Review of the Year
The change in strategy explained
Prior to January 2008
Prior to January 2008, our strategy comprised six elements:
- Deliver excellent service and performance by putting customers at the centre of what we do
- Build strong relationships with key distributors to secure profitable growth
- Develop our people and culture in line with our values to focus on the customer and enhance our performance
- Apply technology to improve service, enhance distribution and reduce costs
- Grow our business profitably, targeting markets where we can achieve a leading position
- Diversify our business to improve return, improve cash generation and reduce risk concentration
After January 2008
The first four elements remain unchanged. We will continue to build our reputation for good service, strong relationships, high values and leading-edge technology. But the previous strategy was too capital intensive and was not delivering profitable growth or a reasonable return to our shareholders.
The aim of the new strategy
- To improve cashflow and to reduce the capital intensity of the UK business
- To grow the related international business, which has superior returns, faster than the UK
- To provide improved returns for shareholders
The new strategy
The new strategy builds on our proven strengths and comprises:
- A new trading focus
- A smaller cost base
- A restructured company
- Better financial controls
1. A new trading focus
Our focus is on core segments of the UK and International life and pensions market based on our existing strengths in:
- UK protection market – continuing at least to maintain market share and to continue to enter new segments
- UK group pensions and vesting annuity market – enhancing profitability by ceasing to pay initial commission on new schemes and focusing on acquiring larger schemes
- International savings & investments, pensions and protection markets through Friends Provident International – pursuing growth in markets with attractive margins
- We will adopt a more tactical approach to the marketing of savings and investments and individual pensions in the UK, offering them only when adequate returns are available
- We will no longer seek to build a presence in the UK wealth management sector, including Wrap, other than by manufacturing and administering life and pensions products
2. A smaller cost base
- We will reduce significantly the company's cost base, expecting a 15% reduction of 2007 operating costs by the end of 2009
- In addition, development costs will be reduced by £20m
3. A restructured company
- We will, with their respective management teams, agree strategies for the three Friends Provident group businesses that no longer fit within the new strategy – F&C Asset Management, Lombard and Pantheon Financial
- Any capital that may be released by these strategies will be returned to shareholders
4. Better financial controls
- We have devised a range of financial metrics to provide greater disclosure to our investors enabling them to track our progress more certainly. These include Financial Key Performance Indicators for the company as a whole and at product and subsidiary level
- We will seek to grow dividends in real terms, in line with improved cashflows, from the 2008 rebased dividend level
Impact of the new strategy
"The new strategy repositions Friends Provident towards those areas where it has true competitive advantage – protection, pensions and international life and pensions. A focus on financial rigour will result in a more selective approach to writing new business in the UK. Crucially, these measures, together with rebasing the cost of the dividend to an affordable level, will ensure that the company will be self-financing and will remain well capitalised."
Jim Smart, Chief Financial Officer
