04 | BUSINESS REVIEW| Executive Chairman’s Statement
The retail and wholesale market continues to undergo significant change. The end of 2012 saw the implementation of RDR in the UK, with its introduction shifting advisers from commission-based to fee- based business models. In response to these developments we have adjusted the pricing structure on a number of our key products, including the Lifestyle and Multi-manager ranges. Both these products are well positioned in an environment in which advisers increasingly look to outsource the management of client portfolios to dedicated specialists. In addition, we have appointed a Head of our direct-to-consumer business, and we are currently reviewing the product and market opportunities in this area post introduction of RDR. In doing so, we will be mindful of the long-term needs of our clients in any product proposition that we develop.
F&C continues to manage significant assets for a number of strategic partners: Achmea (The Netherlands), Millennium BCP (Portugal), Friends First (Ireland) and Friends Life (UK). These assets principally comprise insurance funds, but also include sub-advised mutual funds and certain pension scheme assets. These are generally long-standing relationships which provided us with exclusivity to manage the assets of the partners for a minimum period of time. However, these exclusivity periods are now nearing maturity.
The Millennium BCP long-term contract terminated in 2011, although we continue to manage the related assets, the majority of which are sourced from an insurance joint venture between Millennium BCP and Ageas. At 31 December 2012, we managed £11.4 billion on behalf of Millennium BCP.
The Achmea long-term contract matures in October 2013; whilst we will retain a portion of the assets we currently manage beyond that date, the final book of assets we will retain is not yet clear. We anticipate further clarity will emerge on the future of this relationship over the next few months. At 31 December 2012, we managed some £22.7 billion on behalf of Achmea.
At 31 December 2012, we managed £21.9 billion on behalf of Friends Life, of which a portion is under contract until October 2014. As previously notified, we anticipate that Friends Life will withdraw some £6.2 billion of fixed income assets during H1 2013 and transfer those to their in-house asset manager. After that withdrawal, remaining Friends Life AUM will be £15.7 billion, of which some £2.4 billion will be invested in fixed income.
We have made considerable progress in streamlining the Group during 2012. We have reviewed and restructured our investment teams and client service areas, resulting in related headcount reductions. We have integrated the former Thames River business into the Group and relocated the Thames River personnel to our London Exchange House premises. We have substantially completed the project work which allows the transfer of our back and middle office to State Street’s strategic platform.
Board changes
Ian Brindle and Jeff Medlock have indicated that, with the turnaround now well underway, they intend to retire from the Board at the Annual General Meeting in May. Ian and Jeff have made significant contributions to the Group and we wish them the very best in their future activities.
Summary
Two years ago I wrote that the Group had many inherent strengths, but that these had not been reflected in its recent financial performance. I believe that the effect of the actions taken during the course of 2012 will continue to result in improved financial performance in 2013 and subsequent years, and the Group now has in place a Chief Executive, management team and the enhanced profitability to capitalize on the opportunities available to it.
As a result of the hard work of restructuring during the last 18 months the Company is now in a position to invest for growth in new markets and capabilities. This task will fall, in large part, to the new management team and in particular to Richard Wilson who became CEO on January 1st. It is the great strength of F&C that it has people of the calibre and experience of Richard to draw on. I have every confidence that they will build on the base that has been established to achieve a leadership position in the industry and greater returns for shareholders.
Edward Bramson Executive Chairman
14 March 2013
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