The firm’s European Embedded Value profits of £420m were up significantly on the low figure of £16m because 2007 profits were distorted by £473 million of charges for assumption changes.
Against International Financial Reporting Standards Friends’ 2008 profits were down from £44m in 2007 to £27m in 2008.
Its loss before tax on an IFRS basis was £871m. This accounts for a £217m increase in corporate bond reserves, a £264m impairment in F&C’s assets, £154m for losses attributable to a minority interest in the F&C Commercial Property Trust and £78m one-off costs for the implementation of its strategy.
Friends’ capital position deteriorated from £1.3bn at the end of December 2007 to £800m in February this year, which it attributes mainly to market conditions.
Despite this, it has 290 basis points set aside for default, or £500m for its £2.7bn portfolio.
It has suffered due to exposure in Lehman Brothers, Washington Mutual and Bradford & Bingley. It says 98 per cent of its corporate bond portfolio is investment grade.
The firm has retained its dividend policy at 2.6p per share, at a cost of £60m to the firm or 7 per cent of IGD surplus.
Chief financial officer Charles Bellringer says: “If you do the sums this is more than double the provision that anyone else has reported as a percentage of their portfolio. Other companies are quoting 80-90 basis points and we are reporting 290bp so you can say we are out of line but you cannot say we are not prudent.”
Friends announced that 200 redundancies had been made already this year, on top of the 425 job losses last year, although 180 of those would be working on outsourced Friends business at IBM. The firm ruled out further “savage” cuts this year.
The insurer reaffirmed its decision to retain Pantheon, which broke even, and F&C Asset Management, which made £56m of profits, down from £78m in 2007.
IFA network Sesame also remained profitable, although its profits dipped from £12m in 2007 to £10m in 2008.
Friends says it successfully made £25m of cost savings in 2008 and is on track to deliver £40m by the end of 2009.
Individual protection APE fell 24 per cent to £45m. Around £35m is life and critical illness business, with the remaining £10m being income protection. Group protection new business reduced by 26 per cent. The firm won 26 group pension schemes in the fourth quarter and expects around £20m of new business sales APE related to these schemes to
be reported in the first half of 2009.
Chief executive Trevor Matthews says: “We are maintaining our capital strength, our prudent approach to accounting and our dividend policy, all of which position us well in the current conditions.
“The company is reorganised, the leadership team is strengthened, and operational momentum is building.”
He adds: “We have taken significant costs out of the business, sharpening our competitive edge in the key markets we identified at the start of 2008.
“2009 will be a tough year for economies worldwide, but we will continue to enhance our product range and build a business primed to broaden our distribution and grow market share both in the UK and abroad.”