Standard Life plc · LSE:SDLF
Standard Life — Phoenix Group Holdings — FY2010 Earnings Presentation
45 slides from Standard Life's earnings presentation, Mar 29, 2011
Slide 1: Annual Results 2010
Annual Results 2010 A year of considerable progress 29 March 2011
Slide 2: Agenda
Agenda Introduction Ron Sandler, Chairman Business highlights Clive Bannister, Group Chief Executive Financial review & targets Jonathan Yates, Group Finance Director Summary & outlook Clive Bannister Q&A Ron Sandler 2
Slide 3: Introduction
Introduction Ron Sandler
Slide 4: The Phoenix Group is on a journey
The Phoenix Group is on a journey • Private equity ownership 2008 • Resolution acquisition 2009 • Liberty restructuring 2010 9 Corporate, operational and financial delivery Focus: • Strengthening cash flow 2011 • Improving MCEV • Appropriately geared balance sheet 4
Slide 5: Business highlights
Business highlights Clive Bannister
Slide 6: 2010 was a year of strong financial delivery
2010 was a year of strong financial delivery 3 Cash generation ahead of targets £734m 3 Strong IFRS operating profits £373m 3 Significant growth in MCEV £2,104m 3 Growing assets under management £67.5bn 3 Gearing now reduced (1) 52% 3 Dividend per share 42p (1) Net shareholder debt as a percentage o
Slide 7: A year of considerable corporate delivery
A year of considerable corporate delivery 9 Reduced dilutive instruments Simplified capital 9 Restructured Tier 1 bonds structure 9 Premium Listing on LSE 9 FTSE 250 index inclusion Strengthened 9 Strengthened executive, non executive and senior CORPORATE management teams corporate governance 9 Enha
Slide 8: A year of significant business achievements
A year of significant business achievements Improved customer 9 Customer complaint volumes down 24% on 2009 service and strengthened 9 Exceeded industry benchmark for open market customer proposition option transfers PHOENIX 9 Restructured National Provident Life LIFE Improved capital 9 Phoenix & Lo
Slide 9: Strong cash generation ahead of targets
Strong cash generation ahead of targets Total cash generation 9 Cash generation exceeded targets +3% 9 Accelerated cash flows achieved £734m through: £725m £716m – improved asset liability matching to – investment portfolio derisking £625m – resolution of legacy tax issues – fund restructuring (1) F
Slide 10: Management actions accelerated £242m of cashflows
Management actions accelerated £242m of cashflows in Phoenix Life FY 10 cash acceleration 9 £242m cash accelerated from actions management actions Restructuring £45m 9 Included in the £734m cash generation for the year Risk management £109m 9 In addition to these categories, outsourcer transformatio
Slide 11: Improved and substantial value in MCEV
Improved and substantial value in MCEV Group MCEV 9 MCEV reflects value in life companies (excluding IGNIS and management +15% £2,104m services future profits) £1,827m 9 Includes £296m from management actions vs. target of £145m FY 09 FY 10 MCEV per share(1) +11% £12.27 £11.09 FY 09 FY 10 (1) FY 09
Slide 12: Management actions increased embedded value by £296m
Management actions increased embedded value by £296m in Phoenix Life FY 10 9 £296m incremental MCEV from incremental management actions MCEV actions 9 Includes £139m impact of corporate loans restructuring Restructuring £262m announced on 21 March Operational management £34m 9 Included in the £2,104
Slide 13: Reduction in gearing is underway organically
Reduction in gearing is underway organically Gearing(1) 9 The Group works closely with its relationship banks 58% 9 No “complete debt solution” is being sought nor is it necessary 52% 9 The Group will refinance at the right time and on the right terms for shareholders FY 09 FY 10 (1) Net shareholder
Slide 14: Total dividend of 42p for 2010
Total dividend of 42p for 2010 Dividend per share 9 Recommended final dividend of 21p per share 42p 9 Total dividend of 42p for FY 2010 9 50:50 payout maintained 9 Cash up to PGH capped at £58m in 2011 15p and £72m in 2012 9 Scrip dividend option available (1) FY 09 FY 10 (1) FY 09 dividend paid in
Slide 15: The Phoenix Group can be relied upon
The Phoenix Group can be relied upon 3 Resilient cash flows 3 Degearing the business model 3 Strengthened capital position 3 Focused asset management business 3 Improved policyholder outcomes 3 Enhanced shareholder value 15
Slide 16: Financial review
Financial review Jonathan Yates
Slide 17: Financial highlights
Financial highlights £m unless otherwise stated FY 10 FY 09(1) Cash Operating companies cash generation 734 716 IFRS operating profit Group operating profit 373 457 IGNIS operating profit 46 34 Group Market Consistent Embedded Value (“MCEV”) 2,104 1,827 Group MCEV per share(2) £12.27 £11.09 IGD surp
Slide 18: Reliable cash generation underpins our stability
Cash IFRS MCEV Capital AuM Reliable cash generation underpins our stability £m FY 10 FY 09(1) • Increase in operating expenses Opening cash in holding companies 202 86 due to ongoing costs relating to being Premium Listed and project Cash receipts costs Phoenix Life 708 695 • £122m debt prepayment m
Slide 19: Almost £1.0bn in free surplus generated over 2010
Cash IFRS MCEV Capital AuM Almost £1.0bn in free surplus generated over 2010 Emergence of free surplus • Free surplus is excess over ICA required capital and internal capital buffers Free surplus Free £708m £464m cash to group surplus £750m • Free surplus will become available for Capital Group purp
Slide 20: Emergence of free surplus
Cash IFRS MCEV Capital AuM Emergence of free surplus £m FY 10 • Movements in capital requirements and policy include Opening Phoenix Life free surplus 464 benefits of value enhancing Emergence of free surplus management actions including: – investment portfolio derisking IFRS operating profit 388 –
Slide 21: Group IFRS operating profit of £373m
Cash IFRS MCEV Capital AuM Group IFRS operating profit of £373m £m FY 10 • Operating profit up 17% on an Phoenix Life 388 underlying basis, excluding impact of positive longevity assumption changes IGNIS 46 of £139m in 2009 Group costs (61) Operating profit before tax 373 Investment return variances
Slide 22: Phoenix Life IFRS operating profit drivers
Cash IFRS MCEV Capital AuM Phoenix Life IFRS operating profit drivers FY 10 FY 09 Average Average IFRS Op Net IFRS Op Net net net Fund type How profits are generated Profit Margin(2) Profit Margin(2) assets(1) assets(1) £m £bn bps £m £bn bps With-profit Our share of bonuses paid to 55 24.4 22 49 25.
Slide 23: IGNIS IFRS operating profit drivers
Cash IFRS MCEV Capital AuM IGNIS IFRS operating profit drivers FY 10 FY 09 IFRS Closing IFRS Closing Margin(1) Margin(1) results AuM results AuM £m £bn bps £m £bn bps Retail revenue 17 2.3 72 14 2.0 74 Institutional, international and 12 5.2 26 15 4.8 31 Group pension revenue Life funds revenue 115
Slide 24: Significant embedded value in the business
Cash IFRS MCEV Capital AuM Significant embedded value in the business Group MCEV growth • Operating earnings includes expected return on opening MCEV and value added by new business £296m £9m £247m £(75)m • £296m of MCEV enhancement £(135)m £(65)m through management actions against target of £145m •
Slide 25: Strong solvency capital
Cash IFRS MCEV Capital AuM Strong solvency capital Reconciliation of IGD Excess Capital to IGD surplus • Current IGD surplus is after deductions of surplus in with-profits funds and restrictions resulting from legacy group structure • IGD Excess Capital represents – more realistic measure of capital
Slide 26: Development in IGNIS Assets under Management
Cash IFRS MCEV Capital AuM Development in IGNIS Assets under Management AuM Growth • AuM growth driven by: – positive net 3rd party sales and £67.5bn market movements £5.5bn £66.9bn – offset by run-off of closed life book £7.5bn £6.8bn Third Third £1.3bn party party £(5.4)bn £(0.8)bn • Net new 3rd p
Slide 27: Financial targets
Financial targets Jonathan Yates
Slide 28: Targets for 2011 and onwards
Targets for 2011 and onwards • Cash generation of £750m to £850m in 2011 • 2010 to 2014 cash target raised by £300m to £3bn Cash generation • Additional £300m reflects planned management actions for 2011. No management actions beyond this date have been included • Cumulative forward looking target o
Slide 29: Cash generation target raised and rolled forward
Cash generation target raised and rolled forward Cash targets raised and rolled forward £0.3bn £0.9bn £(0.7)bn £3.0bn £3.2bn £2.7bn £2.3bn Existing target New 2011 New target Delivered 2010 Residual target Recurring cash New target 2010 to 2014 management 2010 to 2014 2011 to 2014 flows 2015 to 2011
Slide 30: Summary & outlook
Summary & outlook Clive Bannister
Slide 31: We have a simple and robust shareholder driven business model
We have a simple and robust shareholder driven business model 9 Risk management PHOENIX 9 Financial oversight GROUP 9 Governance 9 Improved customer 9 Expertly manages service and shareholder and policyholder Phoenix policyholder funds outcomes IGNIS 9 Wins 3rd party Life* 9 Enhanced business on bas
Slide 32: The Phoenix Way is rooted in specialist capabilities
“The Phoenix Way’’ is rooted in the specialist capabilities of Phoenix Life and IGNIS Consistent approach Scaleable infrastructure • Efficient capital management • Worksite integration • Fund structures • Single actuarial system in development • Investment strategy • Risk policies and framework • Cu
Slide 33: Focus is on the business in hand, not transformational acquisitions
Today’s focus is on the business in hand, not transformational acquisitions Opportunity environment Phoenix reality • Increasing opportunities driven by market • Any deal has to meet stringent conditions, e.g. Solvency II, Basel III acquisition criteria and be accretive to shareholder value • Phoeni
Slide 34: With new financial targets set
With new financial targets set 3 2011 cash generation £750m to £850m 3 Cash generation 2011 to 2016 £3.2bn 3 Gearing by end 2011 <50% 3 Contribution to MCEV from management actions £100m p.a to 2014 34
Slide 35: The Phoenix Group is well positioned
The Phoenix Group is well positioned 2008 2009 2010 2011 3 Unique, simple business model Our objectives are to deliver: 3 Proven management team and operating platform 9 Strengthened cashflow 9 Improved MCEV 3 Clear strategy and focus on delivery 9 Appropriately geared balance sheet The journey cont
Slide 36: Q&A
Q&A
Slide 37: Appendices
Appendices I MCEV sensitivities II Maturity profile of business III Gearing IV IGD sensitivities V Asset mix of life companies at 31 December 2010 VI Analysis of shareholder and non-profit fund debt securities VII IGNIS 3rd party new business flows
Slide 38: Appendix I – MCEV sensitivities
Appendix I – MCEV sensitivities £m FY 10 Base case covered business MCEV at 31 December 10 (1) 4,517 1% decrease in risk free rates 183 1% increase in risk free rates (167) 10% decrease in equity market values (105) 10% increase in equity market values 102 10% decrease in property market values (77)
Slide 39: Appendix II – Maturity profile of business
Appendix II – Maturity profile of business 1-5 6-10 11-15 16-20 20+ £m years years years years years Total Present value of future profits (PVFP) 31 December 2010 1,147 848 488 271 268 3,022 31 December 2009 975 767 508 305 309 2,864 39
Slide 40: Appendix III – Reducing gearing
Appendix III – Reducing gearing £bn 2010 2009 Net shareholder debt 2.7 3.1 Group MCEV 2.1 1.8 IGNIS present value of future profits 0.4 0.4 Gearing 52% 58% 40
Slide 41: Appendix IV – IGD sensitivities
Appendix IV – IGD sensitivities IGD surplus IGD Excess £bn Capital IGD at 1 Jan 2011 (estimated) 1.0 2.8 20% fall in equity markets 1.0 2.4 15% fall in property values 1.0 2.7 75 bps increase in yields 1.0 2.8 75 bps decrease in yields 0.9 2.7 Credit spreads widening(1) 0.9 2.5 Combined stress (25%
Slide 42: Appendix V – Asset mix of life companies
Appendix V – Asset mix of life companies at 31 December 10 Policyholder funds (1) Shareholder and Total non-profit funds (2) Participating (3) Unit linked £m unless otherwise stated Cash deposits 3,146 23% 7,408 1,081 11,635 Debt securities - gilts 2,963 21% 12,620 424 16,007 Debt securities - bonds
Slide 43: Appendix VI – Analysis of shareholder and non-profit fund debt securities
Appendix VI – Analysis of shareholder and non-profit fund debt securities By type (£9,227m) By credit rating (£9,227m) AAA Other Gilts (£2,963m) 5% Government 32% Gilts, Other AA and Gov ernment and 6% Asset bac ked Supranational, Supranational securities (£1,438m) 16% 47% A (£295m) 3% 20% Corporate
Slide 44: Appendix VII – IGNIS 3rd party new business flows
Appendix VII – IGNIS 3rd party new business flows £m FY 10 FY 09 Gross flows Retail 864 681 Institutional 227 226 International 225 160 Liquidity funds (net) 1,095 255 Total 2,411 1,322 Net flows Retail 294 122 Institutional (222) 21 International 110 6 Liquidity funds (net) 1,095 255 Total 1,277 40
Slide 45: 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 about the Group’s current plans, goals and expectations relating to fu
Phoenix Group Holdings — FY2010 Earnings Presentation on 6ix