4th Aug 2015 10:35
LONDON (Alliance News) - Standard Life PLC on Tuesday said that fee-based business is driving its growth, continuing the FTSE 100 company's move to reduce exposure to more volatile earnings from providing guaranteed-income products.
The FTSE 100 investment and savings company said its operating profit before tax increased by 6% to GBP290 million in first half of 2015, as fee-based revenue including the acquisition of Ignis Asset Management rose by 17% to GBP761 million and spread/risk margin revenue almost halved to GBP40 million. Standard Life increased its interim dividend to 6.02 pence from 5.60p.
Standard Life shares were down 3.0% to 440.80p late morning Tuesday.
Assets under administration amounted to GBP302.1 billion at the end of June, up from GBP296.6 billion at the end of 2014 and from GBP223.9 billion at the end of June that year, driven by client demand for its investment products and the Ignis purchase. Net inflows fell to GBP3.4 billion in the half, compared with GBP4.3 billion in the corresponding period last year.
Standard Life has changed considerably in the past decade. It used to be Europe's largest mutual insurance company, and has been undergoing a big transformation since demutualising and listing on the London Stock Exchange in 2006. Chief Executive David Nish is stepping down this month after almost six years in the role, and will be replaced by Keith Skeoch, the leader of its increasingly prominent investments business.
"The simple business model that we've had in place for some time has served us extremely well. David has done a fantastic job transforming and simplifying the business. My role is certainly going to be about making sure that simple business model continues to deliver asset growth, revenue growth, profitability, and therefore returns for shareholders," Skeoch told journalists in a conference call Tuesday.
The group's succession plans were revealed on June 19 after gathering pace in the wake of acquiring Ignis from Phoenix Group in 2014 and completing the sale of its Canadian business to Manulife earlier this year.
Standard Life's earnings should be less volatile in the wake of the sale of its Canadian operations, as the disposal cut its exposure to spread/risk business, a driver of operating profit that relates to products under which the company provides guaranteed income to customers, and shifted the focus to fee-based business, which accounted for 95% of revenue in the first half. Fee-based revenue is mostly derived from charging clients for managing their assets.
In annuities products, the spread refers to the difference between the levels of income guaranteed and paid to customers and the actual return on their investment during the contract. Standard Life has been expecting lower profitability from its spread/risk business in the wake of big changes to UK pensions rules in March 2014, which mean that people are no longer effectively required to buy individual annuities to give themselves guaranteed income in retirement.
Standard Life expects the contribution from annuity new business to reduce by between GBP10 million and GBP15 million in 2015 as a whole due to the pensions changes in the UK. It expects the contribution from asset liability management to fall by between GBP30 million and GBP40 million.
The insurer said the integration of Ignis is on track, with GBP50 million of planned annual cost savings intended to improve the group's earnings before interest, tax, depreciation and amortisation margin to 45% by 2017. The Ebitda margin was 40% in the first half of 2015, compared with 36% in the corresponding half last year.
Speaking about the integration, Skeoch told journalists that equity assets and funds, as well as property assets and funds, have been moved across in the first part of the process. About 100 people moved to the 30th floor of St Mary Axe, also known as The Gherkin, in London, where Standard Life has its offices.
"A big chunk of assets is now on our systems. What we have to do in the second phase of integration is move some of the complicated life funds into our environment and into our system, and that work is progressing," Skeoch said. "It's something we've got a lot of experience with because we run GBP100 billion of assets for the Standard Life Group. It's important we do that in an appropriate manner to make sure that customer service and the returns they expect will be in the right kind of place, and we remain regulatory compliant. In some senses the second half of the integration was always going to be a little more complicated. We're pretty much where we expected to be."
The new CEO told journalists he will continue to run Standard Life Investments for the forseeable future, and that there is no active search for a successor at the moment.
"I'm able to do that because SLI has always had a very strong team-based culture, and I have a very, very strong executive team behind me which have been driving the business, driving flows and generating performance for some time. We have a very successful formula which our clients and consultants are keen to see continue," Skeoch said.
By Samuel Agini; [email protected]; @samuelagini
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