Final Results - Part 1 of 5

RNS Number : 4310Z

Standard Life plc

07 March 2013

Standard Life plc

Preliminary Results 2012

7 March 2013

Part 1 of 5

Delivering substantial growth in profits and increasing dividends

Operating profit¹ increased by 65% with profit growth across all business units

· Fee based revenue increased to £1,271m (2011: £1,205m)

· Lower unit and absolute costs with acquisition costs of 156bps (2011: 169bps) and maintenance costs of 45bps (2011: 46bps)

· Operating profit before tax up 65% to £900m (2011: £544m) driven by a significant improvement in UK performance, and the continuing growth of Standard Life Investments, as well as previously announced management actions in Canada and UK

· IFRS profit after tax attributable to equity holders up 134% to £698m (2011: £298m)

Record assets under administration and Standard Life Investments third party assets under management

· Group assets under administration of £218.1bn (2011: £198.4bn)

· Long-term savings new business sales of £19.3bn (2011: £19.7bn)

· Long-term savings net inflows of £2.6bn² (2011: £4.0bn²) including gross inflows of £20.3bn² (2011: £20.6bn²)

· Standard Life Investments third party net inflows of £6.1bn² (2011: £4.3bn²) including 62% from outside UK

· Standard Life Investments third party assets under management (AUM) of £83.0bn (2011: £71.8bn) with increasing asset class and geographic reach

Strong balance sheet and capital and cash generation up 68%

· EEV operating capital and cash generation 68% higher at £734m (2011: £438m)

· Issued £500m lower tier 2 subordinated debt in the UK and CA$400m lower tier 2 subordinated debt in Canada, taking advantage of strong demand from investors and improved pricing conditions

· IGD surplus of £4.1bn (2011: £3.1bn) remained relatively insensitive to market movements

Progressive dividend up 6.5%

· Final dividend up 6.5% to 9.80p, making a total of 14.70p for the year (2011: 13.80p)

Special dividend of 12.80p (£302m)

· Strong capital position supports special dividend of 12.80p (£302m)

David Nish, Chief Executive, commented:

"Standard Life has delivered a substantial increase in profitability and has a strong capital position supporting increased dividends for our shareholders.

We have been building strong positions in our core markets. In the UK we are ready to benefit from the significant changes to the market and the increased customer need for savings products. In Standard Life Investments we have one of the world's leading asset managers whose reach and scale is increasingly global. Canada is performing well under its new management team. In Asia we are building exciting businesses in our chosen markets which are full of potential, opening branches in Singapore and Dubai. Our Indian businesses go from strength to strength.

Standard Life has undergone considerable change over the past three years. As a result we now have significant opportunities for further strong and sustainable growth."

Financial Highlights

Key performance indicators	2012 £m	2011 £m
Operating profit before tax	900	544
EEV operating profit before tax	1,116	989
EEV operating capital and cash generation	734	438
Assets under administration (£bn)	218.1	198.4
Net flows (£bn)	5.0	5.4
Operating profit	2012 £m	2011 £m
By source
Fee based revenue	1,271	1,205
Spread/risk margin	505	359
Total income	1,776	1,564
Acquisition expenses	(292)	(325)
Maintenance expenses	(834)	(800)
Group corporate centre costs	(47)	(50)
Capital management	175	74
Share of joint ventures' and associates' profit before tax	26	17
Other	96	64
Operating profit before tax	900	544
Diluted operating EPS	32.4	19.8
Diluted EPS	29.5	12.9
Business segment performance	2012 £m	2011 £m
UK and Europe operating profit before tax	419	266
Retail - new fee business profit contribution³	54	10
Retail - old fee business profit contribution³	179	186
Corporate profit contribution³	88	49
Spread/risk profit contribution³	94	66
Indirect expenses and capital management	(129)	(155)
Other	96	64
UK operating profit before tax	382	220
Europe operating profit before tax	37	46
Standard Life Investments operating profit before tax	145	125
Canada operating profit before tax	355	187
Asia and Emerging Markets operating profit/(loss) before tax	5	(6)
Other financial highlights	2012	2011
IGD surplus	£4.1bn	£3.1bn
Embedded value	£8,138m	£7,428m
Dividend per share	14.70p	13.80p
IFRS profit after tax attributable to equity holders of Standard Life plc	£698m	£298m

For more information please read Section 1.8 - Basis of preparation and the reconciliation of consolidated operating profit for the period in Section 2 of the Preliminary Results 2012.

Group performance

2012 has seen us achieve improvements in performance and deliver value for our customers and shareholders.

Group operating profit increased by 65% to £900m (2011: £544m). The result benefited from growth in fee based revenue reflecting both higher market levels and the demand for our fee based propositions. In the UK, we reduced both unit and absolute costs, spread/risk margin benefited from a 38% increase in gross inflows and we recognised £96m from a professional indemnity insurance claim. Operating profit in Canada benefited from assumption changes of £91m as well as the impact of specific management actions of £153m relating to the previously announced profit on disposal of real estate and the renegotiation of a reinsurance agreement as we de-risked our balance sheet. We are pursuing additional management actions in 2013 of approximately half the amount achieved in Canada in 2012. The 2011 result included a £64m benefit following the change in the basis of future pension increases in the UK staff pension scheme. IFRS profit after tax attributable to equity holders increased to £698m (2011: £298m).

Group assets under administration increased by 10% to £218.1bn while Standard Life Investments third party assets under management increased by 16% to £83.0bn. These record asset levels benefited from positive market movements and positive, although lower, net flows into our newer style fee based propositions. Notably, Standard Life Investments had another strong year with third party net inflows of £6.1bn (2011: £4.3bn) despite the loss of a single low revenue yield mandate of £1.8bn following a change in a client's pension scheme strategy.

EEV operating profit before tax increased by 13% to £1,116m, primarily driven by higher profit from back book management of £413m (2011: £170m) which benefited from management actions in UK and Canada. This increase was partly offset by lower expected return from existing business as a result of lower opening discount rates and higher efficiency gains in 2011 which included the benefit of actions to reduce current and future investment expenses.

EEV operating capital and cash generation has increased by 68% to £734m, including a higher contribution from back book management of £389m (2011: £82m) and lower new business strain.

The Board have proposed a final dividend of 9.80p per share (2011: 9.20p), an increase of 6.5%, making a total for the year of 14.70p (2011: 13.80p). The Board have also proposed a special dividend of 12.80p per share to be paid at the time of the final dividend. The Group will continue to apply its existing progressive dividend policy taking account of market conditions and the Group's financial performance.

Business highlights

Our goal is to drive shareholder value through being a leading customer-centric business focused on long-term savings and investments propositions in our chosen markets. This is underpinned by a simple business model: maximising revenue, increasing assets and lowering unit costs whilst optimising the balance sheet to maximise returns for our shareholders.

During 2012 we've made good progress in each of our businesses. Growth in revenue reflects on-going customer demand for our propositions in what remains a challenging economic environment while continued work on reducing costs across the Group has enabled us to increase the operating leverage within the business, in turn driving a significant improvement in profitability.

Strong UK performance

· UK operating profit before tax, excluding £96m from a professional indemnity insurance claim in 2012 and pension scheme release of £64m in 2011, up 83% to £286m (2011: £156m)

· UK acquisition expenses improved to 133bps (2011: 144bps) and maintenance expenses improved to 31bps (2011: 34bps)

· The number of adviser firms on Wrap increased by 14% to 1,137 and our SIPP proposition continues to perform well with an 18% increase in customers and AUA up 17% to £19.6bn

· Successfully launched a Master Trust for employers in the UK, helping to secure a growing pipeline of corporate business with an increasing number of employers choosing Standard Life investment solutions

· MyFolio has attracted assets of £2.2bn since launch in October 2010 and Standard Life Wealth was recognised, in 2012, as the fastest growing provider of discretionary investment management services in the UK

Record Standard Life Investments third party funds under management

· Average fee revenue yield from third party business increased to 40bps (2011: 37bps)

· Standard Life Investments increased its distribution in the US through John Hancock Mutual Funds

· Continuation of strong investment performance over all key time periods

Strong operating profit result in Canada reflecting effective back book management

· Canada increased fee business net inflows by 32% and market share in both retail and corporate markets

· Expanded our range of mutual funds to help customers deal with low interest rates and market volatility

· Significantly expanded investment options for employers launching target date funds, revamping our Avenue portfolio products and expanding offering on our Quality & Choice investment platform

Continued progress in Asia and Emerging Markets

· Opened new branches in Singapore and Dubai to meet the needs of an internationally mobile workforce in those regions

· Increased distribution capability in China and increased share of the individual private market in India to 17%⁴

· JVs contributed £8m to operating profit before tax reflecting the progress made by HDFC Life in creating a leading and profitable insurance business in India, reinforcing its number two position in the individual private market

Outlook

Our UK business remains well positioned to benefit from regulatory, market and demographic changes. Our newer style propositions are gathering momentum with on-going demand for investment solutions from customers, their advisers and employers. The pipeline of corporate business secured but not yet transitioned continues to grow. Standard Life Investments remains focused on expanding its investment capabilities and geographic reach. Its pipeline of institutional business remains strong. Canada continues to build on momentum in its fee based propositions. Our Asia and Emerging Markets business is well positioned for growth in the attractive international markets in which it operates.

Overall, whilst the market remains competitive, our business model, propositions, distribution capability and strong balance sheet mean we are confident we can deliver on-going improvements in value for our customers and shareholders.

Business segment performance

UK and Europe⁵

Standard Life Investments

Strategy

We continue to strengthen our leading long-term savings and investment business by providing high quality innovative propositions and investment solutions combined with strong customer service and a highly scalable business model. Our strong market positions, along with demographic and regulatory changes in the UK such as auto enrolment and RDR, provide us with significant opportunities to drive profitable growth across our business in UK and Europe.

We remain very well positioned to deliver profitable growth. We are increasing our domestic and global presence and expertise across a range of asset classes while delivering consistently strong investment performance and strengthening relationships with our distribution partners. We also continue to leverage our investment expertise to maximise opportunities and revenues for the wider Group.

Operating profit

	2012	2011
	£m	£m
Fee based revenue	831	798
Spread/risk margin	112	78
Total income	943	876
Acquisition expenses	(202)	(226)
Maintenance expenses	(461)	(459)
Capital management	43	11
Other	96	64
Operating profit before tax	419	266

	2012	2011
	£m	£m
Fee based revenue	408	368
Maintenance expenses	(281)	(258)
Share of joint ventures' and associates' profit before tax⁶	18	15
Operating profit before tax	145	125
Interest and exchange rate movements	-	1
Earnings before interest and tax (EBIT)	145	126

· Operating profit up 58% driven by a strong UK performance with all parts of the business contributing to growing profitability

· Includes £96m benefit in respect of the resolution of a professional indemnity insurance claim

· UK operating profit before tax, excluding £96m from a professional indemnity insurance claim in 2012 and pension scheme release of £64m in 2011, up 83% to £286m

(2011: £156m)

· Total income up 8% reflecting strong growth in assets and improved annuities performance

· Ongoing reduction in unit costs: UK acquisition expenses 133bps (2011: 144bps); UK maintenance expenses 31bps (2011: 34bps)

· Operating profit and EBIT increased by 16% and 15% respectively

· Fee based revenue up 11% driven by strong net flows, particularly into higher margin propositions

· Average fee revenue yield from third party business increased to 40bps (2011: 37bps)

· Maintenance expenses expressed as a proportion of average AUM remained unchanged at 17bps despite ongoing development of our investment capability and expanding distribution and geographic reach

· Share of profit of HDFC AMC, which remains the largest mutual fund company in India with AUM of £11.3bn, has been stated on a pre-tax basis for the first time

AUA and flows

· Total AUA grew by £11.6bn or 9% to £143.4bn

· Robust fee based retail net inflows into higher margin propositions

· Positive net flows in Germany and Ireland

· Growing corporate pension pipeline and increased take-up of Standard Life investment solutions

· In 2012, Standard Life Wealth was recognised as the fastest growing provider of discretionary investment management services in the UK with AUA up 86% to £1.8bn

· MyFolio AUA up 142% to £2.2bn

· Annuity gross inflows up 38% to £632m

· Third party AUM increased by £11.2bn or 16% to £83.0bn

· Third party net inflows of £6.1bn representing 8% of opening third party AUM

· Unbroken record of positive annual third party net flows since inception

· Overseas clients accounted for 62% of third party net inflows, with net flows from US of £1.8bn

· Increased institutional client base in UK and Europe by 5% and achieved number two position in UK retail market by net retail sales and a market share of 18%

Operational highlights

· Delivered RDR-ready adviser and consultancy charging, providing adviser firms with leading levels of support throughout this transition

· Secured 137 new schemes and 118,500 employees joined our corporate pension schemes during the year

· Successfully launched our Corporate investment proposition and Master Trust

· Agreement with RBS Group to provide a proposition combining both our platform technology and range of risk-based investment solutions to their private banking clients

· Streamlined and increased our corporate pension enrolment and processing capacity

· Continued to deliver strong investment performance and our money weighted average for third party assets is well above median over all key time periods

· Increased Global Emerging Markets capability with the launch of equity and debt funds

· John Hancock GARS fund awarded US rookie fund of the year by the Wall Street Journal

· AUM across the MyFolio fund range of £2.2bn and agreement to provide risk-based funds to RBS Group private banking

Canada

Asia and Emerging Markets⁵

Strategy

We continue to grow our fee based business, capitalising on the opportunities created by demographic and market changes. We are achieving this through providing innovative retirement and investment solutions as well as leading levels of customer service. We continue to focus on maximising the value of our back book of spread business, improving its profitability, capital efficiency and risk exposure.

We are focused on delivering profitable growth through our two joint ventures, our offshore business and through the expansion of our retail savings and investments in Asia and the Middle East. The expansion into two new attractive international and offshore wealth management markets leaves us well placed to leverage our existing offshore capability. We continue to work with our joint venture partners on developing our businesses in India and China.

Operating profit

		2012		2011
	£m		£m
Fee based revenue	172		166
Spread/risk margin	393		281
Total income	565		447
Acquisition expenses	(79)		(78)
Maintenance expenses	(240)		(220)
Capital management	109		38
Operating profit before tax	355		187

	2012	2011
	£m	£m
Fee based revenue	54	45
Acquisition expenses	(11)	(21)
Maintenance expenses	(46)	(32)
Total wholly owned	(3)	(8)
India and China JV businesses	8	2
Operating profit before tax/(loss)	5	(6)

· Operating profit up 90% to £355m reflecting good operating performance, effective back book management and timely disposal of property assets

· Fee based revenue increased by 4% in constant currency as a result of higher AUA

· Spread/risk margin increased to £393m and included the impact of positive assumption changes of £91m, and £81m from previously announced specific management actions

· Capital management included gains of £72m from the previously announced specific management actions

· Increase in expenses reflected on-going investment in our propositions and growth of our business

· Operating profit up to £5m driven by progress from both wholly owned and joint venture businesses

· Fee based revenue in our wholly owned operations increased by 20% as a result of higher AUA in the period

· Higher profit from JV businesses reflects the progress made by HDFC Life in creating a leading and profitable insurance business in India, reinforcing its number two position in the individual private market

AUA and flows

· Total AUA increased by 7% to £27.8bn driven by net inflows into fee based propositions of £0.8bn and positive market movements which offset expected outflows from the spread/risk business

· Strong position in group segregated funds with fee based gross inflows up 14% to £1.9bn and net inflows of £500m

· Momentum in sales of retail segregated funds with market share up to 9.1% (2011: 6.7%) and net flows up 66% to £331m

· Increase in demand for mutual funds resulted in gross inflows up 27% in constant currency

· AUA in the wholly owned businesses increased by 32% to £3.3bn

· Net inflows in wholly owned businesses of £0.6bn represent 24% of opening AUA

· AUA in the joint ventures increased by 25% to £1.5bn, due to net inflows of £0.2bn and positive market movements partly offset by adverse impact of exchange rate movements

Operational highlights

· Created new fund options to meet customer needs in a low interest rate and volatile market environment

· Developed Pooled Registered Pension Plan solution and wider offering aimed at small and medium size employers

· Launched an Advisor Portal to support the needs of advisers

· Developed new strategic asset allocation options for employers, launching target date funds, revamping our Avenue portfolio products and expanding offering on our Quality & Choice investment platform

· Operating across the value chain by offering Standard Life Investment solutions including GARS and MyFolio on our International Bond, and exploring further opportunities for greater collaboration in Asia

· New proposition launched in Hong Kong to cater to the needs of internationally mobile clients while our offshore business launched RDR compliant versions of our propositions into the UK to access opportunities created through RDR

· Established presence in Singapore and Dubai, leveraging our existing capability and infrastructure

· Increased distribution capability in China and increased share of the individual private market in India to 17%⁴

For a PDF version of the full Preliminary Results Announcement, including this Press Release, please click here:

http://www.rns-pdf.londonstockexchange.com/rns/4310Z_-2013-3-6.pdf

For further information please contact:

Institutional Equity Investors		Retail Equity Investors
Lorraine Rees Jakub Rosochowski	0207 872 4124 / 07738 300 878 0131 245 8028 / 07515 298 608	Capita Registrars	0845 113 0045
Media		Debt Investors
Nicola McGowan	0131 245 4016 / 07872 191 341	Scott Forrest	0131 245 6045
Barry Cameron	0131 245 6165 / 07712 486 463	Nick Mardon	0131 245 6371
Susanna Voyle (Tulchan Communications)	020 7353 4200 / 07980 894 557

Newswires and online publications

We will hold a conference call for newswires and online publications on 7 March at 06:50 (UK time) and a second media call at 08:30 (UK time). Participants should dial +44 (0)20 3059 8125 and quote Standard Life 2012 Preliminary Results. A replay facility will be available for both calls for seven days after the event. To access the replays please dial +44 (0)121 260 4861 and use pass code 7950284# for the 06:30 call and 8291090# for the 08:30 call.

Investors and Analysts

A presentation for investors and analysts will take place at 09:30 (UK time) at Deutsche Bank, Winchester House, 1 Great Winchester Street, London EC2N 2DB. There will also be a live webcast and teleconference at 09:30 (UK Time), both of which will have the facility to ask questions at the end of the formal presentation. Participants should dial +44 (0)20 3059 8125 and quote Standard Life 2012 Preliminary Results.

Notes to Editors:

1	Operating profit is IFRS profit before tax adjusted to remove the impact of market driven short-term fluctuations in investment return and economic assumptions, restructuring costs (including RDR and Solvency 2 restructuring programme), impairments of intangible assets, amortisation of intangible assets acquired in business combinations, profit or loss on the disposal of a subsidiary, joint venture or associate and other significant one-off items outside the control of management.
2	In order to be consistent with the presentation of new business information, certain products are included in both long-term savings and investments AUA and net flows. Refer to Supplementary information 4.5 - Group assets under administration and net flows for further information.
3	Profit contribution is defined as revenue less directly attributable expenses.
4	Share of individual private market for nine months to 31 December 2012.
5	The Germany and Ireland domestic businesses have now been combined with the UK to create UK and Europe. Asia and Emerging Markets includes Hong Kong, the offshore business in Ireland and the joint ventures in India and China.
6	The share of profit of HDFC Asset Management is included on a pre-tax basis for the first time. This change has contributed £5m to the increase in operating profit.