Standard Life Plc · LSE:SDLF
Standard Life — Phoenix Group Holdings — H1 2014 Earnings Presentation
54 slides from Standard Life's earnings presentation, Aug 21, 2014
Slide 1: Interim Results 2014
Interim Results 2014 21 August 2014
Slide 2: Agenda
Agenda Introduction Clive Bannister | Group Chief Executive Debt structure Jim McConville | Group Finance Director Financial review Jim McConville | Group Finance Director Phoenix Life overview Andy Moss | Chief Executive, Phoenix Life Outlook and Q&A Clive Bannister | Group Chief Executive 2
Slide 3: Introduction
Introduction Clive Bannister
Slide 4: Continued strong performance for Phoenix Group
Continued strong performance for Phoenix Group Divestment of Ignis Asset Management for £390 million Gearing reduced to 35%, supporting ambition of investment grade rating Successful issue of £300 million senior unsecured bond Robust group solvency Refinanced senior bank debt into a single
Slide 5: Divestment of Ignis and subsequent debt prepayment has been completed
Divestment of Ignis and subsequent debt prepayment has been completed MCEV increased Gearing reduced Strategic benefits £390 million cash £250 million of bank debt Strategic alliance with consideration(1) plus £32 prepaid Standard Life Investments million of cash generation as manager of polic
Slide 6: Successfully accessed the bond markets and refinanced our bank debt
Successfully accessed the bond markets and refinanced our bank debt Our objectives Resulting in • Diversify funding £300 million 7 year unsecured senior bond issued • Simplify debt structure Senior debt refinanced into a single £900 • Smooth amortisation profile million facility • Reduce interes
Slide 7: Together these transactions increased our MCEV and reduced gearing
Together these transactions increased our MCEV and reduced gearing… MCEV £bn Gearing £11.57 per share 8% reduction £10.35 per 6% in gearing share 0.3 0.0 2% 43% 2.6 2.3 35% At Sale of Ignis and Senior bond Pro forma at At Sale of Ignis and Senior bond Pro forma at 30 June 2014 £250m debt issue & ban
Slide 8: Whilst retaining robust capital positions
… whilst retaining robust capital positions IGD surplus £bn PLHL ICA surplus £bn 0.0 0.2 0.1 0.2 1.3 1.1 1.0 0.7 At Sale of Ignis and Senior bond Pro forma at At Sale of Ignis and Senior bond Pro forma at 30 June 2014 £250m debt issue & bank 30 June 2014 30 June 2014 £250m debt issue & bank 30 June
Slide 9: The balance sheet of Phoenix has been transformed
The balance sheet of Phoenix has been transformed MCEV vs Total Shareholder Debt (£bn)(1) 3.5 3.3 3.1 2.9 2.6 2.4 2.3 2.1 2.1 2.1 1.8 1.8 FY09 FY10 FY11 FY12 FY13 HY14 Pro forma Ignis sale and debt refinancing (2) MCEV Total shareholder debt Gearing (%) 63% 58% 57% 55% 44% 35% Notes (1) IFRS carryin
Slide 10: Significant progress towards financial targets
Significant progress towards financial targets Delivery Target Achieved over half the FY target during the first £500m 6 months of 2014 Cash £332m to £550m generation in 2014(1) On track to meet long term cash generation target of £2.8 billion between 2014-19 £153m of incremental value deliver
Slide 11: Debt structure
Debt structure Jim McConville
Slide 12: Comprehensive refinancing of Phoenix's debt structure
Comprehensive refinancing of Phoenix’s debt structure Diversify Extend Reduce debt Lower margin funding maturity Ignis divestment - - - Bond issue - Senior debt refinancing - Strengthening of Phoenix’s balance sheet to help pursue growth strategy 12
Slide 13: Re-established relationship with debt capital markets following successful bond issue
Re-established relationship with debt capital markets following successful bond issue On 30 June 2014, Phoenix Group priced a £300 million debut unrated 7 The deal year senior unsecured bond at a coupon of 5.75%, issued by PGH Capital Ltd Transaction was placed with over 50 investors, with 86% a
Slide 14: Refinanced existing two bank debt silos into an unsecured £900m single facility
Refinanced existing two bank debt silos into an unsecured £900m single facility The deal On 23 July 2014, Phoenix Group entered into a new £900m senior unsecured bank facility ranking pari passu with the senior bond issue Used to refinance the entirety of the Group’s two bank facilities and PIK
Slide 15: Debt amortisation profile smoothed and extended
Debt amortisation profile smoothed and extended Amortisation schedule as at 31 December 2013(1) (£m) 121 Pearl bank debt Impala PIK notes Impala bank debt Pearl PIK notes 677 300 25 25 120 120 120 120 81 25 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 New amortisation schedule(2) (£m) New
Slide 16: The total cost of our senior debt has been reduced
The total cost of our senior debt has been reduced Weighted average cost of debt over time (above LIBOR) • Assumes mandatory and target amortisation paid in line with 7.00% respective facility agreements, as outlined on previous slide 6.00% • Notional improvement today of 5.00% 0.2% but significant
Slide 17: Financial review
Financial review Jim McConville
Slide 18: Financial highlights
Financial highlights HY14 HY14 HY13 £ proforma(1) Operating companies cash generation 722m 332m 416m Cash Holding company cash 990m 1,081m 966m IFRS Group operating profit(2) n/a 266m 186m MCEV Group MCEV 2.6bn 2.3bn 2.2bn Gearing Gearing(3) 35% 43% 48% Capital and IGD surplus 1.1bn(4) 1.3bn 1.1bn b
Slide 19: Strong cash generation continues
Strong cash generation continues HY14 £m proforma(1) HY14 HY13 • £149m of cash generation Opening cash and cash equivalents(2) 995 995 1,066 through management actions, including other cash receipts of Cash receipts £21m for the sale of BA(GI) and Phoenix Life 211 211 411 £68m for the restructure of
Slide 20: Free surplus in life companies supports strong cash delivery
Free surplus in life companies supports strong cash delivery Closing Phoenix Life free surplus £m Closing cash in holding companies £m 1,066 1,081 966 995 990 837 720 710 566 529 514 468 406 379 93 HY11 FY11 HY12 FY12 HY13 FY13 HY14 HY11 FY11 HY12 FY12 HY13 FY13 HY14 HY14 (1) Pro forma • £211 millio
Slide 21: Strong IFRS operating profits
Strong IFRS operating profits £m HY14 HY13 • HY14 operating profit includes Phoenix Life 256 178 £114 million from management actions (HY13: £24 million) Ignis 17 19 • Non-recurring items include the Group costs (7) (11) restructure of the PGL pension Operating profit before tax 266 186 scheme longe
Slide 22: Embedded value enhanced by £153 million through management actions
Embedded value enhanced by £153 million through management actions Group MCEV £11.57 per share 66 153 57 19 £10.58 52 293 45 £10.35 per share 107 122 per share 32 2,602 2,378 2,328 MCEV at Operating Management Impacts of sale Impacts of Economic & Movement in Finance costs Pension MCEV at Sale of Ig
Slide 23: Strong track record of management action delivery
Strong track record of management action delivery Incremental MCEV HY14 management actions £m £296m Achieved £502m against Type Value target of £400m between 2011-14 PGL Pension Scheme Restructuring 91 longevity arrangements £170m Actuarial Systems £165m £167m £155m £153m Transformation modelling Op
Slide 24: £1.1 billion IGD surplus on a pro forma basis
£1.1 billion IGD surplus on a pro forma basis IGD and sensitivities at HY14 • £0.2bn debt repayment linked to new single silo reduces IGD £1.3bn £1.2bn surplus on a pro forma basis £1.1bn £1.1bn £0.5bn £0.6bn • Headroom over capital policy £0.4bn £0.4bn remains robust at £0.4 billion IGD on a pro fo
Slide 25: Strong PLHL ICA surplus
Strong PLHL ICA surplus PLHL ICA and sensitivities at HY14 • £0.2 billion strengthening of ICA assumptions related to £1.2bn longevity, credit and £1.0bn £1.0bn correlations £0.7bn • £0.3 billion pro forma impact £1.1bn £0.8bn £0.9bn PLHL of Ignis divestment and the £0.6bn ICA single silo refinancin
Slide 26: Future dividends met by strong and predictable cash generation
Future dividends met by strong and predictable cash generation from the existing book of business Illustrative uses of cash from H2 2014 to FY 2019 (£bn) 0.2 0.3 0.4 2.1 0.5 0.7 1.0 1.1 HY14 pro forma Remaining cash Operating Pension costs Debt interest over Debt repayments Dividends over Illustrati
Slide 27: Significant shareholder value over the longer term, even before acquisitions
Significant shareholder value over the longer term, even before acquisitions Illustrative uses of cash from 2020 onwards (£bn) 0.1 1.4 3.3 2.9 1.1 Illustrative holding company 2020+ cash generation Payment of outstanding Outstanding shareholder Illustrative holding company cash at FY19 (2) pension c
Slide 28: Phoenix Life overview
Phoenix Life overview Andy Moss
Slide 29: Overview of Phoenix Life
Overview of Phoenix Life Facts Figures (HY14) • 4 life companies • £57 billion assets • 15 with profit funds Phoenix • £256 million IFRS operating profit Life • £211 million operating cash • 2 non profit funds generation • Over 5 million policyholders • MCEV of £2,833 million(1) Services • Outsource
Slide 30: The Phoenix Way continues to generate value to policyholders and shareholders
The Phoenix Way continues to generate value to policyholders and shareholders Challenge • Delivering increased value for RESTRUCTURING OPERATIONAL shareholders and policyholders MANAGEMENT • Cashflows for shareholders • Higher payouts for customers Operating environment • Myriad of reporting bases a
Slide 31: Customers continue to be a key focus for Phoenix
Customers continue to be a key focus for Phoenix 2014 customer actions delivered Customer metrics • Proactive management of the historic HY14 Full year target(1) product suite including continued program Speed of Pension Transfer of reviews to ensure delivery of all product pay-outs 10.1 days <12 da
Slide 32: We have a proven scalable operating platform
We have a proven scalable operating platform Costs reductions track policy run-off Cumulative 2010 – 2011 2011 - 2012 2012 - 2013 since 2010 Policy run-off 6.9% 6.7% 11.2%(2) 22.8% Costs(1) run-off 9.2% 7.2% 9.6% 23.8% • Use of outsourcers allows Phoenix Life to operate a variable cost model • Ongoi
Slide 33: Anticipated impact of the recent changes in the retirement market
Anticipated impact of the recent changes in the retirement market • Of the £284 million of annuities written by the Group in H1 2014, £201 million had valuable guaranteed annuity rates (GARs) • Assumption that take up rate of GAR annuities will fall by c.20%, reducing MCEV Annuities by £17m • Volume
Slide 34: Phoenix demonstrates good practice in the fair treatment of long-standing customers
Phoenix demonstrates good practice in the fair treatment of long-standing customers in life insurance Likely areas of focus from the FCA The ‘Phoenix Way’ review • Back book strategy Pure back book focus • Back book performance Do not write new products (other than vesting annuities) • Expense a
Slide 35: Outlook and Q&A
Outlook and Q&A Clive Bannister
Slide 36: Financial targets for 2014 and beyond
Financial targets for 2014 and beyond • Cumulative target of £2.8bn between 2014 and 2019, Cash including proceeds from the divestment of Ignis generation • 2014 target of £500m to £550m. Ignis sale proceeds of £390m are in addition to this target • Cumulative target of £300m incremental embedded va
Slide 37: Phoenix Group repositioned for future growth
Phoenix Group repositioned for future growth 2009 – mid 2014 H2 2014 and beyond Cumulative cash generation of £4.5bn(1) • Continued business simplification Incremental MCEV generated of £1.1bn • Enhance financial flexibility through - Further debt capital market Total debt repayments of £1.7bn
Slide 38: Q&A
Q&A
Slide 39: Appendices
Appendices I MCEV sensitivities IX Undiscounted cash generation profile II Management actions X Simplification of legacy senior debt structure III Free surplus generated in the Life Companies XI Outline of current debt structure IV Phoenix Life IFRS operating profit drivers XII Bank facility margins
Slide 40: Appendix I: MCEV sensitivities
Appendix I: MCEV sensitivities £m HY14 Base 2,833 1% decrease in risk-free rates 27 1% increase in risk-free rates (26) 10% decrease in equity market values (51) 10% increase in equity market values 39 10% decrease in property market values (39) 10% increase in property market values 38 100 bps incr
Slide 41: Appendix II: Management actions
Appendix II: Management actions Cash acceleration Incremental MCEV HY14 HY13 HY14 HY13 Restructuring 98 252 Restructuring 81(1) 14 Risk management - - Risk management - 14 Operational management 51 - Operational management 72 24 Total 149 252 Total 153 52 Notes: (1) Includes a management action that
Slide 42: Appendix III: Free surplus generated in the Life Companies
Appendix III: Free surplus generated in the Life Companies £m HY14 HY13 • Movements in capital Opening Phoenix Life free surplus 529 514 requirements impacted by Emergence of free surplus strengthening of ICA assumptions related to IFRS operating profit 256 178 longevity, credit and IFRS economic va
Slide 43: Appendix IV: Phoenix Life IFRS operating profit drivers
Appendix IV: Phoenix Life IFRS operating profit drivers HY14 HY13 Reported Opening Expected Reported Opening Expected IFRS Op liability/ return IFRS Op liability/ return Profit Equity(2) margin(1) Profit equity(2) margin(1) Fund type How profits are generated £m £bn bps £m £bn bps Our share of bonus
Slide 44: Appendix V: Asset mix of life companies
Appendix V: Asset mix of life companies Total shareholder, Policyholder funds(3) non-profit and Non-supported At 30 June 2014 supported with- with-profits Unit- Total Total £m unless otherwise stated profits(2) % funds linked Policyholder assets(1) Cash deposits 2,488 17 5,521 1,033 6,554 9,042 Debt
Slide 45: Appendix VI: Total debt exposure by country
Appendix VI: Total debt exposure by country Other Corporate: Government Financial Corporate: Asset backed Total debt At 30 June 2014 and Supranational Institutions Other securities securities Total £m Shareholder Policyholder Shareholder Policyholder Shareholder Policyholder Shareholder Policyholder
Slide 46: Appendix VII: Capital management framework
Appendix VII: Capital management framework Phoenix Group Holdings PLHL ICA calculation IGD • Pillar 2 assessment of capital resources and • Pillar 1 group capital calculation risks outside the life companies UK Holding • Includes net assets of holding companies and • Aggregated view of group Compani
Slide 47: Appendix VIII: Maturity profile of business
Appendix VIII: Maturity profile of business 1-5 6-10 11-15 16-20 20+ Total £m years years years years years MCEV present value of future profits 30 June 2014 826 531 359 228 175 2,119 31 December 2013 997 576 344 212 172 2,301 31 December 2012 1,058 596 369 231 196 2,450 31 December 2011 1,135 683 4
Slide 48: Appendix IX: Undiscounted cash generation profile
Appendix IX: Undiscounted cash generation profile Illustrative annual Holding Company cash generation(1) (£m) FY10 2011 – 2013 £2.3bn 2014 – 2019 £2.8 billion target 810 817 390 3.3bn+ 359 332 690 Ignis proceeds 209 481 485 451 500 – 550 target 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020+ Orga
Slide 49: Appendix X: Simplification of legacy senior debt structure
Appendix X: Simplification of legacy senior debt structure New £900m Phoenix Group unsecured Holdings bank facility PGH Capital Pearl senior Pearl silo Limited bank debt and intermediate Impala PIK PIK notes holdcos Impala silo intermediate notes and £300m Impala Key: Phoenix Life holdcos senior bon
Slide 50: Appendix XI: Outline of current debt structure
Appendix XI: Outline of current debt structure Instrument Held by Face value £m Maturity Unsecured bank debt - Revolving credit facility PGH Capital Limited £450m July 2019 - Term loan PGH Capital Limited £450m July 2019 Unsecured senior bond PGH Capital Limited £300m July 2021 Pearl Group Holdings
Slide 51: Appendix XII: Bank facility margins
Appendix XII: Bank facility margins • Impala silo bank debt: 475bps plus step up to 700bps from Blended Old facilities cost Jan 2018 margin of of debt above • Pearl silo bank debt: 125bps 3.8% • Impala PIK notes: 350bps, assuming interest is capitalised increasing to LIBOR 5.9% in 2018 • Pearl PIK n
Slide 52: Appendix XIII: Calculation of leverage ratios
Appendix XIII: Calculation of leverage ratios(1) HY14 HY14 Metric (£m) Treatment Pro forma Pro forma Company Financial Gearing Leverage Unsecured bank debt – revolving credit facility IFRS Carrying Value(2) 443 443 Unsecured bank debt – term loan IFRS Carrying Value(2) 443 443 Unsecured senior bond
Slide 53: Appendix XIV: Summary of bank facility (pro forma)
Appendix XIV: Summary of bank facility (pro forma) £m H2 14 2015 2016 2017 2018 2019 Total Single debt facility £450m Term Loan LIBOR + 350bps Mandatory amortisation 30 60 60 60 60 - 270 Additional planned amortisation - 60 60 60 - - 180 Target amortisation 30 120 120 120 60 - 450 £450m Revolving Cr
Slide 54: 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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