27.09.2006
Half Year Results Ended 30 June 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 of preparation of the EEV operating profit and of the IFRS underlying
profit is set out in the Standard Life Half Year Report 2006 below, which is
published on the Group's website at www.standardlife.com ("the Half Year
Report 2006"). These results have been calculated for the half year ended
30 June 2006 using assumptions to show the results which would have been attributable
to shareholders had the company been owned by shareholders under the terms of
the Scheme of demutualisation throughout H1 2006. The Scheme of demutualisation
did not take effect until 10 July 2006. Surplus cashflows from the Company's
life assurance business prior to that date will therefore accrue for the benefit
of with profits policyholders rather than shareholders in Standard Life plc.
The Group's results as a mutual entity, prepared on an IFRS basis, for the half
year are included in full in the Half Year Report 2006.
Chairman, Sir Brian Stewart, commented:
"Following the successful demutualisation and IPO, Standard Life is making good progress against the background of rapid change within the industry. Our share of 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 growth and improved new business profitability. New business contribution of £91m, almost three times the value for the whole of 2005, reflects the continued success of our strategy of concentrating on higher margin products which require lower capital investment."We have been net winners from the heightened activity in the UK pensions market. However, we have seen in recent weeks an increase in lapses and have deemed 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 Embedded Value
Financial highlights
| EEV basis | EEV basis | IFRS basis | IFRS basis | |
| H1 2006 | FY 2005 | H1 2006 | FY 2005 | |
| Operating profit before tax/IFRS underlying profit before tax1 | £206m | £395m | £243m | £145m |
| Profit before tax/IFRS proforma profit before tax1 | £266m | £770m | £186m | £204m |
| Life 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 | 6.0p |
| Return on embedded value including IPO proceeds4 | 6.8% | 7.4% |
Notes:
(1) The profit amounts included in the IFRS basis column represent IFRS underlying
profit before tax and IFRS proforma profit before tax as defined in the Half
Year Report 2006 below and do not represent the results of the mutual entity.
(2) These are estimates calculated assuming shareholders owned the Group and
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 EEV operating 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 loss
on the operations of its long-term business because, under the mutual structure,
all surpluses from the business accrued to the benefit of with profits policyholders
through bonuses declared, or through transfers to the unallocated divisible
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 at 30 June 2006 (£120,260m at
31 December 2005). The decline in net revenue was a result of a lower net investment
return reflecting primarily the impact of adverse bond market movements and
smaller rises in equity market indices in H1 2006 compared with FY 2005. The
return on investment property was strong in both periods. Overall investment
return in H1 2006 was broadly in line with market returns. Similarly the reduction
in operating expenses reflected the impact of market movements on policyholder
liabilities.
The Summarised Consolidated Income Statement for the six months ended 30 June
2006 (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 by
A-Day and sharply improved new business profitability. Worldwide sales on a
PVNBP basis were £5,763m (FY 2005: £9,367m), driven by continuing
strong sales of SIPP and Investment Bonds. UK PVNBP was £4,330m (FY 2005:
£6,455m), with UK pensions business the largest contributor at £3,249m
(FY 2005: £4,987m). Canada was also a material contributor with PVNBP
of £1,025m (FY 2005: £1,882m).
As previously reported, worldwide insurance sales on an APE basis increased
by 19% to £745m compared with the first half of 2005, reflecting strong
performance in UK Life and Pensions where APE sales increased by 25%.
The result of this strong sales performance was an increase in Standard Life's
UK market share in the second quarter of 2006 to 9.2%, compared with 8.4% for
full year 2005.
The transition towards more profitable products with lower acquisition costs
has continued. The new business contribution, after cost of capital, was £91m,
approximately three times both the first quarter figure and the total for the
2005 year as a whole (2006 Q1: £30m, FY 2005: £33m). The margin
at 1.6% of PVNBP compares 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 profits of £250m (FY 2005: £454m) from Life and Pensions after
net negative operating assumption changes of £38m (FY 2005: positive £37m),
including a £100m increase in lapse provisions relating to both demutualisation
and A-Day. Standard Life Investments, Standard Life Bank and Standard Life Healthcare
together produced operating profits of £34m on an EEV basis (FY 2005:
£46m).
The costs incurred by the Corporate Centre, net funding of subordinated debt
and other non-covered business in total amounted to £78m (FY 2005: £105m).
Within this 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 advance of conversion to a listed company. Standard Life has undertaken
a number of initiatives 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 December 2005). This figure has been calculated before taking account of
the £1.3bn of net new capital raised from the IPO. Allowing for the capital
raised, the pro forma Group EEV rose to £5,171m at 30 June 2006.
The IFRS underlying profit amounted to £243m, substantially ahead of the
£145m profit for 2005 as a whole, with Life and Pensions IFRS underlying
profit of £273m (FY 2005: £175m) benefiting from the absence of
£189m of reserve strengthening which impacted the 2005 result. The UK,
Canadian and European Life and Pensions businesses all made substantial improvements
in their underlying IFRS 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 business
volumes (H1 2006: 18% of APE sales, FY 2005: 27% of APE sales) reflecting a
reduction in acquisition costs and favourable changes in product mix. As a result,
the Life and Pensions covered businesses generated positive cash flow on an
EEV basis of £156m before foreign exchange and capital movements. In addition
the Group had indicative net cash outflows (on an after-tax IFRS basis) from
non-covered entities of £33m for H1 2006 (FY 2005: outflows of £39m).
Cashflow generation remains a clear focus of the Group.
UK Life and Pensions
Both PVNBP (£4,330m) and APE sales (£594m) for UK covered life
business continued to grow strongly during the period, largely reflecting pro-active
changes in product mix, the beneficial impact of A-Day on new business volumes
and continued focus on customer service. SIPP and investment bond sales were
key contributors to this performance, in line with the strategy to focus on
more profitable product lines. We continue to develop our product range with
the roll out of our Wrap platform to advisers.
EEV operating profit was £148m (FY 2005: £272m) benefiting from
the substantial increase in new business contribution from UK Life and Pensions
of £78m (FY 2005: £27m) due to changes in product mix, increased
sales of lower commission group pensions and lower initial expenses. As a result
the PVNBP margin on UK Life and Pensions products increased significantly from
0.4% for the FY 2005 to 1.8% for H1 2006, with improved margins in all key product
categories. The largest improvement in profitability was in pensions where the
new business contribution increased to £44m in H1 2006 from £11m
in FY 2005, with the new business margin increasing to 1.4% in H1 2006 from
0.2% in FY 2005.
In FY 2005 we witnessed lower with profits lapse volumes in advance of demutualisation.
To take account of this, a pre-tax provision of £23m was established at
31 December 2005 in anticipation of these deferred lapses occurring after demutualisation.
Lapse volumes similarly ran at a reduced level in H1 2006. After demutualisation
we saw an increase in lapses of life with profits products which, as expected,
since early August have declined. However, in light of the extent of the lapses
overall, the pre-tax provision has been increased by £21m to £44m.
We have seen a different experience in pensions. Customers have consolidated
their pensions arrangements as a result of A-Day. This has resulted in an increase
in pensions lapses. For Standard Life this impact has only occurred in recent
weeks. We have therefore set up a pre-tax provision of £79m in respect
of expected A-Day related lapses. We expect this A-Day related lapse experience
to revert to normal levels in 2007. A proportion of these future lapses may
transfer to other Standard Life products, although this benefit has not been
taken into account.
UK Life and Pensions operating profit was favourably impacted by £27m
due to updated valuation assumptions, resulting in an overall UK pre-tax charge
for operating 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 significantly
helped 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
(FY 2005: £1,882m) with APE increasing in local currency terms by 3% to
£99m in line with the strategy to prioritise retention and maintain focus
on margin instead of volume. The increase in new business contribution to £11m
from a loss of £2m in FY 2005 relates mainly to the repricing of the previously
loss-making Universal 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)
to Group EEV operating profits with the result boosted by the turnaround in
new business contribution and lower maintenance expense assumptions reflecting
ongoing cost reduction measures.
Canada IFRS underlying profit increased on a pro-rata basis to £68m in
the first half of 2006 (FY 2005: £86m) due to continued growth in funds
under management and the repositioning of the individual insurance offering.
Market share in H1 2006 in group savings and retirement, the largest product
segment 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%). Overall
market share decreased to 7.8% (FY 2005: 9.8%).
Standard Life Investments (SLI)
Following continued strong investment performance, SLI experienced large mutual
fund inflows and enjoyed a good ISA season. Operating profits grew both on an
EEV basis (non-covered profits only: £14m in H1 2006, £24m in FY
2005) and an IFRS 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 management
stood at £31.5bn, up from £28.1bn at the end of 2005. Net inflows
for investment products were £3,120m (H1 2005: £2,643m).
In a survey of global fund managers based on net assets accumulated outside
the US in the first six months of 2006, SLI was ranked sixth overall and first
for active managers.
Standard Life Bank (SLB)
During the first six months of 2006, the UK fixed rate mortgage market has
been extremely competitive. Mortgages under management at SLB were £10.4bn
at end June 2006 (end December 2005: £10.7bn). Average market share by
completions in the 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 of the 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 and selling expenses. This is consistent with the reduction in
new lending business. Cost control remains a priority within SLB to enable it
to compete effectively within this market.
Standard Life Healthcare
Healthcare and General Insurance operating profit of £3m (FY 2005: £7m)
and sales of £10m (H1 2005: £11m) reflected competitive pressure
in both the small and medium enterprise and individual markets.
This operating figure excludes a £9m write-down against the FirstAssist
acquisition and a £5m provision for restructuring expenses. The former
reflects the write-off of purchased software, higher than expected lapse experience
and a reduction in sales of FirstAssist products.
The integration of FirstAssist remains on track and the combined market share
for Standard Life Healthcare and FirstAssist is estimated to be 8.5% of the
PMI market.
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 its other major markets. In Life and Pensions the first class service, leading product range and strong relationships with intermediaries combine to underpin prospects for profitable growth. In Asset Management excellent investment performance provides a solid basis for further gains, while in the other businesses improved efficiencies will assist margins.
Highlights end.
Read the full Half-Year Results 2006.
For further information please contact:
Media:
Scott White 0131 245 5422 / 0771 248 5738
Barry Cameron 0131 245 6165 / 07712 486 463
Emma Wylie 0207 872 4154 / 07712 486 444
Neil Bennett (Maitland) 0207 379 5151 / 07900 000 777
Equity Investors:
Gordon Aitken 0131 245 6799
Gillian Bailey 0131 245 1110
Debt Investors:
John Cummins 0131 245 5195
Georgina 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. Our first stand-alone Corporate Responsibility Report is published today and reports our performance in this area during 2005. During 2006, we have continued to demonstrate our commitment to corporate responsibility during a period of significant change. As a plc, we intend to publish our 2006 Corporate Responsibility Report at the time we issue our 2006 Annual Report 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.
Ends