Friends warns as float nears

By ROBERT LINDSAY
Updated:

 

FRIENDS Provident gave an indication of the size of windfall payouts today then shocked the markets by issuing a devastating warning on new-business profits ahead of its £4bn flotation next month.

The figures cast a gloomy light on the float, one of the biggest capital-raisings in an offering since Norwich Union came to market four years ago.

The shares are valued by sponsor Merrill Lynch at between 210p and 270p. Most members will get 200, worth about £500, while some will receive shares worth about £2,000. Members will be able to subscribe for extra shares at a 5% discount to the institutional price.

Chief executive Keith Satchell denied that the warning on new business profits would lessen the insurer's chances of remaining independent after the flotation, saying business volumes would return towards the end of the year as the £1.4bn extra capital from the float strengthened the group.

During 2000, the mutual's prospectus reveals, value added by new business - the current valuation of new policies - fell 25% to £63m and new business sales since then have been even lower.

Satchell said independent financial advisers had been put off placing business with Friends Provident by its relatively low credit rating and by the uncertainties of demutualisation.

The new £1.4bn of capital raised in the float should restore Friends to a double-A rating in line with its peers, Satchell said. 'We believe we will be back on all the major panels of IFAs towards the end of this year,' he added.

Sales of savings and investment products were depressed in line with the market, he said, because punters were drawing back from volatile stock markets. And sales of pension products, although higher, were diluted by a lot of low-margin stakeholder-style pensions with small premiums.

'While new business sales are expected to improve following admission, the board believes that it is not realistic to assume that new business sales in 2001 will recover to the levels experienced during 2000,' he said.

Insurance analyst Chris Rathbone of Williams de Broe said: 'The whole market is pretty tough at the moment. The float is good for policyholders, they'll probably take their money and run. Then it's just a question of waiting to see whether Friends Provident will be regarded as attractive enough to be taken over.'

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