Standard Life Plc · LSE:SDLF
Standard Life — Phoenix Group Holdings — Debt Investor Presentation (April 2015)
46 slides from Standard Life's debt investor presentation, Apr 2, 2015
Slide 1: Phoenix Group Debt Investor Update
Phoenix Group Debt Investor Update 2 April 2015
Slide 2: Agenda
Agenda Pages Introduction Jim McConville │ Group Finance Director 3-8 Phoenix business model Jim McConville │ Group Finance Director 9-14 Credit story Rashmin Shah │ Group Treasurer 15-25 The future Jim McConville │ Group Finance Director 26-32 2
Slide 3: Introduction
Introduction Jim McConville
Slide 4: Introduction to the Phoenix Group
Introduction to the Phoenix Group PHOENIX GROUP • Specialist insurance group • FTSE 250 and STOXX Europe 600 indices focused on closed life • Market cap £1.9 billion(1) consolidation and run-off Phoenix • Enhanced economic value Life from closed life portfolios • 5 million policyholders • 3 UK life
Slide 5: Phoenix Group has come a long way
Phoenix Group has come a long way Private equity Early • Pearl and Resolution I undertake a series of closed life acquisitions mid/00s 2008 • Pearl acquires Resolution I 2009 • Acquisition by Liberty and public listing 2010 • Simplified capital structure and Premium Listing on LSE 2011/ 2012 • New m
Slide 6: Target-beating financial performance in 2014
Target-beating financial performance in 2014 Delivery Target Exceeded the top end of the target range for £500m 2014 Cash £567m to £550m generation in 2014(1) On track to meet long term cash generation target of £2.8 billion between 2014-19 £261m of incremental value delivered through MCEV £26
Slide 7: Building on our track record of management actions
We will build on our strong track record of management actions as we move to Solvency II Incremental MCEV Accelerated cashflow Total £359m Total £296m £1.2bn £332m £1.6bn £261m £275m £242m £209m £165m £167m £170m £180m £155m 2009 2010 2011 2012 2013 2014 2009 2010 2011 2012 2013 2014 • National Prov
Slide 8: MCEV enhancement and debt reduction have resulted in a much stronger balance sheet
MCEV enhancement and debt reduction have resulted in a much stronger balance sheet MCEV vs Total Shareholder Debt (£bn)(1) 3.5 3.3 3.1 2.9 2.6 2.4 2.3 2.1 2.1 2.1 1.8 1.7 FY09 FY10 FY11 FY12 FY13 FY14 MCEV Total shareholder debt Gearing (%) 63% 58% 57% 55% 44% 34% Notes (1) IFRS carrying value of to
Slide 9: Phoenix business model
Phoenix business model Jim McConville
Slide 10: Phoenix is the solution for legacy book management
Phoenix is the solution for legacy book management Phoenix’s key advantages 2015 and beyond Ability to manage wide range of products gives P Size and scale across all product types significant economies in an acquisition environment Operating structure designed purely for closed life P Specialist op
Slide 11: We manage a wide range of legacy products
We manage a wide range of legacy products Policy number by product type • Full range of complexity of product structure 3% 2% 2% Pensions from simple savings through to income 8% 5% Endowments Whole of Life protection and pensions drawdown products 14% 36% Annuities • Largest categories are Pensions
Slide 12: Effective and targeted operating model
Phoenix’s focus on legacy management starts with an effective and targeted operating model Life companies • Consolidation of multiple life companies with separate processes Company 1 • Focus on improving customer outcomes and service levels • Increasing regulation Company Company 2 3 “One” • Service
Slide 13: Ongoing focus on maximising operational efficiency
Ongoing focus on maximising operational efficiency Costs reductions track policy run-off Cumulative 2010 – 2011 2011 – 2012 2012 – 2013 2013 – 2014 since 2010 Policy run-off 6.9% 6.7% 10.4%(2) 8.5% 28.8% Costs(1) run-off 9.2% 7.2% 9.6% 9.8% 31.3% • Underpinned by outsourcer variable cost model • Enh
Slide 14: Management actions
Management actions RESTRUCTURING OPERATIONAL Incremental MCEV MANAGEMENT FY14 management actions Type £m PGL Pension Scheme longevity Restructuring 91 arrangements Actuarial Systems Transformation Operational 27 modelling improvements Improvements to modelling of credit Operational 22 defaults Use o
Slide 15: Credit story
Credit story Rashmin Shah
Slide 16: Phoenix Group key credit strengths
Phoenix Group key credit strengths Robust capital stable with low sensitivity to market movements actions Conservative investment portfolio backing shareholder funds Bondholder value creation Proactive balance sheet management Investment grade ratings ambitions for 2015 16
Slide 17: Capital management framework
Capital management framework Phoenix Group Holdings PLHL ICA calculation IGD • Pillar 2 assessment of capital resources and • Pillar 1 group capital calculation risks outside the life companies UK holding • Includes net assets of holding companies and • Aggregated view of group companies(1) free sur
Slide 18: £1.2bn IGD surplus; £0.7bn ICA surplus
£1.2 bn IGD surplus; £0.7bn ICA surplus IGD and sensitivities at FY14 (£bn) £1.3bn £1.2bn IGD surplus sensitivities (£bn)(1) £1.2bn £1.1bn IGD surplus at 31 December 2014 1.2 Following 20% fall in equity markets 1.2 IGD surplus Following 15% fall in property values 1.2 Following 75bps increase in no
Slide 19: Solvency II transition will be a key focus in 2015
Solvency II transition will be a key focus in 2015 • Ongoing clarification of key issues - Future timeline transitional provisions, matching adjustment and volatility balancer • On track for Internal Model Approval Process April 2015 Commitment Panel (IMAP) application in June • The Group expects to
Slide 20: Shareholder exposed assets primarily held in cash and debt securities
Shareholder exposed assets primarily held in cash and debt securities IFRS Group assets and liabilities at FY14 (£bn) Assets in shareholder funds and backing £69bn £69bn non-profit/supported with profit business £bn % Other assets , Cash 2.2 17% Equity/other 11 Debt 12.1 77% liabilities, 15 Collecti
Slide 21: Comprehensive refinancing of Phoenix's debt structure
Comprehensive refinancing of Phoenix’s debt structure Equity raise £250m equity raising and £450m debt repayment 2013 and debt re- terming Impala facility re-termed to June 2019 Ignis Proceeds used to repay £250m of Impala bank debt and reduce gearing divestment £300m senior Re-established o
Slide 22: Our sources of debt funding have been diversified
Our sources of debt funding have been diversified Breakdown of £3.0bn debt at FY12 Breakdown of £1.8bn debt at FY14 £3.0bn of £1.8bn of debt at FY12 debt at FY14 20% Subordinated debt 36% Subordinated 6% Senior debt 47% Senior PIK notes bank debt 73% Senior bank debt 17% Senior bond debt Note: Debt
Slide 23: Summary group structure: simplification of legacy senior debt
Summary group structure: simplification of legacy senior debt Phoenix Group Holdings New £900m unsecured bank facility Pearl senior Pearl silo bank debt and PGH Capital intermediate Impala PIK £300m senior PIK notes Impala silo holdcos notes and Limited bond intermediate Impala Key: Phoenix Life hol
Slide 24: Debt amortisation profile smoothed and extended
Debt amortisation profile smoothed and extended… Amortisation schedule as at 31 December 2012(1) (£m) Pearl PIK notes Impala PIK notes 425 Tier 2 bonds 1st call date Tier 1 bonds 1st call date 25 Pearl facility Impala facility 300 25 742 493 493 80 25 125 116 200 2013 2014 2015 2016 2017 2018 2019 2
Slide 25: Investment grade rating ambition for 2015
Investment grade rating ambition for 2015 Gearing ratios (%) Investment Grade process (1) Company Gearing Financial Leverage 1 63% 58% 57% Commenced discussions with rating 55% agencies 44% 39% 38% 2 34% Formal ratings process with one or more chosen agencies 3 2009 2010 2011 2012 2013 2014 2014 201
Slide 26: The future
The future Jim McConville
Slide 27: Financial targets support stable and sustainable dividend policy
Financial targets support stable and sustainable dividend policy • 2015 target of £200m to £250m given Solvency II transition and retention of capital in life companies in short Cash term generation • Cumulative target of £2.8 billion between 2014 and 2019 remains unchanged • £100m increase in 2014-
Slide 28: £200m-£250m cash target in a transitional Solvency II year
£200m-£250m cash target in a transitional Solvency II year – set within an unchanged longer term £2.8bn target Illustrative annual cash generation(1) 2014 – 2019 £2.8 billion target £957m £3.6bn £390m Ignis proceeds £180m £387m Target £200m to £250m 2014 2015 2016 2017 2018 2019 2020+ Organic cash g
Slide 29: Phoenix position on key regulatory and legislative challenges
Phoenix position on key regulatory and legislative challenges Annuities FCA thematic review Workplace pensions cap Review of customer communications 0.75% cap as charges for Compulsory annuitisation Industry scrapped from 6 April Exit charges qualifying schemes Further downward pressure
Slide 30: The UK life sector is evolving
The UK life sector is evolving • Annuity writers Niche Individual annuity Pension insurance Closed fund operators impacted by recent insurers providers companies reforms – Potential to result in “effective” closure for some Waterfront Open life insurers Mutuals providers • Back books could consolida
Slide 31: Potential opportunities of up to £340 billion
Potential opportunities of up to £340 billion are held by various types of owners across a range of product types Potential market opportunities by owner Potential market opportunities by product type 17% Bank owned life 26% companies 35% With profits UK life companies 59% Unit linked 15% 48% Non pr
Slide 32: Phoenix Group now repositioned for future growth
Phoenix Group now repositioned for future growth 2009 – 2014 2015 and beyond P Cumulative cash generation of £4.7bn • Stable and sustainable dividend policy P Incremental MCEV generated of £1.2bn supported by long-term cashflow target P Total debt repayments of £1.8bn • Enhanced financial flexibilit
Slide 33: Q&A
Q&A
Slide 34: Appendices
Appendices I Executive team VIII Total debt exposure by country II Outline of current debt structure IX Calculation of leverage ratios III Credit rating analysis of debt portfolio IV MCEV sensitivities V Cash generation sensitivities VI Maturity profile of business VII Asset mix of life companies
Slide 35: Appendix I: Chairman and Executive Committee
Appendix I: Chairman and Executive Committee • Sir Howard Davies was appointed Chairman of the Board of Directors of the Company on 1 October 2012. Howard is the Chair of the British Government's Airport Policy Review. He also is a Professor of Practice at the French School of Political Science in P
Slide 36: Appendix I: Executive Committee
Appendix I: Executive Committee • Andy Moss is the CEO for the Phoenix Life Division, having been appointed in May 2014. Andy Moss • Previously he was the Finance Director for Phoenix Life Division and a member of the Phoenix Management Board, heading Phoenix Life CEO a team of some 250 staff within
Slide 37: Appendix I: Executive Committee and selected management team
Appendix I: Executive Committee and selected management team • Steve Fawcett was appointed Group Human Resources Director in May 2014, subject to regulatory approval. Previously Steve Fawcett Steve was Deputy Group HR Director and Head of HR Strategic Change for the Group with responsibility for the
Slide 38: Appendix II: Outline of current debt structure
Appendix II: Outline of current debt structure Instrument Held by Face value £m Maturity Unsecured bank debt - Revolving credit facility PGH Capital Limited £450m July 2019 - Term loan PGH Capital Limited £390m July 2019 Unsecured senior bond PGH Capital Limited £300m July 2021 Subordinated notes PG
Slide 39: Appendix III: Credit rating analysis of debt portfolio
Appendix III: Credit rating analysis of debt portfolio Total shareholder, Policyholder funds(1) non-profit and Non-supported At 31 December 2014 supported with- with-profits Total £m profits(1) funds Unit-linked Policyholder Total assets(1) AAA 1,867 1,769 62 1,831 3,698 AA 5,238 10,130 775 10,905 1
Slide 40: Appendix IV: MCEV sensitivities
Appendix IV: MCEV sensitivities £m FY14 Base (MCEV of covered business) 2,856 1% decrease in risk-free rates 59 1% increase in risk-free rates (68) 10% decrease in equity market values (46) 10% increase in equity market values 46 10% decrease in property market values (46) 10% increase in property m
Slide 41: Appendix V: Cash generation sensitivities
Appendix V: Cash generation sensitivities Cash sensitivities(1) 1 Jan 2014-31 Dec 2019 Base case – 6 year target £2.8bn 20% fall in equity markets £2.7bn 15% fall in property values £2.8bn Following 75bps increase in nominal yields(2) £2.9bn Following 75bps decrease in nominal yields(2) £2.7bn Credi
Slide 42: Appendix VI: Maturity profile of business
Appendix VI: Maturity profile of business 1-5 6-10 11-15 16-20 20+ Total £m years years years years years MCEV present value of future profits 31 December 2014 859 556 387 250 186 2,238 31 December 2013 997 576 344 212 172 2,301 31 December 2012 1,058 596 369 231 196 2,450 31 December 2011 1,135 683
Slide 43: 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 31 Dec 2014 supported with- with-profits Unit Total Total £m unless otherwise stated profits(2) % funds linked Policyholder assets(1) Cash deposits 2,157 14 2,861 1,176 4,037 6,194 Debt
Slide 44: Appendix VIII: Total debt exposure by country
Appendix VIII: Total debt exposure by country Corporate: Sovereign Financial Corporate: Asset backed Total debt At 31 Dec 2014 and Supranational Institutions Other securities securities Total £m Shareholder Policyholder Shareholder Policyholder Shareholder Policyholder Shareholder Policyholder Share
Slide 45: Appendix IX: Calculation of leverage ratios
Appendix IX: Calculation of leverage ratios FY14 FY14 Metric (£m) Company Gearing(1) Financial Leverage(2) Unsecured bank debt – revolving credit facility 441 450 Unsecured bank debt – term loan 387 390 Unsecured senior bond 298 300 PLL subordinated debt (Upper Tier 2 instrument) 149 200 Perpetual R
Slide 46: 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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