Standard Life Plc · LSE:SDLF
Standard Life — Phoenix Group Holdings — FY2018 Earnings Presentation
62 slides from Standard Life's earnings presentation, Mar 5, 2019
Slide 1: A Sustainable Phoenix: Full Year Results 2018
Cash Resilience Growth A Sustainable Phoenix Full Year Results 2018 5 March 2019 1
Slide 2: Agenda
Agenda Introduction Nicholas Lyons | Chairman Business update Clive Bannister | Group Chief Executive Financial review Jim McConville | Group Finance Director and Group Director, Scotland UK Heritage Business Andy Moss | Chief Executive, Phoenix Life and Group Director, Heritage Business UK Open and
Slide 3: Introduction
Introduction Nicholas Lyons 3
Slide 4: 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 £226bn UK HERITAGE Assets under Glasgow £118bn AUA administration Birmingham Dublin London Bristol Frankfurt Basingstoke Graz 10.0m UK OPEN Policies £85bn AUA FTSE 100 EUROPE £23b
Slide 5: Business update
Business update Clive Bannister 5
Slide 6: 2018 highlights: a strong performance for the Phoenix Group
2018 highlights: a strong performance for the Phoenix Group • Strong cash generation of £664 million in FY18 Strong cash generation • £1.3 billion cash generation in 2017 and 2018, exceeding upper end of target range supports dividend • Final 2018 dividend of 23.4p, a 3.5% increase on the Final 2017
Slide 7: New 1-year cash generation target of £600-700 million and 5-year target of £3.8 billion
New 1-year cash generation target of £600 - £700 million and 5-year target of £3.8 billion demonstrates sustainability Illustrative future cash generation(1) £12.0 billion guidance over life of business £8.2bn £3.8 billion 5-year target £600-700m 1-year target(2) 2019 2020 2021 2022 2023 2024+ Illus
Slide 8: Stable and sustainable dividend with uplifts supported by acquisitions
Stable and sustainable dividend with uplifts supported by acquisitions Dividend uplift from acquisitions Organic cash supports dividend (£m) (1) 850 - 950 46.0p 46.8p 45.2p 41.9p 653 664 23.4p 23.4p 22.6p 21.5p 486 237 380 427 265 273 22.6p 22.6p 23.4p 20.4p 221 338 262 193 126 2016 2017 2018 2019e
Slide 9: Confidence in delivery of synergy targets allows increase from £720 million to £1,220 million
Confidence in delivery of synergy targets allows increase from £720 million to £1,220 million Total synergies Capital synergies Cost synergies Transition costs (net of costs) 64% 57% 11% 70% £1,220m £720m + £650m £30m (2) − = £720m (1) £620m £440m (1) £415m £415m £150m £135m Original New Original Ne
Slide 10: We have a clear set of transition targets for the next 1000 days
We have a clear set of transition targets for the next 1000 days Delivered to To be New target Target increase date delivered 1 Capital synergies(1) £500m £220m £720m £280m 2 Cost synergies (p.a.) £14m £61m £75m £25m 3 One-off cost synergies £4m £26m £30m £30m 4 Transition costs(2) £3m £147m £
Slide 11: New business brings improved sustainability to our organic cash generation
New business brings improved sustainability to our organic cash generation 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 wil
Slide 12: Financial review
Financial review Jim McConville 12
Slide 13: Financial highlights
Financial highlights FY18 FY17 Cash Cash generation £664m £653m IFRS Operating profit before tax £708m £368m Leverage Leverage ratio (see Appendix I) 22%(1) 27% Pro forma FY18 FY17 Solvency II surplus (estimated) £3.2bn(2) £2.5bn Group capital Shareholder Capital Coverage Ratio (estimated) 167%(2) 1
Slide 14: Phoenix delivered £1.3 billion cash generation in 2017-2018
Phoenix delivered £1.3 billion cash generation in 2017-2018 and exceeded the upper end of the target range Phoenix cash generation Organic cash generation £664m £1,317m • Organic cash generation emerges naturally as business runs off £1.0 - 1.2bn £237m • Comprises unwind of capital £617m requirement
Slide 15: Cash generation guidance increased by £0.7 billion
Cash generation guidance increased by £0.7 billion and excludes future new business, future BPA and M&A and management actions post 2024 Future cash generation from in-force business Included in £12 billion cash generation: £0.1bn • Regular premiums on in-force £0.1bn policies £0.1bn £(0.7)bn • Vest
Slide 16: Cash generation for the combined group supports dividend and builds cash available for growth
Cash generation for the combined group supports dividend and builds cash available for growth through BPA and M&A Illustrative uses of cash from 2019 - 2023 £0.5bn £0.6bn £3.8bn £1.7bn £1.3bn £0.3bn FY18 holding company Cash generation over Operating and pension Debt interest over Dividends over 201
Slide 17: Resilience of cash generation increases confidence in our dividend
Resilience of cash generation increases confidence in our dividend Sensitivities for £3.8 billion expected cash generation between 2019-23(1) Impact on Operating & interest cash Uses of cash Dividend of £1.7bn generation costs of £1.1bn 2019-23 expected cash generation £3.8bn 20% fall in equity mark
Slide 18: Beyond 2023, additional cash generation will enhance sustainability of dividends
Beyond 2023, additional cash generation of the combined group will enhance sustainability of dividends Combined Group: Illustrative uses of cash from 2024 onward • There is an expected £8.2 £2.5bn billion of cash to emerge after 2023 £8.2bn • Strategic Partnership and further BPA will £7.0bn provide
Slide 19: £3.2 billion Solvency II Surplus and 167% Shareholder Capital Coverage Ratio
£3.2 billion Solvency II Surplus and 167% Shareholder Capital Coverage Ratio PGH Shareholder Capital position (1) • Shareholder Capital Coverage Ratio calculation excludes Own 147% 167% Funds and SCR of unsupported with-profit funds and PGL Pension Scheme(2) Surplus Surplus • FY18 SCR calculated usi
Slide 20: Strong capital position is resilient to market movements and new business is capital-light
Strong capital position is resilient to market movements and new business is capital-light Change in PGH Solvency II surplus(1) 147% 167% £0.3bn (£0.1)bn £0.5bn £(0.2)bn £(0.5)bn (£0.2)bn £0.6bn £3.2bn £0.3bn £2.5bn Pro forma Surplus Management Delivery of New business Impact of debt Demographic Eco
Slide 21: New Business Contribution is a prudent proxy for cash generation
New Business Contribution is a prudent proxy for cash generation New business contribution Conversion to future cash generation £m UK Open 137 £126m Europe 17 £280m £154m Total 154 • “New business contribution” is the increase in Future cash generation Acquisition costs New business contribution Sol
Slide 22: Modelling "the wedge" – Open business growth offsets Heritage run off
Modelling “the wedge” – Open business growth offsets Heritage run off Cash generation(1) £m 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 Heritage run off 400 380 361 343 326 310 294 279 265 252 239 Cash from 2018 NBC 14 14 14 14 14 14 14 14 14 14 Cash from 2019 NBC 15 15 15 15 15 15 15 15
Slide 23: 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 PGH SII Impact on surplus Target range Solvency II SCCR FY18 Solvency II £3.2bn 167% 20% fall in equity markets £3.2bn 170% +3% 15% fall in property values £3.
Slide 24: Strong FY18 operating profit of £708 million
Strong FY18 operating profit of £708 million • Includes 4 month post £m FY18 FY17 completion results of the UK Heritage Business 640 372 Standard Life Assurance businesses UK Open Business 41 (5) • UK Heritage operating profits Europe 22 - enhanced by a £168 million Service company 25 21 positive im
Slide 25: UK Heritage Business
UK Heritage Business Andy Moss 25
Slide 26: 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 Products that are not actively marketed to customers FY18 financial metrics(1) £ Key messages Assets under administration 118bn Track record of delivering value to both Gross inflows: 3.7bn shareholder
Slide 27: 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 • Selective: We are not chasing volume • In 2018 >£20 billion of BPA completed • Phoenix completed 3 transactions in 2018; • Proportionate: Target £0.5 - £1.0 billion circa 4% o
Slide 28: Illiquid asset strategy is a key management action and supports BPA
Illiquid asset strategy is a key management action and supports BPA We continue to target a 40% allocation to illiquids FY18 actual Target c.£3.6bn of illiquids at 31 Dec 2018 comprised ERM 57% Private placements 18% 18% 5% 2% Local Authority Loans 9% 40% CRE Loans 11% £3.6bn of 20% illiquids Infras
Slide 29: Management actions have added £570 million to Solvency II surplus
Management actions have added £570 million to Solvency II surplus Solvency impact of management actions 2018 management actions £161m £570m Investment of annuity backing assets in illiquid asset classes £409m Expense reduction from move to single outsourcer and investment in digital journey In
Slide 30: We have already delivered £500 million of capital synergies
We have already delivered £500 million of capital synergies and have increased our target to £720 million £500m capital synergies now delivered Future management actions H1 2019 H2 2019 H1 2020 H2 2020 2021 £500m £30m Harmonise Internal Model £60m Internal Model application £50m Internal Model appro
Slide 31: Continued delivery of strong service for Phoenix Life customers
Continued delivery of strong service for Phoenix Life customers Customer actions Customer service metrics – Phoenix Life • £230 million increase in with-profit estate available for distribution through management Full year actions FY18 target(1) • On-going charges and exit fee caps for non- Speed of
Slide 32: Investment in digitalisation will improve service offering and efficiency
Investment in digitalisation will improve service offering and efficiency Single outsourcer model delivers Key statistics An enhanced digital servicing offering for all Phoenix customers 2.0 Policies will be transferred to Diligenta million by end of 2021 A reduction in per policy administration
Slide 33: UK Open and European Businesses
UK Open and European Businesses Susan McInnes 33
Slide 34: Phoenix is committed to growing its capital-light UK Open business
Phoenix is committed to growing its capital-light UK Open business UK OPEN BUSINESS Products that are actively marketed to new and existing customers FY18 financial metrics(1) £ Key messages Assets under administration 85bn Phoenix’s Open business comprises a range of modern capital-light products G
Slide 35: Workplace is the engine for customer acquisition
Workplace is the engine for customer acquisition Key statistics 2018 performance driven by: • New business flows driven by auto enrolment 15,000 increases, new schemes and new customers joining 37,500 1.9 million active existing schemes schemes customers schemes(1) • Reclassified business reflects p
Slide 36: Retail pension supports customer retention and retirement
Retail pension supports customer retention and retirement Key statistics 2018 performance driven by: c.£1.8bn pa • Natural growth as leavers from workplace schemes 14,000 new 750,000 from move to retail pensions drawdown customers Workplace policies leavers • c£2 billion gross inflows despite indust
Slide 37: Wrap products have benefited from growth in the advisor platform market
Wrap products have benefited from growth in the advisor platform market Key statistics 2018 performance driven by: No. 1 in the • Strong new business flows delivered by strategic market for No. 1 in the advised 100,000 partnership market for gross and customers advised AUA net flows • 2018 growth sl
Slide 38: European business provides optionality and is Brexit ready
European business provides optionality and is Brexit ready EUROPEAN BUSINESS Includes both Heritage and Open business across Germany and Ireland FY18 financial metrics(1) £ Europe product mix (AuA) Assets under administration 23bn Gross inflows 2.0bn 27% Germany Net inflows 0.2bn £23bn 49% Ireland N
Slide 39: Continued delivery of strong service for Standard Life customers
Continued delivery of strong service for Standard Life customers Customer actions Customer service metrics – Standard Life • Continued investment in digital proposition: − 3 million logins to our mobile app − 11,000 schemes supported into QWPS(1), with 1.7 million new joiners auto-enrolled FY18 into
Slide 40: Outlook
Outlook Clive Bannister 40
Slide 41: Phoenix is bringing greater sustainability to its business in three ways
Phoenix is bringing greater sustainability to its business in three ways 1. Retaining customers and assets: Enrichment of product offering M&A and BPA Improving customer outcomes and experience Management Actions 2. Growing customers and assets: Cash generation New business under strategic par
Slide 42: Phoenix will grow through further M&A and we are ready to take opportunities
Phoenix will grow through further M&A and we are ready to take opportunities as they arise Drivers of consolidation Gating items Trapped capital Stranded costs MANAGEMENT BANDWIDTH Head office specialises in assessment of M&A transactions Specialist skills Reputational risk Phoenix readiness Market
Slide 43: Phoenix has a clear set of strategic priorities for 2019
Phoenix has a clear set of strategic priorities for 2019 • Meet or exceed the 2019 cash generation target of £600 - £700 million Financial targets • Maintain strong solvency position and investment grade rating • Complete Phase 1 and progress Phases 2 and 3 of the transition Transition Standard prog
Slide 44: We are building a more sustainable Phoenix
We are building a more sustainable Phoenix CASH RESILIENCE GROWTH £12 billion of future £3.2 billion SII surplus; Continued growth of cash generation from in-force business 167% shareholder ratio(1) Open business will offset Heritage run-off Hedging provides £1.0 billion funding New 1 year a
Slide 45: Q&A
Q&A 45
Slide 46: Appendices
Appendices I Leverage ratio IX UK Open and Europe businesses operating profit drivers II Movement in assets under administration X Asset mix of life companies III Movements in holding company cash and cash equivalents XI Total debt exposure by country IV Change in Life Company Free Surplus XII Credi
Slide 47: Appendix I: Leverage ratio
Appendix I: Leverage ratio Fitch leverage ratio(1) Leverage ratios • Phoenix estimate a FY18 leverage ratio 34% calculated on a Fitch(1) basis of 22% 32% • We estimate our FY18 leverage on an IFRS(2) 31% basis to be 33%. 30% • The key differences between these ratios are 29% the treatment of the Res
Slide 48: Appendix II: Movement in assets under administration
Appendix II: Movement in assets under administration £(13.6)bn £0.2bn £3.7bn £240bn £(7.1)bn £(10.4)bn £226bn Pro forma Combined UK Open net flows Europe net flows UK Heritage net flows Other movements incl. Combined Group AUA as Group AUA as at FY17 markets at FY18 48
Slide 49: Appendix III: Movements in holding company cash and cash equivalents
Appendix III: Movements in holding company cash and cash equivalents £m FY18 FY17 • 2018 cash receipts include £450 Opening cash and cash equivalents 535 570 million from Abbey Life • Non-recurring cash outflows Total cash receipts 664 653 include project and acquisition integration expenses, togeth
Slide 50: Appendix IV: Change in Life Company Free Surplus
Appendix IV: Change in Life Company Free Surplus Change in Life Company Free Surplus in 2018(1) £0.1bn £(0.1)bn £(0.1)bn £0.6bn £(0.7)bn £0.4bn £1.7bn £1.0bn £0.8bn Pro forma Surplus Management SLAL capital New business Economic, Free surplus Cash remittances Closing free opening free generation and
Slide 51: Appendix V: Estimated Solvency II surplus and SCR coverage ratio
Appendix V: Estimated Solvency II surplus and SCR coverage ratio Solvency II coverage ratio(1) Shareholder capital coverage ratio(1) 132% 146% 147% 167% Surplus Surplus Surplus Surplus £2.5bn £3.2bn £2.5bn £3.2bn £10.2bn £10.3bn £7.8bn £8.0bn £7.7bn £7.1bn £5.3bn £4.8bn Pro forma Combined Group FY17
Slide 52: Appendix VI: SCR by risk type and Own Funds Tiering
Appendix VI: SCR by risk type and Own Funds Tiering SCR by risk type(1) Own Funds by Capital Tier(2) Phoenix Internal SLAL Internal £10.3bn Risk type 7% of SCR Model Model £0.5bn £1.5bn Longevity 26% 15% 21% of SCR 117% of SCR Credit 18% 13% Persistency 10% 26% £8.3bn £7.1bn Interest rates 11% 10% O
Slide 53: Appendix VII: Regulatory Coverage Ratio sensitivities
Appendix VII: Regulatory Coverage Ratio sensitivities PGH Solvency II Regulatory Coverage Ratio (RCR) sensitivities(1) PGH SII surplus Impact on Solvency II RCR FY18 Solvency II £3.2bn 146% 20% fall in equity markets £3.2bn 147% 1% 15% fall in property values £3.1bn 144% (2)% (2) 60bps rise in inter
Slide 54: Appendix VIII: UK Heritage Business operating profit drivers
Appendix VIII: UK Heritage Business operating profit drivers FY18 FY17 Reported Closing Expected Reported Closing Expected Operating liability/ return Operating liability/ return Profit(1) equity(3) margin(1)(2) Profit equity(3) margin(1)(2) Fund type How profits are generated £m £bn bps £m £bn bps
Slide 55: Appendix IX: UK Open and Europe Businesses operating profit drivers
Appendix IX: UK Open and Europe Businesses operating profit drivers FY18 FY17 Reported Expected Reported Expected Operating return Operating return Profit(1) AUA margin(1)(2) Profit AUA margin Fund type How profits are generated £m £bn bps £m £bn bps Margin earned on unit linked UK Open 41 84.6 23 (
Slide 56: Appendix X: Asset mix of life companies
Appendix X: Asset mix of life companies Policyholder funds(3) Total shareholder, Non- non-profit and supported Total At 31 December 2018 supported with- with-profits policyholder Total £m (unless otherwise stated) profits(2) % funds Unit-linked assets(1) Cash deposits 4,826 18 5,046 7,026 12,072 16,
Slide 57: Appendix XI: Total debt exposure by country
Appendix XI: Total debt exposure by country Corporate: Sovereign Corporate: Asset Backed Total debt Financial Total and Supranational Other Securities securities At 31 December 2018 Institutions debt £m Shareholder Policyholder Shareholder Policyholder Shareholder Policyholder Shareholder Policyhold
Slide 58: Appendix XII: Credit rating analysis of debt portfolio
Appendix XII: Credit rating analysis of debt portfolio Policyholder funds Total shareholder, Non- non-profit and supported At 31 December 2018 supported with- with-profits Total £m profits funds Unit-linked policyholder Total assets AAA 2,260 5,576 4,855 10,431 12,691 AA 6,021 21,929 8,611 30,540 36
Slide 59: Appendix XIII: Corporate structure as at 31 December 2018
Appendix XIII: Corporate structure as at 31 December 2018 €500m Tier 2 bond (2029) £900m undrawn Unsecured Revolving Credit Facility £428m Tier 2 bond (2025) Phoenix Group £450m Tier 3 bond (2022) £600m undrawn Acquisition Credit Holdings plc Facility £500m Restricted Tier 1 bond (2028) $500m Tier 2
Slide 60: Appendix XIV: Outline of current debt structure
Appendix XIV: Outline of current debt structure Structure of £2,530 million of outstanding debt as at 31 December 2018 Instrument Issuer/borrower Maturity Drawn amount /Face value £900m unsecured Revolving Credit Facility (“RCF”) (L+110bps) Phoenix Group Holdings plc June 2021 - Bank Debt - £600m ac
Slide 61: Appendix XV: Client Service and Proposition Agreement
Appendix XV: Client Service and Proposition Agreement • Underwriting • Distribution(1) Responsibility Responsibility • Administration • Marketing • Platform • Product provision • Advice CUSTOMERS • Mis-selling • Conduct Risks Risks • Persistency • Cost of distribution Joint Operating Forum provides
Slide 62: Disclaimer and other information
Disclaimer and other information • This presentation in relation to Phoenix Group Holdings plc 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 curr
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