Standard Life Plc · LSE:SDLF
Standard Life — Phoenix Group Holdings — H1 2018 Earnings Presentation
48 slides from Standard Life's earnings presentation, Aug 23, 2018
Slide 1: Interim results 2018
Interim results 2018 23 August 2018 1
Slide 2: Agenda
Agenda Business update Clive Bannister | Group Chief Executive Financial review Jim McConville | Group Finance Director and Group Director, Scotland Phoenix Life Andy Moss | Chief Executive, Phoenix Life and Group Director, Heritage Business Outlook and Q&A Clive Bannister | Group Chief Executive 2
Slide 3: Business update
Business update Clive Bannister 3
Slide 4: Key HY18 highlights: a strong performance for Phoenix
Key HY18 highlights: a strong performance for Phoenix Strong cash • Strong cash generation of £349 million in HY18 generation • Expect to exceed upper end of 2017-2018 target range of £1.0 - £1.2 billion supports dividend • Interim 2018 dividend of 22.6p, consistent with Final 2017 dividend • Solven
Slide 5: Acquisition of Standard Life Assurance anticipated to complete on 31 August
Acquisition of Standard Life Assurance anticipated to complete on 31 August Shareholder • 99.98% of shareholders voted in favour of the acquisition approval obtained Acquisition funding • £500 million restricted Tier 1 issuance in April in place • £950 million rights issue completed in July with 96.
Slide 6: Financial review
Financial review Jim McConville 6
Slide 7: Financial highlights
Financial highlights HY18 HY17 FY17 £ Operating companies’ cash generation 349m 360m 653m Cash Holding company cash 1,039m 691m 535m PGH Solvency II surplus 2.3bn(1) 1.7bn(1) 1.8bn Group capital Shareholder Capital Coverage Ratio 180%(1) 166%(1) 164% IFRS Group operating profit 216m 215m 368m AuM Li
Slide 8: Increase in Holdco cash driven by strong cash generation and bond issue
Increase in Holdco cash driven by strong cash generation and bond issue £m HY18 HY17 FY17 • Non-recurring cash outflows Opening cash and cash include: 535 570 570 equivalents − £92 million associated with hedging equity and Total cash receipts 349 360 653 currency risk in Phoenix and Standard Life U
Slide 9: Solvency II Shareholder Capital Coverage Ratio of 180%
Solvency II Shareholder Capital Coverage Ratio of 180% PGH Shareholder Capital position(1) • Shareholder Capital Coverage Ratio calculation excludes Own 180% 164% Funds and SCR of unsupported with-profit funds and PGL pension scheme(2) • £0.9 billion of unrecognised surplus in unsupported with- Surp
Slide 10: Management actions have increased PGH Solvency II surplus
Management actions have increased PGH Solvency II surplus Change in PGH Solvency II surplus • Management actions and the RT1 issue have increased surplus by 164% 180% £0.3bn £0.9 billion £0.5bn £0.2bn • Economic and other £0.4bn variances include £0.1bn strains from the Standard Life Assurance equit
Slide 11: Solvency II surplus and long term cash generation remain resilient to market movements
Solvency II surplus and long term cash generation remain resilient to market movements Solvency II surplus: Cash generation target: Scenario(1) £2.3 billion as at HY18 £2.5 billion between 2018-22 Longevity increase(2) £(0.3) billion impact £(0.3) billion impact Credit spread widening(3) £(0.1) bill
Slide 12: Phoenix delivers on capital synergies by implementing hedging strategy
Phoenix delivers on capital synergies by implementing hedging strategy Strategy to manage equity risk Impact of SLA equity hedging on key metrics • Phoenix is exposed to equity risk on charges • Prior to completion, Phoenix is exposed to on unit-linked business and shareholder movements in the hedge
Slide 13: IFRS operating profit of £216 million in HY18
IFRS operating profit of £216 million in HY18 £m HY18 HY17 FY17 • Phoenix Life operating profits reflect enhanced management Phoenix Life 228 226 388 actions and positive experience variances in the period Group costs (12) (11) (20) • Investment return variances Total operating profit 216 215 368 in
Slide 14: Phoenix expects to exceed the upper end of the 2017-2018 cash generation target range
Phoenix expects to exceed the upper end of the 2017-2018 cash generation target range Phoenix cash generation £1.0bn - £1.2bn target range £0.2bn - £0.3bn £349m £293m £1.0bn £360m 1H17 2H17 1H18 FY17+HY18 2H18 2017-18 target 14
Slide 15: Cash generation for the combined group increases to £12 billion
Cash generation for the combined group increases to £12 billion Future cash generation from in-force business £8.5bn • Phoenix has set a target of £2.5 billion between 2018-2022 • £1.0 billion of cash generation expected £4.5bn from Standard Life Assurance over this period • £1.0 billion cash genera
Slide 16: Cash generation for the combined group builds holding company cash and supports the dividend
Cash generation for the combined group builds holding company cash and supports the dividend Combined Group: Illustrative uses of cash from 2018 - 2022 £3.2bn Standard Life £0.5bn Assurance £1.0bn £0.6bn £1.5bn £1.5bn £2.0bn £2.2bn £1.0bn £1.1bn £0.5bn HY18 holding Rights issue Acquisition of Post a
Slide 17: Beyond 2022, additional cash generation enhances dividend sustainability
Beyond 2022, additional cash generation of the combined group enhances dividend sustainability Combined Group: Illustrative uses of cash from 2023 onward • Significant long term cash flows from Standard Life £8.5bn Assurance enhances £2.6bn dividend sustainability Standard Life Assurance £4.5bn • No
Slide 18: Phoenix's financial strength further enhanced in HY18
Phoenix’s financial strength further enhanced in HY18 P Expect to exceed the 2017-2018 cash generation target of £1.0 - £1.2 billion P Robust capital position with Solvency II surplus of £2.3 billion and 180% coverage ratio(1) P Dividend sustainability significantly enhanced from Standard Life Assur
Slide 19: Phoenix Life
Phoenix Life Andy Moss 19
Slide 20: Key Phoenix Life achievements in HY18
Key Phoenix Life achievements in HY18 Management actions have added £384 million to Solvency II surplus in HY18 Management AXA and Abbey Life integrations completed actions to support Holding of illiquid assets increased to 20% of annuity backing assets cashflow Abbey Life indemnity operatin
Slide 21: Management actions have added £384 million to Solvency II surplus
Management actions have added £384 million to Solvency II surplus Increase overall cash flows Accelerate cash flows Increase Solvency II Own Funds Reduce Solvency II SCR • Investment in illiquid assets, primarily equity • Approval to include Abbey Life in Phoenix’s release mortgages and private plac
Slide 22: Illiquid asset strategy is a key management action for Phoenix
Illiquid asset strategy is a key management action for Phoenix Shareholder exposure to illiquid assets has increased to 20% towards a 40% target FY16 actual HY18 actual Target 7% 9% 20% 2% 40% 18% £0.5bn of 6% £2.3bn of 50% illiquids illiquids 66% 22% • Circa £11 billion of Phoenix’s total assets of
Slide 23: ERM strategy and impact of CP13/18
CP13/18 proposals will not impact on cash generation targets ERM strategy Impact of CP13/18 • ERM is an important asset class with a • The potential impacts of CP13/18 for Phoenix cashflow profile more closely aligned to those are driven by the requirement for transitional of our annuity liabilities
Slide 24: Capping of ongoing charges on non-workplace pensions improves customer outcomes
Capping of ongoing charges on non-workplace pensions improves customer outcomes Improving customer outcomes Additional charging caps introduced • Phoenix is committed to a charging structure • Phoenix will introduce charge caps on all non- which improves customer outcomes workplace pension policies
Slide 25: Continued delivery of strong service for customers
Continued delivery of strong service for customers Customer actions Customer service metrics • Review of investment strategy by asset class to improve returns and reduce costs Full year HY18 target(1) • Direct buyback of small value annuities in Speed of Pension Transfer pay-outs (ORIGO) 10.86 days
Slide 26: Outlook and Q&A
Outlook and Q&A Clive Bannister 26
Slide 27: The acquisition of Standard Life Assurance brings strategic and financial benefits
The acquisition of Standard Life Assurance brings strategic and financial benefits P £5.5 billion cash generation on in-force business taking combined group total to £12 billion P Additional cash generation enhances dividend sustainability and supports dividend increase P Cost and capital synergies
Slide 28: Timetable for Standard Life Assurance transition and market communications
Timetable for Standard Life Assurance transition and market communications Transition programme milestones Market communications 3 Sep 2018 • Governance structure in place = Day 1 • Strategic partnership operational 29 Nov 2018 Capital Markets • Transition planning complete Day 31 Dec 2018 = • End s
Slide 29: Phoenix continues to be predominantly a Heritage business; but now with open business
Phoenix continues to be predominantly a Heritage business; but now with open business Phoenix Group in-force policies Heritage new Open new Heritage Open business business ~£160bn ~£80bn Strategic Workplace Partnership With-profits Vesting pensions with SLA Annuities Individual Annuities pensions /
Slide 30: Phoenix has a range of organic and inorganic growth opportunities
Phoenix has a range of organic and inorganic growth opportunities Inorganic growth will deliver scale Market size estimate Closed life • Evidence of the industry bifurcating £540bn(1) consolidation Bulk Purchase • Completed first external buy-in transaction £18bn(2) Annuities Annual new Organic grow
Slide 31: The Standard Life Assurance transaction is evidence of the continued bifurcation of the insurance industry
The Standard Life Assurance transaction is evidence of the continued bifurcation of the insurance industry Traditional insurance companies are splitting in two Capital “heavy” Capital “light” • Insurance firms • Distribution / advice / asset management firms • Balance sheet led business model • Focu
Slide 32: Phoenix has a clear set of strategic priorities for 2018
Phoenix has a clear set of strategic priorities for 2018 • To exceed the upper end of the £1.0 - £1.2 billion range for 2017 - Cash generation 2018 • Long-term cash generation target of £2.5 billion between 2018 - 2022 • Transition planning for end state operating model underway Transition Standard
Slide 33: Q&A
Q&A 33
Slide 34: Appendices
Appendices I Standard Life Assurance transaction VII Asset mix of life companies potential cost and capital synergies VIII Total debt exposure by country II Phoenix’s stable and sustainable dividend IX Credit rating analysis of debt portfolio track record III Change in Phoenix Life Free Surplus X Cu
Slide 35: Appendix I: Standard Life Assurance transaction potential cost and capital synergies
Appendix I: Standard Life Assurance transaction potential cost and capital synergies Indicative net value of synergies(1) Sources of synergies • Cost savings of £50 million p.a. (pre tax): £135m − Combination of life company management and support functions £440m − Leverage Phoenix operating model •
Slide 36: Appendix II: Phoenix's stable and sustainable dividend track record
Appendix II: Phoenix’s stable and sustainable dividend track record Stable dividend profile with uplifts following acquisitions(1) • Stable and 27% DPS uplift due to equity raising 5% DPS uplift following AXA Wealth 1 Euronext listing in September 2009 2 3 and debt re-terming in Jan 2013 acquisition
Slide 37: Appendix III: Change in Phoenix Life Free Surplus
Appendix III: Change in Phoenix Life Free Surplus Change in Phoenix Life Free Surplus in HY18 (£bn) (1) £0.1bn £0.4bn £0.3bn £0.1bn £1.1bn £0.8bn £0.7bn Opening free surplus Surplus generation & run- Management actions Economic & other Free surplus before cash Cash remittances Closing free surplus o
Slide 38: Appendix IV: Estimated Solvency II surplus and SCR coverage ratio
Appendix IV: Estimated Solvency II surplus and SCR coverage ratio Solvency II Coverage Ratio(1) Shareholder Capital Ratio(1) 149% 139% 180% 164% Surplus Surplus Surplus £2.3bn Surplus £2.3bn £1.8bn £1.8bn £5.2bn £7.0bn £6.6bn £4.6bn £4.7bn £4.8bn £2.9bn £2.8bn HY18 FY17 HY18 FY17 Own Funds SCR Own F
Slide 39: Appendix V: Breakdown of SCR and Own Funds
Appendix V: Breakdown of SCR and Own Funds SCR by risk type (HY18) Own Funds by capital tier (HY18) (1) £7.0bn Tier 3 £0.6bn Tier 2 £1.0bn 7% 27% 18% 11% Tier 1 £5.4bn(2) 16% £4.7bn 8% 13% PGH tiering of Own Funds PGH SCR Longevity Credit Persistency Operational Interest rate Other market risks Othe
Slide 40: Appendix VI: Phoenix Life operating profit drivers
Appendix VI: Phoenix Life operating profit drivers HY18 HY17 Reported Closing Expected Reported Closing Expected IFRS Op liability/ return IFRS Op liability/ return Fund type How profits are generated Profit equity(2) margin(1) Profit equity(2) margin(1) £m £bn bps £m £bn bps Our share of bonuses pa
Slide 41: 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 30 June 2018 supported with- with-profits Unit Total Total £m (unless otherwise stated) profits(2) % funds linked Policyholder assets(1) Cash deposits 4,484 23 4,016 2,482 6,498 10,982
Slide 42: Appendix VIII: Total debt exposure by country
Appendix VIII: Total debt exposure by country Other Corporate: Government Financial Corporate: Asset backed Total debt At 30 June 2018 and Supranational Institutions Other securities securities Total £m Shareholder Policyholder Shareholder Policyholder Shareholder Policyholder Shareholder Policyhold
Slide 43: Appendix IX: Credit rating analysis of debt portfolio
Appendix IX: Credit rating analysis of debt portfolio Policyholder funds Total shareholder, Non- non-profit and supported At 30 June 2018 supported with- with-profits Total £m profits funds Unit linked Policyholder Total assets AAA 2,010 1,549 617 2,166 4,176 AA 4,741 6,768 1,034 7,802 12,543 A 3,50
Slide 44: Appendix X: Current corporate structure
Appendix X: Current corporate structure £900m undrawn Unsecured Revolving £428m Tier 2 Bond (2025) Credit Facility £450m Tier 3 Bond (2022) £600m undrawn Acquisition Credit Phoenix Group Facility Holdings(1) US$500m Tier 2 Bond (2027) £122m Senior Bond (2021) £500m Restricted Tier 1 Bond (2028) Inte
Slide 45: Appendix XI: Outline of current debt structure
Appendix XI: Outline of current debt structure Structure of £2,085 million of outstanding debt as at 30 June 2018 Instrument Issuer/borrower Maturity Drawn amount /Face value £900m unsecured Revolving Credit Facility (L+110bps)(1) Phoenix Group Holdings June 2021 - (1) Bank Debt -- £600m acquisition
Slide 46: Appendix XII: Leadership team changes
Appendix XII: Leadership team changes • Nicholas Lyons - Chairman Phoenix Group • Barry O’Dwyer - Standard Life Aberdeen representative Holdings Board • Campbell Fleming - Standard Life Aberdeen representative • Susan McInnes - CEO of Standard Life Assurance and Group Director, Open Business Executi
Slide 47: Appendix XIII: Combined group FY2017 sensitivities
Appendix XIII: Combined group FY2017 sensitivities Solvency II surplus: Cash generation: Scenario(1) £2.5 billion as at FY17 £3.5 billion between 2018-22 Longevity increase(2) £(0.5) billion impact £(0.5) billion impact Credit spread widening(3) £(0.2) billion impact £(0.2) billion impact Interest r
Slide 48: 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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