29th Jul 2005 07:05
Friends Provident PLC29 July 2005 29 July 2005 Friends Provident Group Trading Update Strong growth in first six months of 2005 Friends Provident is today publishing a trading update prior to the publicationof its full interim results on 13 September 2005. Friends Provident's total life and pensions new business (on an APE* basis) forthe first six months in 2005 increased by 33% to £282 million (2004: £212m). Total contribution to profits from new business up 40% to £52 million. Margin18.4% (2004: 17.5%) F&C Asset Management plc (F&C), assets under management up by 3.0% to £128billion (2004: £125bn). Performance in Friends Provident Life and Pensions main territories and productlines: UK:• Total UK new business up 15% to £202 million (2004: £176m)• Protection down 3% to £34 million (2004: £35m)• Investment up 11% to £31 million (2004: £28m)• Group pensions up 28% to £111 million (2004: £86m)• Contribution to profits for UK new business up 6% to £32 million. Margin 15.8% (2004: 17.0%) International:• Total International new business increased by 122% to £80 million (2004: £36m)• Friends Provident International (FPI) increased by 25% to £45 million (2004: £36m)• On a pro-forma basis Lombard International (Lombard) increased by 11% to £35 million (2004: £32m)• Contribution to profits for International new business up 185% to £20 million (2004: £7m). Margin 25% (2004: 19.4%). Keith Satchell, Group Chief Executive, Friends Provident plc said: "The Group continues to perform well, with strong life and pensions growth inthe UK being exceeded by our international cross-border businesses. New businessprofits increased significantly as a result of the inclusion of Lombard from thebeginning of 2005. The contribution from UK life and pensions new businessincreased but was adversely affected by a change in product mix and, although wehave excellent sales momentum, this is expected to remain a feature in thesecond half of 2005." "As previously indicated, Lombard's new business profile favours the fourthquarter so we are confident that we will achieve strong growth in new businessvolumes and profits over the rest of the year." "Our asset management business has also made steady progress and the integrationis progressing well following the acquisition of F&C, although the previouslyannounced withdrawal of the majority of Resolution Life funds commencing nextyear comes as a disappointment." "Our financial position has been further enhanced as a result of continuedpositive performance of the investment markets and our recent Tier 1 capitalraising. This position was endorsed by the recent strengthening of our creditratings. The Group's cash position has also continued to strengthen." "Overall, we remain confident of continued momentum over the balance of 2005 andinto 2006." * Unless otherwise stated, all new life and pensions business is based on theindustry standard Annual Premium Equivalent (APE) basis. This measure addstogether new regular premium business and one tenth of single premium business. Notes to Editors 1. Friends Provident plc also issued today a release detailing the restatement of Full Year Results to 31 December 2004 under International Financial Reporting Standards. 2. A copy of both announcements can be found in the News and Financial Results section of Friends Provident website: www.friendsprovident.com/media/news 3. A presentation of the Trading Statement, Restatement of 2004 Full Year Results under International Financial Reporting Standards and update of the European Embedded Value Project will take place at 10.30am today at JP Morgan Cazenove, 20 Moorgate, London EC2R 6DA. 4. The slides and full narrative of the presentation to analysts and fund managers will be available from 11.30am and can be viewed on http://www.friendsprovident.com/presentations 5. An On-Demand webcast will be available from 2.00pm and can be viewed on http://www.friendsprovident.com/results 6. Friends Provident plc will report its interim results for the first six months ending 30th June 2005 on 13th September 2005. There will be a presentation to investors and analysts at 9.30am at JP Morgan Cazenove, 20 Moorgate, London, EC2R 6DA. - Ends - For further information, please contact: Nick Boakes Friends Provident plc 020 7760 3130Di Skidmore Friends Provident plc 020 7760 3133Simon Moyse Finsbury Limited 020 7251 3801 Friends Provident plc Financial Reporting Calendar Group Interim Results 13 September 2005Presentation on EEV 12 October 2005Friends Provident Life and Pensions Quarter 3New Business Announcement 1 November 2005 Ref: F103 Analysis of new business* Total new life and pensions business increased by 33.1% over the first half of2005 to £282.1 million (2004: £212.0m) and by 26.6% to £152.6 million for thesecond quarter of 2005 (2004: £120.5m). In the UK, excellent service and systemscontinue to differentiate us in the marketplace, underpinning the strongrelationships we have with intermediary firms and distribution partners. In theinternational market, following the acquisition of Lombard, our enlargedoperation is increasing the contribution it makes to our overall performance.This will all help to drive further growth in the Group towards the end of yearand into 2006. UK life and pensions New UK life and pensions business increased 14.8% to £202.1 million in the firsthalf of 2005 (2004: £176.0m) and by 11.4% to £113.8 million for the secondquarter of 2005 (2004: £102.1m). Life businessTotal new life business increased 3.3% in the first half of 2005 to £64.8million (2004: £62.7m) and decreased by 3.3% for the second quarter of 2005 to£33.9 million (2004: £35.1m). New protection business, including income protection, decreased by 2.6% to £34.2million in the first half of 2005 (2004: £35.1m) and by 17.6% for the secondquarter of 2005 to £17.2 million (2004: £20.9m). The overall UK protectionmarket contracted by 22% over the first quarter of 2005 and our expectation isthat the market over the whole of the year is likely to reduce by a similarpercentage, due primarily to fewer house-purchase transactions. Despite acontracting market and increased competitor activity, we expect to continue toincrease our market share and to mitigate some of the pressure on pricingthrough our online facilities, which continue to prove compelling. New investment business increased by 10.9% to £30.6 million in the first half of2005 (2004: £27.6m) and by 17.6% for the second quarter to £16.7 million (2004:£14.2m). We do not anticipate more than single-digit growth in the UK investmentmarket over the course of this year (the market decreased by 2% in the firstquarter) but we expect our 2005 performance to exceed market growth.Pensions business Total new pensions business increased 21.2% in the first half of 2005 to £137.3million (2004: £113.3m) and by 19.2% for the second quarter of 2005 to £79.9million (2004: £67.0m). New group pensions business increased by 27.9% to £110.5 million in the firsthalf of 2005 (2004: £86.4m) and by 27.2% for the second quarter to £65.8 million(2004: £51.7m). This strong advance is against a market that contracted over thefirst quarter of 2005 and which is expected to experience low growth over theyear. The majority of new schemes this year were written by commission-basedhigh quality pensions IFAs but, as anticipated, we are now seeing a markedincrease in tendering opportunities from fee-based Employee Benefit Consultants.We are currently attracting some significant schemes and are well placed tobenefit from the expected stimulus to group market activity in late 2005 andinto 2006 as a result of pensions simplification taking effect next year. New individual pensions business increased by 9.5% to £12.7 million in the firsthalf of 2005 (2004: £11.6m), which should mark a reversal of our downward trendfor this business. New business decreased by 3% for the second quarter to £6.3million (2004: £6.5m), due principally to the timing of DWP rebate payments. Welaunched our new product range in April and expect to outperform this market,which is predicted to grow only slowly over 2005. However, the FSA's recentrecommendation to revoke what is commonly referred to as the RU64 rule, ifaccepted, has the potential to stimulate higher market growth next year throughallowing a more flexible approach to pricing and commission levels. New annuity business decreased 7.8% to £14.1 million in the first half of 2005(2004: £15.3m) and decreased by 11.7% for the second quarter to £7.8 million(2004: £8.8m). We continue to focus on prioritising margins over volumes. International life and pensions New International cross border life and pensions business increased by 122.2% to£80.0 million in the first half on 2005 (2004: £36.0m) and by 111.0% to £38.8million for the second quarter of 2005 (2004: £18.4m). For the most part, thesesignificant increases are attributable to the acquisition of Lombard earlierthis year. On a pro-forma basis, the increase in total international newbusiness in the first half of 2005 was 18.3%. Friends Provident International (FPI)New FPI business increased 24.9% to £45 million in the first half of 2005 (2004:£36.0m) and 25.6% for the second quarter to £23.1 million (2004: £18.4m). Ourperformance was very strong in the specialist UK market, where we are nowbeginning to establish a good position with important distribution partners, andin the Middle East, where our recently-opened sales office is having a positiveimpact. We are confident of achieving strong growth in new business volumes andprofits over the course of the year. LombardNew business amounted to £35 million over the first half of 2005 and £15.7million in the second quarter. Lombard was acquired in January this year, and ona pro-forma basis, the half-year result was up 10.8%. Because Lombard businessis highly skewed towards the year-end, quarterly comparisons of volumes are lessmeaningful than historical annual results. Lombard's new business APE for 2004was £130 million. Lombard operates across a wide range of countries, withparticularly strong performances over the first half of 2005 from Belgium, theUK and from expatriate business in Southern Europe. As previously announced, theunusually high new business levels achieved in Germany in 2004 will not bematched this year, but we are confident that we will achieve strong growth innew business volumes and profits over the rest of the year. Contribution from new business and margin The contribution from new business before cost of solvency capital, pensionservice charge and the effect of accounting for share incentive arrangements asrequired under IFRS is £52 million. This represents a 40% increase on the £37million for the first half of 2004. The new business margin for the period was18.4% compared with 17.5% for the same period in 2004. In the UK life andpensions business, contribution from new business for the first half of 2005increased to £32 million (2004: £30m) although margin has reduced to 15.8%(2004: 17%) primarily as a result of a change to the mix of business driven bythe reduced proportion of protection business caused by fewer house-purchasetransactions. In the international life and pensions business, margins have been maintained at25% over the first half of 2005. The contribution from new business hasincreased to £20 million (2004: £7m) resulting from the acquisition of Lombardin January 2005 and a strong first-half performance from FPI. Experience variance In aggregate, the experience variance for the life and pensions business ispositive. This and other operating profit items will be covered in greaterdetail in our half-year results to be published on 13 September 2005. Asset Management Funds under management at 30 June 2005 were £128.1 billion (31 December 2004:£124.8 billion) split as follows: 30 June 31 March 31 Dec 2005 2005 2004 £bn £bn £bn______________________________________________________________________Insurance Funds 80.9 78.1 78.6Institutional Funds 32.6 32.8 32.7Retail Funds 14.1 14.4 13.5______________________________________________________________________Total 127.6 125.3 124.8______________________________________________________________________Private Equity realised 30 June 0.5 - -______________________________________________________________________Total including Private Equity 128.1 125.3 124.8______________________________________________________________________ Funds under management by asset class: 30 June 31 March 31 Dec 2005 2005 2004 £bn £bn £bn______________________________________________________________________Fixed interest 75.6 72.7 72.6UK equities 17.2 17.0 16.8Overseas Equities 23.5 23.2 23.1Property 6.0 6.1 6.0Private Equity - 0.5 0.5Other Alternative Investments 1.0 0.9 0.9Liquidity 4.3 4.9 4.9______________________________________________________________________Total 127.6 125.3 124.8______________________________________________________________________Private Equity realised 30 June 2005 0.5 - -Total including Private Equity 128.1 125.3 124.8______________________________________________________________________ Fund flows for the half-year to 30 June 2005:Category Inflows Outflows Net £m £m £m______________________________________________________________________Insurance Funds N/a N/a (1,813)Institutional 2,067 (2,671) (604)Open Ended Products (Third Party) 168 (104) 64Investment Trusts 942 (310) 632Venture Capital Trusts/LimitedPartnerships# - (1) (1)SICAVs & Mutual Funds 55 (82) (27)Sub Advisory 872 (765) 107______________________________________________________________________ N/a N/a (1,642)______________________________________________________________________ # Funds for Private Equity operation included As previously reported, the merger of Britannic Group plc and Resolution LifeGroup Limited will have an impact on F&C's funds under management and revenues.The scale and timing of this is at present unknown. It is not anticipated thatit will have any impact on the 2005 revenues, as the transfer of funds from F&Cis not expected to commence until 2006. F&C management will be meeting withResolution plc over the coming weeks and F&C will provide a further update atthe time of announcing half-year results. Integration updateThe integration of the various business areas to gain operating efficiencies isprogressing well. The two workstreams where there is still significant work tocomplete are Information Technology and back and middle-office InvestmentOperations, both of which typically take the longest to integrate. Good progressis being made in both these areas. During this period of integration, F&C has still been able to attract highcalibre new recruits to a number of business areas. It has also had a number ofnew product launches and attracted further funds in high revenue margin areas. Prior to the merger, both F&C and ISIS were planning to outsource their backoffices. Bringing together two very different back office operations onto asingle platform is very complex but a process has been agreed which willcomplete during 2006. Whilst completion of the integration is important in the short term, the abilityto generate new business and raise revenue margins will be the ongoing focus.Broader business developments will be reviewed in the interim results,encompassing an update of the costs and benefits of the integration. Friends Provident APE Life and Pensions 6 months to 30 June 2005 vs 6 months to 30 June 2004 H1 2005 H1 2004 % Change Regular Single APE Regular Single APE Regular Single APEUK Operations £m £m £m £m £m £m % % %_______________________________________________________________________________________________LifeProtection 34.2 0.1 34.2 35.1 - 35.1 (2.6) - (2.6)Investment 1.1 295.0 30.6 0.8 268.3 27.6 37.5 10.0 10.9_______________________________________________________________________________________________ 35.3 295.1 64.8 35.9 268.3 62.7 (1.7) 10.0 3.3_______________________________________________________________________________________________ Pensions Individual Pensions 6.0 59.5 12.0 5.8 45.9 10.4 3.4 29.6 15.4DWP Rebates - 7.1 0.7 - 12.1 1.2 - (41.3) (41.7)Group 90.4 201.2 110.5 72.9 135.6 86.4 24.0 48.4 27.9PensionsAnnuities - 140.7 14.1 - 153.0 15.3 - (8.0) (7.8)_______________________________________________________________________________________________ 96.4 408.5 137.3 78.7 346.6 113.3 22.5 17.9 21.2_______________________________________________________________________________________________ _______________________________________________________________________________________________UK Life and Pensions 131.7 703.6 202.1 114.6 614.9 176.0 14.9 14.4 14.8_______________________________________________________________________________________________ InternationalOperationsLombard - 350.1 35.0 - - - - - -FriendsProvidentInternational 26.6 184.5 45.0 24.3 117.2 36.0 9.5 57.4 25.0_______________________________________________________________________________________________InternationalLife andPensions 26.6 534.6 80.0 24.3 117.2 36.0 9.5 356.1 122.2_______________________________________________________________________________________________Total for LifeandPensions 158.3 1,238.2 282.1 138.9 732.1 212.0 14.0 69.1 33.1_______________________________________________________________________________________________ Lombard Total APE 2005 2004 •m £m •m £m________________________________________________________________________Q1 27.9 19.3 16.2 11.1Q2 23.1 15.7 29.9 20.5________________________________________________________________________H1 51.0 35.0 46.1 31.6________________________________________________________________________ All amounts in currency other than sterling are translated into sterling at amonthly average exchange rate. APE by channel 6 Months to 30 June 2005 vs 6 months to 30 June 2004 H1 2004 H1 2005 (excluding Lombard) £m % £m %________________________________________________________________________UKIFA 183 65 146 69Tied 19 7 30 14International 80 28 36 17________________________________________________________________________ Total Life and Pensions contribution from new business 6 months to 30 June 2005 vs 6 months to 30 June 2004 H1 2004 (with Lombard added H1 2005 pro-forma) £m margin % £m margin %________________________________________________________________________UK 32 15.8 30 17.0 International 20 25.0 17 25.0________________________________________________________________________ 52 18.4 47 17.5________________________________________________________________________ Lombard contribution from New BusinessMargin for H1 2005: 31.4% (2004: 31.4%) About Friends Provident One of the UK's leading financial services groups• A FTSE 100 company comprising two core businesses: • Friends Provident Life and Pensions Limited, a top ten UK life and pensions company and a leading international cross-border player • F&C Asset Management plc (51% ownership), a top five UK asset manager with a growing European presence Emphasis on service• Five Star awards for Life and Pensions service - the highest of any UK listed life and pensions company - and for E-commerce (source: 2004 Financial Adviser Practiv Service Awards)• Best E-Commerce Provider (source: 2005 LifeSearch Protection Awards)• F&C voted "Best Investment Trust Provider" in the 2005 Personal Finance Magazine Readership Awards• Member of the Raising Standards Quality Mark Scheme Leading-edge systems• Single-platform system capable of accommodating high volumes, cost effectively• Automated interface with back-office IFA and third party systems with over 50% of business transacted online• Winner of Life Insurance Company of the Year at the Professional Pensions UK Pensions Award 2005• Friends Provident is the only company to receive triple 'e' e-Excellence ratings for individual protection and group pensions awarded by the Financial Technology Research Centre in association with Money Marketing 2005 Fast-growing• Market share (UK Life and Pensions) has increased 27% since listing in 2001• Funds managed by Friends Provident plc since it listed in 2001, have grown four-fold from c£30 billion to more than £120 billion Financially strong• Financial strength credit ratings categorised 'strong' (Standard & Poor's A+ with stable outlook, Moody's A2 with positive outlook)• Risk Capital Margin covered over six times (31 December 2004)• Free Asset Ratio 12.2% (31 December 2004) A diversified provider of investment solutions• F&C is a market leader in the investment trust market. The flagship Foreign & Colonial Investment Trust was the first such trust, launched in 1868, and remains the largest of its kind.• F&C's private equity partner, ISIS Equity Partners, was winner of the 2004 BVCA/Real Deals Private Equity House of the Year Award.• F&C is a top five manager of UK commercial property.• F&C Amethyst was winner of its category in the 2005 EuroHedge Awards. Renowned ethical heritage• Founded by Quakers in 1832 to address social needs• Pioneered linking investments with ethical principles (Stewardship - 1984; Responsible Engagement Overlay - reo(R) - 2000)• Stewardship Income Fund winner of the 2005 Lipper Funds Awards, ethical category• F&C (ISIS) overall winner of the Corporation of London's Liveable Cities Awards, 2004 and 2003. More 'at a glance' information available at www.friendsprovident.com/fastfacts Friends Provident media image library is available atwww.friendsprovident.com/imagelibrary a Newscast login is required. 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