29th Apr 2008 07:01
Friends Provident PLC29 April 2008 29 April 2008 Friends Provident plc - Interim Management Statement including first quarterLife & Pensions New Business Business highlights • First quarter new life & pensions business (on the APE2 basis) increased by 11% to £247 million (2007: £223m) for the UK and International businesses • On an ongoing basis (not including Lombard) new business increased by 11% to £223 million (2007: £201m) • UK new business down by 2% to £165 million (2007: £169m) • FPI new business up by 77% to £58 million (2007: £33m) • Lombard new business up by 11% to £24 million (2007: £22m) • F&C assets under management at 31 March 2008 £101.8 billion (31 Dec 2007: £103.6bn) • Solid early progress on implementation of new strategy with a detailed update to be given with 2008 Interim results • Processes underway for maximising shareholder value for all three wealth management businesses with good levels of interest Adrian Montague, executive chairman of Friends Provident plc, said: "The first quarter new business figures were satisfying, and we were pleasedthat FPI continues to show a strong and growing contribution to the overallresult. We are making good progress on delivery of our strategic review, andlook forward to providing a full update at the Interims. We continue to focus onour core strengths of manufacturing and administering life and pensions productsin the UK and increasingly in international markets in order to achieve ourobjective of enhanced profitability and greater returns for our shareholders.There is much to be done, but we remain confident in our strategy and long-termprospects." - Ends - For further information, please contact: Nick Boakes Friends Provident plc +44 (0)845 641 7814Chris Ford Friends Provident plc +44 (0)845 641 7832Vanessa Neill, Alex Finsbury Limited +44 (0)20 7251 3801Simmons Ref: I034 Notes to editors 1. This Interim Management Statement (IMS) has been prepared in accordance with section 4.3 of the Disclosure and Transparency Rules (DTR) and approved by the Directors on 28 April 2008. Included within the IMS are the first quarter new business results for Life & Pensions. 2. Headline new business figures are presented on the Annualised Premium Equivalent (APE) basis, representing annualised new regular premiums plus 10% of single premiums. The Present Value of New Business Premiums (PVNBP) basis represents new single premiums plus the expected present value of new business regular premiums. 3. Financial reporting dates F&C Asset Management plc Annual General Meeting 13 May 2008 Friends Provident plc Annual General Meeting 22 May 2008 F&C Asset Management plc Interim Results (provisional) 6 August 2008 Friends Provident plc Interim Results 7 August 2008 Friends Provident plc Interim Management Statement and Quarter 3 New Business Announcement 31 October 2008 F&C Asset Management plc Quarter 3 Funds Under 31 October 2008 Management Friends Provident plc Quarter 4 New Business 27 January 2009 Announcement Friends Provident plc Preliminary Results 17 March 2009 Friends Provident plc Interim Management Statement and Quarter 1 New Business Announcement 28 April 2009 Friends Provident plc Interim Results 11 August 2009 Friends Provident plc Interim Management Statement and Quarter 3 New Business Announcement 27 October 2009 4. Certain statements contained in this announcement constitute 'forward-looking statements'. Such forward-looking statements involve risks, uncertainties and other factors, which, from time to time, may cause the actual results, performance or achievements of Friends Provident plc, its subsidiaries and subsidiary undertakings, or industry results to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such risks, uncertainties and other factors include, among others, adverse changes to laws or regulations; risks in respect of taxation; unforeseen liabilities from product reviews; asset shortfalls against product liabilities; changes in the general economic environment; levels and trends in mortality, morbidity and persistency; restrictions on access to product distribution channels; increased competition; and the ability to attract and retain personnel. These forward-looking statements are made only as at the date of this announcement and, save where required in order to comply with the Listing Rules, there is no obligation on Friends Provident plc to update such forward-looking statements. 5. For more information on Friends Provident including, photos, awards, fast facts, presentations, and media contacts please visit the media section at http: //www.friendsprovident.com/media Interim Management Statement Overview In January this year, following its strategic review, Friends Providentannounced its intention to focus on its core strengths of manufacturing andadministering life and pensions products in the UK and related internationalmarkets. We are progressing with implementation of the conclusions of thestrategic review. The overriding objective of the Board is to deliver enhancedprofitability and maximise value for shareholders. We intend to maintain ourstrong capital position. We will build on our leading positions in protectionand group pensions in the UK, and aim to grow FPI more quickly, where we have atrack record of delivering growth in markets with superior profitability. Implementation of new strategy In line with the conclusions of our strategic review, we have acted to withdrawproducts that do not generate sufficient returns, namely pensions products withunfunded initial commission and a number of investment products. We are wellunderway with reorganisation of our distribution functions in the UK to align toour focus on key products and distributors. As a result we are executing atimetable to close 11 area sales offices and consolidate these functions in tofour regional offices. We have well-developed plans to realise the savings of at least £40 million asstated in our 31st January announcement, or 15 per cent of the 2007 operatingcost base, by the end of 2009. Detailed reviews and staff consultations arecurrently underway across the UK life and pensions business, including sales,marketing, IT, customer services and corporate functions. We have also completedthe closure of our Wrap development programme. We will provide an update on costsavings at the time of the interim results on 7 August 2008. Friends Provident's three wealth management businesses, Lombard, F&C andPantheon Financial, no longer fit the group's strategy. We are reviewing optionsfor these businesses with the objective of maximising value for shareholders. Following numerous expressions of interest for each of the businesses, separatecompetitive processes are now well under way to engage with selected interestedparties whom we expect to value and develop the franchise and growth prospectsof these companies. Information relating to the businesses is being provided tointerested parties and introductory meetings are being held between management,interested parties, Friends Provident representatives and their respectiveadvisers. The identities of interested parties are confidential. FriendsProvident will provide further updates as and when appropriate. Life & Pensions new business New life & pensions business for the UK and FPI businesses in the first quarterof 2008 increased by 11% to £223m (2007: £201m). Lombard new business increasedby 11% to £24m (2007: £22m). The new business environment in the UK continues to be challenging, with slowhousing market turnover and unsettled investment markets. While sentimenttowards Friends Provident in the intermediary sector remains on the wholepositive, two factors currently affecting Friends Provident's distribution areexpected to influence results in the UK over the remainder of this year. Theseare, firstly, restructuring our sales and distribution operations to be moreeffective and efficient, which will have some short-term impact on sales ofindividual products. Secondly, uncertainty around ownership of the company hasreduced the number of provider panels Friends Provident is on for group pensionsbusiness. This is usual in this market and we expect to be reinstated in duecourse. While existing schemes and incremental business have not been affected,we expect new scheme wins through the middle of the year to be impacted. There continue to be profitable growth opportunities for both FPI and Lombard.Record quarterly sales for FPI reflect the continued strong delivery fromefforts in marketing regular premium savings products. Lombard's sales werehigher than the equivalent quarter last year, driven by a greater volume oflarge cases. Full details of Life & Pensions new business results are contained in theattached appendix. Sesame continues to trade profitably although its results forthis year are likely to reflect wider trends in the UK protection market. Asset Management Funds under management decreased in the quarter to £101.8bn at 31 March 2008 (31Dec 2007: £103.6bn). F&C has continued to pursue its stated strategy oftargeting higher margin and specialist new business. Net flows in UK Retail andInternational Wholesale funds were positive despite challenging marketconditions. Further commentary is given in the F&C Interim Management Statementdated 25 April 2008. Financial markets In our 2007 results we reported an impact of £90m on IFRS underlying profit dueto the around 100 basis point widening in credit spreads implied by corporatebond market values which required us to provide more reserves in our annuitybook. During 2008 to late April spreads have widened further by around 75 basispoints. In our preliminary announcement of 2007 results we disclosed £187 million ofAsset Backed Securities (ABS) held in the shareholders' funds. This included oneholding in a Structured Investment Vehicle, which is now non-performing. As aconsequence we will record a charge of £6 million in 2008. The overall creditquality of our ABS portfolio remains good with more than 98% of shareholderexposure at investment grade. Dividend and share capital The final dividend declared for 2007 of 5.3p per share is payable on 27 May2008. During the quarter no new ordinary shares in the company were issued and at 31March 2008 the issued share capital excluding treasury shares amounted to 2,323mordinary shares of 10p each (31 December 2007: 2,323m shares). At 28 April 2008the number of shares in issue were 2,323m shares. During the quarter there were no significant changes to Group borrowings. Ournew strategy is self-financing and does not require debt or equity funding.Where proceeds arise from the reviews of the three wealth management businesses,these will be fully returned to shareholders. As outlined in January, the costof dividend will be reduced in 2008 and we will update at our interims. Appendix: Life & Pensions new business UK life and pensions UK life and pensions new business in the first quarter decreased by 2% to £165m(2007: £169m) on the APE basis. On the PVNBP basis, UK life and pensions newbusiness decreased by 13% to £906m (2007: £1,042m). Protection New protection business was down by 12% to £15m (2007: £17m). This resultreflects the impact of significantly reduced numbers of house purchasetransactions on the market for mortgage-related protection sales. Premiumsin-force continued to increase, rising to £315m (31 Dec 2007: £311m). In thefirst quarter we saw some competitive pressure in critical illness products,while we believe we have maintained a strong position in income protection. Welaunched a business protection product in January to broaden our individualproduct range. We aim to maintain our position as one of the leading players inthis market. Pensions New group pensions business increased by 11% to £127m (2007: £114m). Regularpremiums in-force increased to £1,319m (31 Dec 2007: £1,241m). Assets undermanagement decreased to £7,295m (31 Dec 2007: £7,595m) as investment marketdeclines more than offset single premiums and regular premiums on existingbusiness. We withdrew from marketing schemes with unfunded initial commissionfollowing the announcement of our new strategy and the pipeline of such schemeswill complete in the second quarter. The proportion of our new business from newinitial commission schemes in the quarter was around 16%. Regular premium new business was exceptionally strong, with around 75% of totalAPE reflecting increments related to additional tranches of business on thelarge number of schemes won last year and annual salary increases. We thereforeexpect the underlying level of new regular premiums through the year to be lowerthan seen in the first quarter. New individual pensions business decreased by 21% to £12m (2007: £15m). Thisreflects our withdrawal from the unfunded initial commission market and changesto our sales operations, combined with increasing competition in this market. Weexpect the level of new business to reduce further in the second quarter. DWP rebate premiums were £1m in the first quarter (2007: £1m), as expected givenseasonal trends. Annuities Annuity sales over the first quarter decreased by 15% year-on-year to £6.4m.Payments in-force increased to £155m (31 Dec 2007: £150m). We aim to capture aproportion of the proceeds of our vesting pensions policies and have maintainedthis rate above 40%. The year-on-year volume decrease reflects a reduced levelof maturities relative to Q1 2007. Pricing pressure in the first quarter isexpected to impact on margin for this product. Savings and investments Investment sales fell by 72% to £4m (2007: £14m). This reflects our revisedambitions in the wealth management market and the withdrawal of less profitableproducts. We will take a tactical approach in future although the marketbackdrop given uncertainty around tax changes and investment markets iscurrently unpromising. International life and pensions Friends Provident International (FPI)New business (APE) Q1 2008 Q1 2007 £m £mAsia 32.5 13.1UK 3.6 6.4Middle East 9.3 3.2Europe (excluding UK) 8.3 7.1Rest of World 4.3 2.8Total FPI 58.0 32.7 FPI experienced a record quarter of new business, driven by continued strongdemand for regular premium savings products in Asia. Strengthened links withdistributors in smaller markets such as the Middle East and Germany have givenrise to further growth. Single premium sales have been slower reflecting weakunderlying demand in the UK market. Some of the additional regular premium business written this quarter will be ata slightly lower rate of return than the FPI average in 2007 of 18%, althoughstill above UK profitability levels in line with our strategy to increaseaverage returns. We expect the new business volume from this product to moderategoing forward as competitors have established similar products in major marketssuch as Hong Kong. Growth prospects for the medium term and longer term remainencouraging. Lombard International (Lombard)New business (APE) Q1 2008 Q1 2007 £m £mUK and Nordic 5.0 4.2Northern Europe 9.1 6.4Southern Europe 8.8 10.8Rest of World 1.4 0.4Total including large cases 24.3 21.8Of which, large cases (greater than €10m) 6.2 3.3Total excluding large cases 18.1 18.5 Q1 new business was up 11% to £24m helped by favourable currency movements. Mostregions saw good growth over 2007, with the exception of Southern Europe, whichhad a particularly strong performance in Q1 2007. The geographic mix of businesswas favourable towards higher margin territories, whilst margins in individualterritories remained stable. Results for the full year will be influenced by opportunities in differentmarkets and the level of large cases. Prospects for the German market haveimproved with the forthcoming tax change in early 2009. The current level oflarge case prospects is high. The long-term outlook for the business remainsexcellent, as Lombard continues to focus on deepening relationships withdistributors in its key markets, with the development of the Swiss marketremaining an important goal. Analysis of Life and Pensions New Business In classifying new business premiums the following basis of recognition isadopted: • Single new business premiums consist of those contracts under which there is no expectation of continuing premiums being paid at regular intervals; • Regular new business premiums consist of those contracts under which there is an expectation of continuing premiums being paid at regular intervals, including repeated or recurrent single premiums where the level of premiums is defined, or where a regular pattern in the receipt of premiums has been established; • Non-contractual increments under existing group pensions schemes are classified as new business premiums; • Transfers between products where open market options are available are included as new business; and • Regular new business premiums are included on an annualised basis. New Business - Regular and Single Premiums: Regular premiums Single premiums Change Q1 2008 Q1 2007 Change Q1 2008 Q1 2007 % £m £m % £m £mProtection (12) 14.9 16.9 - 0.0 0.0Pensions - Group pensions 15 110.4 95.9 (9) 168.8 184.9 - Individual pensions (14) 4.3 5.0 (25) 75.3 100.7 - DWP rebates - 0.0 0.0 (45) 5.1 9.3Total pensions 14 114.7 100.9 (15) 249.2 294.9Annuities - 0.0 0.0 (14) 64.5 74.8Savings & Investments (50) 0.3 0.6 (74) 35.5 134.3Total UK Life & Pensions 10 129.9 118.4 (31) 349.2 504.0 FPI 151 46.7 18.6 (20) 113.0 141.8Lombard - 0.0 0.0 11 243.2 218.2Total International Life 151 46.7 18.6 (1) 356.2 360.0& Pensions Total 29 176.6 137.0 (18) 705.4 864.0 New Business - Annual Premium Equivalent (APE): Annualised Premium Equivalent (APE) represents annualised new regular premiumsplus 10% of single premiums. Change Q1 2008 Q1 2007 % £m £mProtection (12) 14.9 16.9Pensions - Group pensions 11 127.3 114.4 - Individual pensions (21) 11.8 15.0 - DWP rebates (44) 0.5 0.9Total pensions 7 139.6 130.3Annuities (15) 6.4 7.5Savings & Investments (72) 3.9 14.0Total UK Life & Pensions (2) 164.8 168.7 FPI 77 58.0 32.7Lombard 11 24.3 21.8Total International Life & Pensions 51 82.3 54.5 Total 11 247.1 223.2 Effect of currency movements on APE All amounts in currency other than sterling are translated into sterling at amonthly average exchange rate. The estimated new business assuming constantcurrency rates would be as follows: Change Q1 2008 Q1 2007 (as reported) % £m £mFPI 76 57.5 32.7Lombard -1 21.7 21.8Total International Life & Pensions 45 79.2 54.5 New Business - Present Value of New Business Premiums (PVNBP): PVNBP equals new single premiums plus the expected present value of new regularpremiums. Premium values are calculated on a consistent basis with the EEVcontribution to profits from new business. Start of period assumptions are usedfor the economic basis and end of period assumptions are used for the operatingbasis. A risk free rate is used to discount expected premiums in future years.The impact of operating assumption changes across a whole reporting period willnormally be reflected in the PVNBP figures for the final quarter of the periodthat the basis changes relate to. No change in operating assumptions will bereflected in the PVNBP for the first and third quarters, when the contributionto profits from new business is not published. All amounts in currency otherthan sterling are translated into sterling at a monthly average exchange rate. Change Q1 2008 Q1 2007 % £m £mProtection (13) 87 100Pensions - Group pensions 4 620 598 - Individual pensions (24) 93 122 - DWP rebates (44) 5 9Total pensions (2) 718 729Annuities (15) 64 75Savings & Investments (73) 37 138Total UK Life & Pensions (13) 906 1,042 FPI 51 357 237Lombard 11 243 218Total International Life & Pensions 32 600 455 Total 1 1,506 1,497 Effect of currency movements on PVNBP All amounts in currency other than sterling are translated into sterling at amonthly average exchange rate. The estimated new business assuming constantcurrency rates would be as follows: Change Q1 2008 Q1 2007 (as reported) % £m £mFPI 49 354 237Lombard -1 217 218Total International Life & Pensions 25 571 455 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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