Resolution Ltd., the insurance buyout firm founded by Clive Cowdery in 2008, dropped the most in two months in London trading after international sales declined and one-time costs of technology increased.
The stock fell 4 percent to 230 pence, the most since Sept. 5. International sales dropped 18 percent to 272 million pounds ($431 million) in the first nine months of the year, the Guernsey, Channel Islands-based firm said today in a statement. Resolution will spend 35 million pounds to integrate computer systems after buying Axa SA’s U.K. life insurance unit.
“We do not expect the market to be impressed by the news on the increased information technology spend,” Eamonn Flanagan, a Liverpool, England-based analyst at Shore Capital Group Ltd. with a hold rating on the stock, wrote in a note to clients today. “With a strategy that has flip-flopped regularly in recent years, we prefer to sit on the sidelines until greater clarity emerges.”
Resolution this year canceled plans to sell its Friends Life division, a merger of Friends Provident, the Axa unit and Bupa Health, as record low interest rates squeezed returns and the firm missed its target for capital returns to shareholders. The company is disbanding an agreement with Resolution Operations, a privately owned firm also run by Cowdery that managed its acquisition strategy.
In addition to the computer-systems expenses, Resolution said it expects “uncertain” costs in the low tens of millions of pounds over the next 12 months. The firm said it will also spend 30 million pounds to change its outsourcing agreements. This will help increase planned cost savings to 160 million pounds a year by the end of 2015, a 12 percent increase on an earlier target.
“It’s disappointing to have to announce some adjustments to these cost estimates today,” Finance Director Tim Tookey said on a conference call with reporters today. The Axa information technology integration “is proving more complex than had previously been estimated and that really is the nub of the issue.”
Resolution’s international revenue was hurt by the European debt crisis and in Germany in particular, it said. The firm will explore “restructuring options” in the country, where low interest rates have squeezed insurers’ profits on life insurance and savings products offering customers guaranteed returns, Resolution Chief Executive Officer Designate Andy Briggs said on the call.
The company is seeking final regulatory approval for the sale of its 30 percent joint venture in AmLife Takaful Berhad, a Malaysian life insurer, it said. Friends Provident, which Resolution acquired in 2009, agreed to pay 30 million pounds for the stake in November 2008. Its strategy in Asia will be to focus on wealthy individuals and ex-patriots, Briggs said.
Resolution is merging its board with subsidiary Friends Life to simplify its management structure and improve its corporate governance after the Financial Services Authority warned that so-called externally managed companies may lose their stock market listing.
As a result, the agreement with Resolution Operations will be canceled and a termination fee agreed by the end of the first quarter of 2013, Briggs said. That may require a shareholder vote, he said.