10 | BUSINESS REVIEW|
Our strategy
During the year the Board launched a comprehensive review of strategy. In October 2011, the results of the first phase of this review, covering the Group’s corporate functions and institutional business, were announced. The review of strategy for the retail, wholesale, investment trust and property businesses is expected to be announced in May 2012. Strategic objectives announced in the first phase of the review include:
• Generating above-average shareholder returns with below-average volatility; • Achieving competitive scale in areas of strategic focus; and • Creating a stable environment for long-term growth.
In supporting these strategic objectives, the Group has identified the following priorities:
Resolving corporate uncertainty The Board determined that concerns regarding the potential impact of a significant loss of strategic partner assets, together with F&C’s level of expenses and borrowings, were creating uncertainty over the future outlook for the Group. Accordingly, the Board has:
• Provided a profile of strategic partner contract terms and profitability;
• Set out a cost reduction programme to preserve Group profitability in the event that strategic partner assets are withdrawn at the end of their exclusivity periods; and
• Clarified that its objective is both to maximise the retention of strategic partners’ mandates beyond current exclusivity periods and to seek to add new insurance mandates.
Our 2012 priorities are to: • Execute our cost reduction programme; • Grow third-party institutional business; • Develop new product areas for a re-risking scenario; • Maximise the retention of strategic partner assets; and
• Utilise free cash flow, after dividends, to reduce gross and net debt.
Improving financial results The Board believes that the Group’s ability to execute its growth plans will be enhanced with improved profitability and a stronger balance sheet. Specific objectives include:
• Improving dividend cover, to provide shareholders with greater certainty of future payments;
• Providing for consistent investment in new products and distribution over time; and
• Creating the opportunity for improved employee compensation. Our 2012 priorities are to: • Deliver improved underlying earnings per share;
• Invest in core institutional products, which meet the Board’s financial criteria. These criteria include scalability, high operating leverage and low revenue volatility;
• Focus institutional product development on areas with growing potential demand and which meet long-term client needs; and
• Integrate our investment and sales teams, through an enhanced marketing function, to improve product development.
Enhance employee motivation The Board believe that employee motivation can be improved by providing a clear linkage of compensation to individual performance and Group objectives.
Our 2012 priorities are to:
• Revise the Group’s objective-setting and performance appraisal process to set and monitor measurable individual objectives for key employees; and
• Deliver a remuneration structure that rewards employees for meeting individual objectives, whilst linking that reward to corporate earnings.
Improving marketing and product development The strategic review identified a number of changes which could be made to the Group’s marketing and product development functions to deliver improved institutional flows. These include:
• Investment in the sales and marketing functions; • Aligning product development with evolving customer needs;
• Integrating the Group’s investment process with its distribution approach; and
• Clarifying the Group’s approach to each distribution channel. Our 2012 priorities are to:
• Create a formal marketing strategy for the insurance sector and expand our dedicated sales resource;
• Better communicate the Group’s overall positioning in the institutional market; and
• Selectively incubate new products in the wholesale channel for potential transfer to the institutional channel when sufficient track records and scale are achieved.
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