Slide 1: Full Year Results 2017
Full Year Results 2017 15 March 2018 1
Slide 2: Agenda
Agenda Introduction Henry Staunton | 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
Slide 3: Introduction
Introduction Henry Staunton 3
Slide 4: Integration of AXA and Abbey Life substantially complete; ready to progress Standard Life Assurance acquisition
Integration of AXA and Abbey Life is substantially complete and we are ready to progress the Standard Life Assurance acquisition Phoenix has a specialist operating model designed for closed funds Significant 1 Scale 2 Sustainability 3 Specialism 4 Stewardship 5 Skills 6 growth A market Phoenix has a
Slide 5: Business update
Business update Clive Bannister 5
Slide 6: Key FY17 highlights: a strong performance for Phoenix
Key FY17 highlights: a strong performance for Phoenix in 2017 • Strong cash generation of £653 million in FY17 Strong cash generation • Cash generation of £282 million from AXA Wealth and £236 million from Abbey Life since completion of acquisitions • Solvency II surplus of £1.8 billion, 164% covera
Slide 7: Integration of acquisitions have delivered synergies ahead of target
Integration of acquisitions have delivered synergies ahead of target 1 2016 - 2020 2021+ Delivered £282m AXA Wealth £0.3bn £0.2bn to FY17 Cash flows 2016 - 2020 2021+ Abbey Life £0.5bn £1.1bn Delivered £236m to FY17 2 Cost AXA Wealth £10m p.a. by FY17 £17m p.a. savings now delivered (+70%) syn
Slide 8: New £2.5 billion long-term cashflow target 2018 to 2022
New £2.5 billion long-term cashflow target between 2018 to 2022 with a further £1.0 billion expected from Standard Life Assurance Phoenix illustrative future cash generation £2.5bn target £3.8bn £1.0 – £1.2bn target £653m £380m £273m 2017 2018 2019 2020 2021 2022 2023+ Organic cash generation Manage
Slide 9: Phoenix has established a dedicated Bulk Purchase Annuity team
Phoenix has established a dedicated Bulk Purchase Annuity team • In exclusive discussions to complete our first BPA transaction Achievements to • Dedicated BPA team established and actively developing the Phoenix brand date • Increased focus on origination and acquisition of illiquid assets • Strong
Slide 10: Financial review
Financial review Jim McConville 10
Slide 11: Financial highlights
Financial highlights FY17 FY16 £ (unless otherwise stated) Operating companies cash generation 653m 486m Cash Holding company cash 535m 570m Solvency II surplus (estimated) 1.8bn 1.1bn(1) Group capital Shareholder Capital Coverage Ratio (estimated) 164% 139%(1) IFRS Group operating profit 368m 351m
Slide 12: Cash generation of £653 million in FY17 driven by acquisitions
Cash generation of £653 million in FY17 driven by acquisitions £m FY17 FY16 • Cash receipts include £165 million Opening cash and cash equivalents 570 706 from ex-AXA business and £236 million from Abbey Life Total cash receipts from Phoenix Life 653 486 • Pension scheme contributions incorporate ne
Slide 13: Credit rating upgrade and reaffirmation reflects strengthened Group position
Credit rating upgrade and reaffirmation reflects strengthened Group position Debt actions in 2017 Credit rating upgrade • Maturity of £900 million RCF Ratings upgrade from Fitch in July extended to 2021 2017 to A+(1) Bank debt • Rating reaffirmed following RCF repaid in August 2017 and currently
Slide 14: Solvency II Shareholder Capital Coverage Ratio of 164%
Solvency II Shareholder Capital Coverage Ratio of 164% Shareholder Capital position(1) • Shareholder Capital Coverage Ratio calculation excludes Own Funds and SCR of unsupported 164% 139% with-profit funds and PGL Pension Scheme(2) • AXA Wealth businesses and Abbey Life now incorporated into Surplus
Slide 15: Subordinated debt issuance and management actions have increased Group solvency
Subordinated debt issuance and management actions have increased Group solvency Change in Solvency II surplus(1) £0.1bn 164% £0.5bn £0.3bn £0.4bn 139% £0.2bn £1.8bn £1.1bn Pro forma surplus Surplus generated Management Impact of debt Economic and other Financing costs, Surplus as at FY17 (2) as at F
Slide 16: Solvency II surplus and cash generation resilient to market movements
Solvency II surplus and long term cash generation remain resilient to market movements Solvency II surplus: Cash generation target: Scenario(1) £1.8 billion as at FY17 £2.5 billion between 2018-22 Longevity increase(2) £(0.3) billion impact £(0.3) billion impact Credit spread widening(3) £(0.2) bill
Slide 17: Strong FY17 operating profits of £368 million
Strong FY17 operating profits of £368 million £m FY17 FY16 • Phoenix Life operating profits enhanced by positive longevity Phoenix Life 388 357 and expense assumption Group costs (20) (6) changes partly offset by impacts of persistency on certain Operating profit before tax 368 351 guaranteed produc
Slide 18: Cash generation for the combined group increases to £11.8 billion
Cash generation for the combined group increases to £11.8 billion Future cash generation from in-force business • Phoenix achieved £653 million £8.3bn cash generation in FY17, with new Phoenix target of £2.5 billion between 2018-2022 £4.5bn • Total cashflow of £5.5 billion expected to be generated f
Slide 19: Cash generation builds holding company cash and supports dividend
Cash generation for the combined group builds holding company cash and supports dividend Combined Group: Illustrative uses of cash from 2018 - 2022 £3.5bn Standard Life £0.5bn Assurance £1.0bn £0.6bn £1.6bn Phoenix £2.5bn £1.3bn £0.5bn FY17 holding company Cash generation over Operating and pension
Slide 20: Beyond 2022, cash generation will enhance sustainability of dividends
Beyond 2022, additional cash generation of the combined group will enhance sustainability of dividends Combined Group: Illustrative uses of cash from 2023 onward • There is an expected £8.3 billion of cash to £8.3bn emerge after £2.6bn 2022 Standard Life Assurance • Strategic £4.5bn Partnership coul
Slide 21: Phoenix Life
Phoenix Life Andy Moss 21
Slide 22: Key Phoenix Life achievements in 2017
Key Phoenix Life achievements in 2017 1 AXA Wealth AXA Wealth and Abbey Life integrations are substantially complete and Abbey Life integrations Cost synergies and cashflows ahead of target 2 Management actions to Management actions have added £553 million to Solvency II surplus in FY17 suppor
Slide 23: AXA integration has delivered £282 million cash generation and £17 million cost synergies
AXA integration has delivered £282 million of cash generation and £17 million of cost synergies Move to Target Operating Model substantially complete Cash generation Outsourcing model fully operational on 1 January 2018 Target £0.3bn 2016-2020 Actuarial modelling moved to MG-ALFA Delivered £282m
Slide 24: SunLife established as a distribution business based in Bristol
SunLife established as a distribution business based in Bristol White-label manufacture & policy Sales & marketing administration • Distributor based in Bristol, with 121 • Product manufacturer with employees responsibility for pricing Clear • Market leader in sales of over 50s responsibilities • Un
Slide 25: Abbey Life integration has delivered £236 million cash generation and £10 million cost synergies
Abbey Life integration has delivered £236 million of cash generation and £10 million of cost synergies Move to Target Operating Model to complete end Q1 2018 Cash generation All functions (except for actuarial reporting) fully integrated Target £0.5bn 2016-2020 Actuarial modelling will go live o
Slide 26: Management actions have added £553 million to Solvency II surplus
Management actions have added £553 million to Solvency II surplus Increase overall cashflows Accelerate cashflows Increase Solvency II Own Funds Reduce Solvency II SCR • Investment in illiquid assets, primarily equity • Approval to include AXA business in release mortgages Phoenix’s Internal Model •
Slide 27: Invested to deliver enhanced services
Phoenix has invested, in co-operation with our outsource partners, to deliver enhanced services • Driving forward with Digital Vision to improve customer optionality, engagement and ease of processing Digital Vision • Online encashment of smaller pension pots for the over 55s • Online tools and calc
Slide 28: Continued innovation to deliver wider options for customers
Continued innovation to deliver wider options for customers Innovative customer service Customer metrics Full year 2017 target(1) • Initiative to buy out further small annuities-in-payment Speed of Pension Transfer 11 days <12 days pay-outs (ORIGO) • Continuing focus on repatriation of customers wit
Slide 29: Management of customer and regulatory issues
Management of customer and regulatory issues • Phoenix’s customer model and risk management framework are in place with oversight by established governance arrangements • Actions resulting from the Legacy Review are still ongoing and we continue to Abbey Life work with the FCA in support of the enfo
Slide 30: Outlook
Outlook Clive Bannister 30
Slide 31: The Standard Life Assurance transaction is in line with strategy
The Standard Life Assurance transaction is in line with strategy Standard Life Distinctive benefits for Phoenix anchored in a Phoenix Aberdeen Strategic Partnership Strategic Expansion of current investment management agreements with Partnership Aberdeen Standard Investments Client Service and Propo
Slide 32: The proposed acquisition is financially compelling
The proposed acquisition is financially compelling Value Total expected cash flow generation of £5.5 billion from acquisition accretive Increased dividend with enhanced sustainability Delivers Provides in-force business with £166 billion of assets and 4.8 million policyholders scale Net valu
Slide 33: Optionality in European life insurance consolidation
Transaction provides optionality to participate in sizeable and emerging European life insurance consolidation Significant new market opportunity Increased market size (by assets)(1) • Increases potential market opportunity for With profit Unit linked Non profit Phoenix from c.£380 billion in the UK
Slide 34: Phoenix has a range of growth opportunities
Phoenix has a range of growth opportunities Closed fund • Continued significant UK opportunity of c.£380 billion consolidation • Additional emerging opportunity in Germany and Ireland of c.£160 billion • In exclusive discussions on first external pensions buy-in transaction Bulk Purchase • New Phoen
Slide 35: A bigger and better Phoenix – all key metrics improved
The transaction results in a bigger and better Phoenix – all key metrics are improved Total cash generation (2018+) Solvency II surplus(1) £11.8bn £2.5bn £8.3bn £1.8bn £6.3bn 2023+ £3.8bn 2023+ £2.5bn £3.5bn 2018-22 2018-22 Phoenix Combined Group Phoenix FY17 Combined Group Life company assets(1) Po
Slide 36: Clear set of strategic priorities for 2018
Phoenix has a clear set of strategic priorities for 2018 • To be at the top end of the £1.0 - £1.2 billion range for 2017 - 2018 Cash generation • Long-term cash generation target of £2.5 billion between 2018 - 2022 Complete Standard • Rights Issue in May with completion targeted for Q3 2018 Life As
Slide 37: Q&A
Q&A 37
Slide 38: Appendices
Appendices I Standard Life Assurance financing and VII Breakdown of SCR and Own Funds impact on dividend policy VIII Phoenix Life operating profit drivers II Standard Life Assurance transaction potential cost and capital synergies IX Asset mix of life companies III Phoenix’s stable and sustainable d
Slide 39: Appendix I: Standard Life Assurance financing and impact on dividend policy
Appendix I: Standard Life Assurance financing and impact on dividend policy Consideration and financing Dividend policy • Price of £2,930 million for the acquisition • Management have announced that they will increase dividend distributions following • Acquisition consideration consisting of cash of
Slide 40: Appendix II: Potential cost and capital synergies
Appendix II: Standard Life Assurance transaction potential cost and capital synergies Indicative net value of synergies(1) Sources of synergies • Cost savings of £50 million p.a. (pre tax): £135m • Combination of life company management and support functions £440m • Leverage Phoenix operating model
Slide 41: Appendix III: Stable and sustainable dividend track record
Appendix III: Phoenix’s stable and sustainable dividend track record Stable dividend profile with uplifts following acquisitions(1) • Stable and 1 Euronext listing in September 2009 sustainable dividend 27% DPS uplift due to equity raising 4 policy given run-off 2 and debt re-terming in Jan 2013 3 p
Slide 42: Appendix IV: Product mix as at FY17
Appendix IV: Phoenix and Standard Life Assurance product mix as at FY17 Phoenix product mix Standard Life Assurance product mix With-profit Unit-linked Annuities and protection With-profit Unit-linked Annuities and protection 10% 17% 20% 40% 43% 70% 42
Slide 43: Appendix V: Change in Phoenix Life Free Surplus
Appendix V: Change in Phoenix Life Free Surplus Change in Phoenix Life Free Surplus in 2017(1) £0.1bn £0.5bn £0.6bn £0.2bn £1.3bn £0.7bn £0.7bn Opening free surplus Surplus generation & Management actions Assumption Free surplus before Cash remittances Closing free surplus (2) run-off of capital exp
Slide 44: Appendix VI: Solvency II surplus and SCR coverage ratio
Appendix VI: Estimated Solvency II surplus and SCR coverage ratio Solvency II coverage ratio(1) Shareholder Capital ratio(1) 139% 123% 164% 139% Surplus Surplus £1.8bn £1.1bn Surplus £1.8bn Surplus £1.1bn £6.6bn £4.6bn £6.0bn £4.0bn £4.8bn £4.9bn £2.8bn £2.9bn FY17 FY16 (pro forma) FY17 FY16 (pro fo
Slide 45: Appendix VII: Breakdown of SCR and Own Funds
Appendix VII: Breakdown of SCR and Own Funds SCR by risk type(1) Own Funds by Capital Tier(1) £6.6bn Tier 3 £0.6bn 7% Tier 2 £1.0bn 16% 30% 7% 3% 8% 15% Tier 1 £5.0bn £4.8bn 14% Longevity Credit Persistency Operational PGH tiering of Own Funds PGH SCR Swap spreads Interest rate Other market risks Ot
Slide 46: Appendix VIII: Phoenix Life operating profit drivers
Appendix VIII: Phoenix Life operating profit drivers FY17 FY16 Reported Closing Expected Reported Closing Expected Operating liability/ return Operating liability/ return Profit equity(2) margin(1) Profit equity(2) margin(1) Fund type How profits are generated £m £bn bps £m £bn bps Our share of bonu
Slide 47: Appendix IX: Asset mix of life companies
Appendix IX: Asset mix of life companies Policyholder funds(3) Total shareholder, Non- non-profit and supported At 31 December 2017 supported with- with-profits Total Total £m (unless otherwise stated) profits(2) % funds Unit-linked policyholder assets(1) Cash deposits 4,460 23 4,312 2,355 6,667 11,
Slide 48: Appendix X: Total debt exposure by country
Appendix X: Total debt exposure by country Corporate: Sovereign Financial Corporate: Asset Backed Total debt Total At 31 December 2017 and Supranational Institutions Other Securities securities debt £m Shareholder Policyholder Shareholder Policyholder Shareholder Policyholder Shareholder Policyholde
Slide 49: Appendix XI: Credit rating analysis of debt portfolio
Appendix XI: Credit rating analysis of debt portfolio Total shareholder, Policyholder funds non-profit and Non-supported At 31 December 2017 supported with- with-profits Total £m profits funds Unit-linked policyholder Total assets AAA 2,029 1,568 549 2,117 4,146 AA 4,916 7,055 995 8,050 12,966 A 3,4
Slide 50: Appendix XII: Current corporate structure
Appendix XII: Current corporate structure £900m (undrawn) Unsecured £428m Tier 2 notes (2025) Revolving Credit Facility Phoenix Group Holdings £450m Tier 3 notes (2022) £122m senior notes (2021) US$500m Tier 2 notes (2027) Intermediate holdcos Phoenix Life Holdings (PLHL) Abbey Life Pearl Group Assu
Slide 51: Appendix XIII: Outline of current debt structure
Appendix XIII: Outline of current debt structure Structure of £1,585 million of outstanding debt as at 31 December 2017 Instrument Issuer/borrower Maturity Face value Bank Debt Unsecured Revolving Credit Facility (L+110bps)(1) Phoenix Group Holdings June 2021 - Unsecured Senior Bond Phoenix Group Ho
Slide 52: 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