31 Jan, 2008
Published: 07:14 Thursday 31 January
By: Charlie Parker, Investment Editor
Friends Provident has concluded in its
strategic review that it must renew its focus on its core life and
pensions business and sell its majority stake in F&C Asset
The news has been poorly received by the market with shares
declining 6.12% or 9.5p to 146p. This was probably driven by the
fact that changes to the dividend strategy as the change will
effectively halve the sum handed out.
It will also seek buyers for its European insurance business
Lombard and Pantheon Financial. Internal changes are also likely
with around 15% savings sought on the cost base and the cost of
developing projects slashed by £20 million. This saving will
be partly achieved by abandoning plans for a wrap platform.
The insurer conducted the review in order to plug a cashflow
problem over the next four years. It has concluded that a cost
cutting exercise is needed and a more tactical approach should be
used to launching new products.
The management will come under questioning for the comment that it
will write new business only 'selectively' under the new
structure, a statement which will be taken in some quarters as an
indication that the elements of the life book are approaching
The group indicated that it is to slash its dividend to bring it
within a range more appropriate to the slimmed firm. It said it
expects to have between £90 million and £100 million to
distribute. In future it will target dividend growth based on
operating cashflow, rather than past patterns. It has however
committed to distribute in full any capital released by the sale of
F&C, Lombard or Pantheon.
The firm is planning to streamline its operation under incoming
chief executive Trevor Matthews who left Standard Life last week.
However, announcing the radical changes Friends made no mention of
the impending threat of a buy-out from private equity giant JC
The group said in its announcement that it will work with the board
of F&C, which has always retained an independent listing, to
maximise shareholder value and avoid disruption to the business.
This will be taken by some as an indication that it will hope to
leave the asset manager intact and not see it broken up through an
F&C has been quick to respond to the news by moving into an
offer period and stating that it has not had any approaches from
potential buyers, killing rumours that groups such as Aberdeen
Asset Management had already targeted the firm.
Friends is announcing the changes alongside new business figures
which will make difficult reading for investors. While profits were
around £300 million a persistency charge of £160
The new business figures were mixed overall and disclosed:
* UK new business up 7% to £4.4 billion
* Group pensions up 14% to £2.6 billion
* Investment down 27% to £501 million
* Lombard down 5% to £1.9 billion
The chief executive of Friends life and pensions business Ben Gunn
conceded the results were mixed.
He said: 'The fourth quarter saw mixed results across our life
and pensions operations.
'In the UK there were headwinds in the key protection market
uncertain housing market, but our leading group pensions business
drive an increase in sales for the year.
'Friends Provident International continued its excellent
momentum with full year sales up by nearly half on last year,
driven by success of savings products in Asia. Lombard sales were
slower than expected in the key fourth quarter as fewer large cases
from the pipeline were completed, so the overall result was lower