REG - abrdn PLC - Half-year Report - Part 2 of 3
09/08/2022 07:00
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RNS Number : 3267V abrdn PLC 09 August 2022
abrdn plc
Half year results 2022
Part 2 of 3
9 August 2022
2. Statement of Directors' responsibilities
Each of the Directors, whose names and functions are listed on the abrdn plc
website, www.abrdn.com, confirms to the best of his or her knowledge and
belief that:
· The condensed consolidated income statement, the condensed
consolidated statement of comprehensive income, the condensed consolidated
statement of financial position, the condensed consolidated statement of
changes in equity and the condensed consolidated statement of cash flows and
associated notes, have been prepared in accordance with IAS 34 Interim
Financial Reporting as adopted for use in the UK.
· The interim management report includes a fair review of the
information required by:
· DTR 4.2.7R of the FCA's Disclosure Guidance and Transparency
Rules Sourcebook, being an indication of important events that have occurred
during the first six months of the financial year and their impact on the
condensed consolidated financial information and a description of the
principal risks and uncertainties for the remaining six months of the year.
· DTR 4.2.8R of the FCA's Disclosure Guidance and Transparency
Rules Sourcebook, being related party transactions that have taken place in
the first six months of the current financial year and that have materially
affected the financial position or performance of the entity during that
period; and any changes in the related party transactions described in the
last annual report that could do so.
· As per principle N of the UK Corporate Governance Code, the Half year
results 2022 taken as a whole, present a fair, balanced and understandable
assessment of the Company's position and prospects.
The Directors are responsible for the maintenance and integrity of the
corporate and financial information included on the Company's website.
Legislation in the UK governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
Changes to Directors during the period
As announced on 1 March 2022, Martin Pike and Jutta af Rosenborg retired from
the Board at the conclusion of the AGM on 18 May, and Pam Kaur and Mike
O'Brien were appointed to the Board on 1 June 2022.
By order of the Board
Sir Douglas Flint Stephanie Bruce
Chairman Chief Financial Officer
8 August 2022 8 August 2022
3. Independent review report to abrdn plc
Conclusion
We have been engaged by the company to review the condensed set of financial
statements in the Half year results for the six months ended 30 June 2022
which comprises the condensed consolidated income statement, condensed
consolidated statement of comprehensive income, condensed consolidated
statement of financial position, condensed consolidated statement of changes
in equity, condensed consolidated statement of cash flows and the related
explanatory notes.
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the Half year
results for the six months ended 30 June 2022 is not prepared, in all material
respects, in accordance with IAS 34 Interim Financial Reporting as adopted for
use in the UK and the Disclosure Guidance and Transparency Rules ('the DTR')
of the UK's Financial Conduct Authority ('the UK FCA').
Basis for conclusion
We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410 Review of Interim Financial Information Performed by the
Independent Auditor of the Entity ('ISRE (UK) 2410') issued for use in the UK.
A review of interim financial information consists of making enquiries,
primarily of persons responsible for financial and accounting matters, and
applying analytical and other review procedures. We read the other information
contained in the Half year results and consider whether it contains any
apparent misstatements or material inconsistencies with the information in the
condensed set of financial statements.
A review is substantially less in scope than an audit conducted in accordance
with International Standards on Auditing (UK) and consequently does not enable
us to obtain assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not express an audit
opinion.
Conclusions relating to going concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis of conclusion section of this report,
nothing has come to our attention that causes us to believe that the directors
have inappropriately adopted the going concern basis of accounting, or that
the directors have identified material uncertainties relating to going concern
that have not been appropriately disclosed.
This conclusion is based on the review procedures performed in accordance with
ISRE (UK) 2410. However, future events or conditions may cause the group to
cease to continue as a going concern, and the above conclusions are not a
guarantee that the group will continue in operation.
Directors' responsibilities
The Half year results is the responsibility of, and has been approved by, the
directors. The directors are responsible for preparing the Half year results
in accordance with the DTR of the UK FCA.
The annual financial statements of the group are prepared in accordance with
UK-adopted international accounting standards.
The directors are responsible for preparing the condensed set of financial
statements included in the Half year results in accordance with IAS 34 as
adopted for use in the UK.
In preparing the condensed set of financial statements, the directors are
responsible for assessing the group'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 the directors either intend to
liquidate the group or to cease operations, or have no realistic alternative
but to do so.
Our responsibility
Our responsibility is to express to the company a conclusion on the condensed
set of financial statements in the Half year results based on our review. Our
conclusion, including our conclusions relating to going concern, are based on
procedures that are less extensive than audit procedures, as described in the
Basis for conclusion section of this report.
The purpose of our review work and to whom we owe our responsibilities
This report is made solely to the company in accordance with the terms of our
engagement to assist the company in meeting the requirements of the DTR of the
UK FCA. Our review has been undertaken so that we might state to the company
those matters we are required to state to it in this report and for no other
purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the company for our review work, for this
report, or for the conclusions we have reached.
Richard Faulkner
for and on behalf of KPMG LLP
Chartered Accountants
Saltire Court
20 Castle Terrace
Edinburgh
EH1 2EG
8 August 2022
4. Financial Information
Condensed consolidated income statement
For the six months ended 30 June 2022
6 months 6 months Full Year
2022 2021(1) 2021
Notes £m £m £m
Revenue from contracts with customers 4.4(a) 731 853 1,685
Cost of sales 4.4(b) (35) (76) (142)
Net operating revenue 696 777 1,543
Restructuring and corporate transaction expenses 4.6 (88) (113) (259)
Amortisation and impairment of intangibles acquired in business combinations 4.6 (52) (51) (99)
and through the purchase of customer contracts
Staff costs and other employee-related costs 4.6 (266) (305) (604)
Other administrative expenses 4.6 (300) (290) (594)
Total administrative and other expenses (706) (759) (1,556)
Net gains or losses on financial instruments and other income
Fair value movements and dividend income on significant listed investments 4.5 (271) (37) (227)
Other net gains or losses on financial instruments and other income 4.5 (27) 28 44
Total net gains or losses on financial instruments and other income (298) (9) (183)
Finance costs (15) (15) (30)
Profit on disposal of subsidiaries and other operations 4.2(b) - 84 127
Profit on disposal of interests in associates 4.2(b) 6 68 1,236
Loss on impairment of interests in associates 4.12 (9) - -
Share of profit or loss from associates and joint ventures 4.12 6 (33) (22)
(Loss)/profit before tax (320) 113 1,115
Tax credit/(expense) 4.7 31 (11) (120)
(Loss)/profit for the period (289) 102 995
Attributable to:
Equity shareholders of abrdn plc (296) 102 994
Other equity holders 6 - -
Non-controlling interests - ordinary shares 1 - 1
(289) 102 995
Earnings per share
Basic (pence per share) 4.8 (13.9) 4.8 46.8
Diluted (pence per share) 4.8 (13.9) 4.7 46.0
1. The Group made changes to the presentation of the consolidated income
statement in the Annual report and accounts for the year ended 31 December
2021. The comparatives for the six months ended 30 June 2021 have been
re-presented on the same basis. Refer Section 4.1(a)(ii) of the Basis of
preparation for further details.
The Notes on pages 24 to 49 are an integral part of this condensed
consolidated financial information.
Condensed consolidated statement of comprehensive income
For the six months ended 30 June 2022
6 months 6 months Full Year
2022 2021 2021
Notes £m £m £m
(Loss)/profit for the period (289) 102 995
Items that will not be reclassified subsequently to profit or loss:
Remeasurement (losses)/gains on defined benefit pension plans 4.14 (386) (33) 117
Share of other comprehensive income of associates and joint ventures 4.12 - 12 12
Equity holder tax effect of items that will not be reclassified subsequently 4.7 - 4 3
to profit or loss
Total items that will not be reclassified subsequently to profit or loss (386) (17) 132
Items that may be reclassified subsequently to profit or loss:
Fair value gains/(losses) on cash flow hedges 61 (2) 19
Exchange differences on translating foreign operations 37 (25) (2)
Share of other comprehensive income of associates and joint ventures 4.12 (7) (8) (4)
Items transferred to the condensed consolidated income statement
Fair value (gains)/losses on cash flow hedges (68) 3 (10)
Realised foreign exchange losses 4.2(b) - 1 18
Share of other comprehensive income of associates and joint ventures 4.12 - (9) (9)
Equity holder tax effect of items that may be reclassified subsequently to 4.7 2 (1) (3)
profit or loss
Total items that may be reclassified subsequently to profit or loss 25 (41) 9
Other comprehensive income for the period (361) (58) 141
Total comprehensive income for the period (650) 44 1,136
Attributable to:
Equity shareholders of abrdn plc (657) 44 1,135
Other equity holders 6 - -
Non-controlling interests - ordinary shares 1 - 1
(650) 44 1,136
The Notes on pages 24 to 49 are an integral part of this condensed
consolidated financial information.
Condensed consolidated statement of financial position
As at 30 June 2022
6 months 6 months Full Year
2022 2021 2021
Notes £m £m £m
Assets
Intangible assets 4.11 2,116 674 704
Pension and other post-retirement benefit assets 4.14 1,221 1,454 1,607
Investments in associates and joint ventures accounted for using the equity 4.12 282 381 274
method
Property, plant and equipment 193 208 187
Deferred tax assets 184 146 168
Financial investments 4.15 2,940 3,152 4,316
Receivables and other financial assets 1,237 1,521 680
Current tax recoverable 2 8 2
Other assets 115 134 105
Cash and cash equivalents 1,433 1,341 1,904
9,723 9,019 9,947
Assets backing unit linked liabilities 4.15
Financial investments 1,114 1,396 1,430
Receivables and other unit linked assets 17 13 8
Cash and cash equivalents 25 32 33
1,156 1,441 1,471
Total assets 10,879 10,460 11,418
Liabilities
Third party interest in consolidated funds 4.15 130 101 104
Subordinated liabilities 707 632 644
Pension and other post-retirement benefit provisions 4.14 17 51 38
Deferred income 6 10 5
Deferred tax liabilities 248 83 165
Current tax liabilities 21 22 27
Derivative financial liabilities 4.15 17 15 5
Other financial liabilities 1,507 1,341 1,046
Provisions 52 63 49
Other liabilities 11 8 8
2,716 2,326 2,091
Unit linked liabilities 4.15
Investment contract liabilities 890 1,034 1,088
Third party interest in consolidated funds 256 399 378
Other unit linked liabilities 10 8 5
1,156 1,441 1,471
Total liabilities 3,872 3,767 3,562
Equity
Share capital 4.13(a) 305 305 305
Shares held by trusts 4.13(b) (152) (173) (171)
Share premium reserve 4.13(a) 640 640 640
Retained earnings 4,906 4,877 5,775
Other reserves 1,094 1,041 1,094
Equity attributable to equity shareholders of abrdn plc 6,793 6,690 7,643
Other equity 207 - 207
Non-controlling interests - ordinary shares 7 3 6
Total equity 7,007 6,693 7,856
Total equity and liabilities 10,879 10,460 11,418
The Notes on pages 24 to 49 are an integral part of this condensed
consolidated financial information.
Condensed consolidated statement of changes in equity
For the six months ended 30 June 2022
Share capital Shares held by trusts Share premium reserve Retained earnings(1) Other reserves(1) Total equity attributable Other equity Non-controlling interests - ordinary shares Total equity
to equity
shareholders of abrdn plc
Notes £m £m £m £m £m £m £m £m £m
1 January 2022 305 (171) 640 5,775 1,094 7,643 207 6 7,856
(Loss)/profit for the period - - - (296) - (296) 6 1 (289)
Other comprehensive income for the period - - - (393) 32 (361) - - (361)
Total comprehensive income for the period - - - (689) 32 (657) 6 1 (650)
Issue of share capital 4.13(a) - - - - - - - - -
Dividends paid on ordinary shares 4.10 - - - (154) - (154) - - (154)
Interest paid on other equity - - - - - - (6) - (6)
Reserves credit for employee share-based payments - - - - 11 11 - - 11
Transfer to retained earnings for vested employee share-based payments - - - 60 (60) - - - -
Shares acquired by employee trusts - (41) - - - (41) - - (41)
Shares distributed by employee and other trusts and related dividend - 60 - (62) - (2) - - (2)
equivalents
Other movements - - - (23) 17 (6) - - (6)
Aggregate tax effect of items recognised directly in equity - - - (1) - (1) - - (1)
30 June 2022 305 (152) 640 4,906 1,094 6,793 207 7 7,007
1. Other movements includes the transfer of (£17m) previously recognised in
the foreign currency translation reserve (which is part of Other reserves) to
Retained earnings. In prior periods we considered that the functional currency
of an intermediate subsidiary which holds the Group's investment in HDFC Life
was US Dollars. We now consider that the functional currency should have been
GBP, resulting in the current period transfer between reserves. Prior periods
have not been restated as the impact on prior periods is not considered
material. There is no impact on net assets for any period presented.
Share capital Shares held by trusts Share premium reserve Retained earnings Other reserves Total equity attributable Non-controlling interests - ordinary shares Total equity
to equity
shareholders of abrdn plc
Notes £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 period - - - 102 - 102 - 102
Other comprehensive income for the period - - - (34) (24) (58) - (58)
Total comprehensive income for the period - - - 68 (24) 44 - 44
Issue of share capital 4.13(a) - - - - - - - -
Dividends paid on ordinary shares 4.10 - - - (154) - (154) - (154)
Share buyback (1) - - - 1 - - -
Other movements in non-controlling interests in the period - - - 5 - 5 - 5
Reserves credit for employee share-based payments - - - - 24 24 - 24
Transfer to retained earnings for vested employee share-based payments - - - 24 (24) - - -
Shares acquired by employee trusts - (37) - - - (37) - (37)
Shares distributed by employee and other trusts and related dividend - 34 - (37) - (3) - (3)
equivalents
Aggregate tax effect of items recognised directly in equity - - - 1 - 1 - 1
30 June 2021 305 (173) 640 4,877 1,041 6,690 3 6,693
Share capital Shares held by trusts Share premium reserve Retained earnings Other reserves Total equity attributable Other equity Non-controlling interests - ordinary shares Total equity
to equity
shareholders of abrdn plc
Notes £m £m £m £m £m £m £m £m £m
1 January 2021 306 (170) 640 4,970 1,064 6,810 - 3 6,813
Profit for the year - - - 994 - 994 - 1 995
Other comprehensive income for the year - - - 119 22 141 - - 141
Total comprehensive income for the year - - - 1,113 22 1,135 - 1 1,136
Issue of share capital 4.13(a) - - - - - - - - -
Issue of other equity - - - - - - 207 - 207
Dividends paid on ordinary shares 4.10 - - - (308) - (308) - - (308)
Share buyback (1) - - - 1 - - - -
Other movements in non-controlling interests in the year - - - 6 - 6 - 2 8
Reserves credit for employee share-based payments - - - - 43 43 - - 43
Transfer to retained earnings for vested employee share-based payments - - - 36 (36) - - - -
Shares acquired by employee trusts - (41) - - - (41) - - (41)
Shares distributed by employee and other trusts and related dividend - 40 - (42) - (2) - - (2)
equivalents
Aggregate tax effect of items recognised directly in equity - - - - - - - - -
31 December 2021 305 (171) 640 5,775 1,094 7,643 207 6 7,856
The Notes on pages 24 to 49 are an integral part of this condensed
consolidated financial information.
Condensed consolidated statement of cash flows
For the six months ended 30 June 2022
6 months 6 months Full Year
2022 2021 2021
Notes £m £m £m
Cash flows from operating activities
(Loss)/profit before tax (320) 113 1,115
Change in operating assets 581 (184) 214
Change in operating liabilities (272) (46) (209)
Adjustment for non-cash movements in investment income (7) 5 -
Other non-cash and non-operating items 92 (2) (1,099)
Dividends received from associates and joint ventures - - 15
Taxation paid(1) (18) (14) (22)
Net cash flows from operating activities 56 (128) 14
Cash flows from investing activities
Purchase of property, plant and equipment (12) (4) (12)
Proceeds from sale of property, plant and equipment - 3 -
Acquisition of subsidiaries and unincorporated businesses net of cash acquired (1,378) (61) (145)
Disposal of subsidiaries net of cash disposed of - 81 112
Acquisition of investments in associates and joint ventures (2) (7) (11)
Proceeds in relation to contingent consideration(2) - 54 54
Payments in relation to contingent consideration (4) (26) (28)
Disposal of investments in associates and joint ventures 6 - 304
Taxation paid on disposal of investments in associates and joint ventures(1) - - (33)
Purchase of financial investments (90) (58) (368)
Proceeds from sale or redemption of financial investments 1,151 321 938
Prepayment in respect of potential acquisition of customer contracts 4.2(b)(iii) 5 (60) (56)
Acquisition of intangible assets (1) - -
Net cash flows from investing activities (325) 243 755
Cash flows from financing activities
Proceeds from issue of perpetual subordinated notes - - 208
Payment of lease liabilities - principal (15) (12) (27)
Payment of lease liabilities - interest (3) (3) (6)
Shares acquired by trusts (41) (37) (41)
Interest paid on subordinated liabilities and other equity (21) (14) (28)
Share buyback - (40) (41)
Ordinary dividends paid 4.10 (154) (154) (308)
Net cash flows from financing activities (234) (260) (243)
Net increase in cash and cash equivalents (503) (145) 526
Cash and cash equivalents at the beginning of the period 1,875 1,358 1,358
Effects of exchange rate changes on cash and cash equivalents 23 (11) (9)
Cash and cash equivalents at the end of the period(3) 1,395 1,202 1,875
Supplemental disclosures on cash flows from operating activities
Interest paid 1 1 1
Interest received 16 10 22
Dividends received 61 54 122
Rental income received on investment property 2 2 2
1. Total taxation paid for the six months ended 30 June 2022 was £18m (six
months ended 30 June 2021: £14m, 12 months ended 31 December 2021: £55m).
2. Proceeds in relation to contingent consideration for the six months ended
30 June 2021 and 12 months ended 31 December 2021 included £34m in relation
to discontinued operations (six months ended 30 June 2022: £nil).
3. Comprises £1,458m (30 June 2021: £1,373m; 31 December 2021: £1,937m) of
cash and cash equivalents, including cash and cash equivalents backing unit
linked liabilities and (£63m) (30 June 2021: (£171m); 31 December 2021:
(£62m)) of overdrafts which are reported in other financial liabilities in
the condensed consolidated statement of financial position.
The Notes on pages 24 to 49 are an integral part of this condensed
consolidated financial information.
Notes to the condensed consolidated financial statements
4.1 Presentation of the condensed consolidated financial statements
(a) Basis of preparation
The condensed consolidated half year financial information has been prepared
in accordance with IAS 34 Interim Financial Reporting as adopted for use in
the UK and the Disclosure Guidance and Transparency Rules of the UK's
Financial Conduct Authority.
The accounting policies for recognition, measurement, consolidation and
presentation as set out in the Annual report and accounts for the year ended
31 December 2021 have been applied in the preparation of the condensed
consolidated half year financial information except as noted below.
(a)(i) New standards, interpretations and amendments to existing standards that have been adopted by the Group
The Group has adopted the following new International Financial Reporting
Standards (IFRSs), interpretations and amendments to existing standards, which
are effective for annual periods beginning on or after 1 April 2021 and 1
January 2022.
Amendments to existing standards
· Covid-19-Related Rent Concessions beyond 30 June 2021 - Amendment to
IFRS 16.
· Reference to the Conceptual Framework - Amendments to IFRS 3.
· Property, Plant and Equipment: Proceeds before Intended Use -
Amendments to IAS 16.
· Onerous Contracts - Costs of Fulfilling a Contract - Amendments to IAS
37.
· Annual Improvements 2018-2020 cycle.
The Group's accounting policies have been updated to reflect these amendments.
Management considers the implementation of the above amendments to have no
significant impact on the Group's financial statements.
(a)(ii) Income statement presentational change
The presentation of the Group's consolidated income statement was revised in
the Annual report and accounts for the year ended 31 December 2021 following a
review of the financial statements. The reason for the change was to make the
financial statements more relevant to users as the revised presentation of the
consolidated income statement is now more consistent with asset management
peers. The change included a revised presentation of the unit linked business
returns which we consider makes the results easier to understand. The
comparatives for the six months ended 30 June 2021 have been re-presented on
the same basis.
The table below sets out the impact of adopting the revised income statement
format on the comparatives for the six months ended 30 June 2021:
H1 2021 as previously presented Presentation changes H1 2021 revised format
£m £m £m Notes
Income
Investment return 71 (71) - b
Revenue from contracts with customers 853 - 853
Cost of sales - (76) (76) a
Net operating revenue 777 a
Insurance contract premium income - - - b
Profit on disposal of interests in associates 68 (68) - e
Other income 92 (92) - b
Total income 1,084
Expenses
Insurance contracts claims and change in liabilities - - - b
Change in non-participating investment contract liabilities (66) 66 - b
Administrative and other expenses
Restructuring and corporate transaction expenses (106) (7) (113) d
Amortisation and impairment of intangibles acquired in business combinations - (51) (51) c
and through the purchase of customer contracts
Staff costs and other employee-related costs - (305) (305) c
Other administrative expenses (729) 439 (290) c
Total administrative and other expenses (835) (759)
Net gains or losses on financial instruments and other income
Fair value movements and dividend income on significant listed investments - (37) (37) b
Other net gains or losses on financial instruments and other income - 28 28 b
Total net gains or losses on financial instruments and other income - (9) (9) b
Change in liability for third party interest in consolidated funds (22) 22 - b
Finance costs (15) - (15)
Total expenses (938)
Profit on disposal of subsidiaries and other operations - 84 84 f
Profit on disposal of interests in associates - 68 68 e
Share of profit or loss from associates and joint ventures (33) - (33)
Profit before tax 113 113
Note a: A new income statement line Net operating revenue is presented (six
months ended 30 June 2021: £777m). 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 or losses on financial
instruments and other income is also presented (six months ended 30 June 2021:
(£9m)). 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 4.5 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 or losses on financial instruments and other income on the
face of the condensed consolidated income statement.
The table below reconciles Net gains or losses on financial instruments and
other income to previous line items:
30 June 2021 £m
Income items previously disclosed on the face of the condensed consolidated
income statement
Investment return 71
Insurance contract premium income -
Other income 92
Total income items previously disclosed on the face of the condensed 163
consolidated income statement
Expense items previously disclosed on the face of the condensed consolidated
income statement
Insurance contract claims and change in liabilities -
Change in non-participating investment contract liabilities (66)
Change in liability for third party interest in consolidated funds (22)
Total expense items previously disclosed on the face of the condensed (88)
consolidated income statement
Total net gains or losses on financial instruments and other income before 75
reclassifications
Less: Other income now separately disclosed as Profit on disposal of (84)
subsidiaries and other operations
Total net gains or losses on financial instruments and other income after (9)
reclassifications
Split as:
Fair value movements and dividend income on significant listed investments (37)
Net gains or losses on financial instruments and other income - non-unit 24
linked business - excluding significant listed investments
Net gains or losses on financial instruments and other income - unit linked 4
business
Total other net gains or losses on financial instruments and other income 28
Total net gains or losses on financial instruments and other income (9)
The expense items included in the table above relate to unit linked business.
We consider that offsetting the net gains or losses on unit linked financial
assets (included in investment return in the table above) and the net gains or
losses on unit linked financial liabilities (included in change in
non-participating investment contract liabilities in the table above) on the
face of the condensed 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.
Profit on disposal of subsidiaries and other operations is now shown
separately due to materiality.
Note c: Presentational changes have also been made to Administrative and other
expenses. The following table reconciles Other administrative expenses as
previously presented at 30 June 2021 to the re-presented 30 June 2021 Other
administrative expenses.
30 June 2021 £m
Other administrative expenses as previously presented 729
Less:
Cost of sales now included in net operating revenue (see Note a above) (76)
Staff costs and other employee-related costs now presented separately in the (305)
condensed consolidated income statement
Amortisation and impairment of intangibles acquired in business combinations (51)
and through the purchase of customer contracts now presented separately in the
condensed consolidated income statement
Other administrative expenses reclassified to restructuring and corporate (7)
transaction expenses (see Note d below)
Re-presented other administrative expenses 290
Note d: Restructuring and corporate transaction expenses was already
separately presented but, as shown above, we have reclassified £7m of other
administrative expenses for the six months ended 30 June 2021 to restructuring
and corporate transaction expenses:
30 June 2021 £m
Restructuring and corporate transaction expenses as previously presented 106
Add: Impairment of internally developed software and right-of-use assets as a 7
result of restructuring
Re-presented restructuring and corporate transaction expenses 113
This additional element of restructuring costs was disclosed in Note 4.7 of
the 30 June 2021 Group condensed consolidated financial statements, but has
now been included on the face of the condensed consolidated income statement.
Note e: The Profit on disposal of interests in associates line item (six
months ended 30 June 2021: £68m) 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 interests in associates 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 (six months ended 30 June 2021: £84m) which was previously
included in Other income is now separately disclosed on the face of the
condensed consolidated income statement.
(b) Going concern
The Group's business activities, together with the factors likely to affect
its future development, performance and financial position, are set out in the
Management report and in the Annual report and accounts 2021 Strategic report.
This includes details on our liquidity and capital positions and our principal
risks, including the impacts of the macroeconomic environment and rising
inflation, the Ukraine conflict and COVID-19 on these principal risks.
In preparing these half year results on a going concern basis, the Directors
have considered the following matters and have taken into account market
uncertainty.
· The Group has cash and liquid resources of £1.7bn at 30 June 2022.
In addition the Company has a revolving credit facility of £400m as part of
our contingency funding plans which is due to mature in 2025 and remains
undrawn.
· The Group's indicative regulatory capital surplus on an IFPR basis
was £0.6bn in excess of capital requirements at
30 June 2022. The regulatory capital surplus does not include the value of the
Group's significant listed investments HDFC Asset Management, HDFC Life and
Phoenix.
· The Group performs regular stress and scenario analysis as described
in the Annual report and accounts 2021 Viability statement. The diverse range
of management actions available meant the Group was able to withstand these
extreme stresses.
· The Group's operational resilience processes have operated
effectively during the period including the provision of services by key
outsource providers.
Based on a review of the above factors the Directors are satisfied that the
Group and Company have and will maintain sufficient resources to enable them
to continue operating for at least 12 months from the date of approval of the
condensed consolidated 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.
(c) Condensed consolidated half year financial information
This condensed consolidated half year financial information does not comprise
statutory accounts within the meaning of Section 434 of the Companies Act
2006. Additionally, the comparative figures for the financial year ended 31
December 2021 are not the Company's statutory accounts for that financial
year. The statutory accounts have been reported on by the Company's auditor
and delivered to the Registrar of Companies. The report of the auditor was (i)
unqualified, (ii) did not include a reference to any matters to which the
auditor drew attention by way of emphasis without qualifying their report, and
(iii) did not contain a statement under Section 498 (2) or (3) of the
Companies Act 2006. The condensed consolidated half year financial information
has been reviewed, not audited.
4.2 Acquisitions and disposals
(a) Acquisitions
(a)(i) Current period acquisitions of subsidiaries
Interactive Investor (ii)
On 27 May 2022, abrdn plc purchased 100% of the issued share capital of Antler
Holdco Limited (Antler), the parent company for the interactive investor group
of companies. ii is the no.1 UK subscription-based trading platform and the
no.2 UK direct investing platform, by assets under administration. The cash
outflow at the completion of the acquisition was £1,496m, which comprised
consideration of £1,485m and payments made by abrdn to fund the settlement of
ii transaction liabilities as part of the transaction of £11m. The
acquisition of ii provides abrdn with direct entry to the high-growth
digitally enabled direct investing market, accessing new customer segments and
capabilities. This will allow abrdn customers to choose from a wide spectrum
of wealth services, spanning self-directed investing through to high-touch
financial advice, depending on their specific needs over their financial life.
At the acquisition date the consideration, net assets acquired and resulting
goodwill were as follows:
27 May 2022 £m
Cash consideration(1,2) 1,485
Fair value of net assets acquired
Intangible assets
Customer relationships 421
Brand 16
Technology and other intangibles 32
Property, plant and equipment 8
Deferred tax assets 5
Receivables and other financial assets(3) 411
Other assets 7
Cash and cash equivalents 107
Total assets 1,007
Other financial liabilities (400)
Provisions (1)
Deferred tax liabilities (114)
Total liabilities (515)
Goodwill 993
1. Cash consideration includes £61m paid by abrdn to redeem discount notes
issued by Antler as part of the acquisition transaction. Not included in the
cash consideration is £11m of payments made by abrdn to fund the settlement
of ii transaction liabilities. These liabilities are included within other
financial liabilities of ii at the acquisition date. This £11m cash outflow,
together with the cash consideration, is included in Acquisition of
subsidiaries and unincorporated businesses net of cash acquired in the
consolidated statement of cash flows.
2. Cash consideration includes £10m paid to Richard Wilson the CEO of ii
which is subject to a Reinvestment Agreement. Under the Reinvestment Agreement
Mr Wilson was required to invest at least £5m in abrdn shares and at least a
further £3m in abrdn shares or funds managed by the abrdn group. The
Reinvestment Agreement contains restrictions on the sale of abrdn shares and
fund units acquired which fall away in three equal tranches over a three-year
period following completion.
3. The estimated contractual cash flow not expected to be collected is not
material and therefore the gross contractual amounts receivable is materially
in line with the fair value.
The customer relationships intangible asset relates to ii's customer base at
the date of acquisition. The key assumptions in measuring the fair value of
this intangible asset at acquisition date were as follows:
· Revenue per customer growth - comprises expected growth in account
fees, treasury income and trading transactions revenue from ii business plans.
Treasury income is the interest earned on cash balances less the interest paid
to customers and was assumed to grow in line with assets under administration.
Market interest rates were assumed to remain at or above 1%.
· Customer attrition - customer attrition represents the expected rate
of existing customers leaving ii. This assumption was primarily based on
historical attrition rates and was assumed to remain constant over time.
· Operating margin - this assumption was based on the current operating
margins adjusted for marketing costs which are not attributable to the
servicing of existing customers. Expected future operating margins are
adjusted to take into account that increased treasury income does not result
in higher costs.
· Discount rate - this assumption was based on a market participant
weighted average cost of capital.
The above assumptions, and in particular the customer attrition assumption,
were also used to determine the 15-year useful economic life at the
acquisition date. The reducing balance method of amortisation is considered
appropriate for this intangible, consistent with the attrition rate being
constant over time.
The technology intangible asset relates to ii's internally generated
technology which has been valued based on the replacement cost method. The
brand intangible asset relates to the interactive investor brand and has been
valued based on applying an assumed royalty rate to revenue forecasts.
The goodwill arising on acquisition of ii is mainly attributable to expected
future cash flows from new customers, the quality and experience of the ii
executive team and employees, and revenue synergies in our Investments and
Personal segments. The goodwill is not expected to be deductible for tax
purposes.
The revenue from contracts with customers and profit contributed to the
Group's condensed consolidated income statement for the six months ended 30
June 2022 from the acquired ii business were £13m and £3m respectively. The
profit contributed excludes amortisation of intangible assets acquired through
business combinations. If the acquisition had occurred on 1 January 2022, the
Group's total revenue from contracts with customers for the period would have
increased by £65m to £796m and the loss would have increased by £4m to
£293m. This increase in the loss includes increased amortisation of
intangible assets acquired through business combinations (net of deferred tax)
of £24m.
As part of the transaction, abrdn plc has also agreed the following retention
incentive schemes which are not recognised as part of the business
combination:
· A retention scheme for senior ii executives. These are awards over
abrdn plc shares with a vesting period of up to 3 years and are subject to
pre-determined performance metrics. The value of abrdn plc shares subject to
these awards was c£25m at date of grant. The awards are accounted for as post
completion share based payments and spread over the relevant vesting periods
and will be recognised in Restructuring and corporate transaction expenses in
the condensed consolidated income statement.
· Cash and share incentive retention awards to the wider ii workforce
with vesting periods of up to c3 years. These awards are funded by the
proceeds received by the ii employee benefit trust as part of the transaction.
These are accounted for as post completion share based payments and
remuneration and are spread over the relevant vesting periods and will be
recognised in Restructuring and corporate transaction expenses in the
condensed consolidated income statement.
Corporate transaction deal costs amounted to £27m of which £13m and £14m
were included within Restructuring and corporate transaction expenses in the 6
months ended 30 June 2022 and 12 months ended 31 December 2021 respectively (6
months ended 30 June 2021: £nil).
(a)(ii) Prior period acquisitions of subsidiaries
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 is recognised in the Group's total equity in relation
to the 40% of the membership interests in Tritax subject to the put and call
options. A contingent consideration financial liability is recognised at fair
value in relation to the earn-out payments (under the put and call options)
and the expected non-discretionary allocation of profit payments to the
holders of the 40% membership interests up to the date of the exercise of the
options. Refer Note 4.15(b)(iv) for further details on the contingent
consideration liability.
In addition, on 29 October 2021, AAM PLC purchased 100% of the issued share
capital of the investing insights platform Finimize.
(b) Disposals
(b)(i) Prior period disposal of subsidiaries and other operations
During 2021, the Group made two material disposals of subsidiaries and other
operations:
· On 30 June 2021, the Group completed the sale of Parmenion Capital
Partners LLP (Parmenion) to Preservation Capital Partners.
· On 30 September 2021, the Group completed the sale of its Bonaccord US
private market business (Bonaccord) to P10 Holdings Inc. (P10).
Other disposals included the sale of the Nordics real estate business to DEAS
Asset Management A/S on 31 May 2021, and the sale of Hark Capital US private
market business to P10 on 30 September 2021.
Profit on disposal of subsidiaries and other operations in prior periods have
been summarised below.
2021
£m
Disposal of Parmenion 73
Other disposals 11
Profit on disposal of subsidiaries and other operations for the six months 84
ended 30 June 2021
Disposal of Bonaccord 39
Other disposals 4
Profit on disposal of subsidiaries and other operations for the 12 months 127
ended 31 December 2021
On disposal, a loss of £1m was recycled from the translation reserve and was
included in determining the profit on disposal of subsidiaries and other
operations for the six months ended 30 June 2021 and the 12 months ended 31
December 2021.
(b)(ii) Current period disposal of associates
Profit on disposal of interests in associates for the six months ended 30 June
2022 of £6m relates to the sale of the Group's interest in Origo Services
Limited in May 2022.
(b)(iii) Prior period disposal and reclassification of associates
Profit on disposal of associates in prior periods have been summarised below.
2021
£m
Reclassification of Phoenix Group Holdings plc (Phoenix) 68
Profit on disposal of interests in associates for the six months ended 30 June 68
2021
Sale of equity shares in HDFC Asset Management and reclassification 1,168
Profit on disposal of interests in associates for the 12 months ended 31 1,236
December 2021
On disposal and reclassification, a loss of £17m was recycled from the
translation reserve and was included in determining the profit on disposal of
interests in associates for the 12 months ended 31 December 2021 (six months
ended 30 June 2021: £nil). In addition, other comprehensive income gains of
£9m were recycled from retained earnings and were included in determining the
profit on disposal of interests in associates for the six months ended 30 June
2021 and the 12 months ended 31 December 2021.
Phoenix
On 23 February 2021, the Group announced details of the simplification and
extension of the strategic partnership between the Group and Phoenix.
Following the changes to the commercial agreements, in particular in relation
to the licencing of the 'Standard Life' brand, our judgement was that Phoenix
should no longer be accounted for as an associate with effect from 23 February
2021. The Group's shareholding in Phoenix, which remained at 14.4%, was
therefore reclassified from an investment in associates accounted for using
the equity method to equity securities and interests in pooled investment
funds measured at fair value.
As part of the agreement, the Group announced the purchase of certain products
in the Phoenix Group's savings business offered through abrdn's Wrap platform,
comprising a self-invested pension plan (SIPP) and an onshore bond product;
together with the Phoenix Group's trustee investment plan (TIP) business for
UK pension scheme clients. The transaction is not expected to complete before
2024 and is subject to regulatory and court approvals. The upfront
consideration paid by the Group in February 2021 was £62.5m, which is offset
in part by payments from Phoenix to the Group relating to profits of the
products prior to completion of the legal transfer. The net amount of
consideration paid is included in prepayments in the condensed consolidated
statement of financial position with cash movements in relation to the
consideration included in prepayment in respect of potential acquisition of
customer contracts in the condensed consolidated statement of cash flows.
HDFC Asset Management
On 29 September 2021, the Group completed a sale of equity shares in HDFC
Asset Management on the National Stock Exchange of India Limited and BSE
Limited. The gain on sale and the gain on reclassification from an associate
to an equity investment can be summarised as follows:
2021
£m
Gain on sale of 10,650,000 equity shares in HDFC Asset Management sold through
a Bulk Sale on 29 September 2021
271
Gain on reclassification of remaining 34,578,305 equity shares in HDFC Asset
Management from an associate to equity investment on 29 September 2021
897
Gains on disposal and reclassification of HDFC Asset Management for the 12 1,168
months ended 31 December 2021
Following the sale, the Group's shareholding in HDFC Asset Management was
34,578,305 equity shares or 16.22% and HDFC Asset Management was therefore no
longer considered to be an associate of the Group. The Group's investment in
HDFC Asset Management was reclassified from an investment in associates
accounted for using the equity method to equity securities and interests in
pooled investment funds measured at fair value.
The Group's shareholdings in Phoenix and HDFC Asset Management are now
considered, along with HDFC Life, as significant listed investments for the
purpose of determining the Group's adjusted profit. Refer Note 4.9(a) for
changes in the Group's significant listed investments in the period ended 30
June 2022.
4.3 Segmental analysis
The Group's reportable segments have been identified in accordance with the
way in which the Group is structured and managed. IFRS 8 Operating Segments
requires that the information presented in the financial statements is based
on information provided to the 'Chief Operating Decision Maker' which for the
Group is the executive leadership team.
(a) Basis of segmentation
(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 2021.
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 comprises Personal Wealth (which combines our financial
planning business abrdn Financial Planning, our digital direct-to-consumer
services and discretionary fund management services provided by abrdn Capital)
and interactive investor following the completion of the acquisition in the
six months ended 30 June 2022. Refer Note 4.2(a)(i) for further details.
In addition to the Group reportable segments above, the analysis of adjusted
profit in Section b(i) below also reports the following:
Corporate/strategic
Corporate/strategic mainly comprises certain corporate costs. The comparative
periods also include a business held for sale (Parmenion, the sale of which
completed on 30 June 2021).
The segments are reported to the level of adjusted operating profit.
(b) Reportable segments - adjusted profit and revenue information
(b)(i) Analysis of adjusted profit
Adjusted operating profit is presented by reportable segment in the table
below.
Investments Adviser Personal Corporate/ Total
strategic
6 months 2022 Notes £m £m £m £m £m
Fee based revenue 546 92 58 - 696
Adjusted operating expenses (470) (54) (51) (6) (581)
Adjusted operating profit 76 38 7 (6) 115
Adjusted net financing costs and investment return (16)
Adjusted profit before tax 99
Tax on adjusted profit (13)
Adjusted profit after tax 86
Adjusted for the following items
Restructuring and corporate transaction expenses 4.6 (88)
Amortisation and impairment of intangible assets acquired in business (52)
combinations and through the purchase of customer contracts
Profit on disposal of interests in associates 4.2(b) 6
Change in fair value of significant listed investments (313)
Dividends from significant listed investments 42
Share of profit or loss from associates and joint ventures(1) 6
Impairment of interests in associates (9)
Other 4.9 (11)
Total adjusting items including results of associates and joint ventures (419)
Tax on adjusting items 44
Profit attributable to other equity holders (6)
Profit attributable to non-controlling interests - ordinary shares (1)
Loss for the period attributable to equity shareholders of abrdn plc (296)
Profit attributable to other equity holders 6
Profit attributable to non-controlling interests - ordinary shares 1
Loss for the period (289)
1. Share of associates' and joint ventures' profit or loss primarily comprises
the Group's share of results of HASL and Virgin Money Unit Trust Managers
(Virgin Money UTM).
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.
Investments Adviser Personal Corporate/ Total
strategic
6 months 2021 Notes £m £m £m £m £m
Fee based revenue 613 87 41 14 755
Adjusted operating expenses (487) (50) (37) (21) (595)
Adjusted operating profit 126 37 4 (7) 160
Adjusted net financing costs and investment return 3
Adjusted profit before tax 163
Tax on adjusted profit (13)
Adjusted profit after tax 150
Adjusted for the following items
Restructuring and corporate transaction expenses 4.6 (113)
Amortisation and impairment of intangible assets acquired in business (51)
combinations and through the purchase of customer contracts
Profit on disposal of subsidiaries and other operations 4.2(b) 84
Profit on disposal of interests in associates 4.2(b) 68
Change in fair value of significant listed investments (72)
Dividends from significant listed investments 35
Share of profit or loss from associates and joint ventures(1) (33)
Other 4.9 32
Total adjusting items including results of associates and joint ventures (50)
Tax on adjusting items 2
Profit for the period 102
1. Share of associates' and joint ventures' profit or loss primarily comprises
the Group's share of results of HASL, Virgin Money Unit Trust Managers (Virgin
Money UTM), HDFC Asset Management and Phoenix (until 22 February 2021).
Investments Adviser Personal Corporate/ Total
strategic
Full Year 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 return -
Adjusted profit before tax 323
Tax on adjusted profit (26)
Adjusted profit after tax 297
Adjusted for the following items
Restructuring and corporate transaction expenses 4.6 (259)
Amortisation and impairment of intangible assets acquired in business (99)
combinations and through the purchase of customer contracts
Profit on disposal of subsidiaries and other operations 4.2(b) 127
Profit on disposal of interests in associates 4.2(b) 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 ventures(1) (22)
Other 4.9 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. Share of associates' and joint ventures' profit or loss primarily comprises
the Group's share of results of HASL, Virgin Money Unit Trust Managers (Virgin
Money UTM), Phoenix (until 22 February 2021) and HDFC Asset Management (until
29 September 2021).
4.4 Net operating revenue
(a) Revenue from contracts with customers
The following table provides a breakdown of total revenue from contracts with
customers.
6 months 6 months Full Year
2022
2021 2021
£m £m £m
Investments
Management fee income - Institutional and Wholesale(1) 463 525 1,043
Management fee income - Insurance(1) 89 97 200
Performance fees and carried interest 12 51 99
Other revenue from contracts with customers 16 34 54
Revenue from contracts with customers for the investments segment 580 707 1,396
Adviser 93 88 180
Personal 58 41 92
Corporate/strategic - Parmenion fund platform fee income - 17 17
Total revenue from contracts with customers 731 853 1,685
1. In addition to revenues earned as a percentage of AUM, management fee
income includes certain other revenues such as registration fees.
(b) Cost of sales
The following table provides a breakdown of total cost of sales.
6 months 6 months Full Year
2022
2021 2021
£m £m £m
Cost of sales
Commission expenses 32 46 87
Other cost of sales 3 30 55
Total cost of sales 35 76 142
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 condensed consolidated income statement to fee
based revenue, as presented in the analysis of adjusted operating profit (see
Note 4.3(b)(i) for each of the Group's reportable segments).
Investments Adviser Personal Corporate/strategic Total
30 Jun 2022 30 Jun 2021 31 Dec 2021 30 Jun 2022 30 Jun 2021 31 Dec 2021 30 Jun 2022 30 Jun 2021 31 Dec 2021 30 Jun 2022 30 Jun 2021 31 Dec 2021 30 Jun 2022 30 Jun 2021 31 Dec 2021
£m £m £m £m £m £m £m £m £m £m £m £m £m £m £m
Revenue from contracts with customers 580 707 1,396 93 88 180 58 41 92 - 17 17 731 853 1,685
Cost of sales (34) (72) (137) (1) (1) (2) - - - - (3) (3) (35) (76) (142)
Net operating revenue 546 635 1,259 92 87 178 58 41 92 - 14 14 696 777 1,543
Other differences - (22) (28) - - - - - - - - - - (22) (28)
Fee based revenue 546 613 1,231 92 87 178 58 41 92 - 14 14 696 755 1,515
Other differences primarily relate to amounts presented in a different line
item of the condensed consolidated income statement and items classified as
adjusting items. There were no other differences for the six months ended 30
June 2022. For the six months ended 30 June 2021 and 12 months ended 31
December 2021, these primarily relate to the net release of deferred income of
£25m following the transfer of workplace pensions marketing staff to Phoenix
in May 2021.
4.5 Net gains or losses on financial instruments and other income
6 months 6 months Full Year
2022
2021(1) 2021
£m £m £m
Fair value movements and dividend income on significant listed investments
Fair value movements on significant listed investments (other than dividend (313) (72) (298)
income)
Dividend income from significant listed investments 42 35 71
Total fair value movements and dividend income on significant listed (271) (37) (227)
investments
Non-unit linked business - excluding significant listed investments
Net gains or losses on financial instruments at fair value through profit or (54) 13 20
loss
Interest and similar income from financial instruments at amortised cost 8 5 10
Foreign exchange losses on financial instruments at amortised cost 10 (2) (1)
Other income 6 8 8
Net gains or losses on financial instruments and other income - non-unit (30) 24 37
linked business - excluding significant listed investments
Unit linked business
Net gains or losses on financial instruments at fair value through profit or
loss
Net gains or losses on financial assets at fair value through profit or loss (156) 92 174
Change in non-participating investment contract financial liabilities 129 (66) (124)
Change in liability for third party interests in consolidated funds 30 (22) (43)
Total net gains or losses on financial instruments at fair value through 3 4 7
profit or loss
Net gains or losses on financial instruments and other income - unit linked 3 4 7
business(2)
Total other net gains or losses on financial instruments and other income (27) 28 44
Total net gains or losses on financial instruments and other income (298) (9) (183)
1. The Group made changes to the presentation of the consolidated income
statement in the Annual report and accounts for the year ended 31 December
2021. The comparatives for the six months ended 30 June 2021 have been
re-presented on the same basis. Refer Section 4.1(a)(ii) of the Basis of
preparation for further details.
2. In addition to the Net gains or losses on financial instruments and other
income - unit linked business of £3m (six months ended 30 June 2021: £4m, 12
months ended 31 December 2021: £7m), there are administrative expenses and
policyholder tax of £1m (six months ended 30 June 2021: £2m, 12 months ended
31 December 2021: £3m) and £2m (six months ended 30 June 2021: £2m, 12
months ended 31 December 2021: £4m) respectively. The result attributable to
unit linked business for the year is therefore £nil (six months ended 30 June
2021: £nil, 12 months ended 31 December 2021: £nil).
4.6 Administrative and other expenses
6 months 6 months Full Year
2022
2021(1) 2021
£m £m £m
Restructuring and corporate transaction expenses(2) 88 113 259
Amortisation and impairment of intangibles acquired in business combinations
and through the purchase of customer contracts
Amortisation of intangibles acquired in business combinations 47 44 87
Amortisation of intangibles acquired through the purchase of customer 5 7 12
contracts
Total amortisation and impairment of intangibles acquired in business 52 51 99
combinations and through the purchase of customer contracts
Staff costs and other employee-related costs 266 305 604
Other administrative expenses(2) 300 290 594
Total administrative and other expenses(3) 706 759 1,556
1. The Group made changes to the presentation of the consolidated income
statement in the Annual report and accounts for the year ended 31 December
2021. The comparatives for the six months ended 30 June 2021 have been
re-presented on the same basis. Refer Section 4.1(a)(ii) of the Basis of
preparation for further details.
2. For the period ended 30 June 2021, £7m of expenses previously presented in
other administrative expenses have been reclassified as restructuring and
corporate transaction expenses. Refer Section 4.1(a)(ii) of the Basis of
preparation for further details.
3. Total administrative and other expenses includes £1m (six months ended 30
June 2021: £2m, 12 months ended 31 December 2021: £3m) relating to unit
linked business.
The restructuring and corporate transaction expenses for the six months ended
30 June 2022 mainly relate to ongoing transformation costs including
severance, platform transformation and business integration. Expenses for the
six months ended 30 June 2022 also includes £13m of ii corporate transaction
deal costs.
4.7 Tax expense
6 months 6 months Full Year
2022
2021 2021
£m £m £m
Current tax:
UK 2 3 5
Overseas 11 13 60
Adjustment to tax expense in respect of prior years (3) 6 11
Total current tax 10 22 76
Deferred tax:
Deferred tax expense/(credit) arising from the current period (42) (13) 36
Adjustment to deferred tax in respect of prior years 1 2 8
Total deferred tax (41) (11) 44
Total tax (credit)/expense(1) (31) 11 120
1. The tax credit of £31m (six months ended 30 June 2021: tax expense of
£11m, 12 months ended 31 December 2021: tax expense £120m) includes a tax
expense of £2m (six months ended 30 June 2021: £2m, 12 months ended 31
December 2021: £4m) relating to unit linked business.
Tax relating to components of other comprehensive income is as follows:
6 months 6 months Full Year
2022
2021 2021
£m £m £m
Tax relating to defined benefit pension plan deficits - (4) (3)
Equity holder tax effect relating to items that will not be reclassified - (4) (3)
subsequently to
profit or loss
Tax relating to fair value gains and losses recognised on cash flow hedges 15 - 6
Tax relating to cash flow hedge gains and losses transferred to condensed (17) 1 (3)
consolidated income statement
Equity holder tax effect relating to items that may be reclassified (2) 1 3
subsequently to profit or loss
Tax relating to other comprehensive income (2) (3) -
All of the amounts presented above are in respect of equity holders of abrdn
plc.
4.8 Earnings per share
Basic earnings per share is calculated by dividing profit attributable to
ordinary equity holders by the weighted average number of ordinary shares in
issue during the period excluding shares owned by the employee trusts that
have not vested unconditionally to employees.
Diluted earnings per share is calculated by adjusting the weighted average
number of ordinary shares in issue during the period to assume the conversion
of all dilutive potential ordinary shares, such as share options granted to
employees.
Adjusted earnings per share is calculated on adjusted profit after tax
attributable to ordinary equity holders of the Company.
The following table shows details of basic, diluted and adjusted earnings per
share.
6 months 6 months Full Year
2022
2021 2021
£m £m £m
Adjusted profit before tax 99 163 323
Tax on adjusted profit (13) (13) (26)
Adjusted profit after tax 86 150 297
Attributable to:
Other equity holders (6) - -
Non-controlling interests - ordinary shares (1) - (1)
Adjusted profit after tax attributable to equity shareholders of abrdn plc 79 150 296
Total adjusting items including results of associates and joint ventures (419) (50) 792
Tax on adjusting items 44 2 (94)
(Loss)/profit attributable to equity shareholders of abrdn plc (296) 102 994
6 months 6 months Full Year
2022
2021 2021
Millions Millions Millions
Weighted average number of ordinary shares outstanding 2,130 2,115 2,123
Dilutive effect of share options and awards 17 41 36
Weighted average number of diluted ordinary shares outstanding 2,147 2,156 2,159
In accordance with IAS 33, no share options and awards have been treated as
dilutive for the six months ended 30 June 2022 due to the loss attributable to
equity holders of abrdn plc in that period. This resulted in the adjusted
diluted earnings per share being calculated using a weighted average number of
ordinary shares of 2,130 million.
6 months 6 months Full Year
2022
2021 2021
Pence Pence Pence
Basic earnings per share (13.9) 4.8 46.8
Diluted earnings per share (13.9) 4.7 46.0
Adjusted earnings per share 3.7 7.1 13.9
Adjusted diluted earnings per share 3.7 7.0 13.7
4.9 Adjusted profit and adjusting items
Adjusted profit excludes the impact of the following items:
· Restructuring costs and corporate transaction expenses. Restructuring
includes the impact of major regulatory change.
· Amortisation and impairment of intangible assets acquired in business
combinations and through the purchase of customer contracts.
· Profit or loss arising on the disposal of a subsidiary, joint venture
or equity accounted associate.
· Change in fair value of/dividends from significant listed investments
(see (a) below).
· Share of profit or loss from associates and joint ventures.
· Impairment loss/reversal of impairment loss recognised on investments
in associates and joint ventures accounted for using the equity method.
· Fair value movements in contingent consideration.
· Items which are one-off and, due to their size or nature, are not
indicative of the long-term operating performance of the Group.
The tax charge or credit allocated to adjusting items is based on the tax
treatment of each adjusting item.
The operating, investing and financing cash flows presented in the condensed
consolidated statement of cash flows are for both adjusting and non-adjusting
items.
(a) Significant listed investments
During 2021, the Group's investments in Phoenix and HDFC Asset Management were
reclassified from associates to equity securities. Refer Note 4.2(b)(iii) for
further details. The Group's investment in HDFC Life was similarly
reclassified in 2020 and all three are now considered significant listed
investments of the Group. Fair value movements on these investments are
included as adjusting items, which is aligned with our treatment of gains on
disposal for these holdings when they were classified as associates. Dividends
from significant listed investments are also included as adjusting items, as
these result in fair value movements.
During the six months ended 30 June 2022, the Group's holding in Phoenix was
reduced by 4% to 10.4% following the sale of 39,981,442 ordinary shares on 28
January 2022. The total consideration net of taxes and expenses was £263
million.
(b) Other
Other adjusting items for the six months ended 30 June 2022 includes a gain of
£6m (six months ended 30 June 2021: £nil, 12 months ended 31 December 2021:
loss of £3m) for net fair value movements in contingent consideration. Other
adjusting items for the six months ended 30 June 2022 also includes a loss of
£12m (six months ended 30 June 2021: profit of £5m, 12 months ended 31
December 2021: profit of £10m) in relation to market losses on the
investments held by the abrdn Financial Fairness Trust which is consolidated
by the Group. The assets of the abrdn Financial Fairness Trust are restricted
to be used for charitable purposes.
Other adjusting items for the six months ended 30 June 2021 and 12 months
ended 31 December 2021 also included a net release of deferred income of £25m
(30 June 2022: £nil) following the transfer of workplace pensions marketing
staff to Phoenix in May 2021 and £5m and £8m respectively for initial gains
on derecognition of right-of-use assets relating to subleases classified as
finance leases.
4.10 Dividends on ordinary shares
6 months 2022 6 months 2021 Full Year 2021
Pence per £m(1) Pence per £m Pence per £m
share
share
share
Dividends paid in reporting period
Current year interim dividend - - - - 7.30 154
Final dividend for prior year 7.30 154 7.30 154 7.30 154
Total dividends paid in reporting period 154 154 308
Dividends relating to reporting period
Interim dividend 7.30 153 7.30 154 7.30 154
Final dividend - - - - 7.30 154
Total dividends relating to reporting period 153 154 308
1. Estimated for the current period interim recommended dividend.
Subsequent to 30 June 2022, the Board has declared an interim dividend for
2022 of 7.30 pence per ordinary share (interim 2021: 7.30 pence), an estimated
£153m in total (interim 2021: £154m). The dividend is expected to be paid on
27 September 2022 and will be recorded as an appropriation of retained
earnings in the financial statements for the year ended 31 December 2022.
4.11 Intangible assets
30 Jun 30 Jun 31 Dec
2022 2021 2021
£m £m £m
Acquired through business combinations
Goodwill 1,324 249 331
Brand 18 20 12
Customer relationships and investment management contracts 701 346 314
Technology and other 36 - 5
Internally developed software 3 15 4
Purchased software and other 1 1 1
Cost of obtaining customer contracts 33 43 37
Total intangible assets 2,116 674 704
Goodwill at 30 June 2022 comprises a gross carrying value of £4,714m (30 June
2021: £3,639m; 31 December 2021: £3,721m) and accumulated impairment of
£3,390m (30 June 2021: £3,390m; 31 December 2021: £3,390m). During the
period to 30 June 2022, there were additions to goodwill of £993m and no
other movements in the carrying value (six months ended 30 June 2021: £164m
additions, 12 months ended 31 December 2021: £246m additions). The additions
in intangible assets acquired through business combinations in the six months
ended 30 June 2022 predominately relate to the acquisition of interactive
investor. Refer Note 4.2(a)(i) for further details.
4.12 Investments in associates and joint ventures accounted for using the
equity method
30 Jun 30 Jun 31 Dec
2022 2021 2021
£m £m £m
Associates
HDFC Asset Management Company Limited (HDFC Asset Management) - 127 -
Other - 10 10
Joint ventures
Heng An Standard Life Insurance Company Limited (HASL) 275 237 258
Other 7 7 6
Total investments in associates and joint ventures accounted for using the 282 381 274
equity method
During the period to 30 June 2022, the Group recognised an impairment of £9m
in relation to its interest in Tenet Group Limited which is included in other
associates accounted for using the equity method.
The Group's interest in HDFC Asset Management was reclassified from
investments in associates accounted for using the equity method to equity
securities measured at fair value on 29 September 2021. Refer Note 4.2(b)(iii)
for further details.
4.13 Issued share capital and share premium, shares held by trusts, retained
earnings and other reserves
(a) Issued share capital and share premium
The movement in the issued ordinary share capital and share premium of the
Company was:
6 months 2022 6 months 2021 Full Year 2021
Ordinary share capital Share premium 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 13 61/63p each £m £m
At start of period 2,180,724,786 305 640 2,194,115,616 306 640 2,194,115,616 306 640
Shares issued in respect of share incentive plans 1,174 - - 960 - - 2,032 - -
Shares bought back on-market and cancelled - - - (13,392,862) (1) - (13,392,862) (1) -
At end of period 2,180,725,960 305 640 2,180,723,714 305 640 2,180,724,786 305 640
All ordinary shares in issue in the Company rank pari passu and carry the same
voting rights and entitlement to receive dividends and other distributions
declared or paid by the Company.
The Company can issue shares to satisfy awards granted under employee
incentive plans which have been approved by shareholders.
(b) Shares held by trusts
Shares held by trusts relates to shares in abrdn plc that are held by the
abrdn Employee Benefit Trust (formerly named the Standard Life Aberdeen
Employee Benefit Trust) (abrdn EBT), Standard Life Employee Trust (ET) and the
Aberdeen Asset Management Employee Benefit Trust 2003 (AAM EBT).
The abrdn EBT, ET and AAM EBT purchase shares in the Company for delivery to
employees under employee incentive plans. Purchased shares are recognised as a
deduction from equity at the price paid for them. Where new shares are issued
to the arbdn 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:
6 months 6 months Full Year
2022
2021 2021
Number of shares held by trusts
abrdn Employee Benefit Trust 36,702,940 39,279,020 39,630,532
Standard Life Employee Trust 22,635,206 23,083,609 22,688,815
Aberdeen Asset Management Employee Benefit Trust 2003 2,316,847 3,294,476 2,647,359
4.14 Pension and other post-retirement benefit provisions
The Group operates a number of defined benefit pension plans, the largest of
which is the UK Standard Life Group plan (principal plan) which is closed to
future accrual. The Group also operates two other UK defined benefit plans,
which are closed to future accrual, the Ireland Standard Life plan, which has
fewer than 10 employees accruing future benefits, and a number of smaller
funded and unfunded defined benefit plans in other countries.
For the UK plans, the trustees set the plan investment strategies to protect
the ratio of plan assets to the trustees' measure of the value of assets
needed to meet the trustees' objectives. The investment strategies do not aim
to protect an IAS 19 surplus or ratio of plan assets to the IAS 19 measure of
liabilities.
(a) Analysis of amounts recognised in the condensed consolidated income statement
The amounts recognised in the condensed consolidated income statement for
defined contribution and defined benefit plans are as follows:
6 months 6 months Full Year
2022
2021 2021
£m £m £m
Current service cost 26 28 53
Net interest income (16) (10) (21)
Administrative expenses 2 2 4
Expense recognised in the condensed consolidated income statement 12 20 36
In addition, for the six months ended 30 June 2022, losses of £386m (six
months ended 30 June 2021: losses of £33m; 12 months ended 31 December 2021:
gains of £117m) have been recognised in other comprehensive income in the
condensed consolidated statement of comprehensive income in relation to
remeasurement of the defined benefit plans.
(b) Analysis of amounts recognised in the condensed consolidated statement of financial position
Pension and other post-retirement benefit assets at 30 June 2022 of £1,221m
(30 June 2021: £1,454m; 31 December 2021: £1,607m) includes the following
amounts in relation to the principal plan:
6 months 6 months Full Year
2022
2021 2021
£m £m £m
Present value of funded obligation (1,932) (2,775) (2,899)
Fair value of plan assets 3,763 4,987 5,337
Effect of limit on plan surplus (641) (774) (853)
Net asset 1,190 1,438 1,585
(c) Principal assumptions
Determination of the valuation of principal plan liabilities is a key estimate
as a result of the assumptions made relating to both economic and non-economic
factors.
The key economic assumptions for the principal plan, which are based in part
on current market conditions, are shown below:
30 Jun 30 Jun 31 Dec
2022 2021 2021
% % %
Discount rate 4.00 2.00 2.05
Rates of inflation
Consumer Price Index (CPI) 2.60 2.65 2.85
Retail Price Index (RPI) 3.00 3.15 3.25
The changes in economic assumptions over the period reflect changes in both
corporate bond prices and market implied inflation. The population of
corporate bond prices excludes bonds issued by UK universities. The inflation
assumption reflects the future reform of RPI effective from 2030.
4.15 Fair value of assets and liabilities
(a) Fair value hierarchy
In determining fair value, the following fair value hierarchy categorisation
has been used:
· Level 1: Fair values measured using quoted prices (unadjusted) in
active markets for identical assets or liabilities. An active market exists
where transactions take place with sufficient frequency and volume to provide
pricing information on an ongoing basis.
· Level 2: Fair values measured using inputs other than quoted prices
included within level 1 that are observable for the asset or liability, either
directly (i.e. as prices) or indirectly (i.e. derived from prices).
· Level 3: Fair values measured using inputs that are not based on
observable market data (unobservable inputs).
Information on the methods and assumptions used to determine fair values for
equity securities and interests in pooled investment funds, debt securities
and derivatives measured at fair value is given below:
Equities and interests in pooled investment funds(1,2) Debt securities Derivatives(3)
Level 1 Equity instruments listed on a recognised exchange valued using prices sourced Debt securities listed on a recognised exchange valued using prices sourced Exchange traded derivatives valued using prices sourced from the relevant
from their primary exchange. from their primary exchange. exchange.
Level 2 Pooled investment funds where daily unit prices are available and reference is Debt securities valued using prices received from external pricing providers Over-the-counter derivatives measured using a range of valuation models
made to observable market data. based on quotes received from a number of market participants. including discounting future cash flows and option valuation techniques.
Debt securities valued using models and standard valuation formulas based on
observable market data(4).
Level 3 These relate primarily to interests in private equity, real estate and Debt securities valued using prices received from external pricing providers N/A
infrastructure funds which are valued at net asset value. Underlying real based on a single broker indicative quote.
estate and private equity investments are generally valued in accordance with
independent professional valuation reports or International Private Equity and
Venture Capital Valuation Guidelines where relevant. The underlying
investments in infrastructure funds are generally valued based on the phase of Debt securities valued using models and standard valuation formulas based on
individual projects forming the overall investment and discounted cash flow unobservable market data(4).
techniques based on project earnings.
Where net asset values are not available at the same date as the reporting
date, these valuations are reviewed and, where appropriate, adjustments are
made to reflect the impact of changes in market conditions between the date of
the valuation and the end of the reporting period.
Other unlisted equity securities are generally valued at indicative share
prices from off market transactions.
1. Investments in associates at FVTPL are valued in the same manner as the
Group's equity securities and interests in pooled investment funds.
2. Where pooled investment funds have been seeded and the investment in the
funds have been classified as held for sale, the costs to sell are assumed to
be negligible. The fair value of pooled investment funds held for sale is
calculated as equal to the observable unit price.
3. Non-performance risk arising from the credit risk of each counterparty is
also considered on a net exposure basis in line with the Group's risk
management policies. At 30 June 2022, 30 June 2021 and 31 December 2021, the
residual credit risk is considered immaterial and no credit risk adjustment
has been made.
4. If prices are not available from the external pricing providers or are
considered to be stale, the Group has established procedures to arrive at an
internal assessment of the fair value.
The fair value of liabilities in respect of third party interest in
consolidated funds and non-participating investment contracts are calculated
equal to the fair value of the underlying assets and liabilities.
Thus, the value of these liabilities is dependent on the methods and
assumptions set out above in relation to the underlying assets and
liabilities:
· For third party interest in consolidated funds, when the underlying
assets and liabilities are valued using readily available market information
the liabilities in respect of third party interest in consolidated funds are
treated as level 2. Where the underlying assets and liabilities are not valued
using readily available market information the liabilities in respect of third
party interest in consolidated funds are treated as level 3.
· For non-participating investment contracts, the underlying assets and
liabilities are predominately categorised as level 1 or 2 and as such, the
inputs into the valuation of the liabilities are observable and these
liabilities are predominately categorised within level 2 of the fair value
hierarchy. Where the underlying assets are categorised as level 3, the
liabilities are also categorised as level 3.
In addition, contingent consideration assets and contingent consideration
liabilities are also categorised as level 3 in the fair value hierarchy.
Contingent consideration assets and liabilities have been recognised in
respect of acquisitions and disposals. Generally valuations are based on
unobservable assumptions regarding the probability weighted cash flows and,
where relevant, discount rate.
(b) Fair value hierarchy for assets and liabilities measured at fair value other than assets backing unit linked liabilities and unit linked liabilities
(b)(i) Fair value hierarchy for assets measured at fair value in the
statement of financial position other than assets backing unit linked
liabilities
The table below presents the Group's non-unit linked assets measured at fair
value by level of the fair value hierarchy (refer Section 4.15(c) for fair
value analysis in relation to assets backing unit linked liabilities).
Fair value hierarchy
Total Level 1 Level 2 Level 3
30 Jun 30 Jun 31 Dec 30 Jun 30 Jun 31 Dec 30 Jun 30 Jun 31 Dec 30 Jun 30 Jun 31 Dec
2022 2021 2021 2022 2021 2021 2022 2021 2021 2022 2021 2021
£m £m £m £m £m £m £m £m £m £m £m £m
Derivative financial assets 70 6 14 2 - - 68 6 14 - - -
Equity securities and interests in pooled investment vehicles(1) 2,513 2,259 3,115 2,057 1,749 2,600 340 414 409 116 96 106
Debt securities(2) 218 626 961 1 2 1 216 623 959 1 1 1
Financial investments 2,801 2,891 4,090 2,060 1,751 2,601 624 1,043 1,382 117 97 107
Owner occupied property(3) 1 1 1 - - - - - - 1 1 1
Contingent consideration asset(4) 35 21 31 - - - - - - 35 21 31
Total assets at fair value 2,837 2,913 4,122 2,060 1,751 2,601 624 1,043 1,382 153 119 139
1. Includes £615m (30 June 2021: £975m, 31 December 2021: £941m), £646m
(30 June 2021: £nil, 31 December 2021: £840m) and £451m (30 June 2021:
£526m, 31 December 2021: £508m) for the Group's listed equity investments in
Phoenix, HDFC Asset Management and HDFC Life respectively, which are
classified as significant listed investments (refer Note 4.9(a)).
2. Excludes debt securities measured at amortised cost of £139m (30 June
2021: £261m, 31 December 2021: £226m) - refer Note 4.15(d).
3. Presented in Property, plant and equipment in the condensed consolidated
statement of financial position.
4. Presented in Receivables and other financial assets in the condensed
consolidated statement of financial position.
There were no significant transfers between level 1 to level 2 during the
period ended 30 June 2022 (30 June 2021: £nil, 31 December 2021: £nil).
Transfers are deemed to have occurred at the end of the calendar quarter in
which they arose.
Refer Section 4.15(b)(iii) below for details of movements in level 3.
(b)(ii) Fair value hierarchy for liabilities measured at fair value in the statement of financial position other than unit linked liabilities
The table below presents the Group's non-unit linked liabilities measured at
fair value by level of the fair value hierarchy.
Fair value hierarchy
Total Level 1 Level 2 Level 3
30 Jun 30 Jun 31 Dec 30 Jun 30 Jun 31 Dec 30 Jun 30 Jun 31 Dec 30 Jun 30 Jun 31 Dec
2022 2021 2021 2022 2021 2021 2022 2021 2021 2022 2021 2021
£m £m £m £m £m £m £m £m £m £m £m £m
Liabilities in respect of third party interest in consolidated funds 130 101 104 - - - 130 101 104 - - -
Derivative financial liabilities 17 15 5 - - 3 17 15 2 - - -
Contingent consideration liabilities(1) 163 164 165 - - - - - - 163 164 165
Total liabilities at fair value 310 280 274 - - 3 147 116 106 163 164 165
1. Presented in Other financial liabilities in the condensed consolidated
statement of financial position.
There were no significant transfers between levels 1 and 2 during the year (30
June 2021: £nil, 31 December 2021: £nil). Refer Section 4.15(b)(iii) below
for details of movements in level 3.
(b)(iii) Reconciliation of movements in level 3 instruments
The movements during the year of level 3 assets and liabilities held at fair
value, excluding unit linked assets and liabilities and assets and liabilities
held for sale, are analysed below.
Owner occupied property Equity securities and interests in Debt securities
pooled investment funds
30 Jun 30 Jun 31 Dec 30 Jun 30 Jun 31 Dec 30 Jun 30 Jun 31 Dec
2022 2021 2021 2022 2021 2021 2022 2021 2021
£m £m £m £m £m £m £m £m £m
At start of period 1 1 1 106 101 101 1 1 1
Total gains recognised in the condensed consolidated income statement - - - 4 5 8 - - -
Purchases - - - 17 5 24 - - -
Sales and other adjustments - - - (16) (11) (27) - - -
Foreign exchange adjustment - - - 5 (4) - - - -
Transfers in to level 3(1) - - - - - - - - -
At end of period 1 1 1 116 96 106 1 1 1
1. Transfers are deemed to have occurred at the end of the calendar quarter in
which they arose.
Contingent consideration asset Contingent consideration liabilities
30 Jun 30 Jun 31 Dec 30 Jun 30 Jun 31 Dec
2022 2021 2021 2022 2021 2021
£m £m £m £m £m £m
At start of period 31 28 28 (165) (6) (6)
Total amounts recognised in the income statement 2 - - 4 - (3)
Additions 1 21 31 (6) (155) (155)
Settlements - (34) (34) 4 6 8
Other movements 1 (3) (3) - - -
Transfer to contingent consideration liability - 9 9 - (9) (9)
At end of period 35 21 31 (163) (164) (165)
For the six months ended 30 June 2022, gains of £10m (30 June 2021: gains of
£5m; 31 December 2021: gains of £5m) were recognised in the condensed
consolidated income statement in respect of non-unit linked assets and
liabilities held at fair value classified as level 3 at the period end,
excluding assets and liabilities held for sale. All gains were recognised in
net gains or losses on financial instruments and other income.
Transfers of equity securities and interests in pooled investment funds and
debt securities into level 3 generally arise when external pricing providers
stop providing a price or where the price provided is considered stale.
Transfers of equity securities and interests in pooled investment funds and
debt securities out of level 3 arise when acceptable prices become available
from external pricing providers.
(b)(iv) Significant unobservable inputs in level 3 instrument valuations
The table below identifies the significant unobservable inputs in relation to
equity securities and interests in pooled investment funds categorised as
level 3 instruments at 30 June 2022 with a fair value of £116m (30 June 2021:
£96m, 31 December 2021: £106m).
Fair value
30 Jun 2022 30 Jun 2021 31 Dec 2021 Valuation technique Unobservable input Range (weighted average)
£m £m £m
Private equity, real estate and infrastructure funds 104 80 91 Net asset value Net asset value statements provided for six significant funds (fair value A range of unobservable inputs is not applicable as we have determined that
>£5m) and a large number of smaller funds the reported NAV represents fair value at the end of the reporting period
Other unlisted equity securities 12 16 15 Indicative share price Recent off market capital raising transactions A range of unobservable inputs is not applicable as we have determined that
the indicative share price from off market transactions represents fair value
at the end of the reporting period
The table below identifies the significant unobservable inputs in relation to
contingent consideration assets and liabilities categorised as level 3
instruments at 30 June 2022 with a fair value of (£128m) (30 June 2021:
(£143m), 31 December 2021: (£134m)).
Fair value
30 Jun 2022 30 Jun 2021 31 Dec 2021 Valuation technique Unobservable input Range (weighted average)
£m £m £m
Contingent consideration assets and liabilities (128) (143) (134) Probability weighted cash flow and where applicable discount rates Unobservable inputs relate to probability weighted cash flows and, where The base scenario for Tritax contingent consideration used a revenue compound
relevant, discount rates. annual growth rate (CAGR) from 2021 to 2026 of 21%, with other scenarios using
a range of revenue growth rates around this base. The base scenario used a
The most significant unobservable inputs relate to assumptions used to value cost/income ratio of c50% with other scenarios using a range of cost/income
the contingent consideration related to the acquisition of Tritax. For Tritax ratios around this base.
a number of scenarios were prepared, around a base case, with probabilities
assigned to each scenario (based on an assessment of the likelihood of each The risk adjusted contingent consideration cash flows have been discounted
scenario). The value of the contingent consideration was determined for each using a primary discount rate of 3.1%. (30 June 2021 and 31 December 2021:
scenario, and these were then probability weighted, with this probability 1.9%)
weighted valuation then discounted from the payment date to the balance sheet
date. It was assumed 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.
(b)(v) Sensitivity of the fair value of level 3 instruments to changes in key assumptions
At 30 June 2022, the shareholder is directly exposed to movements in the value
of all non-unit linked level 3 instruments. No level 3 instruments are held in
in consolidated structured entities. See Section 4.15(c) for unit linked level
3 instruments.
Sensitivities for material level 3 assets and liabilities are provided below.
Changing unobservable inputs in the measurement of the fair value of the other
level 3 financial assets and financial liabilities to reasonably possible
alternative assumptions would not have a significant impact on profit
attributable to equity holders or on total assets.
(b)(v)(i) Equity securities and interests in pooled investment funds
As noted above, of the level 3 equity securities and interests in pooled
investment funds, £104m relates to private equity, real estate and
infrastructure funds (30 June 2021: £80m, 31 December 2021: £91m) which are
valued using net asset value statements. A 10% increase or decrease in the net
asset value of these investments would increase or decrease the fair value of
the investments by £10m (30 June 2021: £8m, 31 December 2021: £9m).
(b)(v)(ii) Contingent consideration assets and liabilities
As noted above, the most significant unobservable inputs for level 3
instruments relate to assumptions used to value the contingent consideration
related to the purchase of Tritax. Sensitivities for reasonably possible
changes to key assumptions are provided in the table below.
Assumption Change in assumption Consequential increase/(decrease) in contingent consideration liability
30 Jun 30 Jun 31 Dec
2022 2021 2021
£m £m £m
Revenue compound annual growth rate (CAGR) from 2021 to 2026 Decreased by 5% (24) (25) (26)
Increased by 5% 17 18 19
Cost/income ratio Decreased by 5% 9 9 10
Increased by 5% (11) (12) (12)
Discount rate Decreased by 1% 5 7 6
Increased by 1% (5) (7) (6)
(c) Fair value hierarchy for assets backing unit linked liabilities and unit linked liabilities measured at fair value
The table below presents the Group's assets backing unit linked liabilities
and unit linked liabilities measured at fair value by level of the fair value
hierarchy.
Total Fair value hierarchy
Level 1 Level 2 Level 3
30 Jun 30 Jun 31 Dec 30 Jun 30 Jun 31 Dec 30 Jun 30 Jun 31 Dec 30 Jun 30 Jun 31 Dec
2022 2021 2021 2022 2021 2021 2022 2021 2021 2022 2021 2021
£m £m £m £m £m £m £m £m £m £m £m £m
Financial investments 1,114 1,396 1,430 844 908 974 269 488 455 1 - 1
Total assets at fair value backing unit linked liabilities 1,114 1,396 1,430 844 908 974 269 488 455 1 - 1
Investment contract liabilities 890 1,034 1,088 - - - 889 1,034 1,087 1 - 1
Third party interest in consolidated funds 256 399 378 - - - 256 399 378 - - -
Other unit linked liabilities(1) 5 7 3 - 2 1 5 5 2 - - -
Total unit linked liabilities at fair value 1,151 1,440 1,469 - 2 1 1,150 1,438 1,467 1 - 1
1. Excludes other unit linked liabilities not measured at fair value of £5m
(30 June 2021: £1m; 31 December 2021: £2m).
The financial investments backing unit linked liabilities comprise equity
securities and interests in pooled investment funds of £977m (30 June 2021:
£1,240m; 31 December 2021: £1,232m), debt securities of £135m (30 June
2021: £152m; 31 December 2021: £191m) and derivative financial assets of
£2m (30 June 2021: £4m; 31 December 2021: £7m).
There were no significant transfers between levels 1 to level 2 during the six
months ended 30 June 2022 (30 June 2021: £nil; 31 December 2021: £nil).
The movements during the period of level 3 unit linked assets and liabilities
held at fair value are analysed below.
Equity securities and interests in Investment contract liabilities
pooled investment funds
30 Jun 30 Jun 31 Dec 30 Jun 30 Jun 31 Dec
2022 2021 2021 2022 2021 2021
£m £m £m £m £m £m
At start of period 1 18 18 (1) (18) (18)
Total gains/(losses) recognised in the condensed consolidated income statement - - - - - -
Purchases - - 1 - - (1)
Sales - (18) (18) - 18 18
Transfers in to level 3(1) - - - - - -
At end of period 1 - 1 (1) - (1)
1. Transfers are deemed to have occurred at the end of the calendar quarter in
which they arose.
Unit linked level 3 assets relate to holdings in real estate funds. No
individual unobservable input is considered significant. Changing unobservable
inputs in the measurement of the fair value of these unit linked level 3
financial assets and liabilities to reasonably possible alternative
assumptions would have no impact on profit attributable to equity holders or
on total assets.
Transfers of unit linked assets and liabilities to level 3 generally arise
when external pricing providers stop providing prices for the underlying
assets and liabilities in the funds or where the price provided is considered
stale.
(d) Assets and liabilities not carried at fair value
The table below presents estimated fair values by level of the fair value
hierarchy of non-unit linked financial assets and liabilities whose carrying
value does not approximate fair value. Fair values of assets and liabilities
are based on observable market inputs where available, or are estimated using
other valuation techniques.
As recognised in condensed consolidated statement of financial position line Fair value
item
30 Jun 30 Jun 31 Dec 30 Jun 30 Jun 31 Dec
2022 2021 2021 2022 2021 2021
£m £m £m £m £m £m
Assets
Debt securities 139 261 226 140 267 230
Liabilities
Subordinated liabilities 707 632 644 671 683 683
The estimated fair values for subordinated liabilities are based on the quoted
market offer price. The carrying value of all other financial assets and
liabilities measured at amortised cost approximates their fair value.
4.16 Contingent liabilities and contingent assets
Legal proceedings, complaints and regulations
The Group is subject to regulation in all of the territories in which it
operates investment management and insurance businesses. In the UK, where the
Group primarily operates, the FCA has broad powers, including powers to
investigate marketing and sales practices.
The Group, like other financial organisations, is subject to legal
proceedings, complaints and regulatory discussions, reviews and challenges in
the normal course of its business. All such material matters are periodically
reassessed, with the assistance of external professional advisers where
appropriate, to determine the likelihood of the Group incurring a liability.
Where it is concluded that it is more likely than not that a material outflow
will be made a provision is established based on management's best estimate of
the amount that will be payable. At 30 June 2022, there are no identified
contingent liabilities expected to lead to a material exposure.
4.17 Commitments
(a) Unrecognised financial instruments
As at 30 June 2022, the Group has committed to investing an additional £112m
(30 June 2021: £50m, 31 December 2021: £105m) into funds in which it holds a
co-investment interest.
(b) Capital and other commitments
As at 30 June 2022, the Group has no capital commitments other than in
relation to financial instruments (30 June 2021: £6m, 31 December 2021:
£2m). In addition, commitments relating to future acquisitions are disclosed
in Note 4.2(b)(iii).
4.18 Related party transactions
In the normal course of business, the Group enters into transactions with
related parties that relate to investment management and insurance businesses.
There have been no changes in the nature of these transactions during the
period to those reported in the Annual report and accounts for the year ended
31 December 2021.
In the six months ended 30 June 2022, there were no sales to associates
accounted for using the equity method (six months ended 30 June 2021: £36m,
12 months ended 31 December 2021: £36m) and no purchases in relation to
services received (six months ended 30 June 2021: £2m, 12 months ended 31
December 2021: £2m). Purchases and sales in 2021 related to Phoenix prior to
its reclassification (refer Note 4.2(b)(iii) for further details). Management
fees were included in sales where the selection of the Group as the asset
manager had been made by the underlying policyholder.
There were sales to joint ventures accounted for using the equity method of
£2m, (six months ended 30 June 2021: £2m, 12 months ended 31 December 2021:
£4m). There were no purchases from joint ventures (six months ended 30 June
2021: £nil, 12 months ended 31 December 2021: £nil). During the six months
ended 30 June 2022, the Group contributed capital of £2m (six months ended 30
June 2021: £7m, 12 months ended 31 December 2021: £11m) to a joint venture.
At 30 June 2022, there was no outstanding funding commitment to this joint
venture (30 June 2021: £6m, 31 December 2021: £2m).
4.19 Events after the reporting period
On 1 July 2022, the Company's capital redemption reserve was cancelled in
accordance with section 649 of the Companies Act 2006 resulting in a transfer
of £1,059m to retained earnings.
On 6 July 2022 the Company announced that it would commence a £300m return to
shareholders. The Company announced a first phase share buyback of up to
£150m through on market purchases commencing on 6 July 2022 and ending no
later than 30 December 2022. As at 5 August 2022, the Company had repurchased
19,494,168 shares for a consideration of £31m.
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