Standard Life Plc · LSE:SDLF
Standard Life — Phoenix Group Holdings — H1 2019 Earnings Presentation
56 slides from Standard Life's earnings presentation, Aug 7, 2019
Slide 1: A Sustainable Phoenix: Interim Results 2019
Cash Resilience Growth A Sustainable Phoenix Interim Results 2019 7 August 2019 1
Slide 2: Clive Bannister, Group Chief Executive
Clive Bannister Group Chief Executive 2
Slide 3: Strong results across all Key Performance Indicators
Strong results across all Key Performance Indicators PGH PGH SOLVENCY II SHAREHOLDER CASH GENERATION SURPLUS(†) CAPITAL COVERAGE RATIO(†) £287m £3.0bn 160% DIVIDEND PER IFRS OPERATING SHARE PROFIT 23.4p £325m (†) Estimated HY19 Solvency II capital position assumes a dynamic recalculation of transiti
Slide 4: Phoenix is delivering on its 2019 strategic priorities
Phoenix is delivering on its 2019 strategic priorities • Expect to be towards the upper end of the 2019 cash generation Financial targets target of £600 - £700 million • Maintained strong solvency position and investment grade rating • On track to deliver £1.2 billion total synergy targets Transit
Slide 5: Stable and sustainable dividend with corporate transactions the trigger for uplifts
Stable and sustainable dividend with corporate transactions the trigger for uplifts Dividend per share(1) Key messages 1 2011 16.1p 16.1p Dividend policy remains 27% DPS uplift due to equity raising and debt re-terming in Jan 2013 stable and sustainable 2012 16.1p 20.4p 2013 20.4p 20.4p 2 Dividend i
Slide 6: Jim McConville, Group Finance Director and Group Director, Scotland
Jim McConville Group Finance Director and Group Director, Scotland 6
Slide 7: Phoenix is delivering on its 2019 strategic priorities
Phoenix is delivering on its 2019 strategic priorities 1 FINANCIAL TARGETS 2 TRANSITION 3 NEW BUSINESS 4 CUSTOMER OUTCOMES 5 GROWTH 7
Slide 8: Financial highlights
Financial highlights Financial performance: HY19 HY18 Cash Cash generation £287m £349m Dividends Dividend per share 23.4p 22.6p(1) IFRS Operating profit before tax £325m £216m New business New business contribution(2) – UK Open and Europe £116m £100m(3) Financial position: HY19 FY18 PGH Solvency II
Slide 9: Phoenix is on track to meet its future cash generation targets
Phoenix is on track to meet its future cash generation targets Illustrative future cash generation Included in £12 billion cash generation: £12.0 billion guidance over life of business • Regular premiums on in-force policies • Vesting annuities £8.2bn £8.2bn • Management actions in 2019-23 £3.8 bill
Slide 10: Phoenix expects to be towards the upper end of the 2019 cash generation target range
Phoenix expects to be towards the upper end of the 2019 cash generation target range 2019 cash generation £600m- £700m target range £537m SLAL £179m £(250)m Phoenix Life £358m £287m Gross cash generation Brexit preparations Cash generation H2 2019 2019 target H1 2019 10
Slide 11: Cash generation more than supports the dividend and builds cash available for growth
Cash generation more than supports the dividend and builds cash available for growth through BPA and M&A Illustrative uses of cash from 2019-2023 £(0.5)bn £(0.6)bn £3.8bn £(1.7)bn £1.3bn £0.3bn FY18 holding Cash generation Operating and pension Debt interest Dividends over Illustrative holding compa
Slide 12: Resilience of cash generation increases confidence in our dividend
Resilience of cash generation increases confidence in our dividend Sensitivities for £3.8 billion 2019-2023 cash generation target(10) Impact on Operating & interest cash Uses of cash Dividend of £1.7bn costs of £1.1bn generation 2019-23 cash generation target £3.8bn Equities: 20% fall in markets £3
Slide 13: Beyond 2023, additional cash generation enhances dividend sustainability
Beyond 2023, additional cash generation enhances dividend sustainability Illustrative uses of cash from 2024 onward • 2024+ illustrative £(2.5)bn cash generation excludes management actions, new £8.2bn business and growth through BPA and M&A £7.0bn • £7.0 billion net cash generation beyond 2024+ is
Slide 14: Phoenix maintains a strong capital position with a £3.0bn Solvency II surplus
Phoenix maintains a strong capital position with a £3.0bn Solvency II surplus Estimated PGH Shareholder capital position “Shareholder value” per share 167% 160% Shareholder own funds £8.2bn Less: Tier 2 and Tier 3 debt £(2.0)bn Less: Restricted Tier 1 debt £(0.5)bn Surplus Surplus £3.0bn £3.2bn Unre
Slide 15: 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(†) 167% £(0.1)bn 160% £0.3bn £(0.2)bn £0.2bn £(0.2)bn £(0.2)bn £3.2bn £3.0bn Group surplus Surplus Management New business Brexit Financing Economic Group surplus as at FY18(4) emerging & actions
Slide 16: Management actions of £350 million include £115 million of SLAL capital synergies
Management actions of £350 million include £115 million of SLAL capital synergies Solvency impact of management actions HY19 management actions £110m Investment of annuity backing assets in illiquid asset classes £350m Expense reductions £240m Matching adjustment fund optimisation Own funds SC
Slide 17: Illiquid asset strategy is a key management action and supports BPA
Illiquid asset strategy is a key management action and supports BPA Illiquid assets constitute 22% of £19 billion annuity portfolio HY19 Origination Illiquids portfolio by asset class Illiquids portfolio by credit as at HY19 rating as at HY19 c.£500m c.£80m 8% 7% Illiquid assets SII benefit 5% origi
Slide 18: Phoenix's capital position remains resilient to risk events
Phoenix’s capital position remains resilient to risk events (1) PGH Solvency II Shareholder Capital Coverage Ratio sensitivities(10) Impact on Solvency II Target range surplus HY19 Solvency II SCCR 160% £3.0bn Equities: 20% fall in markets 161% nil (11) Property: 15% fall in values 155% £(0.2)bn (12
Slide 19: Strong HY19 operating profit of £325 million
Strong HY19 operating profit of £325 million HY19 HY18 • Investment return variances are primarily UK Heritage £257m £214m driven by fair value losses UK Open £43m £6m on c.£2.8 billion of equity hedges following a rise in Europe £28m - equity markets during H1 2019 Service company £13m £8m Group co
Slide 20: Expected returns underpin strong Life operating profit
Expected returns underpin strong Life operating profit H1 2019 Life operating profit drivers Key messages £26m £(26)m £328m • Included within £40m management actions are the benefits from £264m £24m ongoing balance sheet reviews £257m • New business profits £192m primarily from BPA ` and vesting ann
Slide 21: Phoenix is delivering on its 2019 strategic priorities
Phoenix is delivering on its 2019 strategic priorities 1 FINANCIAL TARGETS 2 TRANSITION 3 NEW BUSINESS 4 CUSTOMER OUTCOMES 5 GROWTH 21
Slide 22: Phoenix has delivered 85% of its capital synergy target and 28% of its cost synergy target
Phoenix has delivered 85% of its capital synergy target and 28% of its cost synergy target in less than 1 year Delivered Target % of target in H1 2019 to date 1 Capital synergies (net of costs) £115m £615m £720m 85% 2 Cost synergies (per annum) £7m £21m £75m 28% 3 One-off cost synergies £13m £17
Slide 23: Phase 1 will be largely complete by the end of 2019
Phase 1 will be largely complete by the end of 2019 INTERNAL AUDIT Jun 19 • End state organisation structure implemented Key messages HR • Harmonised Annual Incentive Plan • Phase 1 will deliver the Jun 19 end state operating model communicated GROUP LEGAL for the Head Office functions Aug 19 • End
Slide 24: We are on track to deliver Phase 2 by the end of 2020
We are on track to deliver Phase 2 by the end of 2020 FINANCE & ACTUARIAL • Life Finance Director and Chief Actuary Key messages Jun 19 appointed INTERNAL MODEL HARMONISATION Dec 19 • Internal model pre-application submitted to • Phase 2 covers the finance the PRA and actuarial functions FINANCE & A
Slide 25: Phase 3 will deliver a hybrid customer and technology operating model
Phase 3 will deliver a hybrid customer and technology operating model Design principles Support the growth of our Open business Modernise our IT platform to respond to an evolving market Enhance customer service and deliver digital proposition Strengthen our platform for future acquisitions
Slide 26: Phoenix is delivering on its 2019 strategic priorities
Phoenix is delivering on its 2019 strategic priorities 1 FINANCIAL TARGETS 2 TRANSITION 3 NEW BUSINESS 4 CUSTOMER OUTCOMES 5 GROWTH 26
Slide 27: H1 2019 new business increases long-term cash generation by £250 million
H1 2019 new business increases long-term cash generation by £250 million and brings sustainability to Phoenix HY19 HY18 Total pro UK Heritage UK Open Europe Total forma(3) Long-term cash generation £90m £145m £15m £250m £303m Gross inflows (on new business) £0.5bn £3.1bn £0.4bn £4.0bn £5.1bn Capital
Slide 28: H1 2019 BPA increases long-term cash generation by £90 million
H1 2019 BPA increases long-term cash generation by £90 million HY19 HY18 UK Heritage Total Total Premium £460m £470m Day 1 capital allocation £32m £62m Long-term organic cash generation £90m £140m BPA strategy H1 2019 activity • Allocate c.£100 million of surplus capital per • Market remains buoyant
Slide 29: UK Open and Europe new business increases long-term cash generation by £160 million
UK Open and Europe new business increases long-term cash generation by £160 million HY19 HY18 Total pro UK Open Europe Total forma(3) Gross inflows (on new business) £3,116m £386m £3,502m £4,609m New business contribution(2) £112m £4m £116m £100m Long-term cash generation £145m £15m £160m £163m UK O
Slide 30: Clive Bannister, Group Chief Executive
Clive Bannister Group Chief Executive 30
Slide 31: Phoenix is delivering on its 2019 strategic priorities
Phoenix is delivering on its 2019 strategic priorities 1 FINANCIAL TARGETS 2 TRANSITION 3 NEW BUSINESS 4 CUSTOMER OUTCOMES 5 GROWTH 31
Slide 32: Improving customer outcomes continues to be central to our mission
Improving customer outcomes continues to be central to our mission We continue on our digital journey… …and are progressing customer initiatives Further 1.2 million Phoenix Life Master trust approval received for two customers given access to “My Standard Life schemes, with over 240k Phoenix”, takin
Slide 33: We are meeting or exceeding all of our customer service metrics
We are meeting or exceeding all of our customer service metrics Group customer service metrics HY19 FY19 target Phoenix Life customer satisfaction 94% ≥90% Servicing complaint closure within 3 days 58% ≥50% Servicing complaints 0.5% <0.6% (as a percentage of customer transactions) FOS overturn rate
Slide 34: Phoenix is delivering on its 2019 strategic priorities
Phoenix is delivering on its 2019 strategic priorities 1 FINANCIAL TARGETS 2 TRANSITION 3 NEW BUSINESS 4 CUSTOMER OUTCOMES 5 GROWTH 34
Slide 35: Growth opportunities bring sustainability to cash generation
Growth opportunities bring sustainability to cash generation • Future M&A and Bulk M&A and Purchase Annuities will BPA increase long-term cash M&A and BPA generation • Track record of delivering Management Actions Management incremental cash generation Actions through management Cash generation acti
Slide 36: There remains a wealth of M&A opportunities and we are ready to engage
There remains a wealth of M&A opportunities and we are ready to engage Market size of c.£580 billion Phoenix’s competitive advantages 5% 15% Scale as the largest life and pensions consolidator in Europe 37% 28% With-profit 54% Able to deliver complex separations and business transitions 31% 67%
Slide 37: We are building a more sustainable Phoenix
We are building a more sustainable Phoenix CASH RESILIENCE GROWTH £12 billion of future New business brings cash generation from in-force business £3.0 billion SII surplus; 160% shareholder ratio sustainability to cash generation Expect to be towards Hedging provides £1.0 billion funding the
Slide 38: Dates for your diary
Dates for your diary 15 August 2019 Ex-dividend for 2019 interim dividend c 16 August 2019 Record date for 2019 interim dividend v 30 September 2019 Payment of 2019 interim dividend c 28 November 2019 Capital Markets Day v 9 March 2020 Full Year Results 2019 38
Slide 39: Q&A
Q&A 39
Slide 40: Appendices
Appendices I Leverage ratio IX UK Heritage business operating profit drivers II Movement in assets under administration X UK Open and Europe businesses III UK Open – movement in AUA by product operating profit drivers type XI Asset mix of life companies IV Movements in holding company cash and cash
Slide 41: Appendix I: Leverage ratio
Appendix I: Leverage ratio Fitch leverage ratio(1) HY19 leverage ratios 36 Fitch basis(1) 23% 33 IFRS basis(2) 33% 30 29% • IFRS leverage ratio classifies RT1 as debt 27% Fitch target 27 range: 25-30% Funding capacity 24 23% • Our funding capacity is driven by a combination of own cash, leverage cap
Slide 42: Appendix II: Movement in assets under administration
Appendix II: Movement in assets under administration £20.4bn £244.7bn £8.6bn £2.2bn £0.8bn £(1.0)bn £24.9bn £7.7bn £4.8bn £(4.0)bn £226.3bn £3.0bn £(5.6)bn £10.5bn £22.9bn £(10.6)bn Net flows £93.1bn UK Heritage £(2.6)bn £84.6bn UK Open £0.8bn Europe £(0.2)bn £126.7bn £118.8bn Opening AUA Gross infl
Slide 43: Appendix III: UK Open – movement in AUA by product type
Appendix III: UK Open – movement in AUA by product type Workplace Retail Wrap FY18 AUA £37.5bn FY18 AUA £24.2bn FY18 AUA £22.9bn Gross inflows Gross inflows Gross inflows £0.8bn £0.9bn £1.4bn - new - new - new Gross inflows Gross inflows Gross inflows £1.5bn £0.1bn £0.1bn - existing - existing - exi
Slide 44: Appendix IV: Movements in holding company cash and cash equivalents
Appendix IV: Movements in holding company cash and cash equivalents £m HY19 HY18 FY18 Non-recurring cash outflows Opening cash and cash equivalents 346 535 535 include: • £4 million external transition Total cash receipts 287 349 664 costs; • £27 million of recharged Uses of cash staff costs and Gro
Slide 45: Appendix V: Change in life company free surplus
Appendix V: Change in life company free surplus Change in life company free surplus in HY19(1) £0.2bn £(0.3)bn £0.3bn £(0.3)bn £(0.3)bn £1.0bn £0.9bn £0.6bn Opening Surplus Management Brexit Economic, Free surplus Cash Closing free surplus generation and actions preparations financing before cash re
Slide 46: 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) 146% 139% 167% 160% Surplus Surplus Surplus Surplus £3.0bn £3.2bn £3.2bn £3.0bn £10.3bn £10.8bn £8.0bn £8.2bn £7.1bn £7.8bn £4.8bn £5.2bn FY18 HY19 FY18 HY19
Slide 47: Appendix VII: Estimated SCR by risk type and PGH own funds tiering
Appendix VII: Estimated SCR by risk type and PGH own funds tiering Estimated HY19 SCR by risk type(1) HY19 PGH own funds by capital tier(2) Phoenix Internal SLAL Internal £10.8bn 6% of SCR Risk type Model Model Longevity 27% 17% 19% of SCR £7.8bn 114% of SCR Credit 16% 13% Persistency 11% 26% Intere
Slide 48: Appendix VIII: Regulatory Coverage Ratio sensitivities
Appendix VIII: Regulatory Coverage Ratio sensitivities PGH Solvency II Regulatory Coverage Ratio sensitivities(1) PGH SII surplus HY19 Solvency II 139% £3.0bn Equities: 20% fall in markets 140% £3.0bn (2) Property: 15% fall in values 137% £2.8bn (3) Rates: 60bps rise in interest rates 142% £3.0bn (3
Slide 49: Appendix IX: UK Heritage business operating profit drivers
Appendix IX: UK Heritage business operating profit drivers HY19 HY18 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 o
Slide 50: Appendix X: UK Open and Europe businesses operating profit drivers
Appendix X: UK Open and Europe businesses operating profit drivers HY19 HY18 Reported Expected Reported Expected operating AUA return operating AUA return profit margin(1) profit margin Business segment How profits are generated £m £bn bps £m £bn bps Margin earned on unit linked UK Open 43 93.1 21 6
Slide 51: Appendix XI: Asset mix of life companies
Appendix XI: Asset mix of life companies Policyholder funds(3) Total shareholder, non-profit and Non- Total Total assets(1) supported with- supported Unit-linked policyholder At 30 June 2019 profits(2) with-profits £m funds Cash deposits 5,052 5,312 6,196 11,508 16,560 Debt securities Debt securitie
Slide 52: Appendix XII: Corporate structure as at 30 June 2019
Appendix XII: Corporate structure as at 30 June 2019 €500m Tier 2 bond (2029) £428m Tier 2 bond (2025) £1,250m undrawn Phoenix Group £450m Tier 3 bond (2022) unsecured Revolving Credit Facility Holdings plc £500m Restricted Tier 1 bond (2028) $500m Tier 2 bond (2027) £122m Senior bond (2021) Standar
Slide 53: Appendix XIII: Outline of current debt structure
Appendix XIII: Outline of current debt structure Structure of £2,530 million of outstanding debt as at 30 June 2019 Instrument Issuer / Borrower Maturity Drawn amount / Face value Bank Debt £1,250m unsecured Revolving Credit Facility (“RCF”) Phoenix Group Holdings plc June 2024 - Unsecured Senior bo
Slide 54: Appendix XIV: Client Service and Proposition Agreement
Appendix XIV: Client Service and Proposition Agreement • Underwriting • Distribution(1) Responsibility Responsibility • Administration • Marketing • Platform • Product provision • Advice CUSTOMERS • Mis-selling • Conduct Risks Risks • Persistency • Cost of distribution Joint Operating Forum provides
Slide 55: Appendix XV: Footnotes
Appendix XV: Footnotes (1) Dividends rebased to take into account bonus element of rights issue (2) “New business contribution” is the increase in Solvency II own funds arising from new business written in the period excluding risk margin and contract boundary restrictions and stated net of taxation
Slide 56: 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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