which were modelled based on past experience of attrition rates and assumed market growth rates tapered to 2% in the longer term

· Fee revenue yields based on past experience adjusted to assume a decline due to changes in asset mix over the projection period

· Operating expense margins based on past experience and management forecasts

The residual useful life as at 30 June 2020 is 9.1 years.

The determination of the Segregated and similar intangible asset recoverable amount is now considered an area where assumptions and other sources of estimation uncertainty have a significant risk of resulting in a material adjustment to the carrying amounts of assets and liabilities within the next financial year. The following table shows the consequence of illustrative downside sensitivities of key assumptions on the carrying amount of the Segregated and similar customer relationship intangible balance at 30 June 2020. As the period end carrying value is the recoverable amount any downside sensitivity will lead to a further future impairment loss.

				£m
20% increase in net attrition				(15)
20% one-off decrease in AUM at 1 July 2020				(22)
Operating expense margin percentage decreased by 5%				(30)
Discount rate percentage increased by 2%				(6)

4.12 Investments in associates and joint ventures accounted for using the equity method

Investments in associates and joint ventures accounted for using the equity method at 30 June 2020 of £1,409m (30 June 2019: £1,604m; 31 December 2019: £1,509m) includes £928m (30 June 2019: £1,012m; 31 December 2019: £961m) for the Group's Phoenix associate, which is included in the Insurance associates and joint ventures segment.

During the six months ended 30 June 2020 an impairment loss of £85m was recognised on the Group's interest in Phoenix (six months ended 30 June 2019 and 12 months ended 31 December 2019: reversal of impairment £243m). The impairment loss was recognised due to the market value of the Group's interest in Phoenix of £928m as at 30 June 2020 (30 June 2019: £1,022m; 31 December 2019: £1,079m) being significantly below its carrying value. We consider that under IAS 28 the market value of Phoenix represents the best estimate of the present value of future dividends and therefore this market value is used as the VIU. As the VIU is based on the market value, a discount rate is not determined.

During the six months ended 30 June 2020 an impairment loss of £45m was recognised on the Group's interest in VMUTM (six months ended 30 June 2019 and 12 months ended 31 December 2019: £nil). The impairment resulted from a reduction in projected future revenues as a result of a business plan reassessment by the joint venture which took into account the fall in UK equity markets due to COVID-19, and an increase in projected costs to develop a new retail customer proposition. The impairment charge is recognised in the Asset management, platforms and wealth segment. Following the impairment, the carrying value of the investment in the VMUTM joint venture at 30 June 2020 was £nil which was the recoverable amount. The recoverable amount was based on VIU, the key assumptions for which are the discount rate, terminal growth rate and forecast cash flows. The pre-tax discount rate used was 14.9% and the terminal growth rate used was 2%. Cash flow projections for the five years to 30 June 2025 were based on management approved profit forecasts, with the terminal growth rate used for subsequent years. Profits were adjusted to a cash flow basis, e.g. amortisation and depreciation removed. The VIU cash flow projections take into account expected future capital contributions to the business.

Both the impairment losses set out above are included in loss on impairment of interests in associates and joint ventures in the condensed consolidated income statement.

4.13 Issued share capital, shares held by trusts, retained earnings and other reserves

(a) Issued share capital

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

	6 months 2020		6 months 2019		Full year 2019
Issued shares fully paid	13 61/63p each	£m	13 61/63p each	£m	13 61/63p each	£m
At start of period	2,338,723,724	327	2,529,412,224	353	2,529,412,224	353
Shares issued in respect of share incentive plans	947	-	540	-	1,114	-
Shares bought back on-market and cancelled	(69,831,713)	(10)	(116,128,848)	(16)	(190,689,614)	(26)
At end of period	2,268,892,958	317	2,413,283,916	337	2,338,723,724	327

All ordinary shares in issue in the Company rank pari passu and carry the same voting rights and entitlement to receive dividends and other distributions declared or paid by the Company.

On 7 February 2020, the Company announced a share buyback of up to £400m through on-market purchases which commenced on 10 February 2020. The previous buyback of up to £750m through on-market purchases which was approved by shareholders on 25 June 2018 completed in December 2019. During the six months ended 30 June 2020, the Company has bought back and cancelled 69,831,713 shares (six months ended 30 June 2019: 116,128,848 shares; 12 months ended 31 December 2019: 190,689,614 shares). The total consideration was £175m (six months ended 30 June 2019: £306m; 12 months ended 31 December 2019: £516m) which includes transaction costs and any unsettled purchases of shares. At 30 June 2020, there were unsettled purchases of shares for 1,523,060 shares (six months ended 30 June 2019: 847,130 shares; 12 months ended 31 December 2019: none).

This consideration has resulted in a reduction in retained earnings of £175m (six months ended 30 June 2019: £180m; 12 months ended 31 December 2019: £390m), There was no reduction in the special reserve for the share buyback for the six months ended 30 June 2020 (six months ended 30 June 2019: £126m; 12 months ended 31 December 2019: £126m). An amount of £10m (six months ended 30 June 2019: £16m; 12 months ended 31 December 2019: £26m) has been credited to the capital redemption reserve relating to the nominal value of the shares cancelled.

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

(b) Shares held by trusts

Shares held by trusts relates to shares in Standard Life Aberdeen plc that are held by the Standard Life Aberdeen Employee Benefit Trust (SLA EBT), Standard Life Employee Trust (ET), the Aberdeen Asset Management Employee Benefit Trust 2003 (AAM EBT) and, prior to SLA plc issuing its closure instruction to the Trustees on 13 December 2019, the Standard Life Unclaimed Asset Trust (UAT). The SLA EBT was established on 28 March 2019.

The SLA EBT, ET and AAM EBT purchase shares in the Company for delivery to employees under employee incentive plans. Purchased shares are recognised as a deduction from equity at the price paid for them. Where new shares are issued to the SLA EBT, ET or AAM EBT the price paid is the nominal value of the shares. When shares are distributed from the trust their corresponding value is released to retained earnings.

The number of shares held by trusts at 30 June 2020 was as follows:

	6 months2020	6 months2019	Full year2019
Number of shares held by trusts
Standard Life Aberdeen Employee Benefit Trust	35,749,816	-	15,378,831
Standard Life Employee Trust	25,261,712	30,446,497	26,685,390
Aberdeen Asset Management Employee Benefit Trust 2003	8,333,162	20,257,282	10,579,914
Standard Life Unclaimed Asset Trust	-	136,224	-

(c) Retained earnings and other reserves

Other reserves of £1,096m (30 June 2019: £3,685m; 31 December 2019: £2,845m) includes a merger reserve of £483m (30 June 2019: £3,097m; 31 December 2019: £2,317m).The merger reserve includes £470m (30 June 2019: £3,084m; 31 December 2019: £2,304m) in relation to the Group's asset management businesses. Following an impairment of the Company's investments in its asset management entities during the six months ended 30 June 2020, £1,834m (six months ended 30 June 2019: £nil; 12 months ended 31 December 2019: £780m) was transferred from the merger reserve to retained earnings.

4.14 Non-controlling interests - preference shares and subordinated liabilities

On 4 June 2020, AAM PLC notified the holders of the 5% 2015 Non-voting perpetual non-cumulative redeemable preference shares of its irrevocable intention to redeem the preference shares. Following notification the preference shares were reclassified as subordinated liabilities as an obligation to deliver cash was created. The liabilities were recognised at fair value of £102m with fair value movements since acquisition of £1m being transferred to retained earnings. The fair value included the final dividend paid as part of the redemption. The preference shares were redeemed on 8 July 2020 - refer Note 4.20.

4.15 Pension and other post-retirement benefit provisions

The Group operates a number of defined benefit pension plans, the largest of which is the UK Standard Life Group plan (principal plan) which is closed to future accrual. The Group also operates two other UK defined benefit plans, which are closed to future accrual, the Ireland Standard Life plan, which has fewer than 10 employees accruing future benefits, and a number of smaller funded and unfunded defined benefit plans in other countries.

For the UK plans the trustees set the plan investment strategy to protect the ratio of plan assets to the trustees' measure of technical provisions. Technical provisions represent the trustees' prudent view of the amount of assets needed to pay future benefits. The investment strategy does not aim to protect the IAS 19 surplus or ratio of plan assets to the IAS 19 measure of liabilities.

(a) Analysis of amounts recognised in the IFRS condensed consolidated income statement

The amounts recognised in the IFRS condensed consolidated income statement for defined contribution and defined benefit plans are as follows:

	6 months2020	6 months2019	Full year2019
	£m	£m	£m
Current service cost	29	32	60
Past service cost	-	-	(13)
Net interest income	(11)	(15)	(31)
Administrative expenses	1	1	2
Expense from continuing operations recognised in the IFRS condensed consolidated income statement	19	18	18

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

Pension and other post-retirement benefit assets at 30 June 2020 of £1,382m (30 June 2019: £1,233m; 31 December 2019: £1,163m) includes the following amounts in relation to the Principal plan:

	6 months2020	6 months2019	Full year2019
	£m	£m	£m
Present value of funded obligation	(3,175)	(2,802)	(2,852)
Fair value of plan assets	5,263	4,680	4,609
Effect of limit on plan surplus	(731)	(657)	(615)
Net asset	1,357	1,221	1,142

(c) Principal assumptions

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

	30 Jun2020	30 Jun2019	31 Dec 2019
	%	%	%
Discount rate	1.50	2.35	2.05
Rates of inflation
Consumer Price Index (CPI)	2.00	2.15	2.00
Retail Price Index (RPI)	2.75	3.15	2.90

The changes in economic assumptions over the period reflect changes in both corporate bond prices and market implied inflation.

4.16 Fair value of assets and liabilities

(a) Determination of fair value hierarchy

To provide further information on the approach used to determine and measure the fair value of certain assets and liabilities, the following fair value hierarchy categorisation has been used:

· Level 1: Fair values measured using quoted prices (unadjusted) in active markets for identical assets or liabilities. An active market exists where transactions take place with sufficient frequency and volume to provide pricing information on an ongoing basis.

· Level 2: Fair values measured using inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices)

· Level 3: Fair values measured using inputs that are not based on observable market data (unobservable inputs)

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

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

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

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

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

The Group's exposure to unlisted equity securities primarily relates to interests in real estate, infrastructure and private equity vehicles. These are valued in accordance with independent professional valuations or International Private Equity and Venture Capital Valuation Guidelines where relevant. The fair value of unlisted investments in infrastructure funds is based on the phase of individual projects forming the overall investment and discounted cash flow techniques based on project earnings. The valuation of these securities is largely based on inputs that are not based on observable market data, and accordingly these instruments are categorised as level 3 instruments within the fair value hierarchy. Where appropriate, reference is made to observable market data.

Interests in pooled investment funds are valued using daily unit prices where they are available. Where the underlying assets require specialist valuation reports (e.g. real estate, infrastructure, private equity) these reports are received from investment managers on a regular basis, usually monthly or quarterly. These valuations are reviewed and where appropriate adjustments are made to reflect the impact of changes in market conditions between the date of the valuation and the end of the reporting period.

Interests in pooled investment funds are assigned to a level of the fair value hierarchy by looking at the frequency of the unit price valuations, whether they are traded in an active market and also the nature of any valuation adjustments. Where daily unit prices are available and reference is made to observable market data these interests will be categorised as level 2. Where the valuations are largely based on inputs derived from unobservable market data these interests will be level 3 instruments.

Where pooled investment funds have been seeded and the investment in the funds have been classified as held for sale, the costs to sell are assumed to be negligible. The fair value of pooled investment funds held for sale is calculated as equal to the observable unit price.

Derivative financial assets and derivative financial liabilities

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

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

Non-performance risk arising from the credit risk of each counterparty has been considered on a net exposure basis in line with the Group's risk management policies. At 30 June 2020, 30 June 2019 and 31 December 2019, the residual credit risk is considered immaterial and no credit risk adjustment has been made.

Debt securities

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

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

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

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

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

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

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

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

Contingent consideration assets and contingent consideration liabilities

Contingent consideration assets and liabilities have been recognised in respect of acquisitions and disposals. Generally valuations are based on unobservable assumptions regarding the probability weighted cash flows and, where relevant, discount rate and therefore the assets and liabilities are classified as level 3 in the fair value hierarchy. Significant contingent consideration arises under the terms of the sale of Standard Life Assurance Limited to Phoenix in August 2018. The terms include a number of indemnities that give rise to contingent consideration. The indemnities that have the most significant impact on the fair value of this contingent consideration are as follows:

· Annuity sales practices

Under the indemnity if SLAL suffers a loss in excess of the provision it recognised at 31 December 2017 of £248m in relation to annuity sales practices, the Group will pay the excess to Phoenix subject to a £120m cap. If that provision is not fully utilised Phoenix will pay the Group the unutilised amount. The annuity sales practices review is now substantially complete.

The technique used to value this element of the contingent consideration is to assess the likelihood of an over or under utilisation of the 31 December 2017 provision, by reference to changes in the SLAL provision. During 2019 SLAL released £79m of the provision that it had recognised at 31 December 2017.

· Persistency

If SLAL suffers adverse lapse experience relating to certain UK unit linked products (but excluding unit linked products written in a with profits fund) prior to 31 December 2019, the Group shall make a payment to Phoenix, based on the difference between expected and actual lapse experience, subject to a £75m cap.

This element of the contingent consideration is valued based on lapse experience data provided by Phoenix.

In addition, the Group is currently engaged in ongoing discussions with Phoenix in respect of disagreements over the operation of certain aspects of the agreements that were entered into at the time of the sale of SLAL to Phoenix and which impact the value of the indemnities and other payments under the transaction terms. Whilst the Group and Phoenix are currently seeking a commercial resolution in respect of such disagreements, it is possible that all or some of these matters (and any other disagreements which may arise from time to time in respect of these agreements) could be escalated to a dispute resolution process provided for in the relevant agreements, which could result, if the Group and Phoenix fail to reach agreement, in either party commencing legal proceedings. Management's estimate of the impact of these discussions on the value of the arrangements entered into with Phoenix at the time of the sale of SLAL to Phoenix has been taken into account in the fair value of the contingent consideration.

Non-participating investment contract liabilities

The fair value of the non-participating investment contract liabilities is calculated equal to the fair value of the underlying assets and liabilities in the funds. Thus, the value of these liabilities is dependent on the methods and assumptions set out above in relation to the underlying assets and liabilities in which these funds are invested. The underlying assets and liabilities are predominately categorised as level 1 or 2 and as such, the inputs into the valuation of the liabilities are observable. Therefore, the liabilities are categorised within level 2 of the fair value hierarchy. Where the valuations are largely based on inputs derived from unobservable market data (e.g. real estate, infrastructure and private equity) these liabilities are categorised as level 3 of the fair value hierarchy.

Liabilities in respect of third party interest in consolidated funds

The fair value of liabilities in respect of third party interest in consolidated funds is calculated equal to the fair value of the underlying assets and liabilities in the funds. Thus, the value of these liabilities is dependent on the methods and assumptions set out above in relation to the underlying assets in which these funds are invested. When the underlying assets and liabilities are valued using readily available market information the liabilities in respect of third party interest in consolidated funds are treated as level 2. Where the underlying assets and liabilities are not valued using readily available market information the liabilities in respect of third party interest in consolidated funds are treated as level 3.

 

(c) Fair value hierarchy for assets and liabilities measured at fair value other than assets backing unit linked liabilities and unit linked liabilities

(c)(i) Fair value hierarchy for assets measured at fair value in the statement of financial position other than assets backing unit linked liabilities

The table below presents the Group's assets, other than assets backing unit linked liabilities, measured at fair value by level of the fair value hierarchy (refer Note 4.16(d) for fair value hierarchy analysis in relation to assets backing unit linked liabilities).

										Fair value hierarchy
	As recognised in the condensed consolidated statement of financial position			Classified asheld for sale			Total			Level 1			Level 2			Level 3
	30 Jun 2020	30 Jun 20194	31 Dec 2019	30 Jun 2020	30 Jun 20194	31 Dec 2019	30 Jun 2020	30 Jun 20194	31 Dec 2019	30 Jun 2020	30 Jun 20194	31 Dec 2019	30 Jun 2020	30 Jun 20194	31 Dec 2019	30 Jun 2020	30 Jun 20194	31 Dec 2019
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
Derivative financial assets	95	31	19	-	-	-	95	31	19	-	-	-	95	31	19	-	-	-
Equity securities and interests in pooled investment vehicles	728	534	725	2	156	2	730	690	727	218	456	609	422	160	36	90	74	82
Debt securities1	972	586	769	-	14	14	972	600	783	2	33	57	969	567	725	1	-	1
Financial Investments	1,795	1,151	1,513	2	170	16	1,797	1,321	1,529	220	489	666	1,486	758	780	91	74	83
Owner occupied property2	1	2	2	-	-	-	1	2	2	-	-	-	-	-	-	1	2	2
Contingent consideration asset3	1	-	1	-	-	-	1	-	1	-	-	-	-	-	-	1	-	1
Total assets at fair value	1,797	1,153	1,516	2	170	16	1,799	1,323	1,532	220	489	666	1,486	758	780	93	76	86

1 Excludes debt securities measured at amortised cost of £368m (30 June 2019: £274m; 31 December 2019: £602m) - refer Note 4.16 (e).

2 Presented in Property, plant and equipment in the condensed consolidated statement of financial position.

3 Presented in Receivables and other financial assets in the condensed consolidated statement of financial position.

4 Comparatives for 30 June 2019 reflect the presentational change made to show unit linked liabilities and the assets backing these liabilities separately.

Transfers from level 1 to level 2 and from level 2 to level 1 during the six months ended 30 June 2020 were £361m (six months ended 30 June 2019: £42m; 12 months ended 31 December 2019: £7m) and £5m (six months ended 30 June 2019: £nil; 12 months ended 31 December 2019: £6m) respectively. Transfers from level 1 to level 2 in the period primarily relate to interests in pooled investment vehicles which are priced daily but where the daily price is only offered by the fund manager. The Group now considers these investments to be level 2. All other transfers relate to assets where changes in the frequency of observable market transactions resulted in a change in whether the market was considered active. Refer Note 4.16 (c)(iii) for details of movements in level 3 assets.

(c)(ii) Fair value hierarchy for liabilities measured at fair value in the statement of financial position other than unit linked liabilities

The table below presents the Group's liabilities, other than unit linked liabilities, measured at fair value by level of the fair value hierarchy (refer 4.16(d) for fair value hierarchy analysis in relation to unit linked liabilities).

										Fair value hierarchy
	As recognised in the condensed consolidated statement of financial position			Classified as held for sale			Total			Level 1			Level 2			Level 3
	30 Jun 2020	30 Jun 20192	31 Dec 2019	30 Jun 2020	30 Jun 20192	31 Dec 2019	30 Jun 2020	30 Jun 20192	31 Dec 2019	30 Jun 2020	30 Jun 20192	31 Dec 2019	30 Jun 2020	30 Jun 20192	31 Dec 2019	30 Jun 2020	30 Jun 20192	31 Dec 2019
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
Liabilities in respect of third party interest in consolidated funds	184	23	119	-	16	-	184	39	119	-	3	-	184	36	119	-	-	-
Derivative financial liabilities	8	8	3	-	-	-	8	8	3	-	2	1	8	6	2	-	-	-
Contingent consideration liabilities1	11	71	14	-	-	-	11	71	14	-	-	-	-	-	-	11	71	14
Total liabilities at fair value	203	102	136	-	16	-	203	118	136	-	5	1	192	42	121	11	71	14

1 Presented in Other financial liabilities in the condensed consolidated statement of financial position.

2 Comparatives for 30 June 2019 reflect the presentational change made to show unit linked liabilities and the assets backing these liabilities separately.

There were no significant transfers between levels 1 and 2 during the six months ended 30 June 2020 (six months ended 30 June 2019: none; 12 months ended 31 December 2019: none). Refer Note 4.16 (c)(iii) for details of movements in level 3 liabilities.

(c)(iii) Reconciliation of movements in level 3 instruments

The movements during the period of level 3 assets and liabilities held at fair value, excluding unit linked assets and liabilities and assets and liabilities held for sale, are analysed below.

	Owner occupied property			Equity securities and interests in pooled investment funds			Debt securities
	30 Jun 2020	30 Jun 2019	31 Dec 2019	30 Jun 2020	30 Jun 2019	31 Dec 2019	30 Jun 2020	30 Jun 2019	31 Dec 2019
	£m	£m	£m	£m	£m	£m	£m	£m	£m
At start of period	2	2	2	82	59	59	1	1	1
Total gains/(losses) recognised in the condensed consolidated income statement	(1)	-	-	1	1	2	-	-	-
Purchases	-	-	-	13	16	23	-	-	-
Sales	-	-	-	(9)	(2)	(8)	-	-	-
Foreign exchange adjustment	-	-	-	1	-	-	-	-	-
Transfers in to level 31	-	-	-	2	-	6	-	-	-
At end of period	1	2	2	90	74	82	1	1	1

1 Transfers are deemed to have occurred at the end of the calendar quarter in which they arose.

	Contingent consideration asset			Contingent consideration liabilities
	30 Jun2020	30 Jun2019	31 Dec2019	30 Jun2020	30 Jun2019	31 Dec2019
	£m	£m	£m	£m	£m	£m
At start of period	1	8	8	(14)	(29)	(29)
Total amounts recognised in the income statement	-	-	56	-	38	5
Additions	-	-	-	-	-	(8)
Settlements	-	(95)	(63)	3	7	18
Transfer to contingent consideration liability	-	87	-	-	(87)	-
At end of period	1	-	1	(11)	(71)	(14)

For the six months ended 30 June 2020, gains of £2m from continuing operations (six months ended 30 June 2019: gains of £15m; 12 months ended 31 December 2019: £nil) were recognised in the IFRS condensed consolidated income statement in respect of non-unit linked assets and liabilities held at fair value classified as level 3 at the period end, excluding assets and liabilities held for sale. Of this amount gains of £2m (six months ended 30 June 2019: gains of £2m; 12 months ended 31 December 2019: gains of £1m) were recognised in investment return with £nil (six months ended 30 June 2019: gains of £13m; 12 months ended 31 December 2019: losses of £1m) recognised in other income.

Transfers of equity securities and interests in pooled investment funds and debt securities into level 3 generally arise when external pricing providers stop providing a price or where the price provided is considered stale. Transfers of equity securities and interests in pooled investment funds and debt securities out of level 3 arise when acceptable prices become available from external pricing providers.

(c)(iv) Significant unobservable inputs in level 3 instrument valuations

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

	Fair value
	30 Jun 2020	30 Jun 2019	31 Dec 2019
	£m	£m	£m	Unobservable input at 30 June 2020	Input used at 30 June 2020
Equity securities and interests in pooled investment funds	90	74	82	This comprises holdings in approximately 100 separate funds, predominantly by value being interests in real estate, infrastructure and private equity funds. Given the numerous unobservable inputs pertaining to the valuation of the underlying assets in the funds no individual unobservable inputs are considered significant.	N/A
Contingent consideration assets and liabilities	(10)	(71)	(13)	Unobservable inputs relate to probability weighted cash flows and, where relevant, discount rates. The most significant unobservable inputs relate to assumptions used to value the contingent consideration related to the sale of SLAL to Phoenix, in particular those related to:
				- SLAL's annuity sales practices provision	Expected amount receivable based on the SLAL release of the provision that it recognised at 31 December 2017
				- Future lapse rates on relevant UK unit linked products of SLAL	Expected amount payable based on lapse experience data for 2018 and 2019 provided by Phoenix
				- Management's assessment of the outcome of ongoing discussions with Phoenix in respect of disagreements over the operation of certain aspects of the governing contracts that were entered into at the time of the sale of SLAL to Phoenix	Our assessment of the expected resolution taking into account our legal advice

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

At 30 June 2020 the shareholder is directly exposed to movements in the value of all non-unit linked level 3 instruments. Changing unobservable inputs in the measurement of the fair value of these level 3 financial assets and financial liabilities to reasonably possible alternative assumptions would not have a significant impact on profit attributable to equity holders or on total assets. No level 3 instruments are held in in consolidated structured entities. See 4.12 (d) below for unit linked level 3 instruments.

 

(d) Fair value hierarchy for assets backing unit linked liabilities and unit linked liabilities measured at fair value

The table below presents the Group's assets backing unit linked liabilities and unit linked liabilities measured at fair value by level of the fair value hierarchy.

										Fair value hierarchy
	As recognised in the condensed consolidated statement of financial position			Classified asheld for sale1			Total			Level 1			Level 2			Level 3
	30 Jun 2020	30 Jun 2019	31 Dec 2019	30 Jun 2020	30 Jun 2019	31 Dec 2019	30 Jun 2020	30 Jun 2019	31 Dec 2019	30 Jun 2020	30 Jun 2019	31 Dec 2019	30 Jun 2020	30 Jun 2019	31 Dec 2019	30 Jun 2020	30 Jun 2019	31 Dec 2019
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
Financial investments	1,313	1,940	1,528	-	674	674	1,313	2,614	2,202	787	2,459	1,991	506	155	211	20	-	-
Total assets at fair value backing unit linked liabilities	1,313	1,940	1,528	-	674	674	1,313	2,614	2,202	787	2,459	1,991	506	155	211	20	-	-
Investment contract liabilities	990	1,600	1,152	-	50	49	990	1,650	1,201	-	-	-	970	1,650	1,201	20	-	-
Third party interest in consolidated funds	376	384	416	-	-	-	376	384	416	-	-	-	376	384	416	-	-	-
Other unit linked liabilities2	17	3	6	-	-	-	17	3	6	8	-	-	9	3	6	-	-	-
Total unit linked liabilities at fair value	1,383	1,987	1,574	-	50	49	1,383	2,037	1,623	8	-	-	1,355	2,037	1,623	20	-	-

1 Financial investments include financial assets backing unit linked liabilities classified as non-participating insurance contracts within liabilities of operations held for sale.

2 Excludes other unit linked liabilities not measured at fair value of £13m (30 June 2019: £8m; 31 December 2019: £8m).

The financial investments backing unit linked liabilities comprise equity securities and interests in pooled investment funds of £1,144m (30 June 2019: £1,761m; 31 December 2019: £1,338m), debt securities of £164m (30 June 2019: £178m; 31 December 2019: £185m) and derivative financial assets of £5m (30 June 2019: £1m; 31 December 2019: £5m).

Transfers from level 1 to level 2 and from level 2 to level 1 during the six months ended 30 June 2020 were £274m (six months ended 30 June 2019: £nil; 12 months ended 31 December 2019: £nil) and £nil (six months ended 30 June 2019: £nil; 12 months ended 31 December 2019: £nil) respectively.

The movements during the period of level 3 unit linked assets and liabilities held at fair value are analysed below.

	Equity securities and interests in pooled investment funds			Investment contract liabilities
	30 Jun 2020	30 Jun 2019	31 Dec 2019	30 Jun 2020	30 Jun 2019	31 Dec 2019
	£m	£m	£m	£m	£m	£m
At start of period	-	-	-	-	-	-
Total gains/(losses) recognised in the condensed consolidated income statement	(1)	-	-	1	-	-
Sales	-	-	-	-	-	-
Transfers in to level 31	21	-	-	(21)	-	-
At end of period	20	-	-	(20)	-	-

1 Transfers are deemed to have occurred at the end of the calendar quarter in which they arose.

Unit linked level 3 assets relate to holdings in real estate funds. No individual unobservable input is considered significant. Changing unobservable inputs in the measurement of the fair value of these unit linked level 3 financial assets and liabilities to reasonably possible alternative assumptions would have no impact on profit attributable to equity holders or on total assets.

Transfers of unit linked assets and liabilities to level 3 generally arise when external pricing providers stop providing prices for the underlying assets and liabilities in the funds or where the price provided is considered stale.

(e) Financial assets and financial liabilities not carried at fair value

The table below presents estimated fair values of financial assets and financial liabilities whose carrying value does not approximate fair value.

	As recognised in the consolidated statement of financial position			Fair value
	30 Jun2020	30 Jun2019	31 Dec2019	30 Jun2020	30 Jun2019	31 Dec2019
	£m	£m	£m	£m	£m	£m
Assets
Debt securities	368	274	602	378	285	614
Liabilities
Subordinated liabilities	798	690	655	817	694	688

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

4.17 Contingent liabilities and contingent assets

Legal proceedings, complaints and regulations

The Group is subject to regulation in all of the territories in which it operates investment and insurance businesses. In the UK, where the Group primarily operates, the FCA has broad powers, including powers to investigate marketing and sales practices.

The Group, like other financial organisations, is subject to legal proceedings, complaints and regulatory discussions, reviews and challenges in the normal course of its business. All such material matters are periodically reassessed, with the assistance of external professional advisers where appropriate, to determine the likelihood of the Group incurring a liability. Where it is concluded that it is more likely than not that a material outflow will be made a provision is established based on management's best estimate of the amount that will be payable. In some cases it will not be possible to form a view, for example because the facts are unclear or because further time is needed to properly investigate, and no provisions are held for such matters. It is not possible to predict with certainty the extent and timing of the financial impact of legal proceedings, complaints and related regulatory matters.

Refer Note 4.16 relating to ongoing discussions with Phoenix in respect of disagreements over the operation of certain aspects of the agreements that were entered into at the time of the sale of the UK and European insurance business to Phoenix and which impact the value of indemnities and other related payments under the transaction terms.

4.18 Commitments

(a) Unrecognised financial instruments

As at 30 June 2020, the Group has committed to investing an additional £50m (30 June 2019: £33m; 31 December 2019: £46m) into funds in which it holds a co-investment interest.

(b) Capital commitments

As at 30 June 2020, the Group has capital commitments other than in relation to financial instruments of £12m (30 June 2019: £37m; 31 December 2019: £nil).

4.19 Related party transactions

In the normal course of business, the Group enters into transactions with related parties that relate to insurance and investment management business. There have been no changes in the nature of these transactions during the period to those reported in the Group's Annual report and accounts for the year ended 31 December 2019.

In the six months ended 30 June 2020, for associates accounted for using the equity method, the Group recognised sales primarily in relation to management fees of £62m (six months ended 30 June 2019: £109m; 12 months ended 31 December 2019: £145m) and purchases in relation to services received of £34m (six months ended 30 June 2019: £39m; 12 months ended 31 December 2019: £49m). There were also sales to joint ventures accounted for using the equity method of £2m (six months ended 30 June 2019: £nil; 12 months ended 31 December 2019: £1m) and purchases from joint ventures of £nil (six months ended 30 June 2019: £nil; 12 months ended 31 December 2019: £1m).

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

During the six months ended 30 June 2020, the Group committed to providing £12m of additional funding to a joint venture subject to the fulfilment of specified conditions (30 June 2019: £nil; 31 December 2019: £nil).

4.20 Events after the reporting date

On 8 July 2020 the 5% 2015 Non-voting perpetual non-cumulative redeemable preference shares issued by AAM PLC were redeemed for a total consideration of £102m which included a £2m dividend.

On 22 July 2020 the Group's associate, Phoenix, announced the completion of its acquisition of ReAssure Group plc. Under the terms of the transaction, Phoenix issued 277,277,138 new ordinary shares as part consideration for the acquisition. Completion of the transaction results in the Group's holding at 30 June 2020 of 19.97% in Phoenix becoming 14.4% of the enlarged Phoenix Group. The Group does not expect any dilution gain recognised in the consolidated income statement as a result of the transaction to be material. The Group will continue to classify the investment in Phoenix as an associate following the dilution resulting from this transaction.