19th Oct 2007 09:23
Friends Provident PLC19 October 2007 NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, IN, INTO ORFROM ANY JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THERELEVANT LAWS OF SUCH JURISDICTION For immediate release19 October 2007 Response to recent developments in relation to the Merger of Friends Providentand Resolution Friends Provident plc ("Friends Provident" or the "Group") notes the recentannouncements made in connection with Pearl's possible offer for Resolution plc("Resolution") and, in particular, certain references to Friends Provident's newbusiness operations and strategy. The Friends Provident Board (the "Board")believes that these comments provide a distorted view and fail to recogniseFriends Provident's excellent new business track record and the strength offuture growth prospects. The Board remains fully committed to the merger with Resolution (the "Merger"),based on its view that the combination will deliver material benefits to theshareholders of both companies. These benefits reflect in part FriendsProvident's: •Strong UK life and pensions new business franchise - between 2004 and 2006, new business sales have grown at an annual rate of 26 per cent. Margins have increased leading to a 36 per cent. compound annual growth in new business profits. Since flotation, Friends Provident's share of the UK life and pensions market has increased from 3.5 per cent. to 5.5 per cent. •Top three market position in group pensions - a market which offers significant long term growth opportunities and the scope for enhanced returns as scale and cost benefits materialise. •High growth international franchise - international operations account for nearly half of the Group's total new business profit with an IRR in the first half of 2007 of 23 per cent. International is expected to sustain double digit new business profit growth over the medium term. The Board also thinks it appropriate to reiterate previous statements aboutFriends Provident's sound financial position and, in particular, to confirm thatthe Group does not need to issue new equity to fund its growth plans. Philip Moore, Group Chief Executive of Friends Provident said: "Friends Provident is a strong group with good prospects for profitablegrowth. Friends Provident brings a number of key strengths to Friends Financial- a strong UK life and pensions new business franchise, a rapidly growinginternational franchise and a leading position in group pensions. "We are fully committed to the merger with Resolution. Furthermore, we believethat it represents a unique opportunity for both sets of shareholders to benefitfrom the combination of two exceptionally complementary businesses." Friends Provident has a strong UK life and pensions new business franchise Friends Provident has a demonstrable track record of strong new business growthin the UK. Between 2004 and 2006, new business sales have increased at acompound annual growth rate of 26 per cent.. At the same time, new businessmargins increased from 2.2 per cent. to 2.6 per cent. over the period. Thereported IRR has increased from 8.6 per cent. in 2005 to 11.9 per cent in thefirst half of 2007. The combination of increasing volumes and improving marginshas resulted in strong growth in new business profit. In the UK, between 2004and 2006, new business profits have grown at a compound annual growth rate of 36per cent. An important driver of growth is the quality of Friends Provident's platform andthe service it provides customers and intermediaries, such as IFAs. This hasbeen recognised by numerous awards (such as its 5 star ranking by IFAs at thePractiv Service Awards every year since 2004) and is ultimately reflected by itsgrowing market share of the increasingly important IFA channel. In 2006, IFAsaccounted for 67 per cent. of the overall UK life and pensions market, up from57 per cent. in 2000. During the period since flotation, Friends Provident hasalmost doubled its IFA market share from 3.8 per cent. in 2001 to 6.7 per cent.in 2006. Friends Provident's overall market share in UK life and pensions stood at 5.5per cent. in 2006 compared with 3.5 per cent. at the time Friends Providentbecame a public company in 2001. In protection, its market share has more thandoubled from 3.6 per cent. in 2001 to 7.8 per cent. in 2006, reflecting thestrength of its eSelect platform which allows more than 90 per cent. ofindividual protection business to be transacted online. Furthermore, FriendsProvident has experience in servicing the bancassurance channel and, forexample, has been one of the selected insurers for Barclays since 2005. TheGroup's protection product is particularly well suited for bank customers,presenting a significant opportunity for Friends Financial to distribute itsproducts through Abbey's bank branches under the bancassurance agreement withResolution. The strength of Friends Provident's UK new business franchise underpins thefinancial disciplines set by the management of Friends Financial and, inparticular, its IRR target of at least 12 per cent. for new business over theproduct life cycle on a fully costed basis. Friends Provident has a leading position in the UK group pensions market thatleaves it well positioned to capture future opportunities Friends Provident has market leading capabilities in group pensions as a resultof past investment in systems and technology. Friends Provident is ranked in thetop three with a market share of 11.4 per cent. in 2006, which has more thandoubled from its share in 2001. The Board believes that the long-termopportunities in the market for group pensions are material, reflectingmanagement's view that companies will continue to provide pensions to theiremployees, that this will be done through defined contribution schemes (ratherthan defined benefit schemes) and that companies will prefer to outsource theirpension scheme administration to insurance companies such as Friends Provident. Friends Provident's group pensions business currently has an IRR of 9.4 percent. It should be noted that this IRR excludes the value benefit of writingannuities from vesting pensions in the future or the management charges earnedby F&C on funds invested in its products. As part of Friends Financial, it isexpected that the group pensions business will exceed its 12 per cent. IRRtarget and will be self-financing by 2011. This will be assisted by continuingtrends within the market away from commission paying business. The investmentmade by Friends Provident in its group pensions platform, therefore, representsa significant long-term opportunity for Friends Financial. Friends Provident has an equally important, high growth international franchise Friends Provident has built its international life and pensions business throughsuccessful acquisitions and deploying its core capabilities in the UK into new,overseas territories. These operations are now central to the group's newbusiness franchise, accounting for approximately 47 per cent. of total newbusiness profit in 2006. The business has strong positions in high growth marketsegments and writes new business at very attractive returns with short paybackperiods. The reported IRR in the first half of 2007 was 23 per cent and thepayback period was four years. The overall return profile of the business isexcellent with a reported return on embedded value in 2006 of 19.8 per cent.Friends Provident continues to believe that the international operations cansustain double digit new business profit growth over the medium term. Friends Provident International has captured the strong growth credentials ofthe markets in which it operates, reporting compound annual growth of 17 percent. in new business sales since the acquisition of the business in 2002.Friends Provident acquired Lombard International in 2005. Lombard has deliveredcumulative annual growth of 27 per cent. in new business sales since 2004, whichrepresents a continuation of the historic growth trajectory achieved beforeacquisition. Sound financial position As previously stated, the Board confirms that the Group does not need to issuenew equity to fund its growth plans. At the Group's interim results announcement on 8 August 2007, Friends Providentstated that the net underlying cash strain in the UK is anticipated to be in theorder of £80 million per annum and that the in-force surplus is likely to growby £20 million to £30 million per annum. The international life and pensionsbusiness currently generates a small cash surplus, although there is expected tobe a modest cash strain in the future as the business pursues growth atattractive levels of return. Therefore, in the absence of unforeseen events, theGroup's net cash strain is anticipated to be eliminated in three to four yearsand would see an aggregate cash requirement of up to £400 million over thatperiod. As stated at its interim results, Friends Provident's standalone plan to fundthis requirement was to raise lower tier 2 debt of up to £500 million. In lightof the Merger, these plans were postponed. In the event that the Merger does notproceed, Friends Provident will reinstate its debt funding plans. As there is nonear term requirement for this funding, the debt will be raised as and whenmarket conditions provide the right opportunity. Friends Provident is strongly capitalised, with approximately £1 billion ofsurplus capital, and has sufficient cash resources for its near termrequirements. The Group already has in place undrawn committed borrowingfacilities of £500 million with an unexpired term of over three years. Inaddition, the Group's convertible bond will be converted into equity in December2007.1 Enquiries: Friends Provident+44 (0)845 641 7832Philip MooreNick Boakes JPMorgan Cazenove+44 (0)20 7588 2828Tim WiseConor Hillery Goldman Sachs+44 (0)20 7774 1000Simon Dingemans Finsbury+44 (0)20 7251 3801James MurgatroydVanessa NeillAlex Simmons Notes 1. Under the terms of the convertible, Friends Provident has the rightto settle the redemption amount in its ordinary shares, paying a cash top up ifthe ordinary shares are worth less than the par value of the bond. FriendsProvident has to give notice of its intention to do so 30 days prior to theredemption date. The cash top up is calculated using a 5 day average shareprice. 2. Market share figures are calculated such that market sales byproduct are categorised in line with Friends Provident's new business reporting,which does not exactly match the new business reporting structure of Associationof British Insurers market data. Data is sourced from the Association of BritishInsurers. 3. Unless otherwise stated, financial information relating to FriendsProvident has been extracted (without material adjustment) from the auditedannual report and accounts for Friends Provident for the year ended 31 December2006 or the unaudited interim results for the half year ended 30 June 2007. Defined terms used in this announcement are the same as those used in the RNSannouncement of 10 September 2007. JPMorgan Cazenove is acting as financial adviser to Friends Provident and no oneelse in connection with the Merger and will not be responsible to any otherperson for providing the protections afforded to the clients of JPMorganCazenove nor for providing advice in relation to the Merger or any other matterreferred to in this announcement. Goldman Sachs acting as financial adviser to Friends Provident and no one elsein connection with the Merger and will not be responsible to any other personfor providing the protections afforded to the clients of Goldman Sachs nor forproviding advice in relation to the Merger or any other matter referred to inthis announcement. Overseas jurisdictions The release, publication or distribution of this announcement in jurisdictionsother than the United Kingdom may be restricted by law and therefore any personswho are subject to the laws of any jurisdiction other than the United Kingdomshould inform themselves about, and observe, any applicable requirements. Thisannouncement has been prepared for the purposes of complying with English law,the City Code and the Listing Rules and the information disclosed may not be thesame as that which would have been disclosed if this announcement had beenprepared in accordance with the laws and regulations of any jurisdiction outsideof England. This announcement is not intended to, and does not constitute, or form part of,an offer to sell, purchase or exchange or the solicitation of an offer to sell,purchase or exchange any securities or the solicitation of any vote or approvalin any jurisdiction. This announcement does not constitute a prospectus or aprospectus equivalent document. Shareholders of Friends Provident and Resolutionare advised to read carefully the formal documentation in relation to the Mergerthat has been despatched. The proposals relating to the Merger will be madesolely through the Scheme Document, which contains the full terms and conditionsof the Merger, including details of how to vote with respect to the Scheme. Anyacceptance or other response to the proposals should be made only on the basisof the information in the Scheme Document. In particular, this announcement is not an offer of securities for sale in theUnited States and the New Friends Financial Shares, which will be issued inconnection with the Merger, have not been, and will not be, registered under theUS Securities Act of 1933 as amended (the "US Securities Act") or under thesecurities law of any state, district or other jurisdiction of the UnitedStates, Australia, Canada or Japan and no regulatory clearance in respect of theNew Friends Financial Shares has been, or will be, applied for in anyjurisdiction other than the UK. The New Friends Financial Shares may not beoffered, sold, or, delivered, directly or indirectly, in, into or from theUnited States absent registration under the US Securities Act or an exemptionfrom registration. The New Friends Financial Shares may not be offered, sold,resold, delivered or distributed, directly or indirectly, in, into or fromCanada, Australia or Japan or to, or for the account or benefit of, any residentof Australia, Canada or Japan absent an exemption from registration or anexemption under relevant securities law. It is expected that the New FriendsFinancial Shares will be issued in reliance upon the exemption from theregistration requirements of the US Securities Act provided by Section 3(a)(10)thereof. Under applicable US securities laws, persons (whether or not USpersons) who are or will be "affiliates" within the meaning of the US SecuritiesAct of Friends Provident or Resolution prior to, or of Friends Financial after,the Effective Date will be subject to certain transfer restrictions relating tothe New Friends Financial Shares received in connection with the Scheme. Notice to US Investors: The Merger relates to the shares of a UK company and isproposed to be made by means of a scheme of arrangement provided for under thelaws of England and Wales. The Merger is subject to the disclosure requirementsand practices applicable in the United Kingdom to schemes of arrangement, whichdiffer from the disclosure and other requirements of US securities laws.Financial information included in the relevant documentation will have beenprepared in accordance with accounting standards applicable in the UnitedKingdom that may not be comparable to the financial statements of US companies. If the Merger is implemented by way of an offer, it will be made in accordancewith the procedural and filing requirements of the US securities laws, to theextent applicable. If the Merger is implemented by way of an offer, the NewFriends Financial Shares to be issued in connection with such offer will not beregistered under the US Securities Act or under the securities laws of anystate, district or other jurisdiction of the United States and may not beoffered, sold or delivered, directly or indirectly, in the United States exceptpursuant to an applicable exemption from, or in a transaction not subject to,the registration requirements of the US Securities Act or such other securitieslaws. Resolution does not intend to register any such New Friends FinancialShares or part thereof in the United States or to conduct a public offering ofthe New Friends Financial Shares in the United States. Dealing disclosure requirements Under the provisions of Rule 8.3 of the City Code, if any person is, or becomes,"interested" (directly or indirectly) in 1 per cent. or more of any class of"relevant securities" of Friends Provident or Resolution all "dealings" in any"relevant securities" of that company (including by means of an option inrespect of, or a derivative referenced to, any such "relevant securities") mustbe publicly disclosed by no later than 3.30 pm (London time) on the Londonbusiness day following the date of the relevant transaction. This requirementwill continue until the date on which any offer becomes, or is declared,unconditional as to acceptances (or, if implemented by a scheme of arrangement,such scheme becomes effective), lapses or is otherwise withdrawn or on which the"offer period" otherwise ends. If two or more persons act together pursuant toan agreement or understanding, whether formal or informal, to acquire an"interest" in "relevant securities" of Friends Provident or Resolution, theywill be deemed to be a single person for the purpose of Rule 8.3. Under the provisions of Rule 8.1 of the City Code, all "dealings" in "relevantsecurities" of Resolution by Friends Provident or of Friends Provident byResolution, or by any of their respective "associates", must be disclosed by nolater than 12.00 noon (London time) on the London business day following thedate of the relevant transaction. A disclosure table, giving details of thecompanies in whose "relevant securities" "dealings" should be disclosed, and thenumber of such securities in issue, can be found on the Takeover Panel's websiteat www.thetakeoverpanel.org.uk. "Interests in securities" arise, in summary, when a person has long economicexposure, whether conditional or absolute, to changes in the price ofsecurities. In particular, a person will be treated as having an "interest" byvirtue of the ownership or control of securities, or by virtue of any option inrespect of, or derivative referenced to, securities. Terms in quotation marks are defined in the City Code, which can also be foundon the Takeover Panel's website. If you are in any doubt as to whether or notyou are required to disclose a "dealing" under Rule 8, you should consult theTakeover Panel. Forward looking statements This announcement may contain forward looking statements that are based oncurrent expectations or beliefs, as well as assumptions about future events.Generally, the words "will", "may", "should", "continue", "believes", "expects","intends", "anticipates" or similar expressions identify forward-lookingstatements. These statements are based on the current expectations of managementand are naturally subject to risks, uncertainties and changes in circumstances.Undue reliance should not be placed on any such statements because, by theirvery nature, they are subject to known and unknown risks and uncertainties andcan be affected by other factors that could cause actual results, andmanagement's plans and objectives, to differ materially from those expressed orimplied in the forward looking statements. There are several factors which couldcause actual results to differ materially from those expressed or implied inforward looking statements. Among the factors that could cause actual results todiffer materially from those described in the forward looking statements are theability to combine successfully the businesses of Friends Provident andResolution and to realise expected synergies from that combination, changes inthe global, political, economic, business, competitive, market and regulatoryforces, future exchange and interest rates, changes in tax rates and futurebusiness combinations or dispositions. Neither Friends Provident nor Resolutionundertakes any obligation (except as required by the Listing Rules and theDisclosure and Transparency Rules and the rules of the London Stock Exchange) torevise or update any forward looking statement contained in this announcement,regardless of whether that statement is affected as a result of new information,future events or otherwise. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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