Aberdeen Group plc · LSE:ABDN
Aberdeen — Standard Life — FY2006 Earnings Presentation
42 slides from Aberdeen's earnings presentation, Mar 22, 2007
Slide 1: Standard Life 2006 Preliminary Results
Standard Life 2006 Preliminary Results 22 March 2007
Slide 2: Disclaimer
Disclaimer This presentation may contain certain “forward-looking statements” with respect to certain of Standard Life's plans and its current goals and expectations relating to its future financial condition, performance, results, strategy and objectives. Statements containing the words “believes”,
Slide 3: Agenda
Agenda Agenda Sandy Crombie Improving financial performance David Nish Growing the UK L&P business Trevor Matthews Investments performing Keith Skeoch Driving value Sandy Crombie Questions and answers Team 3
Slide 4: Improving financial performance
Improving financial performance David Nish Group Finance Director
Slide 5: 2006 Financial highlights
2006 Financial highlights • EEV operating profit before tax up 55% to £614m (2005: £395m). • New business contribution before tax up 521% to £205m (2005: £33m). • IFRS operating profit before tax up 272% to £540m (2005: £145m). • EEV up 11% to £5,608m (2005: £5,048m)(1), equivalent to 258p per share
Slide 6: Focus on improving RoEV
Focus on improving RoEV 2005 RoEV 7.4% New Business Contribution 2.3% Expected return (0.5%) In-force movements (0.8%) Non Life Business Units 0.7% Corporate costs (0.2%) 2006 RoEV 8.9% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 1.5% point increase in return on embedded value Return on embedded value in 2
Slide 7: Focus on increasing embedded value
Focus on increasing embedded value 3,744 1,304 2006 Opening EEV plus IPO proceeds 5,048 New Business 205 Expected return 392 Inforce Movements 64 Development costs & other 45 Non life operating units 87 Corporate costs 89 Taxation and non operating items 54 2006 Closing EEV 5,608 £3,000m £3,500m £4,
Slide 8: EEV operating profit
EEV operating profit 2006 2005 UK Europe Canada Asia- HWPF Total Total Pacific TVOG £m £m £m £m £m £m £m New business 167 10 28 - - 205 33 In-force Expected return 268 31 93 - - 392 328 Experience variances 90 7 (16) - 41 122 60 Assumption changes (128) 6 61 - 3 (58) 37 Other covered (25) (9) (3) (8
Slide 9: New business
New business 47% increase in PVNBP(1) Margin improvement across the Group(2) 2006 2005 12,000 11,400 UK 1.5% 0.4% 11,000 10,000 Canada 1.6% (0.1%) 9,000 8,000 Europe 1.2% 0.9% 6,763 7,000 Group 1.4% 0.4% £'m 6,000 5,000 NBC increasing six fold to £205m(2) 4,000 2006 2005 3,000 1,882 1,791 £m £m 2,00
Slide 10: EEV experience variances & operating assumption changes
EEV experiences variances & operating assumption changes 2006 UK Europe Canada TVOG Total £m £m £m £m £m Experience variances Lapses (4) (2) - - (6) Maintenance expenses 2 2 3 - 7 Mortality and morbidity 27 - - - 27 Tax & Other 65 7 (19) 41 94 90 7 (16) 41 122 Operating assumption changes Lapses (20
Slide 11: Lapses
Lapses Further Provisions at Remaining strengthening at Year end end of H1 Experience in H2 Provision year-end Provisions £m £m £m £m £m Life 27 (34) (7) 48 41 Pensions 96 (36) 60 59 119 Total 123 (70) 53 107 160 • Full review of assumptions undertaken • Carefully monitoring experience and selected
Slide 12: IFRS pro forma underlying profits
IFRS pro forma underlying profits 2006 2005 £m £m Life and Pensions UK 230 16 Canada 168 86 Europe 108 73 Other Life (9) - Total Life and Pensions 497 175 Investment Management 66 44 Banking 38 24 Healthcare and general insurance 16 7 Total Non life excluding corporate costs and other 120 75 Corpora
Slide 13: Group EEV cash generation
Group EEV cash generation Group PVNBP and New Business Strain 2006 2005 £m £m £bn 16 5.0% New business strain (303) (306) 14 Cash generation from existing business 436 351 4.0% 12 Life and Pensions cash generation from 133 45 new business and expected return 10 3.0% Cash generation from variances, 1
Slide 14: Group funds flow
Group funds flow • Dividends from business units • Standard Life Assurance Limited £ 60m(1) • Standard Life Canada £ 55m • Standard Life Investments £ 50m • Standard Life Bank £ 40m £205m • Other plc funds flow • SL plc dividend £114m(1) • Corporate centre costs £ 62m (£89m pre-tax) • Investment inc
Slide 15: 2006 Financial summary
2006 Financial summary PVNBP Sales 47% to £14.3bn PVNBP Margin 1.0% pts to 1.4% EEV operating profit 55% to £614m IFRS profit 272% to £540m EEV cash generation £279m to £262m Strong improvement in our financial performance 15
Slide 16: Growing the UK L&P business
Growing the UK L&P business Trevor Matthews Chief Executive Standard Life Assurance Limited
Slide 17: UK L&P Market
UK L&P Market • A-day • Customer consolidation of funds • Wider access to SIPP • Increase in contribution limits • Shift from with-profits continuing • Market conditions favourable to Bonds and Mutual Funds • Distribution • Platforms Our strategy has enabled us to capitalise on these trends 17
Slide 18: The Heritage With-Profits Fund
The Heritage With-Profits Fund • Good prospects for Policyholders going forward • Strong investment performance in 2006 (up to 12.5%) • Equity backing ranging from 30% to 70% depending on policy type • Residual Estate increased from £0.5bn to £1.3bn • 100% owned by Policyholders • Potential to distr
Slide 19: Investments
Investments Unit Linked Onshore Bond Sales by Quarter 600 • Strong sales growth in Bonds and Mutual Funds 500 • Continued strength of investment performance by SLI 400 PVNBP (£'m) • Continued innovation – Launch of 300 57 new external fund links 200 • Launch of Offshore Bond 100 • Launch of FundZone
Slide 20: Pensions
Pensions Retail Pensions - Volumes and Margins 8 1.6% • Retail pensions PVNBP up 53% 7 1.4% • New business margins on retail 6 1.2% pensions up from 0.2% to 1.5% 5 1.0% PVNBP NBC Margin • Institutional TIP sales up 153% (£'bn) 4 0.8% (%) 3 0.6% • High volume, low margin 2 0.4% business that requires
Slide 21: SIPP
SIPP SIPP Funds Under Management 4,500 £4,300m • New business volumes up 4,000 Non- 152% 598 Ins ure d 223 Funds 3,500 234 33% • FUM increased from £1.3bn to 3,000 361 £4.3bn £2,400m 2,500 921 £’m 2,000 268 191 Non- Ins ur e d Funds • Average case size increased 70 226 31% Ins ure d to £169k, up 15%
Slide 22: Group Pensions
Group Pensions Increased Weighting of Nil Commission Sales • Profitable business 100% 80% 54% 58% 60% 76% 75% 40% 20% 24% 25% 42% 46% • A sustainable commission model 0% Q1 06 Q2 06 Q3 06 Q4 06 Nil Commission Commission Paying 35 FUM per Customer Service Staff Member • Back book is a major source of
Slide 23: Margin improvement
Margin improvement Margin growth benefiting from leveraging acquisition costs Pro forma PVNBP Pro forma NBC NBC Development 2005 - 2006 margin 400 2006 2005 2006 2005 350 % % £m £m 300 341 167 Retail Pensions 1.5% 0.2% 98 8 250 £'m 200 27 Institutional 0.1% 0.3% 2 3 205 Pensions 150 100 Life 1.6% 0.
Slide 24: Geared for continuing profitable growth
Geared for continuing profitable growth • A-day and ageing baby boomers driving market growth • Proven sales capability • Positioned to capitalise on shift to platforms • Margin improvement Market changes play to our strengths and strategic focus 24
Slide 25: Investments performing
Investments performing Keith Skeoch Chief Executive Standard Life Investments
Slide 26: 2006 A breakthrough year
2006 A breakthrough year Standard Life Investments IFRS PBT and EBIT margin 2004 - 2006 • IFRS PBT up 50% to £66m 70 30% • EBIT margin 27% (2005: 22.3%) 60 25% • Third-Party Assets up 32% to £38.5bn 50 20% • No. 6 Mutual Fund net flows 40 £'m 15% % EBIT • Another record year for institutional 30 man
Slide 27: Alpha delivered across all assets
Alpha delivered across all assets Active Investment Performance - by Product Group % Rank at 28 February 2007 0 25 50 75 100 Weighted WP Funds Mutual UL Life UL Pensions Corporate Segregated Irish & M.W.A Third Average Funds Pooled German Ex Party Assets Group Life Funds 1 year 3 years 5 years 10 ye
Slide 28: Performance against peer group - Year to February 2007
Performance against peer group - Year to February 2007 Third Party > Median Upper Quartile Pooled Pensions 91% 52% Seg Pensions * 96% n/a Mutual Funds 79% 63% Captive > Median Upper Quartile Unit Linked Life 60% 25% Unit Linked Pensions 76% 35% Performing in key product areas * Year to 31 December 2
Slide 29: The changing fund management market place
The changing fund management Market Place What clients want is • Best in class alpha • Best in class product But they are also • Open to innovation Plenty of organic opportunities for Standard Life Investments 29
Slide 30: Where is growth coming from
Where is growth coming from: UCITS III Funds 120/20 Diversify sources of Global Absolute Return Strategies alpha High Alpha Fixed Income Embed Outsourcing Arrangements Improve scalability of Develop Derivatives Platform investment infrastructure Improve Scalability of Customer Reporting Platforms Mo
Slide 31: Focus on performance and profit
Focus on performance and profit • Continued focus on infrastructure to improve efficiency • Product innovation to diversify sources of EBIT • Strong track record in alpha delivery to sustain sales momentum in 2007 • Provide an exceptional client experience Leveraging Investment Management Expertise
Slide 32: Driving value
Driving value Sandy Crombie Group Chief Executive
Slide 33: Delivered value
Delivered value New Business Contribution 250 205 200 150 100 • New Business Contribution 33 £'m 50 increased from a loss of £117m 0 (50) pro rata to profit of £205m in (100) (117) two years (150) Pro rata 2004 2005 2006 Return on Embedded Value 10.0% 8.9% 8.0% 7.4% 6.0% • Return on Embedded Value m
Slide 34: How we deliver value
How we deliver value Building valuable customer relationships with leading service and compelling propositions • Creating capital efficient innovative products • Opening new routes to markets • Leveraging investment management expertise and performance • Driving for operational excellence Delivering
Slide 35: Driving growth
Driving growth • UK life and pensions • Product innovation • Higher value customers • New distribution channels • Platforms opportunity • Canada life and pensions • Cost efficiency • Detoxed product set • Expansion of retail wealth management • Compelling propositions • Europe life and pensions • Re
Slide 36: Driving growth
Driving growth • Standard Life Investments • Diversifying sources of alpha • Improving scalability of investment infrastructure • Investment performance supporting product offering across group • Standard Life Bank • Cost competitive • Higher value customers • Propositions supporting product offerin
Slide 37: Driving efficiency
Driving efficiency Group cost base reconciliation 2005 - 2006 £'m • Positive maintenance 1,050 operating assumption 9 1,000 36 changes of £88m in 2006 45 950 920 26 900 870 (66) • UK PVNBP margin increased 850 from 0.4% in 2005 to +1.5% in 800 2006 750 700 • Non-life business units IFRS 650 profit i
Slide 38: Driving efficiency
Driving efficiency • Existing initiatives of £30m UK L&P expense reduction by 2007 and Corporate costs being reduced to £58m in 2007 being delivered • Building on existing initiatives – supporting business growth • Additional underlying cost benefits of £100m p.a. by 2009 through continuous improvem
Slide 39: Driving efficiency – key initiatives
Driving efficiency – key initiatives Creation of a UK Retail Division • Streamlining common functions supporting UK life and pensions, Standard Life Bank and Standard Life Healthcare Extending Shared Services • Establishment of Finance Shared Services Centre, further integrate common shared activiti
Slide 40: Driving efficiency – benefit profile
Driving efficiency – benefit profile £'m 180 160 £146m 140 £131m 120 100 80 £61m 60 40 20 0 2007 2008 2009 Reduction in Corporate costs Reduction in UKL&P costs Additional Cost savings All figures reported pre-tax 40
Slide 41: Standard Life – Conclusions and Outlook
Standard Life – Conclusions and Outlook Delivery Driving Efficiency Shareholder value Opportunity On track to achieve our return on embedded value target for 2007 of 9-10% - increasing thereafter 41
Slide 42: Questions and answers
STANDARD LIFE Questions and answers