Standard Life enjoyed another good year in 2015, with assets under administration (AUA) increasing by 4% to £307.4bn, including net inflows of £6.3bn and positive market movements of £4.5bn. Group underlying performance increased by 12% to £630m, allowing the group to continue its progressive dividend policy, increasing the full year payment by 7.8% to 18.36p per share. The shares rose by 2% in early morning trading.
- Fee based revenue up 10% to £1,579m, representing 94% of underlying income
- Group underlying cash generation up 7% to £447m
- The Group remains well capitalised with a stable Group Solvency II capital surplus of £2.1bn, representing a Group solvency cover of 162%
Standard Life Investments continued to deliver good investment performance and saw total assets under management (AUM) increase by 3% to £253.2bn, with strong growth in international wholesale and institutional channels. Third party investment performance was ahead of benchmark for 88% of Standard Life funds over 1 year, 95% over 3 years and 90% over 5 years. Underlying operating profit rose by 33%, benefiting from a continuing shift in mix towards higher margin products.
UK Pensions and Savings AUA rose by 3% to £131.6bn, benefitting from a 9% increase in regular contributions into Workplace pensions, growth in Wrap platform assets (+22%), and strong demand for income drawdown (AUA up 18%). However, underlying operating profit fell by 4.6%, partly due to a 68% reduction in annuity sales as a result of the 2014 Budget changes.
Europe operating profit reduced to £23m (2014: £40m). India and China associate and joint venture life businesses operating profit rose to £27m (2014: £23m).
Keith Skeoch, Chief Executive, commented:
"While the difficult conditions in global financial markets may persist for some time, Standard Life remains well positioned... We have a well-diversified and resilient business that continues to deliver for customers and clients as well as shareholders"
Standard Life has transformed itself over the last fifteen years or so from a traditional life insurer to a fee-based asset manager. The group now has two main business lines - Standard Life Investments (SLI), which offers a range of active and passively managed funds; and a UK savings and pensions business. The latter includes the wrap platform for financial advisers and the group's corporate pensions proposition, both of which provide a strong distribution platform to channel inflows into SLI.
Standard Life is benefitting from some favourable trends, such as the on-going shift from defined benefit to defined contribution pension schemes, and auto-enrolment (by 2018 all UK employers will need to provide a qualifying workplace pension for eligible employees). The group added over 250,000 new auto enrolment customers during 2015, taking total joiners to over 820,000.
Standard Life's annuity sales were sharply lower in 2015, as a result of recent pension reforms. However, these changes could benefit the group in the long run, by increasing demand for alternative pension arrangements such as income drawdown. This should allow the company to retain more assets on its platform when people come to retirement.
The shares have been weak over the last 6 months which probably reflects declining stock markets and increased volatility; neither of which are helpful for this business. It may also reflect some concern over proposed changes to pension tax relief for higher earners, ahead of the 16 March 2016 Budget. Changing regulation is a risk for Standard Life; but the need for individuals to save more towards their own retirement isn't going to go away.
The shares now offer a yield of 5.8% for FY16, rising to 6.4% by FY18, on current analyst estimates. We view this yield as attractive, especially given Standard Life have increased their dividend every year since its stock market flotation in 2006.
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