Standard Life Plc · LSE:SDLF
Standard Life — Phoenix Group — Investor Day (November 2018)
69 slides from Standard Life's investor day presentation, Nov 29, 2018
Slide 1: Phoenix Group Capital Markets Day
Phoenix Group Capital Markets Day Phoenix = Cash. Resilience. Growth. 29 November 2018 1
Slide 2: Content
Content 1 Introduction Nicholas Lyons | Chairman Trading update and 2 Jim McConville | Group Finance Director and Group Director, Scotland Phoenix’s Transition 3 Heritage Business Andy Moss | Chief Executive, Phoenix Life and Group Director, Heritage Business Chief Executive, Standard Life Assurance
Slide 3: Phoenix's Transition
1 Introduction Nicholas Lyons | Chairman Trading update and 2 Jim McConville | Group Finance Director and Group Director, Scotland Phoenix’s Transition 3 Heritage Business Andy Moss | Chief Executive, Phoenix Life and Group Director, Heritage Business Chief Executive, Standard Life Assurance Limited
Slide 4: Phoenix continues to deliver strong performance in 2018
Phoenix continues to deliver strong performance in 2018 • Strong 2018 cash generation of £664 million Exceeded cash generation target • £1.3 billion cash generation in 2017-2018 exceeds upper end of £1.0 - £1.2 billion target range Improved capital • Q3 Solvency II surplus of £3.1 billion, 164% cove
Slide 5: Phoenix delivers £1.3 billion cash generation in 2017-2018, exceeding target range
Phoenix delivers £1.3 billion cash generation in 2017-2018, exceeding the upper end of the target range Phoenix cash generation £1.3bn £1.0bn - £1.2bn £315m £349m £293m £360m 1H17 2H17 1H18 2H18 2017-18 Target 5
Slide 6: The acquisition of SLAL is transformational for Phoenix
The acquisition of SLAL is transformational for Phoenix Before(1) After(1) %change Cash generation (2018+) £6.5bn £12.0bn +85% SII surplus £1.8bn £2.5bn +39% AUA £74bn £240bn +224% Policies 5.6m 10.4m +86% Cost base £264m £600m +127% FTE 814 4,352 +435% (1) All figures at 31 December 2017 with the e
Slide 7: At the Half Year 2018 results we outlined the timetable for the transition programme
At the Half Year 2018 results we outlined the timetable for the transition programme Transition programme milestones Market communications 3 Sep 2018 • Governance structure in place = Day 1 • Strategic partnership operational 29 Nov 2018 Capital Markets • Transition planning complete Day 31 Dec 2018
Slide 8: Our transition programme has a clear set of objectives
Our transition programme has a clear set of objectives Design and implement the end state Indicative net value of synergies operating model £135m Retain the best of both organisations £440m Deliver synergy benefits for cost and capital £720m £415m Embed the strategic partnership with Standard Life A
Slide 9: Design of the end state operating model will follow 5 guiding principles
Design of the end state operating model will follow 5 guiding principles 1 Preserve the Heritage business model 2 Support a capital light Open book model 3 Strengthen platform for future acquisitions 4 Facilitate effective delivery of synergies 5 Ensure confidence in the Group 9
Slide 10: Today the Group has two independent businesses using two internal models and Standard Formula
Today the Group has two independent businesses using two internal models and Standard Formula to calculate capital requirements Group Standard Life Phoenix Life UK and Europe UK Standard Life SLAL PLL PLAL ALAC International SLAL STANDARD PHOENIX INTERNAL MODEL INTERNAL MODEL FORMULA Open and Herita
Slide 11: By 2020, the end state operating model will have one UK Lifeco legal entity
By 2020, the end state operating model will have one UK Lifeco legal entity with two business segments and a separate European business, all on a single internal model Group Europe ~ £24bn UK ~ £216bn AUA AUA Standard Life Single UK Life Company International INTERNAL MODEL Open business Heritage bu
Slide 12: Phoenix will apply a single approach to the management of its £240 billion of in-force business
Phoenix will apply a single approach to the management of its £240 billion of in-force business UK Heritage UK Open Europe Cash generation £125bn £91bn £24bn MANAGEMENT ACTIONS DELIVERED ON ALL IN-FORCE BUSINESS • With-profits Unit linked: Ireland: In-force • Unit linked • £12bn of cash • Unit linke
Slide 13: The end state operating model will be delivered in three phases over three years
The end state operating model will be delivered in three phases over three years and not four 2019 2020 2021 PHASE 1 – Enabling functions PHASE 2 – Finance and Actuarial PHASE 3 - Customer and Technology 13
Slide 14: We have already delivered £400 million of capital synergies
We have already delivered £400 million of capital synergies £400m capital synergies now delivered Future management actions SLAL equity hedge implementation £350m Internal Model 2020 SLAL currency hedge implementation £50m Strategic Asset Allocation 2019-2021 Total £400m Part VII transfer 2021 Equit
Slide 15: We expect to meet or exceed our £50 million per annum cost synergy target
We expect to meet or exceed our £50 million per annum cost synergy target from a £600 million cost base PHASE 1 – Enabling PHASE 2 – Finance and PHASE 3 – Customer and functions Actuarial Technology Opportunities Opportunities Opportunities • Harmonised systems across Risk, HR, Legal, Procurement •
Slide 16: Key messages
Key messages We have delivered strong 2018 results and exceeded the upper end of our 2017-2018 cash generation target Our end state operating model will have three business segments: UK Heritage, UK Open and Europe with single support functions Our transition programme will be delivered in three pha
Slide 17: Heritage Business
1 Introduction Nicholas Lyons | Chairman Trading update and 2 Jim McConville | Group Finance Director and Group Director, Scotland Phoenix’s Transition 3 Heritage Business Andy Moss | Chief Executive, Phoenix Life and Group Director, Heritage Business Chief Executive, Standard Life Assurance Limited
Slide 18: Phoenix specialises in the safe and efficient management of Heritage business
Phoenix specialises in the safe and efficient management of Heritage business UK HERITAGE BUSINESS £125bn AUA Products that are not actively marketed to customers In-force business New business UK Heritage product mix • With-profit 22% 27% • Unit linked • Vesting annuities • Annuities • BPA 6% 3% •
Slide 19: We have a track record of delivering value through cash generation
We have a track record of delivering value through cash generation Organic cash generation Management actions • Cash generation enhanced through • Organic cash generation emerges naturally management actions which either: as business runs off − Increase overall cash flows; or • Comprises capital unw
Slide 20: Management actions maximise shareholder value from each product type
Management actions maximise shareholder value from each product type Management actions With-profit • Buyout of non-profit business from with-profits funds • Review of investment strategy to optimise returns and fees • Actions to increase estate distribution With-profit • Optimise investment strateg
Slide 21: Additional management actions are delivered at an entity level to increase value or accelerate cash
Additional management actions are delivered at an entity level to increase value or accelerate cash Part VII transfer Cost efficiencies • Delivers capital efficiencies from bringing • Reducing costs increases shareholder value business into a single legal entity • Driven by improvements to outsource
Slide 22: Move to a single, digitally enhanced outsourcer platform will improve customer outcomes
Move to a single, digitally enhanced outsourcer platform will improve customer outcomes and deliver cost savings Move to a single primary outsource model driven by Benefits to customers and desire for shareholders Digital • An enhanced digital servicing offering P Enhanced customer experience offeri
Slide 23: We have a structured approach to identifying future management actions
We have a structured approach to identifying future management actions across our £240 billion of in-force business Balance sheet opportunity increased Management action opportunities £240bn Operational Restructuring management Risk Effective £74bn management partnerships AUA FY17 AUA Q318 23
Slide 24: We are focused on improving outcomes for our Heritage customers
We are focused on improving outcomes for our Heritage customers Abbey Life case study At acquisition: Now: • FCA enforcement investigation • Regulatory actions and concerns addressed • Unknown outcome of review of non-advised • Robust control environment, product annuity sales practices governance a
Slide 25: Key messages
Key messages Phoenix has a track record of delivering value to both shareholders and customers on its Heritage business The Heritage business generates dependable organic cash flows as it runs off Cash generation is enhanced by the delivery of management actions Transfer of 2 million legacy-Phoenix
Slide 26: Open Business
1 Introduction Nicholas Lyons | Chairman Trading update and 2 Jim McConville | Group Finance Director and Group Director, Scotland Phoenix’s Transition 3 Heritage Business Andy Moss | Chief Executive, Phoenix Life and Group Director, Heritage Business Chief Executive, Standard Life Assurance Limited
Slide 27: Phoenix is committed to growing its UK Open business
Phoenix is committed to growing its UK Open business UK OPEN BUSINESS £91bn AUA Products that are actively marketed to new and existing customers In-force business New business UK Open product mix AUA split (%) • Workplace • Through strategic Workplace partnership with 27% • Retail pensions 45% Stan
Slide 28: The Client Service and Proposition Agreement will develop the Standard Life proposition
The Client Service and Proposition Agreement will develop the Standard Life proposition and deliver growth across our UK Open product range • Underwriting • Distribution Responsibility Responsibility • Administration • Marketing • Platform • Product provision • Advice CUSTOMERS • Mis-selling • Condu
Slide 29: Workplace generates the majority of Open business revenue and delivers steady growth
Workplace generates the majority of Open business revenue and delivers steady growth Key statistics We have a strong position in a growing market • Natural growth as new employees join existing 35,000 16,000 1.9million schemes schemes employers customers • Further growth from increases to auto enrol
Slide 30: Retail pension book provides reliable revenue
Retail pension book provides reliable revenue Key statistics Retail offering supports customer retention £2bn pa 13,000 new • Growth from CSPA via Retail Advisors 700,000 from drawdown customers Workplace customers leavers • Natural growth as leavers from workplace schemes move to retail pensions •
Slide 31: Wrap products have benefited from growth in the advisor platform market
Wrap products have benefited from growth in the advisor platform market Strong growth in Wrap products offered on Key statistics Standard Life Aberdeen platform No. 1 in the market for No. 1 in the • Platform owned and operated by Standard advised 100,000 Life Aberdeen market for gross and customers
Slide 32: European business comprises three main areas of business
European business comprises three main areas of business Germany International Bond Ireland 5% 34% £11.5bn 46% £6.5bn £5.8bn AUA AUA 54% AUA 66% 95% Wrap International International Heritage Open Heritage Open Bond Bond • Heritage: With-profits. Closed in • 100% Open: Unit linked • Heritage: With-pr
Slide 33: Our European business provides a potential platform for future consolidation
Our European business provides a potential platform for future consolidation European Business £24bn AUA Strategy for Europe • European business is self sustaining • Short term focus is to prepare for Brexit ensuring we can: Dublin Frankfurt − continue to service and sell to our customers; and − max
Slide 34: Key messages
Key messages Phoenix’s Open business comprises a range of modern “capital light” products All of our Open product lines continue to grow bringing scale to our business Open business will dampen the run off of the Heritage business and extend our dividend paying capabilities Phoenix will work closely
Slide 35: Inorganic Growth – M&A and BPA
1 Introduction Nicholas Lyons | Chairman Trading update and 2 Jim McConville | Group Finance Director and Group Director, Scotland Phoenix’s Transition 3 Heritage Business Andy Moss | Chief Executive, Phoenix Life and Group Director, Heritage Business Chief Executive, Standard Life Assurance Limited
Slide 36: Phoenix uses a clear set of criteria when evaluating growth options
Phoenix uses a clear set of criteria when evaluating growth options Growth options In-organic growth option criteria • Organic Growth: Value accretive – Vesting annuities P IRR exceeds hurdle rate of return and a discount to SII Own Funds • Inorganic Growth: – M&A – Bulk Purchase Annuities (“BPA”) S
Slide 37: Phoenix remains focused on M&A
Phoenix remains focused on M&A Acquisition history Phoenix’s competitive advantages Scale 2016 2017 2018 as the largest life and pensions consolidator in Europe Track record of generating value from all types of products £2,994m Scalable administration platform and a flexible cost base £933m £
Slide 38: AXA case study: circa £300 million of value accretive management actions
AXA case study: circa £300 million of value accretive management actions Movement in Solvency II valuation of acquired AXA business Change in Own Funds Cash acceleration Cost savings Surplus Acquired £450m YE15 Phoenix Own Pre completion Internal Discount Surplus movements Model Funds Day 1 Part VII
Slide 39: Growth through BPA extends Phoenix's long-term cash generation
Growth through BPA extends Phoenix’s long-term cash generation Phoenix’s approach to BPA is: BPA Market is growing rapidly(1) • Selective: We are not chasing volume £70bn £60bn £50bn • Proportionate: Target £0.5 - £1.0 billion £40bn liabilities per annum £30bn £20bn • Funded from our resources: We w
Slide 40: £1.2 billion of year to date illiquid asset sourcing enables us to compete in BPA
£1.2 billion of year to date illiquid asset sourcing enables us to compete in the BPA market Sourcing illiquid assets 2018 Year to Date Origination Direct sourcing 3rd party mandates £1.2bn 19 c.£100m Illiquid asset Individual SII benefit origination deals originated Direct relationships with Levera
Slide 41: Key messages
Key messages Phoenix has a clear set of criteria for assessing inorganic growth options Growth through M&A remains our primary focus Phoenix has a track record of adding real value to shareholders through M&A We have a selective and proportionate approach to BPA Our ability to compete on BPA is supp
Slide 42: Reporting our Business
1 Introduction Nicholas Lyons | Chairman Trading update and 2 Jim McConville | Group Finance Director and Group Director, Scotland Phoenix’s Transition 3 Heritage Business Andy Moss | Chief Executive, Phoenix Life and Group Director, Heritage Business Chief Executive, Standard Life Assurance Limited
Slide 43: Phoenix's reporting metrics will reflect the changes in our business
Phoenix’s reporting metrics will reflect the changes in our business • New targets set in March 2019 for Combined Group Cash generation • Will include regular premiums on in-force business and management actions for first 5 years • New business contribution to own funds Solvency II • Impact of new b
Slide 44: £12 billion cash generation guidance excludes new business, BPA and M&A
£12 billion cash generation guidance excludes new business, post 2022 management actions, BPA and M&A Future cash generation from in-force business £8.5bn Included in £12 billion cash generation: • Regular premiums on in-force policies • Vesting annuities £4.5bn • Management actions in 2018-22 Exclu
Slide 45: Growth in Open business cash generation will offset Heritage business run-off
Growth in Open business cash generation will offset Heritage business run off Illustrative cash generation profile over time Management actions increase or accelerate cash generation across Heritage and Open business Management Actions Growth of Open Open business at 2018 YTD Cash generation levels
Slide 46: Open business net inflows offset Heritage business net outflows
Open business net inflows offset Heritage business net outflows with AUA stable at £240 billion over the period Change in AUA • UK Open net flows driven by Wrap and £(0.3)bn Workplace pensions £0.3bn • Europe contributes a positive net inflow driven £3.0bn by its Open business £(4.5)bn £240bn £240bn
Slide 47: No capital strain from Open new business with increase in PGH Solvency II surplus
No capital strain from Open new business with increase in PGH Solvency II surplus driven by capital synergies and debt issuance Change in PGH Solvency II surplus(1) 147% 164% £0.3bn £0.4bn £(0.2)bn £3.1bn £(0.1)bn £(0.1)bn £0.2bn £0.4bn £(0.3)bn £2.5bn Pro forma Surplus emerging Management Delivery
Slide 48: Phoenix's capital position illustrates resilience to risk events
Phoenix’s capital position illustrates resilience to risk events (1) PGH Solvency II Shareholder Capital Coverage Ratio (SCCR) sensitivities Impact on PGH SII surplus Target range Solvency II Q3 Solvency II SCCR £3.1bn 164% SCCR 20% fall in equity markets £3.1bn 165% +1% 15% fall in property values
Slide 49: Which brings certainty to our 5 year cash generation expectations
Which brings certainty to our 5 year cash generation expectations Sensitivities for £3.5 billion expected cash generation between 2018-22(1) Impact on cash generation 2018-22 expected cash generation £3.5bn 20% fall in equity markets £3.5bn £0.0bn 15% fall in property values £3.4bn £(0.1)bn (2) 60bp
Slide 50: Phoenix's resilience is strong relative to its peers
Phoenix’s resilience is strong relative to its peers Phoenix sensitivities relative to UK Life peers(1,2,3) Equities -25% Interest rates -1% Corporate spreads +100bps 10% 8 5% 1 0 0% (1) (1) (5)% (3) (4) (5) (5) (10)% (8) (10) (10) (15)% (20)% (20) (25)% (24) (26) (30)% Phoenix Peer A Peer B Peer C
Slide 51: SII Shareholder own funds provides a proxy to a shareholder value metric
SII Shareholder own funds provides a proxy to a shareholder value metric Solvency II Coverage Ratio Q318(1) Calculation of Q318 “shareholder value” £bn 145% SII own funds 10.2 £10.2bn Surplus Less: Unsupported with-profit funds (1.9) £3.1bn Less: PGL pension scheme (0.3) £7.1bn Shareholder own funds
Slide 52: We continue to have leverage capacity for future acquisitions
We continue to have leverage capacity for future acquisitions Fitch leverage ratio(1) Leverage ratios • Phoenix estimate a Q318 leverage ratio 34% calculated on a Fitch(1) basis of 22% 32% 31% • We estimate our Q318 leverage on an IFRS(2) basis to be 33%. 30% 29% • The key differences between these
Slide 53: Key messages
Key messages Growth in Open business cash generation will offset Heritage business run off Assets under administration remain stable at £240 billion with Open business net inflows offsetting Heritage business net outflows No strain from Open new business with Q318 SII shareholder surplus increasing
Slide 54: Phoenix = Cash. Resilience. Growth.
1 Introduction Nicholas Lyons | Chairman Trading update and 2 Jim McConville | Group Finance Director and Group Director, Scotland Phoenix’s Transition 3 Heritage Business Andy Moss | Chief Executive, Phoenix Life and Group Director, Heritage Business Chief Executive, Standard Life Assurance Limited
Slide 55: Phoenix Group is the largest Life and Pensions Consolidator in Europe
Phoenix Group is the largest Life and Pensions Consolidator in Europe Our locations Our size Our life business Edinburgh UK HERITAGE Glasgow £240bn £125bn AUA Assets Under Birmingham Administration Dublin London Bristol Frankfurt Basingstoke Bournemouth Graz UK OPEN BUSINESS £91bn AUA 10.1m Policies
Slide 56: Dependable cash generation in the short, medium and long term
Dependable cash generation in the short, medium and long term £8.5bn £3.5bn expected cash generation £653m £664m £486m 2016 2017 2018 2019 2020 2021 2022 2023+ Phoenix has met or exceeded all publicly stated financial targets since 2010 56
Slide 57: Specialists at delivering value from in-force assets under administration
Specialists at delivering value from in-force assets under administration Management actions Size delivers supplement economies organic of scale growth Approach to Specialism risk delivers management capital delivers efficiencies resilience 57
Slide 58: Strategic Partnership with Standard Life Aberdeen brings specialism in the open market
Strategic Partnership with Standard Life Aberdeen brings specialism in the open market • Underwriting • Sales • Administration • Platform • Proposition • Marketing 58
Slide 59: Cash generation becomes sustainable as Open growth offsets Heritage run off
Cash generation becomes sustainable as growth from Open business offsets the run off of our Heritage Business Management Actions Open Cash generation Heritage Time 59
Slide 60: M&A and BPA adds value to investors
M&A and BPA adds value to investors Acquisition criteria Step 1 – Buy well 1 Price/Own Funds 0.89x Value accretive 0.85x 0.84x 2 Protect the dividend 3 Maintain investment grade rating AXA Wealth Abbey Life Standard Life Assurance Building our war chest Step 2 – Add value INCREASE OWN REDUCE RISK £1
Slide 61: There remains a wealth of M&A opportunities and we are ready to take them
There remains a wealth of M&A opportunities and we are ready to take them Drivers of consolidation Market size UK: ~£380bn UK, GER, IE: ~£540bn Trapped capital Stranded costs 16% Non profit 23% Non profit 37% 49% With profit With profit 35% 40% Unit linked Unit linked Specialist skills Reputational
Slide 62: Phoenix = Cash. Resilience. Growth.
Phoenix = Cash. Resilience. Growth. • Phoenix has reached a “critical mass” Inorganic M&A BPA growth • We have significantly increased our scale, product range and skills Organic CSPA and vesting annuities growth • Organic growth will offset the run off of our in-force business and deliver sustainab
Slide 63: Q&A
Q&A 63
Slide 64: Appendices
Appendices I Phoenix Group is largely unaffected by Brexit II Group liquidity will support inorganic growth through M&A and BPA III Current corporate structure IV Outline of current debt structure 64
Slide 65: Appendix I: Phoenix Group is largely unaffected by Brexit
Appendix I: Phoenix Group is largely unaffected by Brexit • No material impact from Brexit on the Group’s financial position Impact on capital position • German and Irish branches to be capitalised as an EU resident subsidiary. £250 million capital dis-synergy reflected in medium term cash generatio
Slide 66: Appendix II: Group liquidity will support inorganic growth through M&A and BPA
Appendix II: Group liquidity will support inorganic growth through M&A and BPA £m YTD18 FY17 £m YTD18 Opening cash and cash equivalents 535 570 Liquidity £m Holdco cash and cash 378 Total cash receipts 664 653 equivalents Add: revolving credit 1,500 Uses of cash facilities Operating expenses (29) (3
Slide 67: Appendix III: Current corporate structure
Appendix III: Current corporate structure £900m undrawn Unsecured €500m Tier 2 bond (2029) Revolving Credit Facility £428m Tier 2 bond (2025) £600m undrawn Acquisition Credit Phoenix Group £450m Tier 3 bond (2022) Facility Holdings(1) £500m Restricted Tier 1 bond (2028) £122m senior bond (2021) $500
Slide 68: Appendix IV: Outline of current debt structure
Appendix IV: Outline of current debt structure Structure of £2,530 million of outstanding debt as at 30 September 2018 Instrument Issuer/borrower Maturity Drawn amount /Face value £900m unsecured Revolving Credit Facility (“RCF”) (L+110bps) Phoenix Group Holdings June 2021 - Bank Debt - £600m acquis
Slide 69: 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