Standard Life Plc · LSE:SDLF
Standard Life — Phoenix Group Holdings — FY2019 Earnings Presentation
71 slides from Standard Life's earnings presentation, Mar 9, 2020
Slide 1: Cash Resilience Growth: Full Year 2019 Results
CASH RESILIENCE GROWTH Full Year 2019 Results 9 March 2020 1
Slide 2: Nicholas Lyons, Chairman
Nicholas Lyons Chairman PHOENIX GROUP.
Slide 3: Phoenix's growth journey continues
Phoenix’s growth journey continues 2010 2013 2015 2018 Premium Listing on Debt re-terming Investment grade Acquisition of Standard Life London Stock and £250m credit rating from Assurance Limited (“SLAL”) Exchange equity raising Fitch Ratings 2011 2014 2016 2019 £5bn annuity liability Divestment of
Slide 4: Committing to a sustainable future
Committing to a sustainable future FOCUS ON FOCUS ON FOCUS ON OUR CUSTOMERS OUR CUSTOMERS OUR CUSTOMERS 1 2 3 4 DELIVER FOR FOSTER REDUCE OUR BE A GOOD OUR CUSTOMERS RESPONSIBLE ENVIRONMENTAL CORPORATE CITIZEN INVESTMENT IMPACT WORK ETHICALLY WITH OUR SUPPLY CHAIN GOVERNANCE AND GOOD BUSINESS PRACTI
Slide 5: Agenda
Agenda Nicholas Lyons 1 Welcome Chairman Clive Bannister 2 Introduction Group Chief Executive Jim McConville Group Finance Director and Group Director, Scotland 3 2019 strategic priorities Rakesh Thakrar Deputy Group Finance Director Andy Briggs 4 Outlook Group Chief Executive Designate Nicholas Lyo
Slide 6: Clive Bannister, Group Chief Executive
Clive Bannister Group Chief Executive 6
Slide 7: Strong results across all Key Financial Performance Indicators
Strong results across all Key Financial Performance Indicators PGH SHAREHOLDER CASH PGH SOLVENCY II CAPITAL GENERATION SURPLUS(1) COVERAGE RATIO(1)(2) £707m £3.1bn 161% DIVIDEND PER IFRS OPERATING SHARE PROFIT 46.8p £810m See Appendix XIX for footnotes 7
Slide 8: Phoenix delivered against all 2019 strategic priorities
Phoenix delivered against all 2019 strategic priorities • Strong cash generation of £707 million, exceeding upper end of target range Financial targets • Maintained strong solvency position and investment grade rating • Strong progress across all phases and on track to deliver £1.2 billion Standar
Slide 9: Unchanged long-term cash generation of £12 billion demonstrates sustainability
Unchanged long-term cash generation of £12 billion demonstrates sustainability Illustrative future cash generation from in-force business Cash generation roll forward £12.7bn £12.0 billion guidance over life of business £0.2bn £12.0bn £0.4bn £8.8bn £3.2 billion 4-year target £8.8bn 2024+ £800 - 900m
Slide 10: Acquisition of ReAssure Group plc is strategically compelling
Acquisition of ReAssure Group plc is strategically compelling, and will deliver £7 billion of long-term cash generation ReAssure Group plc (“ReAssure”) Meets all acquisition criteria • £7 billion incremental cash generation(3) • Acquiring 100% of ReAssure, a consolidator of Value • Consideration r
Slide 11: We expect the ReAssure acquisition to complete mid-2020
We expect the ReAssure acquisition to complete mid-2020 6 Dec 2019 Transaction announced • Fitch rating outlook revised from “stable” to “positive” 31 Dec • £200 million of additional synergies reduces price to own ReAssure completes OMW acquisition 2019 funds ratio of ReAssure acquisition by 4% to
Slide 12: Phoenix has a strong track record of delivering cost synergies
Phoenix has a strong track record of delivering cost synergies Inherited £32m £26m £336m £318m(7) cost base 15% 13% 27% 31% +7% Cost £17m £10m £75m 22% £40m synergies +11% total +22% 53% 38% total total Residual cost base £15m £16m £261m £278m See Appendix XIX for footnotes Target at announcement Ac
Slide 13: ReAssure transaction supports 3% dividend increase
ReAssure transaction supports 3% dividend increase and delivers 50% uplift in dividend over 10 years Dividend per share(8) Key messages 50% increase in the dividend over 10 years 1 3% dividend increase triggered by ReAssure 48.2p transaction 46.8p 47.5p 45.2p 46.0p 40.8p 40.8p 40.8p 41.9p 2 36.5p 5t
Slide 14: Jim McConville
Jim McConville Group Finance Director and Group Director, Scotland 14
Slide 15: Phoenix has delivered on its 2019 strategic priorities
Phoenix has delivered on its 2019 strategic priorities 1 FINANCIAL TARGETS 2 TRANSITION 3 CUSTOMER OUTCOMES 4 NEW BUSINESS 5 GROWTH 15
Slide 16: Financial highlights
Financial highlights Financial performance: FY19 FY18 Cash Cash generation £707m £664m Dividends Dividend per share 46.8p 46.0p(8) IFRS Operating profit before tax £810m £708m Incremental long-term cash generation £475m £530m(9) New business New business contribution(10) – UK Open and Europe £158m £
Slide 17: Phoenix delivered £707 million cash generation in 2019
Phoenix delivered £707 million cash generation in 2019, exceeding the upper end of the target range 2019 cash generation Key messages Management actions comprise c. £957m 1/3rd of 2019 cash and supplement organic cash generation £(250)m £707m £600m- £338 million 2019 annual dividend SLAL £565m £700m
Slide 18: £19 billion of predictable long-term cash generation from Combined Group
£19 billion of predictable long-term cash generation from Combined Group Illustrative future cash generation from Combined Group in-force business Cash generation (3) Combined £19.0 billion guidance over life of business Phoenix ReAssure guidance Group £13.1bn Cash generation £3.2bn +£2.7bn £5.9bn (
Slide 19: Additional cash generation from ReAssure supports growth options
Additional cash generation from ReAssure acquisition supports growth options Combined Group: Illustrative uses of cash from 2020 - 2023 £5.9bn £(0.1)bn £(0.4)bn £(0.4)bn £(0.5)bn £(0.5)bn £2.7bn £(0.9)bn £(0.6)bn £(1.3)bn £(1.9)bn £(0.4)bn £(0.8)bn £1.7bn £3.2bn £(1.2)bn £1.2bn £0.3bn £0.5bn FY19 ho
Slide 20: Resilience of cash generation increases confidence in our dividend
Resilience of cash generation increases confidence in our dividend Phoenix sensitivities for £3.2 billion 2020 - 2023 cash generation target(15) Impact on Uses of cash Op cost & interest: £0.9bn Dividend: £1.3bn cash generation 2020-23 cash generation target £3.2bn Equities: 20% fall in markets £3.3
Slide 21: Dividend sustainability is enhanced by the ReAssure acquisition
Phoenix’s dividend sustainability is enhanced by the ReAssure acquisition Combined Group: Illustrative uses of cash from 2024 onward Key messages £13.1bn £(1.8)bn £3.7 billion of additional holding £4.3bn company cash enhances £(1.7)bn £11.3bn dividend sustainability £(3.5)bn £3.7bn £8.8bn Excludes
Slide 22: Strong capital position with a £3.1 billion Solvency II surplus
Phoenix maintains a strong capital position with a £3.1 billion Solvency II surplus Estimated PGH Shareholder capital position “Shareholder value” per share 167% 161% Shareholder own funds £8.3bn SCCR SCCR(2) Less: Tier 2 and Tier 3 debt £(2.0)bn Surplus Less: Restricted Tier 1 debt £(0.5)bn Surplus
Slide 23: New business strain offset by surplus emergence and management actions
New business strain offset by surplus emergence and management actions Change in PGH Solvency II surplus £(0.2)bn 167% £0.6bn £(0.2)bn 161% £(0.5)bn £0.4bn £(0.2)bn £3.2bn £3.1bn Group surplus Surplus emerging Management New business Brexit preparations Financing costs, Economic Group surplus as at
Slide 24: Management actions of £650 million
Management actions of £650 million include £145 million of Standard Life Assurance capital synergies Solvency impact of management actions FY19 management actions Investment of annuity backing assets in illiquid asset classes £190m Methodology harmonisation £650m £460m Matching adjustment fund
Slide 25: Illiquid assets are an integral but proportionate part of asset allocation
“Illiquid” assets are an integral but proportionate part of our annuity strategic asset allocation Illiquid asset portfolio Illiquid asset credit quality Key messages at 31 Dec 2019 at 31 Dec 2019 £1.3 billion of illiquid asset 7% 2% 9% origination in 2019 delivered £140 8% million Solvency II benef
Slide 26: Capital position illustrates resilience to risk events
Phoenix’s capital position illustrates resilience to risk events PGH Solvency II Shareholder Capital Coverage Ratio sensitivities(15) Impact on Target range Solvency II surplus FY19 Solvency II SCCR 161% £3.1bn Equities: 20% fall in markets 165% £0.1bn Property: 15% fall in values(16) 155% £(0.2)bn
Slide 27: Strong FY19 operating profit of £810 million
Strong FY19 operating profit of £810 million FY19 FY18 Key messages UK Heritage £694m £640m UK Open £73m £41m Europe £52m £22m Operating profit includes full year of Standard Service company £26m £25m Life Assurance results Group costs £(35)m £(20)m Operating profit before tax £810m £708m Investment
Slide 28: Phoenix has delivered on its 2019 strategic priorities
Phoenix has delivered on its 2019 strategic priorities 1 FINANCIAL TARGETS 2 TRANSITION 3 CUSTOMER OUTCOMES 4 NEW BUSINESS 5 GROWTH 28
Slide 29: Delivered 90% of capital synergy target and 44% of cost synergy target
Phoenix has delivered 90% of its Standard Life Assurance capital synergy target and 44% of its cost synergy target Delivered Target % of target in 2019 to date 1 Capital synergies (net of costs) £145m £645m £720m 90% 2 Cost synergies(23) (per annum) £19m £33m £75m 44% 3 One-off cost synergies £2
Slide 30: Phase 1 substantially complete with Phases 2 and 3 on track
Phase 1 is substantially complete with Phases 2 and 3 on track 1 2 3 Phase Group functions Finance and Actuarial Customer and IT Status SUBSTANTIALLY COMPLETE ON TRACK ON TRACK End state operating model for Integrated multi-site operating Hybrid Customer Service and Head Office functions model deliv
Slide 31: Phoenix has delivered on its 2019 strategic priorities
Phoenix has delivered on its 2019 strategic priorities 1 FINANCIAL TARGETS 2 TRANSITION 3 CUSTOMER OUTCOMES 4 NEW BUSINESS 5 GROWTH 31
Slide 32: We have exceeded all customer service metric targets
We have exceeded all customer service metric targets Group customer service metrics FY19 FY19 target Phoenix Life customer satisfaction 94% ≥90% Standard Life customer service and accessibility (NetEasy) 71% ≥70% Servicing complaint closure within 3 days 56% ≥50% Servicing complaints (as a per
Slide 33: Improving customer outcomes is central to our mission
Improving customer outcomes is central to our mission Increasing digitisation • Over 12 million online logins by customers • Over 5.5 million Standard Life mobile app sessions • £560 million SLAL gross flows from online top-up and pension consolidation • 40% of digitally enabled Phoenix Life transac
Slide 34: Rakesh Thakrar
Rakesh Thakrar Deputy Group Finance Director 34
Slide 35: Phoenix has delivered on its 2019 strategic priorities
Phoenix has delivered on its 2019 strategic priorities 1 FINANCIAL TARGETS 2 TRANSITION 3 CUSTOMER OUTCOMES 4 NEW BUSINESS 5 GROWTH 35
Slide 36: 2019 new business increased long-term cash generation by £475 million
2019 new business increased long-term cash generation by £475 million enhancing dividend sustainability FY19 FY18 Total pro UK Heritage UK Open Europe Total forma(9) Long-term cash generation £235m £214m £26m £475m £530m Gross inflows (on new business) £1.1bn £6.0bn £1.0bn £8.1bn £9.3bn Capital stra
Slide 37: New Open business increased long-term cash generation by £240 million
New Open business in UK and Europe increased long-term cash generation by £240 million FY19 FY18 Total pro UK Open Europe Total forma(9) Long-term cash generation £214m £26m £240m £280m Gross inflows (on new business) £6.0bn £1.0bn £7.0bn £8.5bn New business contribution(10) £153m £5m £158m £154m Lo
Slide 38: BPA deals in 2019 increased long-term cash generation by £235 million
BPA deals in 2019 increased long-term cash generation by £235 million FY19 FY18 UK Heritage Long-term cash generation £235m £250m Premium £1,131m £799m Day 1 capital allocation £98m £100m Average payback(24) 6-7 years 9-10 years BPA strategy 2019 activity 2020 plans • Selective and proportionate • P
Slide 39: Phoenix has delivered on its 2019 strategic priorities
Phoenix has delivered on its 2019 strategic priorities 1 FINANCIAL TARGETS 2 TRANSITION 3 CUSTOMER OUTCOMES 4 NEW BUSINESS 5 GROWTH 39
Slide 40: Growth through new business brings sustainability to cash generation
Growth through new business brings sustainability to cash generation Future cash generation from in-force business Key messages £0.5 billion incremental long- £0.3bn £(0.2)bn £0.1bn term cash generation from new business £(0.7)bn £0.5bn £0.3 billion from over-delivery of management actions in 2019 £
Slide 41: The Wedge illustrates growth opportunities
The “Wedge” illustrates the range of growth opportunities available to bring sustainability to cash generation Key messages M&A Heritage business generates predictable long-term cash generation to pay dividends and fund growth Management Actions Cash generation BPA delivers dependable growth Open BP
Slide 42: ReAssure generates surplus cash to support growth options
ReAssure generates surplus cash to support our range of growth options Sources and uses of cash generation Growth options £5.9bn Reducing the run off rate through Deleveraging and Heritage £(1.1)bn investment in customer initiatives growth supported by business and management actions additional cash
Slide 43: Andy Briggs
Andy Briggs Group Chief Executive Designate 43
Slide 44: What attracted me to Phoenix?
What attracted me to Phoenix? A CLEAR STRATEGY A SIMPLE FRAMEWORK Manage in-force business for cash and “Cash is King” and the sustainability of the Heritage resilience and deliver customer dividend is paramount outcomes Complete value accretive M&A, M&A and Underpinned by a strong, diversified, r
Slide 45: Phoenix is well placed to take advantage of industry drivers of change
Phoenix is well placed to take advantage of the industry drivers of change Insurers are consolidating Corporates are de-risking Strong DC pension growth • Trapped capital • De-risking strategies well • Auto-enrolment Drivers of • Cost inefficiencies advanced • Shift from DB change • Legacy systems •
Slide 46: Clear set of strategic priorities for 2020
Phoenix has a clear set of strategic priorities for 2020 Deliver the 2020 cash generation target of £800-£900 million, underpinned by a Financial targets strong solvency position and investment grade rating Transition Standard Life Complete Phase 2 and progress Phase 3 of the transition programme to
Slide 47: Nicholas Lyons
Nicholas Lyons Chairman PHOENIX GROUP.
Slide 48: Phoenix – Cash, Resilience, Growth
Phoenix – Cash, Resilience, Growth 2019 was an exceptional year, in which we delivered Cash, Resilience and Growth Acquisition of ReAssure confirms Phoenix as Europe’s largest life and pensions consolidator Focused on delivering significant value from in-force business over many years Phoenix is wel
Slide 49: Phoenix Group
PHOENIX GROUP.
Slide 50: Appendices
Appendices Appendices I Leverage ratio X UK Heritage business operating profit drivers I II Leverage ratioin assets under administration Movement XIIIXI Total debt Asset mixexposure by country of Life Companies II III Movement UK Openin–assets underinadministration movement AUA by product type XIV X
Slide 51: Appendix I: Leverage ratio
Appendix I: Leverage ratio Fitch leverage ratio(1) FY19 leverage ratios 36 Fitch basis(1) 22% 33 IFRS basis(2) 34% 29% SII leverage(3) 19% 30 27% Fitch target (4) • IFRS leverage ratio classifies RT1 as debt 27 26% range: 25-30% Funding capacity 24 (4) 22% 22% • Our funding capacity is driven by a c
Slide 52: Appendix II: Movement in assets under administration
Appendix II: Movement in assets under administration £26.4bn £248.3bn £16.9bn £1.9bn £1.8bn £(1.9)bn £24.7bn £9.8bn £(8.1)bn £11.2bn £226.3bn £5.3bn £(11.3)bn £13.3bn £22.9bn £(21.3)bn £97.5bn Net flows £84.6bn UK Heritage £(6.0)bn UK Open £1.7bn Europe £(0.1)bn £126.1bn £118.8bn UK Heritage UK Open
Slide 53: Appendix III: UK Open – movement in AUA by product type
Appendix III: UK Open – movement in AUA by product type Workplace Retail Wrap SIPP FY18 AUA £37.5bn FY18 AUA £24.2bn FY18 AUA £22.9bn Gross inflows Gross inflows Gross inflows £1.6bn £1.6bn £2.8bn - new - new - new Gross inflows Gross inflows Gross inflows £3.3bn £0.3bn £0.2bn - existing - existing
Slide 54: Appendix IV: Movements in holding company cash
Appendix IV: Movements in holding company cash and cash equivalents £m FY19 FY18 Opening cash and cash equivalents 346 535 Non-operating net cash outflows include: • £(60) million of recharged staff costs Total cash receipts 707 664 and Group expenses on corporate projects including £(12) million of
Slide 55: Appendix V: Change in Life Company Free Surplus
Appendix V: Change in Life Company Free Surplus Change in life company free surplus in 2019 £(0.3)bn £0.6bn £(0.1)bn £0.1bn £(0.9)bn £0.5bn £0.3bn £1.8bn £1.2bn £1.0bn Opening free Surplus Management Brexit New business Economic, Free surplus Cash Cash Closing free surplus(1) generation and actions
Slide 56: Appendix VI: Estimated PGH Solvency II surplus and coverage ratios
Appendix VI: Estimated PGH Solvency II surplus and coverage ratios PGH Solvency II coverage ratio(1) PGH Shareholder capital coverage ratio(1,2) 146% 141% 167% 161% Surplus Surplus Surplus £3.1bn Surplus £3.2bn £3.2bn £3.1bn £10.3bn £10.8bn £8.0bn £8.3bn £7.1bn £7.7bn £5.2bn £4.8bn FY18 FY19 FY18 FY
Slide 57: Appendix VII: Shareholder SCR by risk type and own funds tiering
Appendix VII: Estimated shareholder SCR by risk type and PGH own funds tiering Estimated FY19 SCR by risk type(1) FY19 PGH own funds by capital tier(2) £8.3bn 11% 10% of SCR 2% 21% 29% of SCR £5.2bn 4% 5% 122% of SCR 6% Longevity 8% Property PGH tiering of own funds PGH SCR Credit 7% 16% Persistency
Slide 58: Appendix VIII: Regulatory Capital Coverage Ratio sensitivities
Appendix VIII: Regulatory Capital Coverage Ratio sensitivities PGH Solvency II Regulatory Capital Coverage Ratio (RCR) sensitivities(15) Impact on Solvency II surplus FY19 Solvency II RCR 141% £3.1bn Equities: 20% fall in markets 142% £0.1bn Property: 15% fall in values(16) 136% £(0.2)bn Rates: 73bp
Slide 59: Appendix IX: Operating profit analysis
Appendix IX: Operating profit analysis 2019 operating profit drivers Key messages £810m New business profits and favourable £148m longevity experience offset adverse £23m short-term expense variances £559m £80m Model & methodology changes £694m includes removal of manual reserves £401m and replaceme
Slide 60: Appendix X: UK Heritage business operating profit drivers
Appendix X: UK Heritage business operating profit drivers FY19 FY18 Reported Closing Expected Reported Closing Expected operating liability/ return operating 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
Slide 61: Appendix XI: Asset mix of life companies
Appendix XI: Asset mix of life companies Policyholder funds(3) Total shareholder, non- profit and supported with- Non-supported Total policyholder Total assets(1) At 31 December 2019 profits(2) Unit-linked £m with-profits funds Cash deposits 5,495 4,788 6,391 11,179 16,674 Debt securities Debt secur
Slide 62: Appendix XII: Total debt exposure by country
Appendix XII: Total debt exposure by country Sovereign Corporate: Financial Corporate: Asset Backed Total debt At 31 December 2019 and Supranational Institutions Other Securities securities Total debt £m Shareholder Policyholder Shareholder Policyholder Shareholder Policyholder Shareholder Policyhol
Slide 63: Appendix XIII: Credit rating analysis of debt portfolio
Appendix XIII: Credit rating analysis of debt portfolio Policyholder funds Total shareholder, non-profit and supported with- Non-supported with- profits profits funds Unit-linked Total policyholder Total assets At 31 December 2019 £m % £m % £m % £m % £m % AAA 2,188 11 5,820 15 3,322 10 9,142 12 11,3
Slide 64: Appendix XIV: 2019 illiquid asset origination
Appendix XIV: 2019 illiquid asset origination 2019 origination focused on longer maturities at attractive spreads Diversified portfolio 300 250 A A- AA A- A+ Spread (bps) 200 AA BBB A A+ A- 150 BBB A A £1.3bn A A- A AA AA- BBB AA- 100 BBB- A+ AA AA AA- 50 Social Housing Infrastructure 0 Student Acco
Slide 65: Appendix XV: Equity Release Mortgage portfolio
Appendix XV: Illiquids assets: Equity Release Mortgage portfolio Credit rating determined through securitisation Key portfolio statistics 2% at 31 Dec 2019 10% Average AAA Average Average time to AA LTV age 27% £2.9bn Current redemption A 61% portfolio BB 34% 77 years 12 years Regional distribution
Slide 66: Appendix XVI: ReAssure pro-forma shareholder own funds
Appendix XVI: ReAssure pro-forma shareholder own funds ReAssure pro-forma shareholder own funds(6) Price to own funds ratio 0.91x £0.2bn (£0.2bn) £3.6bn £3.5bn (6) £3.5bn £0.3bn (£0.1bn) £3.2bn £0.3bn £2.9bn £0.1bn Price Own funds • ReAssure completed the acquisition of the OMW business on 31 Decemb
Slide 67: Appendix XVII: Corporate structure as at 31 December 2019
Appendix XVII: Corporate structure as at 31 December 2019 €500m Tier 2 bond (2029) £1,250m undrawn unsecured £428m Tier 2 bond (2025) Revolving Credit Facility Phoenix Group £450m Tier 3 bond (2022) Holdings plc £500m Restricted Tier 1 bond (2028) £122m Senior bond (2021) $500m Tier 2 bond (2027) Ph
Slide 68: Appendix XVIII: Outline of debt structure
Appendix XVIII: Outline of debt structure as at 31 December 2019 Structure of £2,530 million of outstanding debt as at 31 December 2019 Instrument Issuer / Borrower Maturity Drawn amount / Face value - Bank Debt £1,250m unsecured Revolving Credit Facility (“RCF”) Phoenix Group Holdings plc June 2024
Slide 69: Appendix XIX: Footnotes
Appendix XIX: Footnotes (1) The Solvency II capital position is an estimated position and reflects a regulator approved recalculation of transitionals as at 31 December 2019. (2) The 2019 Shareholder Capital Coverage Ratio excludes Solvency II own funds and Solvency Capital Requirements of unsupport
Slide 70: Appendix XIX: Footnotes (continued)
Appendix XIX: Footnotes (continued) (16) Property stress represents an overall average fall in property values of 15%. (17) Assumes recalculation of transitionals (subject to PRA approval). (18) Credit stress equivalent to an average 120bps spread widening across ratings and includes an allowance fo
Slide 71: 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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