Standard Life Plc · LSE:SDLF
Standard Life — Phoenix Group Holdings — FY2009 Earnings Presentation
67 slides from Standard Life's earnings presentation, Mar 31, 2010
Slide 1: Full year results 2009
“The specialist closed life business” Full year results 2009 31 March 2010 0
Slide 2: Disclaimer
Disclaimer This presentation in relation to Phoenix Group Holdings and its subsidiaries (the “Group”) contains forward looking statements concerning future events. Those forward looking statements are based on the current information and assumptions of the Group’s management concerning known and unk
Slide 3: Agenda
Agenda 1. Introduction Ron Sandler, Chairman 2. Business review Jonathan Moss, Group Chief Executive 3. Financial review Simon Smith, Group Finance Director 4. Summary Jonathan Moss 5. Questions Appendices 2
Slide 4: Introduction
Introduction ► 2009 was an important year - Acquisition of the Pearl businesses - Associated recapitalisation and restructuring of debt obligations - Name change to Phoenix Group Holdings ► Simple business model – financially attractive and socially desirable – Natural consolidator of closed life fu
Slide 5: Business review
Business review Jonathan Moss
Slide 6: Phoenix Group – a simple business model
Phoenix Group – a simple business model Phoenix Group Dividends Outflows Inflows UK Holding Company Corporate costs Outflows P Pension i scheme h contributions t ib ti Debt service and amortisation Inflows Life companies Management Services Ignis Asset Management • 6.5m policyholders • £348m revenue
Slide 7: 2009 milestones
2009 milestones 9Acquisition and associated re-capitalisation of Pearl businesses 9Revised governance arrangements Corporate 9Secondary listing on LSE milestones 9Public and Insider Warrant exchange 9Agreement with Tier 1 noteholders 9IFRS financial statements 9Life company fund mergers 9GAO Comprom
Slide 8: Phoenix Group value build-up
Phoenix Group value build-up £246 £246m £377m MCEV of £1,827m Not included in MCEV (£13.81 per ((1)) share) MCEV at 31 Dec 09 VIF of Ignis VIF of Management Management Annuity new Total Group value (2) Services (2) actions business (1) Based on 132,285,855 shares in issue (pre-dilution), comprising
Slide 9: Financial review
Financial review Simon Smith
Slide 10: 2009 financial highlights
2009 financial highlights (£m) 2009 2008 Holding company cash inflows (1) 716 n.a Market Consistent Embedded Value (“MCEV”) ( MCEV ) 1 827 1,827 1,044 1 044 ((2)) Embedded value (“CEV”) 2,484 1,850 (2) IGD capital surplus (3) £1.2bn £0.7bn IFRS operating profit (1) 457 n.a Asset Management operating
Slide 11: Cash and capital
Cash and capital
Slide 12: Phoenix Group – a clear link from value to cash
Phoenix Group – a clear link from value to cash Phoenix Group UK Holding Company Corporate costs Pension scheme contributions Debt service and amortisation Cash inflows of £716m in 2009. £2.7bn targeted in the next 5 years Life companies Management Services Ignis Asset Management £660m £35m £21m 11
Slide 13: Cash generation
Cash generation UK holding company cashflow (£m) FY09 9M09 HY09 ► Management actions Sources of cash increased holding Cash inflows from life companies 660 473 219 company cash inflows by Cash inflows from Ignis 21 9 8 £275m in 2009 – remainder i d off £500 £500m Cash inflows from Management Service
Slide 14: 10 year cash generation target
10 year cash generation target ► £2.7bn of holding company cash inflows targeted in next 5 years. £4.3bn in next 10 years ► No management actions assumed beyond 2011 ► Cash inflows stated before: - Recurring corporate costs - Recurring pension contributions - Interest on bank debt - Coupon on Tier 1
Slide 15: Cash management scorecard
Cash management scorecard Cash generation Holding company cash inflows (2009) £716m Annual target (excl. management £400 - 500m actions) Bank debt facilities ► Bank facilities At 31 Dec 09 £2,760m - Amortising: £1,700m Annualised interest on bank debt £102m - Non-amortising: £1,060m Tier 1 coupon (1
Slide 16: Update on management actions
Update on management actions Embedded value Cashflow acceleration £145m £225m in 2010 in 2010 £25m £25m £30m £155m in £160m 2009 £275m £75m in 2009 Fund Back book Tax Outsourcer and Target £115m restructuring management optimisation cost synergies management (service Fund restructuring Back book man
Slide 17: IGD capital surplus
IGD capital surplus Estimated Group Capital Surplus at 31 December 2009 ► IGD surplus represents Surplus 132% coverage off (£m) Surplus net of WPICC(1) regulatory requirements Group Capital Resources 5.0 2.3 Group Capital Resources Requirement (3.8) (1.1) ► Net of £2.7 billion WPICC, IGD capital it
Slide 18: IFRS results
IFRS results
Slide 19: Group operating profit - IFRS
Group operating profit - IFRS Pro forma for year to 31 December 2009 Phoenix Life 469 ► Successful conversion from UK GAAP to IFRS Ignis Asset Management 34 - Audited IFRS results published today Corporate costs (46) - No material impact on results Pro forma operating profit before tax 457 of conver
Slide 20: Operating profit analysis
Operating profit analysis 4 months Pro forma 2009 (£m) to 31 Dec 12 months Phoenix Life operating profit ► WP operating ti profit fit reflects fl t impact of lower terminal bonuses in 2009 With profit (WP) 20 With profit where internal capital ► NP and UL includes margin 30 emergence and return on s
Slide 21: Embedded value
Embedded value
Slide 22: MCEV development in 2009
MCEV development in 2009 ► £783m increase in MCEV during the year (£m) 2,000 Acquisition related movements 382 78 1,500 44 73 41 491 1,000 £1,044m £1,827m £1,445m 500 0 P ro fo rma M CEV at Gain o n debt Reductio n in value o f A cquisitio n related A dditio nal cash Redemptio n o f P ro fo rma M CE
Slide 23: MCEV development in 2009
MCEV development in 2009 (£m) (£m) 41 169 72 2,000 74 504 48 95 22 187 258 1,500 Narrowing credit spreads d on corporate t bonds. Favourable equity and yield movements 1,000 Includes £142m Includes £130m from £1,827m , £1,445m pre-restructuring managementt actions ti interest and and £73m of longevi
Slide 24: Ignis Asset Management
Ignis Asset Management
Slide 25: Ignis - Financial summary
Ignis - Financial summary Year to 31 December (£m) 2009 2008 ► Ignis is included in the Third party revenue 29 35 MCEV at IFRS net asset value of £39m Life fund revenue 81 78 Other income 1 3 ► Employs 530 staff in Glasgow and London Total revenues 111 116 Staff costs (49) (48) ► Investment out-perf
Slide 26: Ignis - AuM development
Ignis - AuM development (£bn) (4.6) 4.4 (1.5) 1.3 (0.9) £68.2bn £66.9bn 0 AuM at 31 Dec Life company Third party inflows Third party Market Transfer to Royal AuM at 31 Dec 2008 outflows outflows movements London 2009 ► Closing AuM includes Group pension scheme assets of £2.7bn ► £1.5bn transferred t
Slide 27: 2009 financial summary
2009 financial summary ► Strong cash generation Ӎ Holding company cash inflows of £716m – ahead of target ► MCEV growth to £1.8bn ► Strong IFRS operating profits of £457m (pro forma) ► Increase in IGD capital surplus by over £500m to £1.2bn ► On track to meet financial targets for 2010 26
Slide 28: Summary
Summary Jonathan Moss
Slide 29: Transparent sources of value creation
Transparent sources of value creation Value creation Maximise cash Acquisition led De risk De-risk Asset management through operational extraction from growth balance sheet opportunities improvements fund run-off • Financial a ca • Favourable synergies from • Sophisticated market fund mergers asset
Slide 30: 2010 milestones
2010 milestones Further fund mergers Phoenix Life Transfer of further operations to Wythall – single site by Q1 2011 Outsourcer transformation Solvency II programme Improve capability to maintain investment out-performance Ignis Life company fund range rationalisation, transfer to collec
Slide 31: Summary
Summary ► Holding company cash inflows (£716m) ahead of target Strong operating ► MCEV growth to £1 £1.8bn 8bn performance in 2009 ► Increase in IGD capital surplus by over £500m to £1.2bn ► Market leader in closed life fund run-off ► Restructured asset management business Well positioned for the fu
Slide 32: “The specialist closed life business”
“The specialist closed life business” 31
Slide 33: Appendix 1 – IFRS
Appendix 1 – IFRS
Slide 34: Reconciliation of operating profit to profit after tax
Reconciliation of operating profit to profit after tax 4 months to 31 Dec 09 (£m) ► Investment variances and economic changes largely reflects impact of narrowing credit Operating profit before tax 282 spreads, stronger performance on hedge funds and property returns Investment return variances and
Slide 35: IFRS shareholders’ funds
IFRS shareholders’ funds (£m) ► Balance sheet of Pearl businesses 1,500 40 strengthened by some £1bn 17 4 51 1,250 ► Bank debt restructured reducing external debt by over £500m 202 1,,000 493 750 £ 1,4 12 m 41 500 £573m 250 0 Net assets Shares FV o f net FV o f shares Co nversio n Earnings in M o ve
Slide 36: Acquisition balance sheet
Acquisition balance sheet Carrying Fair value Fair (£m) value adjustments value ► £2.2bn of acquired VIF recognised Total assets 76,604 888 77,492 on acquisition Total liabilities 76,389 (12) 76,377 ► Non-controlling N t lli iinterests t t representt value of UKCPT and Perpetual (1) Net assets 1,115
Slide 37: Appendix 2 – Embedded value information
Appendix 2 – Embedded value information
Slide 38: Reconciliation of MCEV to previously published embedded value
Reconciliation of MCEV to previously published embedded value ► Adjustments to 2008 EV reflect pro forma and methodology changes for the enlarged Phoenix Group ► Embedded value of covered business is based on market consistent methodology ► Methodology changes to align more closely with CFO Forum pr
Slide 39: MCEV at 31 December 2009
MCEV at 31 December 2009 Components of MCEV ► Net worth of covered business (£2,234m) MCEV consists of £1,826m of Net Cost of at 31 required capital and ((£m)) PVFP (1) TVOG (2) Worth capital Dec £408 off ffree surplus £408m l 2009 Covered business 2,234 2,864 (97) (270) 4,731 Ignis 39 - - - 39 Mana
Slide 40: Expected emergence of PVFP into free surplus
Expected emergence of PVFP into free surplus ► Present value of future profits (“PVFP”) of covered business of £2,864m at 31 December 2009 (excludes Ignis and Management Services) (£m) 1-5 years 6-10 years 11-15 years 16-20 years 20+ years 2009 Total PVFP 975 767 508 305 309 2,864 39
Slide 41: MCEV methodology
MCEV methodology ► MCEV covers all long term insurance business written by the Group (“covered business”) – Includes Opal Re – Excludes Ignis and Management Services ► Methodology in accordance with MCEV principles published by the CFO Forum except for: - Risk free rates are defined as the annually
Slide 42: MCEV sensitivities
MCEV sensitivities 2009 MCEV of covered business (£m) Base 4,731 1% decrease in risk-free risk free rates 135 1% increase in risk-free rates (167) 10% decrease in equity/ property market values (156) 100bps increase in credit spreads* (365) 25% increase in equity/ property implied volatilities (19)
Slide 43: Group MCEV earnings
Group MCEV earnings Pro forma for year to 31 December 2009 (£m) ► Strong embedded value Life MCEV operating earnings 380 performance in challenging markets Management Services IFRS operating profit 14 Asset Management IFRS operating profit 34 ► 2009 pro forma MCEV operating earnings of £269m Corpora
Slide 44: Appendix 3 – IGD and solvency
Appendix 3 – IGD and solvency
Slide 45: IGD capital surplus movement
IGD capital surplus movement 132% £0.1bn £0.2bn ► Estimated IGD surplus remained robust at £0.4bn £1.2bn ► Increase of over £500m on 1 Jan 09 position £1.2bn £0.7bn IGD surplus l 1 JJan 09(1) Capital C it l iinjection j ti att acquisition i iti b by C it l generation(2) Capital ti (2) Fi Financing i
Slide 46: IGD sensitivity analysis
IGD sensitivity analysis ► We stress test IGD surplus against a number of financial and non-financial scenarios to ensure we remain in excess of 125% coverage in all reasonably foreseeable circumstances ► Under the most onerous combined stress scenario, the IGD surplus is expected to be £1,135m whic
Slide 47: Life company solvency (Pillar 1)
Life company solvency (Pillar 1) Phoenix and Pearl Phoenix Life London 31 December 2009 (£m) Assurance London Life NPI Ltd Assurance Capital resources 1,820 288 111 3,930 885 Capital resources requirement 969 79 58 3,186 388 Excess 851 209 53 744 497 Notes (1) Represents Pillar 1 solvency position (
Slide 48: Appendix 4 – Ignis and Management Services
Appendix 4 – Ignis and Management Services
Slide 49: Ignis – AuM by client type
Ignis – AuM by client type AuM at 31 December (£bn) 2009 2008 Life funds 60.1 61.0 Group pension schemes 2.7 2.5 Institutional (1) (2) 1.6 2.5 International 05 0.5 04 0.4 Retail 2.0 1.7 Total AuM (£bn) 66.9 68.2 (1) Includes Liquidity Fund assets (2) Transfer of £1.5bn to Royal London happened in H1
Slide 50: Ignis - Third party new business flows
Ignis - Third party new business flows Year to 31 December (£m) 2009 2008 Gross flows Retail 681 465 Institutional 226 254 International 160 172 Total 1,067 891 Net flows Retail 122 (118) Institutional 21 76 International 6 (83) Liquidity funds (1) 255 68 Total 404 (57) (1) Due to large flows for Li
Slide 51: Management services
Management services ► Included in MCEV at IFRS net asset value Pro forma year to 31 December 2009 (£m) of £56m ► Provide administration to life companies Total revenues 348 - Fixed price per policy (except unit BAU outsourcer costs (175) linked policies which are charged as a percentage of AuM) Othe
Slide 52: Appendix 5 – Life companies’ asset portfolio
Appendix 5 – Life companies’ asset portfolio
Slide 53: Asset mix of life companies at 30 Jun 09
Asset mix of life companies at 30 June 09 Policyholder funds(1) At 30 June 2009 Shareholder funds(2) Participating(3) Unit-linked Total Cash deposits £2,726m 24% £5,024m £891m £8,641m Debt securities-gilts £2,219m 19% £11,448m £804m £14,471m Debt securities-bonds £4,636m 41% £14,449m £547m £19,632m
Slide 54: Asset mix of life companies at 31 Dec 09
Asset mix of life companies at 31 Dec 09 Policyholder funds(1) At 31 December 2009 Shareholder funds(2) Participating(3) Unit-linked Total Cash deposits £2,497m 21% £4,237m £962m £7,696m Debt securities-gilts £2,624m 22% £13,711m £996m £17,331m Debt securities-bonds £5,474m 45% £12,977m £788m £19,23
Slide 55: Shareholder exposures: Debt securities
Shareholder exposures: Debt securities At 31 December 2009 Shareholder funds Shareholder debt securities by rating (£8,098m) Gilts £2,624m 32% Non-rated BB and below 7 5% 7.5% Other government and supranationals £1,345m 17% 2.8% Corporate – financial institutions £1,068m 13% BBB 9.9% Gilts, other Co
Slide 56: Debt securities: Shareholder exposure to financial institutions
Debt securities: Shareholder exposure to financial institutions Debt securities: Financial institutions (£1,068m) ► Approx. 60% of total shareholder exposure to financial institutions relates Tier 1 - UK to subordinated instruments banks 10.2% Tier 1 - Non- ► Tier 1 exposure to UK banks includes: UK
Slide 57: Debt securities: Shareholder exposure to sovereign debt
Debt securities: Shareholder exposure to sovereign debt Other government & supranationals (£1,345m) ► Total exposure to Greece, Ireland, Italy and Spain represents 6.3% of total Other exposure 14.2% ► No exposure to Dubai, Portugal or Germany Iceland 38.0% European Investment Bank 25.1% US 1.5% Fran
Slide 58: Bond portfolio backing annuity liabilities
Bond portfolio backing annuity liabilities Breakdown of bond portfolio backing annuities (UK and offshore annuity companies) By credit rating (£6,425m) By sector (£6,425m) Non-rated BB and below 3.7% Retail/ Other 2.1% Consumer 7.5% BBB 5.6% 12 8% 12.8% Gilts, other Other government & financials Gil
Slide 59: Credit risk allowance in annuity reserves
Credit risk allowance in annuity reserves ► Phoenix Pensions Ltd (“PPL”) holds £2.2bn of c.£3.5bn of corporate bonds in total which are used to back annuity in payment liabilities ► PPL – aggregate allowance for credit defaults of £220m - Represents IFRS / Pillar 1 assumptions ► Represents 41% of th
Slide 60: Appendix 6 – Additional information
Appendix 6 – Additional information
Slide 61: Update on discussions with Tier 1 noteholders
Update on discussions with Tier 1 noteholders ► Agreed proposal with the Ad Hoc Committee representing a substantial proportion of the noteholders ► 15% reduction in face amount of the Tier 1 notes ► 2009 coupon to be paid by end-2010 ► 2010 coupon to be paid following successful vote ► Dividend sto
Slide 62: Life company liability mix
Life company liability mix Policyholder liabilities at 31 Dec 09 Life company With profits (%) Unit linked (%) Other non-profit (%) Total (£m) London Life 48 17 35 1 895 1,895 National Provident Life 51 24 25 7,268 NPI 5 68 27 4,177 Pearl Assurance 70 - 30 9,984 Phoenix Life 47 24 29 33,678 Phoenix
Slide 63: Defined benefit pension schemes
Defined benefit pension schemes ► 2 main defined benefit schemes ► Pearl Pension Scheme - Entered E t d into i t an agreementt with ith th the ttrustees t iin S September t b 2009 - £50m contribution made in September 2009 - Contributions of £25m per annum from September 2010 - Reported deficit (IAS
Slide 64: Bank credit facilities
Bank credit facilities £m Margin(1) Maturity Repayment £25m p.a. 2011-2015 Bank facility 425.0(2) L+125bps cash 2016 Balance in 2016 Lender Loan Notes 75.0 L+100bps cash or PIK 2024 Non-amortising Total Pearl bank debt 500.0 L+100bps cash £125m p.a. from 2011 Facility A 1,275.0 2014 + 100bps cash or
Slide 65: Capitalisation table
Capitalisation table At 31 March 2010 Number Shares in issue Ordinary shares 80,430,732 Class B shares 51,855,123 132,285,855 Ordinary share warrants P bli warrants Public t 8 169 868 8,169,868 Class B Share Warrants Lenders 5,000,000 Royal y London 12,360,000 , , 17,360,000 Contingent rights over s
Slide 66: Outstanding dilutive instruments
Outstanding dilutive instruments Ordinary share • 8.2m warrants convertible into ordinary shares; exercise price of €11.0 per share • At exercise, additional €90m will be added to embedded value warrants • Phoenix Group Holdings has option to redeem warrants if share price is at or above €16.50 for
Slide 67: Summary of corporate structure
Summary of corporate structure Phoenix Group Holdings 100% Royal O l Re Opal R London £425m Bank Holding £100m P-I-K Holding Companies s Companies £75m Bank s 50% 50% £2,260m Phoenix Life Holdings Ltd 100% Pearl Group Holdings (No.2) Ltd 100% 75% 25% Life Companies Service Co (PGS) Impala 100% Servi
Phoenix Group Holdings — FY2009 Earnings Presentation on 6ix