4th Sep 2007 07:02
Standard Life plc04 September 2007 Standard Life plc 2007 Interim Results - 4 September 2007 • EEV operating profit up 71% to £353m (2006: £206m) • New business contribution up 66% to £151m (2006: £91m) • PVNBP margin up to 1.8% in first half of 2007, from 1.4% in full year 2006 • EEV up 5% to £5,911m (31 December 2006: £5,608m), equivalent to 271p per share • EEV cash generation up 68% to £207m (2006: £123m) • IFRS underlying profit 10% lower at £219m (2006: £243m), up 11% on a normalised basis • Interim dividend of 3.8p, representing 5.6% growth1 Commenting on the results, Group Chief Executive Sandy Crombie said: "Our 2007 Interim Results show that Standard Life is growing strongly andprofitably. "We have made significant progress in increasing margin in our UK business overthe first half of 2007, thanks to strong growth in higher margin productssupported by the continued improvement in underlying efficiency. We are ontrack to meet our target of a 9-10% return on embedded value in 2007 andincreasing thereafter. "I am pleased to be able to announce the payment of our first interim dividendto our 1.5 million shareholders of 3.8p per share on 30 November 2007,representing a growth rate of 5.6%. "Standard Life has enjoyed a successful first year as a listed company and I amconfident we can achieve much more." Financial highlights: H1 2007 H1 2006 Change New business PVNBP £8,181m £6,235m 31%New business APE £1,009m £795m 27%New business contribution £151m £91m 66%PVNBP margin 1.8% 1.4%2 +0.4% points EEV operating profit before tax £353m £206m 71%EEV profit before tax £461m £266m 73%Diluted EEV operating EPS 11.2p 7.1p 58%EEV £5,911m £5,608m3 5%Return on embedded value 9.1% 6.8% +2.3% points IFRS underlying profit before tax £219m £243m (10)%IFRS profit after tax4 £115m £82m 40%Diluted IFRS underlying EPS 9.7p 9.9p (2)%Interim dividend per share 3.8p - - 1 Applying our dividend policy to the dividend announced in the 2006 Preliminary Results. 2 Full Year 2006. 3 As at 31 December 2006. 4 H1 2006 is shown on a mutual basis - refer to section 1.1.3. EEV operating profit Pro forma H1 2007 H1 2006 £m £mLife and pensions by countryUK 252 148Canada 75 79Europe 14 25Other (6) (2)HWPF TVOG (2) - Life and pensions operating profit 333 250 Life and pensions by sourceNew business contribution 151 91 In-force business expected return 201 189 experience variances (15) 22 operating assumption changes 1 (38)Development costs (7) (11)Expected return on free surplus 2 (3) Life and pensions operating profit 333 250 Investment management 26 14Banking 14 17Healthcare and general insurance 4 3Group corporate centre costs (26) (42)Other 2 (36) Operating profit before tax 353 206 Tax on operating profit (108) (72) Operating profit after tax 245 134 IFRS underlying profit Pro forma H1 2007 H1 2006 £m £mLife and pensions by countryUK 91 119Canada 64 68Europe 19 52Other (6) (2) Life and pensions underlying profit 168 237 Investment management 40 28Banking 14 17Healthcare and general insurance 4 3Group corporate centre costs (26) (42)Other 19 -Total underlying profit before tax 219 243 Tax on underlying profit (8) (27) Underlying profit after tax 211 216 Basis of preparation Unless otherwise stated, the comparative results have been calculated usingassumptions to show the results which would have been attributable toshareholders had the company been owned by the shareholders under the terms ofthe Scheme of Demutualisation (the Scheme) throughout the period. The Schemedid not take effect until 10 July 2006. For further information please refer tothe basis of preparation section 1.3 below for both EEV and IFRS. Standard Life Group In the first half of 2007, EEV operating profit before tax increased by 71% to£353m (2006: £206m) delivering an annualised return on embedded value of 9.1%(2006: 6.8%). IFRS underlying profit before tax decreased by 10% to £219m(2006: £243m). The prior year benefited from provision releases and profitsfrom exceptional sales in Germany in 2004 and the first quarter of 2005.Adjusting for these items IFRS underlying profit would have increased by 11%.Worldwide insurance sales were up by 31% to £8,181m (2006: £6,235m), with asignificant increase in margin from 1.4% in the full year of 2006 to 1.8% in thefirst half of 2007. Embedded value increased by 5% to £5,911m (31 December 2006: £5,608m),equivalent to 271p per share on a diluted basis (31 December 2006: 258p),reflecting the EEV retained profit during the first half of 2007. EEV cashgeneration increased by 68% to a £207m inflow (2006: £123m inflow) due to ourfocus on capital efficient products. We will pay an interim dividend of 3.8p per share on 30 November 2007, whichrepresents growth of 5.6%. Our intention is to pay a progressive dividendtaking account of the long-term earnings and cash flow potential of the Group. UK Financial Services In the UK, life and pensions EEV operating profit before tax increased by 70% to£252m (2006: £148m). New business contribution was up 71% to £133m (2006: £78m)due to 45% growth in sales to £6,954m (2006: £4,802m), and a furtherstrengthening in margins to 1.9% (H1 2006: 1.8%, FY 2006: 1.5%). UK IRRincreased to 15% (2006: 14%) for the full product range. The margin improvementreflects the strong growth in higher margin product lines, coupled with animprovement in underlying product margins driven by higher volume. Net flows for life and pensions business were positive at £1.2bn in the firsthalf of 2007. Within this total, net pensions inflows were £1.5bn compared with£1.8bn in H2 2006. Excluding institutional TIP, underlying net pensions inflowsstrengthened from £0.6bn in H2 2006 to £1.1bn in H1 2007. Net life outflowsamounted to £0.3bn in H1 2007 compared to £0.6bn in H2 2006. The improvingtrend in underlying net flows has been achieved against a backdrop of claimsactivity across our life and pensions portfolios being above expected levels.In line with normal industry practice, we will review our lapse assumptions aspart of our year end review of all operating assumptions. We expect the UK life and pensions market to continue to experience good growthover the medium term. Over the coming months we expect to exceed market growthas we continue to enhance our SIPP proposition and to leverage it into the grouppensions market. Our award-winning platform propositions, underpinned by ourmarket-leading service and impressive track record in investment performance,mean we are well placed to capitalise on the available opportunities. We achieved a 29% increase in gross mortgage lending to £1.6bn (2006: £1.2bn)despite a competitive banking market. Credit quality remains extremely high;the arrears rate of 0.18% at 30 June 2007 continues to be well below theindustry average of 1.15%. We have cut costs while maintaining high levels ofcustomer service. This has been offset by the impact of pressure on interestmargins and the accelerated write-off of acquisition costs as we have taken amore prudent view of product duration reflecting changes in customer behaviour.The underlying profit before tax on an IFRS basis decreased by 18% to £14m(2006: £17m) while the cost income ratio improved to 65% (2006: 67%). Weanticipate margin pressure will continue to impact on profitability but aim tomitigate this by continued cost reduction. In healthcare and general insurance IFRS underlying profit before tax increasedto £4m (2006: £3m). We expect to generate future growth and improved financialresults through delivery of flexible customer propositions, retention ofprofitable existing business and use of lower cost operating platforms. Canada In Canada, new business contribution increased by 35% in constant currency to£14m (2006: £11m) on sales which fell by 37% in constant currency to £589m(2006: £1,025m), highlighting our focus on margin over volume. EEV operatingprofit before tax increased by 3% in constant currency to £75m (2006: £79m). Apromising pipeline of prospects in the group savings and retirement business andour strengthened offering in the group insurance segment are expected to supportimproved sales performance. Europe In Europe, sales increased 54% in constant currency to £513m (2006: £340m),including 96% growth in constant currency in Ireland. New business contributiondoubled to £4m (2006: £2m) while EEV operating profit before tax decreased 44%to £14m (2006: £25m) reflecting the positive experience variance in Germany inH1 2006. We intend to further develop our product range and broadendistribution and believe good growth potential exists for our markets. Asia-Pacific In Asia-Pacific, sales from our joint ventures in India and China and our HongKong operations increased by 107%1 in constant currency. Our continuedinvestment in the development and expansion of our operations contributed to theunderlying loss before tax on an IFRS basis of £6m. We expect further stronggrowth driven by new product launches, wider distribution and market expansion. We have reached agreement with Housing Development Finance Corporation Limited("HDFC"), our joint venture partner in India, to increase our shareholding inHDFC Standard Life Insurance Company Limited, the insurance joint venturecompany, from approximately 18.8% to 26%, subject only to the compliance withapplicable Indian regulatory requirements. The cost of acquiring the additionalshares from HDFC will be satisfied in cash and, as it derives from a formula inthe joint venture agreements, will vary depending on the date upon which thetransaction takes place. If the transaction takes place on 1st October 2007,the cost will be approximately £22m-£23m. Standard Life Investments Standard Life Investments' underlying profit before tax increased by 43% to £40mon an IFRS basis (2006: £28m) with an improvement in EBIT margin to 29.3% (2006:24.5%). Third party funds under management increased by 20% to £46.1bn over thefirst six months of 2007 (31 December 2006: £38.5bn), reflecting continuedinvestment outperformance, which has driven substantial retail and institutionalthird party mandate wins. Worldwide investment net inflows increased 61% to£5.0bn (2006: £3.1bn). The pipeline of new business remains strong. Across thebook of third party assets we have a strong track record that should serve asthe foundation for maintaining the sales momentum. Delivering continuous improvement In March we announced our aim to reduce underlying costs by a further £100m by2009, in addition to existing initiatives announced at the time of the IPO toreduce UK life and pensions and corporate costs by the end of 2007. We haveestablished a UK Financial Services Division and are integrating UK life andpensions, Standard Life Bank and Standard Life Healthcare. This will drive bothcost and revenue synergies and enhance our capability to deliver higherprofitability. We are also taking a groupwide approach to the sourcing for keyprocesses and to product development, including increased usage of sharedservices. At 30 June 2007, Group headcount was 10,472, a reduction of 269 from31 December 2006, after creating 147 additional jobs from the investment in UKSIPP and Wrap. Outlook Our focus on customer service, our excellent investment performance and ourinnovative product range are expected to continue to drive strong sales. Ourstrategy of concentrating on more profitable, less capital intensive productsoffering attractive rates of return, along with the cost efficiency initiativesannounced, will ensure that this growth is converted into improvedprofitability. We remain on track to meet our target for return on embeddedvalue of 9-10% in 2007 and increasing thereafter. For a PDF of the full Interim Results including a PDF version of this pressrelease, please click here http://www.rns-pdf.londonstockexchange.com/rns/2309d_-2007-9-4.pdf. 1 The growth percentage quoted reflects the growth in sales in HDFC StandardLife Insurance Limited rather than the growth in Standard Life's share of thejoint venture. For further information please contact: Equity investors:Gordon Aitken 0131 245 6799Duncan Heath 0131 245 4742 Debt investors:Andy Townsend 0131 245 7260 Media:Scott White 0131 245 5422 / 0771 248 5738Barry Cameron 0131 245 6165 / 0771 248 6463Neil Bennett (Maitland) 0207 379 5151 / 0790 000 0777 Newswires and online publications A conference call will take place for newswires and online publications at8.00am. Participants should dial 020 7162 0125 and quote Standard Life Interim Results. Investors and analysts A presentation to investors and analysts will take place at 9.30am at UBS,Ground Floor Conference Centre, 1 Finsbury Avenue, London EC2M 2PP. A livewebcast of the presentation and the presentation slides will be available on theGroup's website. In addition a replay will be available on the website latertoday. There will also be a live audio teleconference of the investor and analystpresentation at 9.30am. UK investors should dial 0845 245 5000, and overseasinvestors should dial +44 (0) 1452 562 716. Callers should quote Standard LifeInterim Results. The conference ID number is 11395127. A replay facility willbe available for two weeks on 0845 245 5205 for UK investors and +44 (0) 1452 55 00 00 for overseas investors. The pass code is 11395127#. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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