abrdn plc

Full Year Results 2022

Part 5 of 8

6. Independent auditor's report to the members of abrdn plc

1. Our opinion is unmodified

In our opinion:

-     The financial statements of abrdn plc give a true and fair view of the state of the Group's and of the parent company's affairs as of 31 December 2022, and of the Group's loss for the year then ended.

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

-     The parent company financial statements have been properly prepared in accordance with UK accounting standards, including FRS 101 Reduced Disclosure Framework.

-     The Group and parent company financial statements have been prepared in accordance with the requirements of the Companies Act 2006.

What our opinion covers

We have audited the Group and parent company financial statements of abrdn plc ('the parent company' or 'the Company') for the year ended 31 December 2022 (FY22) included in the Annual report and accounts, which comprise:

Group	Parent company (abrdn plc)
Consolidated income statement Consolidated statement of comprehensive income Consolidated statement of financial position Consolidated statement of changes in equity Consolidated statement of cash flows Notes 1 to 45 to the Group financial statements, including the accounting policies within those notes and in the Presentation of consolidated financial statements section.	Company statement of financial position Company statement of changes in equity Notes A to R to the parent company financial statements, including the accounting policies in the Company accounting policies section.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities are described below. We believe that the audit evidence we have obtained is a sufficient and appropriate basis for our opinion. Our audit opinion and matters included in this report are consistent with those discussed and included in our reporting to the Audit Committee (AC).

We have fulfilled our ethical responsibilities under, and we remain independent of the Group in accordance with, UK ethical requirements including the FRC Ethical Standard as applied to listed public interest entities.

2. Overview of our audit

Factors driving our view of risks	Following our FY21 audit and considering developments affecting the abrdn plc Group since then, we have updated our risk assessment. There has been increased uncertainty in the macro-economic environment, including increased market turbulence which has adversely impacted the Group's fee-based revenue over the financial year, in addition to the wider performance challenges faced by the Group (in particular within the Investments vector). The resultant impact on loss before tax  has impacted our determination of the appropriate materiality benchmark and wider risk assessment. Our materiality levels are reduced from the prior year and this has affected our Key Audit Matters identified which are explained below. -        The significance of the acquisition of Interactive Investor in May 2022 has resulted in the recognition of a new Key Audit Matter over the related accounting implications, specifically the identification of intangible assets to be recognised with a corresponding impact on the goodwill recognised and the allocation of that goodwill to the relevant cash generating units. This replaces the event driven Key Audit Matter relating to the Tritax acquisition that was reported in the prior year. -        Given the challenging global economic environment as well as the Group's wider financial performance, we identified that the risks around the recoverability of certain of the Group's goodwill balances and certain of the parent company's investments in subsidiaries have increased. As a result, the recoverability of certain goodwill was added to the Key Audit Matter on the recoverability of certain investments in subsidiaries that we had identified as a Key Audit Matter in the prior year. We identified the risks associated with the key assumptions used in determining the estimated recoverable amount for the applicable cash generating units supporting recognised goodwill and the estimated recoverable amount of investments in subsidiaries (including forecast cash flows, market multiples (and applicable premiums/discounts) and discount rates (as applicable)) as significant. -        As part of our risk assessment, we maintained our focus on future economic and operational assumptions used by the Group in estimates. The most significant area that these could impact the financial statements (outside of goodwill and investment in subsidiaries as noted above) is in the valuation of the defined benefit pension obligation. As a result, this was maintained as a Key Audit Matter. -        We identified a new Key Audit Matter in respect of recognition of management fee revenue from contracts with customers. Our assessment is that the risk is increased from 2021. In our view, the nature and complexity of management fee calculations has increased year on year, at the same time as market volatility and uncertainty has driven increased revenue focus. While not reported as Key Audit Matters, we also identified that the Group's ongoing cost control transformation programme and corporate transactions would have financial reporting implications that would require consideration in the Group and parent company financial statements, including judgments around the classification of assets as held for sale and the presentation of expenses as restructuring expenses.		Key audit matters	vs FY21	Item
			Accounting implications of the acquisition of Interactive Investor	Ì	4.1
			Recoverability of certain goodwill and of certain of the parent company's investments in subsidiaries	é	4.2
			Valuation of the UK defined benefit pension scheme present value of funded obligation	çè	4.3
			Revenue recognition: management fee revenue from contracts with customers	Ì	4.4
Audit Committee interaction	During the year, the AC met 7 times. KPMG are invited to attend all AC meetings and are provided with an opportunity to meet with the AC in private sessions without the Executive Directors being present. The Group engagement partner met with the Audit Committee Chair privately before each AC and also attended all Risk and Capital Committee meetings held during the year. For each Key Audit Matter, we have set out communications with the AC in Section 4 , including matters that required particular judgment for each. The matters included in the Audit Committee Chair's report on page 86 are materially consistent with our observations of those meetings.
Our Independence	We have fulfilled our ethical responsibilities under, and we remain independent of the Group in accordance with, UK ethical requirements including the FRC Ethical Standard as applied to listed public interest entities. We have not performed any non-audit services during FY22 or subsequently which are prohibited by the FRC Ethical Standard. We were first appointed as auditor by the shareholders for the year ended 31 December 2017. The period of total uninterrupted engagement is for the six financial years ended 31 December 2022. The Group engagement partner is required to rotate every 5 years. As these are the first set of the Group's financial statements signed by Richard Faulkner, he will be required to rotate off after the FY26 audit. The average tenure of partners and directors responsible for component audits as set out in Section 7 below is 3 years, with the shortest being the first year of involvement and the longest being five years.	Total audit fee		£6.2m
		Audit related fees (including interim review)		£2.3m
		Other services		£1.3m
		Non-audit fee as a % of total audit and audit related fee %		15%
		Date first appointed		16 May 2017
		Uninterrupted audit tenure		6 years
		Next financial period which requires a tender		FY27
		Tenure of Group engagement partner		1 year
		Average tenure of component signing partners and directors		3 years
Materiality (item 6 below)	The scope of our work is influenced by our view of materiality and our assessed risk of material misstatement. We have determined overall materiality for the Group financial statements as a whole at £14m (FY21: £19m) and for the parent company financial statements as a whole at £5.6m (FY21: £7.6m). For FY22, we determined that total revenue is the benchmark for Group. In previous years we have based our materiality on a normalised profit benchmark, however as the Group's underlying performance is lower year on year, we assessed that using a normalised profit measure would indicate a materiality which is inappropriate for the size and scale of the wider business. As such, we based our Group materiality on total revenue of which it represents 0.9% (FY21: 5% of normalised profit before tax). Materiality for the parent company financial statements was set as the component materiality for the parent company determined by the group audit engagement team. This is lower than the materiality we would otherwise have determined with reference to parent company total assets, of which it represents 0.1% (FY21: 0.1%).	Diagram removed for the purposes of this announcement.  However it can be viewed in full in the pdf document
Group Scope (Item 7 Below)	We have performed risk assessment and planning procedures to determine which of the Group's components are likely to include risks of material misstatement to the Group financial statements, the type of procedures to be performed at these components and the extent of involvement required from our component auditors around the world. Of the Group's 311 (FY21: 301) reporting components, we subjected 19 (FY21: 17) to full scope audits for Group purposes, and 2 (FY21: 4) to specified risk focused audit procedures. The latter were not financially significant enough to require an audit for Group reporting purposes but did present specific individual risks that needed to be addressed. The components within the scope of our work accounted for the percentages illustrated opposite. In addition, we have performed Group level analysis on the remaining components to determine whether further risks of material misstatement exist in those components. We consider the scope of our audit, as communicated to the Audit Committee, to be an appropriate basis for our audit opinion.	Diagram removed for the purposes of this announcement.  However it can be viewed in full in the pdf document

 

The impact of climate change on our audit

In planning our audit we have considered the potential impacts of climate change on the Group's business and its financial statements. Climate change impacts the Group in a number of ways: through its own operations (including potential reputational risk associated with the Group's delivery of its climate related initiatives), through its portfolio of investments and its stewardship role, and the greater emphasis on climate related narrative and disclosure in the Annual report and accounts. As disclosed in Note 35, the Group's direct exposure to climate change in the financial statements is primarily through its investment holdings, as the key valuation assumptions and estimates may be impacted by climate risks. As part of our audit, we have made enquiries of Directors and the Group's Corporate Sustainability team to understand the extent of the potential impact of climate change risk on the Group's financial statements and the Group's preparedness for this. We have performed a risk assessment of how the impact of climate change may affect the financial statements and our audit, in particular with respect to investment holdings. We consider that the impact of climate risk on level 1 and level 2 investments is already reflected in the market prices used to value these holdings at year end. As such, the impact of climate change was limited to the valuation of level 3 investment holdings; taking into account the relative size of the level 3 investments balance, we assessed that the impact of climate change was not a significant risk for our audit nor does it constitute a key audit matter. We did not consider the potential impact of climate change on the sustainability of earnings or cashflow forecasts to be material. We held discussions with our own climate change professionals to challenge our risk assessment. We have also read the Group's disclosure of climate related information in the front half of the Annual report and accounts as set out on pages 28 to 47 and considered consistency with the financial statements and our audit knowledge. We have not been engaged to provide assurance over the accuracy of these disclosures.

3. Going concern, viability and principal risks and uncertainties

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

Going Concern

We used our knowledge of the Group, its industry and operating model, and the general economic environment to identify the inherent risks to its business model and analysed how those risks might affect the Group's and the parent company's financial resources or ability to continue operations over the going concern period. The risk that we considered most likely to adversely affect the Group's and parent company's available financial resources over this period was increased market volatility. We considered whether these risks could plausibly affect the liquidity in the going concern period by assessing the degree of downside assumption that, individually and collectively, could result in a liquidity issue, taking into account the Group's and parent company's current and projected cash and facilities (a reverse stress test). We also assessed the completeness of the going concern disclosure. Accordingly, based on those procedures, we found the Directors' use of the going concern basis of accounting without any material uncertainty for the Group and parent company to be acceptable. However, as we cannot predict all future events or conditions and as subsequent events may result in outcomes that are inconsistent with judgments that were reasonable at the time they were made, the above conclusions are not a guarantee that the Group or the parent company will continue in operation.

Our conclusions -        We consider that the Directors' use of the going concern basis of accounting in the preparation of the financial statements is appropriate. -        We have not identified and concur with the Directors' assessment that there is not, a material uncertainty related to events or conditions that, individually or collectively, may cast significant doubt on the Group's or parent company's ability to continue as a going concern for the going concern period. -        We have nothing material to add or draw attention to in relation to the Directors' statement in Note (a)(v) to the financial statements on the use of the going concern basis of accounting with no material uncertainties that may cast significant doubt over the Group's and the parent company's use of that basis for the going concern period, and we found the going concern disclosure in Note (a)(v) to be acceptable. -        The related statement under the Listing Rules set out on page 136 is materially consistent with the financial statements and our audit knowledge.

 

Disclosures of emerging and principal risks and longer-term viability

Our Responsibility We are required to perform procedures to identify whether there is a material inconsistency between the Directors' disclosures in respect of emerging and principal risks and the viability statement, and the financial statements and our audit knowledge. Based on those procedures, we have nothing material to add or draw attention to in relation to: -        The Directors' confirmation within the Viability Statement on page 62 that they have carried out a robust assessment of the emerging and principal risks facing the Group, including those that would threaten its business model, future performance, solvency and liquidity. -        The Evolving and emerging risks and Principal risks and uncertainties disclosures describing these risks and how emerging risks are identified and explaining how they are being managed and mitigated. -        The Directors' explanation in the Viability Statement of how they have assessed the prospects of the Group, over what period they have done so and why they considered that period to be appropriate, and their statement as to whether they have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions. We are also required to review the Viability Statement set out on page 62 under the Listing Rules. Our work is limited to assessing these matters in the context of only the knowledge acquired during our financial statements audit. As we cannot predict all future events or conditions and as subsequent events may result in outcomes that are inconsistent with judgments that were reasonable at the time they were made, the absence of anything to report on these statements is not a guarantee as to the Group's and parent company's longer-term viability.

Our Reporting We have nothing material to add or draw attention to in relation to these disclosures. We have concluded that these disclosures are materially consistent with the financial statements and our audit knowledge.

 

4. Key audit matters

What we mean

Key audit matters are those matters that, in our professional judgment, were of most significance in the audit of the financial statements and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by us, including those which had the greatest effect on: -     The overall audit strategy. -     The allocation of resources in the audit. -     Directing the efforts of the engagement team.

We include below the Key Audit Matters in decreasing order of audit significance, together with our key audit procedures to address those matters and our findings from those procedures in order that the Company's members, as a body, may better understand the process by which we arrived at our audit opinion. These matters were addressed, and our findings are based on procedures undertaken for the purpose of our audit of the financial statements as a whole. We do not provide a separate opinion on these matters.

4.1 Accounting implications of the acquisition of Interactive Investor (group)

Financial Statement Elements		Our assessment of risk vs FY21	Our findings
	FY22	Ì 2022 event driven Key Audit Matter	FY22: Balanced
Goodwill:	£993m
Intangible assets :	£469m

 

Description of the Key Audit Matter

Our response to the risk

Subjective judgment and estimate In May 2022, abrdn completed the acquisition of Interactive Investor (ii). There are a number of accounting estimates and judgments associated with the acquisition accounting for this transaction. On acquisition, separate intangible assets must be identified and valued. Both the identification of intangible assets to be recognised and the valuation of these assets are subjective, and involve judgment (e.g. determination of the useful economic life of acquired intangible assets) and estimation uncertainty (e.g. the determination of the discount rate or cash flow forecasts to be used in their valuation). The recognition of intangible assets, and other acquired assets/ liabilities, have a corresponding impact on the goodwill recognised on acquisition. In addition, the allocation of total recognised goodwill to the relevant cash generating units (CGUs) is also subjective and involves judgement. The effect of these matters is that, as part of our risk assessment, we determined that the fair value of the identified intangible assets and the related goodwill recognised on acquisition have a high degree of estimation uncertainty, with a potential range of reasonable outcomes greater than our materiality for the financial statements as a whole and possibly many times that amount.

We performed the procedures below rather than seeking to rely on any of the Group's controls because the nature of the balance is such that we would expect to obtain audit evidence primarily through the detailed procedures described. Our procedures to address the risk included: Our business combination and sector expertise: We considered the rationale for the acquisition, reviewed the terms of the acquisition, including Board papers and other available information and challenged the Group, and their third party experts, on the identification of intangible assets. Our valuation expertise: Using our own valuation specialists, we challenged the identification and valuation analysis prepared by the Group (and the third party valuations experts who assisted the Group), including the assessment of the useful economic life of identified intangibles and the allocation of the purchase price between goodwill and separately identifiable intangible assets. We assessed the appropriateness of input assumptions used in the valuation analysis, including performing a critical assessment of the reliability of the Group's forecasts and comparing the discount rate assumption used with our own expected range. Our sector expertise: We critically assessed the methodology and input assumptions (in respect of forecast earnings, including synergies) used by the Group in determining the allocation of recognised goodwill to relevant CGUs. Sensitivity analysis: We performed our own sensitivity analysis, which included assessing the effect of reasonably possible changes in input assumptions to evaluate the impact on the valuation of the separately identifiable intangible assets and corresponding allocation of the purchase price to goodwill. Assessing transparency: We assessed the Group's disclosures in respect of the acquisition, including the determination of applicable input assumptions.

 

Communications with the abrdn plc Audit Committee Our discussions with and reporting to the Audit Committee included: -     Our definition of the key audit matter relating to the accounting implications of the acquisition of Interactive Investor. -     Our audit response to the key audit matter which included the use of specialists to challenge key aspects of the Group's identification and valuation of intangible assets. -     The findings of our procedures. Areas of particular auditor judgment We identified the following as the areas of particular auditor judgment: -     Subjective and complex auditor judgment was required in evaluating the key assumptions used by the Group (including the discount rate and cash flow forecasts) and in assessing the judgment in respect of separate intangibles identified and the allocation of goodwill to the relevant CGUs. Our findings In determining the allocation of goodwill to the relevant CGUs and the useful economic life of identified intangibles there is room for judgement and we found that within that, the Group's judgement was balanced(FY21: n/a). We also found the Group's valuation of the fair value of the intangible assets and goodwill recognised on the acquisition of ii to be balanced (FY21: n/a) with proportionate (FY21: n/a) disclosures of the related assumptions.

Further information in the Annual report and accounts: See the Audit Committee Report on page 89 for details on how the Audit Committee considered the accounting implications of the acquisition of ii as an area of significant attention, page 167 for the accounting policy on the accounting implications of the acquisition of ii, and Note 1 for the financial disclosures.

4.2 Recoverability of certain goodwill (group) and of certain of the parent company's investments in subsidiaries (parent)

Financial Statement Elements			Our assessment of risk vs FY21		Our findings
	FY22	FY21	é	Our assessment is that the risk has increased compared to FY21. This reflects the increased market volatility and the resulting impact on the performance of the Group, in addition to the wider performance challenges faced by the Group (in particular within the Investments vector). The recoverability of certain goodwill has been added to the Key Audit Matter as a result of this increase in the risk.	FY22: Balanced FY21: Balanced
Included within Goodwill of:	£935m	£331m
Impairment of goodwill:	(£340m)	-
Investment in subsidiaries:	£3,843m	£5,065m
Impairment of investments in subsidiaries:	(£923m)	(£45m)

 

Description of the Key Audit Matter	Our response to the risk
As noted in the Strategic report, the results in the Investments vector have been impacted by the external market environment in addition to wider performance challenges and businesses and subsidiaries aligned to that vector experienced indicators of impairment. In addition to the Investments vector, there is focus on the following businesses: -     Interactive Investor, given the size of the acquisition which occurred in the period prior to the largest market volatility. -     Finimize, given the underperformance of 2022 revenue against forecast. -     The financial planning business, given its performance. These factors increased the risk associated with the recoverability of the goodwill allocated to these cash generating units (CGUs) or groups of CGUs and the investments in the associated subsidiaries. Investments in subsidiaries - subjective judgment As a result of the factors identified above, and additionally as the net assets attributable to equity holders of the parent company exceeded the Group's market capitalisation at the balance sheet date,  the parent company applied judgment to identify which subsidiaries were at risk of impairment. As a result, it subjected the investments in abrdn Holdings Limited, abrdn Investments (Holdings) Limited and abrdn Financial Planning Limited to an impairment review. Goodwill and Investment in Subsidiaries - subjective estimate Goodwill is tested for impairment at least annually whether or not indicators of impairment exist. For goodwill the impairment assessment is performed by comparing the carrying amount of each CGU or group of CGUs to which goodwill is allocated with its recoverable amount being the higher of its value in use (VIU) or fair value less costs of disposal (FVLCD). Similarly for investments in subsidiaries the carrying value of the investment in the subsidiaries is compared with recoverable amount of that investment being the higher of its VIU or FVLCD.   In determining the VIU, which is calculated using a discounted cash flow method, the key assumptions are forecast cash flows and discount rates. In determining the FVLCD the key assumptions are forecast cash flows, market multiples (including applicable premiums/discounts) and discount rates (as applicable). The resulting recoverable amounts, in particular for the CGUs, groups of CGUs and investments in subsidiaries set out above, are subjective due to the inherent uncertainty in determining these assumptions and are therefore also susceptible to management bias. The effect of these matters is that, as part of our risk assessment, we determined that the recoverable amount of certain goodwill and of certain investments in subsidiaries have a high degree of estimation uncertainty, with a potential range of reasonable outcomes greater than our materiality for the financial statements as a whole and possibly many times that amount. The financial statements (Note 13 and A) disclose the sensitivity estimated by the Group and parent company.	We performed the procedures below rather than seeking to rely on any of the Group's controls because the nature of the balance is such that we would expect to obtain audit evidence primarily through the detailed procedures described. Our procedures included: Our sector expertise: We critically assessed the Group's assessment of whether there were any impairment indicators for the parent company's investment in subsidiaries, including comparing the carrying value of parent company's net assets with the Group's market capitalisation and considering the subsidiaries' business performance. Our sector expertise: We assessed the appropriateness of the Group's conclusion that the recoverable amount of goodwill and investment in subsidiaries should be based on FVLCD. Our valuation expertise: Using our own valuation specialists, we assessed the appropriateness of the Group's FVLCD methodology and the appropriateness of the input assumptions used in calculating the FVLCD of the CGUs or groups of CGUs to which certain goodwill is allocated and of certain of the parent company's investment in subsidiaries. Benchmarking assumptions: We compared the Group's assumptions to externally derived data in relation to key inputs such market multiples and discount rates. Sensitivity analysis: We performed our own sensitivity analysis which included assessing the effect of reasonable alternative assumptions in respect of forecast cash flows, market multiples (and applicable premiums/discounts) and discount rates (as applicable) to evaluate the impact on the FVLCD of the CGUs or groups of CGUs to which certain goodwill is allocated and of certain of the parent company's investment in subsidiaries.   Assessing transparency: We assessed whether the Group's disclosures (in respect of goodwill) and the parent company's disclosures (in respect of investment in subsidiaries) about the sensitivity of the outcome of the impairment assessment to changes in key assumptions reflect the risks inherent in the recoverable amount of goodwill and investment in subsidiaries.
Communications with the abrdn plc Audit Committee Our discussions with and reporting to the Audit Committee included: -     Our definition of the key audit matter relating to the recoverability of certain goodwill and certain investments in subsidiaries. -     Our audit response to the key audit matter which included the use of specialists to challenge key aspects of the Group's and parent company's determination of the recoverable amount and level of impairment. -     The findings of our procedures. Areas of particular auditor judgment We identified the following as the areas of particular auditor judgment: -     Subjective and complex auditor judgment was required in evaluating the key assumptions used by the Group and parent company (including forecast cash flows, market multiples (and applicable premiums/discounts) and discount rates (as applicable)).   Our findings We found Group's carrying value of goodwill and the related impairment charges to be balanced (FY21: balanced) with proportionate (FY21: proportionate) disclosures of the related assumptions and sensitivities.   We found parent company's carrying value of its investments in subsidiaries and the related impairment charges to be balanced (FY21: balanced) with proportionate (FY21: proportionate) disclosures of the related assumptions and sensitivities.

Further information in the Annual report and accounts: See the Audit Committee Report on pages 89 to 90 for details on how the Audit Committee considered the Group's goodwill and the parent company's investments in subsidiaries as areas of significant attention, pages 188 to 193 for the goodwill accounting policy and financial disclosures, page 268 for the investment in subsidiaries accounting policy and pages 270 to 272 for the investment in subsidiaries financial disclosures.

4.3 Valuation of the UK defined benefit pension scheme present value of funded obligation (group)

Financial Statement Elements			Our assessment of risk vs FY21		Our findings
	FY22	FY21	çè	Our assessment is that the risk is similar to FY21. While there has been increased market volatility compared to the prior year, the risk associated with the selection of economic assumptions remains similar to FY21.	FY22: Balanced FY21: Balanced
Present value of funded obligation:	£1,755m	£2,899m

 

Description of the Key Audit Matter	Our response to the risk
Subjective valuation The present value of the Group's funded obligation for the UK defined benefit pension scheme is an area that involves significant judgment over the uncertain future settlement value. The Group is required to use judgment in the selection of key assumptions covering both operating assumptions and economic assumptions. The key operating assumptions are base mortality and mortality improvement. The key economic assumptions are the discount rate and inflation. The risk is that inappropriate assumptions are used in determining the present value of the funded obligation. The effect of these matters is that, as part of our risk assessment, we determined that the valuation of the pension scheme obligation has a high degree of estimation uncertainty, with a potential range of reasonable outcomes greater than our materiality for the financial statements as a whole and possibly many times that amount. The financial statements (Note 31) disclose the sensitivity estimated by the Group.	We performed the procedures below rather than seeking to rely on any of the Group's controls because the nature of the balance is such that we would expect to obtain audit evidence primarily through the procedures described below. Our procedures to address the risk included: Assessing actuaries' credentials: We evaluated the competency and objectivity of the Group's experts who assisted them in determining the actuarial assumptions used to calculate the defined benefit obligation. Benchmarking assumptions: We considered, with the support of our own actuarial specialists, the appropriateness of the base mortality assumption by reference to scheme and industry data on historical mortality experience and the outcome of the latest triennial report. We considered, with the support of our own actuarial specialists, the appropriateness of the mortality improvement assumptions by reference to industry-based expectations of future mortality improvements and the appropriateness of the discount rate and inflation assumptions by reference to industry practice. Assessing transparency: In conjunction with our own actuarial specialists, we considered whether the Group's disclosures in relation to the assumptions used in the calculation of the present value of the funded obligation appropriately represent the sensitivities of the obligation to the use of alternative assumptions.
Communications with the abrdn plc Audit Committee Our discussions with and reporting to the Audit Committee included: -        Our identification of the key audit matter relating to the valuation of the defined benefit pension obligation. -        Our audit response to the key audit matter which included the use of specialists to challenge key aspects of the Group's actuarial valuation. -        The findings of our procedures. Areas of particular auditor judgment We identified the following as the areas of particular auditor judgment: -        Subjective and complex auditor judgment was required in evaluating the key assumptions used by the Group (including the discount rate, inflation and mortality assumptions). Our findings We found the Group's valuation of the UK defined benefit pension scheme obligation to be balanced (FY21: balanced) with proportionate (FY21: proportionate) disclosures of the related assumptions and sensitivities.

Further information in the Annual report and accounts: See the Audit Committee Report on page 90 for details on how the Audit Committee considered the valuation of the UK defined benefit pension scheme obligation as an area of significant attention, page 218 for the accounting policy on the valuation of the UK defined benefit pension scheme obligation, and Note 31 for the financial disclosures.

4.4 Revenue recognition: management fee revenue from contracts with customers (group)

Financial Statement Elements			Our assessment of risk vs FY21		Our findings
Revenue recognition: management fee revenue from contracts with customers:	FY22	FY21	Ì	Our assessment is that the risk is increased from 2021 and so this should be included as a new Key Audit Matter. In our view, the nature and complexity of management fee calculations has increased year on year, at the same time as market volatility and uncertainty has driven increased revenue focus.	FY22 and FY21: We found no significant items, either unadjusted or adjusted for.
	£1,068m	£1,243m

 

Description of the Key Audit Matter	Our response to the risk
Data capture and calculation error Revenue from contracts with customers is the most significant item in the consolidated statement of comprehensive income and represents one of the areas that had the greatest effect on the overall group audit. In addition, market volatility and uncertainty has driven increased revenue focus. The balance comprises various different revenue streams as outlined in Note 3a. As a result of the revenue diversification in the period, notably the acquisition of ii, there are new revenue streams in the period. However, the area of revenue which had the greatest effect on our overall group audit and audit effort in the current period is management fee income (institutional, wholesale and insurance) which is the most significant and, in certain areas, for example for segregated account management fee calculations, complex item. In our view, the nature and complexity of management fee calculations has increased year on year. The two key components in calculating management fee income are fee rates to be applied and the amount of assets under management (AUM) resulting in the following key risks: -        Fee rates: There is a risk that fee rates have not been entered appropriately into the fee calculation and billing systems when clients are onboarded or agreements are amended. -        AUM: There is a risk that AUM data from third-party service providers or client appointed administrators and/or custodians does not exist and is not accurate. -        Calculation: There is a risk that management fee income, including accrued income balances, is incorrectly calculated.	Our procedures included: Procedures in relation to fee rates We performed the detailed procedures below in relation to fee rates rather than seeking to rely on the Group's controls as our knowledge indicated that we would be unlikely to obtain the required evidence to support reliance on the controls.   Test of details: We agreed a selection of fee rates used in the calculation to the investment management agreements (IMAs), fee letters or fund prospectuses outlining the effective fee rates. Procedures in relation to AUM Control design and operation: We tested the design and operating effectiveness of controls at third party service providers over the production of AUM data that is used in calculating management fees. This included inspecting the internal controls reports prepared by relevant outsourced service organisations covering the design and operation of key controls over the production of AUM data used in the calculation of management fees. Enquiry of clients: Where AUM data is produced by a client appointed administrator and/or custodian we obtained AUM data directly from the client or custodian and used this in our management fee recalculations and tests of detail below. Calculation Procedures Tests of details and substantive analytical procedures:  Where AUM data was obtained from third party service organisations (and where we had tested the controls over the AUM data) we independently recalculated in-scope management fees. Where AUM data was obtained from a client appointed administrator and/or custodian (and so we could not test controls over the AUM data) we independently recalculated in-scope management fees and/or agreed a selection of amounts billed and received to invoice and bank statements.
Communications with the abrdn plc Audit Committee Our discussions with and reporting to the Audit Committee included: -        Our definition of the key audit matter relating to revenue recognition: management fee revenue from contracts with customers. -        Our audit response to the key audit matter which included use of data and analytics technology to complete certain of the recalculations.   -        The findings of our procedures. Areas of particular auditor judgment We identified the following as the areas of particular auditor judgment: -        We performed an assessment of whether the matters identified in respect of management fee revenue from contracts with customers were material. Our findings -     We found no significant items, either unadjusted or adjusted for, in the Group's management fee revenue from contracts with customers (FY21: no significant items either unadjusted or adjusted for).

Further information in the Annual report and accounts: See the page 175 for the accounting policy on revenue from contracts with customers, and Note 3 for the financial disclosures.

We continue to perform procedures over the fair value of the contingent consideration liability recognised on the acquisition of Tritax Management LLP (Tritax). However, as the acquisition occurred in the prior year we do not need to perform procedures over the fair value of intangible assets recognised on the acquisition of Tritax and taking into account the relative size of the contingent consideration liability, we have not assessed this as one of the most significant risks in our current year audit and, therefore, it is not separately identified in our report this year.

5. Our ability to detect irregularities, and our response

Fraud - identifying and responding to risks of material misstatement due to fraud

Fraud risk assessment

To identify risks of material misstatement due to fraud (fraud risks) we assessed events or conditions that could indicate an incentive or pressure to commit fraud or provide an opportunity to commit fraud. Our risk assessment procedures included: -        Enquiring of the Directors, the Group Audit Committee, Group Internal Audit and the Group's Legal team and inspection of policy documentation as to the Group's high-level policies and procedures to prevent and detect fraud, including the internal audit function, and the Group's channel for 'whistleblowing', as well as whether they have knowledge of any actual, suspected or alleged fraud. -        Reading Board minutes and attending Group Audit Committee and Risk and Capital Committee meetings. -        Considering the findings of Group Internal Audit's reviews in the period. -        Considering remuneration incentive schemes and performance targets for management and the Directors.

 

Risk communications	We communicated identified fraud risks throughout the audit team and remained alert to any indications of fraud throughout the audit. This included communication from the Group audit team to full scope component audit teams of relevant fraud risks identified at the Group level and request to full scope component audit teams to report to the Group audit team any instances of fraud that could give rise to a material misstatement at the Group level.
Fraud risks	As required by auditing standards, and taking into account possible pressures to meet profit targets and our overall knowledge of the control environment, we perform procedures to address the risk of management override of controls, in particular the risk that Group and component management may be in a position to make inappropriate accounting entries, and the risk of bias in accounting estimates and judgments such as impairment and pension assumptions. On this audit we do not believe there is a fraud risk related to revenue recognition, given the relative simplicity of the most significant revenue streams and the separation of duties between management and third party service providers. We also identified fraud risks related to: -        The recoverability of certain of the Group's goodwill and certain of the parent company's investment in subsidiaries in response to the high degree of estimation uncertainty due to increased market volatility and business performance in the year, and the impact of these on the profit of the Group, and the susceptibility of these estimates to management bias. -        The classification of expenses as restructuring, given the extent of restructuring in the Group's cost base, and the level of market interest in the delivery of both transformation programmes and cost savings, the impact of these on both the incentive to classify items as restructuring expenses and the consequences of an error in classification.
Link to KAMS	Further detail in respect of the risk of fraud over the recoverability of certain of the Group's goodwill and certain of the parent company's investment in subsidiaries, including our procedure to compare certain key input assumptions to external market data, is set out in the key audit matter disclosures in section 4.2 of this report.
Procedures to address fraud risks	Our audit procedures included evaluating the design, implementation, and where relevant operating effectiveness of internal controls relevant to mitigate these risks. To address the risk of fraud over the classification of restructuring expenses we tested a sample of expenses, and challenged management in relation to the classification of those selected expenses against the Group's adjusted profit methodology. Based on the evidence obtained, we assessed whether each sampled expense related to a transaction or event met the definition of restructuring or adjusting, to determine whether there were indications of inconsistent classification or indicators of management bias. We also performed substantive audit procedures including: -        Identifying journal entries and other adjustments to test for all full scope components based on risk criteria and comparing the identified entries to supporting documentation. These included those posted by senior finance management and those posted to unusual accounts, as well as those which comprised unexpected posting combinations. -        Evaluating the business purpose of significant unusual transactions. -        Assessing significant accounting estimates for bias, including whether the judgments made in making accounting estimates are indicative of a potential bias.
Laws and regulations - identifying and responding to risks of material misstatement relating to compliance with laws and regulations
Laws and regulations risk assessment	We identified areas of laws and regulations that could reasonably be expected to have a material effect on the financial statements. For this risk assessment matters considered included the following: -        Our general commercial and sector experience. -        Discussion with the Directors and other management (as required by auditing standards). -        Inspection of the Group's regulatory and legal correspondence. -        Inspection of the policies and procedures regarding compliance with laws and regulation. -        Relevant discussions with the Directors and other management. As the Group and many of its subsidiaries are regulated, our assessment of risks involved gaining an understanding of the control environment including the entity's procedures for complying with regulatory requirements, how they analyse identified breaches and assessing whether there were any implications of identified breaches on our audit. We communicated identified laws and regulations throughout our team and remained alert to any indications of non-compliance throughout the audit.
Risk communications	We communicated identified laws and regulations throughout the audit team and remained alert to any indications of non-compliance throughout the audit. This included communication from the Group audit team to full scope component audit teams of relevant laws and regulations identified at Group level, and a request for full scope component auditors to report to the Group audit team any instances of non-compliance with laws and regulations that could give rise to a material misstatement at Group level. The potential effect of these laws and regulations on the financial statements varies considerably.
Direct laws context and link to audit	Firstly, the Group is subject to laws and regulations that directly affect the financial statements including financial reporting legislation (including related companies legislation), distributable profits legislation, taxation legislation and pensions regulations and we assessed the extent of compliance with these laws and regulations as part of our procedures on the related financial statement items.
Most significant indirect law/ regulation areas	Secondly, the Group is subject to many other laws and regulations where the consequences of non-compliance could have a material effect on amounts or disclosures in the financial statements, for instance through the imposition of fines or litigation. We identified the following areas as those most likely to have such an effect: -        Specific areas of regulatory capital and liquidity. -        Conduct, including Client Assets. -        Anti-money laundering, and market abuse regulations. -        Certain aspects of company legislation recognising the financial and regulated nature of the Group's activities and its legal form. Auditing standards limit the required audit procedures to identify non-compliance with these laws and regulations to enquiry of the Directors and other management and inspection of regulatory and legal correspondence, if any. Therefore if a breach of operational regulations is not disclosed to us or evident from relevant correspondence, an audit will not detect that breach.
Known actual or suspected matters	We assessed the disclosure of provisions in Note 34 and contingent liabilities in Note 39 in light of our understanding gained through the procedures above.
Actual or suspected breaches discussed with AC	We discussed with the Audit Committee matters related to actual or suspected breaches of laws or regulations, for which disclosure is not necessary, and considered any implications for our audit.
Context
Context of the ability of the audit to detect fraud or breaches of law or regulation	Owing to the inherent limitations of an audit, there is an unavoidable risk that we may not have detected some material misstatements in the financial statements, even though we have properly planned and performed our audit in accordance with auditing standards. For example, the further removed non-compliance with laws and regulations is from the events and transactions reflected in the financial statements, the less likely the inherently limited procedures required by auditing standards would identify it. In addition, as with any audit, there remained a higher risk of non-detection of fraud, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal controls. Our audit procedures are designed to detect material misstatement. We are not responsible for preventing non-compliance or fraud and cannot be expected to detect non-compliance with all laws and regulations.

6. Our determination of materiality

The scope of our audit was influenced by our application of materiality. We set quantitative thresholds and overlay qualitative considerations to help us determine the scope of our audit and the nature, timing and extent of our procedures, and in evaluating the effect of misstatements, both individually and in the aggregate, on the financial statements as a whole.

£14m (FY21: £19m) Materiality for the group financial statements as a whole	What we mean A quantitative reference for the purpose of planning and performing our audit.
	Basis for determining materiality and judgments applied Materiality for the Group financial statements as a whole was set at £14m (FY21: £19m). This was determined with reference to a benchmark of revenue. We determined that revenue is the appropriate benchmark for the Group given the performance of the entity, the sector in which the entity operates, its ownership and financing structure, and the focus of users. In previous years we have based our materiality on a normalised profit before tax benchmark, however, as the Group's underlying performance is lower year on year, we assessed using a normalised profit measure would indicate a materiality which is inappropriate for the size and scale of the wider business. Our Group materiality of £14m, was determined by applying a percentage to the Group revenue (FY21: Group normalised profit before tax). When using a revenue benchmark to determine overall materiality, KPMG's approach for listed entities considers a guideline range 0.5% to 1% (FY21: 3% to 5%) of the measure. In setting overall Group materiality, we applied a percentage of 1% (FY21: 3.5% of Group normalised profit before tax which equated to 1.7% of Group profit before tax) to the projected benchmark at planning, which equates to 0.9% of the full year benchmark. Materiality for the parent company financial statements as a whole was set at £5.6m (FY21: £7.6m), which is component materiality for the parent company determined by the Group audit engagement team (FY21: same). This is lower than the materiality we would otherwise have determined with reference to parent company total assets, of which it represents 0.1% (FY21: 0.1%).
£9.1m (FY21: £14.25m) Performance materiality	What we mean Our procedures on individual account balances and disclosures were performed to a lower threshold, performance materiality, so as to reduce to an acceptable level the risk that individually immaterial misstatements in individual account balances add up to a material amount across the financial statements as a whole.
	Basis for determining performance materiality and judgments applied We have considered performance materiality at a level of 65% (FY21: 75%) of materiality for abrdn plc's Group financial statements as a whole to be appropriate. The parent company performance materiality was set at £3.6m (FY21: £5.7m), which equates to 65% (FY21: 75%) of materiality for the parent company financial statements as a whole. We applied this reduced percentage in our determination of performance materiality for the Group and parent company financial statements in the current year as we identified specific factors indicating an elevated level of aggregation risk. These factors included the ongoing level of restructuring and change impacting the Group.
£0.7m (FY21: £0.95m) Audit misstatement posting threshold	What we mean This is the amount below which identified misstatements are considered to be clearly trivial from a quantitative point of view. We may become aware of misstatements below this threshold which could alter the nature, timing and scope of our audit procedures, for example if we identify smaller misstatements which are indicators of fraud. This is also the amount above which all misstatements identified are communicated to abrdn plc's Audit Committee.
	Basis for determining the audit misstatement posting threshold and judgments applied We set our audit misstatement posting threshold at 5% (FY21: 5%) of our materiality for the Group financial statements. We also report to the Audit Committee any other identified misstatements that warrant reporting on qualitative grounds.

 

The overall materiality for the Group financial statements of £14m (FY21: £19m) compares as follows to the main financial statement caption amounts:

	Total Group revenue		Group profit/(loss) before tax		Total Group assets
	FY22	FY21	FY22	FY21	FY22	FY21
Financial statement caption	£1,538m	£1,685m	(£615m)	£1,115m	£9,247m	£11,418m
Group materiality as % of caption	0.9%	1.1%	2.3%	1.7%	0.2%	0.2%

7. Scope of our audit

Group Scope	What we mean How the Group audit team determined the procedures to be performed across the Group.
	The Group has 311 (FY21: 301) reporting components. In order to determine the work performed at the reporting component level, we identified those components which we considered to be of individual financial significance, those which were significant due to risk and those remaining components on which we required procedures to be performed to provide us with the evidence we required in order to conclude on the group financial statements as a whole. We determined individually financially significant components as those contributing at least 10% (FY21: 10%) of Group total revenue, Group net assets or total profits and losses that made up Group profit before tax. We selected these metrics because these are the most representative of the relative size of the components. We identified 7 (FY21: 7) components as individually financially significant components and performed full scope audits on all of these components (FY21: 6). In FY21 specific risk-focused audit procedures included procedures over one component that became financially significant due to the gains recognised on an investment, and the year end carrying value of this investment. In addition to the individually financially significant components, we identified 2 (FY21: 2) components as significant, owing to significant risks of material misstatement affecting the group financial statements. Of the 2 (FY21: 2) components identified as significant due to risk, we performed full scope audits for 2 components (FY21: 2). In addition, to enable us to obtain sufficient appropriate audit evidence for the group financial statements as a whole, we selected 12 (FY21: 12) further components on which to perform procedures. Of these components, we performed full scope audits for 10 components (FY21: 9) and performed specific risk-focused audit procedures over revenue on 1 component (FY21: 1) and investment valuation and fair value gains and losses on 1 component (FY21: 2). The components within the scope of our work accounted for the following percentages of the Group's results, with the prior year comparatives indicated in brackets: Scope Number of components Range of materiality applied Group revenue Total profits and losses that made up Group PBT Group net assets Full scope audits 19 (17) £0.7m - £6.3m (£1m - £8.6m) 83% (73%) 82% (63%) 89% (84%) Specific risk-focused audit procedures 2 (4) £1.4m - £2.8m (£19m) 3% (16%) 2% (26%) 4% (6%) Total 21 (21) 86% (90%) 84% (89%) 93% (90%) Specific risk-focused procedures over total profits and losses that made up Group profit before tax for FY21 included those procedures performed by the Group team in respect of the gains recognised on an investment. The remaining 14% (FY21: 10%) of total Group revenue, 16% (FY21: 11%) of total profits and losses that made up Group profit before tax and 7% (FY21: 10%) of net Group assets is represented by 290 (FY21: 280) reporting components, none of which individually represented more than 2% (FY21: 5%) of any of total Group revenue, total profits and losses that made up Group profit before tax or net Group assets. For these components, we performed analysis at an aggregated group level to re-examine our assessment that there were no significant risks of material misstatement within these. The work on 17 of the 21 components (FY21: 8 of the 21 components) was performed by component auditors and the rest, including the audit of the parent company, was performed by the Group team. Testing over all KAMs included in Section 4 was performed by the Group team, with the exception of testing over management fee revenue from contracts with customers, which is performed by our component auditors. In addition, the Group team has also performed audit procedures on the following areas on behalf of the components: -        Testing of IT Systems in those instances where Group and components use common systems. -        Testing over the completeness of journal postings in the period in those instances where Group and components use common systems. These items were audited by the Group team because the consistency of these systems and processes meant that this was the most effective way to obtain audit evidence. The Group team communicated the results of these procedures to the component teams. The Group team instructed component auditors as to the significant areas to be covered, including the relevant risks detailed above and the information to be reported back. The Group team approved the component materialities, as detailed in the table above, having regard to the mix of size and risk profile of the Group across the components. The scope of the audit work performed was predominately substantive as we placed limited reliance upon the Group's internal control over financial reporting.
Group audit team oversight	What we mean The extent of the Group audit team's involvement in component audits. In working with component auditors, the Group audit team: -        Held a virtual global planning and risk assessment meeting led by the Group audit engagement partner to discuss key audit risks and obtain input from component teams. -        Held planning calls and meetings with component audit teams to discuss the significant areas of the audit relevant to the components, including the key audit matter identified in respect of recognition of management fee revenue from contracts with customers. -        Issued Group audit instructions to component auditors, on the scope of their work, including specifying the minimum procedures to perform in their audit of revenue within the Investments vector and cash. -        Visited three (FY21: zero) of the four component teams not located in the UK (FY21: four), to assess the audit risk and strategy. Video and telephone conference meetings were also held with these component auditors (in Luxembourg and Singapore) and the other component (in the United States) not located in the UK that was not physically visited. At these subsequent virtual meetings, the findings reported to the Group team were discussed in more detail, and any further work required by the Group team was then performed by the component audit teams. -        Inspection of component audit team's key working papers within component audit files (using remote technology capabilities) to understand and challenge the audit approach and audit findings of each component.

8. Other information in the Annual report and accounts

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

All other information
Our responsibility Our responsibility is to read the other information and, in doing so, consider whether, based on our financial statements audit work, the information therein is materially misstated or inconsistent with the financial statements or our audit knowledge.	Our reporting Based solely on that work we have not identified material misstatements or inconsistencies in the other information.
Strategic report and Directors' report
Our responsibility and reporting Based solely on our work on the other information described above we report to you as follows: ·     We have not identified material misstatements in the Strategic report and the Directors' report. ·     In our opinion the information given in those reports for the financial year is consistent with the financial statements. ·     In our opinion those reports have been prepared in accordance with the Companies Act 2006.
Directors' remuneration report
Our responsibility We are required to form an opinion as to whether the part of the Directors' remuneration report to be audited has been properly prepared in accordance with the Companies Act 2006.	Our reporting In our opinion the part of the Directors' remuneration report to be audited has been properly prepared in accordance with the Companies Act 2006.
Corporate governance disclosures
Our responsibility and reporting We are required to perform procedures to identify whether there is a material inconsistency between the financial statements and our audit knowledge, and: ·     The Directors' statement that they consider that the Annual report and financial statements taken as a whole is fair, balanced and understandable, and provides the information necessary for shareholders to assess the Group's position and performance, business model and strategy. ·     The section of the Annual report and accounts describing the work of the Audit Committee, including the significant issues that the Audit Committee considered in relation to the financial statements, and how these issues were addressed. ·     The section of the Annual report and accounts that describes the review of the effectiveness of the Group's risk management and internal control systems.	Our reporting Based on those procedures, we have concluded that each of these disclosures is materially consistent with the financial statements and our audit knowledge.
We are also required to review the part of the Corporate Governance Statement relating to the Group's compliance with the provisions of the UK Corporate Governance Code specified by the Listing Rules for our review.	We have nothing to report in this respect.

 

Other matters on which we are required to report by exception

Our responsibility Under the Companies Act 2006, we are required to report to you if, in our opinion: ·     Adequate accounting records have not been kept by the parent company or returns adequate for our audit have not been received from branches not visited by us; or ·     The parent company financial statements and the part of the Directors' remuneration report to be audited are not in agreement with the accounting records and returns; or ·     Certain disclosures of Directors' remuneration specified by law are not made; or ·     We have not received all the information and explanations we require for our audit.

Our reporting We have nothing to report in these respects.

 

9. Respective responsibilities

Directors' responsibilities

As explained more fully in their statement set out on page 137, the Directors are responsible for: the preparation of the financial statements including being satisfied that they give a true and fair view; such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error; assessing the Group and parent company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and using the going concern basis of accounting unless they either intend to liquidate the Group or the parent company or to cease operations, or have no realistic alternative but to do so.

Auditor's responsibilities

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

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

The Company is required to include these financial statements in an annual financial report prepared using the single electronic reporting format specified in the TD ESEF Regulation. This auditor's report provides no assurance over whether the annual financial report has been prepared in accordance with that format.

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

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

 

Richard Faulkner (Senior Statutory Auditor)

for and on behalf of KPMG LLP, Statutory Auditor

Chartered Accountants

Saltire Court

20 Castle Terrace

Edinburgh

EH1 2EG

28 February 2023

 

 

7. Group financial statements

Consolidated income statement

		2022	2021
	Notes	£m	£m
Revenue from contracts with customers	3	1,538	1,685
Cost of sales	3	(82)	(142)
Net operating revenue		1,456	1,543
Restructuring and corporate transaction expenses	5	(214)	(259)
Impairment of intangibles acquired in business combinations and through the purchase of customer contracts	5	(369)	-
Amortisation of intangibles acquired in business combinations and through the purchase of customer contracts	5	(125)	(99)
Staff costs and other employee-related costs	5	(549)	(604)
Other administrative expenses	5	(662)	(594)
Total administrative and other expenses		(1,919)	(1,556)
Net gains or losses on financial instruments and other income
Fair value movements and dividend income on significant listed investments	4	(119)	(227)
Other net gains or losses on financial instruments and other income	4	(3)	44
Total net gains or losses on financial instruments and other income		(122)	(183)
Finance costs		(29)	(30)
Profit on disposal of subsidiaries and other operations	1	-	127
Profit on disposal of interests in associates	1	6	1,236
Loss on impairment of interests in associates	14	(9)	-
Share of profit or loss from associates and joint ventures	14	2	(22)
(Loss)/profit before tax		(615)	1,115
Tax credit/(expense)	9	66	(120)
(Loss)/profit for the year		(549)	995
Attributable to:
Equity shareholders of abrdn plc		(561)	994
Other equity holders	28	11	-
Non-controlling interests - ordinary shares	28	1	1
		(549)	995
Earnings per share
Basic (pence per share)	10	(26.8)	46.8
Diluted (pence per share)	10	(26.8)	46.0

 

The Notes on pages 163 to 264 are an integral part of these consolidated financial statements.

Consolidated statement of comprehensive income

For the year ended 31 December 2022

		2022	2021
	Notes	£m	£m
(Loss)/profit for the year		(549)	995
Items that will not be reclassified subsequently to profit or loss:
Remeasurement (losses)/gains on defined benefit pension plans	31	(793)	117
Share of other comprehensive income of associates and joint ventures	14	-	12
Equity holder tax effect of items that will not be reclassified subsequently to profit or loss	9	-	3
Total items that will not be reclassified subsequently to profit or loss		(793)	132
Items that may be reclassified subsequently to profit or loss:
Fair value gains on cash flow hedges	18	85	19
Exchange differences on translating foreign operations		36	(2)
Share of other comprehensive income of associates and joint ventures	14	(28)	(4)
Items transferred to the consolidated income statement
Fair value (gains) on cash flow hedges	18	(78)	(10)
Realised foreign exchange losses	1	-	18
Share of other comprehensive income of associates and joint ventures	1	-	(9)
Equity holder tax effect of items that may be reclassified subsequently to profit or loss	9	(2)	(3)
Total items that may be reclassified subsequently to profit or loss		13	9
Other comprehensive income for the year		(780)	141
Total comprehensive income for the year		(1,329)	1,136
Attributable to:
Equity shareholders of abrdn plc		(1,341)	1,135
Other equity holders	28	11	-
Non-controlling interests - ordinary shares	28	1	1
		(1,329)	1,136

 

The Notes on pages 163 to 264 are an integral part of these consolidated financial statements.

Consolidated statement of financial position

As at 31 December 2022

			2022	2021
		Notes	£m	£m
Assets
Intangible assets		13	1,619	704
Pension and other post-retirement benefit assets		31	831	1,607
Investments in associates and joint ventures accounted for using the equity method		14	267	274
Property, plant and equipment		15	201	187
Deferred tax assets		9	212	168
Financial investments		17	2,939	4,316
Receivables and other financial assets		19	907	680
Current tax recoverable		9	7	2
Other assets		20	92	105
Assets held for sale		21	87	-
Cash and cash equivalents		22	1,133	1,904
			8,295	9,947
Assets backing unit linked liabilities		23
Financial investments			924	1,430
Receivables and other unit linked assets			5	8
Cash and cash equivalents			23	33
			952	1,471
Total assets			9,247	11,418
			2022	2021
		Notes	£m	£m
Liabilities
Third party interest in consolidated funds		29	242	104
Subordinated liabilities		30	621	644
Pension and other post-retirement benefit provisions		31	12	38
Deferred income		32	3	5
Deferred tax liabilities		9	211	165
Current tax liabilities		9	11	27
Derivative financial liabilities		29	1	5
Other financial liabilities		33	1,198	1,046
Provisions		34	97	49
Other liabilities		34	8	8
Liabilities of operations held for sale		21	14	-
			2,418	2,091
Unit linked liabilities		23
Investment contract liabilities			773	1,088
Third party interest in consolidated funds			173	378
Other unit linked liabilities			6	5
			952	1,471
Total liabilities			3,370	3,562
Equity
Share capital		24	280	305
Shares held by trusts		25	(149)	(171)
Share premium reserve		24	640	640
Retained earnings		26	5,021	5,775
Other reserves		27	(129)	1,094
Equity attributable to equity shareholders of abrdn plc			5,663	7,643
Other equity		28	207	207
Non-controlling interests - ordinary shares		28	7	6
Total equity			5,877	7,856
Total equity and liabilities			9,247	11,418

 

The Notes on pages 163 to 264 are an integral part of these consolidated financial statements.

The consolidated financial statements on pages 156 to 264 were approved by the Board and signed on its behalf by the following Directors:

Sir Douglas Flint	Stephanie Bruce
Chairman 28 February 2023	Chief Financial Officer 28 February 2023

 

 

Consolidated statement of changes in equity

For the year ended 31 December 2022

		Share capital	Shares held by trusts	Share premium reserve	Retained earnings1	Other reserves1	Total equity attributable to equity shareholders of abrdn plc	Other equity	Non-controlling interests - ordinary shares	Total equity
	Notes	£m	£m	£m	£m	£m	£m	£m	£m	£m
1 January 2022		305	(171)	640	5,775	1,094	7,643	207	6	7,856
Loss for the year		-	-	-	(561)	-	(561)	11	1	(549)
Other comprehensive income for the year		-	-	-	(821)	41	(780)	-	-	(780)
Total comprehensive income for the year	26,27	-	-	-	(1,382)	41	(1,341)	11	1	(1,329)
Issue of share capital	24	-	-	-	-	-	-	-	-	-
Dividends paid on ordinary shares	12	-	-	-	(307)	-	(307)	-	-	(307)
Interest paid on other equity	28	-	-	-	-	-	-	(11)	-	(11)
Share buyback	24, 26, 27	(25)	-	-	(302)	25	(302)	-	-	(302)
Cancellation of capital redemption reserve	26, 27	-	-	-	1,059	(1,059)	-	-	-	-
Other movements in non-controlling interests in the year	28	-	-	-	-	-	-	-	-	-
Reserves credit for employee share-based payments	27	-	-	-	-	24	24	-	-	24
Transfer to retained earnings for vested employee share-based payments	26,27	-	-	-	63	(63)	-	-	-	-
Transfer between reserves on disposal of subsidiaries		-	-	-	1	(1)	-	-	-	-
Transfer between reserves on impairment of subsidiaries		-	-	-	207	(207)	-	-	-	-
Shares acquired by employee trusts	25	-	(46)	-	-	-	(46)	-	-	(46)
Shares distributed by employee and other trusts and related dividend equivalents	25, 26	-	68	-	(70)	-	(2)	-	-	(2)
Other movements1	26, 27	-	-	-	(23)	17	(6)	-	-	(6)
31 December 2022		280	(149)	640	5,021	(129)	5,663	207	7	5,877

1.  Other movements include the transfer of (£17m) previously recognised in the foreign currency translation reserve (which is part of Other reserves) to Retained earnings. In prior years we have considered the functional currency of an intermediate subsidiary holding the Group's investment in HDFC Life to be 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 to equity shareholders of abrdn plc	Other equity	Non-controlling interests - ordinary shares	Total equity
	Notes	£m	£m	£m	£m	£m	£m	£m	£m	£m
1 January 2021		306	(170)	640	4,970	1,064	6,810	-	3	6,813
Profit for the year		-	-	-	994	-	994	-	1	995
Other comprehensive income for the year		-	-	-	119	22	141	-	-	141
Total comprehensive income for the year	26,27	-	-	-	1,113	22	1,135	-	1	1,136
Issue of share capital	24	-	-	-	-	-	-	-	-	-
Issue of other equity	28	-	-	-	-	-	-	207	-	207
Dividends paid on ordinary shares	12	-	-	-	(308)	-	(308)	-	-	(308)
Share buyback	24, 26, 27	(1)	-	-	-	1	-	-	-	-
Other movements in non-controlling interests in the year	28	-	-	-	6	-	6	-	2	8
Reserves credit for employee share-based payments	27	-	-	-	-	43	43	-	-	43
Transfer to retained earnings for vested employee share-based payments	26,27	-	-	-	36	(36)	-	-	-	-
Shares acquired by employee trusts	25	-	(41)	-	-	-	(41)	-	-	(41)
Shares distributed by employee and other trusts and related dividend equivalents	25, 26	-	40	-	(42)	-	(2)	-	-	(2)
31 December 2021		305	(171)	640	5,775	1,094	7,643	207	6	7,856

The Notes on pages 163 to 264 are an integral part of these consolidated financial statements.

 

Consolidated statement of cash flows

For the year ended 31 December 2022

		2022	2021
	Notes	£m	£m
Cash flows from operating activities
(Loss)/profit before tax		(615)	1,115
Change in operating assets	38	916	214
Change in operating liabilities	38	(725)	(209)
Other non-cash and non-operating items	38	570	(1,099)
Dividends received from associates and joint ventures	14	-	15
Taxation paid1		(36)	(22)
Net cash flows from operating activities		110	14
Cash flows from investing activities
Purchase of property, plant and equipment		(21)	(12)
Acquisition of subsidiaries and unincorporated businesses net of cash acquired	1(b)	(1,378)	(145)
Disposal of subsidiaries net of cash disposed of	38	-	112
Acquisition of investments in associates and joint ventures	14	(20)	(11)
Proceeds in relation to contingent consideration2	37	18	54
Payments in relation to contingent consideration	37	(7)	(28)
Disposal of investments in associates and joint ventures	1(c)	6	304
Taxation paid on disposal of investments in associates and joint ventures1		-	(33)
Purchase of financial investments		(297)	(368)
Proceeds from sale or redemption of financial investments	17	1,633	938
Taxation paid on sale or redemption of financial investments1		(28)	-
Prepayment in respect of potential acquisition of customer contracts	1(c)(iii)	14	(56)
Acquisition of intangible assets		(6)	-
Net cash flows from investing activities		(86)	755
Cash flows from financing activities
Proceeds from issue of perpetual subordinated notes		-	208
Repayment of subordinated liabilities	30	(92)	-
Payment of lease liabilities - principal		(46)	(27)
Payment of lease liabilities - interest		(6)	(6)
Shares acquired by trusts		(46)	(41)
Interest paid on subordinated liabilities and other equity		(34)	(28)
Other interest paid		(2)	-
Cash received relating to collateral held in respect of derivatives hedging subordinated liabilities		74	-
Share buyback	24	(302)	(41)
Ordinary dividends paid	12	(307)	(308)
Net cash flows from financing activities		(761)	(243)
Net (decrease)/increase in cash and cash equivalents		(737)	526
Cash and cash equivalents at the beginning of the year		1,875	1,358
Effects of exchange rate changes on cash and cash equivalents		28	(9)
Cash and cash equivalents at the end of the year	22	1,166	1,875
Supplemental disclosures on cash flows from operating activities
Interest paid		-	1
Interest received		38	22
Dividends received		110	122
Rental income received on investment property		2	2

1.  Total taxation paid was £64m in 2022 (2021: £55m).

2.  Proceeds in relation to contingent consideration for the year ended 31 December 2021 included £34m in relation to discontinued operations (2022: £nil).

The Notes on pages 163 to 264 are an integral part of these consolidated financial statements.

Presentation of consolidated financial statements

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

(a)                          Basis of preparation

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

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

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

The Group has adopted the following new International Financial Reporting Standards (IFRSs), interpretations and amendments to existing standards, which are effective 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 existing standards has had no significant impact on the Group's financial statements.

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

Certain new standards, interpretations and amendments to existing standards have been published that are mandatory for the Group's annual accounting periods beginning after 1 January 2022. The Group has not early adopted the standards, amendments and interpretations described below.

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

IFRS 17 was issued in May 2017 and will replace IFRS 4 Insurance Contracts. The standard was endorsed by the UK Endorsement Board on 16 May 2022. IFRS 4 is an interim standard which permits the continued application of accounting policies, for insurance contracts and contracts with discretionary participation features, which were being used at transition to IFRS except where a change satisfies criteria set out in IFRS 4. IFRS 17 introduces new required measurement and presentation accounting policies for such contracts which reflect the view that these contracts combine features of a financial instrument and a service contract.

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

The Group has no material direct exposure to insurance contracts and contracts with discretionary participating features which will be impacted by the adoption of IFRS 17. However, the results of the Group's joint venture Heng An Standard Life Insurance Company Limited (HASL) are expected to be impacted by IFRS 17, and the related adoption by HASL of IFRS 9, with a resulting restatement of the carrying value of the joint venture as at 1 January 2022. The amount of the restatement is not currently known.

Other

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

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

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

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

Financial statement area	Critical judgements in applying accounting policies	Related note
Defined benefit pension plans	Assessment of whether the Group has an unconditional right to a refund of the surplus. Treatment of tax relating to the surplus.	Note 31
Intangible assets	Identification, valuation and allocation to cash generating units of intangible assets arising from business combinations, and the determination of useful lives      .	Note 13
Provisions	Determining whether a provision is required for separation costs.	Note 34

 

The following changes have been made to the Group's critical judgements:

-     Determining whether the investments in Phoenix and HDFC Asset Management should continue to be classified as associates is no longer a critical judgement for the Group, following their reclassifications during 2021 (refer Note 1(c)(iii)).

-     Identification, valuation and determination of useful lives for equity accounting purposes, of the Group's share of its associate's intangible assets at the date of acquisition of an investment in the associate is also no longer a critical judgement for the Group, following the reclassification of Phoenix during 2021.

-     In relation to the acquisition of ii (refer Note 1(b)(i)), the allocation to cash generating units of goodwill arising from the acquisition was a critical judgement during 2022 in addition to identification and valuation of the intangible assets.

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

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

Financial statement area	Critical accounting estimates and assumptions	Related note
Intangible assets	Determination of the recoverable amount in relation to the impairment of goodwill	Note 13
Financial instruments at fair value through profit or loss	Determination of the fair value of contingent consideration liabilities relating to the acquisition of Tritax	Notes 35 and 37
Defined benefit pension plans	Determination of principal UK pension plan assumptions for mortality, discount rate and inflation	Note 31

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

-     As a result of market and macroeconomic conditions and acquisitions in the period the determination of the recoverable amount in relation to the impairment of goodwill is now considered a critical accounting estimate.

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

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

(a)(iv)      Foreign currency translation

The consolidated financial statements are presented in million pounds Sterling.

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

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

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

(a)(v)      Going concern

The Group's business activities, together with the factors likely to affect its future development, performance and financial position, are set out in the Strategic report. This includes details on our liquidity and capital management and our viability statement in the Chief Financial Officer's overview section and our principal risks in the Risk management section including the impacts of the macroeconomic environment and higher inflation, the Ukraine conflict and COVID-19 on these principal risks. In addition, these financial statements include notes on the Group's subordinated liabilities (Note 30), management of its risks including market, credit and liquidity risk (Note 35), its contingent liabilities and commitments (Notes 39 and 40), and its capital structure and position (Note 43).

In preparing these financial statements 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 31 December 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 2026 and remains undrawn.

-     The Group's indicative regulatory capital surplus on an IFPR basis was £0.7bn in excess of capital requirements at 31 December 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 2022 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 financial statements. Accordingly, the financial statements have been prepared on a going concern basis. There were no material uncertainties relating to this going concern conclusion.

(b)          Basis of consolidation

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

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

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

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

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

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

Notes to the Group financial statements

1.         Group structure

(a)          Composition

The following diagram is an extract of the Group structure at 31 December 2022 and gives an overview of the composition of the Group.

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

A full list of the Company's subsidiaries is provided in Note 45.

(b)          Acquisitions

(b)(i)       Current year 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 of £11m made by abrdn to fund the settlement of ii transaction liabilities as part of the transaction. 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.

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

27 May 2022		£m
Cash consideration1,2		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 assets3		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.

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 cash outflow shown in the consolidated statement of cash flows of £1,378m comprises cash consideration of £1,485m less cash and cash equivalents acquired of £107m.

Intangible assets acquired in the business combination consist of customer relationships, brand and technology and other intangibles. Refer Note 13 for details of the key assumptions used in measuring the fair value of these intangibles at the acquisition date.

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 goodwill has been primarily allocated to the ii cash-generating unit in the Personal segment (£819m), with £132m and £42m allocated to the asset management group of cash-generating units in the Investments segment and a cash-generating unit in the Personal segment respectively for the revenue synergies noted above.

The revenue from contracts with customers and post tax profit contributed to the Group's consolidated income statement for the year ended 31 December 2022 from the acquired ii business were £117m and £41m 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 £1,603m and the loss would have increased by £4m to £553m. 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 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 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 year ended 31 December 2022 and 31 December 2021 respectively.

On 1 September 2022, Antler made a dividend in specie to abrdn plc of its investment in Interactive Investor Limited which is now a direct subsidiary of abrdn plc. Refer Note A of the Company financial statements for further details.

(b)(ii)     Prior year acquisitions of subsidiaries

On 1 April 2021, abrdn Holdings Limited (formerly named Aberdeen Asset Management PLC )(aHL) 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 37(a)(iv) for further details on the contingent consideration liability.

In addition, on 29 October 2021, aHL purchased 100% of the issued share capital of the investing insights platform Finimize. The cash outflow at the completion of the acquisition was £87m, which comprised consideration of £75m and payments made to settle debt and other liabilities on behalf of Finimize as part of the transaction of £12m. Finimize empowers retail investors by equipping them with information to make their own informed investment decisions, without any jargon, in less than fifteen minutes a day. Refer Note 13 for details of the goodwill impairment in 2022.

(c)          Disposals

(c)(i)       Prior year 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
Disposal of Bonaccord	39
Other disposals	15
Profit on disposal of subsidiaries and other operations for the year ended 31 December 2021	127

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 year ended 31 December 2021.

(c)(ii)      Current year disposal of associates

Profit on disposal of interests in associates for the year ended 31 December 2022 of £6m relates to the sale of the Group's interest in Origo Services Limited in May 2022.

(c)(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
Sale of equity shares in HDFC Asset Management and reclassification	1,168
Profit on disposal of interests in associates for the year ended 31 December 2021	1,236

 

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 year ended 31 December 2021. 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 year 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 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 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 year ended 31 December 2021		1,168

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 considered, along with HDFC Life, as significant listed investments for the purpose of determining the Group's adjusted profit. Refer Note 11(a) for changes in the Group's significant listed investments in the year ended 31 December 2022.

2.            Segmental analysis

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

(a)          Basis of segmentation

(a)(i)       Current reportable segments

Investments

Our global asset management business which provides investment solutions for Institutional, Wholesale and Insurance clients. The Investment segment includes the Tritax and Finimize businesses following their acquisitions during the year ended 31 December 2021.

Adviser

Our market-leading UK financial adviser business which provides platform services 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 on 27 May 2022. Refer Note 1(b)(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 period also includes 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/ strategic	Total
31 December 2022	Notes	£m	£m	£m	£m	£m
Net operating revenue1		1,070	185	201	-	1,456
Adjusted operating expenses		(956)	(99)	(129)	(9)	(1,193)
Adjusted operating profit		114	86	72	(9)	263
Adjusted net financing costs and investment return						(10)
Adjusted profit before tax						253
Tax on adjusted profit						(22)
Adjusted profit after tax						231
Adjusted for the following items
Restructuring and corporate transaction expenses	8					(214)
Amortisation and impairment of intangible assets acquired in business combinations and through the purchase of customer contracts	5					(494)
Profit on disposal of interests in associates	1					6
Change in fair value of significant listed investments	4					(187)
Dividends from significant listed investments	4					68
Share of profit or loss from associates and joint ventures2	14					2
Impairment of interests in associates	14					(9)
Other	11					(40)
Total adjusting items including results of associates and joint ventures						(868)
Tax on adjusting items						88
Profit attributable to other equity holders						(11)
Profit attributable to non-controlling interests - ordinary shares						(1)
Loss for the year attributable to equity shareholders of abrdn plc						(561)
Profit attributable to other equity holders						11
Profit attributable to non-controlling interests - ordinary shares						1
Loss for the year						(549)

1.  The Group's measure of segmental revenue has been renamed from fee based revenue to net operating revenue.

2.  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) and Tenet.

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

In the year ended 31 December 2022, transactions with one external customer amounted to more than 10% of net operating revenue (2021: one). This net operating revenue of £180m (2021: £195m) is included in the Investments segment.

Adjusted operating expenses includes depreciation and amortisation of £41m (2021: £47m); £36m (2021: £37m) for the Investments segment; £2m (2021: £4m) for the Adviser segment; £3m (2021: £4m) for the Personal segment; and £nil (2021: £2m) for Corporate/strategic. Interest income, interest expense and income tax expense are not analysed by segment in the information provided to the executive leadership team.

Assets and liabilities by segment is not required to be presented as such information is not presented on a regular basis to the executive leadership team.

		Investments	Adviser	Personal	Corporate/ strategic	Total
31 December 2021	Notes	£m	£m	£m	£m	£m
Net operating revenue1		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	8					(259)
Amortisation and impairment of intangible assets acquired in business combinations and through the purchase of customer contracts	5					(99)
Profit on disposal of subsidiaries and other operations	1					127
Profit on disposal of interests in associates	1					1,236
Change in fair value of significant listed investments	4					(298)
Dividends from significant listed investments	4					71
Share of profit or loss from associates and joint ventures2	14					(22)
Other	11					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.  The Group's measure of segmental revenue has been renamed from fee based revenue to net operating revenue. This measure of segmental revenue excludes £28m of net operating revenue as presented in the IFRS consolidated income statement for the year ended 31 December 2021 which was classified as adjusting items. The adjusting items primarily relate to the net release of deferred income of £25m. Refer Note 32.

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

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

Net operating revenue

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

Adjusted operating expenses

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

	2022	2021
	£m	£m
Total administrative and other expenses as presented in the IFRS consolidated income statement	(1,919)	(1,556)
Restructuring and corporate transaction expenses included in adjusting items	214	259
Amortisation and impairment of intangible assets acquired in business combinations and through the purchase of customer contracts included in adjusting items	494	99
Administrative and other expenses relating to the unit linked business	1	3
Other differences	17	3
Adjusted operating expenses as presented in the analysis of Group adjusted profit by segment	(1,193)	(1,192)

Other differences relate to items presented in adjusted net financing costs and investment return for segment reporting (see commentary under table below) and other items classified as adjusting items (refer Note 11).

Adjusted net financing costs and investment return

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

	2022	2021
	£m	£m
Net gains or losses on financial instruments and other income as presented in the IFRS consolidated income statement	(122)	(183)
Finance costs separately disclosed in the IFRS consolidated income statement	(29)	(30)
Change in fair value of significant listed investments included in adjusting items	187	298
Dividends from significant listed investments included in adjusting items	(68)	(71)
Net gains or losses on financial instruments and other income relating to the unit linked business	(5)	(7)
Other differences	27	(7)
Adjusted net financing costs and investment return as presented in the analysis of Group adjusted profit by segment	(10)	-

Other differences primarily relate to amounts presented in a different line item of the IFRS consolidated income statement and other items classified as adjusting items. This includes the net interest credit relating to the staff pension schemes of £29m (2021: £17m) which is presented in total administrative and other expenses in the IFRS consolidated income statement and in adjusted net financing costs and investment return in the analysis of Group adjusted profit by segment.

(c)          Total net operating revenue by geographical location

Total net operating revenue¹ split by geographical location is as follows:

	2022	2021
	£m	£m
UK	1,041	1,015
Europe, Middle East and Africa	114	132
Asia Pacific	164	209
Americas	137	159
Total	1,456	1,515

1.  Net operating revenue is allocated based on legal entity revenue recognition.

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

	2022	2021
	£m	£m
UK	1,745	808
Europe, Middle East and Africa	10	9
Asia Pacific	8	13
Americas	57	61
Total	1,820	891

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

3.         Net operating revenue

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

Revenue from contracts with customers is recognised as services are provided i.e. as the performance obligation is satisfied. Performance fees and carried interest are only recognised once it is highly probable that a significant reversal will not occur in future periods. Where revenue is received in advance (front-end fees), this income is deferred and recognised as a deferred income liability until the services have been provided (refer Note 32).

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

(a)          Revenue from contracts with customers

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

	2022	2021
	£m	£m
Investments
Management fee income - Institutional and Wholesale1	901	1,043
Management fee income - Insurance1	167	200
Performance fees and carried interest	41	99
Other revenue from contracts with customers	38	54
Revenue from contracts with customers for the Investments segment	1,147	1,396
Adviser
Platform charges	176	179
Treasury income	11	1
Revenue from contracts with customers for the Adviser segment	187	180
Personal
Fee income - Advice and Discretionary	87	92
Account fees	32	-
Trading transactions	27	-
Treasury income	58	-
Revenue from contracts with customers for the Personal segment	204	92
Corporate/strategic - Parmenion fund platform fee income	-	17
Total revenue from contracts with customers	1,538	1,685

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

Investments

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

Adviser

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

In addition, Adviser receives treasury income for providing management and administration of cash held in platform cash accounts. The performance obligation for cash management and administration is performed over time with the revenue recognised as the obligation is performed. The customer receives interest on their cash balances after deduction of a cash management administration charge which is generally calculated as a percentage of their cash held in relevant accounts. The percentage varies depending on the interest received from the banks used to provide the cash accounts. There are no significant payment terms.

Personal

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

Through its subsidiary Interactive Investor Services Limited (ii), the Group offers a subscription-based trading and direct investing platform. The services that ii offers are provided on both a point in time and an over time basis.

Customers pay monthly account fees as part of ii's subscription model. Account fees are invoiced monthly and are payable immediately from the customer's account, with receivables recognised if there are insufficient funds available. The account fees cover the performance obligation to provide the customer with access to the platform and custody services. For certain subscription levels, the account fee also entitles the customer to receive trading credits which can be redeemed against future trades. For these subscription levels, the account fees also cover ii's performance obligation to perform these future trades. In accordance with IFRS 15, the account fees are allocated to the two performance obligations. Access to the platform and custody services is provided over time and the account fees revenue allocated to this performance obligation is recognised over the calendar month as the customer receives the benefit of these services. Trading credits need to be used by the customer within 31 days of the credit arising, therefore the revenue is recognised over the calendar month as a reasonable approximation of when the performance obligation is satisfied at a point in time within the month.

In addition, ii performs additional trades and foreign exchange transactions for its customers. These are performed at a point in time with the revenue recognised at the trade date of the transaction. Trading fees for transactions not covered by trading credits are generally charged on a flat fee basis with larger international share trades charged based on a percentage of the trade value. These are added to the cost of purchasing shares or deducted from the proceeds from the sale of shares with receivables recognised for unsettled trades. For foreign exchange trades, ii receives a margin (varying depending on the size of the transaction) via a third party in the month following the transaction, with receivables recognised prior to the payment.

In addition, ii is entitled to receive treasury income in relation to its performance obligations to the customer. Treasury income is the interest earned on cash balances less the interest paid to customers based on the client money balances held with third party banks and by reference to the applicable interest rates. Treasury income is recognised on an over time basis with accrued income recognised for unpaid interest.

(b)          Cost of sales

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

	2022	2021
	£m	£m
Cost of sales
Commission expenses	66	87
Other cost of sales	16	55
Total cost of sales	82	142

Other cost of sales includes amounts payable to employees and others relating to carried interest and performance fee revenue. Cost of sales for each of the Group's reportable segments is disclosed in Section (c) below.

 

(c)          Reconciliation of revenue from contracts with customers to net operating revenue as presented in the analysis of adjusted operating profit

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

	Investments	Adviser	Personal	Corporate/strategic	Total
2022	£m	£m	£m	£m	£m
Revenue from contracts with customers	1,147	187	204	-	1,538
Cost of sales	(77)	(2)	(3)	-	(82)
Net operating revenue	1,070	185	201	-	1,456

 

	Investments	Adviser	Personal	Corporate/strategic	Total
2021	£m	£m	£m	£m	£m
Revenue from contracts with customers	1,396	180	92	17	1,685
Cost of sales	(137)	(2)	-	(3)	(142)
Net operating revenue as presented in the IFRS consolidated income statement	1,259	178	92	14	1,543
Other differences	(28)	-	-	-	(28)
Net operating revenue as presented in the analysis of Group adjusted profit by segment	1,231	178	92	14	1,515

There are no differences between net operating revenue as presented in the IFRS consolidated income statement and the analysis of Group adjusted profit by segment for the year ended 31               December 2022. Other differences for the year ended 31 December 2021 primarily related to the net release of deferred income of £25m which was classified as an adjusting item (refer Note 32).

(d)          Contract receivables, assets and liabilities

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

		31 December 2022	31 December 2021	1 January 2021
	Notes	£m	£m	£m
Amounts receivable from contracts with customers	19	161	135	115
Accrued income from contracts with customers	19	273	260	221
Cost of obtaining customer contracts	13	27	37	49
Deferred acquisition costs	20	1	3	4
Total contract receivables and assets		462	435	389

 

		31 December 2022	31 December 2021	1 January 2021
	Notes	£m	£m	£m
Deferred Income	32	3	5	73
Total contract liabilities		3	5	73

The increase in amounts receivable from contracts with customers and accrued income from contracts with customers is primarily due to the inclusion of balances relating to ii which was acquired during the year ended 31 December 2022. Refer Note 1(b)(i) for further details.

Refer Note 32 for details of the release of £57m of deferred income in the year ended 31 December 2021.

4.         Net gains or losses on financial instruments and other income

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

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

Other income includes income related to vacant property and fair value movements in contingent consideration.

 

 

			2022	2021
		Notes	£m	£m
Fair value movements and dividend income on significant listed investments
Fair value movements on significant listed investments (other than dividend income)			(187)	(298)
Dividend income from significant listed investments			68	71
Total fair value movements and dividend income on significant listed investments			(119)	(227)
Non-unit linked business - excluding significant listed investments
Net gains or losses on financial instruments at fair value through profit or loss			(83)	20
Interest and similar income from financial instruments at amortised cost			25	10
Foreign exchange gains or losses on financial instruments at amortised cost			9	(1)
Other income			41	8
Net gains or losses on financial instruments and other income - non-unit linked business - excluding significant listed investments			(8)	37
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			(130)	174
Change in non-participating investment contract financial liabilities			112	(124)
Change in liability for third party interests in consolidated funds			23	(43)
Total net gains or losses on financial instruments at fair value through profit or loss			5	7
Net gains or losses on financial instruments and other income - unit linked business1		23	5	7
Total other net gains or losses on financial instruments and other income			(3)	44
Total net gains or losses on financial instruments and other income			(122)	(183)

1.  In addition to the Net gains or losses on financial instruments and other income - unit linked business of £5m (2021: £7m), there are administrative expenses and policyholder tax of £1m (2021: £3m) and £4m (2021: £4m) respectively relating to unit linked business for the account of policyholders so the result attributable to unit linked business for the year is £nil (2021: £nil). Refer Note 23 for further details.

Fair value movements on significant listed investments (other than dividend income) of losses of £187m (2021: losses of £298m) comprises losses of £38m relating to HDFC Life (2021: losses of £52m), losses of £105m relating to HDFC Asset Management (2021: losses of £164m) and losses of £44m relating to Phoenix (2021: losses of £82m).

Dividend income from significant listed investments of £68m (2021: £71m) comprises £52m (2021: £69m) relating to Phoenix, £15m (2021: £nil) relating to HDFC Asset Management and £1m (2021: £2m) relating to HDFC Life.

5.         Administrative and other expenses

		2022	2021
	Notes	£m	£m
Restructuring and corporate transaction expenses	8	214	259
Impairment of intangibles acquired in business combinations and through the purchase of customer contracts
Impairment of intangibles acquired in business combinations	13	368	-
Impairment of intangibles acquired through the purchase of customer contracts	13	1	-
Total impairment of intangibles acquired in business combinations and through the purchase of customer contracts		369	-
Amortisation of intangibles acquired in business combinations and through the purchase of customer contracts
Amortisation of intangibles acquired in business combinations	13	115	87
Amortisation of intangibles acquired through the purchase of customer contracts	13	10	12
Total amortisation of intangibles acquired in business combinations and through the purchase of customer contracts		125	99
Staff costs and other employee-related costs	6	549	604
Other administrative expenses1,2		662	594
Total administrative and other expenses3		1,919	1,556

1.  Other administrative expenses includes expense relating to a single process execution event provision, refer Note 34.

2.  Other administrative expenses includes interest expense of £2m (2021: £1m). In addition, interest expense of £23m (2021: £24m) was incurred in respect of subordinated liabilities and the related cash flow hedge (refer Note 18) and interest expense of £6m (2021: £6m) in respect of lease liabilities (refer Note 16) which are included in Finance costs in the consolidated income statement.

3.  Total administrative and other expenses includes £1m (2021: £3m) relating to unit linked business. Refer Note 23 for further details.

6.         Staff costs and other employee-related costs

		2022	2021
	Notes	£m	£m
The aggregate remuneration payable in respect of employees:
Wages and salaries		452	469
Social security costs		50	56
Pension costs
Defined benefit plans		(29)	(17)
Defined contribution plans		56	53
Employee share-based payments and deferred fund awards	41	20	43
Total staff costs and other employee-related costs		549	604

In addition, wages and salaries of £25m (2021: £27m), social security costs of £3m (2021: £3m), pension costs - defined benefit plans of less than £1m (2021: less than £1m), pension costs - defined contribution plans of £1m (2021: £1m), employee share-based payments and deferred fund awards relating to transformation, leavers and corporate transactions of £6m (2021: £16m) and termination benefits of £53m (2021: £50m) have been included in restructuring and corporate transaction expenses. Refer Note 8. A further £11m (2021: £53m) of expenses are included in other cost of sales in relation to amounts payable to employees and former employees relating to carried interest and performance fee revenue. Refer Note 3.

The following table provides an analysis of the average number of staff employed by the Group during the year. The average number of staff for the year ended 31 December 2021 included roles classified as Operations, IT and support functions which from 1 January 2022 have been allocated directly to the reportable segment as a result of changes to reporting lines.

	2022	2021
Investments	2,344	1,683
Adviser	658	136
Personal	928	626
Operations, IT and support functions	1,369	3,018
Total employees	5,299	5,463

Information in respect of Directors' remuneration is provided in the Directors' remuneration report on pages 103 to 130.

7.         Auditors' remuneration

The following table shows the auditors' remuneration during the year.

	2022	2021
	£m	£m
Fees payable to the Company's auditors for the audit of the Company's individual and consolidated financial statements	1.5	1.0
Fees payable to the Company's auditors for other services
The audit of the Company's consolidated subsidiaries pursuant to legislation	4.7	4.1
Audit related assurance services	2.3	2.0
Total audit and audit related assurance fees	8.5	7.1
Other assurance services	1.0	1.2
Other non-audit fee services	0.3	0.9
Total non-audit fees	1.3	2.1
Total auditors' remuneration	9.8	9.2

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

During the year ended 31 December 2022 no audit fees were payable in respect of defined benefit plans to the Group's principal auditor (2021: £nil).

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

8.         Restructuring and corporate transaction expenses

Total restructuring and corporate transaction expenses during the year were £214m (2021: £259m). Restructuring expenses of £169m (2021: £224m) mainly relate to transformation costs including severance, platform transformation and specific costs to effect savings in Investments. Corporate transaction expenses were £45m (2021: £35m) and include deal costs relating to acquisitions for the year ended 31 December 2022 of £14m (2021: £16m).

9.         Taxation

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

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

A deferred tax asset represents a tax deduction that is expected to arise in a future period. It is only recognised to the extent that it is probable that the tax deduction will be capable of being offset against taxable profits and gains in future periods. A deferred tax liability represents taxes which will become payable in a future period as a result of a current or prior year transaction. Where local tax law allows, deferred tax assets and liabilities are netted off on the statement of financial position. The tax rates used to determine deferred tax are those enacted or substantively enacted at the balance sheet date that are expected to apply when the deferred tax asset or liability are realised. Any tax consequences of distributions on other equity instruments are credited to the statement in which the profit distributed originally arose.

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

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

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

(a)          Tax charge in the consolidated income statement

(a)(i)        Current year tax expense

		2022	2021
		£m	£m
Current tax:
UK		5	5
Overseas		45	60
Adjustment to tax expense in respect of prior years		(8)	11
Total current tax		42	76
Deferred tax:
Deferred tax (credit)/expense arising from the current year		(104)	36
Adjustment to deferred tax in respect of prior years		(4)	8
Total deferred tax		(108)	44
Total tax (credit)/expense 1		(66)	120

1.  The tax credit of £66m (2021: tax expense of £120m) includes a tax expense of £4m (2021: £4m) relating to unit linked business. Refer Note 23 for further details.

In 2022 unrecognised tax losses from previous years were used to reduce the current tax expense by £3m (2021: £15m).

Current tax recoverable and current tax liabilities at 31 December 2022 were £7m (2021: £2m) and £11m (2021: £27m) respectively. In addition current tax recoverable and current tax liabilities in relation to unit linked business were less than £1m (2021: £1m) and less than £1m (2021: £1m) respectively. Current tax assets and liabilities are expected to be recoverable or payable in less than 12 months at both 31 December 2022 and 31 December 2021.

(a)(ii)      Reconciliation of tax expense

		2022	2021
		£m	£m
(Loss)/profit before tax		(615)	1,115
Tax at 19% (2021: 19%)		(117)	212
Remeasurement of deferred tax due to rate changes		(15)	(24)
Permanent differences1		1	1
Non-taxable dividends from significant listed investments1		(13)	(14)
Non-taxable fair value movements on significant listed investments		21	7
Tax effect of accounting for Share of profit or loss from associates and joint ventures		(1)	4
Tax effect of distributions on other equity instruments		(2)	-
Impairment losses on goodwill		65	-
Impairment of investment in associates and joint ventures		2	-
Differences in overseas tax rates		5	(70)
Adjustment to current tax expense in respect of prior years		(8)	11
Recognition of previously unrecognised deferred tax credit		(3)	(15)
Deferred tax not recognised		4	2
Adjustment to deferred tax expense in respect of prior years		(4)	8
Non-taxable profit or loss on sale of subsidiaries, associates and significant listed investments		(5)	(5)
Other		4	3
Total tax (credit)/expense for the year		(66)	120

1. 2021 figures were previously disclosed as a single line - permanent differences (£13m).

The standard UK Corporation Tax rate for the accounting period is 19%. The rate of UK Corporation Tax will increase from 19% to 25% with effect from 1 April 2023. The increased rate for future periods has been taken into account in the calculation of UK deferred tax balances.

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

Details of significant reconciling items are as follows:

-   Dividends from significant listed investments not being subject to tax in the UK.

-   Losses on fair value movements on HDFC Life and Phoenix not deductible for tax purposes.

-   Goodwill impairments that are not deductible for tax purposes.

-   Certain profits are taxed at rates which differ from the UK Corporation Tax rate. The difference in overseas tax rates includes a reconciling item relating to the fair value movements and gain on sale of our investment in HDFC Asset Management. This arises because the Indian rate of tax on long-term capital gains is less than the UK Corporation Tax rate.

(b)          Tax relating to components of other comprehensive income

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

		2022	2021
		£m	£m
Tax relating to defined benefit pension plan deficits		-	(3)
Equity holder tax effect relating to items that will not be reclassified subsequently to profit or loss		-	(3)
Tax relating to fair value gains and losses recognised on cash flow hedges		21	6
Tax relating to cash flow hedge gains and losses transferred to consolidated income statement		(19)	(3)
Equity holder tax effect relating to items that may be reclassified subsequently to profit or loss		2	3
Tax relating to other comprehensive income		2	-

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

(c)          Deferred tax assets and liabilities

(c)(i)        Analysis of recognised deferred tax

		2022	2021
		£m	£m
Deferred tax assets comprise:
Losses carried forward		170	129
Depreciable assets		33	25
Employee benefits		26	30
Provisions and other temporary timing differences		5	4
Gross deferred tax assets		234	188
Less: Offset against deferred tax liabilities		(22)	(20)
Deferred tax assets		212	168
Deferred tax liabilities comprise:
Unrealised gains on investments		60	104
Deferred tax on intangible assets acquired through business combinations		162	72
Other		11	9
Gross deferred tax liabilities		233	185
Less: Offset against deferred tax assets		(22)	(20)
Deferred tax liabilities		211	165
Net deferred tax asset at 31 December		1	3

A deferred tax asset of £170m (2021: £129m) has been recognised by the Group in respect of losses of the parent company and various subsidiaries. The increase in this deferred tax asset in 2022 largely reflects the effect of restructuring expenses incurred during the year.

Deferred tax assets are recognised to the extent that it is probable that the losses will be capable of being offset against taxable profits and gains in future periods. The value attributed to them takes into account the certainty or otherwise of their recoverability. Their recoverability is measured against the reversal of deferred tax liabilities and anticipated taxable profits and gains based on business plans. The deferred tax asset recognised on losses relates to UK entities where there is currently no restriction on the period of time over which losses can be utilised. Recognition of this deferred tax asset requires that management must consider if it is more likely than not that this asset will be recoverable in future periods against future profits arising in the UK. In making this assessment management have considered future operating plans and forecast taxable profits and are satisfied that, following completion of transformation activities, forecast taxable profits will be sufficient to enable recovery of the UK tax losses. The financial forecasts considered were consistent with those used for the assessment of the Group's intangible assets (refer Note 13). Based upon the level of forecast taxable profits management do not consider there is significant risk of a material adjustment to the carrying amount of the deferred tax asset on UK tax losses within the next financial year. Management expect the deferred tax asset to be utilised over a period of between four and six years.

Deferred tax liabilities relating to unrealised gains on investments of £60m (2021: £104m) include £52m (2021: £92m) relating to our investment in HDFC Asset Management which was reclassified from an associate during 2021.

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

(c)(ii)       Movements in deferred tax assets and liabilities

	Losses carried forward	Depreciable assets	Employee benefits	Provisions and other temporary timing differences	Unrealised gains on investments	Deferred tax on intangible assets acquired through business combinations	Other	Net deferred tax asset
	£m	£m	£m	£m	£m	£m	£m	£m
At 1 January 2022	129	25	30	4	(104)	(72)	(9)	3
Acquired through business combinations	-	5	-	-	-	(114)	-	(109)
Amounts (expensed) in/credited to the consolidated income statement	41	3	(5)	1	44	24	-	108
Tax on cash flow hedge	-	-	-	-	-	-	(2)	(2)
Other	-	-	1	-	-	-	-	1
At 31 December 2022	170	33	26	5	(60)	(162)	(11)	1

 

	Losses carried forward	Depreciable assets	Employee benefits	Provisions and other temporary timing differences	Unrealised gains on investments	Deferred tax on intangible assets acquired through business combinations	Other	Net deferred tax asset
	£m	£m	£m	£m	£m	£m	£m	£m
At 1 January 2021	89	12	28	2	(4)	(52)	(10)	65
Acquired through business combinations	-	-	-	-	-	(19)	-	(19)
Amounts (expensed) in/credited to the consolidated income statement	40	13	(1)	2	(100)	(2)	4	(44)
Tax on defined benefit pension plan deficits	-	-	3	-	-	-	-	3
Tax on cash flow hedge	-	-	-	-	-	-	(3)	(3)
Other	-	-	-	-	-	1	-	1
At 31 December 2021	129	25	30	4	(104)	(72)	(9)	3

(d)          Unrecognised deferred tax

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

-   Cumulative losses carried forward of £81m in the UK and cumulative losses and other temporary differences of £318m overseas (2021: £78m, £361m respectively).

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

-   US losses of £79m with expiry dates between 2027-2037 (2021: £104m).

-   Other overseas losses of £27m with expiry dates between 2022-2036 (2021: £43m).

The following table provides an analysis of the losses with expiry dates for unrecognised deferred tax assets.

	2022	2021
	£m	£m
Less than 1 year	5	17
Greater than or equal to 1 year and less than 5 years	11	13
Greater than or equal to 5 years and less than 10 years	11	13
Greater than 10 years	79	104
Total losses with expiry dates	106	147

There is no unrecognised deferred tax relating to temporary timing differences associated with investments in subsidiaries, branches and associates and interests in joint arrangements (2021: none).

10.       Earnings per share

Basic earnings per share is calculated by dividing profit or loss 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. Details of the share options and awards issued under the Group's employee plans are provided in Note 41.

Adjusted earnings per share is calculated on adjusted profit after tax attributable to ordinary equity holders of the Company.

Basic earnings per share was (26.8p) (2021: 46.8p) and diluted earnings per share was (26.8p) (2021: 46.0p) for the year ended 31 December 2022. The following table shows details of basic, diluted and adjusted earnings per share.

	2022	2021
	£m	£m
Adjusted profit before tax	253	323
Tax on adjusted profit	(22)	(26)
Adjusted profit after tax	231	297
Attributable to:
Other equity holders	(11)	-
Non-controlling interests - ordinary shares	(1)	(1)
Adjusted profit after tax attributable to equity shareholders of abrdn plc	219	296
Total adjusting items including results of associates and joint ventures	(868)	792
Tax on adjusting items	88	(94)
(Loss)/profit attributable to equity shareholders of abrdn plc	(561)	994

 

	2022	2021
	Millions	Millions
Weighted average number of ordinary shares outstanding	2,094	2,123
Dilutive effect of share options and awards	16	36
Weighted average number of diluted ordinary shares outstanding	2,110	2,159

In accordance with IAS 33, no share options and awards have been treated as dilutive for the year ended 31 December 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 2,094 million.

	2022	2021
	Pence	Pence
Basic earnings per share	(26.8)	46.8
Diluted earnings per share	(26.8)	46.0
Adjusted earnings per share	10.5	13.9
Adjusted diluted earnings per share	10.5	13.7

11.       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 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 1(c)(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 year ended 31 December 2022:

-     The Group's holding in Phoenix 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 £263m.

-     The Group's holding in HDFC Asset Management reduced by 6% to 10.2% following the sale of 12,800,000 million equity shares through a Bulk Sale on 16 August 2022. The total consideration net of taxes, expenses and related foreign exchange hedging was £229m.

-     The Group's holding in HDFC Life reduced by 2% to 1.7% following the sale of 43,000,000 equity shares through a Bulk Sale on 13 September 2022. The total consideration net of taxes, expenses and related foreign exchange hedging was £261m.

(b)          Other

Other adjusting items in 2022 primarily relates to a single process execution event provision of £41m, refer Note 34. Other adjusting items for the year ended 31 December 2022 also includes a net gain on fair value movements in contingent consideration of £35m (2021: loss of £3m). The net gain primarily relates to a £37m gain from a reduction in the fair value of the contingent consideration liability relating to the Tritax acquisition in 2021 and reflects lower revenue expectations as a result of logistic market falls and a higher discount rate due to higher market interest rates. Further information on the valuation of this contingent consideration liability and related sensitivities is included in Note 37.

Other adjusting items for the year ended 31 December 2022 also includes a fair value loss of £11m (2021: £nil) on a financial instrument liability related to a prior period acquisition and a loss of £13m (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 year ended 31 December 2021 also included a net release of deferred income of £25m (2022: £nil) following the transfer of workplace pensions marketing staff to Phoenix in May 2021 (refer Note 32).

12.       Dividends on ordinary shares

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

 

	2022		2021
	Pence per share	£m1	Pence per share	£m
Prior year's final dividend paid	7.30	154	7.30	154
Interim dividend paid	7.30	153	7.30	154
Total dividends paid on ordinary shares		307		308
Current year final recommended dividend	7.30	142	7.30	154

1.  Estimated for current year final recommended dividend.

The final recommended dividend will be paid on 16 May 2023 to shareholders on the Company's register as at 31 March 2023, subject to approval at the 2023 Annual General Meeting. After the current year final recommended dividend, the total dividend in respect of the year ended 31 December 2022 is 14.60p (2021: 14.60p).

13.       Intangible assets

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

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

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

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

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

 

 

		Acquired through business combinations
		Goodwill	Brand	Customer relationships and investment management contracts	Technology and other	Internally developed software1		Purchased software and other	Cost of obtaining customer contracts	Total
		£m	£m	£m	£m	£m		£m	£m	£m
Gross amount
At 1 January 2021		3,475	93	1,031	64	131		5	104	4,903
Disposals and adjustments		-	-	(15)	-	-		-	-	(15)
Additions		246	1	72	5	-		-	-	324
At 31 December 2021		3,721	94	1,088	69	131		5	104	5,212
Reclassified as held for sale during the year		(49)	-	(28)	-	-		-	-	(77)
Disposals and adjustments		-	-	2	-	-		-	1	3
Additions - ii		993	16	421	32	-		-	-	1,462
Additions - other		-	-	-	-	6		-	-	6
At 31 December 2022		4,665	110	1,483	101	137		5	105	6,606
Accumulated amortisation and impairment
At 1 January 2021		(3,390)	(63)	(717)	(61)	(114)		(2)	(55)	(4,402)
Disposals and adjustments		-	-	10	(2)	2		-	-	10
Amortisation charge for the year2		-	(19)	(67)	(1)	(7)		(2)	(12)	(108)
Impairment losses recognised3		-	-	-	-	(8)		-	-	(8)
At 31 December 2021		(3,390)	(82)	(774)	(64)	(127)		(4)	(67)	(4,508)
Reclassified as held for sale during the year		-	-	19	-	-		-	-	19
Amortisation charge for the year2		-	(14)	(91)	(10)	(3)		(1)	(10)	(129)
Impairment losses recognised3		(340)	-	(28)	-	-		-	(1)	(369)
At 31 December 2022		(3,730)	(96)	(874)	(74)	(130)		(5)	(78)	(4,987)
Carrying amount
At 1 January 2021		85	30	314	3	17		3	49	501
At 31 December 2021		331	12	314	5	4		1	37	704
At 31 December 2022		935	14	609	27	7		-	27	1,619

1.  Included in the internally developed software of £7m (2021: £4m) is £5m (2021: £nil) relating to intangible assets not yet ready for use.

2.  For the year ended 31 December 2022, £125m (2021: £99m) of the amortisation charge is recognised in Amortisation of intangibles acquired in business combinations and through the purchase of customer contracts with £4m (2021: £9m) recognised in Other administrative expenses.

3.  For the year ended 31 December 2022, £369m (2021: £nil) of impairment is recognised in Impairment of intangibles acquired in business combinations and through the purchase of customer contracts with £nil (2021: £8m) recognised in Restructuring and corporate transaction expenses.

At 31 December 2022, there was £nil (2021: £167m) of goodwill attributable to the asset management group of cash-generating units and £31m (2021: £72m) of goodwill attributable to the Finimize cash-generating unit, both in the Investments segment. There was £819m (2021: £nil) of goodwill attributable to the ii cash generating unit in the Personal segment. Refer Note 1(b)(i) for further details on the acquisition of ii. The remaining goodwill of £85m (2021: £92m) is attributable to a number of smaller cash-generating units in the Personal segment. Goodwill of £49m relating to the Personal segment was classified as held for sale at 31 December 2022 (refer Note 21).

ii intangible assets

On acquisition of ii, customer relationships, brand and technology and other intangibles of £421m, £16m and £32m respectively were recognised. Identification and valuation of intangible assets acquired in business combinations is a key judgement. The description of the individually material intangible asset including the estimated useful life at the acquisition date of 27 May 2022 was as follows:

Customer relationship intangible asset	Description	Useful life at acquisition date	Fair value on acquisition date	Carrying value 2022	Carrying value 2021
			£m	£m	£m
Customer base	ii's customer base at the date of acquisition	15 years	421	390	N/A

 

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. There has been no change to the useful life and therefore the residual useful life of the customer relationships intangible asset is 14.4 years. 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 ii brand and has been valued based on applying an assumed royalty rate to revenue forecasts.

As set out in Note 1(b)(i) following the valuation of the ii intangibles discussed above goodwill of £993m was recognised. The allocation of this goodwill to cash-generating units was a key judgement in 2022. The goodwill was allocated to cash-generating units based on expected earnings contribution, including in relation to revenue synergies, at the time of the transaction. We considered an earnings contribution method of allocation to be appropriate as earnings multiples are a primary valuation method for businesses such as ii. This resulted in the goodwill being primarily allocated to the ii cash-generating unit in the Personal segment (£819m), with £132m and £42m allocated to the asset management group of cash-generating units in the Investments segment and a cash-generating unit in the Personal segment respectively.

Tritax investment management contract intangible assets

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

Investment management contract intangible asset	Description	Useful life at acquisition date	Fair value on acquisition date	Carrying value 2022	Carrying value 2021
			£m	£m	£m
Tritax Big Box REIT plc	Investment management contract with Tritax Big Box REIT plc	13 years	50	43	47

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

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

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

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

As the investment management contracts relate to closed-end funds, the straight-line method of amortisation is considered appropriate for these intangibles. There has been no change to the useful lives and therefore the residual useful life of these investment management contract intangible assets is 11.25 years.

abrdn Holdings Limited (formerly named Aberdeen Asset Management PLC (aHL)) intangibles

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

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

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

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

Customer relationship intangible asset	Description	Useful life at acquisition date	Fair value on acquisition date	Carrying value 2022	Carrying value 2021
			£m	£m	£m
Open ended funds	Separate vehicle group - open ended investment vehicles	11 years	223	45	62
Segregated and similar	All other vehicle groups dominated by segregated mandates which represent 75% of this group	12 years	427	63	83

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

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

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

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

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

 

The above assumptions, and in particular the net attrition assumption, were also used to determine the useful economic life at the acquisition date of each asset used for amortisation. The reducing balance method of amortisation is considered appropriate for these intangibles, consistent with the attrition pattern on customer relationships which means that the economic benefits delivered from the existing customer base will reduce disproportionately over time.There has been no change to the useful lives of the Open ended funds and Segregated and similar customer relationship intangible assets. Therefore the residual useful life of the Open ended funds customer relationship intangible asset is 5.6 years and the residual life of the Segregated and similar customer relationship intangible asset is 6.6 years.

 

Estimates and assumptions

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

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

-     Determination of useful lives.

The determination of the recoverable amount of the asset management and Finimize cash-generating units was a key estimate in relation to these 2022 accounts. However, following the impairments in 2022, including the full impairment of asset management goodwill, the determination of the recoverable amount for these cash-generating units is not considered a source of estimation uncertainty at 31 December 2022 with a significant risk of resulting in material adjustments to the carrying amount in the next financial year.

The determination of the recoverable amount of the interactive investor and the abrdn financial planning business cash-generating units is a key area of estimation, and further details of assumptions and sensitivities are disclosed in this section.

Determination of the recoverable amount of goodwill and customer intangibles

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

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

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

Goodwill

In 2022 impairments of goodwill of £340m (2021: £nil) have been recognised. The goodwill impairment comprises £299m relating to the asset management group of cash generating units and £41m relating to the Finimize cash-generating unit. Both impairments relate to assets included in the Investments segment. The impairments are included within Impairment of intangibles acquired in business combinations and through the purchase of customer contracts in the consolidated income statement.

Asset management

The asset management group of cash generating units comprises the Investments segment (excluding Finimize) which is the lowest group of cash generating units to which asset management goodwill has been allocated. The impairment of £299m (2021: £nil) resulted from lower future revenue projections and further work being required to reduce Investments costs given this level of revenue. The lower future revenue projections primarily resulted from the impact of lower equity market levels during 2022 and forecast equity market falls in 2023 on assets under management, net outflows in 2022 particularly in the equity asset class and lower forecasts of net inflows in future periods reflecting both macroeconomic conditions and business performance, and the expected reduction in Phoenix revenue as a result of certain active equity and fixed income strategies moving to lower yielding passive quantitative strategies and related pricing changes. Following the impairment the goodwill allocated to the asset management group of cash generating units was £nil (2021: £167m). The goodwill prior to impairment of £299m included additions of £132m allocated to the asset management group of cash generating units for revenue synergies in our Investments segment in relation to the acquisition of ii. Refer Note 1(b)(i) for further details. 

The recoverable amount of this group of cash-generating units at 31 December 2022 was £1,532m which was based on FVLCD. This was also the carrying value of this group of cash-generating units at 31 December 2022. The FVLCD considered a number of valuation approaches, with the primary approach being a discounted cash flow approach. This is a level 3 measurement as it is measured using inputs which are not based on observable market data. Cash flows were based on the three year financial budgets approved by management. The key assumptions used by management in setting the three-year profit forecasts are:

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

-       Assets under management is modelled from future net flow assumptions and market movements. Net flow assumptions take into account past experience and assume institutional and wholesale flows move to a net inflow position over the business plan cycle. Market assumptions assume equity market falls in 2023 with recovery during 2024 and 2025. Fee revenue yield assumptions are adjusted to take into account an expected contraction in the yield on Phoenix assets.

-       Expenses in the management forecasts were based on past experience adjusted for planned expense savings and inflation impacts and take into account related restructuring costs.

Cash flow projections were extrapolated using a 5% revenue growth in years 4 and 5, and then a 2% terminal rate profit growth based on long-term inflation forecasts. A post tax discount rate of 15.35% was used based on the Group/peer companies cost of equity adjusted for forecasting risk.

The recoverable amount at 31 December 2021 was based on VIU. The reason for the change in 2022 was that, at 31 December 2022, FVLCD was assessed by management as being higher than VIU. The VIU is significantly reduced by the IFRS requirement to add back certain staff and property expense savings to management's expectation of the level of future operating expenses, where these expense savings require provisions to be made in future years.

Finimize

The impairment of goodwill allocated to the Finimize cash-generating unit, which comprises the Finimize business, was £41m. The impairment resulted from a significant fall in market multiples and lower projected revenues as a result of macroeconomic conditions and 2022 revenues being lower than previous expectations. Following the impairment the goodwill allocated to the Finimize cash-generating unit was £31m (2021: £72m).

The recoverable amount of the Finimize cash-generating unit at 31 December 2022 was £35m which was based on FVLCD. This was also the carrying value of the Finimize cash-generating unit at 31 December 2022. The FVLCD considered a number of valuation approaches, with the primary approach being a revenue multiple approach. This is a level 3 measurement as it is measured using inputs which are not based on observable market data.

The key assumptions used in determining the revenue multiple valuation were future revenue projections, which were based on management forecasts and assumed a continued level of revenue growth, and market multiples. Market multiples were based on comparable listed companies, with appropriate discounts applied to take into account profitability, track record, revenue growth potential, and net premiums for control.

Following the impairment the residual goodwill allocated to the Finimize cash-generating unit is not significant in comparison to the total carrying amount of goodwill.

interactive investor

Goodwill of £819m (2021: £nil) is allocated to the interactive investor cash generating unit which comprises the interactive investor business in the Personal segment. The recoverable amount of this cash-generating unit was determined based on FVLCD. The FVLCD was based on an earnings multiple approach. This is a level 3 measurement as it is measured using inputs which are not based on observable market data.

The key assumptions used in determining the earnings multiple valuation were future post tax adjusted earnings, which were based on management's business plan projections and reflected past experience and market price to earnings multiples, which were based on multiples of a peer group of comparable listed direct-to-consumer investment platform providers.

Sensitivities of key assumptions

The business plan projections used to determine the future earnings are based on macroeconomic forecasts including interest rates and inflation, and forecast levels of client activity, market pricing, the percentage of client funds held in cash and expenses. The projections are therefore sensitive to these assumptions. The interactive investor treasury income forecast is sensitive to interest rate levels and the level of interest paid to customers and would be expected to reduce if market interest rates fell below 1% and returned to the historic lows seen in 2021. The business plan projections were based on market forward interest rates and assumed that market interest rates remained above 1% over the plan period. Given current macroeconomic uncertainties a 20% reduction in forecast earnings has been provided as a sensitivity.

The market price to earnings multiple used in the valuation is 20x based on multiples of a peer group of comparable listed direct-to-consumer investment platform providers. This assumption is sensitive to general equity market fluctuations and to market views on UK direct-to-consumer investment platform companies. Taking into account historic equity market fluctuations a 25% sensitivity to an earnings multiple has been provided as a sensitivity.

The recoverable amount at 31 December 2022 exceeds the carrying amount of the cash-generating unit by £400m. The impact of sensitivities to a single variable and the change required to reduce headroom to zero are shown in the tables below.

Reduction in headroom for illustrative sensitivities				£m
20% reduction in forecast post tax adjusted earnings				(335)
25% reduction in market multiple				(419)

 

Change required to reduce headroom to zero				%
Change in forecast post tax adjusted earnings				(24)
Reduction in market multiple				(24)

We consider the 24% reduction in market multiple assumption to 15x to reduce the headroom to zero to be a reasonably possible change.

Other goodwill

Goodwill of £85m (2021: £92m) is attributable to a number of smaller cash-generating units in the Personal segment. No goodwill amounts are significant in comparison to the total carrying amount of goodwill and the recoverable amounts are not based on the same key assumptions.

Included in this balance is £60m of goodwill allocated to the abrdn financial planning business cash-generating unit. The year end carrying value of this cash-generating unit is equal to the recoverable amount. The recoverable amount was based on FVLCD which considered a number of valuation approaches, with the primary approach being a multiples approach based on price to revenue and price to assets under advice (AUAdv). Multiples were based on recent transactions, adjusted to take into account profitability where appropriate, and were benchmarked against trading multiples for peer companies. Revenue and AuAdv were based on 2022 results. The expected cost of disposal was based on past experience of previous transactions. This is a level 3 measurement as it is measured using inputs which are not based on observable market data. As the year end carrying value is the recoverable amount any downside sensitivity will lead to a further impairment loss. A 20% reduction in recurring revenue and AUAdv would result in an impairment of £17m. A 20% reduction in market transaction multiples for similar businesses, adjusted to be appropriate to the abrdn financial planning business, would also result in an impairment of £17m.

Customer relationship and investment management contract intangibles

In 2022 an impairment of £28m (2021: £nil) has been recognised in relation to customer relationship and investment management contract intangibles. The impairment is included within Impairment of intangibles acquired in business combinations and through the purchase of customer contracts in the consolidated income statement. The impairment relates to the Phoenix Life business intangible asset which was recognised on the acquisition of Ignis Asset Management in 2014, and is part of the Investments segment. The assets under management relating to this Phoenix Life intangible are c£34bn at 31 December 2022 and are therefore less than 25% of the total assets managed for Phoenix. The impairment resulted from the expected reduction in revenue from these Phoenix assets as a result of certain active equity and fixed income strategies moving to lower yielding passive quantitative strategies and related pricing changes. Following the impairment the recoverable amount of the asset is £nil based on FVLCD. This is also the carry value at 31 December 2022 (2021: £31m). FVLCD was based on a discounted cash flow approach based on expected future cashflows for the Phoenix Life business and a post tax discount rate of 15.35%. This is a level 3 measurement as it is measured using inputs which are not based on observable market data. The key assumption related to expected future profitability and was based on management forecasts.

Determination of useful lives

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

-     Customer relationships acquired through business combinations - generally between 7 and 15 years, generally reducing balance method.

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

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

-     Technology and other intangibles acquired through business combinations - between 1 and 6 years, straight-line.

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

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

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

Internally developed software

There was no impairment of internally developed software in 2022. In 2021, an impairment of internally developed software of £8m was recognised. The impairment in 2021 primarily related to an impairment of a digital advice application in the Personal segment as a result of a reduction in expected future cash flows.

 

14.       Investments in associates and joint ventures

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

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

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

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

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

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

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

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

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

	2022			2021
	Associates	Joint ventures	Total	Associates	Joint ventures	Total
	£m	£m	£m	£m	£m	£m
At 1 January	10	264	274	1,134	237	1,371
Exchange translation adjustments	-	8	8	-	7	7
Additions	18	2	20	-	11	11
Disposals	-	-	-	(29)	-	(29)
Profit/(loss) after tax	(5)	7	2	(35)	13	(22)
Other comprehensive income	-	(28)	(28)	12	(4)	8
Impairment	(9)	-	(9)	-	-	-
Distributions of profit	-	-	-	(15)	-	(15)
Reclassified to equity securities and interests in pooled investments funds	-	-	-	(1,057)	-	(1,057)
At 31 December	14	253	267	10	264	274

 

The following joint venture is considered to be material to the Group as at 31 December 2022.

Name	Nature of relationship	Principal place of business	Measurement method	Interest held by the Group at 31 December 2022	Interest held by the Group at 31 December 2021
Heng An Standard Life Insurance Company Limited (HASL)	Joint venture	China	Equity accounted	50.00%	50.00%

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

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

	2022		2021
	Other	Total	Phoenix	HDFC Asset Management	Other	Total
	£m	£m	£m	£m	£m	£m
Carrying value of associates accounted for using the equity method	14	14	-	-	10	10
Dividends received	-	-	-	15	-	15
Share of profit/(loss) after tax	(5)	(5)	(56)	21	-	(35)

The Group's investments in Phoenix and HDFC Asset Management were reclassified to equity securities and interests in pooled investment funds in 2021 so were not material associates at 31 December 2021 (refer below for further details of the reclassification). The Group continues to have no material associates at 31 December 2022.

Other primarily relates to the Group's interests in Archax Holdings Limited and Tenet Group Limited. During the year ended 31 December 2022, the Group recognised an impairment of £9m in relation to its interest in Tenet Group Limited.

HDFC Asset Management

HDFC Asset Management manages a range of mutual funds and provides portfolio management and advisory services.

On 29 September 2021 the Group reduced its interest in HDFC Asset Management to 16.22% (2020: 21.24%). Refer Note 1(c)(iii) for further details of the sale. Following the sale, HDFC Asset Management was no longer considered to be an associate of the Group and the Group's interest in HDFC Asset Management was reclassified from an investment in associates accounted for using the equity method to equity securities and interests in pooled investment funds measured at fair value on 29 September 2021. The sale reduced the Group's interest in HDFC Asset Management below 20%, which is the threshold where significant influence is presumed. While the Group does retain board representation, there are no significant decisions that require unanimous board approval under the articles of association and the Group has no significant contractual relationships with HDFC Asset Management. We considered that the Group no longer has significant influence over HDFC Asset Management after the sale, and therefore should no longer be classified as an associate.

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

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

Phoenix

Phoenix is the largest life and pensions consolidator in Europe.

Following the completion of the Sale of the Group's UK and European insurance business in August 2018, as part of the total consideration, the Group was issued with new Phoenix shares representing 19.98% of the issued share capital of Phoenix. During the year ended 31 December 2020, the Group's interest in Phoenix was reduced to 14.4%. Although our interest in Phoenix had reduced to 14.4%, taking into account our continued representation on Phoenix's board and, in particular, the contractual relationships with Phoenix, including the licensing to Phoenix of the Standard Life brand, our judgement was that Phoenix should continue to be classified as an associate.

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

(c)          Investments in joint ventures

	HASL		Other		Total
	2022	2021	2022	2021	2022	2021
	£m	£m	£m	£m	£m	£m
Carrying value of joint ventures accounted for using the equity method	245	258	8	6	253	264
Dividends received	-	-	-	-	-	-
Share of profit/(loss) after tax	7	19	-	(6)	7	13

For the years ended 31 December 2022 and 2021, the carrying value of joint ventures accounted for using the equity method for Other primarily relates to the Group's interest in Virgin Money UTM.

HASL

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

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

	HASL
	2022	2021
	£m	£m
Summarised financial information of joint venture:
Revenue	861	612
Depreciation and amortisation	6	4
Interest income	93	68
Interest expense	2	2
Income tax credit/(expense)	5	(3)
Profit after tax	14	39
Other comprehensive income	(56)	(11)
Total comprehensive income	(42)	28
Total assets1	4,482	3,787
Total liabilities1	3,992	3,271
Cash and cash equivalents	130	102
Net assets	490	516
Attributable to investee's shareholders	490	516
Interest held	50%	50%
Share of net assets	245	258

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

HASL will adopt IFRS 9 and IFRS 17 for the purposes of the preparation of the Group's consolidated financial statements from 1 January 2023. Refer Section (a)(ii) of the basis of preparation for further details.

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

The fair value of HASL's financial assets at 31 December 2022 that remain under IAS 39 for equity accounting purposes and the change in fair value during the year ended 31 December 2022 are as follows:

	Fair value as at 31 December 2022	Fair value as at 31 December 2021
	£m	£m
Financial assets with contractual cash flows that are solely payments of principal and interest (SPPI) excluding those held for trading or managed on a fair value basis1,2	2,544	2,384
Financial assets other than those above2	1,114	562
Total	3,658	2,946

1.  Financial assets that are SPPI (excluding those held for trading or managed on a fair value basis) are predominantly AAA debt instruments. Their carrying value at 31 December 2022 is £2,444m (2021: £2,320m). No securities are rated below BBB (2021: none).

2.  The change in fair value in the year to 31 December 2022 for financial assets that are SPPI (excluding those held for trading or managed on a fair value basis) is a gain of £22m (2021: £136m). The change in fair value for all other financial assets is a loss of £97m (2021: gain of £45m).

(d)          Investments in associates measured at FVTPL

The aggregate fair value of associates accounted for at FVTPL included in equity securities and interests in pooled investment funds (refer Note 17) at 31 December 2022 is £46m (2021: £63m) none of which are considered individually material to the Group.

15.       Property, plant and equipment

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

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

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

Right-of-use asset: Refer Note 16 below for the accounting policies for right-of-use assets.

 

		Owner occupied property	Equipment	Right-of-use assets - property	Right-of-use assets - equipment	Total
		£m	£m	£m	£m	£m
Cost or valuation
At 1 January 2021		2	108	370	3	483
Additions		-	12	4	-	16
Disposals and adjustments1		-	(16)	(44)	-	(60)
Derecognition of right-of-use assets relating to subleases classified as finance leases		-	-	(6)	-	(6)
Foreign exchange adjustment		-	-	(2)	-	(2)
At 31 December 2021		2	104	322	3	431
Reclassified as held for sale during the year		-	-	(1)	-	(1)
Additions		-	24	36	1	61
Disposals and adjustments1		-	(11)	(41)	-	(52)
Derecognition of right-of-use assets relating to subleases classified as finance leases		-	-	(6)	-	(6)
Foreign exchange adjustment		-	3	11	-	14
At 31 December 2022		2	120	321	4	447
Accumulated depreciation and impairment
At 1 January 2021		(1)	(49)	(195)	(2)	(247)
Depreciation charge for the year2		-	(18)	(21)	-	(39)
Disposals and adjustments1		-	13	42	-	55
Derecognition of right-of-use assets relating to subleases classified as finance leases		-	-	1	-	1
Impairment3		-	-	(15)	-	(15)
Foreign exchange adjustment		-	-	1	-	1
At 31 December 2021		(1)	(54)	(187)	(2)	(244)
Reclassified as held for sale during the year		-	-	1	-	1
Depreciation charge for the year2		-	(18)	(20)	(1)	(39)
Disposals and adjustments1		-	10	38	-	48
Derecognition of right-of-use assets relating to subleases classified as finance leases		-	-	3	-	3
Impairment3		-	-	(7)	-	(7)
Foreign exchange adjustment		-	(3)	(5)	-	(8)
At 31 December 2022		(1)	(65)	(177)	(3)	(246)
Carrying amount
At 1 January 2021		1	59	175	1	236
At 31 December 2021		1	50	135	1	187
At 31 December 2022		1	55	144	1	201

1.  For the year ended 31 December 2022, £1m (2021: £8m) of disposals and adjustments relates to equipment with net book value of £nil which is no longer in use.

2.  Included in other administrative expenses.

3.  Included in restructuring and corporate transaction expenses.

Included in property right-of-use assets, are right-of-use assets that meet the definition of investment property. Their carrying amount at 31 December 2022 is £14m (2021: £21m). This comprises a gross carrying value of £49m (2021: £81m) and accumulated depreciation and impairment of £35m (2021: £60m). During the year to 31 December 2022 there were no transfers to investment property (2021: £19m), depreciation of (£2m) (2021: (£2m)), derecognition related to new subleases classified as finance leases of (£1m) (2021: (£6m)), impairments of (£3m) (2021: (£15m)) and disposals and adjustments of (£1m) (2021: nil) related to these assets. Rental income received and direct operating expenses incurred to generate that rental income in the year to 31 December 2022 were £3m (2021: £2m) and £3m (2021: £3m) respectively. In addition, there were direct expenses of £1m (2021: £1m) in relation to investment properties not currently generating income.

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

The fair value of these right-of-use assets at 31 December 2022 is £14m (2021: £21m). The valuation technique used to determine the fair value considers the rental income expected to be received under subleases during the term of the lease and the direct expenses expected to be incurred in managing the leased property, discounted using a discount rate that reflects the risks inherent in the cash flow estimates. It is not based on valuations by an independent valuer. This is a Level 3 valuation technique as defined in Note 37.

If owner occupied property was measured using the cost model, the historical cost before impairment would be £1m (2021: £1m). As the expected residual value of owner occupied property is in line with the current fair value, no depreciation is currently charged.

Further details on the leases under which the Group's right-of-use assets are recognised are provided in Note 16 below.

16.       Leases

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

Right-of-use assets are measured at cost less accumulated depreciation and impairment losses and are presented in property, plant and equipment (refer Note 15). The Group does not revalue its right-of-use assets. This applies to all right-of-use assets, including those that are assessed as meeting the definition of investment property. The cost comprises the amount of the initial measurement of the lease liability plus any initial direct costs and expected restoration costs not relating to wear and tear. Costs relating to wear and tear are expensed over the term of the lease. Depreciation is charged on right-of-use assets on a straight -line basis from the lease commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term. The Group assesses right-of-use assets for impairment when such indicators exist, and where required, reduces the value of the right-of-use asset accordingly.

The related lease liability (included in other financial liabilities - refer Note 33) is calculated as the present value of the future lease payments. The lease payments are discounted using the rate implicit within the lease where readily available or the Group's incremental borrowing rate where the implicit rate is not readily available. Interest is calculated on the liability using the discount rate and is charged to the consolidated income statement under finance costs.

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

Where a leased property has been sublet, the Group assesses whether the sublease has transferred substantially all the risk and rewards of the right-of-use asset to the lessee under the sublease. Where this is the case, the right-of-use asset is derecognised and a net investment in finance leases (included in Receivables and other financial assets - refer Note 19) is recognised, calculated as the present value of the future lease payments receivable under the sublease. Where a property is only partially sublet, only the portion of the right-of-use asset relating to the sublet part of the property is derecognised and recognised as a net investment in finance leases.

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

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

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

(a)          Leases where the Group is lessee

The Group leases various offices and equipment used to carry out its business. Leases are generally for fixed periods but may be subject to extensions or early termination clauses. The remaining periods for current leases range from less than 1 year to 16 years (2021: less than 1 year to 17 years). A number of leases which are due to end in 2031 contain options that would allow the Group to extend the lease term. The Group reviews its property use on an ongoing basis and these extensions have not been included in the right-of-use asset or lease liability calculations. The Group has committed to two leases at 31 December 2022 which had not commenced at this date. The expected lease liability for these leases is not significant to the Group.

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

	2022	2021
	£m	£m
Right-of-use assets:
Property	144	135
Equipment	1	1
Total right-of-use assets	145	136
Lease liabilities	(224)	(225)

Details of the movements in the Group's right-of-use assets including additions and depreciation are included in Note 15.

The interest on lease liabilities is as follows:

	2022	2021
	£m	£m
Interest on lease liabilities	6	6

The total cash outflow for lease liabilities recognised in the consolidated statement of cash flows for the year ended
31 December 2022 was £52m (2021: £33m). Refer Note 38(f) for further details.

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

	2022	2021
	£m	£m
Less than 1 year	29	28
Greater than or equal to 1 year and less than 2 years	24	28
Greater than or equal to 2 years and less than 3 years	23	24
Greater than or equal to 3 years and less than 4 years	24	23
Greater than or equal to 4 years and less than 5 years	23	21
Greater than or equal to 5 years and less than 10 years	99	93
Greater than or equal to 10 years and less than 15 years	38	33
Greater than or equal to 15 years	4	7
Total undiscounted lease liabilities	264	257

The Group does not recognise right-of-use assets and lease liabilities for short-term leases and leases where the underlying asset is of low value. The expenses for these leases for the year ended 31 December 2022 were £3m (2021: £2m). The Group lease commitment for short-term leases was £nil at 31 December 2022 (2021: £nil).

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

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

At 31 December 2022, the Group had a net investment in finance leases asset of £29m (2021: £30m) for subleases which had transferred substantially all the risk and rewards of the right-of-use assets to the lessee under the sublease. All other subleases are accounted for as operating leases.

(b)(i)       Finance leases

During the year ended 31 December 2022, the Group received finance income on the net investment in finance leases asset of less than £1m (2021: less than £1m). The Group recorded an initial gain of £1m in relation to new subleases entered into during the year ended 31 December 2022 (2021: £8m).

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

	2022	2021
	£m	£m
Less than 1 year	3	3
Greater than or equal to 1 year and less than 2 years	3	3
Greater than or equal to 2 years and less than 3 years	4	3
Greater than or equal to 3 years and less than 4 years	4	3
Greater than or equal to 4 years and less than 5 years	4	3
Greater than or equal to 5 years and less than 10 years	12	14
Greater than or equal to 10 years and less than 15 years	2	3
Total contractual undiscounted cash flows under finance leases	32	32
Unearned finance income	(3)	(2)
Total net investment in finance leases	29	30

(b)(ii)      Operating leases

During the year ended 31 December 2022, the Group received property rental income from operating leases of £3m (2021: £2m).

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

	2022	2021
	£m	£m
Less than 1 year	1	3
Greater than or equal to 1 year and less than 2 years	1	1
Greater than or equal to 2 years and less than 3 years	1	1
Greater than or equal to 3 years and less than 4 years	1	1
Total contractual undiscounted cash flows under operating leases	4	6

17.       Financial assets

Financial assets are initially recognised at their fair value. Subsequently all equity securities and interests in pooled investment funds and derivative instruments are measured at fair value. All equity securities and interests in pooled investment funds are classified as FVTPL on a mandatory basis. Changes in their fair value are recognised in Net gains or losses on financial instruments and other income in the consolidated income statement. The classification of derivatives and the accounting treatment of derivatives designated as a hedging instrument are set out in Note 18.

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

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

1.  Solely payments of principal and interest.

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

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

The methods and assumptions used to determine fair value of financial assets at FVTPL are discussed in Note 37.

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

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

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

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

The table below sets out an analysis of financial assets excluding those assets backing unit linked liabilities which are set out in Note 23.

		At fair value through profit or loss1		Cash flow hedge2		At amortised cost		Total
		2022	2021	2022	2021	2022	2021	2022	2021
	Notes	£m	£m	£m	£m	£m	£m	£m	£m
Derivative financial assets	18	19	6	85	8	-	-	104	14
Equity securities and interests in pooled investment funds	37	2,033	3,115	-	-	-	-	2,033	3,115
Debt securities	37	592	961	-	-	210	226	802	1,187
Financial investments		2,644	4,082	85	8	210	226	2,939	4,316
Receivables and other financial assets	19	19	31	-	-	888	649	907	680
Cash and cash equivalents	22	-	-	-	-	1,133	1,904	1,133	1,904
Total		2,663	4,113	85	8	2,231	2,779	4,979	6,900

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

2.  Changes in fair value are recognised in the Cash Flow Hedges Reserve (refer Note 27) but may be reclassified subsequently to profit or loss.

The amount of debt securities expected to be recovered or settled after more than 12 months is £2m (2021: £63m). Due to the nature of equity securities and interests in pooled investment funds, there is no fixed term associated with these securities. The amount of equity securities and interests in pooled investment funds expected to be recovered or settled after more than 12 months is £669m (2021: £1,947m).

Included in Proceeds from sale or redemption of financial investments of £1,633m (2021: £938m) within the consolidated statement of cash flows are £789m (2021: £655m) in relation to sales of significant listed investments. Refer Note 11 for further details of the sales in 2022.

18.       Derivative financial instruments

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

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

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

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

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

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

		2022			2021
		Contract amount	Fair value assets	Fair value liabilities	Contract amount	Fair value assets	Fair value liabilities
	Notes	£m	£m	£m	£m	£m	£m
Cash flow hedges	17,29	623	85	-	554	8	-
FVTPL	17,29	638	19	1	889	6	5
Derivative financial instruments	37	1,261	104	1	1,443	14	5
Derivative financial instruments backing unit linked liabilities	23	258	1	2	399	7	3
Total derivative financial instruments		1,519	105	3	1,842	21	8

Derivative assets of £85m (2021: £8m) are expected to be recovered after more than 12 months. Derivative liabilities of £nil (2021: £nil) are expected to be settled after more than 12 months.

(a)          Hedging strategy

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

(a)(i)       Cash flow hedges

On 18 October 2017, the Group issued subordinated notes with a principal amount of US$750m. In order to manage its foreign exchange risk relating to the principal and coupons payable on these notes the Group entered into a cross-currency swap which is designated as a cash flow hedge. The cash flow hedge was fully effective during the year. The cross-currency swap has the effect of swapping the 4.25% US Dollar fixed rate subordinated notes into 3.2% Sterling fixed rate subordinated notes with a principal amount of £569m. The cross-currency swap has a fair value asset position of £85m (2021: £8m asset). During the year ended 31 December 2022 fair value gains of £85m (2021: gains of £19m) were recognised in other comprehensive income in relation to the cross-currency swap. Gains of £70m (2021: gains of £5m) were transferred from other comprehensive income to Net gains or losses on financial instruments and other income in the consolidated income statement in relation to the cross-currency swap during the year. In addition, forward points of £6m (2021: £6m) and gains of £2m (2021: losses of £1m) were transferred from other comprehensive income to Finance costs in the consolidated income statement.

(a)(ii)      FVTPL

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

	2022			2021
	Contract amount	Fair value assets	Fair value liabilities	Contract amount	Fair value assets	Fair value liabilities
	£m	£m	£m	£m	£m	£m
Equity derivatives:
Futures	137	3	-	336	3	4
Variance swaps	-	-	-	6	6	-
Interest rate derivatives:
Swaps	18	1	-	11	-	-
Futures	-	-	-	40	-	-
Foreign exchange derivatives:
Forwards	678	16	3	806	4	3
Other derivatives:
Inflation rate swaps	-	-	-	-	-	-
Credit default swaps	63	-	-	89	-	1
Derivative financial instruments at FVTPL	896	20	3	1,288	13	8

(b)          Maturity profile

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

	Within 1 year		1-5 years		5-10 years		10-15 years		15-20 years		Greater than 20 years		Total
	2022	2021	2022	2021	2022	2021	2022	2021	2022	2021	2022	2021	2022	2021
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
Cash inflows
Derivative financial assets	569	66	107	94	637	589	-	-	-	-	-	-	1,313	749
Derivative financial liabilities	138	13	-	-	-	-	-	-	-	-	-	-	138	13
Total	707	79	107	94	637	589	-	-	-	-	-	-	1,451	762
Cash outflows
Derivative financial assets	(541)	(60)	(91)	(73)	(578)	(596)	-	-	-	-	-	-	(1,210)	(729)
Derivative financial liabilities	(141)	(13)	-	-	-	-	-	-	-	-	-	-	(141)	(13)
Total	(682)	(73)	(91)	(73)	(578)	(596)	-	-	-	-	-	-	(1,351)	(742)
Net derivative financial instruments cash inflows	25	6	16	21	59	(7)	-	-	-	-	-	-	100	20

 

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

	Within 1 year		1-5 years		5-10 years		10-15 years		15-20 years		Greater than 20 years		Total
	2022	2021	2022	2021	2022	2021	2022	2021	2022	2021	2022	2021	2022	2021
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
Cash inflows	26	24	106	94	637	589	-	-	-	-	-	-	769	707
Cash outflows	(18)	(18)	(91)	(73)	(578)	(596)	-	-	-	-	-	-	(687)	(687)
Net cash flow hedge cash inflows	8	6	15	21	59	(7)	-	-	-	-	-	-	82	20

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

19.       Receivables and other financial assets

		2022	2021
	Notes	£m	£m
Amounts receivable from contracts with customers	3(d)	161	135
Accrued income		278	263
Amounts due from counterparties and customers for unsettled trades and fund transactions1		317	113
Net investment in finance leases		29	30
Collateral pledged in respect of derivative contracts	35	14	26
Contingent consideration assets	37	19	31
Other		89	82
Receivables and other financial assets		907	680

1.  The 2021 figure was previously disclosed as cancellation of units awaiting settlement.

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

The amount of receivables and other financial assets expected to be recovered after more than 12 months is £34m
(2021: £35m).

Accrued income includes £273m (2021: £260m) of accrued income from contracts with customers (refer Note 3(d)).

20.       Other assets

	2022	2021
	£m	£m
Prepayments	89	100
Deferred acquisition costs	1	3
Other	2	2
Other assets	92	105

The amount of other assets expected to be recovered after more than 12 months is £21m (2021: £48m).

Prepayments includes £43m (2021: £56m) relating to the Group's future purchase of certain products in the Phoenix Group's savings business offered through abrdn's adviser platforms together with the Phoenix Group's trustee investment plan business for UK pension scheme clients. Refer Note 1(c)(iii) for further details.

All deferred acquisition costs above are costs deferred on investment contracts (deferred origination costs) which relate to contracts with customers (refer Note 3(d)). The amortisation charge for deferred origination costs relating to contracts with customers for the year was £2m (2021: £1m).

21.       Assets and liabilities held for sale

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

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

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

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

 

		2022	2021
		£m	£m
Assets of operations held for sale
abrdn Capital Limited		87	-
Assets held for sale		87	-
Liabilities of operations held for sale
abrdn Capital Limited		14	-
Liabilities of operations held for sale		14	-

(a)          abrdn Capital Limited

abrdn Capital Limited, in the Personal segment, was classified as an operation held for sale at 31 December 2022 as at that point a sale of the business was considered highly probable. Refer Note 44 for details of the agreed sale.

	2022
	£m
Assets of operations held for sale
Intangible assets	58
Property, plant and equipment	-
Receivables and other financial assets	15
Other assets	1
Cash and cash equivalents	13
Total assets of operations held for sale	87
Liabilities of operations held for sale
Other financial liabilities	14
Total liabilities of operations held for sale	14
Net assets of operations held for sale	73

Net assets of operations held for sale are net of intercompany balances between abrdn Capital Limited and other group entities, the net assets of abrdn Capital Limited on a gross basis as at 31 December 2022 are £70m.

22.       Cash and cash equivalents

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

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

 

	2022	2021
	£m	£m
Cash at bank and in hand	783	638
Money at call, term deposits, reverse repurchase agreements and debt instruments with less than three months to maturity from acquisition	236	1,122
Money market funds	114	144
Cash and cash equivalents	1,133	1,904

 

		2022	2021
	Notes	£m	£m
Cash and cash equivalents		1,133	1,904
Cash and cash equivalents backing unit linked liabilities	23	23	33
Cash and cash equivalents classified as held for sale	21	13	-
Bank overdrafts	33	(3)	(62)
Total cash and cash equivalents for consolidated statement of cash flows		1,166	1,875

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

At 31 December 2022, the Group has no cash and cash equivalents and bank overdrafts within a cash pooling facility or similar arrangement. Included in cash and cash equivalents and bank overdrafts at 31 December 2021 were £82m and £62m respectively relating to balances within a cash pooling facility in support of which cross guarantees were provided by certain subsidiary undertakings and interest is paid or received on the net balance.

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

23.       Unit linked liabilities and assets backing unit linked liabilities

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

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

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

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

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

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

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

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

		2022	2021
	Notes	£m	£m
Net gains or losses on financial instruments and other income	4	5	7
Other administrative expense	5	(1)	(3)
Profit before tax		4	4
Tax expense attributable to unit linked business	9	(4)	(4)
Profit after tax		-	-

(b)          Financial instrument risk management

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

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

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

Each of the unit linked financial liabilities and the financial assets backing unit linked liabilities has been categorised below using the fair value hierarchy as defined in Note 37. Refer Note 37 for details of valuation techniques used.

	Level 1		Level 2		Level 3		Not at fair value		Total
	2022	2021	2022	2021	2022	2021	2022	2021	2022	2021
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
Financial investments	601	974	322	455	1	1	-	-	924	1,430
Receivables and other financial assets	-	-	-	-	-	-	5	7	5	7
Cash and cash equivalents	-	-	-	-	-	-	23	33	23	33
Total financial assets backing unit linked liabilities	601	974	322	455	1	1	28	40	952	1,470
Investment contract liabilities	-	-	772	1,087	1	1	-	-	773	1,088
Third party interest in consolidated funds	-	-	173	378	-	-	-	-	173	378
Other unit linked financial liabilities	-	1	2	2	-	-	4	1	6	4
Total unit linked financial liabilities	-	1	947	1,467	1	1	4	1	952	1,470

In addition to financial assets backing unit linked liabilities and unit linked financial liabilities shown above there is a current tax asset of less than £1m (2021: £1m) included in unit linked assets and a current tax liability of less than £1m (2021: £1m) included in unit linked liabilities.

The financial investments backing unit linked liabilities comprise equity securities and interests in pooled investment funds of £811m (2021: £1,232m), debt securities of £112m (2021: £191m) and derivative financial assets of £1m (2021: £7m).

The fair value of financial instruments not held at fair value approximates to their carrying value at both 31 December 2022 and 31 December 2021.

There were transfers of £52m (2021: £nil) from level 1 to level 2 during the year ended 31 December 2022. The Group now considers government bonds not issued by the G7 countries or the European Union as level 2. There were no significant transfers from level 2 to level 1 during the year ended 31 December 2022 (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 pooled investment funds		Investment contract liabilities
	31 Dec 2022	31 Dec 2021	31 Dec 2022	31 Dec 2021
	£m	£m	£m	£m
At start of period	1	18	(1)	(18)
Total gains/(losses) recognised in the consolidated income statement	-	-	-	-
Purchases	-	1	-	(1)
Sales	-	(18)	-	18
Transfers in to level 31	-	-	-	-
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)          Change in non-participating investment contract liabilities

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

	2022	2021
	£m	£m
At 1 January	1,088	1,042
Contributions	36	119
Account balances paid on surrender and other terminations in the year	(237)	(195)
Change in non-participating investment contract liabilities recognised in the consolidated income statement	(112)	124
Recurring management charges	(2)	(2)
At 31 December	773	1,088

(e)          Derivatives

The treatment of collateral accepted and pledged in respect of financial instruments and the Group's approach to offsetting financial assets and liabilities is described in Note 35. The following table presents the impact of master netting agreements and similar arrangements for derivatives backing unit linked liabilities.

			Related amounts not offset on the consolidated statement of financial position
	Gross amounts of financial instruments as presented on the consolidated statement of financial position		Financial instruments		Financial collateral pledged/(received)		Net position
	2022	2021	2022	2021	2022	2021	2022	2021
	£m	£m	£m	£m	£m	£m	£m	£m
Financial assets
Derivatives1	1	4	-	(1)	-	-	1	3
Total financial assets	1	4	-	(1)	-	-	1	3
Financial liabilities
Derivatives1	(1)	(2)	-	1	-	-	(1)	(1)
Total financial liabilities	(1)	(2)	-	1	-	-	(1)	(1)

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

 

24.       Issued share capital and share premium

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

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

	2022			2021
	Ordinary share capital		Share premium	Ordinary share capital		Share premium
Issued shares fully paid	13 61/63p each	£m	£m	13 61/63p each	£m	£m
At 1 January	2,180,724,786	305	640	2,194,115,616	306	640
Shares issued in respect of share incentive plans	2,381	-	-	2,032	-	-
Share buyback	(178,835,268)	(25)	-	(13,392,862)	(1)	-
At 31 December	2,001,891,899	280	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.

On 6 July 2022 the Company announced that it would commence a £300m return to shareholders. During the year ended 31 December 2022, the Company bought back and cancelled 178,835,268 shares. The total consideration was £302m which includes transaction costs.

During the year ended 31 December 2021, the Company completed its share buyback of up to £400m through on-market purchases which commenced on 10 February 2020 and was completed on 12 February 2021. During the year ended 31 December 2021, the Company bought back and cancelled 13,392,862 shares. The total consideration was £41m which included transaction costs.

The share buyback has resulted in a reduction in retained earnings of £302m (2021: £nil). In relation to the share buyback completed in 2021, there was an irrevocable contractual obligation at 31 December 2020 with a third party to purchase the Company's own shares of £40m and consequently the 2021 consideration had already been recognised as a part of the share buyback reduction to retained earnings of £402m for the year ended 31 December 2020.

In addition, an amount of £25m (2021: £1m) has been credited to the capital redemption reserve relating to the nominal value of the shares cancelled.

The Company can issue shares to satisfy awards granted under employee incentive plans which have been approved by shareholders. Details of the Group's employee plans are provided in Note 41.

25.       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. Where new shares are issued to the abrdn 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.

				2022	2021
Number of shares held by trusts
abrdn Employee Benefit Trust				36,112,240	39,630,532
Standard Life Employee Trust				22,629,035	22,688,815
Aberdeen Asset Management Employee Benefit Trust 2003				2,264,591	2,647,359

The number of shares held by trusts was as follows:

26.       Retained earnings

The following table shows movements in retained earnings during the year.

		2022	2021
	Notes	£m	£m
At 1 January		5,775	4,970
Recognised in comprehensive income
Recognised in (loss)/profit for the year attributable to equity holders		(561)	994
Recognised in other comprehensive income
Remeasurement (losses)/gains on defined benefit pension plans	31	(793)	117
Share of other comprehensive income of associates and joint ventures		(28)	(1)
Equity holder tax effect of items that will not be reclassified subsequently to profit or loss	9	-	3
Total items recognised in comprehensive income		(1,382)	1,113
Recognised directly in equity
Dividends paid on ordinary shares		(307)	(308)
Other movements in non-controlling interests in the year	28	-	6
Share buyback	24	(302)	-
Cancellation of capital redemption reserve	27	1,059	-
Transfer for vested employee share-based payments		63	36
Transfer between reserves on disposal of subsidiaries		1	-
Transfer between reserves on impairment of subsidiaries	27	207	-
Shares distributed by employee and other trusts		(70)	(42)
Other movements1		(23)	-
Aggregate tax effect of items recognised directly in equity		-	-
Total items recognised directly in equity		628	(308)
At 31 December		5,021	5,775

1.  Other movements in 2022 include the transfer of (£17m) previously recognised in the foreign currency translation reserve (which is part of Other reserves) to Retained earnings. In prior years we have considered the functional currency of an intermediate subsidiary holding the Group's investment in HDFC Life to be 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.

27.       Movements in other reserves

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

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

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

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

Capital redemption reserve: In August 2018, as part of the return of capital and share buyback the capital redemption reserve was created. Additional capital redemption reserve is created by subsequent buybacks (refer Note 24).

See below for the cancellation of the capital redemption reserve as at 1 July 2022.

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

		Cash flow hedges	Foreign currency translation	Merger reserve	Equity compensation reserve	Special reserve	Reserve arising on Group reconstruction	Capital redemption reserve	Total
	Notes	£m	£m	£m	£m	£m	£m	£m	£m
1 January 2022		18	17	483	87	115	(685)	1,059	1,094
Recognised in other comprehensive income
Fair value gains on cash flow hedges		85	-	-	-	-	-	-	85
Exchange differences on translating foreign operations		-	36	-	-	-	-	-	36
Items transferred to profit or loss		(78)	-	-	-	-	-	-	(78)
Aggregate tax effect of items recognised in other comprehensive income		(2)	-	-	-	-	-	-	(2)
Total items recognised in other comprehensive income		5	36	-	-	-	-	-	41
Recognised directly in equity
Share buyback	24	-	-	-	-	-	-	25	25
Cancellation of capital redemption reserve		-	-	-	-	-	-	(1,059)	(1,059)
Reserves credit for employee share-based payments		-	-	-	24	-	-	-	24
Transfer to retained earnings for vested employee share-based payments		-	-	-	(63)	-	-	-	(63)
Transfer between reserves on disposal of subsidiaries		-	-	(1)	-	-	-	-	(1)
Transfer between reserves on impairment of subsidiaries		-	-	(207)	-	-	-	-	(207)
Other movements1		-	17	-	-	-	-	-	17
Total items recognised directly within equity		-	17	(208)	(39)	-	-	(1,034)	(1,264)
At 31 December 2022		23	70	275	48	115	(685)	25	(129)

1.  Other movements include the transfer of (£17m) previously recognised in the foreign currency translation reserve to Retained earnings. In prior years we have considered the functional currency of an intermediate subsidiary holding the Group's investment in HDFC Life to be 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.

The merger reserve includes £263m (2021: £470m) in relation to the Group's asset management businesses. Following the impairment of the Company's investments in abrdn Holdings Limited and abrdn Investments (Holdings) Limited (refer Section 8), £207m (2021: £nil) was transferred from the merger reserve to retained earnings.

On 1 July 2022, the Company's capital redemption reserve at this date was cancelled in accordance with section 649 of the Companies Act 2006 resulting in a transfer of £1,059m to retained earnings.

		Cash flow hedges	Foreign currency translation	Merger reserve	Equity compensation reserve	Special reserve	Reserve arising on Group reconstruction	Capital redemption reserve	Total
	Notes	£m	£m	£m	£m	£m	£m	£m	£m
1 January 2021		12	1	483	80	115	(685)	1,058	1,064
Recognised in other comprehensive income
Fair value gains on cash flow hedges		19	-	-	-	-	-	-	19
Exchange differences on translating foreign operations		-	(2)	-	-	-	-	-	(2)
Items transferred to profit or loss		(10)	18	-	-	-	-	-	8
Aggregate tax effect of items recognised in other comprehensive income		(3)	-	-	-	-	-	-	(3)
Total items recognised in other comprehensive income		6	16	-	-	-	-	-	22
Recognised directly in equity
Share buyback	24	-	-	-	-	-	-	1	1
Reserves credit for employee share-based payments		-	-	-	43	-	-	-	43
Transfer to retained earnings for vested employee share-based payments		-	-	-	(36)	-	-	-	(36)
Total items recognised directly within equity		-	-	-	7	-	-	1	8
At 31 December 2021		18	17	483	87	115	(685)	1,059	1,094

 

28.       Other equity and non-controlling interests

Perpetual subordinated notes issued by abrdn plc are classified as other equity where no contractual obligation to deliver cash exists.

(a)          Other equity - perpetual subordinated notes

5.25% Fixed Rate Reset Perpetual Subordinated Contingent Convertible Notes

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

The Notes initially bear interest on their principal amount at 5.25% per annum payable semi-annually in arrears on 13 June and 13 December in each year. The interest rate is subject to reset on 13 June 2027 and then every five years thereafter. The payments of interest are discretionary and non-cumulative. The interest paid is recognised as profit attributable to other equity when paid. The profit for the year attributable to other equity was £11m (2021: £nil).

The Notes have no fixed redemption date. The Company has the option to redeem the Notes (in full) between 13 December 2026 and 13 June 2027 and every five years thereafter. The Notes are convertible to ordinary shares in abrdn plc at a conversion price of £1.6275 (fixed subject to adjustment for share corporate actions e.g. share consolidations in accordance with the terms and conditions of the Notes) if the Group IFPR CET1 Ratio falls below 70%. The IFPR CET1 ratio at 31 December 2022 was 408% (2021: 774%).

(b)          Non-controlling interests - ordinary shares

Non-controlling interests - ordinary shares of £7m were held at 31 December 2022 (2021: £6m). The profit for the year attributable to non-controlling interests - ordinary shares was £1m (2021: £1m).

29.       Financial liabilities

Management determines the classification of financial liabilities at initial recognition. Financial liabilities which are managed and whose performance is evaluated on a fair value basis are designated as at fair value through profit or loss. Changes in the fair value of these financial liabilities are recognised in the consolidated income statement.

Derivatives are also measured at fair value. Changes in the fair value of derivatives are recognised in Net gains or losses on financial instruments and other income in the consolidated income statement except for derivative instruments that are designated as a cash flow hedge or net investment hedge. The classification of derivatives and the accounting treatment of derivatives designated as a hedging instrument are set out in Note 18.

Except for contingent consideration liabilities which are measured at fair value, other financial liabilities are classified as being subsequently measured at amortised cost. Amortised cost is calculated, and the related interest expense is recognised in the consolidated income statement, using the effective interest method.

All financial liabilities are initially recognised at fair value less, in the case of financial liabilities subsequently measured at amortised cost, transaction costs that are directly attributable to the issue of the liability.

Where the terms of a financial liability measured at amortised cost are modified and the modification does not result in the derecognition of the liability, the liability is adjusted to the net present value of the future cash flows less transaction costs with a modification gain or loss recognised in the income statement.

The methods and assumptions used to determine fair value of financial liabilities measured at fair value through profit or loss and derivatives are discussed in Note 37.

The table below sets out an analysis of financial liabilities excluding unit linked financial liabilities which are set out in Note 23.

		At fair value through profit or loss1		Cash flow hedge		At amortised cost		Total
		2022	2021	2022	2021	2022	2021	2022	2021
	Notes	£m	£m	£m	£m	£m	£m	£m	£m
Third party interest in consolidated funds		242	104	-	-	-	-	242	104
Subordinated liabilities	30	-	-	-	-	621	644	621	644
Derivative financial liabilities	18	1	5	-	-	-	-	1	5
Other financial liabilities	33	143	165	-	-	1,055	881	1,198	1,046
Total		386	274	-	-	1,676	1,525	2,062	1,799

1.  All financial liabilities measured at fair value through profit or loss have been classified at FVTPL on a mandatory basis except for third party interest in consolidated funds which the Group has designated as at FVTPL.

30.       Subordinated liabilities

Subordinated liabilities are debt instruments issued by the Company which rank below its other obligations in the event of liquidation but above the share capital. Subordinated liabilities are initially recognised at the value of proceeds received after deduction of issue expenses. Subsequent measurement is at amortised cost using the effective interest rate method.

 

		2022		2021
	Notes	Principal amount	Carrying value	Principal amount	Carrying value
Subordinated notes
4.25% US Dollar fixed rate due 30 June 2028		$750m	£621m	$750m	£552m
5.5% Sterling fixed rate due 4 December 2042		-	-	£92m	£92m
Total subordinated liabilities	37		£621m		£644m

A description of the key features of the Group's subordinated liabilities as at 31 December 2022 is as follows:

	4.25% US Dollar fixed rate1
Principal amount	$750m
Issue date	18 October 2017
Maturity date	30 June 2028
Callable at par at option of the Company from	Not applicable
If not called by the Company interest will reset to	Not applicable

1.  The cash flows arising from the US dollar subordinated notes give rise to foreign exchange exposure which the Group manages with a cross-currency swap designated as a cash flow hedge. Refer Note 18 for further details.

The difference between the fair value and carrying value of the subordinated liabilities is presented in Note 37. A reconciliation of movements in subordinated liabilities in the year is provided in Note 38.

The principal amount of the subordinated liabilities is expected to be settled after more than 12 months. There is no accrued interest on the subordinated liabilities at 31 December 2022 (2021: less than £1m).

During the year ended 31 December 2022, the Group redeemed subordinated liabilities with the following key features:

	5.5% Sterling fixed rate
Principal amount	£92m
Issue date	4 December 2012
Maturity date	4 December 2042
Callable at par at option of the Company from	4 December 2022 and on every interest payment date (semi-annually) thereafter
If not called by the Company interest will reset to	4.85% over the five-year gilt rate (and at each fifth anniversary)

The 5.5% Sterling fixed rate subordinated notes with a principal amount of £92m were redeemed on 4 December 2022.