Standard Life Plc · LSE:SDLF
Standard Life — Phoenix Group — Debt Investor Presentation (June 2017)
48 slides from Standard Life's debt investor presentation, June 2017
Slide 1: The UK's largest specialist closed life fund consolidator
Phoenix Group The UK’s largest specialist closed life fund consolidator Tier 2 bond offering June 2017 1
Slide 2: Agenda
Agenda Pages 1 Business overview 4 – 13 2 Cash and capital position 14 – 22 3 Debt and proposed offering 23 – 27 4 Conclusion 28 – 29 5 Appendices 30 – 46 2
Slide 3: Executive summary
Executive summary • UK market leading closed life fund consolidator, with market cap c. £3bn Phoenix • Total assets under management of £76bn • Over 6 million policyholders • All public financial targets since 2010 met or exceeded • Two M&A transactions completed in 2016 – AXA Wealth’s pension and p
Slide 4: 1. Business overview
1. Business overview 4
Slide 5: Overview of Phoenix Group
Overview of Phoenix Group • UK’s largest specialist closed life fund consolidator PHOENIX • Acquisition of Abbey Life and AXA Wealth’s GROUP pensions and protection businesses both completed in Q4 2016 • FTSE 250 and STOXX Europe 600 indices • Market cap c.£3bn as at 19 June 2017 • Enhances economic
Slide 6: Phoenix is the UK's largest closed fund consolidator
Phoenix is the UK’s largest closed fund consolidator Significant 6 growth A wealth of 5 Skills acquisition opportunities Phoenix exist in the 4 Stewardship employs a sector uniquely Providing an talented and 3 Specialism effective service experienced to our team Phoenix has a policyholders is 2 Sust
Slide 7: Phoenix is an attractive investment proposition
Phoenix is an attractive investment proposition High level of predictable long-term P cash generation, delivery of strong IFRS operating profits P Robust group solvency, resilient to market movements The UK’s largest specialist closed Consistent strategy, successfully P life consolidator, well posit
Slide 8: Four areas of strategic focus supporting our mission
We have four areas of strategic focus which support the fulfilment of our mission and the realisation of our vision 1 DRIVE VALUE 2 MANAGE CAPITAL Operating companies cash generation Solvency II surplus Maintaining strong cash flow underpins debt servicing Currently the Solvency II surplus is the re
Slide 9: Phoenix has a clear set of strategic priorities
Phoenix has a clear set of strategic priorities • Updated long-term cash generation target of £2.8 billion Cash generation between 2016 - 2020 • Between £1.0 - £1.2 billion of cash between 2017 - 2018 • AXA Wealth synergies of £13 -15 million to be achieved by end Integration of 2017 acquisitions •
Slide 10: Acquisition integration is tracked against five metrics
Acquisition integration is tracked against five metrics 1 P Better 2016 - 2020 2021+ than expected AXA Wealth £0.3bn £0.2bn with £282m to date Cash flows Abbey Life 2016 - 2020 £0.5bn 2021+ £1.1bn P On track 2 Cost AXA Wealth Targeting £13m - £15m by FY17 P original Ahead of plan synergies Abbey Lif
Slide 11: UK closed life sector expected to undergo further consolidation
The UK closed life sector is expected to undergo further consolidation over the next few years Market size is over £300bn Competitor analysis Market opportunities by owner Company AUM Competitive position The largest UK consolidator, Bank owned by AUM, actively seeking 13% £76bn further acquisition
Slide 12: Closed life fund acquisitions are the key focus
Closed life fund acquisitions are the key focus for Phoenix Group Product types and critical success factors Product types Key elements Critical success factors • Sharing of returns between • Specialist actuarial expertise policyholders/shareholders With-profits • Estate distribution needs to balanc
Slide 13: Phoenix will continue to apply its M&A criteria
Phoenix will continue to apply its M&A criteria as the market consolidates Key drivers for consolidation Phoenix strengths M&A criteria Trapped shareholder capital Scale offers capital efficiencies within legacy books through diversification P Closed life focus (UK and Ireland) Fixed cost pressure f
Slide 14: 2. Cash and capital position
2. Cash and capital position 14
Slide 15: Consistently generated predictable long-term cashflows
The Phoenix Group has consistently generated predictable long-term cashflows Annual cash generation (£m) 2010 – 2016: £4.7 billion 957 810 817 734 390 690 359 332 242 209 486 180 265 225 492 451 481 485 20 387 205 221 2010 2011 2012 2013 2014 2015 2016 Organic cash generation Management actions Igni
Slide 16: £2.8 billion long-term cashflow target
The Phoenix Group generates predictable long-term cashflows: £2.8 billion long-term cashflow target with £1.0-1.2 billion expected over next two years Illustrative future cash generation(1) £2.8 billion target £4.4bn £1.0 – £1.2 billion target £486m £265m £221m 2016 2017 2018 2019 2020 2021+ Organic
Slide 17: Debt servicing costs well supported by additional cashflows
Debt servicing costs well supported by additional cashflows which also support our acquisition strategy Illustrative uses of cash from 2017 to 2020 (£bn) 0.1 0.2 0.3 0.8 2.3 1.5 0.6 FY16 holding Cash generation Operating expenses Pension costs over Debt interest over Dividends over Illustrative hold
Slide 18: Expected £4.4 billion of cashflows beyond 2020
Beyond 2020, there is an expected £4.4 billion of cashflows to emerge, before management actions Illustrative uses of cash from 2021 onwards £0.0bn £1.8bn £4.4bn £4.1bn £1.5bn Illustrative holding company 2021+ cash generation Payment of outstanding Outstanding shareholder Illustrative holding compa
Slide 19: PLHL and PGH Solvency II surplus and SCR coverage ratio
PLHL and PGH Solvency II surplus and SCR coverage ratio Solvency II Coverage ratio(1) Shareholder Capital ratio(1) (2) 141% 126% 171% 144% Surplus £2.0bn Surplus £1.3bn £6.9bn Surplus £6.2bn £2.0bn Surplus £4.9bn £4.9bn £4.8bn £1.3bn £4.1bn £2.8bn £2.8bn PLHL PGH PLHL PGH Own funds SCR Own funds SCR
Slide 20: Solvency II surplus and cash generation resilient to markets
Solvency II surplus and long term cash generation remains resilient to market movements PLHL Solvency II surplus sensitivities(1) Cash generation sensitivities(1) FY16 Solvency II surplus £2.0bn 2016 - 2020 target £2.8bn Following a 20% fall in equity Following a 20% fall in equity markets £2.0bn ma
Slide 21: Onshoring supported by proposed subordinated debt issuance
Onshoring process is supported by proposed subordinated debt issuance Surplus at PLHL level includes senior debt as equity(1) Onshoring process PGH substituted as issuer of debt March previously issued from PGH 2017 Capital 171% 144% Solvency II capital position £0.6bn HY17 reported at PGH level £0.
Slide 22: Breakdown of SCR and Own Funds
Breakdown of SCR and Own Funds PLHL SCR by risk type(1) PLHL Own Funds by Capital Tier(1) £6.9bn Tier 3 £0.4bn Tier 2 £0.6bn 8% 10% 33% 9% 4% 7% 16% Tier 1 £5.9bn 13% £4.9bn Longevity Credit Persistency Operational PLHL tiering of Own Funds PLHL SCR Swap spreads Interest rate Other market risks Othe
Slide 23: 3. Debt and proposed offering
3. Debt and proposed offering 23
Slide 24: Simplification of debt and corporate structure
Phoenix continues to seek simplification of its debt and corporate structure Current position Future plans P £182 million AXA Wealth facility fully repaid in December 2016 • Increased size of RCF provides Bank debt P expanded £900 million RCF Abbey Life facility rolled into capacity to finance acqui
Slide 25: Summary of debt and debt maturity profile
Summary of the debt and debt maturity profile Structure of £1,750 million of outstanding debt as at 21st June 2017 Instrument Issuer/borrower Maturity Face value Bank Debt Unsecured Revolving Credit Facility (L+155bps)(1) (2) Phoenix Group Holdings June 2021 £550m(2) Unsecured Senior Bond Phoenix Gr
Slide 26: Proceeds of new Tier 2 bond to repay senior bank debt
The proceeds of the new Tier 2 bond will be used to repay the senior unsecured bank debt, keeping leverage neutral Phoenix Group Holdings (“PGH”) P Issuer Strengthens capital surplus of the Group Size USD 300m – USD 500m Maturity 10 years P Supports on-shoring and Group’s simplification Use of Gener
Slide 27: Phoenix aims for ratings upgrade during 2017
Phoenix aims for ratings upgrade during 2017 Ratings sensitivities for upgrade Status update Fitch Ratings (1) Capitalisation Phoenix's score in Prism Factor-Based Capital Model remains "extremely strong" PLL and PLAL IFS rating A Leverage Financial leverage remains below 30% PGH A- PGH £122m Se
Slide 28: 4. Conclusion
4. Conclusion 28
Slide 29: Strong business and credit profile, repositioned for growth
The Phoenix Group has a strong business and credit profile, repositioned for growth UK’s leading consolidator, well P positioned to undertake acquisitions in future P Strong support in both equity and debt markets Minimal residual integration risk P Robust and focussed set of strategic priorities. P
Slide 30: Appendices
Appendices I. Indicative Termsheet IX. Reduction in Risk Margin substantially offsets the run-off of transitional measures over time II. Structural Comparison X. Wide range of products within Phoenix at FY16 III. Recent history of the Phoenix Group XI. Phoenix has a long track record of managing lon
Slide 31: Appendix I - Indicative Termsheet
Appendix I - Indicative Termsheet Issuer Phoenix Group Holdings (“PGH”) Size USD [ ] Maturity [ ] 2027 (subject to Solvency Condition and Regulatory Clearance Conditions) Scheduled Call Options None Senior Rating / Expected Issue Rating BBB+ / BBB- (Fitch) (Positive outlook) [ ]%, payable semi-an
Slide 32: Appendix II - Structural comparison
Appendix II - Structural comparison PGH 2027 Notes Legal & General Tier 2 AXA Tier 2 PGH 2025 Notes Issuer Phoenix Group Holdings Legal & General Group plc AXA SA Phoenix Group Holdings1 Issue Date [●] 2017 14 March 2017 10 January 2017 23 January 2015 Size USD [●]m USD 850m USD 1,000m GBP 428m Teno
Slide 33: Appendix III - Recent history of the Phoenix Group
Appendix III - Recent history of the Phoenix Group 2011/2012 • New Management Team 2013 • £250m equity raise and re-termed bank debt • Sale of Ignis Asset Management for £390m to Standard Life 2014 • £300m 7-year senior bond issue • New single bank facility of £900m • Exchange of £425m Tier 1 bond i
Slide 34: Appendix IV - Current corporate structure
Appendix IV - Current corporate structure £900m (£550m drawn) Unsecured £428m Tier 2 notes (2025) Revolving Credit Facility £450m Tier 3 notes (2022) Phoenix Group Holdings £122m senior notes (2021) Proposed Tier 2 transaction Intermediate holdcos Phoenix Life Holdings (PLHL) Abbey Life Pearl Group
Slide 35: Appendix V - Capital management framework under Solvency II
Appendix V - Current capital management framework under Solvency II Group solvency (PGH) • Following expiry of ‘other methods’ waiver on 30 June Phoenix Group Debt interest and repayments 2017, Group supervision Holdings Shareholder dividends and capital position calculation will also be Cash undert
Slide 36: Appendix VI - Maximising operational efficiency
Appendix VI - Ongoing focus on maximising operational efficiency Costs reductions track policy run-off Cumulative 2010 – 2011 2011 – 2012 2012 – 2013 2013 – 2014 2014 – 2015 since 2010 Policy 6.9% 6.7% 10.4%(2) 8.5% 4.5% 32.0% run-off Costs(1) 9.2% 7.2% 9.6% 9.8% 6.9% 36.1% run-off • Underpinned by
Slide 37: Appendix VII - Management actions in 2016
Appendix VII - Management actions in 2016 have added £463 million to Solvency II surplus Increase overall cashflows Accelerate cashflows Increase Solvency II Own Funds Reduce Solvency II SCR • Part VII transfer of annuity portfolio • Longevity swap with external reinsurer • Reduced expense agreement
Slide 38: Appendix VIII - Transitional recalculations offset Risk Margin moves
Appendix VIII - Transitional recalculations offset moves in the Risk Margin • Transitionals are used to smooth the transition to the Solvency II regime • PRA have stated that transitionals are Tier 1 capital • Solvency II uses a swaps discount curve less a credit risk adjustment (rather than a gilts
Slide 39: Appendix IX - Reduction in Risk Margin offsets transitional run-off
Appendix IX - Reduction in Risk Margin substantially offsets the run-off of transitional measures over time Illustrative Solvency II evolution of liabilities(1) Solvency II technical provisions (before transitionals) Other technical Solvency II technical provisions provisions Other technical Transit
Slide 40: Appendix X - Wide range of products within Phoenix
Appendix X - Wide range of products within Phoenix at FY16 Product Shareholder exposure Principal shareholder risks • Typically the shareholder receives • Indirect Market / ALM risk Unsupported 10% of declared bonus (90:10 • Indirect Longevity risk with-profits structure) • Indirect Lapse risk • Sha
Slide 41: Appendix XI - Track record managing longevity risk
Appendix XI - Phoenix has a long track record of managing longevity risk Significant history of annuity transactions Gross liabilities at 31 December 2016 Other Risk reduction £1bn 2012 Sale of £5bn annuity book to Guardian Annuities 2014 Sale of £2bn annuity book to Guardian £12bn With Profits 2014
Slide 42: Appendix XII - Future sources of growth in annuity book
Appendix XII - Future sources of growth in our annuity book Vesting annuities Acquiring annuity portfolios Bulk annuity market • Phoenix only writes annuities • Back books of annuities may • Projected demand of £350 for existing policyholders be sold by vendors as billion over next 10 years portfoli
Slide 43: Appendix XIII - Impact of Brexit on Phoenix Group
Appendix XIII - Impact of Brexit on Phoenix Group • Significant fall in swap rates following EU Referendum impacted Impact on capital Solvency II position, in line with the sensitivities disclosed at position FY15 • Additional management actions delivered during 2016 • High quality corporate bond po
Slide 44: Appendix XIV - Asset mix of life companies
Appendix XIV - Asset mix of life companies Policyholder funds(3) Total shareholder, Non- non-profit and supported At 31 December 2016 supported with- with-profits Total Total £m unless otherwise stated profits(2) % funds Unit-linked policyholder assets(1) Cash deposits 3,696 19 4,342 1,858 6,200 9,8
Slide 45: Appendix XV - Credit rating analysis of debt portfolio
Appendix XV - Credit rating analysis of debt portfolio Policyholder funds Total shareholder, Non- non-profit and supported At 31 December 2016 supported with- with-profits Total £m profits funds Unit-linked policyholder Total assets AAA 2,268 1,626 519 2,145 4,413 AA 5,521 7,962 1,415 9,377 14,898 A
Slide 46: Appendix XVI - Total debt exposure by country
Appendix XVI - Total debt exposure by country Corporate: Sovereign Financial Corporate: Asset Backed Total debt Total At 31 December 2016 and Supranational Institutions Other Securities securities debt £m Shareholder Policyholder Shareholder Policyholder Shareholder Policyholder Shareholder Policyho
Slide 47: Disclaimer and other information
Disclaimer and other information • This presentation in relation to Phoenix Group Holdings (the “Company”) 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
Slide 48: Disclaimer and other information
Disclaimer and other information • This presentation may not be reproduced, retransmitted or further distributed to the press or any other person or published, in whole or in part, for any purpose. Failure to comply with this restriction may constitute a violation of applicable securities laws. This
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