A Long Standard Life

I soon found a good example to illustrate my short term vs long term forecasting point. Standard Life reported their 2007 results this week and left many analysts gasping by the strong out performance - EEV operating profit up 43%, new business contribution up 68%, diluted IFRS underlying EPS up 53% were the best indicators with all financial targets being exceeded. Mind you it is a wonder anyone tries to forecast the results for life companies given the complexity and reporting under two separate bases; European Embedded Value (EEV) and traditional accounting (IFRS). In addition results are greatly impacted by assumptions about future investment returns, discount rates, mortality rates, policy lapse rates and so on.

However despite these strong results analysts were then left very perplexed by the meagre 6.5% increase in the cash dividend announced. Yet you didn't have to dig very deep through the presentation slides to find the answer. Management noted that "normalised" IFRS profits (excluding all movements on reserves and provisions) increased by 7%. So whilst management did indeed pull a rabbit out of the hat for 2007 they have clearly shown a desire to set a precedent for dividend increases they regard as sustainable over the longer term. And of course life companies are used to thinking in that way.

It was also encouraging to see how management are focused on improving capital and cash generation (EEV capital and cash generation after tax up 129%) and exceeded all their efficiency targets. All good for Shareholder Value.