Standard Life: how patience is paying off for CEO David Nish

Standard Life used the publication of its full-year results in February to caution that its £97bn worth of pension assets could be damaged by independence, as it would lose its UK tax-exemption rights.

“I am very comfortable with how we as a business are preparing for it,” he continues. “And the thing I am most looking forward to is that it is only two weeks to go. And then we can get an answer… and deal with whatever new reality there is.”

If the Glaswegian-born Nish is relatively relaxed about the situation, it is also because he has had other things on his mind. Hours before we spoke, he announced, to the surprise of investors on both side of the Atlantic, a C$4bn (£2.2bn) sale of the FTSE 100 insurance and investment giant’s Canadian business.

Shares in Standard Life touched all-time highs of 427.6p at one point on Thursday as investors digested the news – announced late on Wednesday – and the impact it will have.

“Expect positive reaction,” said one analyst; “looks good on all metrics,” said another.

The deal – which means Manulife of Canada buying Standard Life’s pension and investments business in the country – is structured so as to return £1.75bn of the proceeds to investors, with the rest being used to further grow the group’s businesses.

Although Standard Life managed to keep the months-long sales process under wraps – a process that involved several rounds of bids from both trade and financial bidders –what surprised investors yet more was the value achieved.

When Nish became chief executive in 2010, after spending four years as finance director, the Canadian operation generated £115m of fee-based revenue. Last year, it generated £203m.

The increase – down to organic growth led by Charles Guay, who was hired in late 2011 to turn the Canadian business around – in part drove the price.

“We have obviously been going through a transformation of that operation,” explains Nish. “We brought in a new leadership team, and that’s created a better opportunity to sell. It’s been wholly organic.

“In some ways, a good phrase is that there is value in patience,” he continues, countering those who might question why the business was not sold much sooner.

Consensus forecasts from the analysts who cover the insurance sector valued the Canadian business at £1.5bn – so the agreed price was 47pc above that.

On a price-earnings basis, the business has been sold on 19.5 times, against a peer median of 13.1 times.

“There was surprise, surprise about the value we created,” says Nish, speaking the day after the deal was announced, following a round of calls and presentation with investors, and a hearty breakfast in a Canadian diner.

“People are comfortable that we can retain the £450m,” he says, because they are pleased by the size of the capital return.

Taking in the £1.75bn, which will be paid out following regulatory approval expected in the first quarter of next year, the company has returned £3.5bn to shareholders since 2010, equivalent to a third of its current market capitalisation.

Although investors are keen to know what the £450m will be spent on, Nish is just as keen to point out that although the sale ends Standard Life’s 181-year business in the country, it does not mean it won’t have a business in Canada.

He says the final decision to sell to Manulife – an insurance specialist, which allows Standard Life to focus more on its investment arm – was driven not just by price.

“Remember, we were looking to establish the collaboration agreement,” he says pointing to the side deal that will mean Manulife markets Standard Life’s products in the US and Canada and further afield.

“We don’t look at this as us exiting Canada, rather us selling assets but growing in the country.”

Standard Life has worked with John Hancock, part of Manulife, in the US for three years, a partnership that has grown by US$5.6bn (£3.4bn) over that time.

“It’s one of the fastest-growing relationships John Hancock has had. That’s part of our knowledge of Manulife as we do work with them closely.

“We’ll be seeking to expand the range of funds and propositions that Hancock can distribute. We started with an absolute return fund, and then a variant of that; and we’ll expand out the asset classes.”

Closer to home, the retained proceeds of the sale will be used to build out an already very established business yet further.

“Within the UK, it’s very much about getting bigger in the direct-to-consumer market. We’re strong in corporate pensions and advisory, number one in both of those, but following the changes to the annuities market, we’ve got the capability to effectively target larger assets flows in drawdown.”

Nish plans to take advantage of changes announced by George Osborne, the Chancellor, in the last Budget, that will mean an end to compulsory annuity purchases.

“In the annuity space, we were a passive writer of annuities, and tended to lose 70pc of our customers, and not compete heavily for those of others.

“But now we can do drawdowns from next year, we can hold on to a larger proportion of our own assets and compete for others.”

Nish is not totally enamoured by all that comes from the Treasury, however. Despite being one of five insurers to pledge to invest £25bn over five years in UK infrastructure ahead of last year’s Autumn Statement, he describes the potential for this sort of investment in the UK in one word: “frustrating”.

“We’ve invested in social housing and in student housing, and we’re pitching for physical infrastructure such as roads.

“But I would probably say it’s frustrating,” he says, with regard to the political malaise that tends to slow decisions on major infrastructure projects being taken.

The other focus in Britain will be the continued integration of Ignis, the fund manager it bought from Phoenix for £390m earlier this year, and the Newton Private Clients business that it also acquired.

“Ignis gives us further scale plus new revenue synergies. But we’ve got a wide range of opportunities in front of us, it’s not a single focus,” he explains.

“If you look at what we’ve done over the last three or four years, we’ve tended to identify where we can’t grow enough organically or quickly enough; we’ve bought software companies if needed – we’re not afraid.”

But despite the plaudits from investors for the shareholder value generated to date, Nish is unlikely to leave it there.

“In Asia, we’ve established new offices in Hong Kong, and we’re seeing solid flows from Australia, and Korea and Japan, and there are further opportunities in all those places.”

Which might be the next Canada, the next undervalued-yet-existing business for Nish to unlock value?

“In terms of under-appreciated assets, I suppose one of the things that you know there was some focus on recently, because of what was happening in India, is both our Indian joint ventures,” he explains.

“I don’t really see too much value attached to them when people talk about our business. And as I say, we have got the number one private insurer in India, as declared dividend. We haven’t paid capital into that business now for three years – it is growing really strongly. And through Keith’s [Skeoch, head of Standard Life Investments] business, we have got a 40pc share in the number one mutual funds business.”

Nish points to the liberalisation changes as a result of Narendra Modi gaining power in India in May this year, which are expected to allow non-local companies to own greater stakes in certain industries, and seems hopeful.

“It would require legislation, but it’s more likely in the next parliament,” he explains.

In China, Standard Life has a 50pc share of an insurance joint venture. “It’s on a smaller scale and not as profitable as our Indian venture, but we’re hopeful.

“Two weeks ago, the Chinese government issued a set of opinions around the development of the life insurance and pensions market – it gave an insight of the future.

“They want to double the penetration, and there’s a greater potential for us to think about greater China from an asset-management viewpoint.”

But first he must return home, to his native Glasgow. How will he be relaxing after his latest triumph this weeked? The only celebration – bar an Italian meal on Wednesday night in Montreal with his advisers and bankers – will be a spot of road biking, “to get some exercise”.

Nish looks set to continue to steer Standard Life in the right direction for some time to come.

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