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Standard Life plc (SLFPF.PK)

Q2 2013 Earnings Conference Call

August 8, 2013 06:30 ET

Executives

David Nish - Chief Executive

Paul Matthews - Chief Executive Officer, UK

Keith Skeoch - Executive Director

Analysts

Gordon Aitken - RBC

Andy Hughes - Exane BNP Paribas

Ashik Musaddi - JPMorgan

Andrew Crean - Autonomous Research

Blair Stewart - Bank of America Merrill Lynch

Oliver Steel - Deutsche Bank

Stephen Mitchell - Caledonia Investments

Presentation

David Nish - Chief Executive

Morning and welcome. And it looks like between Aviva and ourselves we’ve managed to coordinate timing a lot better this morning I had to give everyone a chance to get here. And may be just to get through the some admin first of all, in case you don’t know who I am, and secondly obviously, Safe Harbor and all mobiles off and all that sort of good thing.

Obviously I'm joined on stage now by this afternoon by morning still by Paul and Keith and one of the other tasks I’ve got to do amongst the twin-hatting this morning. So I am the both CEO and CFO. And so one of the things we’ve decided to which hopefully be a help this morning is we’ve actually sort of consolidated a lot of the slides to bring together both the financial performance and the business performance together which means it is a shorter presentation in terms of quantity of slides and hopefully everything is slightly tighter together for that.

And it does mean that the slides in some places are not quite detailed and I won’t be covering everything in the slides but I’ll do my best to quote the highlight strong here but is more to give how much more joined up sort of message. .So let me, before beginning just some thoughts on the first six months and how do it and particular how do I see it and how we sort of see the business sort of settling.

I think standing back Standard Life has had a very good first six months in 2013, particularly when you look at Paul and Keith’s business there is really some quite stunning growth numbers coming through. And a lot of this is very much driven by the changes in the marketplace and then it was happening the way we expected them to happen the market has no change in the UK as arrived we seem to have been talking about things that we are into enrollment for years but now with the reality and we’re working through them. And I think very importantly the investments that we’ve made over the last sort of three, four years have been very much well directed, the businesses are delivering and the potential for further growth is incredibly high.

And I think particularly when you look upon things like investment propositions coming through from Keith’s side of the host that demonstrating innovation and understanding the customer’s needs and how then the propositions develop and who not bend lanes off because getting them through the distribution channels. And a lot of folk will talk about to do some broadening at distribution channels tend to be come really truly multi-channel.

I'm still very much with that strong underpinned of a focusing cost management and capital management, there still a lot we believe we can do range about in the cost efficiency of this business, there is a lot we can round about driving the ROE of this business. And we’re hopefully getting to the stages of clarity round about things about regulatory capital. Underpinning and very importantly we continue to invest in our people and very much assigned them for the performance of the last six months there is a lot of really good stuff going on within the organization.

So first of all turning to the financial highlights and operating profit. The Group was up by some 6%, ₤304 million and that was very much driven by strong growth and profitability of both the UK business and Standard Life Investments. As you’ll have seen assets under administration have increased by 7% to ₤233 billion, and within this Standard Life Investments third-party assets under management have grown to record ₤93.4 billion, a rise of over ₤10 billion in the first six months of this year.

I think impressively looking at the growth in assets has been driven Group net flows of ₤6.5 billion in the first six months and we compare that to last year’s obviously well ahead of the first half numbers, but it is also ₤1.5 billion ahead in our full year numbers here from last year. So there is a lot of momentum across the business.

When you look at net flows for third-party business in SLI, these were ₤7.1 billion and are benefiting from the broad product offering, our consistently strong investment performance which I’ll cover later and our continued international expansion. Long-term savings net flows were up ₤8.9 billion, and that was very much driven by Paul’s business in the UK.

When you look at embedded value and embedded value per share grew by nine-tenths and remember this was after paying the fine on the special dividend of 23 pence of the underlying increase in embedded value was on 32 pence during the six months. Often this increase came from EEV operating profit before tax of some ₤465 million and also included ₤201 million of new business contribution an increase of 13%.

And we obviously saw continued good EEV operating cash and cash flow generation of ₤231 million in the six months and I’ll cover that in more detail later. And finally we’re going to start dividend today are 5.22 pence per share a 6.5% increase from last year’s interim dividend and this is very much a continuation of our progressive dividend policy and reflects the confidence we have in the ongoing growth and development to the business.

So when we look at operating profit by business and our business unit operating profit before Group center and financing costs increased by 13% to ₤3 million. This includes a 28% increase in UK operating profit and 37% increase in the operating profits of Standard Life Investments. The UK business is seeing the benefits of all the work we’ve been doing over the past three years to position up for the market and regulatory changes that we now live with. At Standard Life Investments’ performance is based upon a increasing global presence and a strong performance across the Board.

Canada is on the earliest stage in its journey that’s making solid progress. There are no material gains for management actions in our first half profits and we continue to pursue additional management actions in Canada in the second half of the year which have made approximately ₤75 million which we talked about back in March. And then finally in our Asian and emerging markets business we can continue to expand to invest at standard of presence in these markets.

So first of all looking at the bridge in operating profit. A change in pension at closing standards reduces the 2012 comparative figure to ₤286 million while this changes impacted on our operating profit that is new in times from the point of view of economics and the business. Our focus in growing our fee-based revenue continues to deliver results with a 14% or ₤84 million increase in our fee revenue. This was driven by both higher average asset values and the demand for our fee-based propositions. Expenses across the Group remain tightly controlled. Acquisitions expenses increased by just a ₤11 million or 8% despite a 21% increase in sales.

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