Ongoing resilience in volatile market conditions Cash flow and capital position robust
- Core capital and cash generation after tax of £167m (2008: £143m)
- Financial Groups Directive surplus of £3.1bn (31 December 2008: £3.3bn)[1]
- Interim dividend of 4.15p, representing 2.0% growth
Net flows remains positive
- Positive net flows of £2.1bn across the Group (2008: £3.3bn)
- Life and pension PVNBP sales of £7.5bn (2008: £9.1bn)[2]
Profits impacted by lower financial market levels
- EEV operating profit before tax of £348m (2008: £534m)
- IFRS loss after tax attributable to equity holders of £20m (2008: profit £161m)
Strong progress made towards second phase efficiency target
- On track to meet £75m annual efficiency savings target by the end of 2010 – £26m achieved to date
Group Chief Executive Sir Sandy Crombie said:
“The recession has had an inevitable impact on our performance in the first half of 2009. However, today’s results highlight Standard Life’s robust business model and the ongoing resilience of our balance sheet.
“I am particularly pleased with the continued strength of our UK group pensions offering and by Standard Life Investments, where we have achieved good worldwide third party investments net inflows, despite a backdrop of industry slowdown and continuing market volatility. In addition, I am encouraged by the progress that has been made in our Canadian retail product lines following the repositioning of the business.
“We have announced healthy capital and cash generation and have made good progress towards our efficiency target. We have maintained a strong capital position and this enables us to develop the business by investing in our key growth areas.
“With our strong solvency position, proven capital-lite strategy and diversified business offering, I am confident that Standard Life is well positioned.”
Unless otherwise stated, all comparisons are in Sterling and are with the six months ended 30 June 2008.
UK financial services
Within our UK life and pensions business we experienced net inflows of £135m (2008: £1,041m) and a 24% reduction in new business sales to £5.2bn (2008: £6.9bn). These reductions reflect lower incoming transfer values into our pension product lines and our decision not to renew bulk investment bond deals as noted above. In addition, and as previously highlighted in our Q1 2009 Interim Management Statement, activity levels at the start of the year were temporarily impacted by the revaluation of the Pension Sterling Fund.
We continue to see strong growth in our Individual SIPP customer base, the total number of accounts increasing by 13% to 74,700 during the period (31 December 2008: 65,900). Lower net inflows of £959m (2008: £1,435m), and a 26% reduction in new business sales to £1,537m (2008: £2,074m) reflect the impact of market movements on average incoming transfer values, which continue to represent the majority of new business. SIPP assets under administration have increased by 12% to £9.7bn[5] (31 December 2008: £8.7bn). Across our SIPP portfolio the average case size was £130,000 (31 December 2008: £131,000).
UK group pensions assets under administration have increased by 2% to £14.7bn (31 December 2008: £14.4bn)[6]. Lower net inflows of £671m (2008: £885m) and a 15% reduction in new business sales to £1,527m (2008: £1,803m) reflect lower asset values as well as reduced increment levels. During the second quarter, regular premium new business benefited from contributions received in respect of the BT scheme (£347m PVNBP), the largest contract based defined contribution scheme to tender in Europe, which was highlighted in our Q4 2008 Interim Management Statement. We expect to receive single premium transfer amounts relating to this scheme later in the year. Group SIPP volumes increased by 61% and accounted for 54% of total group pensions sales (2008: 28%). While market conditions remain challenging, the quality and flexibility of our evolving and award winning proposition to the corporate market, combined with the financial strength of the Group, continue to act as key differentiators and enable us to win new business in our chosen markets. The number of new schemes won during the first half of 2009 was 216 (2008: 248), our pipeline is good and current levels of tender activity remain strong.
As disclosed in our Q1 2009 Interim Management Statement, our decision not to renew bulk deals with large institutional distributors at lower margins has had a material impact on investment bond sales of £154m (2008: £1,025m) and net outflows of £825m (2008: net inflow £273m). Excluding these bulk deals, investment bond sales were £417m in the first half of 2008, with adjusted net outflows reducing from £325m in 2008 to £272m in 2009. Mutual funds sold on our Wrap, Sigma and Fundzone platforms continue to perform well, increasing by 49% to £542m (2008: £364m) with net inflows increasing to £336m (2008: £160m).
Assets under administration on our Wrap platform increased by 35% to £2.3bn (31 December 2008: £1.7bn)[7]. At 30 June 2009 there were 484 IFA firms using the platform (31 December 2008: 409 firms) and 23,000 customers (31 December 2008: 16,900 customers) with an average fund size of £101,000 (31 December 2008: £101,000). We continue to see strong momentum in our Wrap offering, with a strong pipeline of IFA firms in the process of adopting the platform.
A number of endowment policies that were written during the early 1980s reached maturity during the first half of the year. This has led to a net outflow of £761m (2008: net outflow £785m) in respect of pre-demutualisation life products. While we expect this trend to continue in the short term, the vast majority of these products are conventional with profits contracts, which generate minimal shareholder margin.
Claims levels across our UK life and pensions operations remain broadly in line with assumptions, with reduced claims in respect of individual pensions leading to a reduced net outflow from this product line.
Savings balances in our banking operations have increased to £5.5bn (31 December 2008: £5.0bn). This total includes combined SIPP and Wrap balances of £1.8bn (31 December 2008: £1.5bn). Savings inflows were experienced across the product range, with ISAs and business accounts performing well during the first half of 2009.
Consistent with our strategy to manage our mortgage exposure during the ongoing period of difficult credit market conditions, gross mortgage lending decreased by 80% to £143m (2008: £728m). Mortgages under management stood at £8.8bn (31 December 2008: £9.7bn), with an arrears rate of 0.68%, which is approximately a quarter of the Council of Mortgage Lenders industry average of 2.61% reported at 31 March 2009. The average indexed loan to value ratio increased slightly to 48% (31 December 2008: 46%).
Healthcare sales were 29% lower at £10m (2008: £14m) on an APE basis.
The full report is available here
Notes to Editors:
1 Financial Groups Directive surplus at 31 December 2008 has been adjusted for the payment of the final dividend.
2 Present value of new business premiums (PVNBP) is calculated as 100% of single premiums plus the expected present value of new regular premiums.
3 Life and pensions net flows represent gross inflows less redemptions. Gross inflows are premiums and deposits recognised in the period on a regulatory basis (excluding any switches between funds). Redemptions are claims and annuity payments (excluding any reinsurance transactions and switches between funds).
Worldwide life and pensions net flows do not include net flows in respect of our Asia life and pensions joint ventures and our Hong Kong subsidiary.
4 Certain items are included in both life and pensions and investment flows. Therefore, at Group level, an elimination adjustment is required to remove any duplication.
5 Analysis of Individual SIPP assets under administration.
6 The Group pensions AUA figure as at 31 December 2008 has been restated to align with the methodology used for other product lines.
7 Wrap assets under administration have been restated to exclude amounts that have been secured but are pending investment onto the Wrap platform. The impact of this restatement has been immaterial, reducing the assets under administration figures as at 31 December 2008 and 30 June 2009 by £0.1bn.
8 Offshore bond inflows of £77m (2008: £265m) and sales of £173m (2008: £270m) are now included within the European results rather than the UK.
9 H1 2008 PVNBP includes a restatement to opening assumptions in India. The impact is to reduce H1 2008 PVNBP by £53m.
10 Excludes development costs directly related to back book management initiatives.
11 The only difference between IFRS normalised underlying profit and IFRS underlying profit for non-covered business arises within global investment management. Net negative fair value movements in respect of the liability remaining following the restructuring of a sub-fund of Standard Life Investments (Global Liquidity Funds) plc and the ‘Contract for Differences’ written in September 2008 which limited this liability for Standard Life Investments and fair value movements of the corresponding assets which were brought directly on to the balance sheet, are included within IFRS underlying profit, but are excluded from IFRS normalised underlying profit.
12 Excludes specific costs attributable to back book management.
13 The Interim Results 2009 are available on the Financial Results page of this website.
