Standard Life Plc · LSE:SDLF
Standard Life — Phoenix Group Holdings — FY2014 Earnings Presentation
51 slides from Standard Life's earnings presentation, Mar 18, 2015
Slide 1: Full Year Results 2014
Full Year Results 2014 18 March 2015
Slide 2: Agenda
Agenda Introduction Howard Davies | Chairman Business update Clive Bannister | Group Chief Executive 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 Howard Davies
Slide 4: The Phoenix Journey
The Phoenix Journey Private • Pearl and Resolution I Public undertake a series of Today • Premium Listing on closed life acquisitions LSE achieved in 2010 • Streamlined Board • Pearl acquires • Board consisting of 14 • Consistent delivery of Resolution I in 2008 Directors, with a high financial targ
Slide 5: Business update
Business update Clive Bannister
Slide 6: 2014 was a transformational year for Phoenix Group
2014 was a transformational year for Phoenix Group Divestment of Ignis Asset Management for £390 million All financial targets met or exceeded Issue of £300 million senior unsecured bond Diversified funding structure with lower cost of debt Stable, sustainable dividend Refinanced senior bank d
Slide 7: Target-beating financial performance in 2014
Target-beating financial performance in 2014 Delivery Target Exceeded the top end of the target range for £500m 2014 Cash £567m to £550m generation in 2014(1) On track to meet long term cash generation target of £2.8 billion between 2014-19 £261 million of incremental value delivered MCEV £261
Slide 8: MCEV enhancement and debt reduction have resulted in a much stronger balance sheet
MCEV enhancement and debt reduction have resulted in a much stronger balance sheet 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 1.7 FY09 FY10 FY11 FY12 FY13 FY14 MCEV Total shareholder debt Gearing (%) 63% 58% 57% 55% 44% 34% Notes (1) IFRS carrying value of to
Slide 9: Phoenix is well positioned for new challenges
Phoenix is well positioned for new challenges • On track for Internal Model Approval Process (IMAP) application in June Solvency II • The Group expects to be well capitalised, with the Group capital position under Solvency II expected to be in excess of the current PLHL ICA surplus, subject to regul
Slide 10: Financial review
Financial review Jim McConville
Slide 11: Financial highlights
Financial highlights FY14 FY13 £ Operating companies cash generation: - excluding Ignis divestment proceeds 567m 817m Cash - including Ignis divestment proceeds 957m - Holding company cash 988m 995m IFRS Group operating profit 483m 439m MCEV Group MCEV 2.6bn 2.4bn Gearing Gearing(1) 34% 44% Capital
Slide 12: 2014 cash generation in excess of target range
2014 cash generation in excess of target range £m FY14 FY13 • £180 million of cash generation Opening cash and cash equivalents 995 1,066 through management actions Cash receipts • Ignis inflows include £390 Phoenix Life 446 794 million divestment proceeds Ignis (including divestment proceeds) 422 2
Slide 13: £1 billion of cash held in holding companies
£1 billion of cash held in holding companies with further £0.2 billion of free surplus in life companies Closing Phoenix Life free surplus £m Closing cash in holding companies £m 1,066 995 988 837 514 529 196 93 FY11 FY12 FY13 FY14 FY11 FY12 FY13 FY14 • £446 million of cash distributed by Phoenix Li
Slide 14: Comprehensive refinancing of Phoenix's debt structure
Comprehensive refinancing of Phoenix’s debt structure Equity raise £250 million equity raising and £450 million debt repayment 2013 and debt re- terming Impala facility re-termed to June 2019 Ignis Proceeds used to repay £250 million of Impala bank debt and reduce gearing divestment £300m seni
Slide 15: Debt amortisation profile smoothed and extended
Debt amortisation profile smoothed and extended… Amortisation schedule as at 31 December 2012(1) (£m) Pearl PIK notes Impala PIK notes 425 Tier 2 bonds 1st call date Tier 1 bonds 1st call date Pearl facility Impala facility 25 300 25 742 493 493 80 25 200 125 116 2013 2014 2015 2016 2017 2018 2019 2
Slide 16: Sources of debt funding have been diversified
…and our sources of debt funding have been diversified Breakdown of £3.0bn debt at FY12 Breakdown of £1.8bn debt at FY14 £3.0bn of £1.8bn of debt at FY12 debt at FY14 20% Subordinated debt 36% Subordinated 6% Senior 47% Senior debt PIK notes bank debt 73% Senior bank debt 17% Senior bond debt Note:
Slide 17: Reduction in cost of bank debt with further margin reductions
Reduction in cost of bank debt with further margin reductions on achievement of Investment Grade rating Cost of bank debt reduced Investment Grade process 1 Financial Leverage (1) Margin Commenced discussions with Cost of debt above LIBOR has step rating agencies > 40% to ≤ 45% 350 bps downs if fina
Slide 18: Gearing methodology aligned with bank margin ratchets
Following Tier 1 bond exchange, gearing methodology will be aligned with that used for bank margin ratchets Gearing ratios (%) • Gearing reduced from 63% at FY09 to 34% at FY14 • Old methodology accounted for Tier 1 63% 58% 57% bonds at 50% of their value reflecting their 55% hybrid nature 44% • Tie
Slide 19: Embedded value enhanced by £261 million of management actions
Embedded value enhanced by £261 million of management actions Group MCEV £m 44 248 39 68 210 £11.76 per share 261 27 £10.58 per share 148 2,647 2,378 MCEV at Operating Management Divestment of Impacts of Economic & non- Movement in MV Finance costs Pension scheme MCEV at 31 Dec 2013 earnings excl mg
Slide 20: Strong IFRS operating profits
Strong IFRS operating profits £m FY14 FY13 • Phoenix Life operating profits Phoenix Life 487 414 enhanced by £165 million of management actions (FY13: Ignis 17 49 £98 million) Group costs (21) (24) • Non-recurring items include the gain on divestment of Ignis and Operating profit before tax 483 439
Slide 21: IGD surplus of £1.2bn
IGD surplus of £1.2bn IGD and sensitivities at FY14 (£bn) 0.1 0.3 0.6 £1.2bn 0.2 £1.2bn 0.5 0.5 IGD headroom IGD capital policy 0.7 0.7 IGD surplus at FY13 Gain on divestment of Capital generation and Management actions Debt repayments, IGD surplus at FY14 Ignis other, net of corporate interest and
Slide 22: £0.7 billion PLHL ICA surplus
£0.7 billion PLHL ICA surplus PLHL ICA and sensitivities at FY14 (£bn) 0.1 0.2 £1.2bn 0.2 0.8 £0.7bn 1.1 PLHL ICA headroom 0.6 PLHL ICA capital policy 0.1 0.1 PLHL ICA surplus at Gain on divestment of Capital generation and Management actions Debt repayments, PLHL ICA surplus at FY13 Ignis other, ne
Slide 23: £200m-£250m cash target in a transitional Solvency II year
£200m-£250m cash target in a transitional Solvency II year – set within an unchanged longer term £2.8bn target Illustrative annual cash generation(1) 2014 – 2019 £2.8 billion target £957m £3.6bn £390m Ignis proceeds £180m £387m Target £200m to £250m 2014 2015 2016 2017 2018 2019 2020+ Organic cash g
Slide 24: Long term cash generation supports the Group dividend policy
Long term cash generation supports the Group dividend policy Illustrative uses of cash from 2015 to 2019 (£bn) 0.2 0.2 0.4 1.8 0.4 0.6 1.0 1.1 FY14 holding Remaining cash Operating Pension costs Debt interest over Debt repayments Dividends over Illustrative holding company cash generation over expen
Slide 25: Beyond 2019, expected £3.6bn of cash flow to emerge
Beyond 2019, there is an expected £3.6bn of cash flow to emerge, up £0.3bn since HY14 Illustrative uses of cash from 2020 onwards (£bn) 0.1 1.4 3.6 3.2 1.1 Illustrative holding company 2020+ cash generation Payment of outstanding Outstanding shareholder Illustrative holding company cash at FY19 (2)
Slide 26: Phoenix Life overview
Phoenix Life overview Andy Moss
Slide 27: Phoenix Way continued enhancement and success during 2014
Phoenix Way continued enhancement and success during 2014 2014 achievements The Phoenix Way RESTRUCTURING OPERATIONAL MG-ALFA actuarial modelling systems MANAGEMENT in place Further Completed the investment fund operational accounting and custody transition to progress HSBC Transition of asset
Slide 28: Building on track record of management actions
We will build on our strong track record of management actions as we move to Solvency II Incremental MCEV Accelerated cashflow Total £359m Total £296m £1.2bn £332m £1.6bn £261m £275m £242m £209m £165m £167m £170m £180m £155m 2009 2010 2011 2012 2013 2014 2009 2010 2011 2012 2013 2014 • National Prov
Slide 29: Ongoing focus on maximising operational efficiency
Ongoing focus on maximising operational efficiency Costs reductions track policy run-off Cumulative 2010 – 2011 2011 – 2012 2012 – 2013 2013 – 2014 since 2010 Policy run-off 6.9% 6.7% 10.4%(2) 8.5% 28.8% Costs(1) run-off 9.2% 7.2% 9.6% 9.8% 31.3% • Underpinned by outsourcer variable cost model • Enh
Slide 30: Delivering improved service for customers
Delivering improved service for customers Customer 2014 actions Customer metrics Full year 2014 target(1) • Detailed customer research on our with- Speed of Pension Transfer 9.83 days <12 days pay-outs (ORIGO) profits communications Customer Satisfaction 93% 90% • Increased scope and volume of pensi
Slide 31: We are preparing for the new pensions freedoms
We are preparing for the new pensions freedoms • Additional resources to support anticipated spike in activity • Re-trained all colleagues to help customers understand their new Operational freedoms Readiness • Amended customer retirement documentation to sign post PensionWise and Regulated advice •
Slide 32: Outlook and Q&A
Outlook and Q&A Clive Bannister
Slide 33: Financial targets support stable and sustainable dividend policy
Financial targets support stable and sustainable dividend policy • 2015 target of £200 million to £250 million given Solvency II transition and retention of capital in life companies in Cash short term generation • Cumulative target of £2.8 billion between 2014 and 2019 remains unchanged • £100 mill
Slide 34: Phoenix Group now repositioned for future growth
Phoenix Group now repositioned for future growth 2009 – 2014 2015 and beyond Cumulative cash generation of £4.7bn • Stable and sustainable dividend policy Incremental MCEV generated of £1.2bn supported by long-term cashflow target Total debt repayments of £1.8bn • Enhanced financial flexibilit
Slide 35: Q&A
Q&A
Slide 36: Appendices
Appendices I MCEV sensitivities VIII Total debt exposure by country II Maturity profile of business IX Credit rating analysis of debt portfolio III Free surplus generated in Phoenix Life X Capital management framework IV Phoenix Life IFRS operating profit drivers XI Simplification of legacy debt str
Slide 37: Appendix I: MCEV sensitivities
Appendix I: MCEV sensitivities £m FY14 Base (MCEV of covered business) 2,856 1% decrease in risk-free rates 59 1% increase in risk-free rates (68) 10% decrease in equity market values (46) 10% increase in equity market values 46 10% decrease in property market values (46) 10% increase in property ma
Slide 38: Appendix II: Maturity profile of business
Appendix II: 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 31 December 2014 859 556 387 250 186 2,238 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
Slide 39: Appendix III: Free surplus generated in Phoenix Life
Appendix III: Free surplus generated in Phoenix Life £m FY14 FY13 • 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 487 414 longevity, credit and IFRS economic variance
Slide 40: Appendix IV: Phoenix Life IFRS operating profit drivers
Appendix IV: Phoenix Life IFRS operating profit drivers FY14 FY13 Reported Opening Closing Expected Reported Opening Closing Expected IFRS Op liability/ liability/ return IFRS Op liability/ liability/ return Profit Equity(2) Equity(2 margin(1) Profit equity(2) Equity(2 margin(1) Fund type How profit
Slide 41: Appendix V: Management actions
Appendix V: Management actions Incremental MCEV Accelerated cashflow FY14 management actions Type £m FY14 management actions Type £m PGL Pension Scheme longevity PGL Pension Scheme longevity Restructuring 91 Restructuring 68 arrangements arrangements Actuarial Systems Transformation Operational 27 D
Slide 42: Appendix VI: Cash generation sensitivities
Appendix VI: Cash generation sensitivities Cash sensitivities(1) 1 Jan 2014-31 Dec 2019 Base case – 6 year target £2.8bn 20% fall in equity markets £2.7bn 15% fall in property values £2.8bn Following 75bps increase in nominal yields(2) £2.9bn Following 75bps decrease in nominal yields(2) £2.7bn Cred
Slide 43: Appendix VII: Asset mix of life companies
Appendix VII: Asset mix of life companies Total shareholder, Policyholder funds(3) non-profit and Non-supported At 31 Dec 2014 supported with- with-profits Unit Total Total £m unless otherwise stated profits(2) % funds linked Policyholder assets(1) Cash deposits 2,157 14 2,861 1,176 4,037 6,194 Debt
Slide 44: Appendix VIII: Total debt exposure by country
Appendix VIII: Total debt exposure by country Corporate: Sovereign Financial Corporate: Asset backed Total debt At 31 Dec 2014 and Supranational Institutions Other securities securities Total £m Shareholder Policyholder Shareholder Policyholder Shareholder Policyholder Shareholder Policyholder Share
Slide 45: Appendix IX: Credit rating analysis of debt portfolio
Appendix IX: Credit rating analysis of debt portfolio Total shareholder, Policyholder funds(1) non-profit and Non-supported At 31 December 2014 supported with- with-profits Total £m profits(1) funds Unit-linked Policyholder Total assets(1) AAA 1,867 1,769 62 1,831 3,698 AA 5,238 10,130 775 10,905 16
Slide 46: Appendix X: Capital management framework
Appendix X: 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 companies
Slide 47: Appendix XI: Simplification of legacy debt structure
Appendix XI: Simplification of legacy debt structure(1) Phoenix Group Holdings £840m unsecured bank facility Pearl senior Pearl silo bank debt and PGH Capital intermediate Impala PIK £300m senior PIK notes holdcos Impala silo Limited notes and bond intermediate Impala Key: Phoenix Life holdcos senio
Slide 48: Appendix XII: Outline of current debt structure
Appendix XII: Outline of current debt structure Instrument Issuer/borrower Face value £m Maturity Unsecured bank debt - Term loan PGH Capital Limited £390m July 2019 - Revolving credit facility PGH Capital Limited £450m July 2019 Unsecured senior bond (5.75%) PGH Capital Limited £300m July 2021 Subo
Slide 49: Appendix XIII: Summary of bank facility
Appendix XIII: Summary of bank facility £m 2015 2016 2017 2018 2019 Total £390m Term loan LIBOR + 312.5bps Mandatory amortisation 30(1) 60 60 60 - 210 Additional planned amortisation 60 60 60 - - 180 Target amortisation 90 120 120 60 - 390 £450m Revolving credit facility LIBOR + 287.5bps + 25bps uti
Slide 50: Appendix XIV: Calculation of leverage ratios
Appendix XIV: Calculation of leverage ratios FY14 FY14 Metric (£m) Company Gearing(1) Financial Leverage(2) Unsecured bank debt – revolving credit facility 441 450 Unsecured bank debt – term loan 387 390 Unsecured senior bond 298 300 PLL subordinated debt (Upper Tier 2 instrument) 149 200 Perpetual
Slide 51: 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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