Aviva Plc · LSE:AV.
Aviva — Friends Life Group — FY2014 Earnings Presentation
35 slides from Aviva's earnings presentation, Mar 5, 2015
Slide 1: Friends Life Group Limited Full Year 2014 Results
Friends Life Group Limited Full Year 2014 Results 5 March 2015
Slide 2: Important notice
Important notice This presentation has been prepared by Friends Life Group Limited for information purposes only and is the sole responsibility of Friends Life Group Limited. This presentation does not constitute or form part of an offer, invitation or solicitation to sell, purchase, otherwise acqui
Slide 3: Agenda
Agenda 2014 full year results update Tim Tookey CEO update Andy Briggs Q&A 3 3
Slide 4: 2014 financial highlights
2014 financial highlights Strong cash growth delivered Sustainable free surplus, £m Free surplus expected return, £m IFRS based operating profit, £m Earnings +2% 652 28.64p 38.15p 638 per share +38% 556 +15% 373 325 402 FY 2013 FY 2014 FY 2013 FY 2014 FY 2013 FY 2014 MCEV operating profit, £m IRR, %
Slide 5: Sustainable free surplus
Sustainable free surplus SFS growth built on strong foundations Sustainable free surplus Divisional performance Heritage division, £m £m FY 2013 FY 2014 Expected return from in-force 445 462 638 652 +2% business Investment in new business (189) (169) UK division, £m Underlying free surplus 449 483 +
Slide 6: UK & Heritage expected return
UK & Heritage expected return £39m uplift delivered Free surplus emergence Drivers of 2014 growth UK & Heritage emergence, £m • As expected, natural run-off of the in- force books has been more than offset +£39m by: • Heritage initiatives completed in Recap: March 2014 presentation1 2013, including:
Slide 7: Insurance businesses: Heritage
Insurance businesses: Heritage Initiatives drive strong Heritage underlying cash growth Heritage 2014 performance drivers Underlying free surplus, £m • Initiatives completed in 2013 drive £16m p.a. benefit in expected return • Investment in new business is down 33%, reflecting the closure of the FY
Slide 8: Asset-based businesses: Corporate Benefits
Asset-based businesses: Corporate Benefits Benefits of scale driving free surplus growth Corporate Benefits Drivers of performance Underlying free surplus, £m Assets under administration, £bn +9% FY 2013 HY 2014 FY 2014 1.3 22.0 Income 110 62 bps 60 60 bps 122 61 bps 20.1 2.5 (1.9) 17.8 Outgoings (9
Slide 9: Insurance businesses: Protection
Insurance businesses: Protection Financially disciplined performance despite competitive pressures Protection New business Underlying free surplus, £m VNB, £m PVNBP margin, % 75 69 H2 43 38 FY 2013 HY 2014 FY 2014 12.0 H1 9.2 10.8 32 31 Expected return 30 15 31 FY 2013 FY 2014 FY 2013 HY 2014 FY 201
Slide 10: Insurance businesses: Retirement Income
Insurance businesses: Retirement Income Market changes impact cash generation Retirement Income New business Underlying free surplus, £m VNB, £m PVNBP margin, % 83 FY 2013 HY 2014 FY 2014 H2 39 51 23 12.5 9.4 9.1 H1 44 28 Expected return 10 6 15 FY 2013 FY 2014 FY 2013 HY 2014 FY 2014 INB (6) (12) (
Slide 11: Insurance businesses: International
Insurance businesses: International A year of difficult trading International New business Underlying free surplus, £m VNB, £m PVNBP margin, % 21 H2 12 FY 2013 HY 2014 FY 2014 12 H1 7 5 2.3 9 1.5 1.5 Expected return 77 28 52 FY 2013 FY 2014 FY 2013 HY 2014 FY 2014 APE, £m IRR, % INB (39) (14) (29) 1
Slide 12: IFRS based operating profit
IFRS based operating profit Strong IFRS performance Group IFRS based operating profit Drivers of in-force surplus • Phase 1 with-profit annuity reallocation £m FY 2013 FY 2014 • New business and positive economics In-force surplus 473 504 offsetting book run-off Expected return on shareholder assets
Slide 13: Group expenses
Group expenses Efficient cost management Operating expenses, £m Non-recurring costs, £m -2% 184 563 549 11 Separation & Integration Corporate costs 34 26 -24% Development 47 46 71 Outsourcing Acquisition 157 164 +4% Solvency II, finance 36 transformation 325 21 Significant regulatory change Maintena
Slide 14: MCEV operating profit
MCEV operating profit Lower VNB contribution offsetting improved in-force returns Group MCEV operating profit Other operating variances • Phase 2 of with-profits annuity £m FY 2013 FY 2014 reallocation: £68m Expected existing business contribution 215 241 • Recapture of £1.6bn assets backing annuiti
Slide 15: Capital and cash
Capital and cash Strong capital position maintained IGCA surplus and sensitivities to market movements Strong capital position £bn Coverage • Estimated IGCA surplus of £2.3bn 238% 240% ratio 4.01 IGCA surplus sensitivities to • Capital base remains resilient to market 3.81 market movements, £bn move
Slide 16: Capital and cash
Capital and cash Lombard sale benefiting capital position IGCA surplus and ASA Strong capital and cash IGCA surplus, £m • Lombard sale completed, enhancing capital Coverage ratio Coverage ratio and cash positions 238% 240% 301 (299) • Share buy back cancelled following offer from 2,236 189 (87) 2,34
Slide 17: Key messages
Key messages Successfully delivering value Successfully delivering Cash today & tomorrow • Sustainable free surplus £373 million, up 15% • Heritage initiatives driving cash tomorrow • IFRS based operating profit before tax of £556 million, up 38% Capital strength maintained • IGCA surplus at £2.3 bi
Slide 18: Agenda
Agenda 2014 full year results update Tim Tookey CEO update Andy Briggs Q&A 18 18
Slide 19: Key messages
Key messages Significant transformation and value delivery achieved • Strong cash generation and growth • Restructured business to deliver substantial cost reductions • Superior back book management • Leverage scale position to drive profitable growth while responding to external change • Strong sha
Slide 20: Strong cash generation and growth
Strong cash generation and growth Improved “cash today” and “cash tomorrow” Cash – SFS, £m Growth – UK VNB, £m 400 373 200 184 350 325 304 150 142 141 300 282 250 100 Go elsewhere 200 63 50 150 <100 100 0 50 (10) 0 (50) 2010 2011 2012 2013 2014 2010 2011 2012 2013 2014 20 20
Slide 21: Restructured business to deliver substantial cost reductions
Restructured business to deliver substantial cost reductions Consistent strategy delivered underpinned by rigorous financial discipline Rationalisation of new business and platforms Cost savings achieved 2011-14, £m Disposal of Lombard 200 Delivered Secured Lombard 160 160 150 140 20 31 105 54 £316m
Slide 22: Superior back book management
Superior back book management Delivered enhanced cash generation from back book businesses Capital and liability optimisation programme (COP) 2011-13 complete Revenue Optimisation – Generating cash from the back book UK businesses acquired End 2013 FLL Further Initiatives Initiatives Mainly Heritage
Slide 23: Leverage scale position to drive profitable growth
Leverage scale position to drive profitable growth Turnaround in performances of UK open businesses Corporate Benefits Protection Asset under administration, £bn Value of new business, £m 22.0 62 75 69 20.1 17.8 16 (20) 2012 2013 2014 2010 2011 2012 2013 2014 Underlying free surplus, £m 29 Internal
Slide 24: Retirement Income: Responding to external change
Retirement Income: Responding to external change Enhanced customer service and offering to help meet evolving needs My Savings platform, tools and services Customer engagement • Recognise our customers will require full support to make informed retirement decisions • Created a significantly resource
Slide 25: Strong shareholder return, well positioned for the future
Strong shareholder return, well positioned for the future Aviva deal accelerates Friends Life’s stated strategy Combined Friends Life/Aviva UK Life and Friends Life shareholder value progression Pensions strategic rationale 8.0 Market Cap Dividends & Buybacks 7.2 7.0 6.6 21% Total 1.4 6.0 annual ret
Slide 26: Summary
Summary Significant transformation and value delivery achieved • Strong cash generation and growth • Restructured business to deliver substantial cost reductions • Superior back book management • Leverage scale position to drive profitable growth while responding to external change • Strong sharehol
Slide 27: Q&A
Agenda Q&A 27 27
Slide 28: Appendices
Appendices 28
Slide 29: Group underlying free surplus
Group underlying free surplus Underlying free surplus up 8% Group underlying free surplus £m Insurance Asset-based Total Ret. Corporate Prot. Income Heritage FPI Benefits FY 2014 Expected 31 15 481 52 579 Income 122 return INB (37) (24) (35) (29) (125) Outgoings (92) Other1 (1) Underlying Underlying
Slide 30: IFRS based operating profit
IFRS based operating profit Strong underlying growth delivered Group IFRS based operating profit £m • Recapture of assets backing annuities £90m • Phase 2 WP annuity realloc. £19m 556 • Longevity basis £103m • Other £23m 402 +35% 235 32 321 (164) 27 31 238 (27) 20 New business strain • Net book grow
Slide 31: IFRS result after tax
IFRS result after tax Results reflect adverse economic variances Group IFRS result after tax £m 600 556 500 (207) 400 300 (184) 31 221 25 200 100 (288) 0 -100 (67) (71) -200 (138) FY 2014 Investment Non-recurring Tax1 STICS coupon IFRS profit Acquisition FY 2014 IFRS Discontinued FY 2014 IFRS IFRS b
Slide 32: MCEV development to 31 December 2014
MCEV development to 31 December 2014 Economics and Lombard sale driving change in Group MCEV Change in net Group MCEV £m £m FY 2014 7,000 UK 1,773 -4% Heritage 3,976 (143) International 515 6,500 (277) Corp. (735) 498 Total 5,529 (3) (43) 14 (283) 6,065 6,000 5,828 (299) • Interest rates £71m 5,529
Slide 33: Balance sheet
Balance sheet Continued high asset quality Overview of balance sheet Rating of £11bn corporate bond assets Shareholder assets and assets <BBB / FY 2014 IFRS balance sheet Not Rated AAA £110bn £110bn backing non-profit business BBB 4% Other £6bn £bn % 11% Property £3bn Cash £8bn Cash 4 21% 22% AA 19%
Slide 34: Group restatement & impact of Lombard disposal
Group restatement & impact of Lombard disposal Lombard sold October 2014 FY 2013 FY 2013 £m £m Group Group Group Group Lombard Lombard IFRS operating profit (as reported) (restated) SFS (as reported) (restated) New business strain (97) (31) (66) Expected return from in-force business 682 44 638 In-f
Slide 35: Non-core OLAB restatement
Non-core OLAB restatement OLAB transferred to Heritage from International division FY 2013 £m As reported Restated Non-core IFRS operating profit FPI Heritage OLAB FPI Heritage New business strain (40) (25) (16) (24) (41) In-force surplus 140 264 40 100 304 Long-term investment return (1) (84) - (1)