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Friends Provident Strategic Review by liuhongmei


									Slide 1

            Friends Provident Strategic Review

          Strategy to enhance profitability and disclosure

                            31 January 2008
Slide 2

                             Sir Adrian Montague
                             Executive Chairman


Good morning ladies and gentlemen, and welcome to today’s presentation,
which we will devote almost exclusively to our strategic review and its broad
outcome. Jim Smart will talk you through the majority of the presentation and,
as he does, I believe you will see that we have done what we set out to do.
Our aim has been to restructure the group in order to maximise value for our
shareholders, and we believe our new strategy will achieve this objective.

In carrying out the review, we have analysed every aspect of our business –
nothing ruled in and nothing ruled out. What will emerge is a business that will
be streamlined, focused, self-financing and capable of growth. A business that
is built around our proven strengths and that will adopt a more selective
approach to the marketplace, firmly placing profits ahead of volumes. A
business that will introduce a new level of transparency over financial
disclosures and a business that, we believe, merits renewed confidence in its
future prospects.
Slide 3

                 Strategy to enhance profitability and disclosure
                 Conclusions of the strategic review                                       Impact

   •   Focus on the core strengths of manufacture and administration of
       life and pensions products in the UK and related offshore markets
          –   Protection – continue to grow and enter new segments           •   Renewed focus on core
                                                                                 businesses, leveraging
          –   Group pensions – enhance profitability by focusing on larger       strengths in technology, service
              schemes and capturing annuities                                    and distribution
          –   Friends Provident International – pursue growth in overseas
              markets with attractive margins                                •   15% reduction in cost base
   •   Stop the wrap platform development
                                                                             •   IRR improved by at least
   •   Pursue substantial cost reductions across the business                    2 percentage points
   •   Increase disclosure
                                                                             •   Enhanced disclosure enabling
   •   F&C, Lombard and Pantheon Financial – attractive businesses,              shareholders to better assess
       but do not fit the long-term strategy                                     progress

                                                                             •   Prioritisation of profitability and
                                                                                 re-based dividend cost means
                                                                                 the Group is self-funding


There is still a great deal of detail to be worked through but these are the
broad foundations we will be building on.

Over recent years, and in difficult market conditions, we have built an
expertise in the manufacturing and administration of life and pensions
products, both in the UK and increasingly overseas, all underpinned by
superior systems and service. As a result, in the UK we now have a strong
presence in protection and group pensions, and these two segments will form
the core focus of our UK-facing life and pensions business. We will be
adopting a more tactical approach to other market segments, competing only
where there are good prospects of reasonable returns.

The development of Friends Provident International is another ongoing
success story. It dovetails uniquely into our UK business, enabling it to export
product and systems know-how to international markets, where greater profits
can be made and where there are more certain growth opportunities than in
the UK. Expanding this side of our business will be our priority.

The strategic review has proved that it was uneconomic for us to continue our
strategy of seeking to build a presence in wealth management from our
current market position. In wraps, we are seeing a falling margin trend and
less certainty over potential revenues. We have therefore concluded that a
clean break from wrap development is the right thing to do.
We have also demonstrated an ability to develop efficient systems and
processes to control our costs, and we will further apply those skills to
reducing significantly our cost base, aligning it to the new shape and structure
of the company. By the end of 2009, our objective is to have reduced the
2007 cost base by 15%.

Overall our plan is to improve internal rates of return by 2 percentage points.
These, and the other financials that will provide the navigation lights for our
future progress, will be more fully disclosed. We will also rebase the overall
cost of the dividend, and offer the prospect of real terms growth, and I will
expand on this at the end of the presentation.

In the light of the new strategy, the arguments for our ongoing association
with F&C, Lombard and Pantheon Financial are now less compelling, but we
recognise that all three are very good, profitable businesses. We will
therefore, with their respective management teams, be devising appropriate
strategies for each of them, the overriding objective being to create value for
our shareholders.

So in summary, these are our strategic priorities. To build on what we are
good at, to play for profit and so to boost the key financial drivers of the
business, to extend our international reach, and all from an efficient and
appropriate cost base. To live within our means, increasing cash flows and
creating value for our shareholders. And to do it all in an open and transparent
way to allow a greater understanding of our business.

Let me now hand over to Jim to flesh out some of the detail, after which
following some closing words from me, I shall open the meeting up to your
Slide 4

                    Jim Smart
              Chief Financial Officer

          Life & Pensions Strategy
Slide 5

                                 Aims of our strategy
              •   Focus on core businesses
                   – Protection – continue to grow and enter new segments, leveraging
                      investments in distribution
                   – Group pensions – enhance profitability by focusing on increasing
                      acquisition of larger schemes and ceasing to pay initial commission on new
                   – Annuities – leverage position in group pensions to increase capture of
                   – Friends Provident International – pursue growth in overseas markets with
                      attractive margins (Middle East, Asia, Continental Europe)
              •   Pursue substantial cost reductions across the Group
              •   Enhance overall IRR by 2 percentage points
                   – Potential upside from improving UK economics and faster growing
                      International business
              •   Increase disclosure
              •   Re-base dividend cost to sustainable level in 2008 and grow in line with
                  cash flows

                                      Focused, self-funded strategy
                       with strong solvency and scope to fund international growth


Thank you Adrian and Good Morning

Adrian has set out the overview of the strategy. It is the right strategy for this
business and one which we are confident we can deliver

Let me just explain the aims of our strategy before taking you through each
area in turn

We intend to focus on our key strengths of manufacturing and administering
life and pensions products.

In the UK business we have two markets in which we have undoubted
competitive strengths: protection and group pensions. Each has its own
attractions. In protection, our systems and efficiency will allow us to defend
market share and grow by continuing to enter new segments. In pensions we
have built a good market presence with our efficient systems and service
standards. We intend now to improve profitability by focusing on acquiring
larger schemes and ceasing to pay initial commission for new schemes.
Importantly, these businesses open up opportunities to capture value in the
very profitable areas of selling annuities and of pursuing growth in related
overseas markets where margins are much more attractive.
While focusing our efforts on the core strengths, we will pursue substantial
cost reductions across the Group. This together with being more selective in
writing more profitable business in the UK and growing faster in FPI, will
improve returns. We believe that the measure of the value of this strategy is
that, once implemented, it will add around 2 percentage points to new
business IRR. This we believe will result in attractive returns from the
portfolio as a whole. By way of reference, the portfolio IRR was 12.7% in

To enable shareholders to assess the value of our business and to track
progress in delivering our strategy we are committing to provide increased
disclosure of the economics of the business and of our products.

Finally, we have addressed the cash position. By being more selective about
writing new business, by reducing commission costs and by reducing
operating expenses, we can generate positive net cash flow from the UK
business for the first time in some years. But to make the strategy
sustainable we have concluded that it is necessary to rebase the dividend to a
level that is commensurate with the dividend paying capacity of the life &
pensions business. We will reduce the dividend cost in 2008. But from this
level we will aim to grow dividend in line with cash flows. This offers the
prospect of dividend growth in real terms: an objective we have not been able
to deliver before.

The strategy thus results in a business focused on areas in which it has
competitive strength, with a strong capital base and able to fund its UK and
International growth from its own resources.

Turning to the product areas in turn
Slide 6

                                UK Life & Pensions – Protection
                            Market share (by APE)                                     Strategic conclusions
                                                                      •   Competitive strengths
                                                                           – Efficient systems keeping unit costs low
       10%         Individual        Group
                                                                           – Superior customer service
                                                                           – Enhanced insight into market requirements
       6%          7.6%             7.6%       7.8%            7.5%          through position in distribution
       4%                                      2.5%            2.3%   •   Profitability improved by reserving changes
                   1.0%             1.2%                                  (PS06/14)
                                                                      •   Competitive market with reasonable medium-term
       0%                                                                 growth prospects
                  2004             2005      2006             2007E   •   Provides technology platform to sell products in
                                                                          International growth markets

                     Financial characteristics –    2006
                                                      £m                             Strategy and objectives
             In Force Surplus                         102
                                                                      •   Foundation of the UK strategy
             New Business Strain                      (129)
                                                                           – Further enhance competitive edge by entering
             Net Cash Outflow                         (27)                   new market segments
                                                                           – Maintain market share in individual and grow
             VNB                                       32                    share in group
             IRR                                       9%
             Payback                                                       – Benefit from investments in distribution
                                                    9 Years


In a highly competitive market, we have successfully defended our share in
individual protection and have grown by entering other segments such as
group business.

This is delivered by Friends Provident’s competitive strengths in efficient
systems and in superior customer service. Our ownership of Sesame also
gives us insight into how we can improve our systems and products to make
our offer more attractive to all intermediaries.

The business was not hugely profitable in the past but, following reserving
changes the IRR and new business strain have improved significantly.

Although there are short term risks, we see opportunities to grow the business
in the medium term. The UK business also gives us the ability to sell these
products into international markets. Finally, the intermediary distribution
infrastructure which the protection business provides can also be used to sell
tactically Savings & Investment products where this can be done profitably.
Slide 7

                              UK Life & Pensions – Pensions
        Pensions – asset under management (£m)                                Strategic Conclusions
                                                          •   Leading position established in rapidly growing group
                                                7,500         pensions market
                                                               – High service quality and superior technology
                                 5,488                         – Strong relationship with key distributors

                     3,732                                •   Unacceptable recent financial performance

       2,345                                                   – IRR of 9%
                                                               – Cash payback of 17 years
                                                          •   Leverage franchise strength to enhance product profitability

    Dec. '04      Dec. '05     Dec. '06        Dec. '07
                                                                              Strategy and objectives
                                                          •   Group pensions
          Financial characteristics   – 2006
                                                               – New schemes: focus on increasing acquisition of larger schemes, ceasing
                                            £m                   to pay initial commission on new schemes, and capturing greater share of
  In Force Surplus                             21                flow on annuities
                                                                    •   Lower new business strain
  New Business Strain                      (126)
                                                                    •   Reduce payback
  Net Cash outflow                         (105)
                                                                    •   Improve returns
  VNB                                        53
  IRR                                                          – Revised strategy for group pensions is more affordable
  Payback                                 17 years             – Provides platform to sell products in International growth markets
                                                          •   Individual pensions
                                                               – Leverage the same technology and service advantage
                                                               – More selective about the business


In pensions, we have a leading position developed as a result of our high
quality service and superior technology. We have been successful in growing
assets under management which now stand at £7.5bn, an increase of 37% in

But it is no secret that its economics are weak with 2006 IRR of 9% and Cash
Payback of 17 years. We will do the things within our control to improve
economics: seeking larger schemes which are more efficient to administer
and ceasing to pay initial commission on new schemes. We believe this
strategy will reduce costs considerably and is capable of improving IRR to
around 11%. We aspire to improve this further but, realistically, improvement
will be limited by current market pricing. We will monitor the development of
this market carefully.

But there are associated benefits which are not captured by this IRR
measure. The pensions book generates vesting annuities which are very
profitable. The reputation and expertise we gain in the UK directly lead to
opportunities to sell retirement savings overseas where margins are much
better. For example, we recently launched in Germany. This contributed 4%
of FPIs new business in 2007. Finally, we will use the pensions platform to
compete selectively for individual pensions where this can improve overall
In summary, therefore, we can make the business more profitable. And by
reducing commissions and acquisition costs significantly, we cut new
business strain by around half making competing in this market affordable
within the group’s own resources.
Slide 8

                             UK Life & Pensions – Annuities
                                                                       Strategic conclusions
                                                     •   Group pensions customers will ultimately buy an annuity
                                                     •   Internal vestings have lower acquisition costs relative to
                                                         an open market offer
                                                          –Allows Group to offer competitive rates
                                                     •   Over 40% of customers with vesting pensions currently
                 Financial characteristics – 2006        buy an annuity
                                                     •   Cash generative business
       In Force Surplus                        21
       New Business Strain                     (4)
       Net Cash Inflow                         17
                                                                      Strategy and objectives
       VNB                                     13
                                                     •   Continue to take advantage of efficiency to offer
                                                         competitive rates

                                                     •   Growth vestings from the group and individual pensions

                                                     •   Aspire to increase current take-up rate


Our annuity business focuses on internal vestings from our pensions book.
We can offer competitive rates since we avoid the high acquisition cost an
open market offer would imply. We currently sell annuities to over 40% of the
customers who save with us for a pension. This business is profitable and
cash generative.

We aim to use our efficiency to continue to offer competitive rates, and,
through the pensions book, we aim to grow the amount of vestings and to
increase the take up rate.
Slide 9

                       Capturing international growth with FPI
               Strong growth since acquisition (APE in £m)                              Strategic conclusions

                                                                        •   Successful track record in establishing presence in
                                                      +59%                  high growth, high margin markets
                                                                        •   Strong synergies with UK Life & Pensions
                                          +17% 117                           – Ability to leverage IT systems and product
                 +6%           +35% 100                                        development
          70              74
                                                                             – Benefit from the Group’s business and reputation
                                                                             – Uses intermediary servicing expertise
                                                                             – Leverages shared cost base
                                                                        •   Excellent profitability
          2003         2004        2005        2006              2007
                                                                        •   Attractive cash payback

                       Financial characteristics – 2006

                                                          £m                             Strategy and objectives
       In Force Surplus                                   61            •   FPI to be a growth engine for the Group
       New Business Strain                                (25)          •   Build on franchise and market position, expanding
                                                                            in Middle East, Asia and Continental Europe
       Net Cash Inflow                                    36
                                                                        •   Will require modest cash investment funded by
       VNB                                               26                 enhanced cash flow profile of the UK business
       IRR                                               20 %
       Payback                                        6 years


Friends Provident International has a consistent record of growth and has
extremely attractive returns with high IRR and fast cash payback.

It is however important to understand the fact that this business only thrives
by its association with our UK business. It shares IT, hence reducing cost. It
benefits from the UK expertise in product development and in servicing

We believe that FPI can be a growth engine for the group, benefiting from
growth in existing markets such as in Asia and by expanding in FPI’s newer
territories such as the Middle East and Continental Europe.

The organic growth can be funded by FPIs own resources with only modest
additional investment from the UK. But importantly the new strategy frees up
resources within our shareholder funds to invest further in new products and

Our objective will be to grow this business faster than the UK business. In
this way, the overall IRR from the portfolio will continue to improve.
Slide 10

                                                      Cost base reduction
                             2007 Cost base (£m) (1)                                   Overall description

                                                                        • Acquisition and maintenance costs of £272m
                                                                          and development spend of £48m
               320               58
                                 18                                     • £40m of acquisition and maintenance expense
                48                                                        savings to be achieved by end 2009
                                 40          262             262
                                              30                        • Planned headcount reductions of 600 FTEs

                                                                        • £18m development spend relating to Wrap platform
                                                                          saved, with £20m of the remainder reclassified as
                                                                          maintenance expenses
                                             232                        • Total implementation costs of £60m in 2008

                                                                                   Description of cost savings

                                                                        • Distribution repositioned to support more selective,
                                                                          specialist proposition
             Current          Savings     Pro forma    Re-classified
                                                                        • IT savings, including outsourcing
                         Developm ent costs
                         Acquisition and maintenance costs              • Business support functions

                                                                        • Others, including procurement

                                                                        • Wrap platform discontinued
        (1) Excluding Lombard and F&C


The business previously aspired to grow the business while keeping the cost
base flat. Our new strategy takes a different view. We will seek to reduce the
cost base. We will seek savings of at least £40m from the operating cost
base. The decision not to develop a wrap platform will also save at least
£18m from development costs.

We have historically had an annual development cost of at least £20m. In
reality this has been largely used to maintain competitiveness in existing
products and markets. We intend to adopt a more prudent approach to
accounting for this and to recategorise around £20m as acquisition and
maintenance costs. This will reduce EV and reported IRRs but we feel it is a
more appropriate categorisation. In future, development costs will be
demonstrably for new products or markets and we will disclose the rationale
each year.

The targeted cost savings will be delivered by the end of 2009 and will entail
around £60m of implementation costs in 2008. Savings will come from across
the business reflecting a more focused business with simplified processes.
Slide 11

                                   Overview of revised strategy
           Before                                  Strategic conclusions and actions                                    After

                             Protection    • Strong market share and competitive edge
                                           • Cash generative
                                           ⇒ Cultivate key strengths                                           • Resources focused on
   • Limited resources                                                                                           core UK and
     stretched over many     Pensions      • Leading position in strongly growing market                         International
     businesses                            • Cash consumptive with low profitability                             businesses…
                                           ⇒ Focus on larger schemes, and cease to pay initial
                                             commission on new schemes                                         • …leveraging key
   • Important competitive                                                                                       competitive
     advantages –            Annuities     • 40% vesting customers conversion rate                               advantages – superior
     technology, service,                                                                                        technology, service
                                           • Cash generative
     distribution                                                                                                and presence in
                                           ⇒ Cultivate cross-selling from pension customers
   • Unaffordable cost       Investments   • Poor profitability and significant cash consumption
                                           ⇒ Write business selectively                                        • Cost base resized to
                                                                                                                 support the business
                                           ⇒ Develop attractive new products
   • Primarily focused on                                                                                      • Primarily focused on
                             FPI           • High growth, strong profitability
     sales growth and                                                                                            profitability and cash
                                           • Strong synergies with UK Life and Pensions
     embedded value
                                           ⇒ Expand and develop business                                       • IRR enhanced by at
                                                                                                                 least 2%
   • Limited disclosure      Cost          • High cost base not affordable by more selective proposition
                                           • Savings possible in distribution, IT, business support and wrap   • Superior disclosure
                                             development, among others
                                           ⇒ Pursue substantial cost reductions across the Group


In overview, we were a business with limited resources stretched too thinly
but with real competitive advantages which arguably were not being fully

By implementing the conclusions of the strategy: cultivating our key strengths
in Protection, improving pensions profitability, growing annuities, writing
investments selectively, expanding FPI and reducing costs. By doing this we
can make this a business which focuses its resource on areas of competitive
strength, which leverages them into related areas, which has an efficient and
affordable cost base, which focuses on profitability and cash, which enhances
its profitability and which gives superior disclosure to explain performance.
Slide 12

                                                             Annual cash flows
                                               Group cash flow (£m)                                          Conclusion of strategic review

                             2006 actual                      Illustrative cash profile of new strategy   • UK in force surplus
                                                                                                                 –    Enhanced by cost savings
                                                                                                                 –    Potential for £10m to £20m
                                                                                                                      growth p.a.
                                                                                                          • UK new business strain cut
                                                                                                                 –    Less commission
                                                                                                                 –    Acquisition costs reduced
                                                                                                          • International
                                                                         (100) (10)
                                28                                                                 0             –    Modest investment for organic
                      34                                                                                              growth
                                                                                                                 –    Shareholder funds to finance
                                                                                                                      periodic additional investment
                                                                                                          • Shareholder funds invested in cash
                                                (164) (98)                                                  and bonds
                                                                                                          • Dividend cost rebased to affordable
    UK        UK      Intl     F&C SH & Divi-        Net           UK UK       Intl SH & Divi- Net          level
    IFS      NBS                    Tax dend                       IFS NBS          Tax dend

        Cash inflow             Cash outflow


But more importantly we can deliver these outcomes while living within our
own resources.

You will recognise the cash disclosure on the left from my 2006 prelims
presentation. This showed a UK business with an in force surplus of £160m
but spending £295m in new business strain to grow sales. Minor
contributions from International, F&C and shareholder funds were insufficient
to pay for this and the dividend cost which was beyond the means of the

Our strategy addresses these issues.

It is important to reflect that cash flows in any one year are inherently volatile
depending as they do on statutory reserving calculations and on investment
returns. The chart on the right however is illustrative of what we believe to be
the typical cash flows if the strategy were fully implemented. My purpose is to
demonstrate that the strategy is self financing and that the Group does not
need to have recourse to the debt or equity markets to fund growth.

UK in force surplus is reduced by PS06/14 which accelerated into 2006 and
2007 a substantial amount of what would have been surplus released each
year. It is also reduced by the lapse experience which we have disclosed
today. We think it would be around £160m now if the strategy had been
implemented and maintenance cost reduced.

New business strain would have reduced to around £200m as a result of
PS06/14 which reduces the need to set up so many statutory reserves. The
new strategy will roughly half this by reducing commission cost and by
slimming down the sales and marketing operation to focus on a smaller
number of intermediaries.

Thus the UK business would be expected to show a cash inflow. If we can
succeed in growing protection, pensions and annuities the inflow should
increase this by £10m to £20m a year giving the UK an increasing surplus

The international business should require only modest investment beyond that
funded by its own in force surplus. Periodic additional investment can be
financed by Shareholder Funds.

Shareholder funds and tax should give an expected return of £50m a year.

This gives a dividend paying capacity of around £100m. The dividend cost is
currently around £180m having increased with the additional shares issued in
settlement for the convertible bond. This will be rebased in 2008 but, if we
can grow cash flows, we will be able to increase the dividend.

Importantly, we have no requirement for new debt or equity and capital is
freed up to invest in further growth.
Slide 13

                                EV assumption changes
              •   Commitment to keeping assumptions in line with experience and disclosing sensitivities
              •   Persistency assumptions
                    – Bonds – closed products
                    – Group pensions lapses – 3% p.a.
                    – Charge of £160m to EEV underlying profit expected
              •   EEV Underlying profit would be £300m reflecting persistency and results
              •   Expense assumptions
                    – Development costs – tighter definition for new products and markets only
                    – Include £20m as maintenance and capitalise in the EV
                    – Corporate costs – attribute all to Life and pensions business
                    – Further £6m capitalised in the EV
                    – Total expense assumption change around £280m
              •   EEV underlying profit estimated at around £20m after expense assumption changes
              •   Taxation
                    – Reduce UK tax rate to 28%
                    – Provide for UK tax rate on International EV
                    – Charge of £70m

                                  New assumptions create more prudent EV


We are committing to keeping our operating assumptions up to date with
experience and disclosing sensitivities so shareholders can take their own
view of the value of the business.

In 2007 we will have a considerable charge for persistency in our closed
investment book and in Group Pensions. This will lead to a pre tax charge of
£160m and hence an underlying trading profit of around £300m on an EEV

In addition we will rebase the Embedded Value for our more prudent
approach to capitalising development costs. We will also allocate all
corporate costs to the life and pensions business and hence capitalise a
further £6m. This reduce EV by £200m. The pre tax equivalent of £280m will
be charged to Underlying Profit on an EEV basis. On a reported basis, this
will therefore be around £20m

Finally we will be more prudent by allowing in full for UK taxation in our
International businesses hence reducing Embedded Value by £70m.

In sum, we believe this approach creates a more prudent embedded value
Slide 14

                              Enhanced disclosure

             • For all product categories, we will provide enhanced
               – Cash flows
               – IFRS - preferred measure of performance
               – EEV - operating assumptions and sensitivities
             • Enhanced disclosure will allow shareholders to better
              assess value and judge progress in our strategy to
               – Improve cash flow of the UK business
               – Improve profitability in the UK
               – Grow the International business faster than the UK


Finally, we recognise that shareholders need more information to judge
performance. No one measurement approach can capture the complexities of
Life & Pensions performance. But we are committed to addressing this where

We are committing to provide more information product category by product

We will disclose product cash flows, IRR and cash payback.

We will give IFRS results for each product category and this will be our
preferred measure

We will give Embedded Value metrics for each product category and give
maturities, operating assumptions and sensitivities

We believe our enhanced disclosure will allow shareholders better to assess
the true value of the business and better to track progress in delivering our

In financial terms this will allow us to demonstrate that we are improving the
cash flow characteristics in the UK, that we are improving the profitability of
new business in the UK and that we are growing the International business
faster than the UK. These will be our financial measures of success and we
are committed to delivering them
Slide 15

                   Sir Adrian Montague
                   Executive Chairman

                 Concluding Remarks

Thank you Jim.
Slide 16

                              Focus on Life & Pensions

               Strategic conclusions                 Strategy and objectives

        • There are three attractive             • Seek to maximise value for
          businesses within Friends                shareholders
          Provident’s portfolio that no longer
          fit with our longer-term strategy      • Work with respective
                                                   management teams to
             – Lombard                             establish strategies for
                                                   achieving this without
             – F&C                                 disrupting the businesses
             – Pantheon Financial
                                                 • Any capital released will be
        • These businesses are growing and         returned to shareholders
          remain attractive


Let me first of all reiterate the position regarding F&C, Lombard and Pantheon
Financial. All three are quality businesses, profitable, and open for business
as usual. The fact that their fit with our new strategy is less comfortable takes
nothing away from them. They are valuable businesses and our objective is
both to protect value within those businesses and create value for our
shareholders from the eventual outcome. We cannot be precise about the
mechanics, and will be working closely with the management teams of all
three to establish the way forward.

Just a couple of words to emphasise the quality of the two larger businesses.
Lombard has carved out for itself a truly unique position. It has fiscal expertise
that spans international borders, and it has developed solid relationships with
private banks and other intermediaries serving the high-net worth community.

Lombard’s growth over recent years has been very strong, and there is no
reason why this should not continue over the long-term, given the depth and
breadth of the markets it is facing into.

With F&C, we have said before that we have supported their three-year
strategy for turning the business around and are very satisfied with the
progress they have made to date. We have concluded that we can still work
closely with them, co-operating on product design and development for
example, without necessarily having the level of shareholding we currently
hold. We also have long-term fund management agreements in place to
protect their relationship with us.

If capital is released in respect of any of these three businesses as a result of
the plans we develop for them, it will be returned to shareholders.
Slide 17

                                     Dividend policy

                  • 2007 final dividend in line with current policy

                  • 2008 dividend cost re-based to affordable level

                  • Any future release of capital will be returned to shareholders

                  • Dividend per share decision in due course will take account of
                    affordable level and capital returned

                  • Future policy is to increase dividends in line with cash flows –
                    this provides prospects of dividend growth in real terms


Turning to the dividend, there will be no change to our dividend policy until
after the final dividend for 2007 has been paid in May this year. Thereafter,
our intention is to rebase the overall cost of the dividend to a level that reflects
the dividend paying capacity of the Life & Pensions business, which we
consider to be around 100 million pounds. Predicting what the dividend per
share number will be for 2008 is not something for today, but that decision will
of course be influenced not only by the affordability factor but also by what
capital, if any, has been released and returned to our shareholders. Looking
further ahead, by living within our means, we will generate funds to invest in
the growth of FPI, and so improve the cash flow, from which dividend growth
can be paid. We expect to grow dividends in real terms – something we have
not been able to do previously. The growth in cash flows can be taken as a
proxy for dividend growth prospects, which are certainly better than we have
had in the past.
Slide 18

                Strategy to enhance profitability and disclosure
                   Outcome of the strategic review                                               Impact

   •    Focus on the core strengths of manufacture and administration of life
        and pensions products in the UK and related offshore markets            •   Renewed focus on core businesses,
                                                                                    leveraging strengths in technology,
                                                                                    service and distribution
           –   Protection – continue to grow and enter new segments
                                                                                •   15% reduction in cost base
           –   Group pensions – enhance profitability by focusing on larger
               schemes and capturing annuities                                  •    IRR improved by at least
                                                                                    2 percentage points
           –   Friends Provident International – pursue growth in overseas
               markets with attractive margins                                  •   Enhanced disclosure enabling
   •    Stop the wrap platform development                                          shareholders to better assess progress

   •    Pursue substantial cost reductions across the Group                     •   Prioritisation of profitability and re-based
   •    Increase disclosure                                                         dividend cost means the Group is self-
   •    F&C, Lombard and Pantheon Financial – attractive businesses, but do
        not fit the long-term strategy

                                         We are resolved to deliver prompt results


So I end with the slide I started with, summarising the key elements of our
strategic review and their planned impact. We believe that the strategic review
was necessary, and yet painful, but that the outcome repositions Friends
Provident very positively, such that we can have confidence in its future. This
‘root and branch’ review has enabled us to put in place a long term,
sustainable, capital structure and dividend policy, supporting the Group’s
further growth. The company is refocused, with the prospect of becoming self-
financing, and capable of funding further investment, particularly in profitable
international territories. We have a strategy that, we believe, will achieve our
aim of maximising value for our shareholders.

And, of course, we are simply delighted that Trevor Matthews will be joining
us to lead us forward from here. This in itself is an important expression of
confidence in the business and its new strategic direction, and the whole team
is looking forward very much to working with him. Trevor’s belief in, and
support for, this new strategy was of course central to his decision to join us.
His track record speaks for itself, and he brings with him precisely the skills
and experience that marked him out as an outstanding contender for the top
job at Friends Provident.
This of course is just the start - the foundation - but we intend to build on it,
and deliver to it, as swiftly as we can.

Thank you. Before we take your questions, let me introduce those colleagues
who are on hand to help us respond. We have Ben Gunn, chief executive of
Life & Pensions, Alain Grisay, CEO of F&C, Rocco Sepe, Managing Director
of our international operations, and Simon Clamp, MD of UK Marketing and

Slide 19

                Certain statements contained in this announcement constitute "forward-looking
                statements". Such forward-looking statements involve risks, uncertainties and other
                factors, which may cause the actual results, performance or achievements, from time
                to time, of Friends Provident plc, its subsidiaries and subsidiary undertakings or
                industry results to be materially different from any future results, performance or
                achievements expressed or implied by such forward-looking statements. Such risks,
                uncertainties and other factors include, among others, adverse changes to laws or
                regulations; risks in respect of taxation; unforeseen liabilities from product reviews;
                asset shortfalls against product liabilities; changes in the general economic
                environment; levels and trends in mortality, morbidity and persistency; restrictions on
                access to product distribution channels; increased competition; changes in customer
                attitudes and trends in distribution; and the ability to attract and retain personnel.
                These forward-looking statements are made only as at the date of this announcement
                and, save where required in order to comply with the Listing Rules, there is no
                obligation on Friends Provident plc to update such forward-looking statements.


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