Setting new standards - Friends Life

DIRECTORS’ REPORT
CORPORATE GOVERNANCE REPORTS
Directors’ Report
Directors’ Report for 2006
The directors present their report to shareholders for the financial
year ended 31 December 2006. This report, the reports on behalf
of the Board by the chairmen of the Nomination, Audit and
Compliance and Remuneration Committees and the directors’
report on corporate governance that follow and the financial
statements will be laid before the Annual General Meeting (AGM).
Annual General Meeting
A separate document, the Notice of AGM 2007, convening the
AGM of the Company to be held at The Queen Elizabeth II
Conference Centre, Broad Sanctuary, Westminster, London
SW1P 3EE on 24 May 2007 at 11.00 am, has been sent to
registered shareholders, including those members of the Friends
Provident Share Account who have elected to receive the mailing,
and contains an explanation of the business to be considered at
that meeting. The Notice and the above reports and financial
statements are also available on the Company’s website:
www.friendsprovident.com/reports
Principal activities
Friends Provident plc is the holding company of the Friends
Provident Group of companies and is a constituent of the FTSE
100 Index. The Group has three diversified business segments:
UK Life and Pensions, International Life and Pensions and Asset
Management. The principal activities are the provision of retail
financial services, chiefly long-term insurance business and asset
management. The UK Life and Pensions business operates
through Friends Provident Life and Pensions Limited (FPLP) and its
subsidiary life assurance companies. The International Life and
Pensions business is serviced through subsidiary life assurance
companies, Friends Provident International Limited (FPIL) in the
Isle of Man, Hong Kong and Dubai and Lombard International
Assurance S.A. in Luxembourg. The Asset Management business
is undertaken through F&C Asset Management plc (F&C), a 52%
owned, publicly listed subsidiary company. Further details of the
Group’s three business segments are contained on pages 10 and
11. Particulars of the main subsidiary and associated undertakings
are given on page 126.
Business review and future developments
A review of the Group’s development and performance is set out
in the Annual Review on pages 8 to 39 and the Group Chief
Executive’s review on pages 6 and 7. This information is designed
to provide shareholders with a balanced and understandable
assessment of the Group’s position and prospects, including an
assessment of the principal risks and how they are managed.
Results
The Group’s results for the financial review are shown on an IFRS
basis in the consolidated income statement on page 70 and on a
supplementary EEV basis in the summary consolidated income
statement on page 166.
Dividend
The directors are recommending a final dividend for 2006 of
5.2 pence per share, payable on 29 May 2007 to all holders of
ordinary shares on the register of members at the close of
business on 13 April 2007. The dividend for the year, including the
interim dividend of 2.65 pence per share paid on 24 November
2006, amounts to 7.85 pence per share (7.7 pence per share in
2005). The total cost of dividends for 2006 will amount to
£167 million. The intention is for interim dividends to be paid in
November and final dividends to be paid in May each year. The
interim dividend will represent approximately one third of the
anticipated total dividend.
In November 2006, the Company announced the introduction of
a Dividend Re-investment Plan with effect from the 2006 final
dividend payment in May 2007. This plan enables shareholders to
elect to receive shares in the Company instead of cash. Further
information can be obtained from the Registrar whose contact
details are on the Shareholder Information page at the back of the
Report and Accounts.
Share capital including treasury shares
The issued share capital of the Company as at 31 December 2006
consisted of 2,139,144,959 ordinary shares of 10p each, including
22,630,083 treasury shares. The Company first created treasury
shares on 9 July 2004, having been authorised to do so at the AGM
May 2004. During 2006, 17,478,172 treasury shares (2005:
5,509,717) were used to fulfil obligations under the All-Employee
HM Revenue & Customs Approved ShareSave Scheme, the All-
Employee Share Incentive Plan, the Executive Share Option
Scheme, the Deferred Share Plan and the Executive Long Term
Incentive Plan. In the period from 1 January 2007 to 19 March 2007,
a further 230,808 treasury shares have been used for these
purposes and a further 584 shares have been issued to satisfy the
conversion rights exercised by holders of the £290 million 5.25%
Convertible Bonds due 2007 issued on 11 December 2002. At
19 March 2007, 2,139,145,543 ordinary shares of 10p each are in
issue including 22,399,275 treasury shares.
Details of the total issued share capital of the Company and the
number of treasury shares are published by the Company on
its website.
Debts
The Company issued £18,030,885 Floating Rate Unsecured Notes
2011 on 18 April 2006 to satisfy the payment of part of the
additional consideration due in 2005 in respect of the acquisition
of Lombard International Assurance S.A.
On 20 December 2006, F&C issued £260,000,000 subordinated
loan notes, redeemable in 2026. Part of the proceeds from these
notes was used by F&C to redeem £180 million term loan from
FPLP which fell due in 2006.
Full details of the interest payable on the above notes are set out
in note 32 of the notes to the consolidated accounts.
Purchase of own shares
The Company is, until the date of the next AGM, generally and
unconditionally authorised to buy back up to 10% of its issued
share capital at 10 April 2006 (211,442,061 shares). No such
purchase has been made.
Friends Provident Annual Report & Accounts 2006 47