Standard Life shares hit a five-year high yesterday as the company said it had invested successfully to prepare for industry changes and could reward shareholders with a 6.5% uplift in the interim dividend.
Issued at 230p in 2006, the shares rose by over 8% to 278p, their highest since October 2007, after Standard smashed half-year forecasts with a 15% rise in operating profit to £302 million, almost 20% above expectations, and a 61% rise in embedded value operating profit to £604m.
Seasoned analyst Barrie Cornes at Panmure Gordon said Standard was "shooting the lights out" thanks to a very strong UK performance, with profits up 62% at £141m, where "the benefits of the cost reduction programme are coming through to a greater extent than we or the market anticipated".
Chief executive David Nish said Standard had adopted a simple business model, and its UK performance "demonstrates the strength and scaleability of our propositions and our brand". He added: "We have delivered increased profits, cash flow and dividends and we are achieving improvements in operational and financial performance."
On the possibility of future job cuts, Mr Nish said employment had been stable in the past year at around 9000 and there were no major new programmes being implemented.
But while assets under administration rose by £6 billion to £204bn, new long-term savings business was down 10% at £10.1bn on the first half of 2011, net inflows were down from £2.9bn to £1.6bn, and Standard Life Investments' net inflows from third parties were down from £2.9bn to £600m. SLI's third party assets however grew by £2.5bn to £74.3bn.
Overseas, Standard's Canadian business saw operating profit fall 30% to £72m, while its businesses in Germany, Ireland, India and China lifted total pre-tax profits by 47% to £28m.
Jackie Hunt, finance director, said fee-based revenues now accounted for 78% of the total. Cash flow generation was up by 53%, and the IGD capital surplus was steady at £3bn after paying a 4.9p interim dividend, a rise of 6.5%.
Mr Nish said the arrival of auto-enrolment into pensions at work and the new era of commission-free financial advice presented opportunities for Standard, which had stopped using commissions to buy new business over five years ago. Asked whether Standard's rivals would catch up once the new advice regime got under way, he said: "I believe it is a sustainable advantage ... it is about how we look at our relationships with advisers and customers."
He added the last few months of the existing regime was seeing "competitors throwing commission at the market-place".
Asked by The Herald whether Standard would need to review its charges on old pension policies, in response to the industry initiative, Mr Nish said: "Standard Life did a major repricing of a lot of its pension plans several years ago, we are comfortable we are a competitive player and a low-cost provider."
He added: "I think there is more that the industry will need to do, we are very supportive of the drives towards greater transparency."
On the future of financial advice and savings options at work , Mr Nish said he could foresee the arrival of "mini wealth platforms in the workplace – that is what we've been trying to do".
Christopher Esson, analyst at Credit Suisse, said there was a "lack of momentum" in sales, inflows and asset growth in a tough environment, adding: "Further share price gains from current levels will depend on how much further room to manoeuvre there is on cost efficiency, and an improved outlook for flows and AuM (assets under management."
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