31 October 2012
2012 Q3 Interim Management Statement



Ready for market and regulatory changes

Continuing growth in assets under administration

Strong balance sheet

Successful transition to auto enrolment and Retail Distribution Review (RDR) readiness

Delivering for our customers

David Nish, Chief Executive, commented:

“Standard Life has performed well in the first nine months of the year, continuing to grow our assets despite the uncertain economic environment. Inflows across our long-term savings businesses and strong performance at Standard Life Investments have helped to increase both Group assets under administration and Standard Life Investments third party assets to record levels.

“In the UK, we are ready to assist our customers, advisers and employers with the significant regulatory changes already underway. The phased implementation of auto enrolment has commenced and we are already offering fully RDR-compliant adviser charging on our platforms. By combining our platform technology with investment expertise and high levels of customer service, we are in a unique position to meet the broadening demand for investment solutions from customers, advisers and large financial institutions.

“In Canada, we have continued to expand our fee based offering and in Singapore, we are now open for business.

“Uncertainty around the future of the Eurozone and difficult economic conditions continue to impact consumer sentiment. However, we are confident that the ongoing focus on increasing assets and improving the efficiency and scalability of our business, will continue to drive improved returns for our shareholders”

 

 

Unless otherwise stated, all comparisons are in Sterling and are for the nine months ended 30 September 2011.

Continuing growth in assets under administration

Assets under administration 1 Jan 2012 Gross flows Redemptions Net flows Market and
other movements
30 Sep 2012
Fee business (£bn) 162.8 20.0 (16.5) 3.5 8.6 174.9
Spread/risk business (£bn) 25.2 1.1 (1.8) (0.7) 1.1 25.6
Other3 (£bn) 10.4 0.3 (0.1) 0.2 0.8 11.4
Group AUA (£bn) 198.4 21.4 (18.4) 3.0 10.5 211.9

Group assets under administration increased from £198.4bn to £211.9bn. This increase was driven by resilient, though lower, flows into our newer fee based propositions and positive market movements. Notably, Standard Life Investments had a strong first nine months of the year with net inflows of £3.2bn. Excluding £1.8bn of previously announced expected outflows from a low revenue yield mandate, net inflows were £5.0bn, representing an annualised 9% of opening third party AUM.

Strong balance sheet

Our balance sheet continues to be robust with an IGD surplus of £3.4bn (31 December 2011: £3.1bn, 30 June 2012: £3.0bn), reflecting the payment of the 2011 final dividend of £216m in May 2012 and the successful CAD$400m subordinated debt issue in Canada. Direct shareholder exposure to debt issued by governments and banks in Greece, Ireland, Italy, Portugal and Spain is less than £50m.

Outlook

Our industry in the UK is undergoing a period of significant change. Over the past few years we have built a scalable business that is capitalising on the opportunities that exist in our chosen markets. Combined with its leading market positions, we expect the UK business to continue to perform well.

Standard Life Investments has opportunities to continue to expand its capabilities and reach, both in the UK and internationally. While the low interest rate environment in Canada presents some challenges, the outlook for the Canadian economy remains steady. Following the appointment of a new management team, we expect this business to drive improved operating performance as we capitalise on our expertise and opportunities in long-term savings and investments. Our Asia and Emerging Markets business is now better aligned to execute our international strategy.

Overall, whilst the market environment continues to be challenging, our business model, leading market positions and strong balance sheet will enable us to continue to deliver ongoing improvements in value for customers and shareholders.

UK and Europe

Operational highlights

UK business continuing to build on our advantage in our chosen markets

1 Jan 2012 Gross flows Redemptions Net flows Market and
other movements
30 Sep 2012
Retail fee business (£bn) 55.8 4.6 (4.6) - 3.4 59.2
Corporate fee business (£bn) 22.0 2.3 (1.3) 1.0 0.9 23.9
UK fee business (£bn) 77.8 6.9 (5.9) 1.0 4.3 83.1
Institutional pensions (£bn) 17.5 3.1 (1.5) 1.6 1.6 20.7
Conventional with profits (excl. annuities) (£bn) 5.3 0.2 (1.2) (1.0) 0.2 4.5
UK fee business total AUA (£bn) 100.6 10.2 (8.6) 1.6 6.1 108.3
Spread/risk business AUA (£bn) 14.4 0.5 (0.9) (0.4) 0.9 14.9
UK Total AUA backing products (£bn) 115.0 10.7 (9.5) 1.2 7.0 123.2
Fee business revenue UK (bps) 73         73

UK fee business AUA grew by 8% to £108.3bn, reflecting a continuation of net inflows and positive market movements. The average revenue yield across our UK fee business remained stable at 73bps (1 January 2012: 73bps).

Retail business with scale and market leading propositions

1 Jan 2012 Gross flows Redemptions Net flows Market and
other movements
30 Sep 2012
Retail fee business - new (£bn) 23.7 3.9 (1.8) 2.1 1.6 27.4
Retail fee business - old (£bn) 32.1 0.7 (2.8) (2.1) 1.8 31.8
Retail fee business (£bn) 55.8 4.6 (4.6) - 3.4 59.2

Robust gross inflows in the first nine months of the year into our core retail propositions of £4.6bn (2011: £5.3bn) were offset by outflows of £4.6bn (2011: £4.4bn). Gross inflows in the quarter were £1.4bn (Q3 2011: £1.6bn).

Retail fee business - new

Gross flows into our new style propositions in the first nine months of the year were £3.9bn (2011: £4.4bn) with over a third of these inflows going into higher margin MyFolio and Standard Life Wealth investment solutions. Total net flows into our new style propositions were £2.1bn. This is against a backdrop of subdued consumer sentiment, ongoing economic uncertainty and increased commission-based competition ahead of the Retail Distribution Review (RDR). We expect these factors to persist in Q4.

Standard Life Wealth is the fastest growing provider of discretionary investment management services in the UK as it continues to build a strong presence in the IFA market. Net flows into Standard Life Wealth’s higher margin, ‘5 Star’ DeFaqto rated, propositions increased by 95% to £572m (2011: £294m) while assets doubled to £1.6bn (2011: £0.8bn). Our SIPP proposition continues to grow with a 20% increase in customers and AUA up 19% to £19.0bn.

We have maintained good momentum in our platform propositions which continue to attract customers, advisers and assets as we further enhance the features and usability of our proposition. We have recently launched a flexible drawdown offering which will make it easier for our customers to continue to save with us long into their retirement.

Our recently announced partnership with RBS Group will give RBS, NatWest and Ulster Bank private banking customers access, via Wrap, to a range of risk-based investment solutions managed by Standard Life Investments either through in-branch advisers or directly online. Our unique capability across the value chain in point-of-sale technology, the quality of our Wrap platform, together with the investment expertise of Standard Life Investments, positions us well to provide RDR-ready propositions combining platform and risk-based investment solutions to banks and other financial institutions.

We continue to be focused on meeting the needs of ‘new model’ advisers (both independent and restricted) who are best placed to prosper in the new market environment. We implemented fully RDR-compliant adviser charging on our platforms on 15 October to help advisers make the operational changes needed to position themselves for RDR implementation. Focus Solutions and threesixty Services, together with our teams of account managers, provide Standard Life with an ability to support advisers in developing business models compliant with RDR and beyond, deepening our relationships with these firms. The number of adviser firms on our Wrap platform increased by 15% to 1,117 (2011: 969). We continue to embed our Wrap platform with existing adviser firms resulting in the average AUA per firm rising to £9.5m (2011: £7.9m).

With RDR just two months away, our retail business is very well positioned for growth by providing both IFAs and direct customers with valued long-term savings and investment solutions.

Retail fee business - old

Retention in our older style business has been encouraging with outflows of £2.8bn in line with the same period last year (2011: £2.8bn). This business continues to see increments into existing policies, with £0.7bn gross flows in the first nine months of the year (2011: £0.9bn). We continue to look at ways of engaging with customers with maturing policies who may wish to continue to save or annuitise with Standard Life.

Retail - spread/risk

UK spread/risk business AUA increased to £14.9bn, as the positive impact on the value of debt securities from falling yields was partially offset by net annuity outflows driven by scheduled payments. Gross annuity inflows were 27% higher at £433m (2011: £340m) reflecting improved conversion and retention activity which has increased the number of customers who choose to annuitise with us.

Corporate business positioned for growth from market and regulatory trends

We continue to build momentum, winning 93 new schemes (2011: 123 new schemes) with the number of employees joining our pension schemes since the start of the year increasing by 42% to 83,500 (2011: 59,000 employees). The total number of members in our schemes is now 1.2m.

Corporate pension net inflows, excluding Trustee Investment Plan (TIP) business of Standard Life Investments, of £1.0bn (2011: £1.6bn) demonstrate the strength of our corporate business at a time when employers are delaying decision-making ahead of the phased introduction of auto enrolment, with net inflows in the quarter of £265m (Q3 2011: £356m). We continue to build on our strong relationships with employers and corporate benefit consultants and have further enhanced our offering by building on the success of MyFolio risk-based funds in the retail space, launching a suite of investment solutions, including MyFolio, tailored for the corporate market.

The overall quality of our propositions and the high levels of customer service we offer means we are well positioned to benefit from pension reform and RDR. We expect auto enrolment to increase levels of employee participation in the 35,000 schemes we administer for our clients, resulting in 400,000 potential additional savers. In addition, the introduction of auto enrolment is leading many corporates to review their overall pension provision, giving rise to high levels of enquiries and a growing pipeline from employers in our target market. This will drive further growth in our business during 2013 and beyond.

Germany and Ireland continuing to attract net inflows and grow assets

1 Jan 2012 Gross flows Redemptions Net flows Market and
other movements
30 Sep 2012
Fee business AUA (£bn) 9.3 1.0 (0.5) 0.5 0.3 10.1
Spread/risk business AUA (£bn) 0.5 - - - - 0.5
Total AUA backing products (£bn) 9.8 1.0 (0.5) 0.5 0.3 10.6
Fee business revenue (bps) 189         171

Our Europe business, comprising our branches in Germany and Ireland, has been brought under the leadership of Paul Matthews, UK and Europe Chief Executive.

Fee business AUA grew by 14%4 to £10.1bn driven by a continuation of net inflows and positive market movements. PVNBP sales of £705m were in line with last year (2011: £708m), although net inflows of £493m were lower (2011: £592m) reflecting poorer consumer sentiment due to austerity measures in Ireland and ongoing economic uncertainty. The average revenue yield was lower at 171bps (1 January 2012: 189bps) reflecting the charging structure of legacy business.

Our MyFolio risk-based fund range, which has proved very popular in the UK, is now available in Ireland where we have launched a regular premium savings product. We continue to expand our unit linked proposition in Germany, including the successful launch of Maxxcellence Invest, helping to increase our unit linked market share.

Standard Life Investments

Operational highlights

Continuing to attract net inflows into higher margin products

Third party assets 1 Jan 2012 Gross flows Redemptions Net flows Market and
other movements
30 Sep 2012
Fee business (£bn) 71.8 12.2 (9.0) 3.2 3.8 78.8
Fee business revenue (bps) 37         39

AUM in our third party business increased to £78.8bn and accounts for 48% of total AUM. Total third party net inflows in the first nine months of the year were £3.2bn (2011: £3.4bn) despite a previously announced outflow of £1.8bn from a single low revenue yield mandate following a change in a client’s pension scheme strategy. Excluding this outflow, third party net inflows were £5.0bn (2011: £3.4bn) representing an annualised 9% of opening AUM. We continued to attract inflows into higher margin propositions which has helped to increase overall average revenue yield on third party business to 39bps (1 January 2012: 37bps).

In the UK, demand for our MyFolio risk-based funds has driven MyFolio assets to £1.9bn, including net inflows in the first nine months of this year of £0.8bn. Our expertise in this area has helped to secure a partnership under which we will provide a range of risk-based funds to RBS Group and its private banking customers.

UK mutual funds net flows of £1.5bn (2011: £1.6bn) were robust despite volatile market conditions while our share of the wholesale market in the UK continues to grow, with UK mutual funds third party AUM now exceeding £13bn (2011: £10.6bn).

We also continued to make progress in increasing our global presence. European segregated business net inflows more than doubled to £668m (2011: £323m). Our US business continues to gain traction with net sales of more than £1bn and AUM in the John Hancock GARS fund in excess of US$1bn in less than nine months since launch. AUM across our range of eight absolute return funds now exceeds £19bn and we continue to see strong demand as investors seek investment solutions that help to reduce volatility within their portfolios. Total third party net flows from outside of the UK increased to £2.4bn (2011: £1.6bn).

Continuing to deliver robust investment performance

Although investment conditions have been challenging, longer term investment performance continues to be robust with the money-weighted average for third party assets above median over one, three, five and ten years. Our GARS funds have outperformed their cash benchmarks over all key time periods since inception and the strength of our mutual fund suite is shown by the proportion of eligible and actively managed funds (20 out of 32) rated ‘Silver’ or above by Standard & Poor’s in the UK.

The pipeline for institutional business remains strong with fixed income, real estate and multi-asset products attracting a lot of interest, increasingly from outside the UK. There is also positive demand for our mutual funds in the UK and for our SICAV funds in continental Europe.

Canada

Operational highlights

Continued growth in fee business

1 Jan 2012 Gross flows Redemptions Net flows Market and
other movements
30 Sep 2012
Fee business AUA (£bn) 14.3 2.1 (1.5) 0.6 0.7 15.6
Spread/risk business AUA (£bn) 10.3 0.6 (0.9) (0.3) 0.2 10.2
Total AUA backing products (£bn) 24.6 2.7 (2.4) 0.3 0.9 25.8
Fee business revenue (bps) 117         115

Fee business AUA in Canada increased by 9%4 to £15.6bn driven by net inflows of £612m, up 56%4 (2011: £394m), as well as positive market movements. Individual savings and retirement fee business net flows increased to £236m (2011: £145m), largely driven by retail segregated funds, which ranked first in the country in terms of net flows5, while mutual funds net outflows improved to £7m (2011: £87m). Net inflows into group savings and retirement fee business increased by 14%4 to £383m (2011: £336m) reflecting our success in securing a number of large scheme wins in the period. Group savings and retirement fee business sales on a PVNBP basis increased by 89%4 to £1.2bn (2011: £0.6bn) reflecting our success in securing new business and also lower discount rates. The average revenue yield on fee business decreased to 115bps (1 January 2012: 117bps) reflecting market pricing conditions and also business mix.

Spread/risk business AUA decreased to £10.2bn as scheduled outflows from our annuity back book and lower annuity and term fund inflows were partly offset by positive market movements. The Group insurance and disability management business continues to perform well but with lower PVNBP sales of £466m (2011: £681m) reflecting particularly large mandate wins in the first nine months of the previous year.

We continue to enhance our propositions for both corporate and retail customers. During the first nine months of the year we launched our group savings and retirement target date funds, adding to our unique range of solutions in the Canadian marketplace. We also launched a new online health claim solution to improve our customers’ experience and our operational efficiency.

Asia and Emerging Markets

Operational highlights

Continued growth in assets across our wholly owned and joint venture businesses

1 Jan 2012 Gross flows Redemptions Net flows Market and
other movements
30 Sep 2012
Wholly owned fee business AUA (£bn) 2.5 0.6 (0.2) 0.4 0.2 3.1
India and China JV businesses AUA (£bn) 1.2 0.3 (0.1) 0.2 - 1.4
Total AUA backing products (£bn) 3.7 0.9 (0.3) 0.6 0.2 4.5
Fee business revenue (bps) 205         192

Fee business AUA across our wholly owned operations, comprising Hong Kong and our offshore business based in Ireland, increased by 24%4 to £3.1bn, driven by a combination of positive market movements and a continuation of net inflows. We have increased our share of the UK offshore market, despite net inflows for the nine months of £386m being lower compared to the same period last year (2011: £491m). This also reflects our notable success in the first half of 2011 in securing a number of large cases in our market leading offshore bond business. Overall, our wholly owned net inflows in the quarter increased by 27%4 to £151m (Q3 2011: £120m).

Net flows in the first nine months of the year into the India and China joint venture businesses of £195m were in line with prior year (2011: £207m), with HDFC Life continuing to increase its share of the private individual market from 15% to 17%2, and Heng An Standard Life continuing to expand its distribution capability.

For further information please contact:

Institutional Equity Investors
Lorraine Rees - 020 7872 4124 / 07738 300 878
Jakub Rosochowski - 0131 245 8028 / 07515 298 608
Craig Cameron - 0131 245 3848 / 07515 298 330

Retail Equity Investors
Capita Registrars - 0845 113 0045

Media
Nicola McGowan - 0131 245 4016 / 07872 191 341
Tulchan Communications - 020 7353 4200

Debt Investors
Scott Forrest - 0131 245 6045
Nick Mardon - 0131 245 6371

Newswires and online publications

We will hold a conference call for newswires and online publications at 07:30 (UK time). Participants should dial +44 (0)20 3059 8125 and quote Standard Life Q3 IMS 2012. A replay facility will be available for seven days. To access the replay please dial +44 (0)121 260 4861. The pass code is 2794852#.

Investors and Analysts

A conference call for analysts and investors will take place at 09:00 (UK time), hosted by Jackie Hunt, Chief Financial Officer, and Paul Matthews, UK and Europe Chief Executive. Participants should dial +44 (0)20 3059 8125 and quote Standard Life 2012 Q3 IMS. There will also be a live audiocast at the same time with the facility to ask questions, which can be accessed via our website www.standardlife.com.

Notes to Editors:

  1. In order to be consistent with the presentation of new business information, certain products are included in both Standard Life Investments third party AUM and other segments. Therefore, at a Group level an elimination adjustment is required to remove any duplication, in addition to other necessary consolidation adjustments.
  2. Share of individual private market for Indian financial year to date, as at end of August.
  3. Other assets included within AUA of 11.4bn (31 December 2011: 10.4bn, 30 June 2012: 11.2bn) comprise assets not backing products, joint ventures, non-life assets and consolidation/elimination adjustments.
  4. On a constant currency basis.
  5. Retail segregated funds net flows year to date, as at end of August.

Read our 2012 Q3 Interim Management Statement, including financial tables PDF (336Kb).



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