Setting new standards - Friends Life

More documents

Recommendations

Info

ANNUAL REVIEW CHAIRMAN’S STATEMENT GROUP CHIEF EXECUTIVE’S REVIEW ABOUT THE FRIENDS PROVIDENT GROUP UK LIFE & PENSIONS Group Financial Performance Group profitability on the European Embedded Value (EEV) basis EEV BASIS Our results are presented on two bases: European Embedded Value (EEV) and International Financial Reporting Standards (IFRS). EEV is the basis we find more useful because it provides a more representative reflection of the performance of the long-term business that fully recognises the shareholders’ interest in the in-force portfolio on a risk adjusted basis. The key differences between the EEV and IFRS bases of accounting are set out on page 32. EEV PROFIT before tax (£m) 2006 2005 UK LIFE & PENSIONS DOWN 4% – see page 17 315 328 INTERNATIONAL LIFE & PENSIONS UP 12% – see page 23 119 106 ASSET MANAGEMENT DOWN 18% – see page 29 89 108 EEV UNDERLYING PROFIT BEFORE TAX £509m (2005: £524m) DOWN 3% EEV UNDERLYING EARNINGS PER SHARE 16.4p (2005: 16.3p) UP 1% CORPORATE ITEMS – see page 31 (14) (18) Expected return on net pension liability 9 (2) Expected return on corporate net assets (10) (7) Corporate costs (13) (12) Operating assumption changes for corporate costs - 3 EEV UNDERLYING PROFIT BEFORE TAX 509 524 OTHER PROFIT ITEMS – see page 31 (111) 76 Investment return variances (174) 550 Effect of economic assumption changes 181 (238) Non-recurring items (17) (59) Amortisation of Asset Management acquired intangible assets (43) (56) Impairment of Asset Management acquired intangible assets (58) (112) Variation in value of option on convertible debt - (9) EEV PROFIT BEFORE TAX 398 600 EEV PROFIT BEFORE TAX £398m (2005: £600m) DOWN 34% EEV BASIC EARNINGS PER SHARE 14.6p (2005: 21.2p) DOWN 31% DIVIDEND PER SHARE: 7.85p (2005: 7.7p) UP 2% The EEV results have been prepared in accordance with the EEV principles issued by the European CFO Forum. The EEV results for the Life & Pensions business (covered business) are combined with the results for the remainder of the business reported in accordance with IFRS, except where EEV principles dictate otherwise. In particular the EEV principles have been applied to reflect Step-up Tier one Insurance Capital Securities (STICS) as debt rather than equity. When considering the EEV results, management focuses on underlying profit as this measure better reflects the performance. “ These results represent a considerable achievement with total Life & Pensions new business up 31% and a total shareholder return of 19%. Although EEV underlying profits are slightly lower, IFRS profits have shown a significant increase. The dividend to shareholders is up 2% to 7.85p per share. ” Jim Smart Group Finance Director 30 Friends Provident Annual Report & Accounts 2006
INTERNATIONAL LIFE & PENSIONS ASSET MANAGEMENT GROUP FINANCIAL PERFORMANCE CONCLUSIONS AND OUTLOOK Group EEV underlying profit before tax has reduced by 3% to £509m (2005: £524m). Overall profit from our life & pensions businesses is unchanged but there has been an 18% decrease in profit at our Asset Management business, where we have seen a net outflow of funds and resulting lower revenues. Group EEV profit before tax has reduced by 34% to £398m (2005: £600m). This profit measure takes into account the impacts of investment return variances, economic assumption changes, non-recurring items and other costs. In net terms these were negative by £111m in 2006 but positive by £76m in 2005, as discussed below. Group EEV underlying profit 2006 -3% £509m 2005 £524m Group EEV profit before tax 2006 -34% £398m 2005 +60% £600m Underlying profit before tax – There was a reduction in underlying profit (excluding corporate items) in UK Life & Pensions of 4%, an increase in International Life & Pensions of 12% and a reduction in Asset Management of 8%. Included in underlying profit before tax is a charge for persistency of £68m with £21m in respect of the current pension products, and the balance relating to legacy products. This charge has largely been offset by a lower cost of burnthrough in 2006 of £36m and favourable morbidity and mortality assumption changes of £27m. Commentary on the segmental results is given on pages 17, 23 and 29. Corporate items included in underlying profits total £14m negative (2005: £18m negative). These costs include STICS interest. Details are shown in the table on page 30 with the main item being corporate costs which amount to £13m (2005: £12m). The expected return on the net pension liability has increased in 2006 mainly because the calculation includes the expected return on derivative assets for the first time. Underlying profit by business segment 2006 2005 Business segment 2006 2005 UK Life & Pensions 58% 60% International Life & Pensions 23% 20% Asset Management 19% 20% The contribution from total Life & Pensions new business, (included in underlying profit), has increased by 42% to £204m (2005: £144m). The new business margin as a percentage of PVNBP has increased from 2.7% to 2.9%, largely driven by 30% sales growth in the UK where operational leverage increased the margin from 2.0% to 2.6%. Contribution from Life & Pensions new business 2006 +42% £204m 2005 +85% £144m £144m The Life & Pensions return on embedded value has decreased from 11.2% to 9.9% reflecting unchanged underlying profit and higher opening net assets on an EEV basis. The UK return is 7.9% (2005: 9.4%) and the International return is 19.8% (2005: 21.5%), which reflects the much higher proportion of new business profit to embedded value compared with the UK business. Life & Pensions return on embedded value 2006 -12% 9.9% 2005 11.2% The other profit items excluded from underlying profit but included in profit before tax are shown in the table on page 30 and total £111m negative (2005: £76m positive). The main factors impacting 2006 were good equity returns which generated a positive impact, but these were offset by an increase in fixed interest yields which resulted in a negative impact. In addition, investment return variances were negatively impacted by an increase in the market value of our £290m convertible bond (reflecting the increase in Friends Provident’s share price over the year) and by an increase in the investment related costs of options and guarantees. The positive variance was significantly higher in 2005 as equity returns were higher and fixed interest yields fell – both of which generated significant positive impacts. The risk free rate used for Sterling was 4.6% (2005: 4.1%) and 4.1% for the Euro (2005: 3.6%). Other profit items 2006 negative £111m 2005 positive £76m Non-recurring items comprise: F&C integration costs of £7m (2005: £24m), F&C Reinvestment Plan costs of £12m (2005: £22m) relating to the share schemes put in place at the time of the merger, FPI integration costs of £nil (2005: £6m), a release of mis-selling provisions of £4m (2005: charge of £7m) and costs associated with the closure of the Appointed Representative sales channel of £2m (2005: £nil). The reduced amortisation of Asset Management intangible assets of £43m (2005: £56m) reflects a lower book value of these assets as a result of impairments, partially offset by a higher amortisation rate implemented during 2006. The impairment charge of £58m (2005: £112m) arises from reviewing the fair value of the intangible assets associated with F&C investment management contracts following the loss of mandates. Friends Provident Annual Report & Accounts 2006 31
Page 1 and 2: Setting new standards Friends Provi
Page 3 and 4: ANNUAL REVIEW CORPORATE GOVERNANCE
Page 5 and 6: Group financial highlights Group
Page 7 and 8: INTERNATIONAL LIFE & PENSIONS ASSET
Page 31: INTERNATIONAL LIFE & PENSIONS ASSET
Page 43 and 44: DIRECTORS’ REPORT CORPORATE GOVER
Page 71 and 72: FINANCIAL STATEMENTS Independent Au
Page 73 and 74: PARENT COMPANY ACCOUNTS ABBREVIATIO
Page 83 and 84:
PARENT COMPANY ACCOUNTS ABBREVIATIO
Page 85 and 86:
Page 87 and 88:
Page 89 and 90:
Page 91 and 92:
Page 93 and 94:
Page 95 and 96:
Page 97 and 98:
Page 99 and 100:
Page 101 and 102:
Page 103 and 104:
Page 105 and 106:
Page 107 and 108:
Page 109 and 110:
Page 111 and 112:
Page 113 and 114:
Page 115 and 116:
Page 117 and 118:
Page 119 and 120:
Page 121 and 122:
Page 123 and 124:
Page 125 and 126:
Page 127 and 128:
Page 129 and 130:
Page 131 and 132:
Page 133 and 134:
Page 135 and 136:
Page 137 and 138:
Page 139 and 140:
Page 141 and 142:
Page 143 and 144:
Page 145 and 146:
Page 147 and 148:
Page 149 and 150:
Page 151 and 152:
Page 153 and 154:
Page 155 and 156:
Page 157 and 158:
Page 159 and 160:
Page 161 and 162:
Page 163 and 164:
Page 165 and 166:
Page 167 and 168:
Page 169 and 170:
Page 171 and 172:
Page 173 and 174:
Page 175 and 176:
Page 177 and 178:
Page 179 and 180:
Page 181 and 182:
Page 183 and 184:
Page 185 and 186:
Page 187 and 188:
Page 189 and 190:
Page 191 and 192:
Page 193:
Page 196:
Friends Provident plc Pixham End Do
show all

Setting new standards - Friends Life

Create successful ePaper yourself

Delete template?

Save as template?