Standard Life has long been regarded as a sleeping giant of the financial
services industry: defiantly mutual, it underperformed several of its rivals in
terms of profitability, despite managing billions of pounds more in investments.
But all of that changed when the firm finally succumbed to demutualisation
and floated on the London Stock Exchange last summer. Since then, its share
price has soared from a launch price of 230p to 325p at the time of going to
press. And brokers forecast a rise to as much as 430p by the end of 2008.
Perhaps not surprisingly, the change in fortunes has coincided with a
dramatic increase in sales, particularly in the investments division. But, just
as importantly, it has coincided with another significant event – the arrival of
finance director David Nish, who joined from ScottishPower in November last
Since joining, Nish has played a key role in the group’s transformation – his
experience of taking ScottishPower through its transition to a listed company
would clearly have been an asset. (As we were going to press, ScottishPower was
formally delisting following its acquisition by Spanish energy company
Nish believes that Standard Life is in a similar position today to the one
ScottishPower found itself in during the 1990s: ‘There are similarities with the
1990s energy sector, where public sector utilities were being privatised and
there was a need to introduce different methods of improving growth and
developing business,’ he says.
‘We have started focusing on efficiency [and] growth. There is also a lot of
focus on adding value and performance. If you look at the mutual environment
there is quite a different method of decision making. In the plc world, you must
be more focused on share price, value for customers and [delivering value] for
‘You may be discussing a decision about customer options and products, but
what you must also be asking is, what is the value in this decision? We went
through a similar phase in ScottishPower.’
As a result, there are plans for a further reduction in staff and business
costs, which will add up to a saving of £100m a year by 2009.
In addition, there have also been a number of departures – including that of
FD Alison Reed – and arrivals among senior management, of which Nish was one.
The process was never going to be easy. Standard Life used to have an image
as a rather reserved Edinburgh institution, with an entrenched and conservative
It’s clear that the board recognised Nish’s experience with handling
difficult transitions from the public sector to the private sector as key to the
future success of the company. And his appointment went down well in the City.
They are not, however, out of the woods just yet. With private equity
continually on the hunt for new targets and M&A activity at an all-time
high, Standard Life must be wary. The business could be seen as vulnerable –
profit is behind that of many in its peer group and consolidation is always a
‘There is a need to improve and to improve quickly. We need to increase the
speed at which we do things and realise that we can actually give up the past
while holding on to those things that work,’ he says.
‘The most important thing we can do is get on with our work and keep
improving the company and its performance.
‘There isn’t much we can do to prevent a takeover if it comes, but the best
form of defence is to ensure we have a highly efficient, profitable business
with excellent growth and sound future potential. That is why we are focusing on
driving value and performance.’
It seems to be working. New business contribution (the value of all future
cashflows attributable to the shareholder from new business) has increased from
a loss of £117m in 2004 to a profit of £205m in 2006. The return on embedded
value has more than doubled since 2004, while cash generation has risen from a
loss of £17m in 2005 to a profit of £262m in 2006.
Overall, the business returned a pre-tax profit of £453m and produced a
dividend of 5.4p. An improving result, but some way behind rivals such as, say,
Analyst views are also improving. Somewhat indifferent to the business
initially, many have warmed to it in recent months, with JP Morgan Cazenove
stating that Nish was leading ‘a significant cultural shift’ in Standard Life’s
use of capital.
Others have said the projected share price is expected to top 400p by the end
of the year. The additional value will make the company a much stronger and less
It is clear that Nish is at the core of these changes. Indeed, Nish spends
much of his time talking to brokers and selling Standard Life to the City. In
the spring, he and chief executive Sandy Crombie spent ten days talking to
investors in the US, where the company has a large shareholder base.
Nish is looking at ways of using the company’s existing and fairly dormant
capital to fund expansion and growth.
‘We are in the process of asset-gathering at the moment. Our principal asset
is our property and we need to look at how to take capital out of property and
develop other areas of the business.
‘We have the assurance type business, but also, increasingly, healthcare and
investment management products. We can use some of the released capital to
expand and develop these sectors,’ he says.
Nish speaks enthusiastically about the transparency that a listing provides,
in particular the need to constantly review and monitor all aspects of the
business to ensure it is not only compliant but functioning efficiently. The
audit, he says, can be a useful tool in highlighting issues that may need to be
addressed, and he sees a close relationship with the auditor – Standard Life is
a long-time client of PricewaterhouseCoopers, where Nish used to be a partner –
as essential to running a successful plc.
It’s clear then that since joining Standard Life, Nish has had his hands
full. He describes the process of demutualisation as very similar to joining a
new company in its first year of operations: ‘Everything has to be examined,
reviewed and understood as if the business had just begun,’ he says.
‘That isn’t to say the heritage and history of Standard Life is thrown out,
but it must be as effective and efficient as possible to compete in the current
So, while electricity and assurance aren’t obvious bedfellows, running a
successful plc has similarities regardless of industry. Nish’s experience of
transforming organisations into listed companies is far more important to chief
executive Sandy Crombie than whether he understands the intricacies of the life
But it seems that Nish has also ticked that particular box. Having been a
member of the government’s pensions taskforce between 2004 and 2005, he
obviously understands the technicalities well.
With a sound understanding of pensions and annuities, substantial experience
of business transformation and the respect of his peers, his board, the City and
analysts, it would appear that Nish has all of the boxes ticked.
It goes a long way to explain why many are tipping him for the chief
executive role when, as expected, Crombie stands down in the next two or three
Nish understands that a major plc needs a dynamic management able to analyse
and understand the shifting needs of the marketplace and respond accordingly.
‘I believe we will be writing a lot less traditional life business in future.
We are one of the biggest annuity providers in the UK and we’ve had to adjust to
major changes in the market, because so many people are living longer and living
healthier lives, so the basis for many of the previous investment decisions may
no longer work.
‘Take pensions. Most [pensions] used to die with the individual and all of
the costs and liabilities for a firm such as Standard Life were based on that
presumption. Now, most people use various means to keep their pension, albeit in
a different form and probably not an annuity. There is the option of income
draw-down, where individuals can remove the capital, at a loss of some of the
tax relief, but be left with a lump sum which is transferable to an heir.
‘One of our most successful products in the last year has been the growth of
Self-Invested Pension Plans (SIPPs) which, I believe, show a growing
sophistication among our customer base. Our business is changing and we must
change with it to reflect society and the needs of our customers.’
Part of that change will be an increase of choice. He says the company’s
product mix will increase so that individuals are given a far greater choice
than a single product such as a pension or a life policy.
‘Everyone wants flexibility and access and we are building these features
into our products and services,’ he says.
This article first appeared in our sister title
in the July/August edition‘
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