22nd Mar 2007 07:03
Standard Life plc22 March 2007 Standard Life plc 2006 Preliminary Results 22 March 2007 A year of strong progress • EEV operating profit before tax up 55% to £614m (2005: £395m). • New business contribution before tax up 521% to £205m (2005: £33m). • IFRS underlying profit before tax up 272% to £540m (2005: £145m). • EEV up 11% to £5,608m (2005: £5,048m including IPO proceeds), equivalent to 258p per share. • EEV cash generation increased to £262m (2005: £17m outflow). • Dividend of 5.4p in respect of period since IPO. • Heritage With-Profits Fund Residual Estate increased to £1.3bn (2005: £0.5bn). • Continuous improvement initiatives to deliver additional cost benefits of £100m per annum by 2009. Group Chief Executive, Sandy Crombie, said: "We have achieved a strong improvement in our financial performance in 2006.Our strategy of concentrating on higher margin and less capital intensiveproducts has delivered strong growth in new business volumes and profitability. "Notwithstanding this strong progress, there is more we can do to increase theefficiency of our operations and to deliver further earnings growth and higherreturns. Today we announce the next phase of our continuous improvementstrategy, which will deliver a leaner and fitter Standard Life. "These initiatives are in addition to the targets announced at the time of theIPO and will enhance our ability to grow profitably in the medium term. We areon track to achieve our return on embedded value target for 2007 of 9-10%, andincreasing thereafter." Financial Highlights 2006 2005 ChangeNew business PVNBP £14,263m £9,675m 47%New business APE £1,734m £1,249m 39%New business contribution £205m £33m 521%PVNBP margin 1.4% 0.4% +1.0% points EEV operating profit before tax £614m £395m 55%EEV profit before tax £1,022m £770m 33%Diluted EEV operating EPS 20.7p 13.9p 49%EEV £5,608m £5,048m 11%ROEV 8.9% 7.4% +1.5% points IFRS underlying profit before tax £540m £145m 272%Diluted IFRS underlying EPS 21.8p 5.8p 276%Dividend per share in respect of period since IPO 5.4p - -IFRS profit attributable to shareholders in respect of period since IPO £283m - - EEV pro forma operating profit 2006 2005for the year ended 31 December £m £m Life and Pensions by countryUK 372 272Canada 163 131Europe 45 53Other (8) (2)HWPF TVOG 44 - Life and Pensions operating profit 616 454 Life and Pensions by sourceNew business contribution 205 33 In-force business expected return 392 328 experience variance 122 60 assumption changes (58) 37Other covered (45) (4) Total Life and Pensions operating profit 616 454 Investment management 38 24Banking 38 15Healthcare and general insurance 16 7Group corporate centre costs (89) (58)Other (5) (47) Operating profit before tax 614 395 Tax on operating profit (185) (125) Operating profit after tax 429 270 IFRS pro forma underlying profit 2006 2005for the year ended 31 December £m £m Life and Pensions by countryUK 230 16Canada 168 86Europe 108 73Other (9) - Total Life and Pensions underlying profit 497 175 Investment Management 66 44Banking 38 24Healthcare and general insurance 16 7Group corporate centre costs (89) (58)Other 12 (47)Total underlying profit before tax 540 145 Tax on underlying profit (66) (18) Underlying profit after tax 474 127 Basis of Preparation These results have been calculated for the year ended 31 December 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 (the Scheme) throughout the year. The Scheme did nottake effect until 10 July 2006. For further information please refer to basis ofpreparation sections 1.4.1 and 1.5.3.4 below for EEV and IFRS respectively. Noaccount has been taken of any prospective tax changes announced by theChancellor of the Exchequer on 21 March 2007. Overview of results In 2006 EEV operating profit before tax increased by 55% to £614m delivering areturn on embedded value of 8.9% (2005: 7.4%). Increased life and pensions newbusiness contribution, improved experience variances and greater profits fromour asset management, banking and healthcare businesses more than offset theimpact of increased lapse assumptions. On an IFRS basis, pro forma underlyingprofit before tax increased by 272% to £540m. This increase was driven by higherfee and commission income resulting from increased funds under management,greater profitability in new business and the prior year including £189m inreserve strengthening in the UK life and pensions business. Worldwide insurancesales were up by 47% to £14,263m, on a PVNBP basis, reflecting strong newbusiness performance in UK life and pensions. This substantial improvement intrading performance gives rise to diluted EEV operating earnings per share 49%higher at 20.7p. Diluted underlying earnings per share on an IFRS basisincreased by 276% to 21.8p. UK life and pensions benefited from a substantial increase in new businesscontribution of 519% to £167m (2005: £27m). This reflects margin improvement inevery product group and the significant growth in PVNBP new business volumes of69% to £11,400m (2005: £6,763m) driven by the success of SIPP, CapitalInvestment Bonds and TIP, and the impact of A-day on customer activity. EEVoperating profit before tax increased by 37% to £372m despite changes in longterm assumptions and provisions for lapses of £207m. Although UK life andpensions product lapses continued at levels in excess of long-term trends, netfund flows remained strongly positive and amounted to £3.2bn during 2006. Weanticipate the continuation of strong underlying sales momentum in 2007,underpinned by our market-leading service and innovative product offeringscoupled with our impressive track record in investment performance. In our Canadian life and pensions business the focus on margin over volume andthe repricing of certain Universal Life products resulted in a turnaround in newbusiness contribution from a loss of £2m in 2005 to a profit of £28m in 2006,which helped EEV operating profit before tax increase 24% to £163m. While weexpect market conditions to remain challenging this year, our continued effortson cost control and the product initiatives undertaken in the second half of2006 will support steady profitable growth in 2007. The EEV operating profit before tax from European businesses decreased 15% to£45m reflecting the further investment in product development in Germany andIreland. Following successful product launches in both countries, we expect tobuild on the sales momentum we achieved in the second half of 2006. The Asian life and pensions EEV operating loss increased to £8m (2005: £2m loss)due to the continued expansion of the operations in India and China. Thesebusinesses are expected to achieve improved sales in 2007, driven by new productlaunches, wider distribution and market growth. Standard Life Investments' third party funds under management increased by 32%to £38.5bn at the end of 2006, reflecting continued investment outperformance,which has driven record levels of both institutional and retail third partymandate wins. Standard Life Investments' operating profit before tax increased50% to £66m on an IFRS basis as a result of the higher funds under managementleading to a significant improvement in the EBIT margin to 27.0% (2005: 22.3%).The pipeline of new business remains strong and this, along with Standard LifeInvestments' impressive performance track record and the successful introductionof additional products in both the retail and institutional markets, provides apowerful platform to deliver continued growth in 2007. Standard Life Bank increased underlying profit before tax by 58% to £38m on anIFRS basis as a result of improved interest margin and cost control in a yearwhen gross mortgage lending was similar to the prior year. In 2007 we expectStandard Life Bank to benefit from continued reduction in its cost income ratioand increasing SIPP and Wrap balances. Credit quality remains extremely high;the arrears rate of 0.17% at the year end continues to be well below theindustry average of 0.95%. Through a disciplined approach to business Standard Life Healthcare more thandoubled 2005 IFRS underlying profit before tax. Standard Life Healthcare's newpolicy administration system coupled with the launch of a new productproposition is expected to increase sales and reduce operating costs in 2007.The integration of FirstAssist continues to plan with the full benefits beingrealised in 2008 and thereafter. EEV increased to £5,608m, equivalent to 258p per share (diluted), driven by thestrong operating performance for the year and positive investment returnvariances. EEV cash generation increased to a £262m inflow (2005: £17m outflow)due to a reduction in new business strain, improved contribution from in-forcelife business and greater non life profits. We are recommending the payment of our first dividend of 5.4p a share on 31 May2007, as indicated at flotation, based on a record date of 30 March 2007. Thisdividend represents around half of the total dividend that we would haveexpected to pay if Standard Life plc had been listed throughout the year. Ourintention is to pay a progressive dividend which will take account of thelong-term earnings and cash flow potential of the Group. Delivering continuous improvement We are announcing today further initiatives to increase the efficiency of our UKbusinesses and enhance their growth prospects. These initiatives focus ondriving synergy benefits from UK Life and Pensions, Standard Life Healthcare,Standard Life Bank and shared services for Standard Life Investments. In duecourse we will look at achieving additional savings in our Canadian, German andIrish businesses. At the time of the flotation in July 2006 we announced a target to reduce UKLife and Pensions' expenses by £30m by the end of 2007; £15m has been achievedto date. This commitment is being achieved at the same time as deliveringstrong sales growth. We also committed to reduce corporate costs in 2007 to£58m per annum, the 2005 level, despite the incremental costs of being a listedcompany. This target is also expected to be achieved. The initiativesannounced today are in addition to those targets. We aim to reduce underlying costs by a further £100m per annum by 2009. It isexpected that the phasing of savings will be achieved as follows: in the secondhalf of 2007 £15m, in 2008 a further £70m, and in 2009 an additional £15m.Through efficiency and productivity we can achieve a reduction in the underlyingheadcount requirement to service our existing levels of business by around 1,000by 2009. We expect growth and natural turnover to keep involuntary job losses toa minimum. The one-off costs of implementing these savings are expected to beno greater than the annual savings achieved by 2009. We are establishing a UK Retail Division, headed by Trevor Matthews, currentlyChief Executive of Standard Life Assurance Limited. He will be responsible forthe continued development of UK Life and Pensions, Standard Life Bank andStandard Life Healthcare and for driving synergies in both costs and revenues bystreamlining common functions and enhancing our capability to grow. Duplicationof activities which are currently taking place across multiple business units,divisions and product lines will be targeted. Other key initiatives include the expansion of the use of shared serviceactivities, rationalisation of group central functions, re-engineering of keyprocesses and the implementation of smarter sourcing of services. The cost savings are expected to be achieved roughly equally between covered andnon-covered businesses. Within the covered business, we expect at least £20mwould be capitalised into the EEV in long term maintenance unit cost savings byend 2009 after allowing for approximately 10% of the savings attributable to thewith-profits policyholders. These additional actions will strengthen further our customer focus and improvethe efficiency of our operations. This will enhance our ability in the mediumterm to increase new business margins, drive higher profitability and augmentfuture embedded value. Outlook We continue to drive our business forward and have exciting product and marketopportunities both in the UK and overseas. Customers' needs will remain at theforefront of our thinking. Growth will continue to be driven by our strategy ofconcentrating on higher margin and less capital intensive products deliveredwith best in class customer service levels and through leading-edge platformsand efficient systems. The trading performance across the group for the first two months of 2007remains strong with the positive sales momentum continuing in the UK. We remain on track to meet our 2007 target for return on embedded value of9-10%, and increasing thereafter. Paste the following link into your web browser to download the PDF document related to this announcement: http://www.rns-pdf.londonstockexchange.com/rns/4833t_-2007-3-22.pdf For further information please contact: Media: Scott White 0131 245 5422 / 0771 248 5738Barry Cameron 0131 245 6165 / 07712 486 463Neil Bennett (Maitland) 0207 379 5151 / 07900 000 777 Equity Investors: Gordon Aitken 0131 245 6799Conor O'Neill 0131 245 6466Gillian Bailey 0131 245 1110 Debt Investors: John Cummins 0131 245 5195Andy Townsend 0131 245 7260 Newswires A conference call will take place for newswires and online publications from8.00-9.00am. Participants should dial 020 7162 0125 and quote Standard LifeResults. Investors and Analysts A presentation to investors and analysts will take place at 9.30am at MerrillLynch, 100 Newgate Street, London EC1A 1HQ. A live webcast of the presentationand the presentation slides will be available on the Group's website,www.standardlife.com. In addition a replay will be available on this websitelater today. There will also be a live listen only teleconference to the investor and analystpresentation at 9.30am. UK investors should dial 0845 245 5000, and overseasinvestors should dial +44 1452 562 719. Callers should quote Standard LifeResults. The conference ID number is 1704831. A replay facility will beavailable for two weeks on +44 1452 55 00 00. The pass code is 1704831. There will be a conference call for US and Canadian investors and analysts at 3:00pm (UK) hosted by Sandy Crombie, Group Chief Executive and David Nish, GroupFinance Director. Dial in telephone number for international participants +1 866779 1135 and UK participants 020 7162 0125. Callers should quote Standard LifeResults. A recording of this call will be available for replay for one week bydialling +1 954 334 0342 (international) and 020 7031 4064 (UK), access code:741172. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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