30th Apr 2008 07:02
Standard Life plc30 April 2008 Standard Life plc Interim Management Statement - three months to 31 March 2008 30 April 2008 Net flows • Worldwide life and pensions net inflows up 31% to £986m1. • UK life and pensions net inflows up 42% to £826m. • Worldwide investment net inflows up 1% to £2,295m. New business sales • Worldwide life and pensions sales up 8% to £4,477m. • UK life and pensions sales up 6% to £3,516m. Other developments • £6.7bn of UK immediate annuity liabilities reinsured. • Global Liquidity Funds* restructured, with an expected net cash cost of £17m after tax. Group Chief Executive Sandy Crombie said: "We have delivered a solid performance in the first quarter against a backdropof economic uncertainty and volatile markets. "In the UK, we've seen robust performance against a strong comparative period.Net flows and sales both increased and we successfully reinsured £6.7bn ofannuities to reduce the longevity risk borne by our shareholders. The strengthof our balance sheet has also enabled us to approve the restructuring of one ofthe Global Liquidity sub-funds, providing support to our customers and limitingshareholders' exposure. Investment management net inflows have been resilientlargely reflecting our strengths in the institutional market. We had a goodstart to the year in Canada following the repositioning of the business in 2007while our joint venture operations in India and China continue on a stronggrowth path. "While market conditions ahead appear challenging, particularly in the UK, weremain confident in our ability to outperform in the profitable segments inwhich we operate." Unless otherwise stated, all comparisons are in sterling, all sales figures areon a PVNBP basis and all comparators are with the first three months of 2007.* "Global Liquidity Funds" refers to Standard Life Investments (Global LiquidityFunds) plc.Net flows As Standard Life is an asset managing business, net flows are a key driver ofshareholder value. Consistent with this focus, we are introducing new disclosurein respect of life and pensions net flows. This enhanced disclosure increasestransparency and will assist investors in gaining a clearer understanding of theperformance of our business. Total net flows across our UK, European andCanadian life and pensions operations have strengthened by 31% to £986m. UK life and pensions net flows have been resilient in the face of challengingmarket conditions, increasing by 42% to £826m during the first quarter. Withinthis total, net pensions flows excluding volatile institutional TIP flows were£603m (2007: £367m), the overall improvement being driven by reduced claims.Net savings and investments inflows amounted to £198m (2007: net outflow of£66m) reflecting higher gross inflows. Claims levels across our pensions andwith profits portfolios continue to trend downwards and are now within ourstrengthened long-term assumptions. Claims levels of unit-linked bonds, drivenby market volatility and recent CGT changes, are consistent with the short-termlapse provision set up at the year-end. In Europe, net flows strengthened by 15% to £147m, due to higher net inflowswithin our German operations. Canadian net flows reflect the continuation ofscheduled payments made in respect of legacy annuity products, which have beenless actively marketed since the repositioning of the business in 2005, andreduced to £13m from £43m. Standard Life Investments' worldwide investment net inflows increased by 1% to arecord level of £2,295m during the quarter. Net investment inflows forInstitutional business, which accounts for around 80% of our third party fundsunder management, increased by 20%. This reflects further mandate winsincluding a significant mandate in the UK, the majority of whose assetstransitioned during the quarter. As expected, and in line with the industry,net flows in respect of third party retail Mutual Funds were significantly lowerthan the prior year. UK Financial Services Sales within our UK financial services division increased in the first quarterwith total life and pensions sales up by 6% to £3,516m, driven by a 43% increasein savings and investment sales. Pension sales were 2% lower than a strongprior year comparator. Gross mortgage lending decreased by 46% to £407m (2007:£748m) whilst healthcare sales, on an APE basis, increased by 60% to £8m (2007:£5m). Individual SIPP funds under administration increased by 6% to £8.1bn2 (31December 2007: £7.7bn), the impact of net inflows of £845m (2007: £1,020m) beingpartly offset by a market-driven reduction in underlying asset values. Duringthe quarter SIPP customer numbers increased by 12% to 52,600 (31 December 2007:46,900) with average case sizes across our SIPP portfolio reducing to £154,000at the end of the quarter (31 December 2007: £164,000). Individual SIPP sales of £1,059m were 14% lower than a very strong prior yearperiod that was significantly enhanced by heightened activity post A-day. Thisis largely due to the impact of market movements on average incoming transfervalues, which continue to represent the majority of total SIPP sales. Recentsales figures reflect the emergence of a more mature and seasonal market, withsales levels achieved in the first quarter representing growth of 10% comparedto the fourth quarter of 2007. Group Pensions sales increased by 48% to £896m, reflecting strong levels of newand incremental business and a large scheme (£224m) won during the quarter.Group SIPP volumes increased by 34% compared to the prior year and accounted for24% of total Group Pensions sales (2007: 27%). At 31 March 2008, UK GroupPensions funds under management had reduced marginally to £14.9bn (31 December2007: £15.0bn), the strong growth in new business volumes being offset bynegative market movements. Savings and Investments sales increased by 43% to £918m. This was largelydriven by sales of Investment Bonds, which increased by 22% to £652m, due tocapital-lite volumes secured through bulk deals with large institutionaldistributors at lower margins. The continued popularity of our retail portfoliobond has been reflected in the strong performance of our Offshore Bonds, withsales increasing to £118m, or five times the level of the prior year. At 31 March 2008, funds under administration on Standard Life's Wrap platformhad increased by 16% to £1.3bn (31 December 2007: £1.1bn). At the end of thequarter there were 234 IFA firms using the platform (31 December 2007: 209firms) and 10,400 customers (31 December 2007: 8,100 customers) with an averagefund size of £121,000 (31 December 2007: £133,000). The sharp decrease in gross mortgage lending has been driven by a number ofstrategic measures in line with those of many mortgage lenders. These have beenimplemented to drive profitability in response to difficult credit marketconditions. At 31 March 2008 mortgages under management stood at £11.0bn (31December 2007: £11.3bn), with an arrears rate across our mortgage portfolio of0.22%, which compared favourably to the Council of Mortgage Lenders industryaverage of 1.20%. Savings balances in our banking operations continue to increase with totalsavings balances at 31 March 2008 of £4.7bn (31 December 2007: £4.6bn). Thistotal includes combined SIPP and Wrap balances of £852m (31 December 2007:£629m). Europe Life and pensions sales in Europe were 24% lower than the prior year in constantcurrency. In Ireland, sales of £94m were 35% lower than the prior year inconstant currency, reflecting the difficult market conditions in the Irishmarket. Sales in Germany of £121m were 11% lower in constant currency and wereaffected by recent changes in insurance contract regulations, which haveimpacted the sales process across the German life and pensions industry. Canada Sales generated by our Canadian operations increased by 9% in constant currencyto £556m despite the impact of weak equity markets. Sales of Group Savings andRetirement products benefited from a number of mid-size mandates secured in thequarter whilst growth in Group Insurance sales reflected our continued successin the disability insurance segment. Asia Pacific Combined sales from our joint ventures in India and China and our Hong Kongoperations increased by 31% in constant currency on a PVNBP basis and by 84% onan APE basis despite volatile market conditions3. In India, sales increased by23% in constant currency on a PVNBP basis and by 80% on an APE basis. StandardLife's share of these sales was £166m (2007: £78m). The number of financialconsultants appointed by the joint venture has increased to approximately145,000 (31 December 2007: 132,000). In China, sales volumes increased by 131%in constant currency on a PVNBP basis and by 147% on an APE basis, reflectingstrong growth in group products and in bank distribution, as well as continuedbusiness expansion in major cities within existing provinces. Standard Life'sshare of these sales was £19m (2007: £8m). Standard Life Investments Third party funds under management increased by 1% during the quarter to £48.2bn(31 December 2007: £47.7bn), the strong net inflows of £2,295m being largelyoffset by a market-driven reduction in asset values. Total funds undermanagement decreased by 6% during the quarter and predominantly reflects theannuity reinsurance transaction entered into in February 2008 which reducedfunds under management by £6.7bn. Excluding the impact of this reinsurancetransaction, total funds under management reduced by 2% during the quartercompared to a fall of 11% in the FTSE All Share index. Investment performance has been steady with 18 of the 23 pooled pension fundsoutperforming their respective peer groups during the twelve months to 31 March2008. The strength of performance across a range of Mutual Funds isdemonstrated by the high proportion of eligible funds, (18 out of 23), rated 'A'or above by Standard & Poor's. Money weighted average investment performanceover 3 and 5 year periods continues to be top quartile and remains a key driverof our strong institutional sales and pipeline. Other developments Reinsurance of UK Immediate Annuity Liabilities As previously announced, in February 2008 Standard Life reinsured £6.7bn of UKimmediate annuity liabilities, more than half of its total £12bn, to Canada LifeInternational Re, a wholly owned subsidiary of Great-West Lifeco. This transaction, which is believed to be the largest of its kind in the UK,followed a full analysis of the strategic options for the annuity book. It hassignificantly reduced the longevity risk borne by shareholders and has generatedan expected one-off positive impact on embedded value operating profit beforetax of at least £100m, based on existing EEV methodology. It has released cashfrom reserves and reduced capital requirements. The transaction has alsobenefited policyholders as there has been an enhancement to the Heritage WithProfits Fund estate and a reduction in its exposure to risk. In addition to the financial benefits, reducing the shareholders' longevityexposure has provided greater capacity to broaden the Group's innovative productrange and take advantage of the profitable opportunities available. Restructuring of the Global Liquidity Funds As reported in the 2007 preliminary results, a provision of £10m had beenestablished for a guarantee provided by Standard Life to an associate. Thisguarantee was provided to Standard Life Investments (Global Liquidity Funds)plc, to maintain the pricing structure for the investors in two of itssub-funds. Following the continued deterioration in liquidity conditions, the principalsub-fund covered by the guarantee has been restructured, changing its pricingstructure to a mark-to-market basis and removing the guarantee. As a result ofthe restructuring, Standard Life has substituted an indirect exposure to theunderlying assets of the fund with a direct investment representing £565m4,5 ofhighly rated asset backed securities with an average duration of 2.9 years. Inaddition, Standard Life has substituted £455m4,5 of investment in corporatebonds, used to back subordinated debt, with an investment in a portfolio of morehighly rated and higher yielding asset backed securities acquired from the fundwith an average duration of 3.2 years. These assets will be held to maturity,with expected mark-to-market benefits. Full details of these assets areprovided in Note 4 to Editors. The restructuring provides continuing investmentopportunities and support to customers and limits shareholders' exposure. The expected net of tax impact on the Group's first half 2008 profits on both anEEV and IFRS basis as at 28 April 2008 is a reduction of £37m5. The expectednet cash cost is £17m5 after tax. There has been no material change in StandardLife's total investment (including third party funds) in asset backed securitiessince 31 December 2007. A residual guarantee, for a maximum of £5m, has beenprovided in relation to the other sub-fund covered by the original guarantee. Standard Life group outlook In the UK, the market outlook for sales of investment products is challengingdue to market volatility and the impact of the CGT changes on bonds. Whilstpensions business overall is less directly sensitive to investment conditions,reduced market values depress incoming transfer values to SIPPs and Groupschemes. Against this backdrop, we remain confident in our ability tooutperform the market in the profitable segments in which we operate. We expect to deliver growth in Canada due to the rebuilding of our retail salesand distribution capabilities. In addition, we expect further strong growth inour Asia Pacific joint ventures. This will be driven by the development ofdistribution, continued recruitment of agents and extension of reach through newbranches, penetration of existing markets and continued product development. Incontrast, market conditions in Europe continue to be challenging and, untilconfidence is restored in investment markets, we expect sales growth to besignificantly slower than 2007. The outlook for Standard Life Investments remains positive with a significantpipeline of new institutional business expected to underpin resilient thirdparty inflows and continued growth in third party assets under management. For the full Press Release, including detailed financial tables, please clickhere: http://www.rns-pdf.londonstockexchange.com/rns/3981t_-2008-4-29.pdf For further information please contact: Institutional Equity Investors: Gordon Aitken 0131 245 6799 Duncan Heath 0131 245 4742 Paul De'Ath 0131 245 9893 Retail Equity Investors: Computershare 0845 113 0045 Media: Barry Cameron 0131 245 6165 / 07712 486 463 Neil Bennett (Maitland) 020 7379 5151 / 07900 000 777 Debt Investors: Andy Townsend 0131 245 7260 Notes to Editors 1. Worldwide life and pensions net inflows do not include net inflows in respect of our Asia Pacific joint ventures. 2. Analysis of Individual SIPP funds under administration. 31 Mar 31 Dec Change 2008 2007 £m £m £m % Insured Standard Life Funds 2,787 2,752 35 1Insured External Funds 1,619 1,671 (52) (3)Collectives - Standard Life Investments 856 834 22 3Collectives - Funds Network 621 603 18 3Cash 645 484 161 33Non Cash and Non Collectives 1,575 1,332 243 18Total 8,103 7,676 427 6 Insured 4,406 4,423 (17) (0)Non-insured 3,697 3,253 444 14Total 8,103 7,676 427 6 Of the £8.1bn funds under administration at 31 March 2008, £0.5bn relate tofunds on the Wrap platform. 3. The growth percentages quoted for India, Asia Pacific life and pensionsand Total worldwide life and pensions reflect the growth in sales in HDFCStandard Life Insurance Limited, rather than the growth in Standard Life's shareof the joint venture. Sales quoted reflect Standard Life's share of the jointventure. 4. Assets transferred to a direct holding of the Group. Aaa Aa A < A Total £m £m £m £m £mABCP - - - - -Auto ABS - - - - -CMBS 199 - - - 199Credit Card ABS 53 - - - 53RMBS 677 13 - - 690US Sub-Prime RMBS - - - - -SIV 30 - 20 11 61WhCo - - - - -CDO - - - - -CSO - - - - -CLO - - - - -Other ABS 17 - - - 17Total 976 13 20 11 1,020% of total 96% 1% 2% 1% 100% Based on market values as at 28 April 2008 5. Numbers based on prices available as at 28 April 2008, the latestpracticable date prior to the publication of this statement. Final numbers willreflect prices as at 29 April 2008. 6. There will be a conference call today for newswires and online publications at 8.00am hosted by David Nish, Group Finance Director and Keith Skeoch, Chief Executive of Standard Life Investments. Dial in telephone number +44 (0)20 7162 0025. Callers should quote Standard Life Media Call. 7. There will be a conference call today for investors and analysts at 9.30am hosted by David Nish, Group Finance Director and Keith Skeoch, Chief Executive of Standard Life Investments. Dial in telephone number +44 (0)20 7162 0125. Callers should quote Standard Life Conference Call. A recording of this call will be available for replay for one week by dialing +44 (0)20 7031 4064 (access code 792684). This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
SLA.L