U.K.'s Standard Life Beats Forecasts, Eyes Job Cuts
Insurer Standard Life beat market forecasts on Thursday with a 55% rise in 2006 profit and said it planned a shake-up of its core U.K. business, including 1,000 job cuts to squeeze out more costs by 2009.
In its first full-year results since its July listing, Standard Life said operating profit for the full year came in at 614 million pounds ($1.2 billion) on a European embedded value basis, pushed higher by one-off items including changes to mortality assumptions.
That was well above an average forecast of 497 million according to a poll by Reuters Estimates.
Standard Life underwent a major overhaul ahead of its listing, but the insurer said it planned further changes to its U.K. structure, aiming to reduce underlying costs by a further 100 million pounds per year by 2009, in addition to existing targets, by driving savings within its divisions as well as cutting its headcount.
It said involuntary job losses would be kept to a minimum, with growth and turnover accounting for most of the change.
"I don't want to imply that 1,000 people will be leaving the building soon. This is the impact of requiring 1,000 fewer positions filled in 2009 than would have been the case if we didn't find these efficiencies," Chief Executive Sandy Crombie said on a conference call.
The company employs around 8,500 in the U.K., many at its headquarters in Edinburgh.
Provisions for customers cashing in their policies early have been a major concern for Standard Life, but the former mutual said the trend was improving, after a peak of departures in October, following its listing and changes to pension rules last April which encouraged people to revise arrangements.
The full year lapse provision totalled 207 million pounds for the U.K., after a 100 million pound ($196 million) provision at the half-year stage, while the group-level provision, including a charge for Canada, was 260 million ($509 million).
"We're comfortable at this point in time as we see the data, but we have to expect that there will be some level of churn," or loss of customers, Finance Director David Nish said.
"The most important thing is (whether) we have net positive new business coming in, and that's what we have."
Standard Life shares, up around 26% since its July listing, climbed 2% at the open but pared the gains to trade up 0.4% at 308-1/4 pence.
"It's a mixed set of results. The operating part of the company is improving, though they are coming from a low base," said analyst Raghu Hariharan at Fox-Pitt, Kelton.
"The restructuring is a positive -- they are sending all the right signals, restructuring the business, making it more lean and mean and ensuring they have an efficient platform."
Standard Life said its new business contribution before tax came in at 205 million pounds ($401.8 million), a touch below consensus though up six-fold from just 33 million the year before. Margins were also just shy of forecasts at 1.4% , though the group said it was on track to hit 2% by 2008.
The insurer said it would pay a dividend of 5.4 pence per share for the period since its July IPO, saying this was around half of the total dividend that it would have expected to pay if it had been listed for all of 2006.