27th Sep 2006 07:03
Standard Life plc27 September 2006 Standard Life plc Half Year Results Ended 30 June 2006 27 September 2006 • Worldwide insurance PVNBP1 sales of £5,763m (Full Year 2005: £9,367m), worldwide insurance APE2 sales up 19% to £745m (six months to June 2005: £624m) • Group new business contribution before tax of £91m (FY 2005: £33m), PVNBP margin up to 1.6% (FY 2005: 0.4%) • EEV3 operating profit before tax of £206m (FY 2005: £395m), after a £100m increase in lapse provisions • IFRS4 underlying profit before tax of £243m (FY 2005: £145m) • Group EEV before IPO5 proceeds up 3% to £3,875m (31 December 2005: £3,744m), Group EEV including IPO proceeds per share of 246p (31 December 2005: 239p) • Standard Life Investments funds under management £123.4bn (31 December 2005: £118.8bn) There are no H1 2005 financial comparisons for EEV or IFRS results. The basis ofpreparation of the EEV operating profit and of the IFRS underlying profit is setout in the Standard Life Half Year Report 2006 below, which is published on theGroup's website at www.standardlife.com ("the Half Year Report 2006"). Theseresults have been calculated for the half year ended 30 June 2006 usingassumptions to show the results which would have been attributable toshareholders had the company been owned by shareholders under the terms of theScheme of demutualisation throughout H1 2006. The Scheme of demutualisation didnot take effect until 10 July 2006. Surplus cashflows from the Company's lifeassurance business prior to that date will therefore accrue for the benefit ofwith profits policyholders rather than shareholders in Standard Life plc. TheGroup's results as a mutual entity, prepared on an IFRS basis, for the half yearare included in full in the Half Year Report 2006. Chairman, Sir Brian Stewart, commented: "Following the successful demutualisation and IPO, Standard Life is making goodprogress against the background of rapid change within the industry. Our shareof the UK life and pensions market rose in the first half6 and profits improved.We look forward with confidence." Group Chief Executive, Sandy Crombie, said: "Our financial results for the first half of the year show strong sales growthand improved new business profitability. New business contribution of £91m,almost three times the value for the whole of 2005, reflects the continuedsuccess of our strategy of concentrating on higher margin products which requirelower capital investment. "We have been net winners from the heightened activity in the UK pensionsmarket. However, we have seen in recent weeks an increase in lapses and havedeemed it prudent to set aside a provision until lapse levels return to normal. "We remain on track to hit both our UK Life and Pensions cost-cutting target of£30m and our 2007 ROEV7 target of 9-10%." Notes: (1) Present Value of New Business Premium, (2) Annual Premium Equivalent,(3) European Embedded Value, (4) International Financial Reporting Standards,(5) Initial Public Offering, (6) Relative to FY 2005, (7) Return on EmbeddedValue Financial Highlights EEV basis EEV basis IFRS basis IFRS basis H1 2006 FY 2005 H1 2006 FY 2005Operating profit before tax/IFRS underlying profit before £206m £395m £243m £145mtax1Profit before tax/IFRS proforma profit before tax1 £266m £770m £186m £204mLife and Pensions PVNBP £5,763m £9,367m - -New business contribution £91m £33m - -New business contribution / PVNBP 1.6% 0.4% - -Embedded value before IPO proceeds £3,875m £3,744m - -Embedded value including IPO proceeds £5,171m £5,040m - -Embedded value per share including IPO proceeds2 246p 239p - -Earnings per share 2 3 7.4p 14.3p 10.3p 6.0pReturn on embedded value including IPO proceeds4 6.8% 7.4% - - Notes: (1) The profit amounts included in the IFRS basis column represent IFRSunderlying profit before tax and IFRS proforma profit before tax as defined inthe Half Year Report 2006 below and do not represent the results of the mutualentity. (2) These are estimates calculated assuming shareholders owned the Groupand the Scheme of demutualisation was in effect during this reporting period.Shares in issue used in the per share calculations are 2,106m. (3) Uses EEVoperating profit after tax, adjusted for interest on IPO proceeds, of £155m(2005: £301m) and IFRS underlying profit after tax of £216m (2005: £127m). (4)Uses £1.3bn and £1.1bn assumed proceeds for H1 2006 and FY 2005 respectively.2005 reported RoEV has not been restated from previously published information. Group IFRS (mutual basis) Throughout the first half of 2006, The Standard Life Assurance Company (SLAC)was a mutual company operated for the benefit of its with profits policyholders.The statutory accounts of the SLAC Group recorded neither a profit nor a losson the operations of its long-term business because, under the mutual structure,all surpluses from the business accrued to the benefit of with profitspolicyholders through bonuses declared, or through transfers to the unallocateddivisible surplus. On a mutual basis, the Group's total net revenue was £4,437m (FY 2005: £18,406m)and operating expenses before finance costs of £57m (FY 2005: £109m) were£3,877m (FY 2005: £16,782m). The Group's total assets increased to £124,042m at30 June 2006 (£120,260m at 31 December 2005). The decline in net revenue was aresult of a lower net investment return reflecting primarily the impact ofadverse bond market movements and smaller rises in equity market indices in H12006 compared with FY 2005. The return on investment property was strong inboth periods. Overall investment return in H1 2006 was broadly in line withmarket returns. Similarly the reduction in operating expenses reflected theimpact of market movements on policyholder liabilities. The Summarised Consolidated Income Statement for the six months ended 30 June2006 (IFRS mutual basis) is published in Part 6 of the Half Year Report 2006. Group EEV and IFRS headlines The first half of 2006 was characterised by strong sales growth assisted byA-Day and sharply improved new business profitability. Worldwide sales on aPVNBP basis were £5,763m (FY 2005: £9,367m), driven by continuing strong salesof SIPP and Investment Bonds. UK PVNBP was £4,330m (FY 2005: £6,455m), with UKpensions business the largest contributor at £3,249m (FY 2005: £4,987m). Canadawas also a material contributor with PVNBP of £1,025m (FY 2005: £1,882m). As previously reported, worldwide insurance sales on an APE basis increased by19% to £745m compared with the first half of 2005, reflecting strong performancein UK Life and Pensions where APE sales increased by 25%. The result of this strong sales performance was an increase in Standard Life'sUK market share in the second quarter of 2006 to 9.2%, compared with 8.4% forfull year 2005. The transition towards more profitable products with lower acquisition costs hascontinued. The new business contribution, after cost of capital, was £91m,approximately three times both the first quarter figure and the total for the2005 year as a whole (2006 Q1: £30m, FY 2005: £33m). The margin at 1.6% of PVNBPcompares favourably to the level in 2006 Q1 (1.1%) and full year 2005 (0.4%). Group EEV operating profit before tax was £206m (FY 2005: £395m), with profitsof £250m (FY 2005: £454m) from Life and Pensions after net negative operatingassumption changes of £38m (FY 2005: positive £37m), including a £100m increasein lapse provisions relating to both demutualisation and A-Day. Standard LifeInvestments, Standard Life Bank and Standard Life Healthcare together producedoperating profits of £34m on an EEV basis (FY 2005: £46m). The costs incurred by the Corporate Centre, net funding of subordinated debt andother non-covered business in total amounted to £78m (FY 2005: £105m). Withinthis figure, Corporate Centre costs for the first six months of 2006 were £42m(FY 2005: £58m), which included costs in relation to preparatory work in advanceof conversion to a listed company. Standard Life has undertaken a number ofinitiatives to maintain Corporate Centre costs in 2007 at 2005 levels. Group EEV was up 3% to £3,875m as at 30 June 2006 (£3,744m as at 31 December2005). This figure has been calculated before taking account of the £1.3bn ofnet new capital raised from the IPO. Allowing for the capital raised, the proforma Group EEV rose to £5,171m at 30 June 2006. The IFRS underlying profit amounted to £243m, substantially ahead of the £145mprofit for 2005 as a whole, with Life and Pensions IFRS underlying profit of£273m (FY 2005: £175m) benefiting from the absence of £189m of reservestrengthening which impacted the 2005 result. The UK, Canadian and European Lifeand Pensions businesses all made substantial improvements in their underlyingIFRS results. In Life and Pensions there was a decrease in new business strain (H1 2006:£136m, FY 2005: £332m) both in absolute terms and also relative to new businessvolumes (H1 2006: 18% of APE sales, FY 2005: 27% of APE sales) reflecting areduction in acquisition costs and favourable changes in product mix. As aresult, the Life and Pensions covered businesses generated positive cash flow onan EEV basis of £156m before foreign exchange and capital movements. In additionthe Group had indicative net cash outflows (on an after-tax IFRS basis) fromnon-covered entities of £33m for H1 2006 (FY 2005: outflows of £39m). Cashflowgeneration remains a clear focus of the Group. UK Life and Pensions Both PVNBP (£4,330m) and APE sales (£594m) for UK covered life businesscontinued to grow strongly during the period, largely reflecting pro-activechanges in product mix, the beneficial impact of A-Day on new business volumesand continued focus on customer service. SIPP and investment bond sales were keycontributors to this performance, in line with the strategy to focus on moreprofitable product lines. We continue to develop our product range with the rollout of our Wrap platform to advisers. EEV operating profit was £148m (FY 2005: £272m) benefiting from the substantialincrease in new business contribution from UK Life and Pensions of £78m (FY2005: £27m) due to changes in product mix, increased sales of lower commissiongroup pensions and lower initial expenses. As a result the PVNBP margin on UKLife and Pensions products increased significantly from 0.4% for FY 2005 to 1.8%for H1 2006, with improved margins in all key product categories. The largestimprovement in profitability was in pensions where the new business contributionincreased to £44m in H1 2006 from £11m in FY 2005, with the new business marginincreasing to 1.4% in H1 2006 from 0.2% in FY 2005. In FY 2005 we witnessed lower with profits lapse volumes in advance ofdemutualisation. To take account of this, a pre-tax provision of £23m wasestablished at 31 December 2005 in anticipation of these deferred lapsesoccurring after demutualisation. Lapse volumes similarly ran at a reduced levelin H1 2006. After demutualisation we saw an increase in lapses of life withprofits products which, as expected, since early August, have declined. However,in light of the extent of the lapses overall, the pre-tax provision has beenincreased by £21m to £44m. We have seen a different experience in pensions. Customers have consolidatedtheir pensions arrangements as a result of A-Day. This has resulted in anincrease in pensions lapses. For Standard Life this impact has only occurred inrecent weeks. We have therefore set up a pre-tax provision of £79m in respectof expected A-Day related lapses. We expect this A-Day related lapse experienceto revert to normal levels in 2007. A proportion of these future lapses maytransfer to other Standard Life products, although this benefit has not beentaken into account. UK Life and Pensions operating profit was favourably impacted by £27m due toupdated valuation assumptions, resulting in an overall UK pre-tax charge foroperating assumption changes of £73m (FY 2005: negative £22m). IFRS underlying profit improved to £155m for the first 6 months of 2006 from£16m for 12 months to December 2005. The strong performance was significantlyhelped by higher profits from the unitised life and pensions business. Canadian Life and Pensions The Canadian Life and Pensions business achieved PVNBP sales of £1,025m (FY2005: £1,882m) with APE increasing in local currency terms by 3% to £99m in linewith the strategy to prioritise retention and maintain focus on margin insteadof volume. The increase in new business contribution to £11m from a loss of £2min FY 2005 relates mainly to the repricing of the previously loss-makingUniversal Life product. Losses for this product in H1 2006 were £5m (FY 2005:£36m). The Canadian Life and Pensions business contributed £79m (FY 2005: £131m) toGroup EEV operating profits with the result boosted by the turnaround in newbusiness contribution and lower maintenance expense assumptions reflectingongoing cost reduction measures. Canada IFRS underlying profit increased on a pro-rata basis to £68m in the firsthalf of 2006 (FY 2005: £86m) due to continued growth in funds under managementand the repositioning of the individual insurance offering. Market share in H1 2006 in group savings and retirement, the largest productsegment in our Canadian insurance business, rose to 23.9% (FY 2005: 23.2%),while market share in individual life fell to 1.5% (FY 2005: 4.8%). Overallmarket share decreased to 7.8% (FY 2005: 9.8%). Standard Life Investments (SLI) Following continued strong investment performance, SLI experienced large mutualfund inflows and enjoyed a good ISA season. Operating profits grew both on anEEV basis (non-covered profits only: £14m in H1 2006, £24m in FY 2005) and anIFRS basis (total profits: £28m in H1 2006, £44m in FY 2005). At 30 June 2006, total SLI funds under management were £123.4bn, up from£118.8bn at the end of 2005. Within this, third party funds under managementstood at £31.5bn, up from £28.1bn at the end of 2005. Net inflows for investmentproducts were £3,120m (H1 2005: £2,643m). In a survey of global fund managers based on net assets accumulated outside theUS in the first six months of 2006, SLI was ranked sixth overall and first foractive managers. Standard Life Bank (SLB) During the first six months of 2006, the UK fixed rate mortgage market has beenextremely competitive. Mortgages under management at SLB were £10.4bn at endJune 2006 (end December 2005: £10.7bn). Average market share by completions inthe first half of 2006 at 0.8% was lower than the average during 2005 (1.1%). SLB delivered an IFRS underlying profit of £17m (FY 2005: £24m). The effect ofthe decrease on lending related income was more than offset by increased fees.Costs have reduced compared with 2005, mainly due to a fall in commission andselling expenses. This is consistent with the reduction in new lendingbusiness. Cost control remains a priority within SLB to enable it to competeeffectively within this market. Standard Life Healthcare Healthcare and General Insurance operating profit of £3m (FY 2005: £7m) andsales of £10m (H1 2005: £11m) reflected competitive pressure in both the smalland medium enterprise and individual markets. This operating figure excludes a £9m write-down against the FirstAssistacquisition and a £5m provision for restructuring expenses. The former reflectsthe write-off of purchased software, higher than expected lapse experience and areduction in sales of FirstAssist products. The integration of FirstAssist remains on track and the combined market sharefor Standard Life Healthcare and FirstAssist is estimated to be 8.5% of the PMImarket. Outlook Standard Life sees opportunities for continuing profitable growth in the UK,following the boost provided by Pensions A-Day, and for good progress in itsother major markets. In Life and Pensions the first class service, leadingproduct range and strong relationships with intermediaries combine to underpinprospects for profitable growth. In Asset Management excellent investmentperformance provides a solid basis for further gains, while in the otherbusinesses improved efficiencies will assist margins. To view the full Half Year Report please cut and paste the attached link intothe address bar of your web browser. http://www.rns-pdf.londonstockexchange.com/rns/5336j_-2006-9-27.pdf Ends For further information please contact: Media: Scott White 0131 245 5422 / 0771 248 5738Barry Cameron 0131 245 6165 / 07712 486 463Emma Wylie 0207 872 4154 / 07712 486 444Neil Bennett (Maitland) 0207 379 5151 / 07900 000 777 Equity Investors: Gordon Aitken 0131 245 6799Gillian Bailey 0131 245 1110 Debt Investors: John Cummins 0131 245 5195Georgina Marshall 0131 245 9798 Notes to Editors 1. A presentation to investors and analysts will take place at 9.30am (BST) at UBS, 1 Finsbury Avenue, London EC2M 2PP. An audio cast of the presentation and the presentation slides will be available on the Group's website, www.standardlife.com 2. There will also be a live teleconference link to the investor and analyst presentation. UK investors should dial 0845 245 5000, and overseas investors should dial +44 1452 562 716. Callers should quote Standard Life plc Half Year Results 2006. The conference ID number is 6984275. 3. Standard Life aims to work to the highest ethical, legal and professional standards. The group's first stand-alone Corporate Responsibility Report is published today and reports on performance in this area during 2005. During 2006, Standard Life has continued to demonstrate its commitment to corporate responsibility during a period of significant change. The company intends to publish its 2006 Corporate Responsibility Report at the time the 2006 Annual Report is issued to shareholders. A full copy of the report can be found on www.standardlife.com/CR 4. Period on period percentage increases are in sterling unless otherwise stated. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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