Standard Life plc - 2006 Preliminary Results - A year of strong progress



    MONTREAL, March 22 /CNW Telbec/ -

    
    - EEV operating profit before tax up 55% to (pnds stlg)614m
      (2005: (pnds stlg)395m).
    - New business contribution before tax up 521% to (pnds stlg)205m
      (2005: (pnds stlg)33m).
    - IFRS underlying profit before tax up 272% to (pnds stlg)540m
      (2005: (pnds stlg)145m).
    - EEV up 11% to (pnds stlg)5,608m (2005: (pnds stlg)5,048m including
      IPO proceeds), equivalent to 258p per share.
    - EEV cash generation increased to (pnds stlg)262m
      (2005: (pnds stlg)17m outflow).
    - Dividend of 5.4p in respect of period since IPO.
    - Heritage With-Profits Fund Residual Estate increased
      to (pnds stlg)1.3bn (2005: (pnds stlg)0.5bn).
    - Continuous improvement initiatives to deliver additional cost benefits
      of (pnds stlg)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
intensive products has delivered strong growth in new business volumes and
profitability.
    "Notwithstanding this strong progress, there is more we can do to increase
the efficiency of our operations and to deliver further earnings growth and
higher returns. Today we announce the next phase of our continuous improvement
strategy, which will deliver a leaner and fitter Standard Life.
    "These initiatives are in addition to the targets announced at the time of
the IPO and will enhance our ability to grow profitably in the medium term. We
are on track to achieve our return on embedded value target for 2007 of 9-10%,
and increasing thereafter."


    -------------------------------------------------------------------------
    Financial Highlights

                                        2006               2005      Change
    New business PVNBP    (pnds stlg)14,263m  (pnds stlg)9,675m          47%
    New business APE       (pnds stlg)1,734m  (pnds stlg)1,249m          39%
    New business
     contribution            (pnds stlg)205m     (pnds stlg)33m         521%
    PVNBP margin                        1.4%               0.4%        +1.0%
                                                                     points

    EEV operating profit
     before tax              (pnds stlg)614m    (pnds stlg)395m          55%
    EEV profit before tax  (pnds stlg)1,022m    (pnds stlg)770m          33%
    Diluted EEV
     operating EPS                     20.7p              13.9p          49%
    EEV                    (pnds stlg)5,608m  (pnds stlg)5,048m          11%
    ROEV                                8.9%               7.4%        +1.5%
                                                                      points

    IFRS underlying
     profit before tax       (pnds stlg)540m    (pnds stlg)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        (pnds stlg)283m                  -           -
    -------------------------------------------------------------------------



    EEV pro forma operating profit
     for the year ended 31 December                  2006              2005
                                             (pnds stlg)m      (pnds stlg)m
    Life and Pensions by country
    UK                                                372               272
    Canada                                            163               131
    Europe                                             45                53
    Other                                              (8)               (2)
    HWPF TVOG                                          44                 -
                                             -------------     --------------
                                             -------------     --------------
    Life and Pensions operating profit                616               454
                                             -------------     --------------
                                             -------------     --------------
    Life and Pensions by source
    New business contribution                         205                33
    In-force business
      expected return                                 392               328
      experience variance                             122                60
      assumption changes                              (58)               37
    Other covered                                     (45)               (4)
                                             -------------     --------------
                                             -------------     --------------
    Total Life and Pensions operating profit          616               454

    Investment management                              38                24
    Banking                                            38                15
    Healthcare and general insurance                   16                 7
    Group 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
    for the year ended 31 December                   2006              2005
                                             (pnds stlg)m      (pnds stlg)m
    Life and Pensions by country
    UK                                                230                16
    Canada                                            168                86
    Europe                                            108                73
    Other                                              (9)                -
                                             -------------     --------------
                                             -------------     --------------
    Total Life and Pensions underlying profit         497               175
                                             -------------     --------------
                                             -------------     --------------
    Investment Management                              66                44
    Banking                                            38                24
    Healthcare and general insurance                   16                 7
    Group 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
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 (the Scheme) throughout the year. The Scheme did not
take effect until 10 July 2006. For further information please refer to basis
of preparation sections 1.4.1 and 1.5.3.4 below for EEV and IFRS respectively.
No account has been taken of any prospective tax changes announced by the
Chancellor of the Exchequer on 21 March 2007.

    Overview of results

    In 2006 EEV operating profit before tax increased by 55% to (pnds
stlg)614m delivering a return on embedded value of 8.9% (2005: 7.4%).
Increased life and pensions new business contribution, improved experience
variances and greater profits from our asset management, banking and
healthcare businesses more than offset the impact of increased lapse
assumptions. On an IFRS basis, pro forma underlying profit before tax
increased by 272% to (pnds stlg)540m. This increase was driven by higher fee
and commission income resulting from increased funds under management, greater
profitability in new business and the prior year including (pnds stlg)189m in
reserve strengthening in the UK life and pensions business. Worldwide
insurance sales were up by 47% to (pnds stlg)14,263m, on a PVNBP basis,
reflecting strong new business performance in UK life and pensions. This
substantial improvement in trading performance gives rise to diluted EEV
operating earnings per share 49% higher at 20.7p. Diluted underlying earnings
per share on an IFRS basis increased by 276% to 21.8p.
    UK life and pensions benefited from a substantial increase in new business
contribution of 519% to (pnds stlg)167m (2005: (pnds stlg)27m). This reflects
margin improvement in every product group and the significant growth in PVNBP
new business volumes of 69% to (pnds stlg)11,400m (2005: (pnds stlg)6,763m)
driven by the success of SIPP, Capital Investment Bonds and TIP, and the
impact of A-day on customer activity. EEV operating profit before tax
increased by 37% to (pnds stlg)372m despite changes in long term assumptions
and provisions for lapses of (pnds stlg)207m. Although UK life and pensions
product lapses continued at levels in excess of long-term trends, net fund
flows remained strongly positive and amounted to (pnds stlg)3.2bn during 2006.
We anticipate the continuation of strong underlying sales momentum in 2007,
underpinned by our market-leading service and innovative product offerings
coupled with our impressive track record in investment performance.
    In our Canadian life and pensions business the focus on margin over volume
and the repricing of certain Universal Life products resulted in a turnaround
in new business contribution from a loss of (pnds stlg)2m in 2005 to a profit
of (pnds stlg)28m in 2006, which helped EEV operating profit before tax
increase 24% to (pnds stlg)163m. While we expect market conditions to remain
challenging this year, our continued efforts on cost control and the product
initiatives undertaken in the second half of 2006 will support steady
profitable growth in 2007.
    The EEV operating profit before tax from European businesses decreased 15%
to (pnds stlg)45m reflecting the further investment in product development in
Germany and Ireland. Following successful product launches in both countries,
we expect to build on the sales momentum we achieved in the second half of
2006.
    The Asian life and pensions EEV operating loss increased to (pnds stlg)8m
(2005: (pnds stlg)2m loss) due to the continued expansion of the operations in
India and China. These businesses are expected to achieve improved sales in
2007, driven by new product launches, wider distribution and market growth.
    Standard Life Investments' third party funds under management increased by
32% to (pnds stlg)38.5bn at the end of 2006, reflecting continued investment
outperformance, which has driven record levels of both institutional and
retail third party mandate wins. Standard Life Investments' operating profit
before tax increased 50% to (pnds stlg)66m on an IFRS basis as a result of the
higher funds under management leading 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 Life Investments' impressive performance track
record and the successful introduction of additional products in both the
retail and institutional markets, provides a powerful platform to deliver
continued growth in 2007.
    Standard Life Bank increased underlying profit before tax by 58% to
(pnds stlg)38m on an IFRS basis as a result of improved interest margin and
cost control in a year when gross mortgage lending was similar to the prior
year. In 2007 we expect Standard Life Bank to benefit from continued reduction
in its cost income ratio and 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 the industry average of 0.95%.
    Through a disciplined approach to business Standard Life Healthcare more
than doubled 2005 IFRS underlying profit before tax. Standard Life
Healthcare's new policy administration system coupled with the launch of a new
product proposition is expected to increase sales and reduce operating costs
in 2007. The integration of FirstAssist continues to plan with the full
benefits being realised in 2008 and thereafter.
    EEV increased to (pnds stlg)5,608m, equivalent to 258p per share
(diluted), driven by the strong operating performance for the year and
positive investment return variances. EEV cash generation increased to a
(pnds stlg)262m inflow (2005: (pnds stlg)17m outflow) due to a reduction in
new business strain, improved contribution from in-force life business and
greater non life profits.
    We are recommending the payment of our first dividend of 5.4p a share on
31 May 2007, as indicated at flotation, based on a record date of 30 March
2007. This dividend represents around half of the total dividend that we would
have expected to pay if Standard Life plc had been listed throughout the year.
Our intention is to pay a progressive dividend which will take account of the
long-term earnings and cash flow potential of the Group.

    Delivering continuous improvement

    We are announcing today further initiatives to increase the efficiency of
our UK businesses and enhance their growth prospects. These initiatives focus
on driving synergy benefits from UK Life and Pensions, Standard Life
Healthcare, Standard Life Bank and shared services for Standard Life
Investments. In due course we will look at achieving additional savings in our
Canadian, German and Irish businesses.
    At the time of the flotation in July 2006 we announced a target to reduce
UK Life and Pensions' expenses by (pnds stlg)30m by the end of 2007;
(pnds stlg)15m has been achieved to date. This commitment is being achieved at
the same time as delivering strong sales growth. We also committed to reduce
corporate costs in 2007 to (pnds stlg)58m per annum, the 2005 level, despite
the incremental costs of being a listed company. This target is also expected
to be achieved. The initiatives announced today are in addition to those
targets.
    We aim to reduce underlying costs by a further (pnds stlg)100m per annum
by 2009. It is expected that the phasing of savings will be achieved as
follows: in the second half of 2007 (pnds stlg)15m, in 2008 a further
(pnds stlg)70m, and in 2009 an additional (pnds stlg)15m. Through efficiency
and productivity we can achieve a reduction in the underlying headcount
requirement to service our existing levels of business by around 1,000 by
2009. We expect growth and natural turnover to keep involuntary job losses to
a minimum. The one-off costs of implementing these savings are expected to be
no greater than the annual savings achieved by 2009.
    We are establishing a UK Retail Division, headed by Trevor Matthews,
currently Chief Executive of Standard Life Assurance Limited. He will be
responsible for the continued development of UK Life and Pensions, Standard
Life Bank and Standard Life Healthcare and for driving synergies in both costs
and revenues by streamlining common functions and enhancing our capability to
grow. Duplication of 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 service
activities, rationalisation of group central functions, re-engineering of key
processes and the implementation of smarter sourcing of services.
    The cost savings are expected to be achieved roughly equally between
covered and non-covered businesses. Within the covered business, we expect at
least (pnds stlg)20m would be capitalised into the EEV in long term
maintenance unit cost savings by end 2009 after allowing for approximately 10%
of the savings attributable to the with-profits policyholders.
    These additional actions will strengthen further our customer focus and
improve the efficiency of our operations. This will enhance our ability in the
medium term to increase new business margins, drive higher profitability and
augment future embedded value.

    Outlook

    We continue to drive our business forward and have exciting product and
market opportunities both in the UK and overseas. Customers' needs will remain
at the forefront of our thinking. Growth will continue to be driven by our
strategy of concentrating on higher margin and less capital intensive products
delivered with best in class customer service levels and through leading-edge
platforms and efficient systems.
    The trading performance across the group for the first two months of 2007
remains strong with the positive sales momentum continuing in the UK.
    We remain on track to meet our 2007 target for return on embedded value of
9-10%, and increasing thereafter.

    For further information please contact:

    Media:

    Scott White               0131 245 5422 / 0771 248 5738
    Barry Cameron             0131 245 6165 / 07712 486 463
    Neil Bennett (Maitland)   0207 379 5151 / 07900 000 777

    Equity Investors:

    Gordon Aitken             0131 245 6799
    Conor O'Neill             0131 245 6466
    Gillian Bailey            0131 245 1110

    Debt Investors:

    John Cummins              0131 245 5195
    Andy Townsend             0131 245 7260
    

    Newswires

    A conference call will take place for newswires and online publications
from 8.00-9.00am. Participants should dial 020 7162 0125 and quote Standard
Life Results.

    Investors and Analysts

    A presentation to investors and analysts will take place at 9.30am at
Merrill Lynch, 100 Newgate Street, London EC1A 1HQ. A live webcast of the
presentation and the presentation slides will be available on the Group's
website, www.standardlife.com. In addition a replay will be available on this
website later today.
    There will also be a live listen only teleconference to the investor and
analyst presentation at 9.30am. UK investors should dial 0845 245 5000, and
overseas investors should dial +44 1452 562 719. Callers should quote Standard
Life Results. The conference ID number is 1704831. A replay facility will be
available 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, Group Finance Director. Dial in telephone number for international
participants +1 866 779 1135 and UK participants 020 7162 0125. Callers should
quote Standard Life Results. A recording of this call will be available for
replay for one week by dialling +1 954 334 0342 (international) and
020 7031 4064 (UK), access code: 741172.




For further information:

For further information: in Canada: Michèle Parent, Vice-President,
External Communications and Corporate Affairs, (514) 499-7999 ext. 4273,
Toll-free number: 1-877-499-9555 ext. 4273

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Standard Life

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