Standard Life Plc · LSE:SDLF
Standard Life — Pearl Group — H1 2009 Earnings Presentation
32 slides from Standard Life's earnings presentation, Sep 24, 2009
Slide 1: The specialist closed life business – Half year update
“The specialist closed life business” Half year update 24 September 2009 0
Slide 2: Disclaimer
Disclaimer This half year update in relation to Pearl Group and its subsidiaries (the “Group”) contains forward looking statements concerning future events. Those forward looking statements are based on the current information and assumptions of the Group’s management concerning known and unknown ri
Slide 3: Agenda
Agenda ►Introduction and strategy Jonathan Moss – Group Chief Executive ►Half year financial review Simon Smith – Group Finance Director ►Summary and conclusions Jonathan Moss 2
Slide 4: Introduction and strategy
1. Introduction and strategy Jonathan Moss
Slide 5: Group highlights
Group highlights ► The largest specialist closed life fund consolidator in the UK with approximately 6.5m policyholders Industry leader ► A well established portfolio of life insurance brands ► Gross embedded value of £4.7bn at 30 June 2009(1) ► Over £250m of operating cashflow in H1 2009 Strong cas
Slide 6: Value enhancing strategy: Closed life funds
Value enhancing strategy: Closed life funds Key attributes Core strategy Value creation ► Largest specialist closed fund ► Strong internal operating ► Closure of legacy issues consolidator platform and outsourcing strategy ► Fund mergers and liability ► Strong long term cash management generation ►
Slide 7: Value enhancing strategy: Asset management
Value enhancing strategy: Asset management Key attributes Core strategy Value creation ► Significant AUM of £66bn ► Continue to strengthen ► Investment outperformance on investment skills to underpin life company assets investment performance ► Resilient senior fee streams (including selective use o
Slide 8: Group priorities
Group priorities ► Continued focus on cash generation ► Prudent capital management in operating companies ► Ongoing simplification of capital structure (e.g. Tier 1 Bonds) ► 2009 dividend payable in April 2010 ► UK listing - secondary listing on LSE expected in Q4 2009 ► Seek transition to primary L
Slide 9: Half year financial review
2. Half year financial review Simon Smith Note: The financial information contained in this presentation includes unaudited interim financial information in relation to the UK life insurance group for the six month period to 30 June 2009, together with certain pro forma information in relation to Pe
Slide 10: Financial summary
Financial summary (£) 30 June 2009 31 December 2008 Operating cashflow 252m - Illustrative interest expense on bank debt facilities 45m (1) - Group capital (IGD) surplus (2) 1,092m 673m Gross embedded value 4,722m 4,749m Pro forma net embedded value 2,135m 2,215m (3) Assets under management 66bn 71b
Slide 11: Movement in embedded value
Movement in embedded value ► Movement includes expected return less cost of holding more capital for longer, group costs and adjustment of tax shield (£m) 5,000 4,750 4,500 (27) 4,250 4,000 3,750 3,500 4,749 4,722 (2,998) 3,250 3,000 2,750 2,500 2,250 451 2,000 (40) 2,135 1,750 1,500 1,250 1,000 Gro
Slide 12: Cash generation in H1 2009
Cash generation in H1 2009 Cashflows into UK holding company for 6 months to 30 June 2009 ► Robust operating cashflow from Cash releases (£m) H109 subsidiaries in H1 2009 Cash from life companies 124 (1) ► Operating cashflow targeted to Cash from asset management companies 5 be £500m for 2009 Cash f
Slide 13: Group capital (IGD) position
Group capital (IGD) position (£m) ► IGD position significantly 1,000 376 strengthened to £1,092m (1) 750 43 ► Proforma surplus represents 140% of the regulatory capital 1,092 requirement, compared to a 500 target of 125% 673 250 0 IGD at 1 January 2009 Net movement in the period Liberty injection (2
Slide 14: IGD sensitivities
IGD sensitivities ► The stress scenarios are based on economics and portfolios at 30 June 2009, when the FTSE100 was at 4,249 (vs. 5,139 on 23 September 2009) ► The 20% equity fall sensitivity therefore represents the impact on IGD group capital of the FTSE falling to approximately 3,400 ► Even at t
Slide 15: Cost base and headcount
Cost Base and headcount ► Downward trend in cost base and headcount as policies run off and work continues to integrate the businesses ► Future cost savings from the closure of the life office in Glasgow (in 2010) and Peterborough (in 2011) 360 1,700 1,650 350 1,600 340 1,550 1,500 330 Headcount (£m
Slide 16: Asset mix of life companies
Asset mix of life companies Policyholder funds(1) At 30 June 2009 Shareholder funds(2) Participating(3) Unit-linked Total Cash deposits £2,726m 24% £5,024m £891m £8,641m Debt securities-gilts £2,219m 19% £11,448m £804m £14,471m Debt securities-bonds £4,636m 41% £14,449m £547m £19,632m Equity securit
Slide 17: Shareholder exposure to debt securities
Shareholder exposure to debt securities At 30 June 2009 Shareholder funds Gilts £2,219m 32% • No direct exposure in shareholder funds to US sub-prime mortgages or monoline insurers Other government £1,016m 15% • Limited exposure to CDOs and CLOs Corporate – financial institutions £1,408m 21% Corpora
Slide 18: Bond portfolio backing annuity liabilities
Bond portfolio backing annuity liabilities Breakdown of total bond portfolio backing annuities (UK and offshore annuity companies) By credit rating (£5.4bn) By sector (£5.4bn) Other 8% Other Retail/ 10% Consumer BBB 6% 12% Gilts & Other Supranationals financials Gilts & 44% 6% Supranationals Tech/ T
Slide 19: Credit risk allowance in annuity reserves
Credit risk allowance in annuity reserves ► c.£3bn of corporate bonds used to back annuity in payment liabilities ► 3 annuity portfolios – aggregate allowance for credit defaults of £432m ► Average allowance for credit defaults in the valuation of annuity liabilities represents 32% of the bond sprea
Slide 20: Resilient asset management businesses
Resilient asset management businesses 30 June 31 December ► £60.4bn of Pearl life company assets under (£m) 2009 2008 management Revenues 56 116 ► £5.4bn of third party assets (of which c.£2.5bn relates to Operating profit (1) 18 44 Group pension scheme assets). £1.5bn of assets were transferred to
Slide 21: Trading update
Trading update ► Balance sheet strengthened by over £1bn following completion of the transaction on 2 September 2009 ► EV growth since 30 June 2009 on a pro forma basis ► Cashflow emerging in line with 2009 target ► Group capital (IGD) position remains robust – increase in absolute amount of IGD exc
Slide 22: Summary and conclusions
3. Summary and conclusions Jonathan Moss
Slide 23: Summary
Summary ► Solid financial performance in H1 2009 ► Positive outlook for second half ► Strong long term cash generation underpins value story ► Significant integration benefits already being realised ► Proven expertise to deliver synergies ► Robust capital position and strong financial discipline ► W
Slide 24: The specialist closed life business
“The specialist closed life business” 23
Slide 25: Appendices
Appendices
Slide 26: Summary of corporate structure
Summary of corporate structure Ordinary Shares Class B Ordinary (76.5m) Shares (49.8m) • Original Liberty shareholders (73.0m) • Original Pearl shareholders and management (39.4m) • Lenders (3.5m) The Pearl Group • Lenders (4.2m) • Listed on Euronext • Royal London (6.2m) • Unlisted but pari passu w
Slide 27: Pearl Group board and management
Pearl Group board and management Jonathan Jonathan Moss Moss Simon Simon Smith Smith Ron Ron Sandler Sandler Group Chief Group Chief Group Finance Group Finance Chairman Chairman Executive Executive Director Director Rene-Pierre Rene-Pierre Tom Tom NEDs Ian Ian Ashken Ashken David David Barnes Barne
Slide 28: The annuity opportunity
The annuity opportunity ► Retained annuity vestings of £0.8bn per annum from pension maturities of approximately £1.5bn per annum ► Existing annuities in-payment in excess of £8bn in non profit funds and £2bn in with profit funds ► Potential to extract further value from the emerging flow of potenti
Slide 29: Embedded value sensitivities
Embedded value sensitivities Change in embedded value (£m) (%) Gross embedded value at 30 June 2009 4,722 100bp increase in risk-free rates (56) -1% 100bp decrease in risk-free rates 83 +2% 10% decrease in equity and property market values (165) -3% 100bp increase in credit spreads (193) -4% 25% dec
Slide 30: Life company UKGAAP results
Life company UKGAAP results Phoenix & London Pearl Phoenix Life London Life Assurance Assurance 6 months to 30 June 2009 (£m) Limited (1) Limited (2) NPI Limited Limited Plc (3) Profit before taxation Long-term business profit 109 – 37 1 78 General business loss – – – – (1) Shareholder fund (loss)/
Slide 31: Current bank credit facilities
Current bank credit facilities £m Margin(1) Maturity Repayment £25m p.a. 2011-2015 Bank facility 425.0(2) L+125bps cash 2016 Balance in 2016 Lender Loan Notes 75.0 L+100bps cash or PIK 2024 Non-amortising Total Pearl bank debt 500.0 L+100bps cash £125m p.a. from 2011 Facility A 1,275.0 2014 + 100bps
Slide 32: Summary of dilutive instruments
Summary of dilutive instruments • 41.5m warrants convertible into 41.5m shares; exercise price of €11.0 per share Ordinary share • At exercise, additional €456m will be added to net total EV warrants • Pearl Group has option to redeem warrants if share price is at or above €16.5 for any 20 trading d