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Resolution takes £35m hit from AXA deal
by Jun Merrett on Nov 15, 2012 at 08:26
Friends Life parent Resolution has announced it will take a further £35 million hit from the acquisition of AXA UK's life business, as the costs associated with the deal mount.
Resolution said in its third quarter interim results that complexities in moving the acquired business from AXA's IT systems had led to the added costs.
‘There remain elements of this work that are proving more challenging to deliver than expected,' it said. 'As a consequence the group now expects costs to be [around] £35 million higher than originally estimated with the extra costs spread over the rest of 2012 and 2013. These relate principally to certain IT and integration programmes.’
It added that it would suffer further costs in bringing the business over to its own systems, and estimated they would be in the ‘low tens of millions of pounds’ over the next 12 months.
The £35 million extra costs include the impact of no longer receiving a £26 million rebate from AXA included as a potential part of the deal, due to the complexity of the acquisition. Resolution bought AXA's UK life business for £2.75 billion in 2010.
Andy Briggs, Friends Life's chief executive (pictured), said: 'It is disappointing that it is costing a bit more, but we are absolutely on track to deliver the benefits. [The businesses] were characterised by poor cash generation, poor profitability and [were] not strong in cost efficiencies. We are absolutely confident we will complete that transformation and deliver good businesses with very attractive cash generation.'
Resolution will also suffer further costs from its outsourcing deal to Diligenta, which is providing IT systems to service legacy Friends Life business. The costs attached to the deal have risen from an estimated £250 million to £280 million.
Despite this, the group has increased its target for UK cost reductions to £160 million run-rate by the end of 2015, £17 million up on the £143 million target initially announced in 2011.
Resolution said: ‘Good progress continues to be made in completing the separation, integration and outsourcing programmes. In addition, [there are] further opportunities for delivering operating efficiencies and cost reductions by £17 million to £160 million by the end of 2015.’
Resolution has reported Friends Life UK new business of £102 million for the first nine months of 2012, compared to £40 million reported for the same period in 2011. The corporate benefits division delivered £14 million in new business, up on £3 million made in 2011. Protection new business hit £44 million, up from £2 million in 2011.
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