Standard Life Plc · LSE:SDLF
Standard Life — Phoenix Group Holdings — H1 2015 Earnings Presentation
48 slides from Standard Life's earnings presentation, Aug 20, 2015
Slide 1: Interim Results 2015
Interim Results 2015 20 August 2015
Slide 2: Agenda
Agenda Introduction Howard Davies | Chairman Business update Clive Bannister | Group Chief Executive Financial review Jim McConville | Group Finance Director Phoenix Life Andy Moss | Chief Executive, Phoenix Life Outlook and Q&A Clive Bannister | Group Chief Executive 2 2
Slide 3: Introduction
Introduction Howard Davies
Slide 4: Business update
Business update Clive Bannister
Slide 5: Continued financial and operational delivery
Continued financial and operational delivery P Cash generation of £110 million in HY15 P Solvency II Internal Model submitted for approval in June 2015 P Incremental MCEV from management actions of £84 million P Exchange of Tier 1 bonds into new subordinated notes in January 2015 P Investment grade
Slide 6: Significant progress achieved in 2015
Significant progress achieved in 2015 Delivery Target Achieved around half the FY target during the £200m first 6 months of 2015 Cash £110m to £250m generation in 2015 On track to meet long term cash generation target of £2.8 billion between 2014-19 £84 million of incremental value delivered M
Slide 7: Phoenix remains well positioned for industry changes
Phoenix remains well positioned for industry changes • New pension freedoms effective, with full range of options provided Pension either by Phoenix Group or through partnerships freedoms • Wrote £208 million of annuities in HY15, with 79% having Guaranteed Annuity Rates (‘GARs’) • FCA review into l
Slide 8: Financial review
Financial review Jim McConville
Slide 9: Financial highlights
Financial highlights HY15 HY14 FY14 £ Operating companies cash generation 110m 332m 957m(3) Cash Holding company cash 916m 1,081m 988m IFRS Group operating profit 135m 266m(1) 483m(1) MCEV Group MCEV 2.6bn 2.3bn 2.6bn Financial Leverage Financial Leverage(2) 39.2% 48.7% 39.3% IGD surplus 1.6bn 1.3bn
Slide 10: Cash generation of £110 million in HY15
Cash generation of £110 million in HY15 £m HY15 HY14 FY14 • £20 million of cash generation Opening cash and cash equivalents(1) 988 995 995 through management actions Cash receipts • Pension scheme contributions Phoenix Life 110 211 446 are weighted towards the second half of the year under Ignis (i
Slide 11: £0.9 billion of cash held in holding companies with further £0.3 billion of free surplus
£0.9 billion of cash held in holding companies with further £0.3 billion of free surplus in life companies Closing Phoenix Life free surplus(1) (£m) Closing cash in holding companies (£m) • £110 million of cash distributed to holding companies in HY15 • Free surplus enhanced by management actions •
Slide 12: Reduced impact on IFRS operating profits from management actions
Reduced impact on IFRS operating profits from management actions in HY15 compared to HY14 £m HY15 HY14 FY14 • HY15 operating profit includes Phoenix Life 141 256 487 £23 million from management actions (HY14: £114 million, Ignis - 17 17 FY14: £165 million) Group costs (6) (7) (21) • Investment retur
Slide 13: Embedded value includes £84 million enhancement from management actions
Embedded value includes £84 million enhancement from management actions Group MCEV (£m) 52 84 22 £11.76 per share 40 116 £11.43 per 6 share(2) 2,647 2,575 MCEV at Operating earnings excl Management actions Economic & non- Movement in MV of Finance costs and Pension scheme MCEV at 31 Dec 2014 mgt act
Slide 14: Achievement of Investment Grade rating delivers reduction in cost of bank debt
Achievement of Investment Grade rating delivers reduction in cost of bank debt Credit ratings assigned to the Group’s operating and • Achieved investment grade credit holding companies ratings from Fitch Ratings for both Rating type Entity Fitch senior and subordinated debt Insurer Financial Phoenix
Slide 15: £1.6 billion IGD surplus increased due to Group restructure
£1.6 billion IGD surplus increased due to Group restructure IGD and sensitivities at HY15 • IGD surplus and headroom increased due to Group £1.6bn corporate restructuring £1.3bn £1.2bn • Phoenix Life Holdings Limited IGD now 100% shareholder of surplus Impala Holdings Limited • Restructure increased
Slide 16: Strong PLHL ICA surplus
Strong PLHL ICA surplus PLHL ICA and sensitivities at HY15 • PLHL ICA surplus unchanged £1.0bn since FY14 • No impact on PLHL ICA £0.7bn £0.7bn surplus from Group restructure PLHL ICA surplus • Focus will be on transition to Solvency II regime for remainder of 2015 • Position remains relatively inse
Slide 17: Solvency II – overview of capital requirements
Solvency II – overview of capital requirements Summary of Solvency II capital regime Surplus Own Own Funds Funds Capital requirements (SCR) Assets Other liabilities Best estimate liabilities plus risk margin Note: Graph illustrative and not to scale • Requirement that an insurance entity’s capital (
Slide 18: Solvency I compared to Solvency II
Solvency I compared to Solvency II - an evolution of the existing ICA regime Both requirements are very similar with a few key differences Impact on Phoenix Group of Solvency I Pillar 2 Solvency II Pillar 1 Solvency II Best estimate liabilities plus an Life company Liabilities Best estimate liabilit
Slide 19: Long term cash generation supports the Group dividend policy
Long term cash generation supports the Group dividend policy Illustrative uses of cash from H2 2015 to 2019 (£bn) (1) (2) (3) (4) (5) (6) Notes: (1) £2.8 billion target cash generation over 2014 to 2019 less £1,067 million delivered in 2014 and HY15 (2) Illustrative operating expenses of £30 million
Slide 20: Beyond 2019, there is an expected £3.6bn of cash flow to emerge
Beyond 2019, there is an expected £3.6bn of cash flow to emerge Illustrative uses of cash from 2020 onwards (£bn) (2) (1) (3) (4) Notes: (1) Illustrative holding company cash as at FY19 as calculated on previous slide (2) An estimated £3.6 billion cash generation to be extracted from the business af
Slide 21: Phoenix Life
Phoenix Life Andy Moss
Slide 22: Phoenix Way continued enhancement and success during 2015
Phoenix Way continued enhancement and success during 2015 HY15 achievements The Phoenix Way RESTRUCTURING OPERATIONAL Solvency II readiness MANAGEMENT Completion of NPL fund merger into Further PLAL operational Equity release mortgage portfolio progress acquired Agreed disposal of small Iris
Slide 23: We will build on our strong track record of management actions
We will build on our strong track record of management actions as we move to Solvency II Incremental MCEV Accelerated cashflow Total Total £1.3bn £1.6bn • Portfolio of equity release mortgages acquired in early 2015 • Further benefits from use of MG-ALFA platform and balance sheet reviews • Focus on
Slide 24: Phoenix is well positioned to respond to regulatory change
Phoenix is well positioned to respond to regulatory change • Significant evolution and increasing focus on conduct risk following FSA split Conduct • Outcome of the FCA review of legacy customers expected later in Regulation 2015 • Other reviews ongoing as well as FCA involvement in HM Treasury cons
Slide 25: Impact of Pension Freedoms on Phoenix Life
Impact of Pension Freedoms on Phoenix Life • Initial “dash for cash” in April 2015 due to number of customers who had deferred taking a decision during 2014 • Demand for full encashment has been for smaller pension pots, with around Customer 15,000 customers requesting full encashment at an average
Slide 26: Continuing to deliver strong service for customers
Continuing to deliver strong service for customers Customer 2015 actions Customer metrics • Pensions freedoms introduced in April HY 2015 Full year target(1) • Full range of options offered to customers Speed of Pension Transfer 11 days <12 days pay-outs (ORIGO) either directly by Phoenix or through
Slide 27: Outlook and Q&A
Outlook and Q&A Clive Bannister
Slide 28: Financial targets for 2015 and beyond
Financial targets for 2015 and beyond • 2015 target of £200 million to £250 million Cash • Cumulative target of £2.8 billion between 2014 and 2019, generation of which £1.1 billion achieved to date • Cumulative target of £400 million incremental embedded MCEV value from management actions between 20
Slide 29: Summary of current Phoenix Solvency II position
Summary of current Phoenix Solvency II position Current position • The Phoenix Internal Model Application was submitted in June and the PRA approval process expected to complete in December • The Group expects to be well capitalised, with the Group capital position under Solvency II as calculated at
Slide 30: Long-term cash generation remains strong
Long-term cash generation remains strong Illustrative annual cash generation(1) 2014 – 2019 £2.8 billion target £957m £3.6bn £390m Ignis proceeds £180m £387m Target £200m to £250m 2014 2015 2016 2017 2018 2019 2020+ Organic cash generation Management actions Illustrative future cash generation Notes
Slide 31: We are well positioned to benefit from changes in the UK life insurance industry
We are well positioned to benefit from changes in the UK life insurance industry Market size is over £300bn Vendor motivations M&A criteria Market opportunities by owner • Loss of new business value from • Closed life 17% Bank annuities owned 35% UK life • Fixed cost pressures of legacy • Value accr
Slide 32: 2015 has been a year of further achievements for Phoenix Group
2015 has been a year of further achievements for Phoenix Group P Investment grade credit rating achieved Preparation for Solvency II P Tier 1 bond exchange completed Achievement of Internal Model approval P application to PRA Submission of Internal Model Further diversification of debt P Simplificat
Slide 33: Q&A
Q&A
Slide 34: Appendices
Appendices I MCEV sensitivities VII Asset mix of life companies II Maturity profile of business VIII Total debt exposure by country III Free surplus generated in the Life IX Capital management framework Companies X Current corporate structure IV Cash generation sensitivities XI Outline of debt struc
Slide 35: Appendix I: MCEV sensitivities
Appendix I: MCEV sensitivities £m HY15 Base (MCEV of covered business) 2,850 1% decrease in risk-free rates 94 1% increase in risk-free rates (107) 10% decrease in equity market values (29) 10% increase in equity market values 31 10% decrease in property market values (49) 10% increase in property m
Slide 36: Appendix II: Maturity profile of business
Appendix II: Maturity profile of business 1-5 6-10 11-15 16-20 20+ Total £m years years years years years MCEV present value of future profits 30 June 2015 831 550 378 241 173 2,173 31 December 2014 859 556 387 250 186 2,238 31 December 2013 997 576 344 212 172 2,301 31 December 2012 1,058 596 369 2
Slide 37: Appendix III: Free surplus generated in the Life Companies
Appendix III: Free surplus generated in the Life Companies £m HY15 HY14 FY14 Opening Phoenix Life free surplus 196 529 529 Emergence of free surplus IFRS operating profit 141 256 487 IFRS economic variances and non- 45 3 (46) recurrings IFRS taxation (23) (52) (43) Movements in capital requirements
Slide 38: Appendix IV: Cash generation sensitivities
Appendix IV: Cash generation sensitivities Cash sensitivities(1) 1 Jan 2014-31 Dec 2019 Base case – 6 year target £2.8bn 20% fall in equity markets £2.7bn 15% fall in property values £2.8bn Following 75bps increase in nominal yields(2) £2.9bn Following 75bps decrease in nominal yields(2) £2.7bn Cred
Slide 39: Appendix V: Management actions
Appendix V: Management actions Incremental MCEV (£m) Cash acceleration (£m) HY15 HY14 HY15 HY14 Restructuring - 81 Restructuring - 98 Risk management - - Risk management 12 - Operational management 84 72 Operational management 8 51 Total 84 153 Total 20 149 39
Slide 40: Appendix VI: Phoenix Life IFRS operating profit drivers
Appendix VI: Phoenix Life IFRS operating profit drivers HY15 HY14 Reported Opening Closing Expected Reported Opening Closing Expected IFRS Op liability/ liability/ return IFRS Op liability/ liability/ return Profit equity(2) equity(2) margin(1) Profit equity(2) equity(2) margin(1) Fund type How prof
Slide 41: Appendix VII: Asset mix of life companies
Appendix VII: Asset mix of life companies Total shareholder, Policyholder funds(3) non-profit and Non-supported At 30 June 2015 supported with- with-profits Unit Total Total £m unless otherwise stated profits(2) % funds linked Policyholder assets(1) Cash deposits 2,667 18 3,430 1,185 4,615 7,282 Deb
Slide 42: Appendix VIII: Total debt exposure by country
Appendix VIII: Total debt exposure by country Other Corporate: Government Financial Corporate: Asset backed Total debt At 30 June 2015 and Supranational Institutions Other securities securities Total £m Shareholder Policyholder Shareholder Policyholder Shareholder Policyholder Shareholder Policyhold
Slide 43: Appendix IX: Capital management framework
Appendix IX: Capital management framework Phoenix Group Holdings PLHL ICA calculation IGD • Pillar 2 assessment of capital resources and • Pillar 1 group capital calculation risks outside the life companies UK holding • Includes net assets of holding companies and • Aggregated view of group companie
Slide 44: Appendix X: Current corporate structure
Appendix X: Current corporate structure Phoenix Group Holdings £780m unsecured bank debt Opal Re Intermediate PGH Capital £300m senior holdcos Limited bond Key: Phoenix Life £428m Holdings subordinated Listed top company notes (PLHL) Holding companies Operating companies Impala PGH2 Finance company
Slide 45: Appendix XI: Outline of debt structure
Appendix XI: Outline of debt structure as at 30 June 2015 Instrument Issuer/borrower Face value £m Maturity Unsecured bank debt (L+262.5bps)(1) - Term loan PGH Capital Limited £330m July 2019 - Revolving credit facility PGH Capital Limited £450m July 2019 Unsecured senior bond (5.75%) PGH Capital Li
Slide 46: Appendix XII: Summary of bank facility
Appendix XII: Summary of bank facility £m H2 2015 2016 2017 2018 2019 Total £330m Term loan LIBOR + 262.5bps(2) Mandatory amortisation 0(1) 60 60 60 - 180 Additional planned amortisation 30 60 60 - - 150 Target amortisation 30 120 120 60 - 330 £450m Revolving credit facility LIBOR + 237.5bps + 25bps
Slide 47: Appendix XIII: Calculation of Financial Leverage ratio
Appendix XIII: Calculation of Financial Leverage ratio HY15 £m Financial Leverage Unsecured bank debt – revolving credit facility 450 Unsecured bank debt – term loan 330 PGH Capital unsecured senior bond 300 PGH Capital subordinated notes (1) 396 PLL subordinated debt 200 Tier 1 notes 6 Gross shareh
Slide 48: Disclaimer and other information
Disclaimer and other information • This presentation in relation to Phoenix Group Holdings and its subsidiaries (the ‘Group’) contains, and we may make other statements (verbal or otherwise) containing, forward-looking statements and other financial and/or statistical data about the Group’s current
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