abrdn plc

Full Year Results 2021

Part 5 of 8

 

6. Independent auditors' report to the members of abrdn plc

1. Our opinion is unmodified

We have audited the financial statements of abrdn plc ("the Company") for the year ended 31 December 2021 which comprise the Consolidated income statement, Consolidated statement of comprehensive income, Consolidated statement of financial position, Consolidated statement of changes in equity, Consolidated statement of cash flows, Company statement of financial position, Company statement of changes in equity, and the related notes, including the accounting policies in the Basis of preparation. In our opinion:

-    the financial statements give a true and fair view of the state of the Group's and of the parent Company's affairs as at 31 December 2021 and of the Group's profit for the year then ended;

-    the Group financial statements have been properly prepared in accordance with UK-adopted international accounting standards;

-    the parent Company financial statements have been properly prepared in accordance with UK accounting standards, including FRS 101 Reduced Disclosure Framework; and

-    the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) ("ISAs (UK)") and applicable law. Our responsibilities are described below. We believe that the audit evidence we have obtained is a sufficient and appropriate basis for our opinion. Our audit opinion is consistent with our report to the audit committee.

We were first appointed as auditor by the shareholders on 16 May 2017. The period of total uninterrupted engagement is for the five financial years ended 31 December 2021. We have fulfilled our ethical responsibilities under, and we remain independent of the Group in accordance with, UK ethical requirements including the FRC Ethical Standard as applied to listed public interest entities. No non-audit services prohibited by that standard were provided.

Overview
Materiality: Group financial statements as a whole		£19m (2020: £25m) 3.5% (2020: 2.7%) of normalised profit before tax
Coverage		89% (2020: 90%) of profits and losses that made up Group profit before tax
Key audit matters			vs 2020
Recurring risks		Valuation of UK defined benefit pension scheme obligation	<  >
		Recoverability of certain of the parent's investment in subsidiaries
Event driven risk		New: Fair value of the contingent consideration liability and intangible assets recognised on the acquisition of Tritax Management LLP	∆

 

2. Key audit matters: our assessment of risks of material misstatement

Key audit matters are those matters that, in our professional judgement, were of most significance in the audit of the financial statements and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by us, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. We summarise below the key audit matters , in decreasing order of audit significance, in arriving at our audit opinion above, together with our key audit procedures to address those matters and our findings from those procedures in order that the Company's members, as a body, may better understand the process by which we arrived at our audit opinion. These matters were addressed, and our findings are based on procedures undertaken, in the context of, and solely for the purpose of, our audit of the financial statements as a whole, and in forming our opinion thereon, and consequently are incidental to that opinion, and we do not provide a separate opinion on these matters.

	The risk	Our response
Valuation of the UK defined benefit pension scheme present value of funded obligation (£2,899m, 2020: £3,015m) Refer to page 87 (Audit Committee Report), page 206 (accounting policy) and page 207 (financial disclosures).	Subjective Valuation The present value of the Group's funded obligation for the UK defined benefit ('DB') pension scheme is an area that involves significant judgement over the uncertain future settlement value. The Group is required to use judgment in the selection of key assumptions covering both operating assumptions and economic assumptions.   The key operating assumptions are base mortality and mortality improvement. The key economic assumptions are the discount rate and inflation. The risk is that inappropriate assumptions are used in determining the present value of the funded obligation.   The effect of these matters is that, as part of our risk assessment, we determine that the valuation of the pension scheme obligation has a high degree of estimation uncertainty, with a potential range of reasonable outcomes greater than our materiality for the financial statements as a whole and possibly many times that amount.   The financial statements (Note 33) disclose the sensitivity estimated by the Group.	We performed the tests below rather than seeking to rely on any of the Group's controls because the nature of the balance is such that we would expect to obtain audit evidence primarily through the detailed procedures described.   Our procedures included:   Test of detail and our sector experience: We evaluated the competency and objectivity of the Group's experts who assisted them in determining the actuarial assumptions used to calculate the defined benefit obligation.   We considered, with the support of internal actuarial specialists, the appropriateness of the base mortality assumption by reference to scheme and industry data on historical mortality experience and the outcome of the latest triennial report.   We considered, with the support of internal actuarial specialists, the appropriateness of the mortality improvement assumptions by reference to industry-based expectations of future mortality improvements and the appropriateness of the discount rate and inflation assumptions by reference to industry practice.   Assessing transparency: In conjunction with internal actuarial specialists, we considered whether the Group's disclosures in relation to the assumptions used in the calculation of present value of the funded obligation appropriately represent the sensitivities of the obligation to the use of alternative assumptions.   Our findings We found the estimated valuation of the UK defined benefit pension scheme obligation to be balanced (2020: balanced) with proportionate (2020: proportionate) disclosures of the related assumptions and sensitivities.

 

	The risk	Our response
Fair value of the contingent consideration liability and intangible assets recognised on the acquisition of Tritax Management LLP  (Contingent consideration liability on acquisition: £155m, 2020: £nil; Intangible assets recognised on acquisition: £71m, 2020: £nil) Refer to page 87 (Audit Committee Report), page 148 (accounting policy) and page 149 (financial disclosures).	Subjective Estimate In April 2021, abrdn completed the acquisition of 60% of the membership interests of Tritax Management LLP ("Tritax"); there are a number of accounting estimates associated with the acquisition accounting for this transaction.   The contingent consideration liabilities recognised on acquisition must be recognised at fair value; the valuation of these liabilities contains estimation uncertainty (including through the determination of the cash flow forecasts and the discount rate used in the valuation).   On acquisition, separate intangible assets must be identified and valued. Both the identification of each category of intangible asset to be recognised and the valuation of these assets are subjective, and involve judgement (e.g. determination of the useful economic life) and estimation uncertainty (e.g. the determination of the discount rate or cash flow forecasts to be used in the valuation).   The effect of these matters is that, as part of our risk assessment, we determined that the fair value of contingent consideration payable and the fair value of identified intangibles have a high degree of estimation uncertainty, with a potential range of reasonable outcomes greater than our materiality for the financial statements as a whole.   The financial statements (note 39) disclose the sensitivities estimated by the Group in respect of the contingent consideration liability.	We performed the tests below rather than seeking to rely on any of the Group's controls because the nature of the balance is such that we would expect to obtain audit evidence primarily through the detailed procedures described.   Our procedures included:   Our business combination and sector expertise: We considered the rationale for the acquisition, reviewed the terms of the acquisition, board minutes and other available information in order to challenge the identification of intangible assets.   Assessing principles: We assessed management's analysis of accounting principles against the provisions of the LLP agreement in respect of the treatment of payments made to former owners as either remuneration or consideration, and whether these should be reflected within the fair value of the contingent consideration liability.   Our valuation expertise: Using our valuation specialists we challenged the identification and valuation analysis prepared by management (and the third party valuations experts who assisted management), including the assessment of the useful economic life of identified intangibles and the allocation of the purchase price between goodwill and separately identifiable intangible assets. We assessed the appropriateness of input assumptions to the valuation analysis. This included performing a critical assessment of the reliability of management's forecasts and comparing the discount rate assumption with our own expected range.   We assessed the appropriateness of the valuation model proposed by management with respect to the valuation of the contingent consideration and assessed the input assumptions into the valuation, assisted by our valuation specialists. This included performing a critical assessment of the reliability of management's forecasts (including their determination of the forecast period) and an assessment of the applicable scenario probability weightings against our own sector experience.   Sensitivity analysis: We have performed our own sensitivity analysis, which included assessing the effect of reasonably possible changes in input assumptions to evaluate the impact on the valuation of both the contingent consideration and the separately identifiable intangible assets (and corresponding allocation of the purchase price to goodwill).   Assessing transparency: We have assessed the transparency of the Group's disclosures in respect of the acquisitions, including in respect of applicable estimation uncertainty.   Our findings We found the estimated valuation of the fair value of the contingent consideration liability and intangible assets recognised on the acquisition of Tritax Management LLP to be balanced (2020: n/a)  with proportionate (2020: n/a) disclosures of the related assumptions and sensitivities.

 

	The risk	Our response
Recoverability of certain of the parent's investments in subsidiaries: (Parent Company: Certain investments in subsidiaries: included within the total investments in subsidiaries balance of £5,065m (2020: £4,013m); Impairment of investment in subsidiaries: £45m (2020: £1,873m)) Refer to page 88 (Audit Committee Report), page 255 (accounting policy) and page 257 (financial disclosures).	Subjective Judgement As disclosed in note A of the parent Company financial statements, the net assets attributable to equity holders of the parent Company exceeded the Group's market capitalisation at the balance sheet date and the Company applied judgement to identify which subsidiaries were at risk of impairment. As a result, the Company subjected the investment in Aberdeen Asset Management plc to a full impairment review. The identification of the at-risk investments is inherently subjective.   The Company also subjected abrdn Financial Planning Limited to a full impairment review, given, in their judgement, performance in the business in the period indicated impairment.   In addition, given the historic impairments recognised in respect of the asset management subsidiaries in previous periods, there is a risk of impairment reversals not recognised, driven by improvements in underlying business performance.   Considering indications of impairment or impairment reversal requires subjective judgement.   Subjective Estimate Where an impairment review is required the estimated recoverable amount of these balances is subjective due to the inherent uncertainty involved in assessing the recoverable amount of the subsidiaries, either using a value in use or fair value less cost of disposal analysis.   As part of our risk assessment, we determined that the recoverable amount of certain investments in subsidiaries has a high degree of estimation uncertainty, with a potential range of reasonable outcomes greater than our materiality for the financial statements as a whole.   The parent Company financial statements (note A) disclose the sensitivity estimated by the parent company.	We performed the tests below rather than seeking to rely on any of the Group's controls because the nature of the balance is such that we would expect to obtain audit evidence primarily through the detailed procedures described.   Our procedures included:   Our valuation expertise and sector expertise: Having considered the application of the impairment trigger in respect of market capitalisation, we identified that it existed for certain subsidiaries. In evaluating which subsidiaries required further analysis, we performed a critical assessment of the business performance, such as flows of assets under management and changes in revenue and other financial performance during the period.   Where impairment reviews were completed, we assessed the appropriateness of the fair value less costs of disposal ("FVLCD") or value in use ("VIU) valuation basis proposed by management. We engaged our own valuation specialists to assist us in assessing the appropriateness of the applied valuation model and assumptions applied.   Sensitivity analysis: We performed our own sensitivity analysis which included assessing the effect of reasonable alternative assumptions in respect of applicable price to earnings multiples, discount rates and cash flow forecasts (as applicable) to evaluate the impact on the carrying value of the investment in subsidiaries.   Assessing transparency: We assessed whether the parent Company's disclosures in respect of investment in subsidiaries reflect the risks inherent in the impairment assessment performed.   Our findings We found the parent Company's carrying value of certain of the investments in subsidiaries and the related impairment charge to be balanced (2020: cautious) with proportionate (2020: proportionate) disclosures of the related assumptions and sensitivities.

We have summarised below the changes to our key audit matters from the 31 December 2020 year end audit.

We continue to perform procedures over the carrying value of the investment in Phoenix Group Holdings plc and the share of profit received during the period in which it was an equity accounted associate (financial disclosure page 152). However, following reclassification of the equity accounted investment to fair value investment in February 2021, we do not consider there to be a significant risk associated with the carrying value at 31 December 2021 or the share of profit received in the year to 31 December 2021.

We previously reported a key audit matter in respect of the impairment of intangible assets. Given improved performance in the applicable books of business, and the effect of amortisation on the carrying value of the assets, there were no impairment triggers identified during the year to 31 December 2021 and therefore we no longer consider this a key audit matter.

In the prior year, we considered the risk associated with the recoverability of certain of the parent's investments in subsidiaries in conjunction with the goodwill recognised on consolidation at the group level. We continue to perform procedures over goodwill recognised on consolidation. However, following the full impairment of the asset management goodwill at 30 June 2020, we have not assessed this as one of the most significant risks in our current year audit and, therefore, it is not separately identified in our report this year.

3. Our application of materiality and an overview of the scope of our audit

Materiality for the Group financial statements as a whole was set at £19m (2020: £25m), determined with reference to a benchmark of our estimate of Group profit before tax made at the planning stage, normalised for our expectation of the level of adjusting items including impairment, restructuring costs and the profits arising on disposal of associate or past associate shareholdings (of which it represents 5% (2020: 5%)). This equates to 3.5% (2020: 2.7%) of reported Group profit normalised on a consistent basis and to 1.7% (2020: 2.9%) of Group IFRS profit before tax from continuing operations of £1,115m (2020: £853m). Materiality for the parent Company financial statements as a whole was set at £7.6m (2020: £8.8m), which is the component materiality for the parent Company determined by the group audit engagement team. This is lower than the materiality we would otherwise have determined with reference to parent Company total assets, of which it represents 0.1% (2020: 0.1%).

In line with our audit methodology, our procedures on individual account balances and disclosures were performed to a lower threshold, performance materiality, so as to reduce to an acceptable level the risk that individually immaterial misstatements in individual account balances add up to a material amount across the financial statements as a whole.

Performance materiality was set at 75% (2020: 75%) of materiality for the financial statements as a whole, which equates to £14.25m (2020: £18.75m) for the Group and £5.7m (2020: £6.6m) for the parent Company. We applied this percentage in our determination of performance materiality because we did not identify any factors indicating an elevated level of risk.

We agreed to report to the Audit Committee any corrected or uncorrected identified misstatements exceeding £0.95m (2020: £1.25m), in addition to other identified misstatements that warranted reporting on qualitative grounds.

Of the Group's 301 (2020: 295) reporting components, we subjected 17 (2020: 15) to full scope audits for Group purposes and 4 (2020: none) to specified risk-focused audit procedures. The latter were not financially significant enough to require an audit for group reporting purposes, but did present specific individual risks that needed to be addressed.

For those items excluded from normalised group profit before tax, the component teams performed procedures on items relating to their components. The group team performed procedures on the remaining excluded items.

The components within the scope of our work accounted for the percentages illustrated opposite. The remaining 21% (2020: 27%) of total Group fee income, 11% (2020: 10%) of the total profits and losses that made up Group profit before tax and 10% (2020: 23%) of net Group assets is represented by 280 (2020: 280) reporting components, none of which individually represented more than 5% of any of total Group fee income, Group profit before tax or of net Group assets. For these residual components, we performed analysis at an aggregated Group level to re-examine our assessment that there were no significant risks of material misstatement within these.

For those items excluded from group fee income, the component teams performed procedures on items relating to their components. The group team performed procedures on the remaining excluded items.

The Group team instructed component auditors as to the significant areas to be covered, including the relevant risks detailed above and the information to be reported back. The Group team approved the component materialities, which ranged from £1m to £8.55m (2020: £1.25m to £18.2m), having regard to the mix of size and risk profile of the Group across the components. The work on 8 of the 17 components (2020: 5 of the 15 components) was performed by component auditors and the rest, including the audit of the parent Company, was performed by the Group team.

Diagrams removed for the purposes of this announcement.  However they can be viewed in full in the pdf document

The Group team had planned to visit component locations in the United States, Luxembourg, and Singapore. However, these visits were prevented by movement restrictions relating to the COVID-19 pandemic. Instead, video conferences were held to discuss the audit risk and strategy and the component audit findings reported to the Group team. Any further work required by the Group team was then performed by the component auditor.

The scope of the audit work performed was predominately substantive as we placed limited reliance upon the Group's internal control over financial reporting.

4. The impact of climate change on our audit

In planning our audit we have considered the potential impacts of climate change on the Group's business and its financial statements. Climate change impacts the Group in a number of ways: through its own operations (including potential reputational risk associated with the Group's delivery of its climate related initiatives), through its portfolio of investments and its stewardship role, and the greater emphasis on climate related narrative and disclosure in the annual report.

As disclosed in Note 37, the Group's direct exposure to climate change in the financial statements is primarily through its level 3 investment holdings, as the key valuation assumptions and estimates may be impacted by climate risks. As part of our audit we have made enquiries of Directors and the Group's Corporate Sustainability team to understand the extent of the potential impact of climate change risk on the Group's financial statements and the Group's preparedness for this.

We have performed a risk assessment of how the impact of climate change may affect the financial statements and our audit, in particular with respect to investment holdings, in particular level 3 investments. We consider that the impact of climate risk on level 1 and level 2 investments is already reflected in the market prices used to value these holdings at year end; taking into account the relative size of the level 3 investments balance , we assessed that the impact of climate change was not a significant risk for our audit nor does it constitute a key audit matter. We held discussions with our own climate change professionals to challenge our risk assessment. We have also read the Group's disclosure of climate related information in the front half of the annual report as set out on pages 32 to 37, and considered consistency with the financial statements and our audit knowledge.

We have not been engaged to provide assurance over the accuracy of these disclosures.

5. Going concern

The Directors have prepared the financial statements on the going concern basis as they do not intend to liquidate the Group or the Company or to cease their operations, and as they have concluded that the Group's and the Company's financial position means that this is realistic. They have also concluded that there are no material uncertainties that could have cast significant doubt over their ability to continue as a going concern for at least a year from the date of approval of the financial statements ("the going concern period").

We used our knowledge of the Group, its industry and operating model, and the general economic environment to identify the inherent risks to its business model and analysed how those risks might affect the Group' and Company's financial resources or ability to continue operations over the going concern period. The risk that we considered most likely to adversely affect the Group's and Company's available financial resources over this period was market volatility, including any associated with COVID-19.

We considered whether these risks could plausibly affect the liquidity in the going concern period by assessing the degree of downside assumption that, individually and collectively, could result in a liquidity issue, taking into account the Group's and Company's current and projected cash and facilities (a reverse stress test).

We also assessed the completeness of the going concern disclosure.

Our conclusions based on this work:

-    we consider that the directors' use of the going concern basis of accounting in the preparation of the financial statements is appropriate;

-    we have not identified, and concur with the directors' assessment that there is not, a material uncertainty related to events or conditions that, individually or collectively, may cast significant doubt on the Group's or Company's ability to continue as a going concern for the going concern period;

-    we have nothing material to add or draw attention to in relation to the directors' statement in Note (a)(vi) to the financial statements on the use of the going concern basis of accounting with no material uncertainties that may cast significant doubt over the Group and Company's use of that basis for the going concern period, and we found the going concern disclosure in note (a)(vi) to be acceptable; and

-    the related statement under the Listing Rules set out on page 122 is materially consistent with the financial statements and our audit knowledge.

However, as we cannot predict all future events or conditions and as subsequent events may result in outcomes that are inconsistent with judgements that were reasonable at the time they were made, the above conclusions are not a guarantee that the Group or the Company will continue in operation.

6. Fraud and breaches of laws and regulations - ability to detect

 

Identifying and responding to risks of material misstatement due to fraud

To identify risks of material misstatement due to fraud ("fraud risks") we assessed events or conditions that could indicate an incentive or pressure to commit fraud or provide an opportunity to commit fraud. Our risk assessment procedures included:

-    Enquiring of directors, the Group Audit Committee, Group Internal Audit and the Group's Legal team and inspection of policy documentation as to the Group's high-level policies and procedures to prevent and detect fraud, including the internal audit function, and the Group's channel for 'whistleblowing', as well as whether they have knowledge of any actual, suspected or alleged fraud.

-    Reading Board minutes and attending Group Audit Committee and Risk and Compliance Committee meetings.

-    Considering the findings of Group Internal Audit's reviews in the period.

-    Considering remuneration incentive schemes and performance targets for management and directors.

We communicated identified fraud risks throughout the audit team and remained alert to any indications of fraud throughout the audit. This included communication from the group to full scope component audit teams of relevant fraud risks identified at the Group level and request to full scope component audit teams to report to the Group audit team any instances of fraud that could give rise to a material misstatement at the Group level.

As required by auditing standards, and taking into account possible pressures to meet profit targets and our overall knowledge of the control environment, we perform procedures to address the risk of management override of controls, in particular the risk that Group and component management may be in a position to make inappropriate accounting entries and the risk of bias in accounting estimates and judgements such as impairment and pension assumptions.

On this audit we do not believe there is a fraud risk related to revenue recognition, given the relative simplicity of the most significant revenue streams and the separation of duties between management and third party service providers.

We did not identify any additional fraud risks.

We performed procedures including:

-    Identifying journal entries and other adjustments to test for all full scope components based on risk criteria and comparing the identified entries to supporting documentation. These included those posted by senior finance management and those posted to unusual accounts, as well as those which comprised unexpected posting combinations.

-    Evaluated the business purpose of significant unusual transactions.

-    Assessing significant accounting estimates for bias, including whether the judgements made in making accounting estimates are indicative of a potential bias.

Identifying and responding to risks of material misstatement related to compliance with laws and regulations

We identified areas of laws and regulations that could reasonably be expected to have a material effect on the financial statements from our general commercial and sector experience, through discussion with the directors and other management (as required by auditing standards), and from inspection of the Group's regulatory and legal correspondence and discussed with the directors and other management the policies and procedures regarding compliance with laws and regulations.

As the Group is regulated, our assessment of risks involved gaining an understanding of the control environment including the entity's procedures for complying with regulatory requirements, how they analyse identified breaches and assessing whether there were any implications of identified breaches on our audit.

We communicated identified laws and regulations throughout our team and remained alert to any indications of non-compliance throughout the audit. This included communication from the group to full scope component audit teams of relevant laws and regulations identified at the Group level, and a request for full scope component auditors to report to the Group audit team any instances of non-compliance with laws and regulations that could give rise to a material misstatement at the Group level.

The potential effect of these laws and regulations on the financial statements varies considerably.

Firstly, the Group is subject to laws and regulations that directly affect the financial statements including financial reporting legislation (including related companies legislation), distributable profits legislation, taxation legislation and pensions regulations and we assessed the extent of compliance with these laws and regulations as part of our procedures on the related financial statement items.

Secondly, the Group is subject to many other laws and regulations where the consequences of non-compliance could have a material effect on amounts or disclosures in the financial statements, for instance through the imposition of fines or litigation. We identified the following areas as those most likely to have such an effect: specific areas of regulatory capital and liquidity, conduct including Client Assets, anti-money laundering, and market abuse regulations and certain aspects of company legislation recognising the financial and regulated nature of the Group's activities and its legal form. Auditing standards limit the required audit procedures to identify non-compliance with these laws and regulations to enquiry of the directors and other management and inspection of regulatory and legal correspondence, if any. Therefore if a breach of operational regulations is not disclosed to us or evident from relevant correspondence, an audit will not detect that breach.

We discussed with the audit committee matters related to actual or suspected breaches of laws or regulations, for which disclosure is not necessary, and considered any implications for our audit.

We assessed the disclosure of provisions in Note 36 and contingent liabilities in Note 41 in light of our understanding gained through the procedures above.

Context of the ability of the audit to detect fraud or breaches of law or regulation

Owing to the inherent limitations of an audit, there is an unavoidable risk that we may not have detected some material misstatements in the financial statements, even though we have properly planned and performed our audit in accordance with auditing standards. For example, the further removed non-compliance with laws and regulations is from the events and transactions reflected in the financial statements, the less likely the inherently limited procedures required by auditing standards would identify it.

In addition, as with any audit, there remained a higher risk of non-detection of fraud, as these may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal controls. Our audit procedures are designed to detect material misstatement. We are not responsible for preventing non-compliance or fraud and cannot be expected to detect non-compliance with all laws and regulations.

7. We have nothing to report on the other information in the Annual Report and Accounts

The directors are responsible for the other information presented in the Annual Report together with the financial statements. Our opinion on the financial statements does not cover the other information and, accordingly, we do not express an audit opinion or, except as explicitly stated below, any form of assurance conclusion thereon.

Our responsibility is to read the other information and, in doing so, consider whether, based on our financial statements audit work, the information therein is materially misstated or inconsistent with the financial statements or our audit knowledge. Based solely on that work we have not identified material misstatements in the other information.

Strategic report and directors' report

Based solely on our work on the other information:

-    we have not identified material misstatements in the Strategic report and the Directors' report;

-    in our opinion the information given in those reports for the financial year is consistent with the financial statements; and

-    in our opinion those reports have been prepared in accordance with the Companies Act 2006.

Directors' remuneration report

In our opinion the part of the Directors' Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006.

Disclosures of emerging and principal risks and longer-term viability

We are required to perform procedures to identify whether there is a material inconsistency between the directors' disclosures in respect of emerging and principal risks and the viability statement, and the financial statements and our audit knowledge.

Based on those procedures, we have nothing material to add or draw attention to in relation to:

-    the directors' confirmation within the Viability Statement and Risk Management report that they have carried out a robust assessment of the emerging and principal risks facing the Group, including those that would threaten its business model, future performance, solvency and liquidity;

-    the Emerging and Principal Risks disclosures describing these risks and how emerging risks are identified, and explaining how they are being managed and mitigated; and

-    the directors' explanation in the Viability Statement of how they have assessed the prospects of the Group, over what period they have done so and why they considered that period to be appropriate, and their statement as to whether they have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions.

We are also required to review the Viability Statement, set out on page 59 under the Listing Rules. Based on the above procedures, we have concluded that the above disclosures are materially consistent with the financial statements and our audit knowledge.

Our work is limited to assessing these matters in the context of only the knowledge acquired during our financial statements audit. As we cannot predict all future events or conditions and as subsequent events may result in outcomes that are inconsistent with judgements that were reasonable at the time they were made, the absence of anything to report on these statements is not a guarantee as to the Group's and Company's longer-term viability.

Corporate governance disclosures

We are required to perform procedures to identify whether there is a material inconsistency between the directors' corporate governance disclosures and the financial statements and our audit knowledge.

Based on those procedures, we have concluded that each of the following is materially consistent with the financial statements and our audit knowledge:

-    the directors' statement that they consider that the annual report and financial statements taken as a whole is fair, balanced and understandable, and provides the information necessary for shareholders to assess the Group's position and performance, business model and strategy;

-    the section of the annual report describing the work of the Audit Committee, including the significant issues that the audit committee considered in relation to the financial statements, and how these issues were addressed; and

-    the section of the annual report that describes the review of the effectiveness of the Group's risk management and internal control systems.

We are required to review the part of Corporate Governance Statement relating to the Group's compliance with the provisions of the UK Corporate Governance Code specified by the Listing Rules for our review. We have nothing to report in this respect.

8. We have nothing to report on the other matters on which we are required to report by exception

Under the Companies Act 2006, we are required to report to you if, in our opinion:

-    Adequate accounting records have not been kept by the parent Company, or returns adequate for our audit have not been received from branches not visited by us.

-    The parent Company financial statements and the part of the Directors' Remuneration Report to be audited are not in agreement with the accounting records and returns.

-    Certain disclosures of directors' remuneration specified by law are not made.

-    We have not received all the information and explanations we require for our audit.

We have nothing to report in these respects.

9. Respective responsibilities

Directors' responsibilities

As explained more fully in their statement set out on page 123, the directors are responsible for: the preparation of the financial statements including being satisfied that they give a true and fair view; such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error; assessing the Group and parent Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and using the going concern basis of accounting unless they either intend to liquidate the Group or the parent Company or to cease operations, or have no realistic alternative but to do so.

Auditor's responsibilities

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue our opinion in an auditor's report. Reasonable assurance is a high level of assurance, but does not guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements.

A fuller description of our responsibilities is provided on the FRC's website at www.frc.org.uk/auditorsresponsibilities

10. The purpose of our audit work and to whom we owe our responsibilities

This report is made solely to the Company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and the terms of our engagement by the company. Our audit work has been undertaken so that we might state to the Company's members those matters we are required to state to them in an auditor's report, and the further matters we are required to state to them in accordance with the terms agreed with the company, and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's members, as a body, for our audit work, for this report, or for the opinions we have formed.

 

Jonathan Mills (Senior Statutory Auditor)

for and on behalf of KPMG LLP, Statutory Auditor

Chartered Accountants

Saltire Court

20 Castle Terrace

Edinburgh

EH1 2EG

28 February 2022

 

 

 

7. Group financial statements

Consolidated income statement

		2021	20201
	Notes	£m	£m
Revenue from contracts with customers	3	1,685	1,527
Cost of sales	3	(142)	(104)
Net operating revenue		1,543	1,423
Restructuring and corporate transaction expenses	5	(259)	(316)
Impairment of goodwill - asset management	5	-	(915)
Amortisation and impairment of other intangibles acquired in business combinations and through the purchase of customer contracts	5	(99)	(265)
Staff costs and other employee-related costs	5	(604)	(625)
Other administrative expenses	5	(594)	(595)
Total administrative and other expenses		(1,556)	(2,716)
Net gains on financial instruments and other income
Fair value movements and dividend income on significant listed investments	4	(227)	65
Other net gains on financial instruments and other income	4	44	81
Total net gains on financial instruments and other income		(183)	146
Finance costs		(30)	(30)
Profit on disposal of subsidiaries and other operations	1	127	8
Profit on disposal of interests in associates	1	1,236	1,858
Loss on impairment of interests in joint ventures	15	-	(45)
Share of profit or loss from associates and joint ventures	15	(22)	194
Profit before tax from continuing operations		1,115	838
Tax (expense)/credit attributable to continuing operations	9	(120)	15
Profit for the year from continuing operations		995	853
Loss for the year from discontinued operations	10	-	(15)
Profit for the year		995	838
Attributable to:
Equity shareholders of abrdn plc
From continuing operations		994	848
From discontinued operations		-	(15)
Equity shareholders of abrdn plc		994	833
Non-controlling interests
From continuing operations - ordinary shares	29	1	-
From continuing operations - preference shares	29	-	5
		995	838
Earnings per share from continuing operations
Basic (pence per share)	11	46.8	38.5
Diluted (pence per share)	11	46.0	37.9
Earnings per share
Basic (pence per share)	11	46.8	37.8
Diluted (pence per share)	11	46.0	37.2

1.  The Group has made changes to the presentation of the consolidated income statement in 2021. Refer Section (a)(iii) of the Basis of Preparation for further details.

The Notes on pages 143 to 251 are an integral part of these consolidated financial statements.

Consolidated statement of comprehensive income

For the year ended 31 December 2021

		2021	2020
	Notes	£m	£m
Profit for the year		995	838
Less: loss from discontinued operations	10	-	15
Profit from continuing operations		995	853
Items that will not be reclassified subsequently to profit or loss:
Remeasurement gains on defined benefit pension plans	33	117	280
Share of other comprehensive income of associates and joint ventures	15	12	(13)
Equity holder tax effect of items that will not be reclassified subsequently to profit or loss	9	3	2
Total items that will not be reclassified subsequently to profit or loss		132	269
Items that may be reclassified subsequently to profit or loss:
Fair value gains/(losses) on cash flow hedges	19	19	(3)
Exchange differences on translating foreign operations		(2)	(8)
Share of other comprehensive income of associates and joint ventures	15	(4)	13
Items transferred to the consolidated income statement
Fair value (gains)/losses on cash flow hedges	19	(10)	13
Realised foreign exchange losses	1	18	6
Share of other comprehensive income of associates and joint ventures	1	(9)	-
Equity holder tax effect of items that may be reclassified subsequently to profit or loss	9	(3)	(2)
Total items that may be reclassified subsequently to profit or loss		9	19
Other comprehensive income for the year from continuing operations		141	288
Total comprehensive income for the year from continuing operations		1,136	1,141
Loss from discontinued operations	10	-	(15)
Total comprehensive income for the year from discontinued operations		-	(15)
Total comprehensive income for the year		1,136	1,126
Attributable to:
Equity shareholders of abrdn plc
From continuing operations		1,135	1,136
From discontinued operations		-	(15)
Non-controlling interests
From continuing operations - ordinary shares		1	-
From continuing operations -- preference shares		-	5
		1,136	1,126

 

The Notes on pages 143 to 251 are an integral part of these consolidated financial statements.

 

Consolidated statement of financial position

As at 31 December 2021

		2021	2020
	Notes	£m	£m
Assets
Intangible assets	14	704	501
Pension and other post-retirement benefit assets	33	1,607	1,474
Investments in associates and joint ventures accounted for using the equity method	15	274	1,371
Property, plant and equipment	16	187	236
Deferred tax assets	9	168	131
Financial investments	18	4,316	3,110
Receivables and other financial assets	18	680	621
Current tax recoverable	9	2	9
Other assets	21	105	46
Assets held for sale	22	-	19
Cash and cash equivalents	18	1,904	1,519
		9,947	9,037
Assets backing unit linked liabilities	24
Financial investments		1,430	1,395
Receivables and other unit linked assets		8	8
Cash and cash equivalents		33	38
		1,471	1,441
Total assets		11,418	10,478

 

	The Notes on pages 143 to 251 are an integral part of these consolidated financial statements.
			2021	2020
		Notes	£m	£m
Liabilities
Third party interest in consolidated funds		31	104	77
Subordinated liabilities		31	644	638
Pension and other post-retirement benefit provisions		33	38	55
Deferred income		34	5	73
Deferred tax liabilities		9	165	66
Current tax liabilities		9	27	15
Derivative financial liabilities		31	5	13
Other financial liabilities		31	1,046	1,177
Provisions		36	49	93
Other liabilities		36	8	6
Liabilities of operations held for sale		22	-	11
			2,091	2,224
Unit linked liabilities		24
Investment contract liabilities			1,088	1,042
Third party interest in consolidated funds			378	388
Other unit linked liabilities			5	11
			1,471	1,441
Total liabilities			3,562	3,665
Equity
Share capital		25	305	306
Shares held by trusts		26	(171)	(170)
Share premium reserve		25	640	640
Retained earnings		27	5,775	4,970
Other reserves		28	1,094	1,064
Equity attributable to equity shareholders of abrdn plc			7,643	6,810
Other equity		29	207	-
Non-controlling interests
Ordinary shares		29	6	3
Total equity			7,856	6,813
Total equity and liabilities			11,418	10,478

 

The Notes on pages 143 to 251 are an integral part of these consolidated financial statements.

The consolidated financial statements on pages 136 to 251 were approved by the Board and signed on its behalf by the following Directors:

Sir Douglas Flint	Stephanie Bruce
Chairman 28 February 2022	Chief Financial Officer 28 February 2022

 

Consolidated statement of changes in equity

For the year ended 31 December 2021

		Share capital	Shares held by trusts	Share premium reserve	Retained earnings	Other reserves	Total equity attributable to equity shareholders of abrdn plc	Other equity	Non-controlling interests - ordinary shares	Total equity
	Notes	£m	£m	£m	£m	£m	£m	£m	£m	£m
1 January 2021		306	(170)	640	4,970	1,064	6,810	-	3	6,813
Profit for the year from continuing operations		-	-	-	994	-	994	-	1	995
Other comprehensive income for the year from continuing operations		-	-	-	119	22	141	-	-	141
Total comprehensive income for the year	27,28	-	-	-	1,113	22	1,135	-	1	1,136
Issue of share capital	25	-	-	-	-	-	-	-	-	-
Issue of other equity	29	-	-	-	-	-	-	207	-	207
Dividends paid on ordinary shares	13	-	-	-	(308)	-	(308)	-	-	(308)
Share buyback	25,28	(1)	-	-	-	1	-	-	-	-
Other movements in non-controlling interests in the year	29	-	-	-	6	-	6	-	2	8
Reserves credit for employee share-based payments	28	-	-	-	-	43	43	-	-	43
Transfer to retained earnings for vested employee share-based payments	27,28	-	-	-	36	(36)	-	-	-	-
Shares acquired by employee trusts		-	(41)	-	-	-	(41)	-	-	(41)
Shares distributed by employee and other trusts and related dividend equivalents	27	-	40	-	(42)	-	(2)	-	-	(2)
Aggregate tax effect of items recognised directly in equity	9	-	-	-	-	-	-	-	-	-
31 December 2021		305	(171)	640	5,775	1,094	7,643	207	6	7,856

 

 

								Non-controlling interests
		Share capital	Shares held by trusts	Share premium reserve	Retained earnings	Other reserves	Total equity attributable to equity shareholders of abrdn 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
Profit for the year from continuing operations		-	-	-	848	-	848	-	5	853
Loss for the year from discontinued operations		-	-	-	(15)	-	(15)	-	-	(15)
Other comprehensive income for the year from continuing operations		-	-	-	282	6	288	-	-	288
Other comprehensive income for the year from discontinued operations		-	-	-	-	-	-	-	-	-
Total comprehensive income for the year	27,28	-	-	-	1,115	6	1,121	-	5	1,126
Issue of share capital	25	-	-	-	-	-	-	-	-	-
Dividends paid on ordinary shares	13	-	-	-	(479)	-	(479)	-	-	(479)
Dividends paid on preference shares	29,32	-	-	-	-	-	-	-	(3)	(3)
Reclassification of preference shares to liability	29,32	-	-	-	(1)	-	(1)	-	(101)	(102)
Share buyback	25,28	(21)	-	-	(402)	21	(402)	-	-	(402)
Reserves credit for employee share-based payments	28	-	-	-	-	64	64	-	-	64
Transfer to retained earnings for vested employee share-based payments	27,28	-	-	-	38	(38)	-	-	-	-
Transfer between reserves on impairment of subsidiaries	27,28	-	-	-	1,834	(1,834)	-	-	-	-
Shares acquired by employee trusts		-	(54)	-	-	-	(54)	-	-	(54)
Shares distributed by employee and other trusts and related dividend equivalents	27	-	18	-	(21)	-	(3)	-	-	(3)
31 December 2020		306	(170)	640	4,970	1,064	6,810	3	-	6,813

 

The Notes on pages 143 to 251 are an integral part of these consolidated financial statements.

Consolidated statement of cash flows

For the year ended 31 December 2021

		2021	2020
	Notes	£m	£m
Cash flows from operating activities
Profit before tax from continuing operations		1,115	838
Loss before tax from discontinued operations	10	-	(15)
		1,115	823
Change in operating assets	40	214	817
Change in operating liabilities	40	(209)	(991)
Adjustment for non-cash movements in investment income		-	6
Other non-cash and non-operating items	40	(1,099)	(646)
Dividends received from associates and joint ventures	15	15	80
Taxation paid1		(22)	(33)
Net cash flows from operating activities		14	56
Cash flows from investing activities
Purchase of property, plant and equipment	16	(12)	(13)
Acquisition of subsidiaries and unincorporated businesses net of cash acquired	1(b)	(145)	-
Disposal of subsidiaries net of cash disposed of	40	112	(8)
Acquisition of investments in associates and joint ventures	15	(11)	(5)
Proceeds in relation to contingent consideration	39	54	3
Payments in relation to contingent consideration	39	(28)	(48)
Disposal of investments in associates and joint ventures	1	304	914
Taxation paid on disposal of investments in associates and joint ventures1		(33)	(33)
Purchase of financial investments		(368)	(521)
Proceeds from sale or redemption of financial investments		938	737
Prepayment in respect of potential acquisition of customer contracts	1(c)(iii)	(56)	-
Acquisition of intangible assets		-	(12)
Net cash flows from investing activities		755	1,014
Cash flows from financing activities
Proceeds from issue of perpetual subordinated notes		208	-
Repayment of preference shares		-	(100)
Payment of lease liabilities - principal		(27)	(29)
Payment of lease liabilities - interest		(6)	(6)
Shares acquired by trusts		(41)	(54)
Interest paid		(28)	(30)
Share buyback	25	(41)	(361)
Preference dividends paid		-	(5)
Ordinary dividends paid	13	(308)	(479)
Net cash flows from financing activities		(243)	(1,064)
Net increase in cash and cash equivalents		526	6
Cash and cash equivalents at the beginning of the year		1,358	1,347
Effects of exchange rate changes on cash and cash equivalents		(9)	5
Cash and cash equivalents at the end of the year	23	1,875	1,358
Supplemental disclosures on cash flows from operating activities
Interest paid		1	2
Interest received		22	30
Dividends received		122	122
Rental income received on investment property		2	3

1.  Total taxation paid was £55m in 2021 (2020: £66m).

 

The Notes on pages 143 to 251 are an integral part of these consolidated financial statements.

Presentation of consolidated financial statements

The Group's significant accounting policies are included at the beginning of the relevant notes to the consolidated financial statements. This section sets out the basis of preparation, a summary of the Group's critical accounting estimates and judgements in applying accounting policies, and other significant accounting policies which have been applied to the financial statements as a whole.

(a)                          Basis of preparation

These consolidated financial statements have been prepared in accordance with UK-adopted international accounting standards. The consolidated financial statements have been prepared on a going concern basis and under the historical cost convention, as modified by the revaluation of owner occupied property, derivative instruments and other financial assets and financial liabilities at fair value through profit or loss (FVTPL).

The principal accounting policies set out in these consolidated financial statements have been consistently applied to all financial reporting periods presented except as described below.

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

The Group has adopted the following new International Financial Reporting Standards (IFRSs), interpretations and amendments to existing standards, which are effective by EU endorsement for annual periods beginning on or after 1 June 2020 and 1 January 2021.

Amendments to existing standards

-   Amendments to IFRS 16 COVID-19-related rent concessions.

-   Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 Interest rate benchmark reform - phase 2.

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

(a)(ii)      Standards, interpretations and amendments to existing standards that are not yet effective and have not been early adopted by the Group

Certain new standards, interpretations and amendments to existing standards have been published that are mandatory for the Group's annual accounting periods beginning after 1 January 2021. The Group has not early adopted the standards, amendments and interpretations described below:

IFRS 17 Insurance Contracts (effective for annual periods beginning on or after 1 January 2023)

IFRS 17 was issued in May 2017 and will replace IFRS 4 Insurance Contracts. IFRS 4 is an interim standard which permits the continued application of accounting policies, for insurance contracts and contracts with discretionary participation features, which were being used at transition to IFRS except where a change satisfies criteria set out in IFRS 4. IFRS 17 introduces new required measurement and presentation accounting policies for such contracts which reflect the view that these contracts combine features of a financial instrument and a service contract.

IFRS 17's measurement model, which applies to groups of contracts, combines a risk-adjusted present value of future cash flows and an amount representing unearned profit. On transition retrospective application is required unless impracticable, in which case either a modified retrospective approach or a fair value approach is required. IFRS 17 introduces a new approach to presentation in the income statement and statement of comprehensive income.

The Group has no direct exposure to insurance contracts and contracts with discretionary participating features which will be impacted by the adoption of IFRS 17. However, the results of the Group's joint venture, Heng An Standard Life Insurance Company Limited (HASL), are expected to be impacted by IFRS 17. The standard has not yet been endorsed by the UK Endorsement Board.

Other

There are no other new standards, interpretations and amendments to existing standards that have been published that are expected to have a significant impact on the consolidated financial statements of the Group.

(a)(iii)                    Income statement presentational change

The presentation of the Group's consolidated income statement has been revised in 2021 following a review of the financial statements. The reason for the change is to make the financial statements more relevant to users as the consolidated income statement is now more consistent with asset management peers. The change includes a revised presentation relating to unit linked business returns which we consider makes the results easier to understand.

The table below sets out the impact of adopting the revised income statement format:

 

	2020 as previously presented	Presentation changes	2020 revised format
	£m	£m	£m	Notes
Income
Investment return	163	(163)	-	b
Revenue from contracts with customers	1,527	-	1,527
Cost of sales	-	(104)	(104)	a
Net operating revenue			1,423	a
Insurance contract premium income	31	(31)	-	b
Profit on disposal of interests in associates	1,858	(1,858)	-	e
Other income	30	(30)	-	b
Total income from continuing operations	3,609		-
Expenses
Insurance contracts claims and change in liabilities	(17)	17	-	b
Change in non-participating investment contract liabilities	(56)	56	-	b
Administrative and other expenses
Restructuring and corporate transaction expenses	(297)	(19)	(316)	d
Impairment of goodwill - asset management	(915)	-	(915)
Amortisation and impairment of other intangibles acquired in business combinations and through the purchase of customer contracts	-	(265)	(265)	c
Staff costs and other employee-related costs	-	(625)	(625)	c
Other administrative expenses	(1,608)	1,013	(595)	c
Total administrative and other expenses	(2,820)		(2,716)
Net gains on financial instruments and other income
Fair value movements and dividend income on significant listed investments	-	65	65	b
Other net gains on financial instruments and other income	-	81	81	b
Total net gains on financial instruments and other income	-	146	146	b
Change in liability for third party interest in consolidated funds	3	(3)	-	b
Finance costs	(30)	-	(30)
Total expenses from continuing operations	(2,920)
Profit on disposal of subsidiaries and other operations	-	8	8	f
Profit on disposal of interests in associates	-	1,858	1,858	e
Loss on impairment of interests in joint ventures	(45)	-	(45)
Share of profit or loss from associates and joint ventures	194	-	194
Profit before tax from continuing operations	838		838

 

Note a: A new income statement line Net operating revenue has been presented (2020: £1,423m). Net operating revenue is the net of revenue from contracts with customers and cost of sales. Cost of sales includes commission expenses and other cost of sales which were previously presented within other administrative expenses.

Note b: A new income statement line of Net gains on financial instruments and other income has also been presented (2020: £146m). This combines a number of line items previously shown separately on the face of the income statement with a more detailed breakdown disclosed in Note 4 of the financial statements.

Given the significance of the Fair value movements and dividend income on significant listed investments, these have been disclosed separately from Other net gains on financial instruments and other income on the face of the consolidated income statement.

The table below reconciles Net gains on financial instruments and other income to previous line items:

31 December 2020			£m
Income items previously disclosed on the face of the consolidated income statement
Investment return			163
Insurance contract premium income			31
Other income			30
Total income items previously disclosed on the face of the consolidated income statement			224
Expense items previously disclosed on the face of the consolidated income statement
Insurance contract claims and change in liabilities			(17)
Change in non-participating investment contract liabilities			(56)
Change in liability for third party interest in consolidated funds			3
Total expense items previously disclosed on the face of the consolidated income statement			(70)
Total net gains on financial instruments and other income before reclassifications			154
Less: Other income now separately disclosed as Profit on disposal of subsidiaries and other operations			(8)
Total net gains on financial instruments and other income after reclassifications			146
Split as:
Fair value movements and dividend income on significant listed investments			65
Net gains on financial instruments and other income from continuing operations - non-unit linked business - excluding significant listed investments			72
Net gains on financial instruments and other income from continuing operations - unit linked business			9
Total other net gains on financial instruments and other income			81
Total net gains on financial instruments and other income			146

The expense items included in the table above relate to unit linked business. We consider that offsetting the net gains/losses on unit linked financial assets (included in investment return in the table above) and the net gains/losses on unit linked financial liabilities (included in change in non-participating investment contract liabilities in the table above) on the face of the consolidated income statement reflects the substance of the transactions, as changes in the value of the unit linked assets results in corresponding changes in the value of unit linked liabilities with no net impact on profit after tax (refer Note 24(a)).

Profit on disposal of subsidiaries and other operations has been shown separately in 2021 due to materiality and therefore the 2020 balance has been reclassified from other income.

Note c: Presentational changes have also been made to administrative and other expenses. The following table reconciles other administrative expenses as previously presented at 31 December 2020 to the re-presented 2020 other administrative expenses.

31 December 2020			£m
Other administrative expenses as previously presented			1,608
Less:
Cost of sales now included in net operating revenue (see Note a above)			(104)
Staff costs and other employee-related costs now presented separately in the consolidated income statement			(625)
Amortisation and impairment of other intangibles acquired in business combinations and through the purchase of customer contracts now presented separately in the consolidated income statement			(265)
Other administrative expenses reclassified to restructuring and corporate transaction expenses (see Note d below)			(19)
Re-presented other administrative expenses			595

Note d: Restructuring and corporate transaction expenses was already separately presented but, as shown above, we have reclassified £19m of 2020 other administrative expenses to restructuring and corporate transaction expenses:

31 December 2020			£m
Restructuring and corporate transaction expenses as previously presented			297
Add: Impairment of internally developed software and right-of-use assets as a result of restructuring			19
Re-presented restructuring and corporate transaction expenses			316

This additional element of restructuring costs was disclosed in the Note 9 of the prior year Group financial statements, but has now been included on the face of the consolidated income statement.

Note e: The Profit on disposal of interests in associates line item(2020: £1,858m) is unchanged, but is now presented with the Profit on disposal of subsidiaries and other operations and the other income statement items relating to associates and joints ventures, namely Loss on impairment of joint ventures and Share of profit or loss from associates and joint ventures.

Note f: As described in Note b above, Profit on disposal of subsidiaries and other operations (2020: £8m) which was previously included in other income is now separately disclosed on the face of the consolidated income statement.

 (a)(iv)    Critical accounting estimates and judgements in applying accounting policies

The preparation of financial statements requires management to exercise judgements in applying accounting policies and make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses arising during the year. Judgements and sources of estimation uncertainty are continually evaluated and based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

The areas where judgements have the most significant effect on the amounts recognised in the consolidated financial statements are as follows:

Financial statement area	Critical judgements in applying accounting policies	Related note
Defined benefit pension plans	Assessment of whether the Group has an unconditional right to a refund of the surplus. Treatment of tax relating to the surplus.	Note 33
Investments in associates	Determining whether the investments in Phoenix and HDFC Asset Management should continue to be classified as associates. Identification, valuation and determination of useful lives for equity accounting purposes, of the Group's share of its associate's intangible assets at the date of acquisition of an investment in the associate.	Note 15
Intangible assets	Identification and valuation of intangible assets arising from business combinations and the determination of useful lives         .	Note 14
Provisions	Determining whether a provision is required for separation costs.	Note 36

 

The following change has been made to the Group's critical judgements:

-   As a result of the partial sale of HDFC Asset Management (refer Note 1(c)(iii) for further details), determining whether the investment in HDFC Asset Management should continue to be classified as an associate is a critical judgement in the year ended 31 December 2021. Determining whether the investment in HDFC Life should be classified as an associate is no longer considered a critical judgement following its reclassification in the year ended 31 December 2020 (refer Note 1(c)(iv) for further details).

There are no other changes to critical judgements in applying accounting policies from the prior year.

The areas where assumptions and other sources of estimation uncertainty at the end of the reporting period have a significant risk of resulting in a material adjustment to the carrying amounts of assets and liabilities within the next financial year are as follows:

Financial statement area	Critical accounting estimates and assumptions	Related note
Financial instruments at fair value through profit or loss	Determination of the fair value of contingent consideration liabilities relating to the acquisition of Tritax	Notes 35 and 39
Defined benefit pension plans	Determination of principal UK pension plan assumptions for mortality, discount rate and inflation	Note 33

The following changes have been made to the Group's critical estimates and assumptions:

-   As a result of the acquisition of Tritax in 2021 (refer Note 1(b)(i) for further details), the determination of the fair value of related contingent consideration liabilities is considered a critical area of estimation uncertainty.

-   The determination of the recoverable amount in relation to the impairment assessment of investments in associates
is no longer considered to be a critical area of estimation uncertainty following the reclassification of Phoenix
(refer Note 1(c)(iii) for further details).

-   The determination of the recoverable amount in relation to the impairment assessment of the segregated and similar customer relationship intangible asset is no longer considered a source of estimation uncertainty at the end of the reporting period as a result of amortisation and market movements.

All other critical accounting estimates and assumptions are the same as the prior year.

Further detail on critical accounting estimates and assumptions is provided in the relevant note

(a)(v)      Foreign currency translation

The consolidated financial statements are presented in million pounds Sterling.

The statements of financial position of Group entities, including associates and joint ventures accounted for using the equity method, that have a different functional currency than the Group's presentation currency are translated into the presentation currency at the year end exchange rate and their income statements and cash flows are translated at average exchange rates for the year. All resulting exchange differences arising are recognised in other comprehensive income and the foreign currency translation reserve in equity. On disposal of a Group entity the cumulative amount of any such exchange differences recognised in other comprehensive income is reclassified to profit or loss.

Foreign currency transactions are translated into the functional currency at the exchange rate prevailing at the date of the transaction. Gains and losses arising from such transactions and from the translation at year end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the relevant line in the consolidated income statement.

Translation differences on non-monetary items, such as equity securities held at fair value through profit or loss, are reported as part of the fair value gain or loss within Net gains on financial instruments and other income in the consolidated income statement. Translation differences on financial assets and liabilities held at amortised cost are included in the relevant line in the consolidated income statement.

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

	2021		2020
	Income statement and cash flows (average rate)	Statement of financial position (closing rate)	Income statement and cash flows (average rate)	Statement of financial position (closing rate)
Euro	1.166	1.191	1.127	1.117
US Dollar	1.375	1.355	1.292	1.367
Indian Rupee	101.471	100.685	95.602	99.880
Chinese Renminbi	8.858	8.632	8.905	8.940
Hong Kong Dollar	10.690	10.560	10.024	10.599
Singapore Dollar	1.847	1.826	1.778	1.807

(a)(vi)     Going concern

The Group's business activities, together with the factors likely to affect its future development, performance and financial position, are set out in the Strategic report. This includes details on our liquidity and capital management and our viability statement in the Chief Financial Officer's overview section and our principal risks in the Risk management section including the impact of COVID-19 on these principal risks. In addition, these financial statements include notes on the Group's subordinated liabilities (Note 32), management of its risks including market, credit and liquidity risk (Note 37), its contingent liabilities and commitments (Notes 41 and 42), and its capital structure and position (Note 45).

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

-   The fundamental basis of our business has not been impacted by COVID-19. We consider that COVID-19 will accelerate the key global trends already underway in our industry and already factored into our strategy which are discussed further in the Strategic report on pages 16 and 17, and that the Group is well placed to manage its business risks successfully.

-   The Group has robust cash and liquid resources of £3.1bn at 31 December 2021. In addition the Company has a revolving credit facility of £400m as part of our contingency funding plans which is due to mature in 2025 and remains undrawn.

-   The Group's indicative regulatory capital surplus on an IFPR basis was £1.8bn in excess of capital requirements at
31 December 2021. The regulatory capital surplus does not include the value of the Group's significant listed investments HDFC Asset Management, HDFC Life and Phoenix.

-   The Group performs regular stress and scenario analysis as described in the Annual report and accounts 2021 Viability statement. The market stresses considered in these analyses are considerably more severe than experienced as a result of COVID-19, and the diverse range of management actions available meant the Group was able to withstand these extreme stresses.

-   The Group's operational resilience processes have operated effectively during the period including the provision of services by key outsource providers. We have put in place additional processes to monitor key outsource providers during this remote working environment.

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

(b)                          Basis of consolidation

The Group's financial statements consolidate the financial statements of the Company and its subsidiaries.

Subsidiaries are all entities (including investment vehicles) over which the Group has control. Control arises when the Group is exposed, or has rights, to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. For operating entities this generally accompanies a shareholding of 50% or more in the entity. For investment vehicles, including structured entities, the control assessment also considers the removal rights of other investors and whether the Group acts as principal or agent in assessing the link between power and variable returns. In determining whether the Group acts as principal, and therefore controls the entity, the removal rights of other investors and the magnitude of the variability associated with the returns are also taken into account. As a result, the Group often is considered to control investment vehicles in which its shareholding is less than 50%.

Where the Group is considered to control an investment vehicle, such as an open-ended investment company, a unit trust or a limited partnership, and it is therefore consolidated, the interests of parties other than the Group are assessed to determine whether they should be classified as liabilities or as non-controlling interests. The liabilities are recognised in the third party interest in consolidated funds line in the consolidated statement of financial position and any movements are recognised in the consolidated income statement. The financial liability is designated at fair value through profit or loss (FVTPL) as it is implicitly managed on a fair value basis as its value is directly linked to the market value of the underlying portfolio of assets. The interests of parties other than the Group in all other types of entities are recorded as non-controlling interests.

All intra-group transactions, balances, income and expenses are eliminated in full.

The Group uses the acquisition method to account for acquisitions of businesses. At the acquisition date the assets and liabilities of the business acquired and any non-controlling interests are identified and initially measured at fair value on the consolidated statement of financial position.

When the Group acquires or disposes of a subsidiary, the profits and losses of the subsidiary are included from the date on which control was transferred to the Group until the date on which it ceases, with consistent accounting policies applied across all entities throughout.

When the Group sells a subsidiary to an associate, the gain on sale of the subsidiary is recognised in full, with no elimination being made for the continuing interest in the subsidiary.

Notes to the Group financial statements

1.         Group structure

(a)          Composition

The following diagram is an extract of the Group structure at 31 December 2021 and gives an overview of the composition of the Group.

Diagram removed for the purposes of this announcement.  However it can be viewed in full in the pdf document.

A full list of the Company's subsidiaries is provided in Note 47.

(b)          Acquisitions

(b)(i)       Current year acquisitions of subsidiaries

Tritax Management LLP (Tritax)

On 1 April 2021, Aberdeen Asset Management PLC (AAM PLC) purchased 60% of the membership interests in Tritax, a specialist logistics real estate fund manager (the acquisition of Tritax). The initial cash consideration payable at the completion of the acquisition was £64m. Subject to the satisfaction of certain conditions, an additional contingent deferred earn-out is expected to be payable to acquire the remaining 40% of membership interests in Tritax should the selling Tritax partners choose to exercise three put options in each of years ended 31 March 2024, 2025 and 2026. The amount payable is linked to the EBITDA of the Tritax business in the relevant period. The Group will also have the right to purchase any outstanding membership interests at the end of the five-year period through exercising a call option.

Based on the transaction terms, Tritax has been fully consolidated from 1 April 2021 and no non-controlling interest has been recognised in the Group's total equity in relation to the 40% of the membership interests in Tritax subject to the put and call options. A contingent consideration financial liability has been recognised at fair value in relation to the earn-out payments (under the put and call options) and the expected non-discretionary allocation of profit payments to the holders of the 40% membership interests up to the date of the exercise of the options. This contingent consideration financial liability is included in the table below as part of the consideration paid. The acquisition of Tritax strengthens the Group's combined offering in the growing logistics real estate market and fulfils the Group's strategy of providing deep sector specialism for our clients in this key growth area. The assets under management of Tritax were £6bn at the completion date.

At the acquisition date the consideration, net assets acquired and resulting goodwill from the Tritax acquisition were as follows:

1 April 2021		£m
Cash consideration		64
Fair value of contingent consideration1		155
Consideration2		219
Fair value of net assets acquired
Customer relationships and investment management contracts		71
Property, plant and equipment		2
Receivables and other financial assets		6
Cash and cash equivalents		3
Other assets		1
Total assets		83
Other financial liabilities		(11)
Deferred tax liabilities		(17)
Total liabilities		(28)
Goodwill		164

1.  The fair value of contingent consideration includes £113m relating to the fair value of the earn-out payments (under the put and call options) and £42m relating to the fair value of the expected non-discretionary allocation of profit payments to the holders of the 40% membership interests up to the date of the exercise of the options. These are calculated by reference to earnings before interest, taxes, depreciation, and amortisation (EBITDA). The earn-out payments could range from £nil to £140m. The expected distribution of profit payments to the holders of the 40% membership interests up to the date of the exercise of the options could range from £nil and have no maximum value.

2.  Not included in the consideration is an additional payment in 2023 of up to £25m for an earn-up linked to EBITDA for the years ended 31 March 2022 and 2023. The expected payment is being accrued over two years as remuneration and is included in Staff costs and other employee-related costs in the IFRS consolidated income statement.

Intangible assets acquired in the business combination consist of customer relationships and investment management contracts. Refer Note 14 for details of the key assumptions used in measuring the fair value of these intangibles at the acquisition date.

The key assumptions used to value the contingent consideration at the date of acquisition are the same as the inputs used to value this contingent consideration liability at 31 December 2021 and set out in Note 39(a)(iv). The valuation assumes that the timing of the exercise of the earn out put options between 2024, 2025 and 2026 would be that which is most beneficial to the holders of the put options.

The goodwill arising on acquisition is mainly attributable to expected cash flows from future fund raisings for existing and new funds and products, which are not included in the valuation of the investment management contract intangibles, revenue synergies from the Group's distribution capabilities and existing real estate investment management expertise, and the quality and experience of the Tritax executive team and employees. The goodwill has been allocated to the asset management group of cash-generating units which comprises the Investments segment (excluding Finimize). The goodwill is not expected to be deductible for tax purposes.

The amounts of revenue from contracts with customers and profit after tax contributed to the Group's consolidated income statement for the year ended 31 December 2021 from the acquired Tritax business were £23m and £2m respectively. The profit contributed excludes amortisation of intangible assets acquired through business combinations. If the acquisition had occurred on 1 January 2021, the Group's total revenue from contracts with customers for the year would have increased by £7m to £1,692m and the profit after tax would have been unchanged.

Transaction costs were not material and were accounted for as part of restructuring and corporate transaction expenses in the year ended 31 December 2020.

 Finimize Limited (Finimize)

On 29 October 2021, AAM PLC purchased 100% of the issued share capital of Finimize, a modern investing insights platform (the acquisition of Finimize). The cash outflow at the completion of the acquisition was £87m, which comprised consideration of £75m and payments made to settle debt and other liabilities on behalf of Finimize as part of the transaction of £12m. Finimize empowers retail investors by equipping them with information to make their own informed investment decisions, without any jargon, in less than fifteen minutes a day. The acquisition of Finimize is aligned with abrdn's strategy to invest in technology to accelerate the pace and focus on innovation to meet changing investor needs.

At the acquisition date the consideration, net assets acquired and resulting goodwill from the Finimize acquisition were as follows:

29 October 2021		£m
Cash consideration1, 2		75
Fair value of net assets acquired
Technology and other intangible assets		7
Receivables and other financial assets		2
Cash and cash equivalents		3
Total assets		12
Other financial liabilities1		(17)
Deferred tax liabilities		(2)
Total liabilities		(19)
Goodwill		82

1.  Not included in the consideration is £12m of payments made to settle debt and other liabilities on behalf of Finimize as part of the transaction. These amounts were included within other financial liabilities at the acquisition date. This cash outflow is included in Acquisition of subsidiaries and unincorporated businesses net of cash acquired in the consolidated statement of cash flows.

2.  Not included in the consideration are three additional payments of £1.8m in 2022, 2023 and 2024. The expected payments are being accrued over one, two and three years respectively as remuneration and are included in Staff costs and other employee-related costs in the IFRS consolidated income statement.

The goodwill arising on acquisition of Finimize is mainly attributable to expected future cash flows from new retail and corporate customers, the quality and experience of the Finimize executive team and employees, and revenue synergies including those arising from partnering with abrdn wholesale customers in the Group's investment business and from the deployment of Finimize content in the Group's Personal business. The goodwill has been primarily allocated to the Finimize cash-generating unit in the Investments segment (£72m) with £3m and £7m allocated to the asset management group of cash-generating units and a new cash-generating unit in the Personal segment respectively. The goodwill is not expected to be deductible for tax purposes.

The amounts of revenue from contracts with customers and profit after tax contributed to the Group's consolidated income statement for the year ended 31 December 2021 from the acquired Finimize business were £1m and £nil respectively. The profit contributed excludes amortisation of intangible assets acquired through business combinations. If the acquisition had occurred on 1 January 2021, the Group's total revenue from contracts with customers for the year would have increased by £3m to £1,688m and the profit after tax would have decreased by £2m to £993m.

Transaction costs of £2m were accounted for as part of restructuring and corporate transaction expenses in the year ended 31 December 2021.

 (c)         Disposals

(c)(i)       Current year disposal of subsidiaries and other operations

Profit on disposals of subsidiaries and other operations for the year ended 31 December 2021 of £127m includes a gain of £73m on the disposal of Parmenion Capital Partners LLP (Parmenion), £39m for the disposal of the Bonaccord Capital Partners (Bonaccord ) US private market business and £15m from other disposals.

On disposal, a loss of £1m was recycled from the translation reserve and was included in determining the profit on disposals of subsidiaries.

Parmenion

On 9 March 2021, the Group announced the sale of Parmenion to Preservation Capital Partners. Parmenion is reported in the Corporate/strategic segment (previously Asset management, platforms and wealth segment). The sale was completed on 30 June 2021.

The gain on sale, which is included in profit on disposals of subsidiaries and other operations in the consolidated income statement for the year ended 31 December 2021 was calculated as follows:

30 June 2021	£m
Total assets of operations disposed of	(36)
Total liabilities of operations disposed of	13
Net assets of operations disposed of	(23)
Cash consideration (less transaction costs) and outstanding loan1	75
Fair value of earn-out payments	21
Gain on sale before tax	73

1.  Following the completion of the sale, the intercompany loan from abrdn plc to Parmenion of £9m which previously eliminated on consolidation is now recognised as an asset of the Group.

The taxable gain which arose on the sale has been computed in accordance with the tax rules applicable to UK partnerships.

Parmenion was classified as an operation held for sale at 31 December 2020.

Bonaccord

On 30 September 2021, the Group completed the sale of its Bonaccord US private market business to P10 Holdings Inc. (P10) through a number of asset sale agreements.

The gain on sale, which is included in profit on disposal of subsidiaries and other operations in the consolidated income statement for the year ended 31 December 2021 was calculated as follows:

30 September 2021	£m
Total assets of operations disposed of	(2)
Total liabilities of operations disposed of	2
Net assets of operations disposed of	-
Cash consideration (less transaction costs)	30
Fair value of earn-out payments and retained interest1	9
Gain on sale before tax	39

1.  Following the completion of the sale, the Group has retained a reduced interest in future carried interest entitlement which has been recognised in the consolidated statement of financial position at fair value.

The taxable gain which arose on the sale has been computed in accordance with the tax rules applicable to US companies.

Nordics real estate business

On 31 May 2021, the Group completed the sale of its Nordics real estate business to DEAS Asset Management A/S through a number of share and asset sale agreements. The disposal is not considered material to the Group.

Hark

On 30 September 2021, in addition to the Bonaccord sale, the Group also completed the sale of its Hark Capital US private market business to P10 through a number of asset sale agreements. The disposal is not considered material to the Group.

 (c)(ii)     Prior year disposal of subsidiaries

Standard Life (Asia) Limited (SL Asia)

On 30 June 2020, the Group completed the sale of the entire issued share capital of its wholly owned Hong Kong insurance business, SL Asia, to the Group's Chinese joint venture business, HASL. SL Asia was reported in the Corporate/Strategic segment (previously the Asset management, platforms and wealth segment) and HASL is not included in the Group's reportable segments (previously reported within the Insurance associates and joint ventures segment). Refer Note 2 for further details.

Total consideration received comprised cash of £19m and the Group recognised a gain on disposal of £8m in respect of the sale within other income from continuing operations in the consolidated income statement for the year ended 31 December 2020. On disposal a gain of £8m was recycled from the translation reserve and was included in determining the gain on sale.

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

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

(c)(iii)     Current year reclassification of associates and other related transactions

Profit on disposal of interests in associates for the year ended 31 December 2021 of £1,236m includes a gain of £68m on the reclassification of Phoenix and £1,168m of gains in relation to the sale of equity shares in HDFC Asset Management and its reclassification from an investment in associate.

On disposal and reclassification, a loss of £17m was recycled from the translation reserve and other comprehensive income gains of £9m were recycled from retained earnings and were included in determining the profit on disposals of associates.

Phoenix Group Holdings plc (Phoenix)

On 23 February 2021, the Group announced details of the simplification and extension of the strategic partnership between the Group and Phoenix. The key details were:

-   The Group announced the purchase of certain products in the Phoenix Group's savings business offered through abrdn's Wrap platform, comprising a self-invested pension plan (SIPP) and an onshore bond product; together with the Phoenix Group's trustee investment plan (TIP) business for UK pension scheme clients. The assets relating to these products at 31 December 2020 were £38bn and are included in the Group's AUMA. The transaction is targeted to complete in 2023 and is subject to regulatory and court approvals. The upfront consideration paid by the Group in February 2021 was £62.5m, which will be offset in part by payments from Phoenix to the Group relating to profits of the products prior to completion of the legal transfer. The net amount of consideration paid up to 31 December 2021 is included in prepayments in the consolidated statement of financial position and in prepayment in respect of potential acquisition of customer contracts in the consolidated statement of cash flows.

-   The sale of the 'Standard Life' brand to Phoenix, replacing the existing agreement to licence the brand for no fee to Phoenix, the transfer of related brand employees to Phoenix, and the transfer of workplace pensions marketing staff to Phoenix who were employed by the Group but provided services to Phoenix. The sale of the brand, the staff transfers, and a related £32m payment from the Group to Phoenix took place in May 2021. Refer Note 34 for details of the release of related deferred revenue.

-   The strategic asset management partnership with Phoenix has been extended and will now operate for at least 10 years up to February 2031.

-   The resolution of legacy issues with Phoenix relating to the operation of certain aspects of the agreements that were entered into at the time of the sale of SLAL to Phoenix and which impacted the value of certain indemnities and other payments under the transaction terms. The impact of the resolution of these legacy matters was included in the 2020 results and resulted in the Group receiving a cash inflow of £34m in February 2021. Refer Note 39(a)(iv).

Following the changes to the commercial agreements set out above, in particular in relation to the licencing of the 'Standard Life' brand, our judgement is that Phoenix should no longer be accounted for as an associate with effect from 23 February 2021. The Group's shareholding in Phoenix, which remained at 14.4%, was therefore reclassified from an investment in associates accounted for using the equity method to equity securities and interests in pooled investment funds measured at fair value. A reclassification gain of £68m is included in the profit on disposal of interests in associates for the year ended 31 December 2021 as the fair value on 22 February 2021 of £1,023m was higher than the previous carrying value as an associate of £964m. On disposal, other comprehensive income gains of £9m were recycled from retained earnings and included in determining the gain on sale.

HDFC Asset Management

During 2021, the Group completed a sale of equity shares in HDFC Asset Management on the National Stock Exchange of India Limited and BSE Limited. The gains on sales and the gain on reclassification from an associate to an equity investment can be summarised as follows:

		2021 £m
Gain on sale of 10,650,000 equity shares in HDFC Asset Management sold through a Bulk Sale on 29 September 2021		271
Gain on reclassification of remaining 34,578,305 equity shares in HDFC Asset Management from an associate to equity investment on 29 September 2021		897
Gains on disposal and reclassification of HDFC Asset Management for the year ended 31 December 2021		1,168

Through the sale, 5% of the issued equity share capital of HDFC Asset Management was sold for a total consideration net of taxes and expenses of Rs 27,071m (£271m). The gain on sale of £271m before tax was calculated using the weighted-average cost method. On disposal a loss of £4m was recycled from the translation reserve and was included in determining the gain on sale.

Following the sale, the Group's shareholding in HDFC Asset Management was 34,578,305 equity shares or 16.22% and HDFC Asset Management is no longer considered to be an associate of the Group. The Group's investment in HDFC Asset Management was reclassified from an investment in associates accounted for using the equity method to equity securities and interests in pooled investment funds measured at fair value. A reclassification gain of £897m was included in the profit on disposal of interests in associates for the year ended 31 December 2021 as the fair value on 29 September 2021 of £1,003m was higher than the previous carrying value as an associate of £93m. On reclassification a loss of £13m was recycled from the translation reserve and was included in determining the gain.

The Group's shareholdings in Phoenix and HDFC Asset Management are now considered, along with HDFC Life (refer Note 1(c)(iv)), as significant listed investments for the purpose of determining the Group's adjusted profit. Refer Note 12(b) for other changes in the Group's significant listed investments in the year ended 31 December 2021.

(c)(iv) Prior year disposal and reclassification of associates

Profit on disposals of associates for the year ended 31 December 2020 of £1,858m includes £1,591m of gains in relation to the sale of equity shares in HDFC Life and its reclassification from an investment in associate, £263m of gains in relation to the sale of equity shares in HDFC Asset Management and a £4m dilution gain in Phoenix.

HDFC Life

During 2020, the Group completed sales of equity shares in HDFC Life on the National Stock Exchange of India Limited and BSE Limited. The gains on sales and the gain on reclassification from an associate to an equity investment can be summarised as follows:

		2020 £m
Gain on sale of 50,000,000 equity shares in HDFC Life sold through a Bulk Sale on 27 March 2020		206
Gain on sale of 40,000,000 equity shares in HDFC Life sold through a Bulk Sale on 4 June 2020		182
Gain on sale of 27,772,684 equity shares in HDFC Life sold through a Bulk Sale on 3 December 2020		152
Gain on reclassification of remaining 179,539,209 equity shares in HDFC Life from an associate to equity investment on 3 December 2020		1,051
Gains on disposals and reclassification of HDFC Life for the year ended 31 December 2020		1,591

During 2020, in total, 5.83% of the issued equity share capital of HDFC Life was sold for a combined total consideration net of taxes and expenses of Rs 58,561m (£616m). The combined gain on sale of £540m was calculated using the weighted-average cost method. On disposal a loss of £5m was recycled from the translation reserve and was included in determining the gain on sale.

Following the 3 December 2020 sale, the Group's shareholding in HDFC Life was 179,539,209 equity shares or 8.89% and HDFC Life is no longer considered to be an associate of the Group. The Group's investment in HDFC Life was reclassified from an investment in associates accounted for using the equity method to equity securities and interests in pooled investment funds measured at fair value. A reclassification gain of £1,051m was included in the profit on disposal of interests in associates for the year ended 31 December 2020 as the fair value on 3 December 2020 of £1,168m was higher than the previous carrying value as an associate of £111m. On reclassification a loss of £6m was recycled from the translation reserve and was included in determining the gain.

HDFC Asset Management

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

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

Through the sale, 5.64% of the issued equity share capital of HDFC Asset Management was sold for a total consideration net of taxes and expenses of Rs 25,404m (£265m). The gain on sale of £263m before tax was calculated using the weighted-average cost method. On disposal a loss of £3m was recycled from the translation reserve and was included in determining the gain on sale.

Phoenix

On 22 July 2020, Phoenix, announced the completion of its acquisition of ReAssure Group plc. Under the terms of the transaction, Phoenix issued 277,277,138 new ordinary shares as part consideration for the acquisition. Completion of the transaction resulted in the Group's holding in Phoenix becoming 14.43% of the enlarged Phoenix Group. A dilution gain of £4m was recognised within the Profit on disposal of interests in associates in the consolidated income statement as a result of the transaction.

 2.        Segmental analysis

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

(a)          Basis of segmentation

(a)(i)       Current reportable segments

Investments

Our global asset management business which provides investment solutions for Institutional, Wholesale and Insurance clients. The Investment segment includes the Tritax and Finimize businesses following their acquisitions during the year.

Adviser 

Our market-leading UK financial adviser business which provides services through the Wrap and Elevate platforms to wealth managers and advisers.

Personal 

Our Personal business which combines our financial planning business abrdn Financial Planning, our digital direct-to-consumer services and discretionary fund management services provided by abrdn Capital.

In addition to the Group reportable segments above, the analysis of adjusted profit in Section b(i) below also reports the following:

Corporate/strategic

Corporate/strategic mainly comprises certain corporate costs and businesses held for sale (Parmenion, the sale of which was completed on 30 June 2021, and SL Asia which was sold in June 2020).

The segments are reported to the level of adjusted operating profit and therefore, as described in Section a(ii) below, no longer include the results relating to the Group's associates and joint ventures.

(a)(ii)      Changes to reportable segments

Previously, we reported our results under two reportable segments.

-   Asset management, platforms and wealth which comprised all wholly owned business, the Virgin Money joint venture and HDFC Asset Management our Indian asset management associate.

-   Insurance associates and joint ventures which comprised our life assurance associates and joint ventures - HDFC Life, Phoenix and HASL.

The business is now operating under three growth vectors of Investments, Adviser and Personal as set out in Section (a)(i) above and accordingly, in 2021, the Group changed the way we report the performance of the business to the executive leadership team.

Reportable segments are now reported to the level of adjusted operating profit in line with the updated management reporting, and therefore our share of the results of associates and joint ventures are no longer part of the Group's reportable segments.

Comparative amounts for the year ended 31 December 2020 have been prepared on the same basis as the year ended 31 December 2021 to allow more meaningful comparison.

(b)          Reportable segments - adjusted profit and revenue information

(b)(i)       Analysis of adjusted profit

Adjusted operating profit is presented by reportable segment in the table below.

		Investments	Adviser	Personal	Corporate/ strategic	Total
31 December 2021	Notes	£m	£m	£m	£m	£m
Fee based revenue		1,231	178	92	14	1,515
Adjusted operating expenses		(978)	(104)	(84)	(26)	(1,192)
Adjusted operating profit		253	74	8	(12)	323
Adjusted net financing costs and investment return1						-
Adjusted profit before tax						323
Tax on adjusted profit						(26)
Adjusted profit after tax						297
Adjusted for the following items
Restructuring and corporate transaction expenses	8					(259)
Amortisation and impairment of intangible assets acquired in business combinations and through the purchase of customer contracts						(99)
Profit on disposal of subsidiaries and other operations	1					127
Profit on disposal of interests in associates	1					1,236
Change in fair value of significant listed investments						(298)
Dividends from significant listed investments						71
Share of profit or loss from associates and joint ventures2						(22)
Other	12					36
Total adjusting items including results of associates and joint ventures						792
Tax on adjusting items						(94)
Profit attributable to non-controlling interests (ordinary shares)						(1)
Profit for the year attributable to equity shareholders of abrdn plc						994
Profit attributable to non-controlling interests (ordinary shares)						1
Profit for the year						995

1.  Capital management has been renamed Adjusted net financing costs and investment return.

2.  Share of associates' and joint ventures' profit or loss comprises the Group's share of results of HASL, Virgin Money Unit Trust Managers (Virgin Money UTM), Phoenix (until 22 February 2021) and HDFC Asset Management (until 29 September 2021).

Fee based revenue is reported as the measure of revenue in the analysis of adjusted operating profit and relates to revenues generated from external customers.

In the year ended 31 December 2021, transactions with one external customer amounted to more than 10% of fee based revenue (2020: one). This fee based revenue of £195m (2020: £195m) is included in the Investments segment (previously part of the Asset management, platforms and wealth segment).

Adjusted operating expenses includes depreciation and amortisation of £47m (2020: £67m): £37m (2020: £51m) for the Investments segment; £4m (2020: £4m) for the Adviser segment; £4m (2020: £3m) for the Personal segment; and £2m (2020: £9m) for the Corporate/strategic segment. Interest income, interest expense and income tax expense are not analysed by segment in the information provided to the Chief Operating Decision Maker.

Assets and liabilities by segment is not required to be presented as such information is not presented on a regular basis to the Chief Operating Decision Maker.

		Investments	Adviser	Personal	Corporate/ strategic	Total
Full year 2020	Notes	£m	£m	£m	£m	£m
Fee based revenue		1,176	137	80	32	1,425
Adjusted operating expenses		(990)	(89)	(85)	(42)	(1,206)
Adjusted operating profit		186	48	(5)	(10)	219
Adjusted net financing costs and investment return1						21
Adjusted profit before tax						240
Tax on adjusted profit						(38)
Adjusted profit after tax						202
Adjusted for the following items
Restructuring and corporate transaction expenses	8					(316)
Amortisation and impairment of intangible assets acquired in business combinations and through the purchase of customer contracts						(1,180)
Profit on disposal of subsidiaries and other operations	1					8
Profit on disposal of interests in associates	1					1,858
Change in fair value of significant listed investments						65
Share of profit or loss from associates and joint ventures2						194
Impairment of interests in joint ventures	15					(45)
Other	12					14
Total adjusting items including results of associates and joint ventures						598
Tax on adjusting items						53
Profit attributable to non-controlling interests (preference shares)						(5)
Profit for the year attributable to equity shareholders of abrdn plc from continuing operations						848
Loss for the year from discontinued operations	10					(15)
Profit for the year attributable to equity shareholders of abrdn plc						833
Profit attributable to non-controlling interests
Preference shares						5
Profit for the year						838

1.  Capital management has been renamed Adjusted net financing costs and investment return.

2.  Share of associates' and joint ventures' profit or loss comprises the Group's share of results of HDFC Asset Management, Phoenix, HASL, Virgin Money UTM and HDFC Life (until 3 December 2020).

 

 (b)(ii)     Reconciliation to the IFRS consolidated income statement

Fee based revenue

The reconciliation of fee based revenue, as presented in the analysis of Group adjusted profit by segment to revenue from contracts with customers, as presented in the IFRS consolidated income statement, is included in Note 3.

Adjusted operating expenses

The following table provides a reconciliation of adjusted operating expenses, as presented in the analysis of Group adjusted profit by segment, to total administrative and other expenses, as presented in the IFRS consolidated income statement.

	2021	2020
	£m	£m
Total administrative and other expenses as presented in the IFRS consolidated income statement from continuing operations	(1,556)	(2,716)
Restructuring and corporate transaction expenses included in adjusting items	259	316
Amortisation and impairment of intangible assets acquired in business combinations and through the purchase of customer contracts included in adjusting items	99	1,180
Administrative and other expenses relating to the unit linked business	3	5
Other differences	3	9
Adjusted operating expenses as presented in the analysis of Group adjusted profit by segment from continuing operations	(1,192)	(1,206)

Adjusted net financing costs and investment return

The following table provides a reconciliation of adjusted net financing costs and investment return, as presented in the analysis of Group adjusted profit by segment, to Net gains on financial instruments and other income, as presented in the IFRS consolidated income statement.

	2021	2020
	£m	£m
Net gains on financial instruments and other income as presented in the IFRS consolidated income statement from continuing operations	(183)	146
Finance costs separately disclosed in the IFRS consolidated income statement	(30)	(30)
Change in fair value of significant listed investments included in adjusting items	298	(65)
Dividends from significant listed investments included in adjusting items	(71)	-
Net gains on financial instruments and other income relating to the unit linked business	(7)	(9)
Other differences	(7)	(21)
Adjusted net financing costs and investment return as presented in the analysis of Group adjusted profit by segment from continuing operations	-	21

Other differences primarily relate to amounts presented in a different line item of the consolidated income statement and other items classified as adjusting items.

(c)          Total fee based revenue by geographical location

Total fee based revenue¹ split by geographical location is as follows:

	2021	20201
	£m	£m
UK	1,015	954
Europe, Middle East and Africa	132	137
Asia Pacific	209	192
Americas	159	142
Total	1,515	1,425

1.  Previously a geographical split of total income from continuing operations as presented in the consolidated income statement was provided. In line with the changes to income statement presentation in the current year (refer Section (a)(iii) of the Basis of Preparation for further details), a geographical split of total fee based revenue which, as noted above, relates to revenues generated from external customers is now provided.

Fee based revenue is allocated based on where the revenue is earned.

(d)          Non-current non-financial assets by geographical location

	2021	2020
	£m	£m
UK	808	629
Europe, Middle East and Africa	9	15
Asia Pacific	13	17
Americas	61	76
Total	891	737

Non-current non-financial assets for this purpose consist of property, plant and equipment and intangible assets.

3.         Net operating revenue

Net operating revenue represents revenue from contracts with customers after deduction of cost of sales.

Revenue from contracts with customers is recognised as services are provided i.e. as the performance obligation is satisfied. Performance fees and carried interest are only recognised once it is highly probable that a significant reversal will not occur in future periods. Where revenue is received in advance (front-end fees), this income is deferred and recognised as a deferred income liability until the services have been provided (refer Note 34). Revenue from contracts with customers excludes premium written and earned on insurance and participating investment contracts
 (Refer Note 30).

Commission and other fee expenses which relate directly to revenue are presented as cost of sales. These expenses include ongoing commission expenses payable to financial institutions, investment platform providers and financial advisers that distribute the Group's products which are generally based on an agreed percentage of AUM and are recognised in the income statement as the service is received. Other cost of sales also includes amounts payable to employees and others relating to carried interest and performance fee revenue.

(a)          Revenue from contracts with customers

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

	2021	2020 restated1
	£m	£m
Investments
Management fee income - Institutional and Wholesale2	1,043	971
Management fee income - Insurance2	200	216
Performance fees and carried interest	99	30
Other revenue from contracts with customers	54	24
Revenue from contracts with customers for the investments segment	1,396	1,241
Adviser	180	169
Personal	92	80
Corporate/strategic - Parmenion fund platform fee income	17	37
Total revenue from contracts with customers	1,685	1,527

1.  The breakdown of revenue from contracts with customers for the year ended 31 December 2020 has been restated in line with the changes to the Group's reportable segments. Refer Note 2 for further details.

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

Investments

Through a number of its subsidiaries, the Group provides asset management services to its customers. This performance obligation is performed over time with the revenue recognised as the obligation is performed. The Group generally receives asset management fees based on the percentage of the assets under management. The percentage varies depending on the level and nature of assets under management. Asset management fees are either deducted from assets or invoiced. Deducted fees are generally calculated, recognised and collected on a daily basis. Other asset management fees are invoiced to the customer either monthly or quarterly with receivables recognised for unpaid invoices. The payment terms for invoiced revenue vary but are typically 30 days from receipt of invoice. Accrued income is recognised to account for income earned but not yet invoiced which is not dependent on any future performance. There is also some use of performance fees and carried interest arrangements. Performance fees and carried interest are earned from some investment mandates when contractually agreed performance levels are exceeded within specified performance measurement periods. Performance fees and carried interest are only recognised once it is highly probable that a significant reversal will not occur in future periods. Given the unpredictability of future performance, the risk of a significant reversal occurring will typically only be considered low enough to make recognition appropriate upon the crystallisation event occurring.

Adviser

Through a number of its subsidiaries, the Group offers customers access to fund platforms. The platforms give customers the ongoing functionality to manage and administer their investments. This performance obligation is performed over time with the revenue recognised as the obligation is performed. Customers pay a platform charge which is generally calculated as a percentage of their assets. The percentage varies depending on the level of assets on the specific platform. The main platform charges are calculated either daily or monthly and are collected and recognised monthly. The charges are collected directly from assets on the platform. There are no significant payment terms.

Adviser revenue from contracts with customers includes revenue passed to the product provider and included below in other cost of sales.

Personal

Through a number of its subsidiaries, the Group offers financial planning and discretionary fund management services. Financial planning is either provided on a one-off basis or on an ongoing basis. The performance obligation for one-off advice is performed at a point in time with the revenue recognised when the advice is provided. The performance obligation for ongoing financial planning is performed over time with the revenue recognised as the obligation is performed. The Group generally receives ongoing financial planning fees based on the percentage of the assets under advice. One-off financial planning fees are invoiced to the customer following delivery of the advice to the customer. Ongoing financial planning fees are invoiced to the customer or a designated financial provider either monthly or quarterly. Receivables are recognised for unpaid invoices. The payment terms for invoiced revenue vary but are typically 30 days from receipt of invoice. Accrued income is recognised to account for income earned but not yet invoiced which is not dependent on any future performance. The performance obligation for discretionary fund management services is also performed over time with the revenue recognised as the obligation is performed. The Group generally receives discretionary fund management services fees based on the percentage of the assets under management. The percentage varies depending on the level and nature of assets under management. Discretionary fund management services fees are deducted from assets. Deducted fees are generally calculated, recognised and collected on a daily basis.

(b)          Cost of sales

The following table provides a breakdown of total cost of sales.

	2021	2020
	£m	£m
Cost of sales
Commission expenses	87	77
Other cost of sales	55	27
Total cost of sales	142	104

Other cost of sales includes amounts payable to employees and others relating to carried interest and performance fee revenue.

(c)          Reconciliation of revenue from contracts with customers to fee based revenue

The following table provides a reconciliation of revenue from contracts with customers as presented in the consolidated income statement to fee based revenue, as presented in the analysis of adjusted operating profit (see Note 2(b) for each of the Group's reportable segments).

	Investments		Adviser		Personal		Corporate/strategic		Total
	2021	2020	2021	2020	2021	2020	2021	2020	2021	2020
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
Revenue from contracts with customers	1,396	1,241	180	169	92	80	17	37	1,685	1,527
Cost of sales	(137)	(71)	(2)	(27)	-	-	(3)	(6)	(142)	(104)
Net operating revenue	1,259	1,170	178	142	92	80	14	31	1,543	1,423
Other differences	(28)	6	-	(5)	-	-	-	1	(28)	2
Fee based revenue	1,231	1,176	178	137	92	80	14	32	1,515	1,425

Other differences primarily relate to amounts presented in a different line item of the consolidated income statement and items classified as adjusting items and for the year ended 31 December 2021 primarily relate to the net release of deferred income of £25m (refer Note 34).

(d)          Contract receivables, assets and liabilities

The Group has recognised the following receivables, assets and liabilities in relation to contracts with customers.

		31 December 2021	31 December 2020	1 January 2020
	Notes	£m	£m	£m
Amount receivable from contracts with customers	20	135	115	130
Accrued income from contracts with customers	20	260	221	227
Cost of obtaining customer contracts	14	37	49	60
Deferred acquisition costs	21	3	4	6
Total contract receivables and assets		435	389	423

 

		31 December 2021	31 December 2020	1 January 2020
	Notes	£m	£m	£m
Deferred Income	34	5	73	67
Accruals	35	-	-	3
Total contract liabilities		5	73	70

Refer Note 34 for details of the release of £57m of deferred income in May 2021.

4.         Net gains on financial instruments and other income

Gains and losses resulting from changes in both market value and foreign exchange on investments classified as fair value through profit or loss are recognised in the consolidated income statement in the period in which they occur. The gains and losses include investment income received such as interest payments and dividend income. Dividend income is recognised when the right to receive payment is established.

Interest income on financial instruments measured at amortised cost is separately recognised in the consolidated income statement using the effective interest rate method. The effective interest rate method allocates interest and other finance costs at a constant rate over the expected life of the financial instrument, or where appropriate a shorter period, by using as the interest rate the rate that exactly discounts the future cash receipts over the expected life to the net carrying value of the instrument.

Other income includes income related to vacant property.

 

			2021	20201
		Notes	£m	£m
Fair value movements and dividend income on significant listed investments
Fair value movements on significant listed investments (other than dividend income)			(298)	65
Dividend income from significant listed investments			71	-
Total fair value movements and dividend income on significant listed investments			(227)	65
Non-unit linked business - excluding significant listed investments
Net gains on financial instruments at fair value through profit or loss			20	40
Interest and similar income from financial instruments at amortised cost			10	19
Foreign exchange losses on financial instruments at amortised cost			(1)	(10)
Other income			8	20
Insurance contract premium income		30	-	3
Net gains on financial instruments and other income from continuing operations - non-unit linked business - excluding significant listed investments			37	72
Unit linked business
Net gains on financial instruments at fair value through profit or loss
Net gains on financial assets at fair value through profit or loss			174	48
Change in non-participating investment contract financial liabilities			(124)	(56)
Change in liability for third party interests in consolidated funds			(43)	3
Total net gains on financial instruments at fair value through profit or loss			7	(5)
Foreign exchange losses on financial instruments at amortised cost			-	1
Other income			-	2
Insurance contract premium income		30	-	28
Insurance contract claims and change in liabilities			-	(17)
Net gains on financial instruments and other income from continuing operations - unit linked business2		24	7	9
Total other net gains on financial instruments and other income from continuing operations			44	81
Total net gains on financial instruments and other income from continuing operations			(183)	146

1.  The Group has made changes to the presentation of the consolidated income statement in 2021. Refer Section (a)(iii) of the Basis of Preparation for further details.

2.  In addition to the Net gains on financial instruments and other income from continuing operations - unit linked business of £7m (2020: £9m), there are administrative expenses and policyholder tax of £3m (2020: £5m) and £4m (2020: £4m) respectively relating to unit linked business for the account of policyholders so the result attributable to unit linked business for the year is £nil (2020: £nil). Refer Note 24 for further details.

Fair value movements on significant listed investments (other than dividend income) of losses of £298m (2020: gains of £65m) comprises losses of £52m relating to HDFC Life (2020: gains of £65m), losses of £164m relating to HDFC Asset Management (2020: £nil) and losses of £82m relating to Phoenix (2020: £nil).

Dividend income from significant listed investments of £71m (2020: £nil) comprises £69m (2020: £nil) relating to Phoenix and £2m (2020: £nil) relating to HDFC Life.

5.         Administrative and other expenses

		2021	20201
	Notes	£m	£m
Restructuring and corporate transaction expenses2	8	259	316
Impairment of goodwill - asset management	14	-	915
Amortisation and impairment of other intangibles acquired in business combinations and through the purchase of customer contracts
Impairment of other intangibles acquired in business combinations	14	-	135
Amortisation of intangibles acquired in business combinations	14	87	111
Amortisation of intangibles acquired through the purchase of customer contracts	14	12	19
Total Amortisation and impairment of other intangibles acquired in business combinations and through the purchase of customer contracts		99	265
Staff costs and other employee-related costs	6	604	625
Other administrative expenses2,3		594	595
Total administrative and other expenses from continuing operations4		1,556	2,716

1.  The Group has made changes to the presentation of the consolidated income statement in 2021. Refer Section (a)(iii) of the Basis of Preparation for further details.

2.  For the year ended 31 December 2020, £19m of expenses previously presented in other administrative expenses have been reclassified as restructuring and corporate transaction expenses. Refer Section (a)(iii) of the Basis of Preparation for further details.

3.  Other administrative expenses includes interest expense of £1m (2020: £2m). In addition, interest expense of £24m (2020: £24m) was incurred in respect of subordinated liabilities and the related cash flow hedge (refer Note 19) and interest expense of £6m (2020: £6m) in respect of lease liabilities (refer Note 17) which are included in Finance costs in the consolidated income statement.

4.  Total administrative and other expenses includes £3m (2020: £5m) relating to unit linked business. Refer Note 24 for further details.

6.         Staff costs and other employee-related costs

The following table shows the staff costs and other employee-related costs aggregated for both continuing and discontinued operations.

		2021	2020
	Notes	£m	£m
The aggregate remuneration payable in respect of employees:
Wages and salaries		469	465
Social security costs		56	55
Pension costs
Defined benefit plans		(17)	(19)
Defined contribution plans		53	58
Employee share-based payments and deferred fund awards	43	43	66
Total staff costs and other employee-related costs		604	625

In addition, wages and salaries of £27m (2020: £28m), social security costs of £3m (2020: £4m), pension costs - defined benefit plans of less than £1m (2020: less than £1m), pension costs - defined contribution plans of £1m (2020: £1m), employee share-based payments and deferred fund awards relating to transformation and leavers of £16m (2020: £27m) and termination benefits of £50m (2020: £31m) have been included in restructuring and corporate transaction expenses. Refer Note 8. A further £53m (2020: £nil) of expenses are included in other cost of sales in relation to amounts payable to employees and former employees relating to carried interest and performance fee revenue. Refer Note 3.

The following table provides an analysis of the average number of staff employed by the Group during the year.

	2021	2020
Investments	1,683	1,809
Adviser	136	118
Personal	626	576
Operations, IT and support functions	3,018	3,526
Total employees	5,463	6,029

Information in respect of Directors' remuneration is provided in the Directors' remuneration report on pages 100 to 116.

7.         Auditors' remuneration

The following table shows the auditors' remuneration aggregated for both continuing and discontinued operations.

	2021	2020
	£m	£m
Fees payable to the Company's auditors for the audit of the Company's individual and consolidated financial statements	1.0	1.1
Fees payable to the Company's auditors for other services
The audit of the Company's consolidated subsidiaries pursuant to legislation	4.1	4.1
Audit related assurance services	2.0	2.3
Total audit and audit related assurance fees	7.1	7.5
Other assurance services	1.2	0.8
Other non-audit fee services	0.9	-
Total non-audit fees	2.1	0.8
Total auditors' remuneration	9.2	8.3

Auditors' remuneration disclosed above excludes audit and non-audit fees payable to the Group's principal auditor by Group managed funds which are not controlled by the Group, and therefore not consolidated in the Group's financial statements.

During the year ended 31 December 2021 no audit fees were payable in respect of defined benefit plans to the Group's principal auditor (2020: £nil).

For more information on non-audit services, refer to the Audit Committee report in Section 3 - Corporate governance statement.

8.         Restructuring and corporate transaction expenses

Total restructuring and corporate transaction expenses incurred from continuing operations during the year were £259m (2020: £316m). The expenses mainly relate to transformation costs including severance, asset management integration, separation from Phoenix, and finance and platform transformation. Deal costs relating to acquisitions included in restructuring and corporate transaction expenses for the year ended 31 December 2021 were £16m (2020: £1m).

The restructuring and corporate transaction expenses of £316m for the year ended 31 December 2020 includes £19m of expenses previously presented in other administrative expenses. Refer Section (a)(iii) of the Basis of Preparation for further details.

9.         Taxation

The Group's tax expense comprises both current tax and deferred tax expense.

Current tax is the expected tax payable on taxable profit for the year and is calculated using tax rates and laws substantively enacted at the balance sheet date.

A deferred tax asset represents a tax deduction that is expected to arise in a future period. It is only recognised to the extent that there is expected to be future taxable profit or investment return to offset the tax deduction. A deferred tax liability represents taxes which will become payable in a future period as a result of a current or prior year transaction. Where local tax law allows, deferred tax assets and liabilities are netted off on the statement of financial position. The tax rates used to determine deferred tax are those enacted or substantively enacted at the balance sheet date that are expected to apply when the deferred tax asset or liability are realised.

Deferred tax is recognised on temporary differences arising from investments in subsidiaries and associates unless the timing of the reversal is in our control and it is expected that the temporary difference will not reverse in the foreseeable future.

Current tax and deferred tax is recognised in the consolidated income statement except when it relates to items recognised in other comprehensive income or directly in equity, in which case it is credited or charged to other comprehensive income or directly to equity respectively.

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

(a)          Tax charge in the consolidated income statement

(a)(i)       Current year tax expense

		2021	2020
		£m	£m
Current tax:
UK		5	(1)
Overseas		60	55
Adjustment to tax expense in respect of prior years		11	9
Total current tax attributable to continuing operations		76	63
Deferred tax:
Deferred tax expense/(credit) arising from the current year		36	(76)
Adjustment to deferred tax in respect of prior years		8	(2)
Total deferred tax attributable to continuing operations		44	(78)
Total tax expense/(credit) attributable to continuing operations1		120	(15)

1.  The tax expense of £120m (2020: tax credit of £15m) includes a tax expense of £4m (2020: £4m) relating to unit linked business. Refer Note 24 for further details.

The share of associates' and joint ventures' tax credit for the year is £5m (2020: £17m expense) and is included in profit before tax in the consolidated income statement in Share of profit or loss from associates and joint ventures.

In 2021 unrecognised tax losses from previous years were used to reduce the current tax expense by £15m (2020: £1m). Unrecognised tax losses and timing differences were used to reduce the deferred tax expense by £nil (2020: £1m).

Current tax recoverable and current tax liabilities at 31 December 2021 were £2m (2020: £9m) and £27m (2020: £15m) respectively. In addition current tax recoverable and current tax liabilities in relation to unit linked business were £1m (2020: £1m) and £1m (2020: £1m) respectively. Current tax assets and liabilities at 31 December 2021 and 31 December 2020 are expected to be recoverable or payable in less than 12 months.

(a)(ii)      Reconciliation of tax expense

		2021	2020
		£m	£m
Profit before tax from continuing operations		1,115	838
Tax at 19% (2020: 19%)		212	159
Remeasurement of deferred tax due to rate changes		(24)	9
Permanent differences		(13)	(20)
Non-taxable fair value movements on significant listed investments		7	-
Tax effect of accounting for Share of profit or loss from associates and joint ventures		4	(37)
Impairment losses on intangible assets		-	174
Impairment/(reversal of impairment) of investment in associates and joint ventures		-	9
Differences in overseas tax rates		(70)	(21)
Adjustment to current tax expense in respect of prior years		11	9
Recognition of previously unrecognised tax credit		(15)	(2)
Deferred tax not recognised		2	7
Adjustment to deferred tax expense in respect of prior years		8	(2)
Non-taxable profit or loss on sale of subsidiaries, associates and significant listed investments		(5)	(303)
Other		3	3
Total tax expense/(credit) from continuing operations for the year		120	(15)

The standard UK Corporation Tax rate for the accounting period is 19%. On 3 March 2021, the UK Government announced its intention to increase the rate of UK Corporation Tax from 19% to 25% with effect from 1 April 2023. This change was substantively enacted on 24 May 2021. The effect of this change in the rate of UK Corporation Tax at this date was to increase the deferred tax assets and deferred tax liabilities in the statement of financial position by £34m and £10m respectively and reduce the tax expense in the consolidated income statement by £24m.

The accounting for certain items in the consolidated income statement results in certain reconciling items in the table above, the values of which vary from year to year depending upon the underlying accounting values.

Details of significant reconciling items are as follows:

-   Permanent differences in 2021 include non-taxable dividends from significant listed investments and other accounting items that are not subject to Corporation Tax. Permanent differences also include the difference between the tax basis and accounting value for employee share-based awards.

-   Fair value movements in our investments in HDFC Life and Phoenix are not subject to tax.

-   The share of profit or loss from associates and joint ventures is presented net of tax in the consolidated income statement and therefore gives a reconciling item.

-   Certain profits are taxed at rates which differ from the UK Corporation Tax rate. In 2021 the effect of different overseas tax rates is driven mainly by a non-recurring reconciling item associated with the gain arising on both the sale and reclassification of shares in our associate HDFC Asset Management. This arose because the Indian rate of tax on long-term capital gains is less than the UK corporate tax rate.

-   The ability to value tax losses and other tax assets also affects the tax charge. We have not recognised a deferred tax asset of £2m on tax losses arising in the year due to uncertainty as to when these losses will be utilised. In addition, we have utilised £15m of previously unrecognised deferred tax assets to offset against taxable profits arising in the year.

-   Non-taxable profit or loss on disposal of subsidiaries, associates and significant listed investments includes the impact of the taxable gains arising on the disposals of our Nordic and Parmenion businesses being less than the accounting gains. Furthermore, the partial disposal of the Group's significant listed investment in HDFC Life is not subject to tax.

(b)          Tax relating to components of other comprehensive income

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

		2021	2020
		£m	£m
Tax relating to defined benefit pension plan deficits		(3)	(2)
Equity holder tax effect relating to items that will not be reclassified subsequently to profit or loss		(3)	(2)
Tax relating to fair value gains and losses recognised on cash flow hedges		6	(1)
Tax relating to cash flow hedge gains and losses transferred to consolidated income statement		(3)	3
Equity holder tax effect relating to items that may be reclassified subsequently to profit or loss		3	2
Tax relating to other comprehensive income from continuing operations		-	-

All of the amounts presented above are in respect of equity holders of abrdn plc.

(c)          Deferred tax assets and liabilities

(c)(i)       Movements in net deferred tax asset/(liability)

		2021	2020
		£m	£m
Net deferred tax asset/(liability) at 1 January		65	(13)
Acquired through business combinations		(19)	-
Amounts (expensed)/credited to the consolidated income statement		(44)	78
Tax on defined benefit pension plan deficits		3	2
Tax on cash flow hedge		(3)	(2)
Other		1	-
Net deferred tax asset at 31 December		3	65

 (c)(ii)      Analysis of recognised deferred tax

		2021	2020
		£m	£m
Deferred tax assets comprise:
Losses carried forward		129	89
Depreciable assets		25	12
Employee benefits		30	28
Provisions and other temporary timing differences		4	2
Gross deferred tax assets		188	131
Less: Offset against deferred tax liabilities		(20)	-
Deferred tax assets		168	131
Deferred tax liabilities comprise:
Unrealised gains on investments		104	4
Deferred tax on intangible assets acquired through business combinations		72	52
Other		9	10
Gross deferred tax liabilities		185	66
Less: Offset against deferred tax assets		(20)	-
Deferred tax liabilities		165	66
Net deferred tax asset at 31 December		3	65

A deferred tax asset of £129m (2020: £89m) for the Group has been recognised in respect of losses of various subsidiaries. Deferred tax assets are recognised to the extent that it is probable that the losses will be capable of being offset against taxable profits and gains in future periods. The value attributed to them takes into account the certainty or otherwise of their recoverability. Their recoverability is measured against the reversal of deferred tax liabilities and anticipated taxable profits and gains based on business plans. The deferred tax asset recognised on losses relates to UK entities where there is currently no restriction on the period of time over which losses can be utilised. Recognition of this deferred tax asset requires that management must consider if it is more likely than not that this asset will be recoverable in future periods against future profits arising in the UK. In making this assessment management have considered future operating plans and forecast taxable profits and are satisfied that, following completion of transformation activities, forecast taxable profits will be sufficient to enable recovery of the UK tax losses. Based upon the level of forecast taxable profits management do not consider there is significant risk of a material adjustment to the carrying amount of the deferred tax asset on UK tax losses within the next financial year. Management expect the deferred tax asset to be utilised over a period of between 4 and 6 years. No reasonably possible change in any of the key assumptions would result in a significant reduction in projected taxable profits such that the recognised tax asset would not be recognised. The increase in this deferred tax asset in 2021 primarily reflects the enacted increase in the future UK tax rate from 19% to 25%.

Deferred tax liabilities relating to unrealised gains on investments of £104m include £92m (2020: £nil) relating to our investment in HDFC Asset Management following the reclassification of this holding from an associate during 2021.

Deferred tax assets and liabilities are expected to be recovered or settled after more than 12 months.

(d)          Unrecognised deferred tax

Due to uncertainty regarding recoverability, deferred tax assets have not been recognised in respect of the following:

-   Cumulative losses carried forward of £78m in the UK and cumulative losses and other temporary differences of £361m overseas (2020: £80m, £287m respectively).

Of these unrecognised deferred tax assets, certain losses have expiry dates as follows:

-   US losses of £104m with expiry dates between 2027-2037 (2020: £164m).

-   Other overseas losses of £43m with expiry dates between 2022-2036 (2020: £48m).

10.       Discontinued operations

The Group classifies as discontinued operations areas of business which have been disposed of or are classified as held for sale at the year end and which either, represent a separate major line of business or geographical area, or are part of a plan to dispose of one. The results of discontinued operations are shown separately on the face of the consolidated income statement from the results of the remaining (continuing) parts of the Group's business.

The consolidated income statement profit or loss, other comprehensive income and cash flows from discontinued operations relate solely to the UK and European insurance business which was sold in 2018 to Phoenix. For the year ended 31 December 2021, the profit from discontinued operations was £nil. For the year ended 31 December 2020, the loss from discontinued operations was £15m which reflected changes in the value of contingent consideration relating to the sale including the impact of the resolution of certain legacy issues with Phoenix, refer Note 1(c)(iii). For the year ended 31 December 2021, net cash flows from discontinued operations of £34m (2020: (£42m)) are included in net cash flows from investing activities. There was no other comprehensive income from discontinued operations for the year ended 31 December 2021 (2020: £nil).

11.       Earnings per share

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

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

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

Basic earnings per share was 46.8p (2020: 37.8p) and diluted earnings per share was 46.0p (2020: 37.2p) for the year ended 31 December 2021. The following table shows details of basic, diluted and adjusted earnings per share.

	2021	2020 restated1
	£m	£m
Adjusted profit before tax	323	240
Tax on adjusted profit	(26)	(38)
Adjusted profit after tax	297	202
Adjusted profit after tax attributable to non-controlling interests (ordinary shares)	(1)	-
Dividend paid on preference shares	-	(5)
Adjusted profit after tax attributable to equity shareholders of abrdn plc	296	197
Total adjusting items including results of associates and joint ventures	792	598
Tax on adjusting items	(94)	53
Profit attributable to equity shareholders of abrdn plc from continuing operations	994	848
Loss for the year from discontinued operations	-	(15)
Profit attributable to equity shareholders of abrdn plc	994	833

1.  Comparatives for the year ended 31 December 2020 have been restated in relation to changes to the Group's reportable segments and the change to the Group's key alternative performance measure. Refer Notes 2 and 12 for further details.

 

	2021	2020
	Millions	Millions
Weighted average number of ordinary shares outstanding	2,123	2,202
Dilutive effect of share options and awards	36	37
Weighted average number of diluted ordinary shares outstanding	2,159	2,239

'

	2021			2020 Restated2
	Continuing operations	Discontinued operations	Total	Continuing operations	Discontinued operations	Total
	Pence	Pence	Pence	Pence	Pence	Pence
Basic earnings per share	46.8	-	46.8	38.5	(0.7)	37.8
Diluted earnings per share	46.0	-	46.0	37.9	(0.7)	37.2
Adjusted earnings per share	13.9	-	13.9	8.9	-	8.9
Adjusted diluted earnings per share	13.7	-	13.7	8.8	-	8.8

2.  Comparatives for adjusted earnings per share and adjusted diluted earnings per share for the year ended 31 December 2020 have been restated in relation to the change to the Group's key alternative performance measure. Refer Note 12 for further details.

12.       Adjusted profit and adjusting items

Adjusted profit excludes the impact of the following items:

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

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

-   Profit or loss arising on the disposal of a subsidiary, joint venture or equity accounted associate.

-   Change in fair value of/dividends from significant listed investments (see (b) below).

-   Share of profit or loss from associates and joint ventures.

-   Impairment loss/reversal of impairment loss recognised on investments in associates and joint ventures accounted for using the equity method.

-   Fair value movements in contingent consideration.

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

The tax charge or credit allocated to adjusting items is based on the tax treatment of each adjusting item.

The operating, investing and financing cash flows presented in the consolidated statement of cash flows are for both adjusting and non-adjusting items.

(a)          Changes to the Group's adjusted profit

The Group has changed the definition of adjusted profit in 2021.

Previously adjusted profit included the pre-tax adjusted results from the Group's associates and joint ventures accounted for using the equity method. Adjusting items previously also included adjusting items such as restructuring costs in relation to the results from the Group's associates and joint ventures.

The reason for the change is to make the results more understandable, following the reclassification of HDFC Life and Phoenix from associates to equity investments.

Comparative information on adjusted profit for the year ended 31 December 2020 has been prepared on the same basis as the year ended 31 December 2021 to allow more meaningful comparison.

A reconciliation to previously reported information is included in Section 9, Supplementary information.

(b)          Significant listed investments

Following the reclassification of HDFC Life, Phoenix and HDFC Asset Management from associates to equity securities, fair value movements on these investments are included as adjusting items. Excluding fair value movements on significant listed investments for the purpose of adjusted profit is aligned with our treatment of gains on disposal for these holdings when they were classified as associates.

Dividends from significant listed investments are also included as adjusting items, as such dividends result in fair value movements.

In addition to fair value movements, the other changes to the Group's significant listed investments in the year ended 31 December 2021 were as follows:

-   The reclassification of Phoenix and HDFC Asset Management (refer Note 1(c)(iii) for further details).

-   The Group's holding in HDFC Life reduced by 4.99% to 3.89% following the sale of 100,845,104 equity shares in HDFC Life through a Bulk Sale on 29 June 2021. The total consideration net of taxes and expenses was £653m.

(c)          Other

Other adjusting items for the year ended 31 December 2021 includes a net release of deferred income of £25m, refer Note 34. Other adjusting items for the year ended 31 December 2021 also included £8m for initial gains on derecognition of right-of-use assets relating to subleases classified as finance leases (2020: £2m) and a loss of £3m (2020: gain of £5m) for net fair value movements in contingent consideration relating to continuing operations.

13.       Dividends on ordinary shares

Dividends are distributions of profit to holders of abrdn plc's share capital and as a result are recognised as a deduction in equity. Final dividends are announced with the Annual report and accounts and are recognised when they have been approved by shareholders. Interim dividends are announced with the Half year results and are recognised when they are paid.

	2021		2020
	Pence per share	£m1	Pence per share	£m
Prior year's final dividend paid	7.30	154	14.30	320
Interim dividend paid	7.30	154	7.30	159
Total dividends paid on ordinary shares		308		479
Current year final recommended dividend	7.30	155	7.30	154

1.  Estimated for current year final recommended dividend.

The final recommended dividend will be paid on 24 May 2022 to shareholders on the Company's register as at 8 April 2022, subject to approval at the 2022 Annual General Meeting. After the current year final recommended dividend, the total dividend in respect of the year ended 31 December 2021 is 14.60p (2020: 14.60p).

14.       Intangible assets

Goodwill is created when the Group acquires a business and the consideration exceeds the fair value of the net assets acquired. In determining the net assets acquired in business combinations, intangible assets are recognised where they are separable or arise from contractual or legal rights. Intangible assets acquired by the Group through business combinations consist mainly of customer relationships and investment management contracts, technology and brands. Any remaining value that cannot be identified as a separate intangible asset on acquisition forms part of goodwill.

In addition to intangible assets acquired through business combinations, the Group recognises as intangible assets software which has been developed internally and other purchased technology which is used in managing and executing our business. Costs to develop software internally are capitalised after the research phase and when it has been established that the project is technically feasible and the Group has both the intention and ability to use the completed asset.

Intangible assets are recognised at cost and amortisation is charged to the income statement over the length of time the Group expects to derive benefits from the asset. The allocation of the income statement charge to each reporting period is dependent on the expected pattern over which future benefits are expected to be derived. Where this pattern cannot be determined reliably the charge is allocated on a straight-line basis.

Goodwill is not charged to the income statement unless it becomes impaired.

The Group also recognises the cost of obtaining customer contracts (refer Note 3) as an intangible asset. These costs primarily relate to the cost of acquiring existing investment management contracts from other asset managers and commission costs for initial investors into new closed end funds where these are borne by the Group. For the cost of obtaining customer contracts, the intangible asset is amortised on the same basis as the transfer to the customer of the services to which the intangible asset relates.

 

		Acquired through business combinations
		Goodwill	Brand	Customer relationships and investment management contracts	Technology	Internally developed software1		Purchased software and other	Cost of obtaining customer contracts	Total
		£m	£m	£m	£m	£m		£m	£m	£m
Gross amount
At 1 January 2020		3,475	93	1,031	67	131		3	96	4,896
Reclassified as held for sale during the year		-	-	-	(3)	(2)		-	-	(5)
Additions		-	-	-	-	2		2	8	12
At 31 December 2020		3,475	93	1,031	64	131		5	104	4,903
Disposals and adjustments		-	-	(15)	-	-		-	-	(15)
Additions		246	1	72	5	-		-	-	324
At 31 December 2021		3,721	94	1,088	69	131		5	104	5,212
Accumulated amortisation and impairment
At 1 January 2020		(2,475)	(45)	(497)	(55)	(80)		(1)	(36)	(3,189)
Reclassified as held for sale during the year		-	-	-	2	1		-	-	3
Amortisation charge for the year2		-	(18)	(86)	(7)	(21)		(1)	(19)	(152)
Impairment losses recognised3		(915)	-	(134)	(1)	(14)		-	-	(1,064)
At 31 December 2020		(3,390)	(63)	(717)	(61)	(114)		(2)	(55)	(4,402)
Disposals and adjustments		-	-	10	(2)	2		-	-	10
Amortisation charge for the year2		-	(19)	(67)	(1)	(7)		(2)	(12)	(108)
Impairment losses recognised3		-	-	-	-	(8)		-	-	(8)
At 31 December 2021		(3,390)	(82)	(774)	(64)	(127)		(4)	(67)	(4,508)
Carrying amount
At 1 January 2020		1,000	48	534	12	51		2	60	1,707
At 31 December 2020		85	30	314	3	17		3	49	501
At 31 December 2021		331	12	314	5	4		1	37	704

1.  Included in the internally developed software of £4m (2020: £17m) is £nil (2020: £8m) relating to intangible assets not yet ready for use.

2.  For the year ended 31 December 2021, £99m (2020: £130m) of the amortisation charge is recognised in Amortisation and impairment of other intangibles acquired in business combinations and through the purchase of customer contracts with £9m (2020: £22m) recognised in Other administrative expenses.

3.  For the year ended 31 December 2021, £nil (2020: £135m) of impairment is recognised in Amortisation and impairment of other intangibles acquired in business combinations and through the purchase of customer contracts with £8m (2020: £14m) recognised in Restructuring and corporate transaction expenses. For the year ended 31 December 2020, the impairment losses of £915m relating to asset management goodwill were presented separately in the consolidated income statement.

 

At 31 December 2021, there was £167m (2020: £nil) of goodwill attributable to the asset management group of cash-generating units and £72m (2020: £nil) of goodwill attributable to the Finimize cash-generating unit, both in the Investments segment. Refer Note 1(b)(i) for further details on the acquisitions of Tritax and Finimize. The remaining goodwill of £92m (2020: £85m) is attributable to a number of smaller cash-generating units in the Personal segment.

Both the Investments and Personal segments were formerly part of the Asset management, platforms and wealth segment.

Tritax investment management contract intangible assets

On acquisition of Tritax, £71m of customer relationships and investment management contracts intangibles were recognised. These assets primarily relate to Tritax's investment management contracts with Tritax Big Box REIT plc and Tritax Euro Box plc which are listed closed-end real estate funds. The description of the individually material intangible asset including the estimated useful life at the acquisition date of 1 April 2021 was as follows:

Investment management contract intangible asset	Description	Useful life at acquisition date	Fair value on acquisition date	Carrying value 2021	Carrying value 2020
			£m	£m	£m
Tritax Big Box REIT plc	Investment management contract with Tritax Big Box REIT plc	13 years	50	47	N/A

The key assumptions, other than the useful life, in measuring the fair value of the investment contract intangible assets at acquisition date were as follows:

-   Revenue growth - this assumption was based on the fund growth (from markets and investment performance) included in the Tritax business plan as adjusted for the impact of fund raisings which commenced prior to the acquisition date. Management fee rates are assumed to stay in line with current rates.

-   Operating margin - this assumption was based on the current operating margins adjusted for expected cost synergies.

-   Discount rate - this assumption was based on a market participant weighted average cost of capital.

As the investment management contracts relate to closed-end funds, the  straight-line method of amortisation is considered appropriate for these intangibles. There has been no change to the useful lives and therefore the residual useful life of these investment management contract intangible assets is 12.25 years.

Aberdeen Asset Management PLC (AAM PLC) intangibles

On the acquisition of AAM PLC in 2017, we identified intangible assets in relation to customer relationships, brand and technology as being separable from goodwill. Identification and valuation of intangible assets acquired in business combinations is a key judgement.

The customer relationships acquired through AAM PLC were grouped where the customer groups have similar economic characteristics and similar useful economic lives. This gave rise to three separate intangible assets which we termed Lloyds Banking Group, Open ended funds, and Segregated and similar.

In relation to the Open ended funds we considered that it was most appropriate to recognise an intangible asset relating to customer relationships between AAM PLC and open ended fund customers, rather than an intangible asset relating to investment management agreements between AAM PLC and AAM PLC's open ended funds. Our judgement was that the value associated with the open ended fund assets under management was predominantly derived from the underlying customer relationships, taking into account that a significant proportion of these assets under management are from institutional clients.

The intangible asset for Lloyds Banking Group had a carrying value of £nil at the end of 2019. The description of the remaining two separate intangible assets including their estimated useful life at the acquisition date of 14 August 2017 was as follows:

Customer relationship intangible asset	Description	Useful life at acquisition date	Fair value on acquisition date	Carrying value 2021	Carrying value 2020
			£m	£m	£m
Open ended funds	Separate vehicle group - open ended investment vehicles	11 years	223	62	87
Segregated and similar	All other vehicle groups dominated by segregated mandates which represent 75% of this group	12 years	427	83	107

Measuring the fair value of intangible assets acquired in business combinations required further assumptions and judgements. Customer relationships were valued using discounted cash flow projections. The key assumptions in measuring the fair value of the customer relationships at the acquisition date were as follows:

-   Net attrition - net attrition represents the expected rate of outflows of assets under management net of inflows from existing customers. This assumption was primarily based on recent experience.

-   Market growth - a market growth adjustment was applied based on the asset class.

-   Operating margin - this assumption was consistent with forecast margins and included the impact of synergies that would be expected by any market participant and impacted the Aberdeen customer relationship cash flows.

-   Discount rate - this assumption was based on the internal rate of return (IRR) of the transaction and is consistent with a market participant discount rate.

The above assumptions, and in particular the net attrition assumption, were also used to determine the useful economic life at the acquisition date of each asset used for amortisation. The reducing balance method of amortisation is considered appropriate for these intangibles, consistent with the attrition pattern on customer relationships which means that the economic benefits delivered from the existing customer base will reduce disproportionately over time.

There has been no change to the useful lives of the Open ended funds and Segregated and similar customer relationship intangible assets. Therefore the residual useful life of the Open ended funds customer relationship intangible asset is 6.6 years and the residual life of the Segregated and similar customer relationship intangible asset is 7.6 years.

Estimates and assumptions

The key estimates and assumptions in relation to intangible assets are:

-   Determination of the recoverable amount of goodwill and customer intangibles.

-   Determination of useful lives.

The determination of the recoverable amount of asset management goodwill was a significant judgement in relation to the 2020 accounts. However, as the Group's asset management goodwill was fully impaired at 30 June 2020, this is no longer a source of estimation uncertainty at the end of the reporting period.

Similarly, the determination of the recoverable amount of the segregated and similar customer relationship intangible was an area of estimation uncertainty at 30 June 2020 (at which point it was impaired) and 31 December 2020. However as a result of amortisation and market movements this was not considered a source of estimation uncertainty at 31 December 2021 with a significant risk of resulting in material adjustment to the carrying amount in the next financial year.

Determination of the recoverable amount of goodwill and customer intangibles

For all intangible assets including goodwill, an assessment is made at each reporting date as to whether there is an indication that the goodwill or intangible asset has become impaired. If any indication of impairment exists then the recoverable amount of the asset is determined. In addition, the recoverable amount for goodwill must be assessed annually.

The recoverable amounts are defined as the higher of fair value less costs of disposal (FVLCD) and the value in use (VIU) where the value in use is based on the present value of future cash flows. Where the carrying value exceeds the recoverable amount then the carrying value is written down to the recoverable amount.

In assessing value in use, expected future cash flows are discounted to their present value using a pre-tax discount rate. Judgement is required in assessing both the expected cash flows and an appropriate discount rate which is based on current market assessments of the time value of money and the risks associated with the asset.

Goodwill

No impairments of goodwill were recognised in 2021.

Goodwill of £167m (2020: £nil) is allocated to the asset management group of cash-generating units which comprises the Investments segment (excluding Finimize). The recoverable amount of this group of cash-generating units was determined based on value in use. Cash flows were based on the three year financial budgets approved by management. The key assumptions used by management in setting the three-year profit forecasts are:

-   Revenue in the management forecasts reflects past experience and modelling based on assets under management and fee revenue yields by asset class.

-   Assets under management is modelled from future net flow assumptions and market movements. Net flow assumptions take into account past experience, the withdrawal of residual LBG assets, and assume institutional and wholesale flows move to a net inflow position. Market assumptions assume equity market growth over the plan period.

-   Expenses in the management forecasts were based on past experience. Where expense savings relating to staff and property require provisions to be made in future years, these expense savings (and the related implementation costs) have, for the purposes of the VIU calculation, been added back to management's expectation of the future operating expenses.

The value in use used a pre-tax discount rate of 14.3%. This is based on the Group/peer companies cost of equity adjusted for forecasting risk. A terminal growth rate of 2% was used based on long-term inflation. No reasonably possible change in a key assumption would cause the carrying amount to exceed the value in use.

In 2020, an impairment of £915m was recognised at 30 June 2020 relating to an impairment of asset management goodwill, the group of cash-generating units for which was our asset management business excluding HDFC Asset Management and Virgin Money UTM. The recoverable amount of this group of cash-generating units at 30 June 2020 was £1,654m, which is based on FVLCD. The impairment resulted from the impact on reported revenue and future revenue projections of global equity market falls and a shift in asset mix towards lower margin assets. Both the fall in equity markets and the shift in asset mix were global market impacts primarily resulting from COVID-19. Additional projections were prepared to take into account these COVID-19 impacts, and uncertainties over future financial markets, and these projections were a key input to the impairment review process. This asset management goodwill was fully impaired at 30 June 2020 and 31 December 2020.

Goodwill of £72m (2020: £nil) is allocated to the Finimize cash-generating unit in the Investments segment. The recoverable amount of this cash-generating unit was determined based on fair value less costs of disposal (FVLCD). The FVLCD considered a number of valuation approaches, with the primary approach being a revenue multiple approach. This is a level 3 measurement as it is measured using inputs which are not based on observable market data. The assumptions used in determining the revenue multiple valuation were future revenue projections which were based on the model used in the acquisition process and assumed a continued level of future revenue growth, and market multiples for precedent private transactions. The recoverable amount exceeds the carrying amount of the cash-generating unit by £10m. The key assumption relates to future revenue growth. The acquisition model assumes revenue growth of CAGR (compound annual growth rate) of c90% over the period to 2025. A revenue CAGR of c85%,  which we consider a reasonably possible change in this key assumption, would reduce the recoverable amount to the carrying amount.

Goodwill of £92m is attributable to a number of smaller cash-generating units in the Personal segment (which was formerly part of the Asset management, platforms and wealth segment). No goodwill amounts are significant in comparison to the total carrying amount of goodwill and the recoverable amounts are not based on the same key assumptions.

Customer relationship and investment management contract intangibles

No impairments of customer intangibles were recognised in 2021. At 31 December 2021, there was no indication that any of the Group's customer relationship and investment management contract intangibles were impaired.

In 2020, an impairment of £134m was recognised at 30 June 2020 relating to the Segregated and similar customer relationship intangible asset which was recognised on the acquisition of AAM PLC. The Segregated and similar customer relationship intangible asset is included in the Investments segment. The recoverable amount of this asset at 30 June 2020 was £119m which was its VIU calculated using a pre-tax discount rate of 14.8%. The impairment resulted from the impact of markets, net outflows and a fall in revenue yield on future earnings expectations. At 31 December 2021, there is no indication that the Segregated and similar customer relationship intangible asset has become further impaired. There was also no indication of further impairment at 31 December 2020.

Determination of useful lives

The determination of useful lives requires judgement in respect of the length of time that the Group expects to derive benefits from the asset and considers for example expected duration of customer relationships and when technology is expected to become obsolete for technology based assets. The amortisation period and method for each of the Group's intangible asset categories is as follows:

-   Customer relationships acquired through business combinations - generally between 7 and 12 years, generally reducing balance method.

-   Investment management contracts acquired through business combinations - between 10 and 17 years,
straight-line.

-   Brand acquired through business combinations - between 2 and 5 years, straight-line.

-   Technology acquired through business combinations - between 3 and 6 years,  straight-line.

-   Internally developed software - between 2 and 6 years. Amortisation is on a straight-line basis and commences once the asset is available for use.

-   Purchased software - between 2 and 6 years, straight-line.

-   Costs of obtaining customer contracts - between 3 and 12 years, generally reducing balance method.

Internally developed software

In 2021, an impairment of internally developed software of £8m (2020: £14m) was recognised. The impairment in 2021 primarily related to an impairment of a digital advice application in the Personal segment as a result of a reduction in expected future cash flows. The impairment in 2020 related to software made obsolete as a result of the development of the new investment platform in the Investments segment.

15.       Investments in associates and joint ventures

Associates are entities where the Group can significantly influence decisions made relating to the financial and operating policies of the entity but does not control the entity. For entities where voting rights exist, significant influence is presumed where the Group holds between 20% and 50% of the voting rights. Where the Group holds less than 20% of voting rights, consideration is given to other indicators and entities are classified as associates where it is judged that these other indicators result in significant influence.

Joint ventures are strategic investments where the Group has agreed to share control of an entity's financial and operating policies through a shareholders' agreement and decisions can only be taken with unanimous consent.

Associates, other than those accounted for at fair value through profit or loss, and joint ventures are accounted for using the equity method from the date that significant influence or shared control, respectively, commences until the date this ceases with consistent accounting policies applied throughout.

Under the equity method, investments in associates and joint ventures are initially recognised at cost. When an interest is acquired at fair value from a third party, the value of the Group's share of the investee's identifiable assets and liabilities is determined applying the same valuation criteria as for a business combination at the acquisition date. This is compared to the cost of the investment in the investee. Where cost is higher the difference is identified as goodwill and the investee is initially recognised at cost which includes this component of goodwill. Where cost is lower a bargain purchase has arisen and the investee is initially recognised at the Group's share of the investee's identifiable assets and liabilities unless the recoverable amount for the purpose of assessing impairment is lower, in which case the investee is initially recognised at the recoverable amount.

Subsequently the carrying value is adjusted for the Group's share of post-acquisition profit or loss and other comprehensive income of the associate or joint venture, which are recognised in the consolidated income statement and other comprehensive income respectively. The Group's share of post-acquisition profit or loss includes amortisation charges based on the valuation exercise at acquisition. The carrying value is also adjusted for any impairment losses.

On partial disposal of an associate, a gain or loss is recognised based on the difference between the proceeds received and the equity accounted value of the portion disposed of. Indicators of significant influence are reassessed based on the remaining voting rights. Where significant influence is judged to have been lost, the investment in associate is reclassified to interests in equity securities and pooled investment funds measured at fair value. If an entity is reclassified, the difference between the fair value and the remaining equity accounted value is accounted for as a reclassification gain or loss on disposal.

Where the Group has an investment in an associate, a portion of which is held by, or is held indirectly through, a mutual fund, unit trust or similar entity, including investment-linked insurance funds, that portion of the investment is measured at FVTPL. In general, investment vehicles which are not subsidiaries are considered to be associates where the Group holds more than 20% of the voting rights.

The level of future dividend payments and other transfers of funds to the Group from associates and joint ventures accounted for using the equity method could be restricted by the regulatory solvency and capital requirements of the associate or joint venture, certain local laws or foreign currency transaction restrictions.

(a)          Investments in associates and joint ventures accounted for using the equity method

	2021			2020
	Associates	Joint ventures	Total	Associates	Joint ventures	Total
	£m	£m	£m	£m	£m	£m
At 1 January	1,134	237	1,371	1,257	252	1,509
Exchange translation adjustments	-	7	7	(11)	8	(3)
Additions	-	11	11	-	5	5
Disposals	(29)	-	(29)	(102)	-	(102)
Profit/(loss) after tax	(35)	13	(22)	177	17	194
Other comprehensive income	12	(4)	8	-	-	-
Dilution gains	-	-	-	4	-	4
Impairment	-	-	-	-	(45)	(45)
Distributions of profit	(15)	-	(15)	(80)	-	(80)
Reclassified to equity securities and interests in pooled investments funds	(1,057)	-	(1,057)	(111)	-	(111)
At 31 December	10	264	274	1,134	237	1,371

The following joint venture is considered to be material to the Group as at 31 December 2021.

Name	Nature of relationship	Principal place of business	Measurement method	Interest held by the Group at 31 December 2021	Interest held by the Group at 31 December 2020
Heng An Standard Life Insurance Company Limited (HASL)	Joint venture	China	Equity accounted	50.00%	50.00%

The country of incorporation or registration is the same as the principal place of business. The interest held by the Group is the same as the proportion of voting rights held. HASL is not listed.

The Group's investment in the following companies were considered to be material associates at 31 December 2020 but were reclassified to equity securities and interest in pooled investment funds during 2021. Refer Section (b) below for further details.

Name	Nature of relationship	Principal place of business	Measurement method	Interest held by the Group at 31 December 2020	Fair value of interest held by the Group at 31 December 2020
HDFC Asset Management Company Limited (HDFC Asset Management)	Associate	India	Equity accounted	21.24%	1,321
Phoenix Group Holdings plc (Phoenix)	Associate	United Kingdom	Equity accounted	14.42%	1,010

The country of incorporation or registration is the same as their principal place of business. The interest held by the Group was the same as the proportion of voting rights held. These companies are both listed.

(b)          Investments in associates accounted for using the equity method

The Group has no material associates at 31 December 2021. The table below provides summarised financial information for those associates which were considered to be material to the Group at 31 December 2020. The summarised financial information reflects the amounts presented in the financial statements or management accounts of the relevant associates amended to reflect adjustments made when using the equity method, including fair value adjustments on acquisition and not the Group's share of those amounts.

	2020
	Phoenix1	HDFC Asset Management1
	£m	£m
Summarised financial information of associate:
Revenue	4,704	220
Profit after tax (all from continuing operations)	690	132
Other comprehensive income	25	-
Total comprehensive income	715	132
Total assets2	334,193	474
Total liabilities2	326,441	28
Net assets	7,752	446
Attributable to NCI and other equity holders	835	-
Attributable to investee's shareholder	6,917	446
Interest held	14.42%	21.24%
Share of net assets	998	95

 

	2021				2020
	Phoenix1	HDFC Asset Management1	Other4	Total	Phoenix	HDFC Asset Management	Other3,4	Total
	£m	£m	£m	£m	£m	£m	£m	£m
Carrying value of associates accounted for using the equity method	-	-	10	10	1,008	116	10	1,134
Dividends received3	-	15	-	15	67	13	-	80
Share of profit/(loss) after tax3	(56)	21	-	(35)	110	48	19	177

1.  As noted above, the Group's investment in Phoenix and HDFC Asset Management were reclassified to equity securities and interests in pooled investment funds in 2021 so were not material associates at 31 December 2021 (refer below for further details of the reclassification).

2.  As a liquidity presentation is used by insurance companies when presenting their statement of financial position, an analysis of total assets and total liabilities between current and non-current was not provided for Phoenix. The majority of HDFC Asset Management's assets and liabilities were current.

3.  For the year ended 31 December 2020 the share of profit/(loss) after tax of £19m for Other relates to HDFC Life for the period from 1 January 2020 to
3 December 2020 prior to its reclassification to equity securities and interests in pooled funds (refer below for further details of the reclassification).

4.  For the years ended 31 December 2021 and 2020, the carrying value of associates accounted for using the equity method for Other primarily relates to the Group's interest in Tenet Group Limited.

HDFC Asset Management

HDFC Asset Management manages a range of mutual funds and provides portfolio management and advisory services. The investment in HDFC Asset Management allows the Group to benefit from an investment in a leading asset manager in India, one of the world's fastest growing markets.

On 29 September 2021 the Group reduced its interest in HDFC Asset Management to 16.22% (2020: 21.24%). Refer Note 1(c)(iii) for further details of the sale.

Following the sale, HDFC Asset Management is no longer considered to be an associate of the Group and the Group's interest in HDFC Asset Management was reclassified from an investment in associates accounted for using the equity method to equity securities and interests in pooled investment funds measured at fair value on 29 September 2021. The sale reduced the Group's interest in HDFC Asset Management below 20%, which is the threshold where significant influence is presumed. While the Group does retain board representation, there are no significant decisions that require unanimous board approval under the articles of association and the Group has no significant contractual relationships with HDFC Asset Management. We consider that the Group no longer has significant influence over HDFC Asset Management after the sale, and therefore should no longer be classified as an associate.

On 29 September 2021, the equity accounted value of HDFC Asset Management was £93m and the fair value of the Group's investment in HDFC Asset Management was £1,003m based on the share price on this date. A reclassification gain of £897m has been recognised in the consolidated income statement. On reclassification a loss of £13m was recycled from the translation reserve and was included in determining the gain.

Prior to reclassification, the difference between the carrying value of this associate and the Group's share of net assets was due primarily to goodwill arising on the buyback of shares by HDFC Asset Management from employees.

The year end date of HDFC Asset Management is 31 March which is different from the Group's year end date of
31 December. For the purposes of the preparation of the Group's consolidated financial statements, financial information for the period from 1 January 2021 to 29 September 2021 was used for HDFC Asset Management for equity accounting purposes (2020: 1 January 2020 to 31 December 2020).

Phoenix

Phoenix is the largest life and pensions consolidator in Europe. Our investment in Phoenix supports our strategic partnership.

Following the completion of the Sale of the Group's UK and European insurance business in August 2018, as part of the total consideration, the Group was issued with new Phoenix shares representing 19.98% of the issued share capital of Phoenix.

During the year ended 31 December 2020, the Group's interest in Phoenix was reduced to 14.4%. On 22 July Phoenix announced the completion of its acquisition of ReAssure Group plc. Under the terms of the transaction, Phoenix issued 277,277,138 new ordinary shares as part consideration for the acquisition. Phoenix have recognised a gain on acquisition of £372m reflecting the excess of the fair value of the net assets acquired over the consideration paid and the Group's share of this gain is recognised in our share of profit from Phoenix. Completion of the transaction resulted in the Group's holding in Phoenix becoming 14.4% of the enlarged Phoenix Group. A dilution gain of £4m was recognised within the Profit on disposal of interests in associates in the 2020 consolidated income statement as a result of the transaction. Refer Note 1(c)(iv) for further details. Although our interest in Phoenix had reduced to 14.4%, taking into account our continued representation on Phoenix's board and, in particular, the contractual relationships with Phoenix, including the licensing to Phoenix of the Standard Life brand, our judgement was that Phoenix should continue to be classified as an associate.

On 23 February 2021, the Group announced a simplification and extension of the strategic partnership between the Group and Phoenix. Refer Note1(c)(iii). The announcement included the sale of the 'Standard Life' brand to Phoenix, replacing the existing agreement to licence the brand for no fee to Phoenix. Following the changes to the commercial agreements, in particular in relation to the licensing of the 'Standard Life' brand, our judgement is that Phoenix should no longer be accounted for as an associate with effect from 23 February 2021. The changes simplified the agreements between abrdn and Phoenix such that the Group was no longer able to control Phoenix's use of the Standard Life brand. The Group's shareholding in Phoenix, which remained at 14.4%, was therefore reclassified from an investment in associates accounted for using the equity method to equity securities and interests in pooled investment funds measured at fair value. A reclassification gain of £68m is included in the profit on disposal of interests in associates for the year ended 31 December 2021 as the fair value on 22 February 2021 of £1,023m was higher than the previous carrying value as an associate of £964m. On disposal, other comprehensive income gains of £9m were recycled from retained earnings and included in determining the gain on sale.

Determination of fair value and useful lives of intangible assets on acquisition of the 19.98% interest in Phoenix in August 2018

The identification, valuation and determination of useful lives for equity accounting purposes, of the Group's share of Phoenix's intangible assets was a key judgement in the determination of Phoenix profits up to the date of reclassification in 2021 and therefore the Group's carrying value of Phoenix at the date of the reclassification (and therefore gain on reclassification) and share of profits for the period from 1 January 2021 to 22 February 2021.

At acquisition the value of the Group's share of Phoenix's identifiable assets and liabilities was determined. This value was determined using the same valuation bases as required for a business combination under which most of the identifiable assets and liabilities of the enlarged Phoenix group (including Standard Life Assurance Limited (SLAL)) were measured at fair value. The most significant assets that were not measured at fair value were Phoenix's defined benefit pension schemes which were measured at their IAS 19 value.

As noted above, a key judgement was the identification, valuation and determination of useful lives, of the Group's share of Phoenix's intangible assets at the date of acquisition. The main intangible assets identified were the acquired present value of in-force business (AVIF) for both SLAL and other Phoenix entities. AVIF comprised the difference between the fair value and IFRS carrying value of insurance contracts together with the fair value of future profits expected to arise on investment contracts. The valuation of the AVIF was determined using the application of present value techniques to the best estimate cash flows expected to arise from policies that were in-force at the acquisition date, adjusted to reflect the price of bearing the uncertainty inherent in those cash flows. This approach incorporated a number of judgements and assumptions which impacted the resultant valuation, the most significant of which were mortality rates, expected policy lapses, the expenses associated with servicing the policies, future investment returns, the discount rate and the risk adjustment for uncertainty, determined using a cost of capital approach. The Group's share of profit after acquisition until the date of reclassification under the equity method reflects the amortisation of these intangible assets. This differs from the amortisation recognised in Phoenix's own IFRS financial statements due to the revaluation of the existing Phoenix intangible assets at August 2018 for equity method purposes. The amortisation method reflects the expected emergence of economic benefits which results in higher amortisation in earlier periods.

Following the completion of the ReAssure transaction, the Group's share of Phoenix's intangible assets recognised at the date of acquisition reduced from 19.98% to 14.4%. The notional partial disposal of these intangible assets results in a reduction in the corresponding amortisation recognised in the Group's share of profit under the equity method.

Intangible Asset	Useful life at acquisition date Years	Fair value at acquisition date £m	Group's share at  acquisition date1 £m
SLAL AVIF	24	2,931	586
Existing Phoenix AVIF	15	1,503	300

1.  Based on Group's share at the date of acquisition (19.98%).

There had been no change to the useful lives of the SLAL AVIF and Existing Phoenix AVIF.

Phoenix has taken advantage of the temporary exemption granted to insurers in IFRS 4 Insurance Contracts from applying IFRS 9 as a result of meeting the exemption criteria as at 31 December 2015. As the Group's investment in Phoenix is now measured at fair value, we are no longer applying the temporary exemption from IFRS 9 in relation to Phoenix at 31 December 2021.

The financial assets with contractual cash flows that were solely payments of principal and interest (excluding those held for trading or managed on a fair value basis) that remained under IAS 39 for equity accounting purposes at 31 December 2020 are set out below together with all other financial assets, measured at fair value through profit and loss:

	Fair value as at 31 December 2020
	£m
Financial assets with contractual cash flows that are solely payments of principal and interest (SPPI) excluding those held for trading or managed on a fair value basis	13,436
Financial assets other than those above1	298,176
Total	311,612

1.  The change in fair value in the year to 31 December 2020 of all other financial assets that are FVTPL was a gain of £11,087m.

An analysis of credit ratings of financial assets with contractual cash flows that are SPPI, excluding those held for trading or managed on a fair value basis at 31 December 2020, is also provided below:

	AAA	AA	A	BBB	BB and below	Non-rated	Unit linked	Total
	2020	2020	2020	2020	2020	2020	2020	2020
Carrying value	£m	£m	£m	£m	£m	£m	£m	£m
Loans and deposits	-	6	195	-	-	368	78	647
Cash and cash equivalents	30	1,728	7,035	193	-	4	2,008	10,998
Accrued income	-	-	-	-	-	251	-	251
Other receivables	-	-	-	-	-	1,540	-	1,540
	30	1,734	7,230	193	-	2,163	2,086	13,436

HDFC Life

HDFC Life is one of India's leading life insurance companies. The investment in HDFC Life allows the Group to benefit from the life insurance market in one of the world's fastest growing economies.

During the year ended 31 December 2020, the Group's interest in HDFC Life was reclassified from an investment in associates accounted for using the equity method to equity securities and interests in pooled investment funds measured at fair value.

During 2020 the Group further reduced its interest in HDFC Life to 8.89%. Refer Note 1(c)(iv) for further details of the sales during 2020. While the Group's remaining interest at 31 December 2019 of 14.73% was less than 20%, being the threshold where significant influence is presumed, our judgement was that HDFC Life should continue to be classified as an associate. This judgement took into account other key indicators of significant influence including the Group's representation on the board of HDFC Life and the Group's ability to participate in policy-making processes including decisions about dividends or other distributions that require unanimous board approval under the articles of association. The sale on 3 December 2020 reduced the Group's interest from 10.27% to 8.89% and the Group was no longer entitled to representation on the board of HDFC Life and, from this date, HDFC Life was no longer considered to be an associate of the Group.

On 3 December 2020, the equity accounted value of HDFC Life was £111m and the fair value of the Group's investment in HDFC Life was £1,168m based on the share price on this date. A reclassification gain of £1,051m was recognised in the consolidated income statement for the year ended 31 December 2020. On reclassification a loss of £6m was recycled from the translation reserve and was included in determining the gain.

The year end date for HDFC Life is 31 March which is different from the Group's year end date of 31 December. For the purposes of the preparation of the Group's 2020 consolidated financial statements, financial information for the period from 1 January 2020 to 3 December 2020 was used for HDFC Life for equity accounting purposes.

(c)          Investments in joint ventures

	HASL		Other		Total
	2021	2020	2021	2020	2021	2020
	£m	£m	£m	£m	£m	£m
Carrying value of joint ventures accounted for using the equity method	258	236	6	1	264	237
Dividends received	-	-	-	-	-	-
Share of profit/(loss) after tax	19	23	(6)	(6)	13	17

HASL

The Group has a 50% share in HASL, one of China's leading life insurance companies offering life and health insurance products. The investment in HASL is a strategic investment giving the Group access to one of the world's largest markets.

On 30 June 2020, HASL completed the acquisition of SL Asia. Refer Note 1(c)(ii) for further details.

The table below provides summarised financial information for HASL, the joint venture which is considered to be material to the Group. The summarised financial information reflects the amounts presented in the financial statements of HASL amended to reflect adjustments made when using the equity method.

	HASL
	2021	2020
	£m	£m
Summarised financial information of joint venture:
Revenue	612	481
Depreciation and amortisation	4	3
Interest income	68	57
Interest expense	2	2
Income tax (expense)/income	(3)	(3)
Profit after tax (all from continuing operations)	39	46
Other comprehensive income	(11)	1
Total comprehensive income	28	47
Total assets1	3,787	3,156
Total liabilities1	3,271	2,685
Cash and cash equivalents	102	122
Net assets	516	471
Attributable to investee's shareholder	516	471
Interest held	50%	50%
Share of net assets	258	236

1.  As a liquidity presentation is used by insurance companies when presenting their statement of financial position, an analysis of total assets and total liabilities between current and non-current has not been provided for HASL.

At 31 December 2015 HASL had significant insurance liabilities and its liabilities arising from contracts within the scope of IFRS 4 and liabilities connected with insurance were over 90% of its total liabilities. Therefore HASL was eligible to defer the implementation of IFRS 9 for equity accounting purposes.

The fair value of HASL's financial assets at 31 December 2021 that remain under IAS 39 for equity accounting purposes and the change in fair value during the year ended 31 December 2021 are as follows:

	Fair value as at 31 December 2021	Fair value as at 31 December 2020
	£m	£m
Financial assets with contractual cash flows that are solely payments of principal and interest (SPPI) excluding those held for trading or managed on a fair value basis1,2	2,384	1,862
Financial assets other than those above2	562	431
Total	2,946	2,293

1.  Financial assets that are SPPI (excluding those held for trading or managed on a fair value basis) are predominantly AAA debt instruments. Their carrying value at 31 December 2021 is £2,320m (2020: £1,378m). No securities are rated below BBB (2020: none).

2.  The change in fair value in the year to 31 December 2021 for financial assets that are SPPI (excluding those held for trading or managed on a fair value basis) is a gain of £136m (2020: £129m). The change in fair value for all other financial assets is a gain of £45m (2020: gain of £23m).

Virgin Money UTM

Other joint ventures carrying value of £6m (2020: £1m) includes £6m (2020: £1m) for Virgin Money UTM.

No impairment of the Group's interest in Virgin Money UTM was recognised in 2021. In 2020, an impairment loss of £45m was recognised at 30 June 2020 in the Asset management, platforms and wealth segment and was included in loss on impairment of interests in joint ventures in the consolidated income statement. Virgin Money UTM's recoverable amount at 30 June 2020 was £nil which was its VIU and which was calculated using a pre-tax discount rate of 14.9%.The impairment resulted from a reduction in projected future revenues as a result of a business plan reassessment by the joint venture which took into account the fall in UK equity markets due to COVID-19, and an increase in projected costs to develop a new retail customer proposition.

(d)          Investments in associates measured at FVTPL

The aggregate fair value of associates accounted for at FVTPL included in equity securities and interests in pooled investment funds (refer Note 18) at 31 December 2021 is £63m (2020: £54m) none of which are considered individually material to the Group.

16.       Property, plant and equipment

Property, plant and equipment consists primarily of property owned and occupied by the Group and the computer equipment used to carry out the Group's business along with right-of-use assets for leased property and equipment.

Owner occupied property: Owner occupied property is initially recognised at cost and subsequently revalued to fair value at each reporting date. Depreciation, being the difference between the carrying amount and the residual value of each significant part of a building, is charged to the consolidated income statement over its useful life. The useful life of each significant part of a building is estimated as being between 30 and 50 years. A revaluation surplus is recognised in other comprehensive income unless it reverses a revaluation deficit which has been recognised in the consolidated income statement.

Equipment: Equipment is initially recognised at cost and subsequently measured at cost less depreciation. Depreciation is charged to the income statement over 2 to 15 years depending on the length of time the Group expects to derive benefit from the asset.

Right-of-use asset: Refer Note 17 below for the accounting policies for right-of-use assets.

 

		Owner occupied property	Equipment	Right-of-use assets - property	Right-of-use assets - equipment	Total
		£m	£m	£m	£m	£m
Cost or valuation
At 1 January 2020		2	125	404	2	533
Reclassified as held for sale during the year		-	(4)	(7)	-	(11)
Additions		-	13	16	1	30
Disposals and adjustments1		-	(26)	(38)	-	(64)
Derecognition of right-of-use assets relating to subleases classified as finance leases		-	-	(5)	-	(5)
At 31 December 2020		2	108	370	3	483
Additions		-	12	4	-	16
Disposals and adjustments1		-	(16)	(44)	-	(60)
Derecognition of right-of-use assets relating to subleases classified as finance leases		-	-	(6)	-	(6)
Foreign exchange adjustment		-	-	(2)	-	(2)
At 31 December 2021		2	104	322	3	431
Accumulated depreciation and impairment
At 1 January 2020		-	(59)	(207)	(1)	(267)
Reclassified as held for sale during the year		-	2	2	-	4
Depreciation charge for the year2		-	(19)	(26)	(1)	(46)
Disposals and adjustments1		(1)	27	36	-	62
Derecognition of right-of-use assets relating to subleases classified as finance leases		-	-	3	-	3
Impairment3		-	-	(2)	-	(2)
Foreign exchange adjustment		-	-	(1)	-	(1)
At 31 December 2020		(1)	(49)	(195)	(2)	(247)
Depreciation charge for the year2		-	(18)	(21)	-	(39)
Disposals and adjustments1		-	13	42	-	55
Derecognition of right-of-use assets relating to subleases classified as finance leases		-	-	1	-	1
Impairment3		-	-	(15)	-	(15)
Foreign exchange adjustment		-	-	1	-	1
At 31 December 2021		(1)	(54)	(187)	(2)	(244)
Carrying amount
At 1 January 2020		2	66	197	1	266
At 31 December 2020		1	59	175	1	236
At 31 December 2021		1	50	135	1	187

1.  For the year ended 31 December 2021 £8m (2020: £26m) of disposals and adjustments relates to equipment with net book value of £nil which is no longer in use.

2.  Included in other administrative expenses.

3.  Included in restructuring and corporate transaction expenses.

Included in property right-of-use assets, are right-of-use assets that meet the definition of investment property. Their carrying amount at 31 December 2021 is £21m (2020: £25m). This is made up a gross carrying value of £81m (2020: £47m) and accumulated depreciation and impairment of £60m (2020: £22m). During the year to 31 December 2021 there were transfers to investment property of £19m (2020: £5m), depreciation of (£2m) (2020: (£2m)), derecognition related to new subleases classified as finance leases of (£6m) (2020: (£2m)), impairments of (£15m) (2020: (£2m)) related to these assets. There were no disposals and adjustments (2020: (£2m)) related to these assets. Rental income received and direct operating expenses incurred to generate that rental income in the year to 31 December 2021 were £2m (2020: £3m) and £3m (2020: £2m) respectively. In addition, there were direct expenses of £1m (2020: £1m) in relation to investment properties not currently generating income. 

The transfers to investment property in 2021 of £19m relate to right-of-use assets that are no longer being used operationally by the Group. The right-of-use assets were assessed for impairment at the point of transfer. The recoverable amount which was based on value in use was £4m using a pre-tax discount rate of 3%. The right-of-use assets related to the Investment segment (£6m impairment) and Corporate/strategic (£9m impairment).

The fair value of these right-of-use assets at 31 December 2021 is £21m (2020: £25m). The valuation technique used to determine the fair value considers the rental income expected to be received under subleases during the term of the lease and the direct expenses expected to be incurred in managing the leased property, discounted using a discount rate that reflects the risks inherent in the cash flow estimates. It is not based on valuations by an independent valuer. This is a Level 3 valuation technique as defined in Note 39.

If owner occupied property was measured using the cost model, the historical cost before impairment would be £1m (2020: £1m). As the expected residual value of owner occupied property is in line with the current fair value, no depreciation is currently charged.

Further details on the leases under which the Group's right-of-use assets are recognised are provided in Note 17 below.

17.       Leases

A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. At inception of a contract, the Group assesses whether a contract is, or contains, a lease. In 2019, on adoption of IFRS 16 the Group used the practical expedient permitted to apply the new standard at transition solely to leases previously identified in accordance with IAS 17 and IFRIC 4 Determining whether an Arrangement Contains a Lease.

Right-of-use assets are measured at cost less accumulated depreciation and impairment losses and are presented in property, plant and equipment (refer Note 16). The Group does not revalue its right-of-use assets. This applies to all right-of-use assets, including those that are assessed as meeting the definition of investment property. The cost comprises the amount of the initial measurement of the lease liability plus any initial direct costs and expected restoration costs not relating to wear and tear. Costs relating to wear and tear are expensed over the term of the lease. Depreciation is charged on right-of-use assets on a straight -line basis from the lease commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term. The Group assesses right-of-use assets for impairment when such indicators exist, and where required, reduces the value of the right-of-use asset accordingly.

The related lease liability (included in other financial liabilities - refer Note 35) is calculated as the present value of the future lease payments. The lease payments are discounted using the rate implicit within the lease where readily available or the Group's incremental borrowing rate where the implicit rate is not readily available. Interest is calculated on the liability using the discount rate and is charged to the consolidated income statement under finance costs.

In determining the value of the right-of-use assets and lease liabilities, the Group considers whether any leases contain lease extensions or termination options that the Group is reasonably certain to exercise.

Where a leased property has been sublet, the Group assesses whether the sublease has transferred substantially all the risk and rewards of the right-of-use asset to the lessee under the sublease. Where this is the case, the right-of-use asset is derecognised and a net investment in finance leases (included in Receivables and other financial assets - refer Note 20) is recognised, calculated as the present value of the future lease payments receivable under the sublease. Where a property is only partially sublet, only the portion of the right-of-use asset relating to the sublet part of the property is derecognised and recognised as a net investment in finance leases.

Any difference between the initial value of the net investment in finance leases and the right-of-use asset derecognised is recognised in the consolidated income statement (within other income or expenses). Interest is calculated on the net investment in finance lease using the discount rate and is recognised in the consolidated income statement as interest income.

Where the sublease does not transfer substantially all the risk and rewards of the right-of-use assets to the lessee under the sublease, the Group continues to recognise the right-of-use asset. The sublease is accounted for as an operating lease with the lease payments received recognised as property rental income in other income in the consolidated income statement. Lease incentives granted are recognised as an integral part of the property rental income and are spread over the term of the lease.

The Group does not recognise right-of-use assets and lease liabilities for short-term leases (less than one year from inception) and leases where the underlying asset is of low value.

(a)          Leases where the Group is lessee

The Group leases various offices and equipment used to carry out its business. Leases are generally for fixed periods but may be subject to extensions or early termination clauses. The remaining periods for current leases range from less than 1 year to 17 years (2020: less than 1 year to 18 years). A number of leases which are due to end in 2031 contain options that would allow the Group to extend the lease term. The Group reviews its property use on an ongoing basis and these extensions have not been included in the right-of-use asset or lease liability calculations.

The Group has recognised the following assets and liabilities in relation to these leases where the Group is a lessee:

	2021	2020
	£m	£m
Right-of-use assets:
Property	135	175
Equipment	1	1
Total right-of-use assets	136	176
Lease liabilities	(225)	(249)

The following table provides a maturity analysis of the contractual undiscounted cash flows for the lease liabilities.

	2021	2020
	£m	£m
Less than 1 year	28	30
Greater than or equal to 1 year and less than 2 years	28	30
Greater than or equal to 2 years and less than 3 years	24	28
Greater than or equal to 3 years and less than 4 years	23	24
Greater than or equal to 4 years and less than 5 years	21	22
Greater than or equal to 5 years and less than 10 years	93	98
Greater than or equal to 10 years and less than 15 years	33	44
Greater than or equal to 15 years	7	10
Total undiscounted lease liabilities	257	286

Details of the movements in the Group's right-of-use assets including additions and depreciation are included in Note 16.

The interest on lease liabilities for the year ended 31 December 2021 was £6m (2020: £6m).

The Group does not recognise right-of-use assets and lease liabilities for short-term leases and leases where the underlying asset is of low value. The expenses for these leases for the year ended 31 December 2021 were £2m (2020: £3m).The Group lease commitment for short-term leases was £nil at 31 December 2021 (2020: £nil).

The total cash outflow for lease liabilities recognised in the consolidated statement of cash flows for the year ended 31 December 2021 was £33m (2020: £35m).

(b)          Leases where the Group is lessor (subleases)

Where the Group no longer requires a leased property, the property may be sublet to a third party. The sublease may be for the full remaining term of the Group's lease or only part of the remaining term.

At 31 December 2021, the Group had a net investment in finance leases asset of £30m (2020: £18m) for subleases which had transferred substantially all the risk and rewards of the right-of-use assets to the lessee under the sublease. All other subleases are accounted for as operating leases. The increase during the year ended 31 December 2021 was mainly due to four new subleases entered into during the year.

(b)(i)       Finance leases

During the year ended 31 December 2021, the Group received finance income on the net investment in finance leases asset of less than £1m (2020: less than £1m). The Group recorded an initial gain of £8m in relation to new subleases entered into during the year ended 31 December 2021 (2020: £2m).

The following table provides a maturity analysis of the future contractual undiscounted cash flows for the net investment in finance leases and a reconciliation to the net investment in finance leases asset.

	2021	2020
	£m	£m
Less than 1 year	3	3
Greater than or equal to 1 year and less than 2 years	3	2
Greater than or equal to 2 years and less than 3 years	3	2
Greater than or equal to 3 years and less than 4 years	3	2
Greater than or equal to 4 years and less than 5 years	3	2
Greater than or equal to 5 years and less than 10 years	14	9
Greater than or equal to 10 years and less than 15 years	3	-
Total contractual undiscounted cash flows under finance leases	32	20
Unearned finance income	(2)	(2)
Total net investment in finance leases	30	18

(b)(ii)      Operating leases

During the year ended 31 December 2021, the Group received property rental income from operating leases of £2m (2020: £3m).

The following table provides a maturity analysis of the future contractual undiscounted cash flows for subleases classified as operating leases.

	2021	2020
	£m	£m
Less than 1 year	3	2
Greater than or equal to 1 year and less than 2 years	1	2
Greater than or equal to 2 years and less than 3 years	1	1
Greater than or equal to 3 years and less than 4 years	1	-
Total contractual undiscounted cash flows under operating leases	6	5

18.       Financial assets

Financial assets are initially recognised at their fair value. Subsequently all equity securities and interests in pooled investment funds and derivative instruments are measured at fair value. All equity securities and interests in pooled investment funds are classified as FVTPL on a mandatory basis. Changes in their fair value are recognised in Net gains on financial instruments and other income in the consolidated income statement. The classification of derivatives and the accounting treatment of derivatives designated as a hedging instrument are set out in Note 19.

The subsequent measurement of debt instruments depends on whether their cash flows are solely payments of principal and interest and the nature of the business model they are held in as follows:

SPPI1 test satisfied?	Business model	Classification
Yes	A: Objective is to hold to collect contractual cash flows	Amortised cost2
Yes	B: Objective is achieved by both collecting contractual cash flows and selling	Fair value through other comprehensive income (FVOCI)2
Yes	C: Objective is neither A nor B	FVTPL
No	N/A	FVTPL

1.  Solely payments of principal and interest.

2.  May be classified as FVTPL if doing so eliminates or significantly reduces a measurement or recognition inconsistency (sometimes referred to as an 'accounting mismatch') that would otherwise arise from measuring assets or liabilities or recognising the gains and losses on them on different bases.

The Group has no debt instruments that are managed within a business model whose objective is achieved both by collecting contractual cash flows and selling and therefore there are no debt instruments classified as FVOCI. Debt instruments classified as FVTPL are classified as such due to the business model they are managed under, predominantly being held in consolidated investment vehicles.

The methods and assumptions used to determine fair value of financial assets at FVTPL are discussed in Note 39.

Amortised cost is calculated, and related interest is credited to the consolidated income statement, using the effective interest method. Impairment is determined using an expected credit loss impairment model which is applied to all financial assets measured at amortised cost. Financial assets measured at amortised cost attract a loss allowance equal to either:

-   12 month expected credit losses (losses resulting from possible default within the next 12 months).

-   Lifetime expected credit losses (losses resulting from possible defaults over the remaining life of the financial asset).

Financial assets attract a 12 month ECL allowance unless the asset has suffered a significant deterioration in credit quality or the simplified approach for calculation of ECL has been applied. As permitted under IFRS 9 Financial Instruments, the Group has applied the simplified approach to calculate the ECL allowance for trade receivables and contract assets recognised under IFRS 15 Revenue from Contracts with Customers and lease receivables recognised under IFRS 16 Leases. Under the simplified approach the ECL is calculated over the remaining life of the asset.

The table below sets out an analysis of financial assets excluding those assets backing unit linked liabilities which are set out in Note 24.

		At fair value through profit or loss1		Cash flow hedge		At amortised cost		Total
		2021	2020	2021	2020	2021	2020	2021	2020
	Notes	£m	£m	£m	£m	£m	£m	£m	£m
Derivative financial assets	19	6	18	8	-	-	-	14	18
Equity securities and interests in pooled investment funds	39	3,115	1,980	-	-	-	-	3,115	1,980
Debt securities	39	961	787	-	-	226	325	1,187	1,112
Financial investments		4,082	2,785	8	-	226	325	4,316	3,110
Receivables and other financial assets	20	31	28	-	-	649	593	680	621
Cash and cash equivalents	23	-	-	-	-	1,904	1,519	1,904	1,519
Total		4,113	2,813	8	-	2,779	2,437	6,900	5,250

1.  All financial assets measured at fair value through profit or loss have been classified at FVTPL on a mandatory basis. The Group has not designated any financial assets as FVTPL.

The amount of debt securities expected to be recovered or settled after more than 12 months is £63m (2020: £231m). Due to the nature of equity securities and interests in pooled investment funds, there is no fixed term associated with these securities. The amount of equity securities and interests in pooled investment funds expected to be recovered or settled after more than 12 months is £1,947m (2020: £1,297m).

19.       Derivative financial instruments

A derivative is a financial instrument that is typically used to manage risk and whose value moves in response to an underlying variable such as interest or foreign exchange rates. The Group uses derivative financial instruments in order to match subordinated debt liabilities and to reduce the risk from potential movements in foreign exchange rates on seed capital and co-investments and potential movements in market rates on seed capital. Certain consolidated investment vehicles may also use derivatives to take and alter market exposure, with the objective of enhancing performance and controlling risk.

Management determines the classification of derivatives at initial recognition. All derivative instruments are classified as at FVTPL except those designated as part of a cash flow hedge or net investment hedge. Derivatives at FVTPL are measured at fair value with changes in fair value recognised in the consolidated income statement.

On adoption of IFRS 9 Financial instruments in 2019, the Group has elected to continue applying the hedge accounting requirements of IAS 39. The accounting treatment below applies to derivatives designated as part of a hedging relationship.

Using derivatives to manage a particular exposure is referred to as hedging. For a derivative to be considered as part of a hedging relationship its purpose must be formally documented at inception. In addition, the effectiveness of the hedge must be initially high and be able to be reliably measured on a regular basis. Derivatives used to hedge variability in future cash flows such as coupons payable on subordinated liabilities or revenue receivable in a foreign currency are designated as cash flow hedges, while derivatives used to hedge currency risk on investments in foreign operations are designated as net investment hedges.

Where a derivative qualifies as a cash flow or net investment hedge, hedge accounting is applied. The effective part of any gain or loss resulting from the change in fair value is recognised in other comprehensive income, and in the cash flow or net investment hedge reserve in equity, while any ineffective part is recognised immediately in the consolidated income statement. If a derivative ceases to meet the relevant hedging criteria, hedge accounting is discontinued.

For cash flow hedges, the amount recognised in the cash flow hedge reserve is transferred to the consolidated income statement (recycled) in the same period or periods during which the hedged item affects profit or loss and is transferred immediately if the cash flow is no longer expected to occur. For net investment hedges, the amount recognised in the net investment hedge reserve is transferred to the consolidated income statement on disposal of the investment.

		2021			2020
		Contract amount	Fair value assets	Fair value liabilities	Contract amount	Fair value assets	Fair value liabilities
	Notes	£m	£m	£m	£m	£m	£m
Cash flow hedges	18,31	554	8	-	549	-	6
FVTPL	18,31	889	6	5	687	18	7
Derivative financial instruments	39	1,443	14	5	1,236	18	13
Derivative financial instruments backing unit linked liabilities	24	399	7	3	463	6	9
Total derivative financial instruments		1,842	21	8	1,699	24	22

Derivative assets of £8m (2020: £nil) are expected to be recovered after more than 12 months. Derivative liabilities of £nil (2020: £5m) are expected to be settled after more than 12 months.

(a)          Hedging strategy

The Group generally does not hedge the currency exposure relating to revenue and expenditure, nor does it hedge translation of overseas profits in the income statement. Where appropriate, the Group may use derivative contracts to reduce or eliminate currency risk arising from individual transactions or seed capital and co-investment activity.

(a)(i)       Cash flow hedges

On 18 October 2017, the Group issued subordinated notes with a principal amount of US$750m. In order to manage its foreign exchange risk relating to the principal and coupons payable on these notes the Group entered into a cross-currency swap which is designated as a cash flow hedge. The cash flow hedge was fully effective during the year. The cross-currency swap has the effect of swapping the 4.25% US Dollar fixed rate subordinated notes into 3.2% Sterling fixed rate subordinated notes with a principal amount of £569m. The cross-currency swap has a fair value asset position of £8m (2020: £6m liability). During the year ended 31 December 2021 fair value gains of £19m (2020: losses of £3m) were recognised in other comprehensive income in relation to the cross-currency swap. Gains of £5m (2020: losses of £19m) were transferred from other comprehensive income to Net gains on financial instruments and other income in the consolidated income statement in relation to the cross-currency swap during the year. In addition, forward points of £6m (2020: £6m) and losses of £1m (2020: less than £1m) were transferred from other comprehensive income to Finance costs in the consolidated income statement.

(a)(ii)      FVTPL

Derivative financial instruments classified as FVTPL include those that the Group holds as economic hedges of financial instruments that are measured at fair value. FVTPL derivative financial instruments are also held by the Group to match contractual liabilities that are measured at fair value or to achieve efficient portfolio management in respect of instruments measured at fair value.

	2021			2020
	Contract amount	Fair value assets	Fair value liabilities	Contract amount	Fair value assets	Fair value liabilities
	£m	£m	£m	£m	£m	£m
Equity derivatives:
Futures	336	3	4	100	1	9
Variance swaps	6	6	-	6	6	-
Interest rate derivatives:
Swaps	11	-	-	52	-	4
Futures	40	-	-	34	-	-
Foreign exchange derivatives:
Forwards	806	4	3	859	15	2
Other derivatives:
Inflation rate swaps	-	-	-	18	2	-
Credit default swaps	89	-	1	81	-	1
Derivative financial instruments at FVTPL	1,288	13	8	1,150	24	16

(b)          Maturity profile

The maturity profile of the contractual undiscounted cash flows in relation to derivative financial instruments is as follows:

	Within 1 year		1-5 years		5-10 years		10-15 years		15-20 years		Greater than 20 years		Total
	2021	2020	2021	2020	2021	2020	2021	2020	2021	2020	2021	2020	2021	2020
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
Cash inflows
Derivative financial assets	66	367	94	-	589	-	-	-	-	-	-	-	749	367
Derivative financial liabilities	13	183	-	93	-	607	-	-	-	-	-	-	13	883
Total	79	550	94	93	589	607	-	-	-	-	-	-	762	1,250
Cash outflows
Derivative financial assets	(60)	(360)	(73)	-	(596)	-	-	-	-	-	-	-	(729)	(360)
Derivative financial liabilities	(13)	(187)	-	(73)	-	(614)	-	-	-	-	-	-	(13)	(874)
Total	(73)	(547)	(73)	(73)	(596)	(614)	-	-	-	-	-	-	(742)	(1,234)
Net derivative financial instruments cash inflows	6	3	21	20	(7)	(7)	-	-	-	-	-	-	20	16

Included in the above maturity profile are the following cash flows in relation to cash flow hedge assets:

	Within 1 year		1-5 years		5-10 years		10-15 years		15-20 years		Greater than 20 years		Total
	2021	2020	2021	2020	2021	2020	2021	2020	2021	2020	2021	2020	2021	2020
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
Cash inflows	24	23	94	93	589	607	-	-	-	-	-	-	707	723
Cash outflows	(18)	(18)	(73)	(73)	(596)	(614)	-	-	-	-	-	-	(687)	(705)
Net cash flow hedge cash inflows	6	5	21	20	(7)	(7)	-	-	-	-	-	-	20	18

Cash inflows and outflows are presented on a net basis where the Group is required to settle cash flows net.

20.       Receivables and other financial assets

		2021	2020
	Notes	£m	£m
Amounts receivable from contracts with customers	3(d)	135	115
Accrued income		263	227
Cancellations of units awaiting settlement		113	126
Net investment in finance leases		30	18
Collateral pledged in respect of derivative contracts	37	26	28
Contingent consideration asset	39	31	28
Other		82	79
Receivables and other financial assets		680	621

The carrying amounts disclosed above reasonably approximate the fair values as at the year end.

The amount of receivables and other financial assets expected to be recovered after more than 12 months is £35m (2020: £33m).

Accrued income includes £260m (2020: £221m) of accrued income from contracts with customers (refer Note 3(d)).

21.       Other assets

	2021	2020
	£m	£m
Prepayments	100	40
Deferred acquisition costs	3	4
Other	2	2
Other assets	105	46

The amount of other assets expected to be recovered after more than 12 months is £48m (2020: £4m).

Prepayments includes £56m (2020: £nil) relating to the Group's future purchase of certain products in the Phoenix Group's savings business offered through abrdn's Wrap platform together with the Phoenix Group's trustee investment plan business for UK pension scheme clients. Refer Note 1(c)(iii) for further details.

All deferred acquisition costs above are costs deferred on investment contracts (deferred origination costs) which relate to contracts with customers (refer Note 3(d)). The amortisation charge for deferred origination costs relating to contracts with customers from continuing operations for the year was £1m (2020: £2m).

22.                   Assets and liabilities held for sale

Assets and liabilities held for sale are presented separately in the consolidated statement of financial position and consist of operations and individual non-current assets whose carrying amount will be recovered principally through a sale transaction (expected within one year) and not through continuing use.

Operations held for sale, being disposal groups, and investments in associates accounted for using the equity method are measured at the lower of their carrying amount and their fair value less disposal costs. No depreciation or amortisation is charged on assets in a disposal group once it has been classified as held for sale.

Operations held for sale include newly established investment vehicles which the Group has seeded but is actively seeking to divest from. For these investment funds, which do not have significant liabilities or non-financial assets, financial assets continue to be measured based on the accounting policies that applied before they were classified as held for sale. The Group classifies seeded operations as held for sale where the intention is to dispose of the investment vehicle in a single transaction. Where disposal of a seeded investment vehicle will be in more than one tranche the operations are not classified as held for sale in the consolidated statement of financial position.

Certain amounts seeded into funds are classified as interests in pooled investment funds. Investment property and owner occupied property held for sale relates to property for which contracts have been exchanged but the sale had not completed during the current financial year. Interests in pooled investment funds and investment property held for sale continue to be measured based on the accounting policies that applied before they were classified as held for sale.

		2021	2020
		£m	£m
Assets of operations held for sale
Parmenion Capital Partners LLP		-	18
Investment vehicles		-	1
Assets held for sale		-	19
Liabilities of operations held for sale
Parmenion Capital Partners LLP		-	11
Investment vehicles		-	-
Liabilities of operations held for sale		-	11

(a)(i)     Parmenion Capital Partners LLP (Parmenion)

On 30 June 2021, the Group completed the sale of Parmenion. Refer Note 1(c)(i) for further details. Parmenion is reported in the Corporate/strategic segment (formerly part of the Asset management, platforms and wealth segment).

At 31 December 2020, this disposal group was measured at its carrying amount and comprised the following assets and liabilities:

	2020
	£m
Assets of operations held for sale
Intangible assets	2
Property, plant and equipment	7
Receivables and other financial assets	5
Other assets	1
Cash and cash equivalents	3
Total assets of operations held for sale	18
Liabilities of operations held for sale
Other financial liabilities	11
Total liabilities of operations held for sale	11
Net assets of operations held for sale	7

Net assets of operations held for sale were net of intercompany balances between Parmenion and other group entities, the net assets of Parmenion on a gross basis as at 31 December 2020 were £12m.

23.       Cash and cash equivalents

Cash and cash equivalents include cash at bank, money at call and short notice with banks, money market funds and any highly liquid investments with less than three months to maturity from the date of acquisition. For the purposes of the consolidated statement of cash flows, cash and cash equivalents also include bank overdrafts which are included in other financial liabilities on the consolidated statement of financial position.

Where the Group has a legally enforceable right of set off and intention to settle on a net basis, cash and overdrafts are offset in the consolidated statement of financial position.

 

	2021	2020
	£m	£m
Cash at bank and in hand	638	788
Money at call, term deposits, reverse repurchase agreements and debt instruments with less than three months to maturity from acquisition	1,122	615
Money market funds	144	116
Cash and cash equivalents	1,904	1,519

 

		2021	2020
	Notes	£m	£m
Cash and cash equivalents		1,904	1,519
Cash and cash equivalents backing unit linked liabilities	24	33	38
Cash and cash equivalents classified as held for sale	22	-	3
Bank overdrafts	35	(62)	(202)
Total cash and cash equivalents for consolidated statement of cash flows		1,875	1,358

Cash at bank, money at call and short notice and deposits are subject to variable interest rates.

Included in cash and cash equivalents and bank overdrafts are £82m (2020: £230m) and £62m (2020: £202m) respectively relating to balances within a cash pooling facility in support of which cross guarantees are provided by certain subsidiary undertakings and interest is paid or received on the net balance.

Cash and cash equivalents in respect of unit linked funds (including third party interests in consolidated funds) are held in separate bank accounts and are not available for general use by the Group.

24.       Unit linked liabilities and assets backing unit linked liabilities

The Group operates unit linked life assurance businesses through a number of subsidiaries. These subsidiaries provide investment products through a life assurance wrapper. These products do not contain any features which transfer significant insurance risk and therefore are classified as investment contracts. Unit linked non-participating investment contracts are separated into two components being an investment management services component and a financial liability. All fees and related administrative expenses are deemed to be associated with the investment management services component (refer Note 3). The financial liability component is designated at FVTPL as it is implicitly managed on a fair value basis as its value is directly linked to the market value of the underlying portfolio of assets.

Where the Group is deemed to control an investment vehicle as a result of holdings in that vehicle by subsidiaries to back unit linked non-participating investment contract liabilities, the assets and liabilities of the vehicle are consolidated within the Group's statement of financial position. The liability for third party interest in such consolidated funds is presented as a unit linked liability.

Unit linked liabilities and assets backing unit linked liabilities are presented separately in the consolidated statement of financial position except for those held in operations held for sale, which are presented in assets and liabilities held for sale in the consolidated statement of financial position.

Contributions received on non-participating investment contracts and from third party interest in consolidated funds are treated as deposits and not reported as revenue in the consolidated income statement.

Withdrawals paid out to policyholders on non-participating investment contracts and to third party interest in consolidated funds are treated as a reduction to deposits and not recognised as expenses in the consolidated income statement.

Investment return and related benefits credited in respect of non-participating investment contracts and third party interest in consolidated funds are recognised in the consolidated income statement as changes in investment contract liabilities and changes in liability for third party interest in consolidated funds respectively. Investment returns relating to unit linked business are for the account of policyholders and have an equal and opposite effect on income and expenses in the consolidated income statement with no impact on profit after tax.

Assets backing unit linked liabilities comprise financial investments, which are all classified as FVTPL on a mandatory basis, and receivables and other financial assets and cash and cash equivalents which are measured at amortised cost.

(a)          Result for the year attributable to unit linked business

		2021	2020
	Notes	£m	£m
Net gains on financial instruments and other income	4	7	9
Other administrative expense	5	(3)	(5)
Profit before tax		4	4
Tax expense attributable to unit linked business	9	(4)	(4)
Profit after tax		-	-

(b)          Financial instrument risk management

The shareholder is not directly exposed to market risk or credit risk in relation to the financial assets backing unit linked liabilities. The shareholder's exposure to market risk on these assets is limited to variations in the value of future fee based revenue as fees are based on a percentage of fund value.

The shareholder is exposed to liquidity risk relating to unit linked funds. For the unit linked business, liquidity risk is primarily managed by holding a range of diversified instruments which are assessed against cash flow and funding requirements. A core portfolio of assets is maintained and invested in accordance with the mandates of the relevant unit linked funds. Given that unit linked policyholders can usually choose to surrender, in part or in full, their unit linked contracts at any time, the non-participating investment contract unit linked liabilities are designated as payable within one year. Such surrenders would be matched in practice, if necessary, by sales of underlying assets. Policyholder behaviour and the trading position of asset classes are actively monitored. The Group can delay settling liabilities to unit linked policyholders to ensure fairness between those remaining in the fund and those leaving the fund. The length of any such delay is dependent on the underlying financial assets.

(c)          Fair value measurement of unit linked financial liabilities and financial assets backing unit linked liabilities

Each of the unit linked financial liabilities and the financial assets backing unit linked liabilities has been categorised below using the fair value hierarchy as defined in Note 39. Refer Note 39 for details of valuation techniques used.

	Level 1		Level 2		Level 3		Not at fair value		Classified as held for sale		Total
	2021	2020	2021	2020	2021	2020	2021	2020	2021	2020	2021	2020
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
Financial investments	974	832	455	545	1	18	-	-	-	-	1,430	1,395
Receivables and other financial assets	-	-	-	-	-	-	7	7	-	-	7	7
Cash and cash equivalents	-	-	-	-	-	-	33	38	-	-	33	38
Total financial assets backing unit linked liabilities	974	832	455	545	1	18	40	45	-	-	1,470	1,440
Investment contract liabilities	-	-	1,087	1,024	1	18	-	-	-	-	1,088	1,042
Third party interest in consolidated funds	-	-	378	388	-	-	-	-	-	-	378	388
Other unit linked financial liabilities	1	7	2	2	-	-	1	1	-	-	4	10
Total unit linked financial liabilities	1	7	1,467	1,414	1	18	1	1	-	-	1,470	1,440

In addition to financial assets backing unit linked liabilities and unit linked financial liabilities shown above there is a current tax asset of £1m (2020: £1m) included in unit linked assets and a current tax liability of £1m (2020: £1m) included in unit linked liabilities.

The financial investments backing unit linked liabilities comprise equity securities and interests in pooled investment funds of £1,232m (2020: £1,244m), debt securities of £191m (2020: £145m) and derivative financial assets of £7m (2020: £6m).

The fair value of financial instruments not held at fair value approximates to their carrying value at 31 December 2021 and 31 December 2020.

There were no significant transfers from level 1 to level 2 during the year ended 31 December 2021 (2020: £309m). There were also no significant transfers from level 2 to level 1 during the year ended 31 December 2021 (2020: £nil). Transfers from level 1 to level 2 for the year ended 31 December 2020 primarily related to interests in pooled investment vehicles which are priced daily but where the daily price is only offered by the fund manager. As disclosed in the prior year, the Group now considers these investments to be level 2. All other transfers relate to assets where changes in the frequency of observable market transactions resulted in a change in whether the market was considered active. Transfers are deemed to have occurred at the end of the calendar quarter in which they arose.

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

	Equity securities and interests in pooled investment funds		Investment contract liabilities
	31 Dec 2021	31 Dec 2020	31 Dec 2021	31 Dec 2020
	£m	£m	£m	£m
At start of period	18	-	(18)	-
Total gains/(losses) recognised in the consolidated income statement	-	(2)	-	2
Purchases	1	-	(1)	-
Sales	(18)	(1)	18	1
Transfers in to level 31	-	21	-	(21)
At end of period	1	18	(1)	(18)

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

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

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

(d)          Change in non-participating investment contract liabilities

The change in non-participating investment contract liabilities was as follows:

	2021	2020
	£m	£m
At 1 January	1,042	1,152
Contributions	119	83
Account balances paid on surrender and other terminations in the year	(195)	(249)
Change in non-participating investment contract liabilities recognised in the consolidated income statement1	124	58
Recurring management charges	(2)	(2)
At 31 December	1,088	1,042

1.  Change in non-participating investment contract liabilities recognised in the consolidated income statement in the table above excludes £nil (2020: (£2m)) in relation to non-participating investment contract liabilities classified as held for sale.

(e)          Derivatives

The treatment of collateral accepted and pledged in respect of financial instruments and the Group's approach to offsetting financial assets and liabilities is described in Note 37. The following table presents the impact of master netting agreements and similar arrangements for derivatives backing unit linked liabilities.

			Related amounts not offset on the consolidated statement of financial position
	Gross amounts of financial instruments as presented on the consolidated statement of financial position		Financial instruments		Financial collateral pledged/(received)		Net position
	2021	2020	2021	2020	2021	2020	2021	2020
	£m	£m	£m	£m	£m	£m	£m	£m
Financial assets
Derivatives1	4	5	(1)	-	-	-	3	5
Total financial assets	4	5	(1)	-	-	-	3	5
Financial liabilities
Derivatives1	(2)	(2)	1	-	-	-	(1)	(2)
Total financial liabilities	(2)	(2)	1	-	-	-	(1)	(2)

1.  Only OTC derivatives subject to master netting agreements have been included above.

25.       Issued share capital and share premium

Shares are classified as equity instruments when there is no contractual obligation to deliver cash or other assets to another entity on terms that may be unfavourable. The Company's share capital consists of the number of ordinary shares in issue multiplied by their nominal value. The difference between the proceeds received on issue of the shares and the nominal value of the shares issued is recorded in share premium.

The movement in the issued ordinary share capital and share premium of the Company was:

	2021			2020
	Ordinary share capital		Share premium	Ordinary share capital		Share premium
Issued shares fully paid	13 61/63p each	£m	£m	13 61/63p each	£m	£m
At 1 January	2,194,115,616	306	640	2,338,723,724	327	640
Shares issued in respect of share incentive plans	2,032	-	-	2,188	-	-
Share buyback	(13,392,862)	(1)	-	(144,610,296)	(21)	-
At 31 December	2,180,724,786	305	640	2,194,115,616	306	640

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

On 7 February 2020, the Company announced a share buyback of up to £400m through on-market purchases which commenced on 10 February 2020 and was completed on 12 February 2021. During the year ended 31 December 2021, the Company bought back and cancelled 13,392,862 shares (2020: 144,610,296 shares). The total consideration was £41m (2020: £362m) which includes transaction costs and any unsettled purchases of shares already transacted. At 31 December 2021, there were no unsettled purchases of shares (2020: 507,757 shares).

The share buyback has resulted in a reduction in retained earnings of £nil (2020: £402m). At 31 December 2020, there was an irrevocable contractual obligation with a third party to purchase the Company's own shares of £40m. This obligation was recognised as a part of the share buyback reduction to retained earnings of £402m for the year ended 31 December 2020, with a corresponding liability of £40m included within other financial liabilities at 31 December 2020. At 31 December 2021, there were no irrevocable contractual obligations with a third party to purchase the Company's own shares.

An amount of £1m (2020: £21m) has been credited to the capital redemption reserve relating to the nominal value of the shares cancelled.

The Company can issue shares to satisfy awards granted under employee incentive plans which have been approved by shareholders. Details of the Group's employee plans are provided in Note 43.

26.       Shares held by trusts

Shares held by trusts relates to shares in abrdn plc that are held by the Standard Life Aberdeen Employee Benefit Trust (SLA EBT), Standard Life Employee Trust (ET) and the Aberdeen Asset Management Employee Benefit Trust 2003 (AAM EBT).

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

The number of shares held by trusts was as follows:

				2021	2020
Number of shares held by trusts
Standard Life Aberdeen Employee Benefit Trust				39,630,532	37,667,681
Standard Life Employee Trust				22,688,815	23,773,359
Aberdeen Asset Management Employee Benefit Trust 2003				2,647,359	6,294,765

27.       Retained earnings

The following table shows movements in retained earnings during the year. The 2020 movements are aggregated for both continuing and discontinued operations.

		2021	2020
	Notes	£m	£m
At 1 January		4,970	2,886
Recognised in comprehensive income
Recognised in profit for the year attributable to equity holders		994	833
Recognised in other comprehensive income
Remeasurement gains on defined benefit pension plans	33	117	280
Share of other comprehensive income of associates and joint ventures		(1)	-
Equity holder tax effect of items that will not be reclassified subsequently to profit or loss	9	3	2
Total items recognised in comprehensive income		1,113	1,115
Recognised directly in equity
Dividends paid on ordinary shares		(308)	(479)
Other movements in non-controlling interests in the year	29	6	-
Reclassification of preference shares to liability	29,32	-	(1)
Shares buyback	25	-	(402)
Transfer between reserves on impairment of subsidiaries	28	-	1,834
Transfer for vested employee share-based payments		36	38
Shares distributed by employee and other trusts		(42)	(21)
Total items recognised directly in equity		(308)	969
At 31 December		5,775	4,970

 

28.       Movements in other reserves

In July 2006 Standard Life Group demutualised and during this process the merger reserve, the reserve arising on Group reconstruction and the special reserve were created.

Merger reserve: the merger reserve consists of two components. Firstly at demutualisation in July 2006 the Company issued shares to former members of the mutual company. The difference between the nominal value of these shares and their issue value was recognised in the merger reserve. The reserve includes components attaching to each subsidiary that was transferred to the Company at demutualisation based on their fair value at that date. Secondly following the completion of the merger of Standard Life plc and AAM PLC on 14 August 2017, an additional amount was recognised in the merger reserve representing the difference between the nominal value of shares issued to shareholders of AAM PLC and their fair value at that date. On disposal or impairment of a subsidiary any related component of the merger reserve is released to retained earnings.

Reserve arising on Group reconstruction: The value of the shares issued at demutualisation was equal to the fair value of the business at that date. The business's assets and liabilities were recognised at their book value at the time of demutualisation. The difference between the book value of the business's net assets and its fair value was recognised in the reserve arising on Group reconstruction. The reserve comprises components attaching to each subsidiary that was transferred to the Company at demutualisation. On disposal of such a subsidiary any related component of the reserve arising on Group reconstruction is released to retained earnings.

Special reserve: Immediately following demutualisation and the related initial public offering, the Company reduced its share premium reserve by court order giving rise to the special reserve. Dividends can be paid out of this reserve.

Capital redemption reserve: In August 2018, as part of the return of capital and share buyback (refer Note 25) the capital redemption reserve was created.

The following tables show the movements in other reserves during the year.

		Cash flow hedges	Foreign currency translation	Merger reserve	Equity compensation reserve	Special reserve	Reserve arising on Group reconstruction	Capital redemption reserve	Total
	Notes	£m	£m	£m	£m	£m	£m	£m	£m
1 January 2021		12	1	483	80	115	(685)	1,058	1,064
Recognised in other comprehensive income
Fair value gains on cash flow hedges		19	-	-	-	-	-	-	19
Exchange differences on translating foreign operations		-	(2)	-	-	-	-	-	(2)
Items transferred to profit or loss from continuing operations		(10)	18	-	-	-	-	-	8
Aggregate tax effect of items recognised in other comprehensive income		(3)	-	-	-	-	-	-	(3)
Total items recognised in other comprehensive income		6	16	-	-	-	-	-	22
Recognised directly in equity
Share buyback	25	-	-	-	-	-	-	1	1
Reserves credit for employee share-based payments		-	-	-	43	-	-	-	43
Transfer to retained earnings for vested employee share-based payments		-	-	-	(36)	-	-	-	(36)
Total items recognised directly within equity		-	-	-	7	-	-	1	8
At 31 December 2021		18	17	483	87	115	(685)	1,059	1,094

The merger reserve includes £470m (2020: £470m) in relation to the Group's asset management businesses. There were no movements in the merger reserve in the year ended 31 December 2021. During the year ended 31 December 2020, £1,834m was transferred from the merger reserve to retained earnings following an impairment of the Company's investments in its asset management subsidiaries (refer Section 8).

		Cash flow hedges	Foreign currency translation	Merger reserve	Equity compensation reserve	Special reserve	Reserve arising on Group reconstruction	Capital redemption reserve	Total
	Notes	£m	£m	£m	£m	£m	£m	£m	£m
1 January 2020		4	3	2,317	54	115	(685)	1,037	2,845
Recognised in other comprehensive income
Fair value losses on cash flow hedges		(3)	-	-	-	-	-	-	(3)
Exchange differences on translating foreign operations		-	(8)	-	-	-	-	-	(8)
Items transferred to profit or loss from continuing operations		13	6	-	-	-	-	-	19
Aggregate tax effect of items recognised in other comprehensive income		(2)	-	-	-	-	-	-	(2)
Total items recognised in other comprehensive income		8	(2)	-	-	-	-	-	6
Recognised directly in equity
Share buyback	25	-	-	-	-	-	-	21	21
Reserves credit for employee share-based payments		-	-	-	64	-	-	-	64
Transfer to retained earnings for vested employee share-based payments		-	-	-	(38)	-	-	-	(38)
Transfer between reserves on impairment of subsidiaries		-	-	(1,834)	-	-	-	-	(1,834)
Total items recognised directly within equity		-	-	(1,834)	26	-	-	21	(1,787)
At 31 December 2020		12	1	483	80	115	(685)	1,058	1,064

 

29.       Other equity and non-controlling interests

Perpetual subordinated notes issued by abrdn plc are classified as other equity where no contractual obligation to deliver cash exists. Non-controlling interests included preference shares issued by AAM PLC.

(a)          Other equity - perpetual subordinated notes

5.25% Fixed Rate Reset Perpetual Subordinated Contingent Convertible Notes

On 13 December 2021, the Company issued £210m of 5.25% Fixed Rate Reset Perpetual Subordinated Contingent Convertible Notes (the "Notes"). The Notes are classified as other equity and have been initially recognised at £207m (the proceeds received less issuance costs of £3m).

The Notes initially bear interest on their principal amount at 5.25% per annum payable semi-annually in arrears on 13 June and 13 December in each year. The interest rate is subject to reset on 13 June 2027 and then every 5 years thereafter. The payments of interest are discretionary and non-cumulative. The interest paid is recognised as profit attributable to other equity when paid.

The Notes have no fixed redemption date. The Company has the option to redeem the Notes (in full) between 13 December 2026 and 13 June 2027 and on each interest reset date thereafter. The Notes are convertible to ordinary shares in abrdn plc at a conversion price of £1.6275 (subject to adjustment in accordance with the terms and conditions of the Notes) if the Group IFPR CET1 Ratio falls below 70%. The IFPR CET1 ratio at 31 December 2021 was 774%.

 (b)         Non-controlling interests - ordinary shares

Non-controlling interests - ordinary shares of £6m were held at 31 December 2021 (2020: £3m). The profit for the year attributable to non-controlling interests - ordinary shares was £1m (2020: less than £1m).

(c)          Non-controlling interests - preference shares

Until 4 June 2020, the Group recognised preference shares issued by AAM PLC as non-controlling interests. On 4 June 2020, AAM PLC notified the holders of the redeemable preference shares of its irrevocable intention to redeem the preference shares. Following notification the preference shares were reclassified as subordinated liabilities as an obligation to deliver cash was created. Refer Note 32.

The profit attributable to these non-controlling interests from continuing operations for the year ended 31 December 2020 was £5m. Preference share dividends were discretionary and where declared, were paid in arrears in two tranches at a rate of 5% per annum and were non-cumulative. No interest accrued on any cancelled or unpaid dividends. During the year ended 31 December 2020 preference share dividends of £5m were paid including £2m paid as part of the redemption of the preference shares on 8 July 2020. Refer Note 32.

30.       Insurance contracts, investment contracts and reinsurance contracts

Insurance contracts, participating investment contracts and reinsurance contracts related to SL Asia which was sold on 30 June 2020 (refer Note 1(c)(ii)).

SL Asia held non-participating insurance and investment contracts. A contract is classified as an insurance contract only if it transfers significant insurance risk. Insurance risk is significant if an insured event could cause an insurer to pay significant additional benefits to those payable if no insured event occurred, excluding scenarios that lack commercial substance. Life and pensions business contracts that are not classified as insurance contracts are classified as investment contracts.

SL Asia's insurance and investment contracts did not contain any discretionary participating features so were classified as non-participating.

SL Asia's non-participating investment contracts were unit linked and details of the accounting policies for these contracts are given in Note 24. The accounting policies for SL Asia's non-participating insurance contracts are given below.

(a)(i) Premiums, claims and change in insurance contract liabilities

Premiums received on insurance contracts are recognised as revenue in the consolidated income statement when due for payment except for unit linked premiums which are accounted for when the corresponding liabilities are recognised. For single premium business, this is the date from which the policy is effective. For regular (and recurring) premium contracts, receivables are established at the date when payments are due.

Claims paid on insurance contracts are recognised as expenses in the consolidated income statement. Maturity claims and annuities are accounted for when due for payment. Surrenders are accounted for when paid or, if earlier, on the date when the policy ceases to be included within the calculation of the insurance liability. Death claims and all other claims are accounted for when notified. Claims payable include the direct costs of settlement. Reinsurance recoveries are accounted for in the same period as the related claim.

The change in insurance and participating investment contract liabilities, comprising the full movement in the corresponding liabilities during the period, is recognised in the consolidated income statement.

(a)(ii) Measurement - non-participating insurance contract liabilities

The Group's policy for measuring liabilities for non-participating insurance contracts issued by overseas subsidiaries is to apply the valuation technique used in the issuing entity's local statutory or regulatory reporting.

The Group applies a liability adequacy test at each reporting date to ensure that the insurance contract liabilities (less related deferred acquisition costs) are adequate in the light of the estimated future cash flows. This test is performed by comparing the carrying value of the liability and the discounted projections of future cash flows. If a deficiency is found in the liability (i.e. the carrying value amount of its insurance liabilities is less than the future expected cash flows), that deficiency is provided for in full. The deficiency is recognised in the consolidated income statement.

(a)(iii) Measurement - reinsurance contracts

Reinsurance contracts are measured using valuation techniques and assumptions that are consistent with the valuation techniques and assumptions used in measuring the underlying policy benefits and taking into account the terms of the reinsurance contract.

 

(a)          Insurance contract premium income

		2021	2020
		£m	£m
Gross earned premium		-	32
Premium ceded to reinsurers		-	(1)
Insurance contract premium income from continuing operations		-	31

(b)          Insurance contract claims and change in liabilities

		2021	2020
		£m	£m
Claims and benefits paid		-	28
Claim recoveries from reinsurers		-	-
Net insurance claims		-	28
Change in reinsurance assets and liabilities		-	(3)
Change in insurance contract liabilities		-	(8)
Insurance contract claims and change in liabilities from continuing operations		-	17