Standard Life Plc · LSE:SDLF
Standard Life — Phoenix Group Holdings — FY2016 Earnings Presentation
52 slides from Standard Life's earnings presentation, Mar 20, 2017
Slide 1: Full Year Results 2016
Full Year Results 2016 20 March 2017 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: In 2016 Phoenix reinforced its position as the UK's largest closed life fund consolidator
In 2016 Phoenix reinforced its position as the UK’s largest closed life fund consolidator Total cash generation (2016+) PLHL Solvency II surplus(1) £7.2bn 170% 38% 46% £5.2bn £4.4bn 2021+ 154% £3.2bn 2021+ £1.9bn £2.8bn £1.3bn £2.0bn 2016-2020 2016-2020 FY15 FY16 FY15 FY16 Life company assets Policy
Slide 5: Business update
Business update Clive Bannister 5
Slide 6: Key highlights in 2016
Key highlights in 2016 Key highlights P Completion of AXA Wealth and Abbey Life acquisitions P Cash generation of £486 million P Additional £165 million of cash achieved in Q1, totalling £282 million of cash from the AXA Wealth acquisition to date and ahead of target P Expected capital and cost syne
Slide 7: 18 month integration process ahead of plan – completion mid 2018
18 month integration process ahead of plan – completion mid 2018 27 May: 1 Nov: March: Beginning AXA Wealth Transaction Internal Model 2018: announcement completion approval Integration complete AXA Wealth 2016 2017 2018 Abbey Life H2 2017: 28 Sep: 30 Dec: Application for Mid 2018: Abbey Life Transa
Slide 8: Acquisition integration will be tracked against five metrics
Acquisition integration will be tracked against five metrics 1 P 2016 - 2020 2021+ Better than expected AXA Wealth £0.3bn £0.2bn with £282m to date Cash flows 2016 - 2020 2021+ Abbey Life £0.5bn £1.1bn P On track 2 Cost AXA Wealth Targeting £13m - £15m by FY17 P Ahead of original plan synergies Abbe
Slide 9: New £2.8 billion long-term cashflow target
New £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 cash generation Management actions Illustrative future
Slide 10: Increases in dividend to new stable and sustainable level
Increases in dividend to new stable and sustainable level Dividends Proposed dividends per share (rebased)(2) 50.2p • Final 2016 dividend of 23.9p, an increase of 5% on rebased level of 22.7p in 2015(1) 46.6p • Further 5% increase to 25.1p expected for Interim 2017 dividend 45.4p • Dividend policy r
Slide 11: Financial review
Financial review Jim McConville 11
Slide 12: Financial highlights
Financial highlights FY16 FY15 £ Operating companies cash generation 486m 225m Cash Holding company cash 570m 706m PLHL Solvency II surplus (estimated) 1.9bn(1) 1.3bn Group capital Shareholder Capital coverage ratio (estimated) 170%(1) 154% IFRS Group operating profit 351m 324m Dividends Final divid
Slide 13: 2016 cash generation enhanced by AXA Wealth acquisition
2016 cash generation enhanced by AXA Wealth acquisition £m FY16 FY15 • 2016 cash generation of £486 Opening cash and cash equivalents 706 988 million, of which £117 million from AXA Wealth Total cash receipts from Phoenix Life 486 225 • £265 million of cash generation through management actions Uses
Slide 14: Additional cashflows to support acquisition strategy
Additional cashflows to support acquisition strategy Illustrative uses of cash from 2017 to 2020 (£bn) 0.1 0.2 0.3 0.5 2.3 0.8 1.0 0.6 FY16 holding Cash generation Operating Pension costs Debt interest Debt repayments Dividends over Illustrative company cash over 2017-2020 expenses over over 2017-20
Slide 15: Beyond 2020, expected £4.4 billion of cashflows to emerge
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 £1.2bn £4.4bn £4.1bn £1.0bn Illustrative holding company 2021+ cash generation Payment of outstanding Outstanding shareholder Illustrative holding compa
Slide 16: Solvency II Shareholder Capital coverage ratio of 170%
Solvency II Shareholder Capital coverage ratio of 170% Shareholder Capital position(1) • Shareholder Capital ratio calculation excludes Own Funds 170% 154% and SCR of unsupported with- profit funds and PGL pension scheme(2) • AXA Wealth businesses Surplus incorporated into Phoenix’s £1.9bn Internal
Slide 17: Acquisitions and management actions have increased Group solvency
Acquisitions and management actions have increased Group solvency Change in Solvency II surplus(1) £0.3bn £0.2bn 170% £0.2bn £0.5bn £0.2bn £0.2bn 154% £0.2bn £1.9bn £1.7bn £1.3bn Surplus as at Surplus emerging Management Impact of Assumption, Economic & other Dividend & Surplus as at Pro forma Pro f
Slide 18: Management actions have added £463 million to Solvency II surplus
Management actions 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 agreements with life • Operation
Slide 19: Solvency II surplus and cash generation resilient to market movements
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 £1.9bn 2016 - 2020 target £2.8bn Following a 20% fall in equity Following a 20% fall in equity £1.9bn markets £2
Slide 20: Transitional recalculations offset moves in the Risk Margin
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 curve) together
Slide 21: Reduction in Risk Margin offsets run-off of transitional measures
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 Transitionals provisi
Slide 22: Continued significant contribution to operating profit from management actions
Continued significant contribution to operating profit from management actions £m FY16 FY15 • Phoenix Life operating profits enhanced by £157 million of Phoenix Life 357 336 management actions Group costs (6) (12) • Economics negatively impacted Operating profit before tax 351 324 by decline in yiel
Slide 23: Phoenix continues to seek simplification of its 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 • Increased size of RCF provides capacity to finance acquisitions Bank debt P Abbey Life facility rolled into expanded £900 million R
Slide 24: Onshoring process is supported by the recent Tier 3 bond issue
Onshoring process is supported by the recent Tier 3 bond issue Surplus at PGH level includes senior debt(1) Next steps 170% PGH substituted as issuer of debt Q1 2017 previously issued from PGH Capital £0.5bn 138% Solvency II capital position £0.3bn HY17 £0.1bn £0.1bn reported at PLHL and PGH level £
Slide 25: Phoenix Life
Phoenix Life Andy Moss 25
Slide 26: Key Phoenix Life achievements in 2016
Key Phoenix Life achievements in 2016 1 Completion of Part VII transfer of annuity portfolio to ReAssure Supported Management Further optimisation of Matching Adjustment cash flow actions portfolios delivery Implementation of £2 billion longevity swap 2 Continued improved customer treatment
Slide 27: Phoenix will move the acquired businesses to its Target Operating Model
Phoenix will move the acquired businesses to its Target Operating Model Target Operating Model Target outcomes Move policy administration to outsourced Number of FY16 HY18 model Finance and Actuarial systems 9 3 Incorporate acquired businesses into Phoenix Internal Model Number of FY16 HY18 Core Lif
Slide 28: AXA Wealth integration progressing as planned
AXA Wealth integration progressing as planned Key achievements to date Future expectations P Closed to new customers with the exception of SunLife branded products Outsource of in-house Customer Service operations and IT, moving to a variable Operations cost model P Strong support in place for IFA
Slide 29: Abbey Life business fully operational and integration plans in place
Abbey Life business fully operational and integration plans in place Key achievements to date Future expectations P Business set up to operate from completion Customer Service and related IT fully operational and remaining with Capita Operations P Board and governance arrangements established Tr
Slide 30: Indemnity protection regarding the Abbey Life enforcement action
Indemnity protection with regards to the Abbey Life enforcement action operating within tolerances expected Deed of Indemnity Current position Thematic review relating to the treatment of long- standing customers Scope (Enforcement Investigation) • The investigations are ongoing but in Thematic
Slide 31: Regulatory changes continue to shape the industry
Regulatory changes continue to shape the industry • Outcome of the Legacy Review published – follow up actions identified and completion in hand FCA Conduct • Over 55s cap on pension contract exit charges to be introduced from March Regulation 2017 - impact on Phoenix of £10 million and Abbey Life o
Slide 32: Continuing to deliver improved service and greater options for customers
Continuing to deliver improved service and greater options for our customers Customer 2016 actions Customer metrics Full year 2016 target(1) • Improved website with tools to help customer decision making Speed of Pension Transfer 11.3 days <12 days pay-outs (ORIGO) • Simple digital journey for some
Slide 33: SunLife's new business complements writing of vesting annuities
SunLife’s new business complements writing of vesting annuities Vesting annuities SunLife • Phoenix only writes annuities for existing • SunLife marketing and distribution established policyholders as separate operating model • Wrote £370 million of Guaranteed Annuity • Products for Over 50s with fo
Slide 34: Outlook
Outlook Clive Bannister 34
Slide 35: New cash generation targets
New cash generation targets • Updated cash generation target of £2.8 billion between Cash 2016-2020 generation targets • Targeting £1.0 – £1.2 billion of cash generation over 2 year period between 2017 - 2018 Continued focus Stable, Investment grade Growth through on management sustainable credit ra
Slide 36: A wide range of further acquisition opportunities for Phoenix
There remains a wide range of further acquisition opportunities for Phoenix Product types and critical success factors Market size is over £300bn Key elements Critical success factors Market opportunities by owner(1) • Sharing of returns between • Specialist actuarial expertise policyholders/shareho
Slide 37: Phoenix will continue to apply its M&A criteria as the market consolidates
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 UK closed life focus Fixed cost pressure from policy Out
Slide 38: 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 • A
Slide 39: Q&A
Q&A 39
Slide 40: Appendices
Appendices I Overview of Solvency II VIII Total debt exposure by country II Capital management framework IX Credit rating analysis of debt portfolio III Change in Phoenix Life Free Surplus X Current corporate structure IV Estimated PLHL Solvency II surplus and XI Outline of current debt structure SC
Slide 41: Appendix I: Overview of Solvency II
Appendix I: Overview of Solvency II Summary of Solvency II capital regime Capital protection for policyholders “Buffers” that provide protection to policyholders Surplus under Solvency II: Own Funds Capital • Risk Margin requirements (SCR) • Solvency Capital Requirement (SCR) Assets Risk margin • Ph
Slide 42: Appendix II: Current capital management framework under Solvency II
Appendix II: Current capital management framework under Solvency II Phoenix Group Debt interest and repayments Holdings Shareholder dividends Cash remittances Group solvency (PLHL) Phoenix Life Head office costs • Partial Internal Model(1) Holdings Limited Pension scheme contributions • Group capita
Slide 43: Appendix III: Change in Phoenix Life Free Surplus
Appendix III: Change in Phoenix Life Free Surplus Change in Phoenix Life Free Surplus in 2016 (£bn)(1) 0.1 0.3 0.2 0.2 0.4 0.6 1.1 0.7 0.2 0.1 Opening Free Surplus emerging Management Impact of Assumption, Economic & other AXA Internal Free Surplus Cash remittances Closing Free Surplus & release of
Slide 44: Appendix IV: Estimated PLHL Solvency II surplus and SCR coverage ratio
Appendix IV: Estimated PLHL Solvency II surplus and SCR coverage ratio PLHL Solvency II Coverage ratio(1) PLHL Shareholder Capital ratio(1) 140% 130% 170% 154% Surplus £1.9bn Surplus £1.3bn Surplus £1.9bn Surplus £1.3bn £6.8bn £5.7bn £4.8bn £4.9bn £3.8bn £4.4bn £2.9bn £2.5bn FY16 FY15 FY16 FY15 Own
Slide 45: Appendix V: Breakdown of SCR and Own Funds
Appendix V: Breakdown of SCR and Own Funds PLHL SCR by risk type(1) PLHL Own Funds by Capital Tier(1) £6.8bn Tier 3 £0.4bn Tier 2 £0.6bn 8% 10% 33% 9% 4% 7% Tier 1 £5.8bn 13% 16% £4.9bn Longevity Credit Persistency Operational PLHL tiering of Own Funds PLHL SCR Swap spreads Interest rate Other marke
Slide 46: Appendix VI: Phoenix Life operating profit drivers
Appendix VI: Phoenix Life operating profit drivers FY16 FY15 Reported Opening Closing Expected Reported Opening Closing Expected Operating liability/ liability/ return Operating liability/ liability/ return Profit equity(2) equity(2) margin(1) Profit equity(2) equity(2) margin(1) Fund type How profi
Slide 47: Appendix VII: Asset mix of life companies
Appendix VII: 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 9,89
Slide 48: Appendix VIII: Total debt exposure by country
Appendix VIII: 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 49: Appendix IX: Credit rating analysis of debt portfolio
Appendix IX: 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 50: Appendix X: Current corporate structure
Appendix X: Current corporate structure Phoenix Group Holdings Key: Listed top company Holding companies Intermediate holdcos Life companies Management services Phoenix Life Holdings (PLHL) Non-operating regulated company Abbey Life Pearl Group Assurance Impala Holdings Holdings (No.2) Company Limit
Slide 51: Appendix XI: Outline of current debt structure
Appendix XI: Outline of current debt structure Structure of £1,778 million of outstanding debt as at March 2017 Instrument Issuer/borrower Maturity Face value Bank Debt Unsecured Revolving Credit Facility (L+155bps)(1) Phoenix Group Holdings June 2020 £550m(2) Unsecured Senior Bond Phoenix Group Hol
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
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